<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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Notes:
<PAGE>
CATERPILLAR INC.
(INCORPORATED IN DELAWARE)
100 NE Adams Street
Peoria, Illinois 61629
NOTICE and PROXY STATEMENT
Annual Meeting of Stockholders
April 10, 1996
To Stockholders:
You are cordially invited to attend the annual meeting of stockholders of
Caterpillar Inc. (the "Company") to be held at the Loews Ventana Canyon Hotel,
7000 North Resort Drive, Tucson, Arizona, on Wednesday, April 10, 1996, at
10:30 a.m., for the following purposes:
1. To elect four directors comprising the class of directors of the Company
to be elected for a three-year term expiring in 1999;
2. To adopt the Caterpillar Inc. 1996 Stock Option and Long-Term Incentive
Plan;
3. To approve the action of the Board of Directors in appointing Price
Waterhouse LLP as independent auditors for 1996;
4. To act upon one stockholder proposal, if properly presented to the
meeting, which is set forth and described in the attached Proxy
Statement; and
5. To transact such other business as may properly be brought before the
meeting or any adjournment thereof.
The close of business on February 12, 1996, has been fixed as the record
date for determination of stockholders entitled to notice of, and to vote at,
the annual meeting or any adjournment thereof. The transfer books will not
close.
Please note that a ticket is required for admission to the Annual Meeting.
Attendance is limited to stockholders of record as of the record date or their
authorized proxy holder. Tickets may be obtained by sending a written request to
the Company Secretary. If your shares are held in the name of your broker, bank
or other nominee, you must include in your request evidence from your broker,
bank or other nominee indicating that you are the beneficial owner of a stated
number of shares of stock as of the record date.
By Order of the Board of Directors
R. RENNIE ATTERBURY III
Dated: March 1, 1996 Secretary
IMPORTANT
Please immediately review these proxy materials and sign and return your proxy
in the enclosed stamped, addressed envelope. If you attend the meeting you may,
if you desire, withdraw your proxy and vote in person. Please note that the
Company's audited financial statements and certain other financial information
are included as an Appendix to this Proxy Statement.
Thank you for acting promptly.
<PAGE>
TABLE OF CONTENTS
Page
Notice of Annual Meeting.............................................. Cover
Matters to be Brought Before the Meeting.............................. 1
Voting Rights......................................................... 2
Proposal 1 - Election of Directors.................................... 2
Nominees for Election as Directors for Terms Expiring in 1999..... 2
Directors Continuing in Office in the Class of 1997............... 4
Directors Continuing in Office in the Class of 1998............... 6
Board of Directors' Meetings and Committees........................... 7
Compensation of Directors............................................. 8
Equity Security Ownership of Management and Certain Other Beneficial
Owners.............................................................. 9
Report of the Compensation Committee on Executive Compensation........ 10
Performance Graph..................................................... 15
Compensation Committee Interlocks and Insider Participation........... 15
Executive Compensation................................................ 16
Pension Program....................................................... 18
Certain Relationships and Related Transactions........................ 19
Proposal 2 - Adopt Caterpillar Inc. 1996 Stock Option and Long-Term
Incentive Plan...................................................... 20
Proposal 3 - Approval of the Appointment of Independent Auditors...... 23
Proposal 4 - Stockholder Proposal..................................... 24
Filings Pursuant to Section 16 of the Securities Exchange Act of 1934. 25
Stockholder Proposals for the 1997 Annual Meeting..................... 26
Stockholder Nominations............................................... 26
Solicitation.......................................................... 26
Stockholder List...................................................... 26
Revocability of Proxy................................................. 26
Exhibit A - Caterpillar Inc. 1996 Stock Option and Long-Term Incentive
Plan................................................................ 27
Appendix - General and Financial Information - 1995................... A-1
i
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Caterpillar Inc.
100 NE Adams Street, Peoria, Illinois 61629 February 21, 1996
PROXY STATEMENT
This statement is being mailed on or about March 1, 1996, to all stockholders
of record at the close of business on February 12, 1996, the record date for the
determination of stockholders entitled to vote at the annual meeting of
stockholders of Caterpillar Inc. (the "Company") to be held on April 10, 1996.
This statement is furnished in connection with the solicitation by the Board of
Directors of proxies for the annual meeting and is accompanied by the Annual
Report of the Company for the year ended December 31, 1995, including certain
financial information.
MATTERS TO BE BROUGHT BEFORE THE MEETING
The Board intends to present to the meeting: (i) the election of four
directors comprising the class of directors of the Company to be elected for a
three-year term expiring in 1999 or until their successors have been elected and
qualified; (ii) a proposal to adopt the Caterpillar Inc. 1996 Stock Option and
Long-Term Incentive Plan; and (iii) a proposal to approve the appointment of
Price Waterhouse LLP as independent auditors for 1996. In addition, notice has
been given by a certain stockholder of its intention to present one proposal at
the meeting.
Shares can be voted only if the stockholder is present in person or by proxy.
Whether or not you plan to attend in person, you are encouraged to vote your
shares by signing and returning the enclosed proxy card. If you wish to give
your proxy to a person or persons other than those listed on the enclosed proxy
card, a signed proxy card, with the two names listed on the card crossed out and
replaced with the name or names of the other person or persons (but no more than
two), must be presented by you or your authorized proxy holder at the meeting
along with an admission ticket provided to the stockholder by the Company.
The representation in person or by proxy of at least one-third of the
outstanding shares entitled to vote is necessary to provide a quorum at the
meeting. Directors are elected by a plurality of the votes of the shares present
in person or represented by proxy at the meeting and entitled to vote on the
election of directors. In all matters other than the election of directors, a
majority of the shares represented at the meeting is required for approval.
Pursuant to the Company's bylaws and consistent with the laws of the State of
Delaware, abstentions and "non-votes" are counted as present in determining
whether the quorum requirement is satisfied. Abstentions and "non-votes" have
the same effect as votes against proposals presented to stockholders except with
respect to the election of directors.
In accordance with the Company's confidential voting policy, all proxies,
ballots and voting materials will be kept confidential except for the
independent third parties engaged to receive, tabulate and certify the votes. No
vote of any stockholder will be disclosed to the Company or its employees, or to
any third party, except (i) as may be required by law, (ii) as requested by a
particular stockholder, or (iii) in certain circumstances such as the event of a
contested election or initiation of other concerted action with respect to
voting at a stockholder meeting.
1
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The Board does not know of any other matter to be acted upon at the meeting.
If any other matter should come before the meeting, holders of the proxies
solicited hereby (the "proxy holders") will vote thereon in their discretion.
The Company's bylaws prescribe that matters may be brought before the meeting by
a stockholder only by giving advance written notice to the Company. For purposes
of the 1996 annual meeting, such notice regarding matters other than nominations
for director must be received by the Secretary at the Company address not later
than March 16, 1996.
VOTING RIGHTS
Only holders of common stock of record at the close of business on February
12, 1996, are entitled to vote at the 1996 annual meeting. Each share of stock
so held entitles the holder to one vote upon each matter to be voted upon. As of
February 12, 1996, there were 193,811,008 shares of common stock of the Company
(the "Common Stock") outstanding.
PROPOSAL 1-ELECTION OF DIRECTORS
The Board of Directors is classified into three classes whose terms are
staggered to expire in different years. The term of office of one class of
directors expires each year in rotation so that one class is elected at each
annual meeting of stockholders for a full three-year term. The terms of four of
the present directors are expiring at this annual meeting. Directors elected at
the annual meeting will hold office for a three-year term expiring in 1999 or
until their successors are elected and qualified. The other directors will
continue in office for the remainder of their terms.
If any nominee in this Proxy Statement should for any reason become
unavailable for election, the proxy holders will vote for such other nominee as
may be proposed by the Board of Directors or, alternatively, the Board of
Directors may reduce the number of directors to be elected at the meeting.
Information about the four nominees and other directors continuing in office
follows.
NOMINEES FOR ELECTION AS DIRECTORS FOR TERMS EXPIRING IN 1999
Principal Occupation and Other Information
W. FRANK BLOUNT, 57, Chief Executive Officer of Telstra Corporation Limited
since 1992. Prior to his appointment as Chief Executive Officer, Mr. Blount was
Group President of AT&T. He has held a wide variety of senior positions in the
Southern Bell Telephone Company (later Bell South) and AT&T. Mr. Blount also
served as president and CEO of the New American Schools Development Corporation
at the behest of former President George Bush. He has served as chairman of the
National Advisory Group for the National Technical Institute of the Deaf; Vice
Chairman of the National Advisory Board of Georgia Institute of Technology;
Executive Vice President of the A.G. Bell Association for the Deaf and a member
of the Board of Trustees of the Rochester Institute of Technology. Mr Blount is
a member of the Business Council of Australia and the Business Higher Education
Round Table. He currently serves as a director of First Union National Bank of
Georgia, Entergy Corporation and LXE Incorporated. Mr. Blount has been a
director of the Company since 1995.
[PHOTO APPEARS HERE]
2
<PAGE>
NOMINEES FOR ELECTION AS DIRECTORS FOR TERMS EXPIRING IN 1999 (cont.)
Principal Occupation and Other Information
[PHOTO APPEARS HERE]
JAMES P. GORTER, 66, Chairman of the Board of Baker, Fentress & Company. Mr.
Gorter joined Goldman, Sachs & Co. in 1956 and became a General Partner in 1965.
He served as a member of Goldman Sachs Management Committee from 1976 to 1988
and served as Co-Head of the Investment Banking Division and Managing Partner of
the Chicago office. He became a Limited Partner in 1988. He is a member of the
Advisory Council of the Kellogg School of Management at Northwestern University
and a Trustee of Lake Forest College. He is a director of Consolidated-Tomoka
Land Co. Mr. Gorter has been a director of the Company since 1990.
[PHOTO APPEARS HERE]
PETER A. MAGOWAN, 53, Chairman of Safeway Inc. and President and managing
general partner of the San Francisco Giants. During his 27 years at Safeway, his
responsibilities have included managing the company's international operations
in Canada, the United Kingdom, West Germany and Australia. He has been chairman
of Safeway since 1980 and served as Chief Executive Officer from January 1, 1990
to April 30, 1993. He is a former member of the Advisory Council of the School
of Advanced International Studies of Johns Hopkins University and is currently a
member of the Business Roundtable and a director of the National Chamber of
Commerce. In addition to his position at Safeway, Mr. Magowan serves as a
director of Chrysler Corporation and The Vons Companies. Mr. Magowan has been a
director of the Company since 1993.
[PHOTO APPEARS HERE]
CLAYTON K. YEUTTER, 65, Of Counsel to Hogan & Hartson, a Washington, D.C. law
firm. Mr. Yeutter served as Counselor for Domestic Affairs to President George
Bush in 1992. Mr. Yeutter was appointed chairman of the Republican National
Committee in 1991 after serving as Secretary of Agriculture from 1989. From 1985
to 1989, Mr. Yeutter served as U.S. Trade Representative. Prior to that, he was
President and Chief Executive Officer of the Chicago Mercantile Exchange since
1978. He was a senior partner of the law firm of Nelson, Harding, Yeutter &
Leonard in Lincoln, Nebraska during 1977-78. He served as Deputy Special Trade
Representative, Executive Office of the President from 1975 to 1977. Earlier,
Mr. Yeutter held several additional positions with the Department of
Agriculture and also spent several years as a faculty member of the Department
of Agricultural Economics at the University of Nebraska. Other directorships:
ConAgra, Texas Instruments Incorporated, Oppenheimer Funds, FMC, B.A.T.
Industries and Vigoro Corporation. Mr. Yeutter was a director of the Company
from June 1991 to February 1992 and he was reelected a director of the Company
in December 1992.
3
<PAGE>
DIRECTORS CONTINUING IN OFFICE IN THE CLASS OF 1997
Principal Occupation and Other Information
LILYAN H. AFFINITO, 64, retired in 1991 as Vice Chairman of Maxxam Group
Inc. (formerly Simplicity Pattern Co. Inc.). Ms. Affinito joined Simplicity
Pattern Co. Inc. in 1968, following a number of years with a national
accounting firm. She was elected President and Treasurer in 1976 and Vice
Chairman in 1987. She is a member of the Board of Directors of the Mayo
Foundation. Other directorships: Chrysler Corporation; Tambrands, Inc.; Jostens
Inc.; Kmart Corporation; Lillian Vernon Corporation; and New York Telephone
Company and New England Telephone and Telegraph Company (subsidiaries of Nynex
Corporation). Ms. Affinito has been a director of the Company since 1980.
[PHOTO APPEARS HERE]
DONALD V. FITES, 62, Chairman and chief executive officer of Caterpillar
Inc. Mr. Fites joined Caterpillar in 1956 and subsequently advanced through
various management positions in marketing, residing in Africa and Europe for
several years. In 1971, he was elected a director of Caterpillar Mitsubishi
with responsibilities for marketing and sales. In 1976, he was named manager of
Products Control Department in General Offices, and in 1979 became President of
Caterpillar Brasil S.A. He was elected a Vice President of Caterpillar Tractor
Co. in 1981, in charge of the Company's pricing, scheduling, product source
planning, products control and economic forecasting functions. In 1985 he was
elected as Executive Vice President, and effective June 1, 1989, was elected
President and chief operating officer. He was elected Chairman of the Board and
chief executive officer effective July 1, 1990. Mr. Fites is Chairman of the
U.S.-Japan Business Council and Vice Chairman of the Salvation Army National
Advisory Board. He is a director and past chairman of both the Equipment
Manufacturers Institute and the National Foreign Trade Council. He is a member
of the Business Council; the Advisory Committee for Trade Policy and
Negotiations; the Competitiveness Policy Council; the Business Roundtable
Policy Committee; the Society of Automotive Engineers; the Agricultural
Roundtable; and the Illinois Coalition. Mr. Fites is also a trustee of The
Methodist Medical Center of Illinois; Knox College; and the Farm Foundation.
Other directorships: First Chicago NBD Corporation; Georgia-Pacific
Corporation; Mobil Corporation; Valparaiso University; National Association of
Manufacturers; and Keep America Beautiful. Mr. Fites has been a director of the
Company since 1986.
[PHOTO APPEARS HERE]
4
<PAGE>
DIRECTORS CONTINUING IN OFFICE IN THE CLASS OF 1997 (cont.)
Principal Occupation and Other Information
[PHOTO APPEARS HERE]
JOHN W. FONDAHL, 71, Civil Engineer, retired as Charles H. Leavell Professor
of Civil Engineering at Stanford University, Stanford, California, in 1990. Mr.
Fondahl joined the Stanford University faculty in 1955. He has served as
Visiting Professor of Construction Engineering at the University of Sydney;
Kyoto University; the University of Cape Town; the Swiss Federal Institute; the
Technical University of Denmark; the University of the Andes in Colombia; and
the Catholic University of Chile. Mr. Fondahl has been a director of the
Company since 1976.
[PHOTO APPEARS HERE]
DAVID R. GOODE, 55, Chairman, President and Chief Executive Officer of
Norfolk Southern Corporation, a holding company (principal subsidiaries provide
surface transportation services). Mr. Goode joined Norfolk and Western Railway
Company, a predecessor of Norfolk Southern, in 1965. He was elected a Vice
President in 1985, Executive Vice President in 1991, President later in 1991,
and Chairman and chief executive officer in 1992. Mr. Goode is a member of the
Board of Visitors, Fuqua School of Business at Duke University and a trustee of
The General Douglas MacArthur Memorial Foundation; Hollins College; and The
Virginia Foundation for Independent Colleges. He is a director of
Georgia-Pacific Corporation; Norfolk Southern Corporation; Texas Instruments
Incorporated; TRINOVA Corporation; Association of American Railroads; the
Business Committee for the Arts, Inc.; and the Business Consortium for Arts
Support. Mr. Goode has been a director of the Company since 1993.
[PHOTO APPEARS HERE]
JOSHUA I. SMITH, 54, Chairman and chief executive officer of The MAXIMA
Corporation, a computer systems and management information products and
services firm. Mr. Smith founded MAXIMA in 1978. He served as chairman of the
Federal Communication Commission's Small Business Advisory Committee. He was
appointed by former President George Bush to the U.S. Commission on Minority
Business Development, where he served as chairman; the Executive Committee of
the 1990 Economic Summit of Industrialized Nations; and the Board of Trustees
for The John F. Kennedy Center for the Performing Arts. He has received the Man
of Achievement Award from the Anti-Defamation League of B'Nai B'Rith and is
chairman of the National Urban Coalition. Other directorships include Federal
Express Corporation and Inland Steel Corporation. Mr. Smith has been a director
of the Company since 1993.
5
<PAGE>
DIRECTORS CONTINUING IN OFFICE IN THE CLASS OF 1998
Principal Occupation and Other Information
[PHOTO APPEARS HERE]
JERRY R. JUNKINS, 58, Chairman, President and Chief Executive Officer of
Texas Instruments Incorporated, one of the world's leading high-technology
companies. Mr. Junkins joined Texas Instruments in 1959. He became President
and Chief Executive Officer in 1985, and Chairman of the Board in 1988. In
addition to his Texas Instruments duties, he is a member of the Board of
Trustees of Southern Methodist University; the Business Roundtable; the
Business Council; and the U.S.-Japan Business Council. He is a presidential
appointee to the Advisory Committee on Trade Policy and Negotiations. He serves
as a member of the Board of Directors of The Procter & Gamble Company and 3M.
Mr. Junkins has been a director of the Company since 1988.
[PHOTO APPEARS HERE]
GORDON R. PARKER, 60, retired Chairman of Newmont Mining Corporation and
Newmont Gold Company. Mr. Parker joined Newmont in 1981 and served as Chief
Executive Officer of Newmont Mining and Newmont Gold from 1986 through October
1993, and as Chairman from 1986 through December 1994. Mr. Parker was the
inaugural Chairman of the World Gold Council. He serves on the Board of
Trustees of the Colorado Symphony Association, the Denver Area Council of the
Boy Scouts of America and is Chairman of the Rocky Mountain Regional Advisory
Board of the Institute of International Education. Mr. Parker is a director of
The Williams Companies, Inc., Phelps Dodge Corporation, and Gold Fields of
South Africa. Mr. Parker has been a director of the Company since 1995.
[PHOTO APPEARS HERE]
GEORGE A. SCHAEFER, 67, former Caterpillar Inc. Chairman of the Board and
chief executive officer. Mr. Schaefer joined Caterpillar in 1951 and
subsequently advanced through various management positions in auditing and
accounting. He was named chief accountant at the San Leandro Plant in 1960 and
was finance and accounting manager of Caterpillar France S.A. from 1962 to
1968. He was Manager of Corporate Accounting in General Offices in 1968 and was
Manager of Manufacturing Systems Development from 1969 until being appointed
Manager of the Decatur Plant in 1973. In June of 1976 he was elected Vice
President in charge of the Company's financial and data processing functions.
He was elected an Executive Vice President in 1981, Vice Chairman of the Board
in 1984 and Chairman of the Board and chief executive officer effective
February 1, 1985. Mr. Schaefer is a director of Aon Corporation; Helmerich &
Payne, Inc.; McDonnell Douglas Corporation; and Morton International, Inc. Mr.
Schaefer has been a director of the Company since 1983.
6
<PAGE>
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
During 1995, the Board of Directors held seven meetings. For the incumbent
Board of Directors as a whole, attendance exceeded 90% of the aggregate of (1)
the total number of meetings of the Board of Directors and (2) the total number
of meetings of all committees of the Board on which they served (during the
periods they served). All incumbent directors, except Mr. Magowan, attended at
least 75% of such meetings. In addition, the Company's directors frequently
take part in the consideration of Company matters apart from such meetings.
The Board of Directors has four standing committees: the Audit Committee,
the Compensation Committee, the Nominating Committee and the Public Policy
Committee.
The Audit Committee reviews management's recommendation for selection of the
Company's independent public accountants and makes recommendations to the Board
regarding retention or non-retention of the independent accountants. In
addition, the Committee makes necessary inquiries of management and the
independent accountants concerning established standards of corporate conduct
and performance with regard to accounting and reporting principles. The
Committee is composed exclusively of directors who are not employees and who
are, in the opinion of the Board of Directors, free from any relationship that
would interfere with the exercise of independent judgment as a Committee
member. Present members of the Committee are Ms. Lilyan H. Affinito
(chairperson) and Messrs. W. Frank Blount, David R. Goode, James P. Gorter,
Gordon R. Parker and George A. Schaefer. During 1995, the Committee held four
meetings.
The Compensation Committee reviews the Company's employee and management
compensation practices and approves standards for the Company's compensation
programs and plans, including, but not limited to, the Company's various
incentive compensation, retirement and other similar plans. The Committee is
composed exclusively of directors who are not employees or former employees of
the Company. Present members of the Committee are Messrs. James P. Gorter
(chairman), John W. Fondahl, David R. Goode, Jerry R. Junkins, Peter A.
Magowan, and Clayton K. Yeutter. During 1995, the Committee held four meetings.
The Nominating Committee develops and recommends to the Board of Directors
criteria for the selection of candidates for director, reviews the
qualifications of possible candidates and recommends to the Board candidates
for vacancies and for the slate of directors to be proposed on behalf of the
Board of Directors at the Annual Meeting of Stockholders. The Committee
considers nominees recommended by stockholders and procedures for such
nomination are referenced on page 26. The Committee also advises the Board
concerning possible candidates for the position of Chairman of the Board and
chief executive officer, as well as for other executive officer positions
within the Company. Present members of the Committee are Ms. Lilyan H. Affinito
and Messrs. Jerry R. Junkins (chairman), W. Frank Blount, Donald V. Fites,
Gordon R. Parker, George A. Schaefer, and Joshua I. Smith. During 1995, the
Committee held two meetings.
The Public Policy Committee is responsible for making recommendations to the
Board with respect to matters of public and social policy affecting the
Company. The Committee also provides general oversight of the Company's Code of
Worldwide Business Conduct and Operating Principles and Policy Letters, and of
the Company's environmental, disclosure, Foreign Corrupt Practices Act and
other specific and general programs regarding compliance with laws relating to
the Company. In addition, the Committee is responsible for reviewing major
litigation, legislative proposals, proposed regulations, and stockholder
proposals involving matters not falling within the auspices of another
committee of the Board. Present members of the Committee are Messrs. Clayton K.
Yeutter (chairman), Donald V. Fites, John W. Fondahl, Peter A. Magowan, and
Joshua I. Smith. During 1995, the Committee held three meetings.
7
<PAGE>
COMPENSATION OF DIRECTORS
Upon election of the nominees proposed herein, the Board of Directors will
consist of twelve members, of whom one is a salaried employee of the Company.
Directors who are salaried employees receive no additional compensation for
their service as directors. Directors who are not salaried employees of the
Company ("non-employee directors") are paid a retainer of $30,000 per year and
fee of $1,000 for each meeting of the Board of Directors and each meeting of
any committee of the Board of Directors attended, together with the expenses of
attendance. The chairman of each committee receives an additional annual
stipend of $5,000.
Non-employee directors are eligible to receive stock options and restricted
stock pursuant to the 1987 Stock Option Plan. In April of 1995, an option for
2,000 shares of Common Stock and an award of 200 shares of restricted stock
were granted to each non-employee director under the 1987 Stock Option Plan.
The Board of Directors also has adopted a pension plan for non-employee
directors. Under the directors' pension plan, all non-employee directors who
are 70 years of age and who have served as directors for five years are
eligible to retire and be paid retirement income equal to the annual retainer
paid to them as directors at the time of their retirement. Fifty percent of the
annual pension amount payable to a retired director shall be paid to a retired
director's spouse who survives him or her.
On an annual basis, each non-employee director is eligible to participate in
the Directors' Deferred Compensation Plan which allows the deferral of fifty
percent or more of the annual compensation (excluding expense reimbursement)
payable as a result of services performed on behalf of the Company. Ms.
Affinito and Messrs. Fondahl, Goode, Gorter, Junkins and Yeutter have elected
to defer their compensation for 1996. Directors participating in this Plan may
elect to have the deferred compensation invested in an interest-bearing
account, a share equivalent account representing the Company's Common Stock, or
a combination of the two. The interest-bearing account accrues interest at the
applicable prime rate. Deferred compensation in the share equivalent account is
treated as though it were invested in Common Stock. If a participant makes a
share election, dividend equivalents accrue to a participant's account
quarterly and each account is adjusted to reflect share ownership changes
resulting from events such as a stock split. Participants have no voting rights
with respect to the share equivalent account. All distributions from accounts
are made in cash.
All directors of the Company participate in the Directors' Charitable Award
Program ("Program"). The maximum amount of award payable with respect to each
participant under the Program is $1 million and is based upon the director's
length of service. A director continues to be eligible to participate in the
Program after he or she terminates Board service. Payments under the Program
are made in 10 annual installments and commence at the death of a director. The
first five installments are paid to charities designated by the director and
the last five installments are paid to the Company's Charitable Foundation
("Foundation"). The program is financed through the purchase of life insurance
policies. Directors derive no financial benefit from this Program since all
charitable deductions accrue solely to the Company. The purpose of the program
is to acknowledge the service of the Company's directors, recognize the
interest of the Company and its directors in supporting worthy educational
institutions and charitable organizations, provide an additional means of
support to the Foundation, and enhance the Company's director benefit program
so that the Company is able to continue to attract and retain directors of the
highest caliber.
This past year, the Company's Board of Directors received special
recognition by being named one of the top five boards in the nation by Chief
Executive magazine (November 1995 issue). The Company would like to take this
opportunity to congratulate the Board of Directors on receiving that
well-deserved honor.
8
<PAGE>
EQUITY SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN OTHER BENEFICIAL OWNERS
(as of December 31, 1995)
The following table sets forth the beneficial ownership (as defined by the
rules of the Securities and Exchange Commission) of Company Common Stock by all
directors (including all nominees for director), the officers named in the
Summary Compensation Table on page 16, and all directors and executive officers
as a group. No director beneficially owns, directly or indirectly, more than
one-tenth of one percent of Company Common Stock. All directors and executive
officers as a group beneficially own less than one percent of Company Common
Stock. The Company has no other class of equity securities outstanding.
Table of Equity Ownership of Directors and Executive Officers
Shares
Beneficially
Owned
- --------------------------------------------------------------------------------
Lilyan H. Affinito 12,800/1/
Glen A. Barton 50,339/2/
W. Frank Blount 500
Donald V. Fites 258,815/3/
Gerald S. Flaherty 74,906/4/
John W. Fondahl 13,400/5/
David R. Goode 2,067/6/
James P. Gorter 10,400/7/
Jerry R. Junkins 10,800/8/
Peter A. Magowan 3,767/9/
James W. Owens 31,848/10/
Gordon R. Parker 1,400
George A. Schaefer 43,505/11/
Joshua I. Smith 1,167/12/
Richard L. Thompson 12,962/13/
Clayton K. Yeutter 3,300/14/
All directors and executive officers as a group 1,117,005/15/
- --------------------------------------------------------------------------------
/1/ Includes 12,000 shares subject to outside director stock options
exercisable within 60 days. In addition to the shares listed above, Ms.
Affinito has deferred a portion of her director compensation pursuant to
the Directors' Deferred Compensation Plan representing an equivalent value
as if such compensation had been invested on December 31, 1995 in 2,982
shares of Common Stock.
/2/ Includes 30,207 shares subject to employee stock options exercisable
within 60 days. In addition to the shares listed above, Mr. Barton has
deferred a portion of his compensation pursuant to supplemental employees
investment plans representing an equivalent value as if such compensation
had been invested on December 31, 1995 in 1,697 shares of Common Stock.
/3/ Includes 198,666 shares subject to employee stock options exercisable
within 60 days. In addition to the shares listed above, Mr. Fites has
deferred a portion of his compensation pursuant to supplemental employees
investment plans representing an equivalent value as if such compensation
had been invested on December 31, 1995 in 4,745 shares of Common Stock.
/4/ Includes 32,167 shares subject to employee stock options exercisable
within 60 days. In addition to the shares listed above, Mr. Flaherty has
deferred a portion of his compensation pursuant to supplemental employees
investment plans representing an equivalent value as if such compensation
had been invested on December 31, 1995 in 2,015 shares of Common Stock.
/5/ Includes 12,000 shares subject to outside director stock options
exercisable within 60 days. In addition to the shares listed above, Mr.
Fondahl has deferred a portion of his director compensation pursuant to the
Directors' Deferred Compensation Plan representing an equivalent value as
if such compensation had been invested on December 31, 1995 in 1,381 shares
of Common Stock.
/6/ Includes 667 shares subject to outside director stock options exercisable
within 60 days. In addition to the shares listed above, Mr. Goode has
deferred a portion of his director compensation pursuant to the Directors'
Deferred Compensation Plan representing an equivalent value as if such
compensation had been invested on December 31, 1995 in 778 shares of Common
Stock.
/7/ Includes 8,000 shares subject to outside director stock options exercisable
within 60 days. In addition to the shares listed above, Mr. Gorter has
deferred a portion of his director compensation pursuant to the Directors'
Deferred Compensation Plan representing an equivalent value as if such
compensation had been invested on December 31, 1995 in 952 shares of Common
Stock.
/8/ Includes 10,000 shares subject to outside director stock options
exercisable within 60 days.
/9/ Includes 667 shares subject to outside director stock options exercisable
within 60 days.
/10/ Includes 11,200 shares subject to employee stock options exercisable
within 60 days. In addition to the shares listed above, Mr. Owens has
deferred a portion of his compensation pursuant to supplemental employees
investment plans representing an equivalent value as if such compensation
had been invested on December 31, 1995 in 430 shares of Common Stock.
/11/ Includes 6,000 shares subject to outside director stock options
exercisable within 60 days.
/12/ Includes 667 shares subject to outside director stock options exercisable
within 60 days.
/13/ Includes 3,467 shares subject to employee stock options exercisable
within 60 days. In addition to the shares listed above, Mr. Thompson has
deferred a portion of his compensation pursuant to supplemental employees
investment plans representing an equivalent value as if such compensation
had been invested on December 31, 1995 in 537 shares of Common Stock.
/14/ Includes 2,000 shares subject to outside director stock options exercisable
within 60 days. In addition to the shares listed above, Mr. Yeutter has
deferred a portion of his director compensation pursuant to the Directors'
Deferred Compensation Plan representing an equivalent value as if such
compensation had been invested on December 31, 1995 in 866 shares of Common
Stock.
/15/ Includes 655,613 shares subject to employee and outside director stock
options exercisable within 60 days. Also includes 16,630 shares for which
voting and investment power is shared and 700 shares for which beneficial
ownership has been disclaimed.
9
<PAGE>
Listed below are persons who, to the knowledge of the Company, own
beneficially, as of December 31, 1995, more than five percent of the Company's
Common Stock.
Table of Equity Ownership of Certain Beneficial Owners
<TABLE>
<CAPTION>
Voting Dispositive
Authority Authority Total Amount Percent
------------------------------------------- of Beneficial of
Name and Address Sole Shared Sole Shared Ownership Class
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Joint filing by FMR Corp., 1,203,262 1,500 28,411,060 1,500 28,412,560 14.38%
Edward C. Johnson 3d, and
Abigail P. Johnson
82 Devonshire Street
Boston, MA 02109
- -------------------------------------------------------------------------------------------------------
The Capital Group 1,280,250 None 13,221,650 None 13,221,650 6.7%
Companies, Inc. and
Capital Research and
Management Company
333 South Hope Street
Los Angeles, CA 90071
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Compensation Policies
The Compensation Committee ("Committee") establishes compensation guidelines
and targets based upon the performance of the Company, of business units within
the Company, and of individual executive officers. The Committee's goal is to
establish a compensation program that: strengthens the commonality of interest
between management and Company stockholders; links effectively executive
compensation with Company performance over the long term; and attracts and
retains executives of high caliber and ability. For 1995, that program consisted
of base salary, short-term incentive compensation, stock options, and long-term
incentive compensation.
The Committee believes this compensation program was a significant factor
contributing to the Company's success this past year. For 1995, the Company
recorded a profit of $1.14 billion or $5.72 per share, the largest in Company
history. As demonstrated in the performance graph on page 15, the Company's
stock has provided holders with a cumulative return for the past five years that
significantly exceeds the S&P 500 Composite Index and the Company's peer group,
the S&P Machinery (Diversified) Index.
Base Salary
Executive Officers
Base salaries of individual executive officers and their applicable salary
ranges are reviewed annually by the Committee. In determining adjustments to
base salary and salary ranges for a particular year, the Committee relies on
surveys compiled by consultants regarding salaries and other short-term
compensation ("total cash compensation") at companies comparable to the Company
in size, market capitalization or principal undertaking. In making salary
adjustments, the Committee also makes subjective determinations regarding the
performance of individual officers, with the assistance of those officers'
supervisors.
At the end of 1994, the Committee set 1995 base salaries and applicable salary
ranges for all executive officers, including Mr. Fites. In setting 1995 base
salaries and salary ranges, the Company referred to the Hewitt survey of Core
Group I Companies ("Hewitt Survey"). The Hewitt Survey included 25 companies,
all of which were in the S&P 500 Composite Index and none of which were in the
S&P Machinery (Diversified) Index. According to the Hewitt Survey, total cash
compensation of Company executive officers was below market average.
10
<PAGE>
Despite the Hewitt Survey results, the Committee elected not to adjust salary
ranges applicable to executive officers for 1995. However, the Committee did
approve increases in the base salary of all executive officers for 1995. These
increases were based upon a subjective analysis of each officer's individual
performance. After these adjustments, the total cash compensation of executive
officers as a group remained below average according to the Hewitt Survey.
Chief Executive Officer
Effective January 1, 1995, Mr. Fites' base salary was increased to $1 million.
In determining his base salary, the Committee used the Hewitt Survey as a
benchmark. That survey revealed that Mr. Fites' salary was considerably below
the average of company CEOs with executive responsibilities generally comparable
to those of Mr. Fites at Caterpillar.
The Committee also evaluated Mr. Fites' performance as an executive, including
his contributions with Caterpillar, to his home community, and to a variety of
national and international business organizations. Under Mr. Fites' leadership
in 1994, the Company experienced four quarters of record profit and its stock
price increased 24 percent. During that year, the Company improved its
competitive position as the world's leading manufacturer of construction and
mining equipment, despite substantial foreign and domestic competition.
Relationships with stockholders, dealers, and employees were strengthened,
product lines were improved, and unproductive operations were eliminated. In
each of those time-demanding leadership roles, Mr. Fites performed in an
outstanding manner. The level of his performance was formally recognized when he
was named 1994 CEO of the Year by Financial World magazine.
With the increase granted to Mr. Fites, his base salary will now be slightly
higher than the average of CEOs included in the Hewitt Survey, but his total
cash compensation will be slightly lower.
Short-Term Incentive Compensation
Executive Officers
In 1995, executive officers, together with most management and salaried
employees, participated in the Company's Corporate Incentive Compensation Plan
("Incentive Plan"). Payouts under the Incentive Plan for 1995 were based on a
team award incorporating the Company's pre-tax return on assets ("ROA") for the
year and an individual award based on a subjective determination of individual
performance. For 1995, a total of approximately $134.7 million was earned by
Company employees under the corporate and business unit incentive plans.
For 1995, the team award portion of the payout was calculated by multiplying
(a) annual base salary, (b) a specific percentage of base salary, which
increases for higher positions within the Company, thereby placing a greater
percentage of compensation at risk for those with greater responsibilities and
opportunity to affect Company performance, and (c) a performance factor based
upon the Company's achievement of specific levels of ROA.
Before any amount could be awarded under the Incentive Plan for 1995, a
minimum Company ROA level had to be achieved, with increasing amounts to be
awarded for Company achievement up to a maximum ROA. Minimum, target, and
maximum ROA levels to be achieved were increased significantly from 1994 levels.
Specifically, the target ROA was increased 75%. For 1995, the minimum ROA level
under the Incentive Plan was exceeded (although the target was not achieved) and
all executive officers received a team award.
In addition to a team award, all executive officers received an individual
award under the Incentive Plan for 1995 based on a subjective determination of
individual performance. The aggregate of individual awards to all officers
cannot exceed the amount available in a discretionary pool established for such
awards. The discretionary pool amount is a specific percentage of team awards
paid to all executive officers.
11
<PAGE>
In 1995, 18 executive officers participated in incentive plans applicable to
the business unit for which they had primary responsibility. The Company has 195
incentive compensation plans applicable to business units and divisions within
those units. Each business unit within the Company has its own criteria for
determining incentive compensation for its employees. With the exception of 9
incentive compensation plans, for 1995, at least 25% of the payout under a
business unit plan had to be based on Company achievement of ROA levels
applicable to the Incentive Plan. Other factors determining business unit payout
in 1995 included return on sales ("ROS") for the particular unit, unit ROA, unit
profit, operating expenses, percentage of industry sales, and customer
satisfaction. In addition, units providing administrative services to other
units within the Company had a portion of their incentive compensation tied to
the performance of those other units. The two most widely used factors
determining payouts under the business unit plans in 1995 were unit ROS and unit
ROA.
In 1995, executive officers participating in their respective business unit
incentive plans were eligible to receive fifty percent of the team award amount
that would have been awarded if he or she had participated solely in the
business unit plans, and fifty percent of the amount that would have been
awarded had the officer participated solely in the Incentive Plan. Seventeen
executive officers received payments based on 1995 performance of their business
units.
Based on competitive concerns, the Company does not believe it is appropriate
for purposes of this report to disclose specific performance factors applicable
to each individual business unit. Because these factors reflect the Company's
view regarding criteria essential for each unit's long-term success, disclosure
of such factors on a unit by unit basis would be detrimental to the Company and
its stockholders by giving competitors a comprehensive blueprint, dissected by
business unit, for attacking the Company in the marketplace.
Chief Executive Officer
Mr. Fites participates in the Incentive Plan. Because the Company exceeded its
minimum ROA level under the Incentive Plan for 1995 (although the target was not
achieved), Mr. Fites received a team award under the Incentive Plan.
Mr. Fites also received an individual award under the Incentive Plan for 1995.
At the beginning of 1995, Mr. Fites discussed with the Committee his goals and
expectations for the year. Mr. Fites set benchmarks for Company sales and
revenues, as well as profit after tax. Those goals, which called for substantial
increases over 1994 levels, were again met in 1995.
Mr. Fites also established a goal to continue providing successful leadership
with respect to the Company's labor situation with the UAW. In 1995, Mr. Fites
met that goal. In early December of this past year, UAW leaders informed
Caterpillar and their members that they were recessing the strike that began on
June 21, 1994, at eight U.S. facilities. Striking employees have returned to
work under the Company's previously implemented contract proposal and the
transition has gone very smoothly. The strike had no impact on Company
performance for 1995.
Mr. Fites expressed to the Committee his commitment to factory modernization
and organizational restructuring initiatives begun four years ago. In 1995,
those initiatives continued to reap benefits. The Company's 16 functionally
independent business units and five service divisions, each with its own budget
and financial targets, continued to place the emphasis on creativity and
innovation, and the collective focus on serving Caterpillar customers. The
Company's reengineered business processes continued to result in significant
reductions in product development time, necessary physical testing, and product
development costs.
Mr. Fites also expressed his commitment to maintain regular contact with
financial analysts, stockholders, dealers, customers, and employees. In 1995,
Mr. Fites met that commitment. He conducted a two-day analyst meeting in Arizona
and maintained regular contact with large Company stockholders. He also
maintained personal contact with Caterpillar dealer principals and major
customers around the world during the year, and personally visited numerous
Caterpillar facilities worldwide.
12
<PAGE>
In addition, Mr. Fites expressed a commitment to pursuing strategic alliances
designed to enhance the Company's competitive position. He also fulfilled this
commitment. In 1995 the Company announced a joint venture with Elphinstone Pty.
Ltd., an Australian mining equipment manufacturer, representing the Company's
entrance into the underground mining equipment business. The Company also
announced an agreement in principle to acquire an equity position in F.G. Wilson
Ltd., a leading packager of diesel-powered generator sets in Europe, to enhance
the Company's business in that area. Additional alliances were pursued to
enhance the Company's competitive position.
Finally, Mr. Fites expressed his intent to actively participate in initiatives
designed to benefit not only the Company but the industry as a whole. Mr. Fites
did so by continuing to serve as a member of the Equipment Manufacturers
Institute and as chairman of the U.S.-Japan Business Council. He also served as
a member of the Competitiveness Policy Council, a bipartisan national commission
appointed by the U.S. House of Representatives to make recommendations to the
President and Congress regarding the productivity and international
competitiveness of U.S. industries.
Stock Options
Executive Officers
In 1995, all executive officers, as well as other key employees, were granted
incentive (as defined in Section 422A of the Internal Revenue Code) and non-
qualified stock options under the Company's 1987 Stock Option Plan ("Option
Plan"). Incentive stock options were granted up to the maximum number of shares
which may be issued in accordance with U.S. tax law to an individual. The
remaining portion of any option grant not issued as an incentive stock option
was issued as a non-qualified stock option.
The number of options granted to a particular officer in 1995 depended upon
that officer's position in the Company and a subjective assessment of that
officer's individual performance. Specifically, a base stock option award was
determined for each officer level using position multiples for each level. The
award was then adjusted based on individual performance.
To ensure executive officers retain significant stockholdings in the Company,
the Committee encourages them to own a number of shares at least equal to the
average number of shares for which they received options in their last three
option grants. For 1995, if one-hundred percent of the minimum ownership
guideline was not met, significant progress had not been made to achieve the
desired ownership level, or a satisfactory explanation for failure to meet the
guideline had not been presented, the Committee would have reduced the number of
shares included in the officer's grant. For 1995, no officer was penalized for
low share ownership in receiving stock options, an accomplishment of which the
Company should be particularly proud since this share retention requirement
represents one of the strictest in the industry.
Chief Executive Officer
In 1995, Mr. Fites received an option grant covering 75,000 shares of Company
stock, as reflected in the Summary Compensation Table and Option Grants Table.
Like other executive officers, Mr. Fites received this grant based upon his
position in the Company and an assessment of his individual performance.
Individual performance factors considered by the Committee are those discussed
above with respect to Mr. Fites' individual Incentive Plan award.
Long-Term Incentive Compensation
Executive Officers
The Company has a long-term incentive supplement to the Option Plan
("Supplement"). Under the Supplement, a three-year performance period ("cycle")
is established each year, with participants receiving a payout (50% in cash and
50% in restricted stock) if certain minimum, target or maximum performance
thresholds are achieved at the end of the cycle. The Committee has discretion to
apply different performance criteria for different cycles. The Committee also
has discretion during a cycle to adjust performance measures set for that period
to reflect changes in accounting principles and practices; mergers, acquisitions
or divestitures; major technical innovations; or extraordinary, nonrecurring or
unusual items.
13
<PAGE>
The first cycle under the Supplement was established at the beginning of 1993
for the years 1993-1995, with a payout to occur in 1996. Amounts that could be
paid at the end of that cycle depended upon an executive's base salary at the
end of the period, a predetermined percentage of that salary that varied based
on an executive's position, and whether certain after-tax ROA thresholds had
been achieved. For an executive to receive any payout under the cycle
established in 1993, the Company had to achieve a threshold ROA level for the
cycle. If a target ROA level was achieved, a larger amount would be received,
while attaining a certain maximum ROA level would yield the maximum amount
payable under the cycle. For the cycle established in 1993, the maximum ROA
level was achieved and all executives, including those named in the Summary
Compensation Table, received a payout in early 1996 equal to the maximum amount
available under that cycle. The total value of cash and restricted stock
received by Supplement participants under the cycle established in 1993 was
approximately $10.5 million.
Cycles were also established under the Supplement in 1994 and 1995 for the
periods 1994-1996 and 1995-1997, with payouts to occur, if at all, in 1997 and
1998. Like the 1993 cycle discussed above, a payout under these cycles will
depend upon an executive's base salary at the end of the period, a predetermined
percentage of that salary that varies based on the executive's position, and
whether certain after-tax ROA levels (minimum, target, and maximum levels) have
been achieved.
Chief Executive Officer
Mr. Fites received a payout in 1996 under the 1993 cycle of the Supplement
based on the criteria discussed above. The amount received by Mr. Fites is
disclosed in the LTIP Payouts column of the Summary Compensation Table.
Mr. Fites also has the potential to receive in 1997 and 1998 a payout under
the Supplements for the 1994-1996 and 1995-1997 cycles based on the criteria
discussed above. Specific reference to minimum, target, and maximum amounts that
could be received by Mr. Fites, as well as other named executive officers, are
referenced in the Long-Term Incentive Plans/Awards Table.
Impact of Section 162 of the Internal Revenue Code
Effective January 1, 1994, the Revenue Reconciliation Act of 1993 amended
Section 162 of the Internal Revenue Code ("Code") to eliminate the deductibility
of certain compensation over $1 million paid to the chief executive officer and
other named executive officers. Section 162(m) of the Code provides exceptions
to that provision for performance-based compensation meeting certain
requirements. Based on transition rules under Section 162, compensation under
the Option Plan was not subject to the $1 million deductibility cap in 1995.
Based on a review of developments under Section 162(m), the Committee has
approved adoption of a 1996 Stock Option and Long-Term Incentive Plan and
submitted that plan for stockholder approval in this proxy statement. That plan,
if approved by stockholders, will meet the requirements of Section 162(m) with
respect to stock option and performance awards, resulting in those awards being
excluded from the $1 million deductibility cap.
The Committee has not recommended an amendment to the Company's Short-Term
Incentive Compensation Plan to meet the requirements of Section 162(m) for
exclusion from the deductibility cap. The Committee believes such an amendment
would reduce necessary flexibility under that plan without corresponding
benefit, given the relatively small amounts that would be subject to the cap in
light of provisions in the 1996 Stock Option and Long-Term Incentive Plan
designed to exclude stock option and performance awards from the cap.
James P. Gorter (Chairman) Clayton K. Yeutter
John W. Fondahl David R. Goode
Jerry R. Junkins Peter A. Magowan
14
<PAGE>
PERFORMANCE GRAPH
The following graph reflects a comparison of the cumulative total return
(change in stock price plus reinvested dividends) of the Company's Common Stock
for the five-year period from December 31, 1990 through December 31, 1995 with
the Standard & Poor's 500 Composite Index and the Standard & Poor's Machinery
(Diversified) Index. The comparisons are not intended to forecast or be
indicative of possible future performance of the Company's stock. In addition,
the Company's principal competitors are located outside the United States and
are not included in published industry indexes.
Comparison of Five Year Cumulative Total Stockholder
Return Among Caterpillar Inc., S&P 500 Composite Index,
and S&P Machinery (Diversified) Index
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1990 1991 1992 1993 1994 1995
- ----------------------------------------------------------------------------
Caterpillar 100 95.78 118.4 198.18 247.53 269.19
- ----------------------------------------------------------------------------
S&P 500 100 130.34 140.25 154.32 156.42 214.99
- ----------------------------------------------------------------------------
S&P Machinery
(Diversified) 100 118.89 121.32 179.61 174.87 215.75
- ----------------------------------------------------------------------------
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Members of the Compensation Committee during 1995 were Messrs. James P.
Gorter (Chairman), John W. Fondahl, David R. Goode, Jerry R. Junkins, Peter A.
Magowan, and Clayton K. Yeutter. Mr. Gorter also is a limited partner of
Goldman, Sachs & Co. ("Goldman") which performed various investment banking
services for the Company during 1995 and is anticipated to perform such
services in 1996. As a limited partner, Mr. Gorter is not involved in the
business operations of Goldman.
15
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid to the Company's chief
executive officer and to each of the Company's four most highly compensated
executive officers other than the chief executive officer for services rendered
to the Company for the years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
Summary Compensation Table
- ----------------------------------------------------------------------------------------------------------------------------
Long-Term
Compensation
Annual -----------------------
Compensation Awards Payouts
- ----------------------------------------------------------------------------------------------------------------------------
Name and Securities LTIP
Principal Other Annual Underlying Payouts All Other
Position Year Salary Bonus/2/ Compensation Options/3/ ($)/4/ Compensation/1/
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
D. V. Fites, 1995 $1,000,000 $564,000 $4,420 75,000 $900,000 $48,000
Chairman and CEO 1994 800,000 772,800 -0- 60,000 -0- 38,400
1993 670,000 339,024 -0- 40,000 -0- 32,160
- ----------------------------------------------------------------------------------------------------------------------------
G. A. Barton, 1995 400,000 188,000 -0- 25,000 300,000 16,000
Group President 1994 360,000 289,800 -0- 20,000 -0- 15,600
1993 325,000 148,395 -0- 15,300 -0- 11,983
- ----------------------------------------------------------------------------------------------------------------------------
G. S. Flaherty, 1995 400,000 188,000 -0- 25,000 300,000 19,200
Group President 1994 360,000 289,800 -0- 20,000 -0- 16,560
1993 325,000 148,395 -0- 15,300 -0- 13,000
- ----------------------------------------------------------------------------------------------------------------------------
J. W. Owens, 1995 330,000 155,100 -0- 25,000 214,500 9,900
Group President 1994 240,000 173,880 -0- 10,200 -0- 7,200
1993 210,000 91,705 -0- 11,700 -0- 6,301
- ----------------------------------------------------------------------------------------------------------------------------
R. L. Thompson, 1995 330,000 155,100 -0- 25,000 214,500 9,901
Group President 1994 265,000 186,626 -0- 10,400 -0- 7,951
1993 232,500 118,920 -0- 10,200 -0- 6,976
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Consists of matching Company contributions for the Employees' Investment
Plan (EIP) and supplemental employees' investment plans (SEIP). For 1995,
matching contributions for EIP and SEIP respectively were Messrs. Fites
($8,000/$40,000), Barton ($6,133/$9,867), Flaherty ($7,360/$11,840), Owens
($4,725/$5,175), and Thompson ($4,663/$5,238).
/2/ Consists of cash payments made pursuant to the Corporate Incentive
Compensation Plan in 1996 with respect to 1995 performance, in 1995 with
respect to 1994 performance, and in 1994 with respect to 1993 performance.
/3/ Number of Options granted under the 1987 Stock Option Plan.
/4/ This payout was made in early 1996. Fifty percent of it was in cash and
fifty percent in restricted stock. The Company's average stock price on
December 29, 1995 ($58.625 per share) was used to determine the restricted
stock portion of the payout.
The following tables set forth certain information at December 31, 1995 and
for the fiscal year then ended with respect to stock options and stock
appreciation rights granted to and exercised by the individuals named in the
Summary Compensation Table above. No options have been granted at an option
price below fair market value on the date of grant.
16
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Option Grants in 1995
-----------------------------------------------------------------------------------------------------------
Individual Grants
- -------------------------------------------------------------------------------------
Potential Realizable Value
Number of % of Total at Assumed Annual Rates
Securities Options of Stock Price Appreciation
Underlying Granted to Exercise for Option Term/1/
Options Employees Price Expiration ------------------------------------------
Name Granted/2/ In 1995/3/ Per Share Date 5% 10%
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
D. V. Fites 75,000 4.68 $60.3125 06/06/2005 $ 2,844,767 $ 7,209,192
G. A. Barton 25,000 1.56 $60.3125 06/06/2005 948,256 2,403,064
G. S. Flaherty 25,000 1.56 $60.3125 06/06/2005 948,256 2,403,064
J. W. Owens 25,000 1.56 $60.3125 06/06/2005 948,256 2,403,064
R. L. Thompson 25,000 1.56 $60.3125 06/06/2005 948,256 2,403,064
Executive Group 415,460 25.92 $60.3125 06/06/2005 15,758,493 39,935,081
All Stockholders/4/ N/A N/A N/A N/A 7,590,814,602 19,236,597,596
Executive Group
Gain as % of all
Stockholder Gain N/A N/A N/A N/A 0.21% 0.21%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ The dollar amounts under these columns reflect the 5% and 10% rates of
appreciation prescribed by the Securities and Exchange Commission. The 5%
and 10% rates of appreciation would result in per share prices of $98.24
and $156.44, respectively. The Company expresses no opinion regarding
whether this level of appreciation will be realized and expressly
disclaims any representation to that effect.
/2/ Options are exercisable upon completion of one full year of employment
following the grant date (except in the case of death or retirement) and
vest at the rate of one-third per year over the three years following the
grant. Upon exercise, option holders may surrender shares to pay the
option exercise price and satisfy tax withholding requirements.
/3/ In 1995, options for 415,460 shares were granted to all executive
officers, as a group; options for 20,000 shares were granted to all
directors who are not executive officers, as a group; and options for
1,187,180 shares were granted to all employees other than executive
officers, as a group.
/4/ For "All Stockholders" the potential realizable value is calculated from
$60.3125, the price of Common Stock on June 6, 1995, based on the
outstanding shares of Common Stock on that date.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Aggregated Option/SAR Exercises in 1995,
and 1995 Year-End Option/SAR Values
----------------------------------------------------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at In-the-Money Options/
1995 Year-End SARs at 1995 Year-End/2/
- --------------------------------------------------------------------------------------------------------------------------------
Shares Acquired Value
Name On Exercise/1/ Realized/2/ Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
D. V. Fites 15,600 $ 627,413 198,666 128,334 $5,000,447 $491,683
G. A. Barton 13,866 555,891 30,207 43,433 655,783 177,798
G. S. Flaherty 51,300 2,129,373 32,167 43,433 647,113 177,798
J. W. Owens 26,900 1,028,147 11,200 35,700 183,251 118,241
R. L. Thompson 10,066 292,731 3,467 35,333 18,094 108,326
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Upon exercise, option holders may surrender shares to pay the option
exercise price and satisfy tax withholding requirements. The amounts
provided are gross amounts absent netting for shares surrendered.
/2/ Calculated on the basis of the fair market value of the underlying
securities at the exercise date or year-end, as the case may be, minus
the exercise price.
17
<PAGE>
The following table sets forth certain information regarding estimated
potential awards to named executive officers pursuant to the Long-Term
Incentive Supplement to the Company's 1987 Stock Option Plan. Currently, there
are two Long-Term Incentive Supplement cycles in effect. A plan was established
in 1994 with a cycle ending in 1996 and payout, if at all, in 1997. A plan also
was established in 1995 with a cycle ending in 1997, and a payout, if at all,
in 1998.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Long-Term Incentive
Plans/Awards in 1995
- ------------------------------------------------------------------------------------
Estimated future payouts under
non-stock price-based plans
------------------------------------------------
Performance or
Other Period Until
Name Maturation or Payout Threshold Target Maximum
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
D. V. Fites 1995-1997 $300,000 $600,000 $900,000
1994-1996 $300,000 $600,000 $900,000
- ------------------------------------------------------------------------------------
G. A. Barton 1995-1997 $100,000 $200,000 $300,000
1994-1996 $100,000 $200,000 $300,000
- ------------------------------------------------------------------------------------
G. S. Flaherty 1995-1997 $100,000 $200,000 $300,000
1994-1996 $100,000 $200,000 $300,000
- ------------------------------------------------------------------------------------
J. W. Owens 1995-1997 $82,500 $165,000 $247,500
1994-1996 $82,500 $165,000 $247,500
- ------------------------------------------------------------------------------------
R. L. Thompson 1995-1997 $82,500 $165,000 $247,500
1994-1996 $82,500 $165,000 $247,500
- ------------------------------------------------------------------------------------
</TABLE>
Payout is based upon an executive's base salary at the end of the three-year
cycle, a predetermined percentage of that salary, and the Company's achievement
of specified levels of after-tax return on assets ("ROA") over the three year
period. The target amount will be earned if 100% of targeted ROA is achieved.
The threshold amount will be earned if 70% of targeted ROA is achieved, and the
maximum award amount will be earned at 130% of targeted ROA. Salary levels for
1995 were used to calculate the estimated dollar value of future payments under
both cycles.
PENSION PROGRAM
Under the Company's pension program covering officers and other management
employees, annual benefits are payable upon retirement. The full cost of this
pension program is paid by the Company. Officers are required to retire at age
65. Most other management employees may, under federal law, work indefinitely.
Retirement prior to age 62 results in an appropriate pension reduction. The
amounts shown in the following table are the estimated aggregate annual
benefits for various levels of earnings and years of benefit service payable in
the event of retirement after age 62 and not later than age 65.
18
<PAGE>
<TABLE>
<CAPTION>
Pension Plan Table
-----------------------------------------------------------------------------------------------
Remuneration Years of Service
-----------------------------------------------------------------------------------------------
15 20 25 30 35
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 100,000 $ 22,500 $ 30,000 $ 37,500 $ 45,000 $ 52,500
$ 150,000 33,750 45,000 56,250 67,500 78,750
$ 200,000 45,000 60,000 75,000 90,000 105,000
$ 250,000 56,250 75,000 93,750 112,500 131,250
$ 300,000 67,500 90,000 112,500 135,000 157,500
$ 350,000 78,750 105,000 131,250 157,500 183,750
$ 400,000 90,000 120,000 150,000 180,000 210,000
$ 450,000 101,250 135,000 168,750 202,500 236,250
$ 500,000 112,500 150,000 187,500 225,000 262,500
$ 550,000 123,750 165,000 206,250 247,500 288,750
$ 650,000 146,250 195,000 243,750 292,500 341,250
$ 750,000 168,750 225,000 281,250 337,500 393,750
$ 850,000 191,250 255,000 318,750 382,500 446,250
$ 950,000 213,750 285,000 356,250 427,500 498,750
$1,100,000 247,500 330,000 412,500 495,000 577,500
$1,400,000 315,000 420,000 525,000 630,000 735,000
$1,600,000 360,000 480,000 600,000 720,000 840,000
$1,950,000 438,750 585,000 731,250 877,500 1,023,750
$2,500,000 562,500 750,000 937,500 1,125,000 1,312,500
</TABLE>
The compensation covered by the pension program is based on an employee's
annual salary and bonus. Amounts payable pursuant to a defined benefit
supplementary pension plan are included. As of December 31, 1995, the persons
named in the Summary Compensation Table had the following estimated credited
years of benefit service for purposes of the pension program: D. V. Fites - 35
years*; G. A. Barton - 35 years; G. S. Flaherty - 35 years*; J. W. Owens - 23
years; and R. L. Thompson - 13 years. The amounts payable under the pension
program are computed on the basis of an ordinary life annuity and are not
subject to deductions for Social Security benefits or other amounts.
- ------------------
* Although having served more than 35 years with the Company, amounts payable
under the plan are based on a maximum of 35 years of service.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For disclosure regarding a reportable relationship involving Mr. James P.
Gorter, a director of the Company, see page 15, "Compensation Committee
Interlocks and Insider Participation."
Mr. Siegfried R. Ramseyer, a Vice President of the Company, was Managing
Director of Caterpillar Overseas S.A. ("Subsidiary") until December 31, 1992,
and is indebted to that Subsidiary in the amount of approximately $302,826. The
loan relates to a home purchase by Mr. Ramseyer in Switzerland and is
collateralized by a mortgage on the property. The primary purpose of the
transaction was to permit Mr. Ramseyer to retain his home in Switzerland and to
purchase a home in the United States where he has been assigned. The loan is
interest free and repayable to the Subsidiary no later than December 31, 2002.
If for any reason Mr. Ramseyer returns to Switzerland or ceases to act as a
Vice President of the Company prior to December 31, 2002, the Subsidiary is
entitled to request repayment of the loan upon giving 60 days prior written
notice. During Mr. Ramseyer's assignment in the United States, the Subsidiary
may lease the property and receive rental income.
19
<PAGE>
PROPOSAL 2--APPROVAL OF ADOPTION OF 1996 STOCK OPTION AND LONG-TERM INCENTIVE
PLAN
The Company's Board of Directors ("Board") has approved the Caterpillar Inc.
1996 Stock Option and Long-Term Incentive Plan ("Plan") in the form attached as
Exhibit A, subject to the approval of Company stockholders. In general, the
Plan provides for the grant of stock options, restricted stock, and performance
awards to officers and key employees of the Company, as well as non-employee
directors. It is estimated that approximately 850 employees and 11 non-employee
directors will participate in applicable portions of the Plan in 1996. The Plan
is designed to attract and retain outstanding individuals in key positions and
furnish incentives linked to the performance of the Company and its stock.
The Plan is designed to meet the requirements for tax deductibility under
Section 162(m) of the Internal Revenue Code ("Code") with respect to certain
compensation. Under the Code, the Company may not deduct compensation paid to
certain executive officers to the extent that compensation exceeds $1 million
in any one year for any one applicable officer. Section 162(m) provides
exceptions for performance-based compensation meeting certain requirements.
Upon advice of the Board's Compensation Committee ("Committee"), the Board has
taken appropriate action to exclude options and performance awards under the
Plan from the $1 million deductibility cap.
Plan Administration
The Committee has the authority to determine officers and employees
receiving awards under the Plan. The Committee also has the authority to
establish and revise procedures applicable to the Plan, subject to stockholder
approval requirements, and make other determinations necessary for Plan
administration. The Committee is composed solely of outside directors as that
term is defined in Section 162(m) under the Code. The Committee has no
authority with respect to non-employee director awards under the Plan.
Shares Reserved for Issuance
The Company proposes to reserve seven million shares of Company common stock
("Shares") for issuance under the Plan. An additional four million Shares
authorized but unissued under prior Company stock option plans will be
available for issuance under this Plan. The Plan would permit adjustments to
that number for events such as a stock dividend, recapitalization, or business
combination. The Plan also would permit Shares not acquired due to expiration
or termination of an award to become available for reissuance. Moreover, Shares
tendered upon exercise of an option may be added back and made available solely
for grants to persons not subject to Section 16 of the Securities Exchange Act
of 1934 ("Exchange Act").
Stock Options
The Plan would permit the Committee to award stock options to officers and
key employees and determine the timing and amount of those awards, provided
that no individual Company employee could receive options for more than 200,000
Shares in any calendar year. The exercise price for an option could not be less
than 100% of the fair market value of Shares underlying the option at the time
of grant and no option that is not an incentive stock option as described below
would be exercisable after ten years and one day from the date of grant. The
Plan also permits the Committee to require a period of employment before
options could be exercised and establishes time periods for exercise in the
event of termination. Under the Plan, options could not be transferred other
than by will or the laws of descent and distribution or pursuant to a qualified
domestic relations order.
The Plan also permits the Committee to grant incentive stock options, as that
term is defined in Code Section 422A, having a term of ten years from the date
of grant. The amount of incentive stock options vesting in a particular year can
not exceed $100,000 per option recipient, based on the fair market value of the
options on the date of grant. Under the Plan, the Committee could convert an
incentive stock option to another option form and amend the plan as necessary to
comply with Code Section 422A.
20
<PAGE>
The Plan would provide for the grant of stock options for 2000 Shares to
non-employee directors at the close of each annual meeting of stockholders.
These options have a term of ten years and one day, become exercisable in
one-third installments at the end of each year of a three-year successive
period following the date of grant, and have an exercise price of 100% of the
fair market value of underlying Shares on the date of grant. The Plan
establishes time periods for the exercise of these stock options in the event
of termination and provides that the terms of the Plan as they apply to these
options cannot be amended more often than once every six months, except in
limited circumstances. The Committee would have no authority regarding option
grants to non-employee directors.
Restricted Stock
The Plan would permit the Committee to award restricted stock to officers
and key employees and determine the timing, amount, and conditions of awards.
Shares awarded as restricted stock would be issued subject to a restriction
period of no less than two nor more than ten years. During the restriction
period, the recipient is not entitled to delivery of the Shares, restrictions
are placed on the Shares' transferability, and the Shares would be forfeited if
the recipient terminates employment for reasons other than retirement,
disability, death, or other special circumstances, as approved by the
Committee. The Committee has discretion to remove restrictions if it deems that
to be appropriate in a particular case. Upon expiration of the restriction
period, the appropriate number of Shares will be made available to the
recipient.
Under the Plan, 200 Shares of restricted stock are granted to each
non-employee director every January 1st. The stock is subject to a three-year
restricted period, during which the director is not entitled to delivery of the
stock and restrictions are placed on the stock's transferability. Shares issued
as restricted stock shall be forfeited if during the three-year restricted
period the director terminates his/her directorship, except for termination due
to death, disability, or retirement under the Company's Directors' Retirement
Plan. Upon expiration of the restricted period, Shares will be made available
to the director. Terms of the Plan as they apply to director restricted stock
cannot be amended more often than once every six months, except in limited
circumstances. The Committee would have no authority regarding restricted stock
grants to non-employee directors.
Performance Awards
The Plan would permit the Committee to grant awards to officers and key
employees of the Company ("Performance Awards") based upon Company performance
over a period of years ("Performance Period"). At the time the Committee
establishes a Performance Period for a particular award, it shall also
establish Company performance measures ("Performance Measures") applicable to
the award and targets that must be attained relative to those measures
("Performance Targets"). Performance Measures may be based on any of the
following, alone or in combination, as the Committee deems appropriate: (i)
return on assets; (ii) return on equity; (iii) return on sales; (iv) total
shareholder return; (v) cash flow; (vi) economic value added; and (vii) net
earnings. Performance Targets may include a minimum, maximum and target level
of performance, with the size of Performance Award based on the level attained.
Once established, Performance Targets and Performance Measures cannot be
changed during the Performance Period, except that the Committee may eliminate
or decrease a Performance Award otherwise payable. Upon completion of a
Performance Period, the Committee shall determine the Company's performance in
relation to the Performance Targets for that period and certify in writing the
extent to which Performance Targets were satisfied.
Performance Awards may be paid in cash, restricted stock, or a combination of
both not later than 90 days following the end of the Performance Period. The
aggregate value of a Performance Award to any individual employee in any
calendar year under the Plan shall not exceed $2.5 million. The number of
Shares awarded and their fair market value shall be determined by the average
of the high and low price of Shares on the last day of the Performance Period.
Specific rules regarding Performance Awards in the event of termination of
employment are provided in the Plan.
21
<PAGE>
Change of Control
In the event of a change of control at the Company: (i) all options then
outstanding under the Plan become fully exercisable; (ii) all terms and
conditions of restricted stock then outstanding are deemed satisfied; and (iii)
all Performance Awards for a Performance Period not completed at the time of
the change of control shall be payable in an amount equal to the product of the
maximum award opportunity for the Performance Award and a fraction, the
numerator of which is the number of months that have elapsed since the
beginning of the Performance Period through the later of (A) the date of the
change of control or (B) the date the participant terminates employment, and
the denominator of which is the total number of months in the Performance
Period. If the Plan remains in force after a change of control, a Performance
Period is completed during that time, and the participant's employment has not
terminated, provision (iii) shall not apply.
A change of control occurs if: (i) any person becomes a beneficial owner of
15 percent or more of the Company's outstanding Shares, provided that the Board
may waive this provision in a particular instance by resolution; (ii) during
any two consecutive years, there ceases to be a majority of the Board comprised
of individuals who at the beginning of that period constituted the Board; (iii)
the Company's stockholders approve a consolidation with another company under
certain circumstances; and (iv) the Company approves a plan of complete
liquidation of the Company or an agreement to dispose of substantially all of
its assets. The payment of awards in the event of a change of control may have
the incidental effect of increasing the net cost of that change, and,
theoretically, could render a change of control more difficult or discourage
it.
Plan Amendment or Termination
The Board may terminate the Plan at any time, except with respect to grants
and awards outstanding. The Board also may amend the Plan without shareholder
approval, unless such approval is necessary to comply with applicable laws,
including provisions of the Exchange Act or the Code.
Current Federal Tax Consequences
An employee who has been granted an incentive stock option will not realize
taxable income and the Company will not be entitled to a deduction at the time
of the grant or exercise of that option. If the employee does not dispose of
Shares acquired pursuant to an incentive stock option within two years from the
date of grant, or within one year of transfer of Shares to the employee, any
gain or loss realized on a subsequent disposition will be treated as long-term
capital gain or loss. Under these circumstances the Company will not be
entitled to a deduction for federal income tax purposes. If these holding
periods are not satisfied, the employee will generally realize ordinary income
at the time of disposition in an amount equal to the lesser of (i) the excess
of the fair market value of the Shares on the date of exercise over the option
price or (ii) the excess of the amount realized upon disposition of the Shares,
if any, over the option price, and the Company will be entitled to a
corresponding deduction.
An employee or director will not realize taxable income at the time of grant
of an option that does not qualify as an incentive stock option. Upon exercise,
however, of that non-qualified option, the holder will realize ordinary income
in an amount measured by the excess, if any, of the fair market value of the
Shares on the date of exercise over the option price, and the company will be
entitled to a corresponding deduction. Upon a subsequent disposition of Shares,
the holder will realize short-term or long-term capital gain or loss with the
basis for computing such gain or loss equal to the option price plus the amount
of ordinary income realized upon exercise.
Unless an election is made under Section 83 of the Code to recognize income
at the time of restricted stock grant, an employee or director granted a
restricted stock award will not realize taxable income at the time of grant,
and the Company will not be entitled to a deduction at that time, assuming that
the restrictions constitute a substantial risk of forfeiture for federal income
tax purposes. Upon the vesting of Shares subject to an award, the holder will
realize ordinary income in an amount equal to the fair market value of Shares
at that time, and the Company will be entitled to a corresponding deduction.
Dividends paid to the holder during the restriction period will also be income
to the employee and deductible by the Company.
22
<PAGE>
An employee granted a Performance Award will not realize taxable income at
the time a performance cycle is established, and the Company will not be
entitled to a deduction at that time. The employee will have income at the time
a Performance Award is paid out if that payment is in cash, and the Company
will have a corresponding deduction. If a Performance Award is paid in
restricted stock, the tax impact will be that discussed above with respect to
restricted stock.
Other Information
The closing price of the Company's Common Stock reported on the New York
Stock Exchange for February 16, 1996 was $67.25 per share. A Form S-8
registering Shares to be issued under the Plan shall be filed on or about May
1, 1996.
<TABLE>
<CAPTION>
New Plan Benefits Table
1996 Stock Option and Long-Term Incentive Plan
(Awards in 1995 under the proposed plan's predecessor,
The 1987 Stock Option Plan and Supplement)
- --------------------------------------------------------------------------------
Options Restricted Stock Performance Awards
(# of shares) (including stock ($ value - excluding
distributed as restricted stock
Performance Awards) distributed)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
D. V. Fites 75,000 7,675 450,053
G. A. Barton 25,000 2,558 150,037
G. S. Flaherty 25,000 2,558 150,037
J. W. Owens 25,000 1,829 107,275
R. L. Thompson 25,000 1,829 107,275
Officer Group 415,460 43,826 2,571,381
Non-Officer Group 1,187,180 35,289 2,074,514
Non-Employee 20,000 2,000 N/A
Director Group
</TABLE>
The Board of Directors recommends a vote FOR approval of the Caterpillar
Inc. 1996 Stock Option and Long-Term Incentive Plan.
PROPOSAL 3--APPROVAL OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors wishes to obtain from the stockholders an indication
of their approval or disapproval of the Board's action in appointing Price
Waterhouse LLP ("Price Waterhouse") as independent auditors of the Company for
the year 1996.
Price Waterhouse have been the independent auditors of the Company since its
incorporation in 1925. No relationship exists other than the usual relationship
between independent public accountant and client.
In the event the appointment of Price Waterhouse as independent auditors for
1996 is not approved by the stockholders, the adverse vote will be considered
as a direction to the Board of Directors to consider the selection of other
auditors for the following year. However, because of the difficulty in making
any substitution of auditors so long after the beginning of the current year,
it is contemplated that the appointment for the year 1996 will be permitted to
stand unless the Board finds other good reason for making a change. The
directors recommend a vote FOR the approval of the appointment of Price
Waterhouse.
Representatives of Price Waterhouse are expected to be present at the annual
meeting of stockholders on April 10, 1996, with the opportunity to make a
statement if they desire to do so. Such representatives are also expected to be
available to respond to appropriate questions.
23
<PAGE>
PROPOSAL 4--STOCKHOLDER PROPOSAL
Mr. Kenneth H. Busch, Secretary-Treasurer/Business Manager for the Southwest
Ohio District Council of Carpenters and Fund Chairman for the Southwest Ohio
D.C. Pension Fund ("Fund"), advises that, on behalf of the Fund (owner of 5,000
shares of Company stock), he or another representative of the Fund intends to
present for consideration and action at the annual meeting the following
resolution:
Resolution Proposed by Stockholder
BE IT RESOLVED: That the shareholders of Caterpillar Inc. ("Company") urge
that the Board of Directors take the necessary steps, in compliance with
Delaware state law, to declassify the Board of Directors for the purpose of
director elections. The Board declassification shall be done in a manner that
does not affect the unexpired terms of directors previously elected.
Supporting Statement of Proponent
At last year's annual meeting of shareholders, this Proposal received 48.2%
of the vote. Despite almost half the shareholders expressing a desire to reform
the method of director elections, the current board has made no attempts to
start a dialogue with us on this issue and continues the practice of denying
shareholders the opportunity to annually vote for each director and to have the
opportunity to replace the entire board if the situation merits such action.
The election of corporate directors is the primary avenue in the American
corporate governance system for shareholders to influence corporate affairs and
exert accountability on management. We strongly believe that our Company's
financial performance is closely linked to its corporate governance policies
and procedures, and the level of management accountability they impose.
Therefore, as shareholders concerned about the value of our investment, we are
very disturbed by our Company's current system of electing only one-third of
the board of directors each year. We believe this staggering of director terms
prevents shareholders from annually registering their views on the performance
of the board collectively and each director individually.
Concerns that the annual election of all directors would leave our Company
without experienced Board members in the event that all incumbents are voted
out is unfounded. If the owners should choose to replace the entire board, it
would be obvious that the incumbent directors' contributions were not valued.
Additionally, concerns that the annual election of all directors would expose
shareholders to takeover attempts at below full value is also unfounded. Our
Company's poison pill is a virtually insurmountable takeover defense which
forces potential acquirers to negotiate offers with the Board.
Most alarming is that the staggered Board can help insulate directors and
senior executives from the consequences of poor performance by denying
shareholders the opportunity to replace an entire Board which, in the opinion
of shareholders, is pursuing failed policies. At the time of submission of this
Proposal (October 1995), Caterpillar has reported earnings significantly below
estimates and its stock price has plunged approximately 20 points or 40% of its
value. We believe that allowing shareholders to annually register their views
on the performance of the Board collectively and each director individually is
one of the best methods to insure that our Company will be managed in the best
interests of the shareholders.
Statement in Opposition to Proposal
Our classified Board structure makes it more difficult for someone to take
over Caterpillar rapidly through a proxy contest. Someone with control over the
voting process would have to wait two years to gain control of our Board. We
instituted this structure in 1986 with strong shareholder support because we
believe a rapid, hastily considered takeover of Caterpillar would not be in the
best interests of our stockholders, employees, or the many communities impacted
by Caterpillar's presence.
Although a stockholders' rights plan is an effective deterrent to a coercive
tender offer, without a classified Board structure, our company is vulnerable
to a takeover through a proxy contest. Threatened proxy contests at other
companies this past year demonstrate this danger.
24
<PAGE>
For the past two years, proposals presented at our annual meeting to
eliminate the classified structure have received strong support. We believe
this support, for the most part, has come from certain large institutional
stockholders who have stated their opposition to the classified structure.
Although we respect the right of those stockholders to vote any way they
want on this issue, we believe an explanation of their possible motivation is
necessary. Some large institutional stockholders are evaluated and compete for
business with other institutions based on the short-term (often quarterly)
return their portfolios provide to investors. For them, the best indicator of
having achieved benefit for their clients may be an increase in a portfolio
company's stock price. In a hostile takeover, an acquiror often offers a
premium for the target company's stock, resulting in a large return to
stockholders within a short time frame. Some institutional holders, not all,
view mechanisms such as the classified structure that may inhibit a rapid
takeover as potentially eliminating this opportunity for short term gain.
There is nothing wrong with an institution doing what they believe is best
for their clients. However, as a public company in the United States competing
globally, we have obligations that transcend enhancing short-term stockholder
returns.
Our primary obligation is to enhance Caterpillar's business competitiveness
for the long-term, and provide sustained, long-term return to our investors. We
do that by taking measures such as investing $1.8 billion in renewed factories
and radically restructuring company operations; measures that were a
significant sacrifice when implemented but have contributed to record sales and
profits the past two years, as well as a substantial increase in stockholder
return. It is this long-term focus that has solidly positioned Caterpillar for
the twenty-first century.
We also have a long-term obligation to the thousands of Caterpillar employees
in the U.S. and around the world that depend upon the excellent livelihood a job
at Caterpillar provides. Their well-being, the well-being of their families, and
the financial health of their communities often depend upon measures taken by
Caterpillar to promote its long-term competitiveness. A short-term focus by
Caterpillar could severely damage this balance.
To plan for the long term, we need a stable Board; a Board that management
believes will be able to implement long-term measures, if not see the fruits of
their labors fully realized; a Board that is confident in its own stability at
a time when takeover attempts are back in vogue. The classified Board structure
is designed to enhance Board stability and protect the Board's ability to take
that essential long-term perspective.
We do not discourage shareholders from expressing their concerns to us. In
fact, we encourage that dialogue. What we want to discourage as detrimental to
Caterpillar is support for a short-term focus without considering what that
focus could do to our company. If as a stockholder you have taken a negative
position on our Board's classified structure simply because you always take
that position on this issue, we ask you to rethink it. Rethink it as it relates
to Caterpillar's position as a U.S. based company competing globally. Rethink
it as it relates to recent Caterpillar performance and how our focus on the
long term has promoted that performance. You owe it to yourself or any
investors you may be representing.
Your Board of Directors recommends a vote AGAINST this proposal.
FILINGS PURSUANT TO SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Based upon a review of Company records, one director, Mr. Joshua I. Smith,
filed a Form 4 report late. The report relates to one transaction involving 100
shares occurring on February 1, 1995. A Form 4 was filed with respect to that
transaction on July 14, 1995.
25
<PAGE>
STOCKHOLDER PROPOSALS FOR THE 1997 ANNUAL MEETING
Under the rules of the Securities and Exchange Commission, stockholders
wishing to submit proposals for inclusion in the Company's Proxy Statement for
the annual meeting of stockholders to be held in 1997 must submit such
proposals so as to be received by the Company's Secretary at 100 NE Adams
Street, Peoria, Illinois 61629 on or before November 1, 1996.
STOCKHOLDER NOMINATIONS
A stockholder may also nominate an individual for election as a director at
the annual meeting but, pursuant to the Company's bylaws, written notice of
such nomination must be received by the Secretary of the Company at 100 NE
Adams Street, Peoria, Illinois 61629, not later than ninety days in advance of
such meeting. A copy of the Company's bylaws specifying the requirements for
stockholder nominations will be furnished to any stockholder without charge
upon written request to the Secretary.
SOLICITATION
The accompanying proxy is solicited by and on behalf of the Board of
Directors. The cost of soliciting proxies will be borne by the Company. Such
solicitation is being made by mail and may also be made by telephone or in
person using the services of directors, officers and regular employees of the
Company. In addition, the Company has engaged Georgeson & Co. for a fee of
$20,000 plus out-of-pocket expenses to assist in the solicitation. Banks,
brokerage firms and other custodians, nominees, and fiduciaries will be
reimbursed by the Company for reasonable expenses incurred in sending proxy
material to beneficial owners of Company Common Stock.
STOCKHOLDER LIST
A listing of the Company's stockholders of record will be available for
examination by stockholders during normal business hours at the Loews Ventana
Canyon Hotel, 7000 North Resort Drive, Tucson, Arizona, at least ten days prior
to the annual meeting.
REVOCABILITY OF PROXY
A stockholder giving the enclosed proxy may revoke it at any time before it
is exercised by filing with the Company a written notice of revocation or by a
duly executed and presented proxy bearing a later date or by voting in person
at the meeting.
Dated: March 1, 1996
26
<PAGE>
EXHIBIT A
CATERPILLAR INC.
1996 STOCK OPTION AND LONG-TERM INCENTIVE PLAN
Section 1. Purpose
The Caterpillar Inc. 1996 Stock Option and Long-Term Incentive Plan ("Plan")
is designed to attract and retain outstanding individuals as directors,
officers and key employees of Caterpillar Inc. and its subsidiaries
(collectively, the "Company"), and to furnish incentives to such individuals
through awards based upon the performance of the Company and its stock. To this
end, the Plan provides for grants of stock options, restricted stock, and
performance awards, or combinations thereof, to non-employee directors,
officers and other key employees of the Company, on the terms and subject to
the conditions set forth in the Plan.
Section 2. Shares Subject to the Plan
2.1 Shares Reserved for Issuance
Seven million shares of Company common stock ("Shares") shall be available
for issuance under the Plan either from authorized but unissued Shares or from
Shares acquired by the Company, including Shares purchased in the open market.
An additional four million Shares authorized but unissued under prior Company
stock option plans shall be available for issuance under this Plan.
2.2 Stock Splits/Stock Dividends
In the event of a change in the outstanding Shares of the Company by reason
of a stock dividend, recapitalization, merger, consolidation, split-up,
combination, exchange of shares, or similar event, the Compensation Committee
("Committee") of the Company's Board of Directors ("Board") shall take any
action, which, in its discretion, it deems necessary to preserve benefits under
the Plan, including adjustment to the aggregate number of Shares reserved for
issuance under the Plan, the number and option price of Shares subject to
outstanding options granted under the Plan and the number and price of Shares
subject to other awards under the Plan.
2.3 Reacquired Shares
If Shares issued pursuant to the Plan are not acquired by participants
because of lapse, expiration or termination of an award, such Shares shall
again become available for issuance under the Plan to the extent permitted by
applicable law. Shares tendered upon exercise of an option by a Plan
participant may be added back and made available solely for grants to persons
not subject to Section 16 of the Securities Exchange Act of 1934 ("Exchange
Act").
Section 3. Administration
The Committee shall have the authority to grant awards under the Plan to
officers and other key employees of the Company. Except as limited by the
express provisions of the Plan or by resolutions adopted by the Board, the
Committee also shall have the authority and discretion to interpret the Plan,
to establish and revise rules and regulations relating to the Plan, and to make
any other determinations that it believes necessary or advisable for
administration of the Plan.
The Committee shall be composed solely of members of the Board that are
outside directors, as that term is defined in Section 162(m) of the Internal
Revenue Code. The Committee shall have no authority with respect to
non-employee director awards under the Plan.
27
<PAGE>
Section 4. Stock Options
4.1 Company Employees
(a) Eligibility
The Committee shall determine Company officers and employees to whom options
shall be granted, the timing of such grants, and the number of shares subject
to the option; provided that the maximum number of Shares upon which options
may be granted to any employee in any calendar year shall be 200,000.
(b) Option Exercise Price
The exercise price of each option shall not be less than 100% of the fair
market value of Shares underlying the option at the time the option is granted.
The fair market value for purposes of determining the exercise price shall be
the mean between the high and low prices at which Shares are traded on the New
York Stock Exchange the day the option is granted. In the event this method for
determining fair market value is not practicable, fair market value shall be
determined by such other reasonable method as the Committee shall select.
(c) Option Exercise
Options shall be exercisable in such installments and during such periods as
may be fixed by the Committee at the time of grant. Options that are not
incentive stock options as defined in Section 4.1(f) of the Plan shall not be
exercisable after the expiration of ten years and one day from the date of
grant.
Payment of the exercise price shall be made upon exercise of all or a
portion of any option. Such payment shall be in cash or by tendering Shares
having a fair market value equal to 100% of the exercise price. The fair market
value of Shares for this purpose shall be the mean between the high and low
prices at which Shares are traded on the New York Stock Exchange on the date of
exercise. Upon exercise of an option, any applicable taxes the Company is
required to withhold shall be paid to the Company. Shares to be received upon
exercise may be surrendered to satisfy withholding obligations.
(d) Termination of Employment
The Committee may require a period of continued employment before an option
can be exercised. That period shall not be less than one year, except that the
Committee may permit a shorter period in the event of termination of employment
by retirement or death.
Termination of employment with the Company shall terminate remaining rights
under options then held; provided, however, that an option grant may provide
that if employment terminates after completion of a specific period, the option
may be exercised during a period of time after termination. That period may not
exceed sixty months where termination of employment is caused by retirement or
death or sixty days where termination results from any other cause. If death
occurs after termination of employment but during the period of time specified,
such period may be extended to not more than sixty-six months after retirement,
or thirty-eight months after termination of employment for any other cause. In
the event of termination within two years after a Change of Control as defined
in Section 7.2 of the Plan, options shall be exercisable for a period of sixty
months following the date of termination or for the maximum term of the option,
whichever is shorter. Notwithstanding the foregoing, the Committee may change
the post-termination period of exercisability of an option provided that change
does not extend the original maximum term of the option.
(e) Transferability of Options
Options shall not be transferable other than by will or the laws of descent
and distribution or pursuant to a qualified domestic relations order as defined
by the Internal Revenue Code or the Employee Retirement Income Security Act.
Options are exercisable during the holder's lifetime only by the holder, unless
the holder becomes incapacitated or disabled, in which case the option may be
exercised by the holder's authorized representative. A holder may file with the
Company a written designation of beneficiaries with the authority to exercise
options in the event of the holder's death.
28
<PAGE>
(f) Incentive Stock Options
Incentive stock options, as defined in Section 422A of the Internal Revenue
Code, may be granted under the Plan. The decision to grant incentive stock
options to particular persons is within the Committee's discretion. Incentive
stock options shall not be exercisable after expiration of ten years from the
date of grant. The amount of incentive stock options vesting in a particular
year cannot exceed $100,000 per option recipient, based on the fair market
value of the options on the date of grant; provided that any portion of an
option that cannot be exercised as an incentive stock option because of this
limitation may be converted by the Committee to another form of option. The
Board may amend the Plan to comply with Section 422A of the Internal Revenue
Code or other applicable laws and to permit options previously granted to be
converted to incentive stock options.
4.2 Non-Employee Directors
(a) Terms
Options with a term of ten years and one day are granted to each
non-employee director for 2,000 Shares, effective as of the close of each
annual meeting of stockholders at which an individual is elected a director or
following which such individual continues as a director. Options granted to
non-employee directors shall become exercisable by one-third at the end of each
of the three successive one-year periods since the date of grant. The exercise
price of each option shall be 100% of the fair market value of Shares
underlying the option on the date of grant. Plan provisions applicable to
director option awards shall not be amended more than once every six months
other than to comply with changes in the Internal Revenue Code, Employee
Retirement Income Security Act, or rules thereunder.
(b) Termination of Directorship
An option awarded to a non-employee director may be exercised any time within
60 months of the date the director terminates such status. In the event of a
director's death, the director's authorized representative may exercise the
option within 60 months of the date of death, provided that if the director dies
after cessation of director status, the option is exercisable within 66 months
of such cessation. In no event shall an option awarded to a non-employee
director be exercisable beyond the expiration date of that option.
Section 5. Restricted Stock
5.1 Company Employees
(a) Eligibility
The Committee may determine whether restricted stock shall be awarded to
Company officers and employees, the timing of award, and the conditions and
restrictions imposed on the award.
(b) Terms
During the restriction period, the recipient shall have a beneficial interest
in the restricted stock and all associated rights and privileges of a
stockholder, including the right to vote and receive dividends, subject to any
restrictions imposed by the Committee at the time of grant.
The following restrictions will be imposed on Shares of restricted stock
until expiration of the restriction period:
(i) The recipient shall not be entitled to delivery of the Shares;
(ii) None of the Shares issued as restricted stock may be transferred other
than by will or by the laws of descent and distribution; and
29
<PAGE>
(iii) Shares issued as restricted stock shall be forfeited if the recipient
terminates employment with the Company, except for termination due to
retirement after a specified age, disability, death or other special
circumstances approved by the Committee.
Shares awarded as restricted stock will be issued subject to a restriction
period set by the Committee of no less than two nor more than ten years. The
Committee, except for restrictions specified in the preceding paragraphs, shall
have the discretion to remove any or all of the restrictions on a restricted
stock award whenever it determines such action appropriate. Upon expiration of
the restriction period, the Shares will be made available to the recipient,
subject to satisfaction of applicable tax withholding requirements.
5.2 Non-Employee Directors
On January 1 of each year, 200 Shares of restricted stock shall be granted
to each non-employee director. The stock will be subject to a restriction
period of three years from the date of grant. During the restriction period,
the recipient shall have a beneficial interest in the restricted stock and all
associated rights and privileges of a stockholder, including the right to vote
and receive dividends.
The following restrictions will be imposed on restricted stock until
expiration of the restricted period:
(a) The recipient shall not be entitled to delivery of the Shares;
(b) None of the Shares issued as restricted stock may be transferred
other than by will or by the laws of descent and distribution; and
(c) Shares issued as restricted stock shall be forfeited if the
recipient ceases to serve as a director of the Company, except for
termination due to death, disability, or retirement under the
Company's Directors' Retirement Plan.
Upon expiration of the restriction period, the Shares will be made available
to the recipient, subject to satisfaction of applicable tax withholding
requirements. Plan provisions applicable to director restricted stock awards
shall not be amended more than once every six months other than to comply with
changes in the Internal Revenue Code, Employee Retirement Income Security Act,
or rules thereunder.
Section 6. Performance Awards
6.1 Eligibility and Terms
The Committee may grant awards to officers and other key employees
("Performance Awards") based upon Company performance over a period of years
("Performance Period"). The Committee shall have sole discretion to determine
persons eligible to participate, the Performance Period, Company performance
factors applicable to the award ("Performance Measures"), and the method of
Performance Award calculation.
At the time the Committee establishes a Performance Period for a particular
award, it shall also establish Performance Measures and targets to be attained
relative to those measures ("Performance Targets"). Performance Measures may be
based on any of the following factors, alone or in combination, as the
Committee deems appropriate: (i) return on assets; (ii) return on equity; (iii)
return on sales; (iv) total shareholder return; (v) cash flow; (vi) economic
value added; and (vii) net earnings. Performance Targets may include a minimum,
maximum and target level of performance with the size of Performance Awards
based on the level attained. Once established, Performance Targets and
Performance Measures shall not be changed during the Performance Period;
provided, however, that the Committee may eliminate or decrease the amount of a
Performance Award otherwise payable to a participant. Upon completion of a
Performance Period, the Committee shall determine the Company's performance in
relation to the Performance Targets for that period and certify in writing the
extent to which Performance Targets were satisfied.
30
<PAGE>
6.2 Payment of Awards
Performance Awards may be paid in cash, Shares of restricted stock (pursuant
to terms applicable to restricted stock awarded to Company employees as
described in the Plan) or a combination thereof, as determined by the
Committee. Performance Awards shall be made not later than 90 days following
the end of the relevant Performance Period. The fair market value of a
Performance Award payment to any individual employee in any calendar year shall
not exceed $2.5 million. The fair market value of Shares to be awarded shall be
determined by the average of the high and low price of Shares on the New York
Stock Exchange on the last business day of the Performance Period. Federal,
state and local taxes will be withheld as appropriate.
6.3 Termination
To receive a Performance Award, the participant must be employed by the
Company on the last day of the Performance Period. If a participant terminates
employment during the Performance Period by reason of death, disability or
retirement, a payout based on the time of employment during the Performance
Period shall be distributed. Participants employed on the last day of the
Performance Period, but not for the entire Performance Period, shall receive a
payout prorated for that part of the Performance Period for which they were
participants. If the participant is deceased at the time of Performance Award
payment, the payment shall be made to the recipient's designated representative.
Section 7. Change of Control
7.1 Effect on Grants and Awards
Unless the Committee shall otherwise expressly provide in the agreement
relating to a grant or award under the Plan, upon the occurrence of a Change of
Control as defined below: (i) all options then outstanding under the Plan shall
become fully exercisable as of the date of the Change of Control; (ii) all
terms and conditions of restricted stock awards then outstanding shall be
deemed satisfied as of the date of the Change of Control; and (iii) all
Performance Awards for a Performance Period not completed at the time of the
Change of Control shall be payable in an amount equal to the product of the
maximum award opportunity for the Performance Award and a fraction, the
numerator of which is the number of months that have elapsed since the
beginning of the Performance Period through the later of (A) the date of the
Change of Control or (B) the date the participant terminates employment, and
the denominator of which is the total number of months in the Performance
Period; provided, however, that if this Plan shall remain in force after a
Change of Control, a Performance Period is completed during that time, and the
participant's employment has not terminated, this provision (iii) shall not
apply.
7.2 Change of Control Defined
For purposes of the Plan, a "Change of Control" shall be deemed to have
occurred if:
(a) Any person becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of
the Company representing 15 percent or more of the combined voting
power of the Company's then outstanding common stock, unless the
Board by resolution negates the effect of this provision in a
particular circumstance, deeming that resolution to be in the best
interests of Company stockholders;
(b) During any period of two consecutive years, there shall cease to be
a majority of the Board comprised of individuals who at the
beginning of such period constituted the Board;
(c) The shareholders of the Company approve a merger or consolidation
which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) less than fifty percent of the
combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation; or
(d) Company shareholders approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company
of all or substantially all of its assets.
31
<PAGE>
Section 8. Amendment and Termination
The Board may terminate the Plan at any time, except with respect to grants
and awards then outstanding. The Board may amend the Plan without shareholder
approval, unless such approval is necessary to comply with applicable laws,
including provisions of the Exchange Act or Internal Revenue Code.
Section 9. Regulatory Compliance
Notwithstanding any other provision of the Plan, the issuance or delivery of
any Shares may be postponed for such period as may be required to comply with
any applicable requirements of any national securities exchange or any
requirements under any other law or regulation applicable to the issuance or
delivery of such Shares. The Company shall not be obligated to issue or deliver
any Shares if such issuance or delivery shall constitute a violation of any
provision of any law or regulation of any governmental authority or national
securities exchange.
Section 10. Effective Date
The Plan shall be effective upon its approval by the Company's stockholders
at the 1996 Annual Meeting of Stockholders.
32
<PAGE>
APPENDIX
CATERPILLAR INC.
GENERAL AND FINANCIAL INFORMATION
1995
A-1
<PAGE>
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
- 1995 Compared with 1994................................. A-28
- 1994 Compared with 1993................................. A-32
Liquidity & Capital Resources..................................... A-33
Employment........................................................ A-33
Other Matters..................................................... A-33
Labor Update...................................................... A-36
1996 Economic and Industry Outlook................................ A-36
1996 Company Outlook.............................................. A-36
Supplemental Stockholder Information...................................... A-37
Directors and Officers.................................................... A-38
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, 1995, 1994,
and 1993, 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 18, 1996
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP [LOGO]
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, 1995, 1994, and
1993, and the results of their operations and their 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.
/s/ Price Waterhouse LLP
Peoria, Illinois
January 18, 1996
A-3
<PAGE>
STATEMENT 1
Consolidated Results of Operations for the Years Ended December 31
(Millions of dollars except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Machinery and Engines:
Sales (note 1B) .............................................. $15,451 $13,863 $11,235
------- ------- -------
Operating costs:
Cost of goods sold ........................................ 12,000 10,834 9,075
Selling, general, and administrative expenses ............. 1,483 1,348 1,262
Research and development expenses (note 4) ................ 375 311 319
------- ------- -------
13,858 12,493 10,656
------- ------- -------
Operating profit ............................................. 1,593 1,370 579
Interest expense ............................................. 191 200 268
------- ------- -------
1,402 1,170 311
Net interest income on U.S. tax settlement (note 7) .......... -- -- 251
Other income (expense) (note 6) .............................. 92 43 92
------- ------- -------
Profit before taxes .......................................... 1,494 1,213 654
------- ------- -------
Financial Products:
Revenues (note 1B) ........................................... 621 465 380
------- ------- -------
Operating costs:
Selling, general, and administrative expenses ............. 240 191 161
Interest expense .......................................... 293 210 172
------- ------- -------
533 401 333
------- ------- -------
Operating profit ............................................. 88 64 47
Other income (expense) (note 6) .............................. 33 (4) 21
------- ------- -------
Profit before taxes .......................................... 121 60 68
------- ------- -------
Consolidated profit before taxes ................................ 1,615 1,273 722
Provision for income taxes (note 7) .......................... 501 354 42
------- ------- -------
Profit of consolidated companies ............................. 1,114 919 680
Equity in profit of affiliated companies (notes 1A and 11) ... 22 36 1
------- ------- -------
Profit before extraordinary loss ............................. 1,136 955 681
Extraordinary loss on early retirement of debt (note 14) ..... -- -- (29)
------- ------- -------
Profit ....................................................... $ 1,136 $ 955 $ 652
======= ======= =======
Profit per share of common stock:
Profit before extraordinary loss ............................. $ 5.72 $ 4.70 $ 3.36
Extraordinary loss on early retirement of debt ............... -- -- (.15)
------- ------- -------
Profit ....................................................... $ 5.72 $ 4.70 $ 3.21
======= ======= =======
Dividends declared per share of common stock .................... $ 1.30 $ .63 $ .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)
- --------------------------------------------------------------------------------
1995 1994 1993
-------- -------- --------
Common stock (note 18):
Balance at beginning of year..................... $ 745 $ 835 $ 799
Common shares issued, including treasury shares
reissued:
1995 - 713,131; 1994 - 1,144,631; 1993
- 1,819,130................................ 15 48 36
Treasury shares purchased:
1995 - 7,140,100; 1994 - 4,426,200............. (427) (240) -
Issuance of common stock to effect 2-for-1 stock
split.......................................... - 102 -
------ ------ ------
Balance at year-end.............................. 333 745 835
------ ------ ------
Profit employed in the business:
Balance at beginning of year..................... 1,961 1,234 643
Profit........................................... 1,136 955 652
Dividends declared............................... (257) (126) (61)
Issuance of common stock to effect 2-for-1 stock
split.......................................... - (102) -
------ ------ ------
Balance at year-end.............................. 2,840 1,961 1,234
------ ------ ------
Minimum pension liability adjustment (note 5A)..... - - (40)
------ ------ ------
Foreign currency translation adjustment (note 3):
Balance at beginning of year..................... 205 170 133
Aggregate adjustment for year.................... 10 35 37
------ ------ ------
Balance at year-end.............................. 215 205 170
------ ------ ------
Stockholders' equity at year-end................... $3,388 $2,911 $2,199
====== ====== ======
See accompanying Notes to Consolidated Financial Statements.
A-5
<PAGE>
<TABLE>
<CAPTION>
STATEMENT 3
Financial Position at December 31
(Dollars in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated
(Caterpillar Inc. and subsidiaries)
------------------------------------
1995 1994 1993
------------------------------------
<S> <C> <C> <C>
Assets
Current assets:
Cash and short-term investments............................................. $ 638 $ 419 $ 83
Receivables - trade and other............................................... 2,531 2,971 2,637
Receivables - finance (note 8).............................................. 1,754 1,319 988
Deferred income taxes and prepaid expenses (note 7)......................... 803 865 838
Inventories (notes 1C and 9)................................................ 1,921 1,835 1,525
------------------------------------
Total current assets........................................................... 7,647 7,409 6,071
Land, buildings, machinery, and equipment - net (notes 1D and 10).............. 3,644 3,776 3,827
Long-term receivables - trade and other........................................ 126 125 132
Long-term receivables - finance (note 8)....................................... 3,066 2,669 2,152
Investments in affiliated companies (notes 1A and 11).......................... 476 455 395
Investments in Financial Products subsidiaries................................. - - -
Deferred income taxes (note 7)................................................. 1,127 1,243 1,321
Intangible assets (notes 1E and 5A)............................................ 170 237 353
Other assets (notes 5B and 20)................................................. 574 336 556
------------------------------------
Total assets..................................................................... $16,830 $16,250 $14,807
====================================
Liabilities
Current liabilities:
Short-term borrowings (note 13).............................................. $ 1,174 $ 740 $ 822
Accounts payable and accrued expenses........................................ 2,579 2,624 2,055
Accrued wages, salaries, and employee benefits............................... 875 1,047 957
Dividends payable............................................................ 68 50 15
Deferred and current income taxes payable (note 7)........................... 91 144 111
Long-term debt due within one year (note 14)................................. 1,262 893 711
------------------------------------
Total current liabilities...................................................... 6,049 5,498 4,671
Long-term debt due after one year (note 14).................................... 3,964 4,270 3,895
Liability for postemployment benefits (note 5)................................. 3,393 3,548 4,018
Deferred income taxes and other liabilities (note 7)........................... 36 23 24
------------------------------------
Total liabilities................................................................ 13,442 13,339 12,608
------------------------------------
Contingencies (notes 17 and 21)
Stockholders' equity (Statement 2)
Common stock of $1.00 par value (note 18):
Authorized shares: 450,000,000
Issued shares (1995, 1994, and 1993 - 203,723,656)
at paid-in amount.......................................................... 901 923 835
Profit employed in the business................................................ 2,840 1,961 1,234
Minimum pension liability adjustment (note 5A)................................. - - (40)
Foreign currency translation adjustment (note 3)............................... 215 205 170
Treasury stock (1995 - 9,708,538 shares;
and 1994 - 3,281,569 shares) at cost......................................... (568) (178) -
------------------------------------
Total stockholders' equity....................................................... 3,388 2,911 2,199
------------------------------------
Total liabilities and stockholders' equity....................................... $16,830 $16,250 $14,807
====================================
</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
-------------------------------------------------------------------------
1995 1994 1993 1995 1994 1993
-------------------------------------------------------------------------
<S> <C> <C> <S> <C> <C>
$ 580 $ 395 $ 62 $ 58 $ 24 $ 21
2,910 2,919 2,612 132 96 63
-- -- -- 1,754 1,319 988
834 888 869 13 3 2
1,921 1,835 1,525 -- -- --
-------------------------------------------------------------------------
6,245 6,037 5,068 1,957 1,442 1,074
3,199 3,343 3,456 445 433 371
126 125 132 -- -- --
-- -- -- 3,066 2,669 2,152
476 455 395 -- -- --
658 548 457 -- -- --
1,171 1,254 1,334 -- -- --
170 237 353 -- -- --
330 143 398 244 193 158
- --------------------------------------------------------------------------
$12,375 $12,142 $11,593 $ 5,712 $ 4,737 $ 3,755
==========================================================================
$ 14 $ 17 $ 139 $ 1,160 $ 723 $ 683
2,358 2,416 1,925 776 278 201
873 1,045 955 2 2 2
68 50 15 -- -- --
40 112 71 51 32 40
156 86 218 1,106 807 493
- --------------------------------------------------------------------------
3,509 3,726 3,323 3,095 1,842 1,419
2,049 1,934 2,030 1,915 2,336 1,865
3,393 3,548 4,018 -- -- --
36 23 23 44 11 14
- --------------------------------------------------------------------------
8,987 9,231 9,394 5,054 4,189 3,298
- --------------------------------------------------------------------------
901 923 835 333 303 258
2,840 1,961 1,234 320 245 206
-- -- (40) -- -- --
215 205 170 5 -- (7)
(568) (178) -- -- -- --
- --------------------------------------------------------------------------
3,388 2,911 2,199 658 548 457
- --------------------------------------------------------------------------
$12,375 $12,142 $11,593 $ 5,712 $ 4,737 $ 3,755
==========================================================================
</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)
-----------------------------------
1995 1994 1993
-----------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Profit ................................................................. $ 1,136 $ 955 $ 652
Adjustments for noncash items:
Depreciation and amortization ....................................... 682 683 668
Profit of Financial Products ........................................ -- -- --
Other ............................................................... 324 166 (153)
Changes in assets and liabilities:
Receivables -- trade and other ...................................... 461 (308) (524)
Inventories ......................................................... (77) (315) 154
Accounts payable and accrued expenses ............................... (43) 519 315
Other -- net ........................................................ (293) 57 293
-----------------------------------
Net cash provided by operating activities ................................. 2,190 1,757 1,405
-----------------------------------
Cash flows from investing activities:
Capital expenditures -- excluding equipment leased to others ........... (464) (501) (417)
Expenditures for equipment leased to others ............................ (215) (193) (215)
Proceeds from disposals of land, buildings, machinery, and equipment ... 119 88 90
Additions to finance receivables ....................................... (4,869) (2,934) (2,024)
Collections of finance receivables ..................................... 2,787 1,850 1,389
Proceeds from sale of finance receivables .............................. 1,262 241 --
Net short-term loans to Financial Products ............................. -- -- --
Other -- net ........................................................... (369) (63) (41)
-----------------------------------
Net cash used for investing activities .................................... (1,749) (1,512) (1,218)
-----------------------------------
Cash flows from financing activities:
Dividends paid ......................................................... (239) (91) (61)
Common stock issued, including treasury shares reissued ................ 11 12 36
Treasury shares purchased .............................................. (427) (240) --
Net short-term loans from Machinery and Engines ........................ -- -- --
Proceeds from long-term debt issued .................................... 1,414 1,083 1,218
Payments on long-term debt ............................................. (997) (746) (936)
Short-term borrowings -- net ........................................... 30 74 (451)
-----------------------------------
Net cash provided by financing activities ................................. (208) 92 (194)
-----------------------------------
Effect of exchange rate changes on cash ................................... (14) (1) (29)
-----------------------------------
Increase (decrease) in cash and short-term investments .................... 219 336 (36)
Cash and short-term investments at the beginning of the period ............ 419 83 119
-----------------------------------
Cash and short-term investments at the end of the period .................. $ 638 $ 419 $ 83
===================================
</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.
- --------------------------------------------------------------------------------
Supplemental consolidating data
-----------------------------------------------------------------------
Machinery and Engines
(Caterpillar Inc. with Financial
Products on the equity basis) Financial Products
-----------------------------------------------------------------------
1995 1994 1993 1995 1994 1993
-----------------------------------------------------------------------
$ 1,136 $ 955 $ 652 $ 75 $ 39 $ 43
580 588 598 102 95 70
(75) (39) (43) - - -
233 126 (201) 91 40 48
505 (281) (488) (36) (33) (7)
(77) (315) 154 - - -
(28) 471 322 (5) 47 (28)
(328) 73 279 17 (9) 5
-----------------------------------------------------------------------
1,946 1,578 1,273 244 179 131
-----------------------------------------------------------------------
(460) (498) (415) (4) (3) (2)
(9) (9) (12) (206) (184) (203)
35 15 57 84 73 33
- - - (4,869) (2,934) (2,024)
- - - 2,787 1,850 1,389
- - - 1,262 241 -
(475) - - - - -
(359) (81) (85) (40) (27) 15
-----------------------------------------------------------------------
(1,268) (573) (455) (986) (984) (792)
-----------------------------------------------------------------------
(239) (91) (61) - - -
11 12 36 30 45 30
(427) (240) - - - -
- - - 475 - -
270 - 201 1,144 1,083 1,017
(91) (240) (419) (906) (506) (517)
(3) (112) (620) 33 186 169
-----------------------------------------------------------------------
(479) (671) (863) 776 808 699
-----------------------------------------------------------------------
(14) (1) 3 - - (32)
-----------------------------------------------------------------------
185 333 (42) 34 3 6
395 62 104 24 21 15
-----------------------------------------------------------------------
$ 580 $ 395 $ 62 $ 58 $ 24 $ 21
=======================================================================
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 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 11.
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
Services Corporation.
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 when 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, 1995, 1994, and 1993.
If the FIFO (first-in, first-out) method had been in use, inventories would
have been $2,103, $2,035, and $1,818 higher than reported at December 31, 1995,
1994, and 1993, 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, 1995, averaged 23 years. Accumulated amortization was $185, $182,
and $178, at December 31, 1995, 1994, and 1993, 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 3, 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 12 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.
G. Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, sales,
expenses, and disclosure of contingent liabilities. Actual results could differ
from these estimates.
Warranty accruals, and actuarially determined product liability loss
reserves and postemployment benefits require the use of significant estimates.
The company believes the techniques and assumptions used in establishing these
liabilities are appropriate.
Significant estimates are also used in the determination of environmental
liabilities, income taxes, and plant closing and consolidation costs, which are
discussed in the respective notes to the financial statements.
2. Accounting changes
A. Change in method
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.
A-10
<PAGE>
Caterpillar Inc.
________________________________________________________________________________
B. Impact of accounting standards issued in 1995
In March 1995, the Financial Accounting Standards Board issued SFAS 121,
"Accounting for the Impairment of Long-Lived Assets." The new statement
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill. This standard is effective for
fiscal years beginning after December 15, 1995, and will therefore be adopted in
1996. It will not have a material impact on the company's financial position or
results of operations.
In October 1995, SFAS 123, "Accounting for Stock-Based Compensation" was
issued, which is effective for fiscal years beginning after December 15, 1995.
The new standard encourages companies to adopt a fair value based method of
accounting for employee stock options, but allows companies to continue to
account for those plans using the accounting prescribed by APB Opinion 25,
"Accounting for Stock Issued to Employees." The company will adopt the
disclosure requirements of the standard in 1996 and plans to continue
accounting for stock compensation using APB 25, making pro forma disclosures of
net income and earnings per share as if the fair value based method had been
applied.
3. Foreign exchange
The U.S. dollar is the functional currency for most 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 (expense)" in Statement 1. 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.
Profit of consolidated companies for 1995 and 1993 included net pretax
foreign exchange losses of $20 and $25, respectively. There were no net pretax
foreign exchange gains or losses included in profit of consolidated companies
for 1994. The aftertax net gains (losses) for 1995, 1994, and 1993 were $(11),
$1, and $(19), 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 sales made in foreign currencies, and (2) the U.S.
dollar value of costs incurred in foreign currencies. The company enters into
forward exchange contracts and certain foreign currency option contracts to
manage these foreign currency cash flows. Other than premiums associated with
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 net
anticipated foreign currency transactions. 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. At December 31, 1995,
the company had approximately $95 in forward exchange and foreign currency
option contracts to sell foreign currency to hedge firmly committed revenue
(sale) transactions. Realized losses totaling less than $1, associated with
hedges of future firmly committed revenue transactions that had matured or been
canceled prior to December 31, 1995, will be recognized when the underlying
hedged transactions occur. This amount is reflected as an asset ("Receivables -
trade and other") in Statement 3.
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
(expense)" on Statement 1. At December 31, 1995, the company had approximately
$219 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 12 months.
The company also had $86 of written foreign currency options open at
December 31, 1995. These written options were originally entered into as a part
of a combination option strategy. The related purchased options were either
sold or terminated prior to the maturity date and were replaced with forward
contracts. The maturity dates of the outstanding written options are within the
first quarter of 1996. The company has applied mark-to-market accounting
treatment to these written options.
Net unrealized losses on the $305 of outstanding contracts and written
options total less than $1 and have been recognized in "Other income (expense)"
on Statement 1. This amount is reflected as a reduction of assets
("Receivables - trade and other") in Statement 3.
The fair market value of all outstanding forward exchange and foreign
currency option contracts based on quoted market prices of comparable
instruments was a loss of $1. The value of the contracts upon ultimate
settlement is dependent upon actual currency exchange rates at the various
maturity dates which range through mid-1996.
At December 31, 1994, and 1993, the company had approximately $1,003, and
$1,345, respectively, in forward exchange and foreign currency option contracts
to buy or sell foreign currency. At December 31, 1994, and 1993, the carrying
value of such contracts was a loss of $4 and $2, respectively, and the fair
value, based on quoted market prices of comparable instruments, was a loss of
$97, and $16, respectively.
For 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 (expense)" in Statement 1
A-11
<PAGE>
NOTES continued
(Dollars in millions except per share data)
________________________________________________________________________________
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
1995 or 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:
1994 1993
---- ----
Interest expense............................... $ 10 $ 72
Cost of goods sold............................. 29 33
Provision for income taxes..................... 10 11
Interest Income................................ (53) --
---- ----
$ (4) $116
==== ====
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 1995, 1994,
and 1993 was $50, $81, and $95, 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:
1995 1994 1993
--------- --------- ---------
Service cost - benefits earned
during the period....................... $95 $108 $103
Interest cost on projected
benefit obligation...................... 409 393 387
Return on plan assets:/(1)/
Actual........................ $(1,167) $(124) $(674)
Deferred...................... 685 (335) 248
------- ----- -----
Recognized............................ (482) (459) (426)
Amortization of:
Net asset existing at
adoption of SFAS 87................... (23) (22) (22)
Prior service cost/(2)/................ 63 60 51
Net actuarial (gain) loss.............. (12) 1 2
--- --- ---
Pension expense......................... $50 $81 $95
=== === ===
/(1)/ Although the actual return on plan assets is shown, the expected long-term
rate of return on plan assets of 9.4%, 9.4%, and 9.9% was used in
determining consolidated pension expense for 1995, 1994, and 1993,
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 $130, $209, and $323 was recorded at
December 31, 1995, 1994, and 1993, respectively. As the intangible asset may
not exceed unrecognized prior service cost, at December 31, 1993, this
adjustment resulted in a reduction to stockholders' equity of $40 (after
deferred taxes of $24).
Plan assets consist principally of common stocks, corporate bonds, and U.S.
government obligations. The actuarial present value of benefits was determined
using a weighted average discount rate of 7.4%, 8.3%, and 7.3% for 1995, 1994,
and 1993, 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 4.1%, 4.6%, and 4.1% for 1995, 1994, and
1993, 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.
Cost components of postretirement benefit expense were as follows:
1995 1994 1993
--------- --------- ---------
Service cost - benefits earned
during the period.................. $73 $83 $79
Interest cost on accumulated
benefit obligation................. 232 223 227
Return on plan assets:/(1)/
Actual...................... $(58) $ 3 $ -
Deferred.................... 34 (26) -
---- ---- ----
Recognized....................... (24) (23) -
Amortization of:
Prior service cost/(2)/........... (190) (190) (189)
Net actuarial (gain) loss......... (3) 2 1
--- --- ----
Postretirement benefit expense..... $88 $95 $118
=== === ====
A-12
<PAGE>
Caterpillar Inc.
- --------------------------------------------------------------------------------
TABLE I
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
----------------------- ----------------------- -----------------------
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................................. $(2,844) $(2,124) $(2,379) $(1,823) $(2,453) $(2,047)
Nonvested benefit obligation.............................. (142) (383) (146) (402) (190) (476)
------- ------- ------- ------- ------- -------
Accumulated benefit obligation............................ $(2,986) $(2,507) $(2,525) $(2,225) $(2,643) $(2,523)
======= ======= ======= ======= ======= =======
Actuarial present value of projected benefit obligation... $(3,310) $(2,533) $(2,829) $(2,248) $(2,928) $(2,587)
Plan assets at market value............................... 3,917 2,282 3,310 1,810 3,257 1,922
------- ------- ------- ------- ------- -------
Funded status at plan year-end............................ 607 (251) 481 (438) 329 (665)
Unrecognized net asset existing at adoption of SFAS 87.... (93) (5) (114) (9) (160) 13
Unrecognized prior service cost........................... 155 233 158 279 115 351
Unrecognized net actuarial (gain) loss.................... (418) (74) (342) (45) (124) 63
Adjustment required to recognize minimum liability........ - (130) - (209) - (387)
------- ------- ------- ------- ------- -------
Prepaid pension cost (pension liability) at December 31... $ 251 $ (227) $ 183 $ (422) $ 160 $ (625)
======= ======= ======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------------------------
</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 both 1995 and 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.
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. Earnings from trust assets of $34 were
included in Statement 1 as a component of "Other income (expense)" (note 6) 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, VEBA trust assets for retiree benefits were
legally segregated from those for active employees. As such, these assets are
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 (expense)."
The components of the liability for postretirement benefits (other than
pensions) as of December 31, were as follows:
1995 1994 1993
------- ------- -------
Accumulated postretirement benefit obligation:
Retirees...................................... $(2,149) $(1,910) $(1,965)
Fully eligible active plan participants....... (225) (242) (323)
Other active plan participants................ (657) (604) (722)
------- ------- -------
(3,031) (2,756) (3,010)
Plan assets at market value.................... 297 239 -
Unrecognized prior service cost................ (479) (669) (861)
Unrecognized net actuarial (gain) loss......... (182) (265) 132
------- ------- -------
Liability for postretirement benefits
(other than pensions)......................... $(3,395) $(3,451) $(3,739)
======= ======= =======
The assumed health care cost trend rate used to measure the accumulated
postretirement benefit obligation at December 31, 1995, was 8.7% for 1996,
declining gradually to 5.0% in 2001. Postretirement benefit expense for 1995
and the accumulated postretirement benefit obligation at December 31, 1994,
were determined using a health care cost trend rate of 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 was
determined using a health care cost trend rate of 11.5% for 1993, declining
gradually to 5.0% in 2001. Increasing the assumed health care trend rate by 1%
each year would increase the accumulated postretirement benefit obligation as
of December 31, 1995, 1994, and 1993 approximately $226, $202, and $234,
respectively, and the aggregate of the service and interest cost components of
1995, 1994, and 1993 postretirement benefit expense by approximately $25, $24,
and $25, respectively. The accumulated postretirement benefit obligation was
determined using a weighted average discount rate of 7.5%, 8.5%, and 7.4% for
1995, 1994, and 1993, respectively.
A-13
<PAGE>
NOTES continued
(Dollars in millions except per share data)
________________________________________________________________________________
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.
D. Summary of long-term liability
The components of the long-term liability for postemployment benefits at
December 31 were as follows:
1995 1994 1993
------ ------ ------
Pensions.............................................. $ 130 $ 209 $ 387
Postretirement benefits other than pensions........... 3,199 3,275 3,566
Other postemployment benefits......................... 64 64 65
------ ------ ------
$3,393 $3,548 $4,018
====== ====== ======
6. Other income (expense)
The components of other income (expense) were as follows for the years ended
December 31:
1995 1994 1993
---- ---- ----
Foreign exchange gains (losses)............... $(20) $ $(25)
Investment and interest income................ 90 48 97
License fees.................................. 28 23 28
Miscellaneous income (expense)................ 27 (32) 13
---- ---- ----
$125 $ 39 $113
==== ==== ====
7. Income taxes
The provision for income taxes for the years ended December 31 was:
1995 1994 1993
---- ---- ----
Machinery and Engines......................... $456 $333 $ 19
Financial Products............................ 45 21 23
---- ---- ----
Provision for income taxes.................... $501 $354 $ 42
==== ==== ====
The components of the provision (credit) for income taxes were as follows
for the years ended December 31:
1995 1994 1993
---- ---- ----
Current tax provision:
U.S. federal taxes........................... $244 $164 $ 63
Foreign taxes................................ 92 73 25
U.S. state taxes............................. 17 25 10
---- ---- ----
353 262 98
---- ---- ----
Deferred tax provision (credit):
U.S. federal taxes........................... 147 87 (51)
Foreign taxes................................ (6) (8) (2)
U.S. state taxes............................. 7 13 (3)
---- ---- ----
148 92 (56)
---- ---- ----
Total provision for income taxes.............. $501 $354 $ 42
==== ==== ====
Current tax provision is the amount of income taxes reported or expected to
be reported on the company's tax returns.
Income taxes paid in 1995, 1994, and 1993 totaled $327, $199, and $10,
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.
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:
1995 1994 1993
---- ---- ----
U.S. federal, U.S. state, and foreign taxes:
Deferred tax assets:
Postemployment benefits other
than pensions............................. $1,309 $1,331 $1,345
Inventory valuation method.................. 65 62 66
Unrealized profit excluded
from inventories.......................... 170 156 193
Plant closing and
consolidation costs....................... 53 55 58
Net operating loss carryforwards............ 150 166 253
Warranty reserves........................... 105 108 67
Accrued vacation............................ 30 29 29
Qualified deficits.......................... - 33 54
Foreign tax credit carryforwards............ - - 62
Minimum tax credit carryforwards............ - - 18
Sales discounts............................. 18 12 17
Other....................................... 23 143 109
------ ------ ------
1,923 2,095 2,271
Deferred tax liabilities:
Capital assets.............................. (83) (84) (77)
Pension..................................... (91) (36) (22)
------ ------ ------
(174) (120) (99)
------ ------ ------
Valuation allowance for
deferred tax assets......................... (176) (182) (284)
------ ------ ------
Deferred taxes - net.......................... $1,573 $1,793 $1,888
====== ====== ======
From December 31, 1994 to December 31, 1995, the valuation allowance for
deferred tax assets decreased by $6. This was the result of origination and
reversal of temporary differences and changes in exchange rates at certain
foreign locations where valuation allowances are recorded. During 1995, no
changes occurred in the conclusions regarding the need for a valuation
allowance in any tax jurisdiction.
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:
A-14
<PAGE>
Caterpillar Inc.
________________________________________________________________________________
1995 1994 1993
------ ------ ------
Assets:
Deferred income taxes and
prepaid expenses.................... $ 464 $ 575 $ 584
Deferred income taxes................ 1,127 1,243 1,321
------ ------ ------
1,591 1,818 1,905
------ ------ ------
Liabilities:
Deferred and current
income taxes payable................ (3) (6) (2)
Deferred income taxes
and other liabilities............... (15) (19) (15)
------ ------ ------
(18) (25) (17)
------ ------ ------
Deferred taxes - net.................. $1,573 $1,793 $1,888
====== ====== ======
The provision for income taxes was different than would result from applying
the U.S. statutory rate to profit before taxes for the reasons set forth in the
following reconciliation:
1995 1994 1993
---- ---- ----
Taxes computed at U.S. statutory rates......... $565 $445 $ 253
Increases (decreases) in taxes resulting from:
Subsidiaries' results subject to tax rates
other than U.S. statutory rates............. (7) (9) 1
Net operating loss carryforwards............. (10) (50) (19)
Benefit of Foreign Sales Corporation......... (41) (34) (21)
IRS settlement............................... - - (144)
Change in U.S. tax rate...................... - - (36)
State income taxes - net of federal taxes.... 15 25 11
Valuation allowance adjustment............... - (22) -
Research and experimentation credit.......... (4) - (4)
Other - net.................................. (17) (1) 1
---- ---- -----
Provision for income taxes..................... $501 $354 $ 42
==== ==== =====
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, 1995, 1994, and 1993, included the
company's share of undistributed profits of subsidiaries and affiliated
companies, totaling $932, $753, and $680, 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 before taxes of consolidated
companies were as follows:
1995 1994 1993
------ ------ ----
Domestic............................. $1,205 $ 779 $611
Foreign.............................. 410 494 111
------ ------ ----
$1,615 $1,273 $722
====== ====== ====
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 23C, 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, 1995. The amounts and expiration dates of these
carryforwards are as follows:
1999......................................... $ 3
2000......................................... 42
2001......................................... 12
Unlimited.................................... 293
----
Total....................................... $350
====
There were no tax credit carryforwards available in the U.S. at December 31,
1995.
Realization of deferred tax assets is dependent upon taxable income within
the carryback and carryforward periods available under the tax laws. The
company's domestic operations have generated significant cumulative profit over
the last three years. Although realization of the $1,355 of U.S. deferred tax
assets in excess of deferred tax liabilities is not certain, management has
concluded that it is "more likely than not" that the company will realize the
full benefit of U.S. deferred tax assets. While, in the aggregate, the
company's foreign subsidiaries have also generated cumulative profit over the
last three years, certain foreign subsidiaries are still in net operating loss
carryforward positions. With the exception of one subsidiary, there is not
currently sufficient positive evidence as required by SFAS 109 to substantiate
recognition of net deferred tax assets in the financial statements for those
foreign subsidiaries in net operating loss carryforward positions. Accordingly,
a valuation allowance of $176 has been recorded. It is reasonably possible that
sufficient positive evidence could be generated in the near term at one or more
of these foreign subsidiaries to support a reduction in the valuation allowance
and the resulting recognition of additional net deferred tax assets.
8. 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
(rental fleet financings of $331 are included in 1996 maturities due to the
company's experience that most terminate in six months) at December 31, 1995
were:
A-15
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- -------------------------------------------------------------------------------
Installment Financing
Amounts Due In Contracts Leases Notes Total
- -------------- ----------- --------- ------- -------
1996................... $ 505 $ 657 $ 976 $2,138
1997................... 356 511 250 1,117
1998................... 218 336 257 811
1999................... 95 172 177 444
2000................... 27 71 117 215
Thereafter............. 3 111 143 257
------ ------ ------ ------
1,204 1,858 1,920 4,982
Residual value......... - 410 - 410
Less: Unearned Income.. (141) (363) (11) (515)
------ ------ ------ ------
Total.................. $1,063 $1,905 $1,909 $4,877
====== ====== ====== ======
The average recorded investment in impaired loans and leases for 1995 and
1994 was $51 and $49, respectively. The total recorded investment in impaired
loans and leases was $37 and $47 at December 31, 1995 and 1994, respectively.
These amounts, less the fair value of the underlying collateral of $25 and $32,
represented a $12 and $15 projected loss on impaired loans and leases at
December 31, 1995 and 1994, respectively, for which related allowances for
credit losses were recorded. 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:
1995 1994 1993
---- ---- ----
Balance at beginning of year..................... $ 50 $ 41 $ 37
Provision for credit losses...................... 43 23 20
Less: Receivables, net of
recoveries, written off.................. (33) (13) (19)
Other - net...................................... (3) (1) 3
---- ---- ----
Balance at end of year........................... $ 57 $ 50 $ 41
==== ==== ====
At December 31, 1995, 1994, and 1993, the fair value of finance receivables
(excluding finance type leases classified as finance receivables with net
carrying value of $613, $391, and $333, respectively) was $4,175, $3,582, and
$2,822, 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:
1995 1994 1993
------ ------ ------
Total minimum lease payments receivable.............. $1,858 $1,387 $1,135
Estimated residual value of leased assets:
Guaranteed......................................... 113 84 71
Unguaranteed....................................... 297 208 149
------ ------ ------
2,268 1,679 1,355
Less: Unearned income................................ 363 265 229
------ ------ ------
Net investment in financing leases................... $1,905 $1,415 $1,126
====== ====== ======
9. Inventories
Inventories at December 31, by major classification, were as follows:
1995 1994 1993
------ ------ ------
Raw materials and work-in-process................... $ 710 $ 697 $ 545
Finished goods...................................... 1,006 942 812
Supplies............................................ 205 196 168
------ ------ ------
$1,921 $1,835 $1,525
====== ====== ======
Reductions in individual LIFO inventory pools decreased cost of goods sold
for 1995, 1994, and 1993 by $22, $28, and $38, 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, 1995, 1994, and 1993, the amounts of
the contracts hedging future commodity purchases were immaterial.
10. Land, buildings, machinery, and equipment
Land, buildings, machinery, and equipment at December 31, by major
classification, were as follows:
1995 1994 1993
------ ------ ------
Land - at original cost.............................. $ 102 $ 105 $ 105
Buildings............................................ 2,548 2,597 2,485
Machinery and equipment.............................. 3,657 3,609 3,594
Patterns, dies, jigs, etc............................ 453 441 428
Furniture and fixtures............................... 179 163 144
Computers............................................ 479 474 469
Transportation equipment............................. 61 44 28
Equipment leased to others........................... 674 633 536
Construction-in-process.............................. 150 164 176
------ ------ ------
8,303 8,230 7,965
Accumulated depreciation............................. (4,659) (4,454) (4,138)
------ ------ ------
Land, buildings, machinery, and
equipment - net.................................... $3,644 $3,776 $3,827
====== ====== ======
The company had commitments for the purchase or construction of capital
assets of approximately $150 at December 31, 1995. Capital expenditure plans
are subject to continuous monitoring, and changes in such plans could reduce
the amount committed.
Maintenance and repair expense for 1995, 1994, and 1993 was $499, $461, and
$458, respectively.
Equipment leased to others
Equipment leased to others, primarily by Caterpillar Financial Services
Corporation, consisted of the following components at December 31:
1995 1994 1993
---- ---- ----
Equipment leased to others - at cost................. $674 $633 $536
Less:
Accumulated depreciation........................... 220 189 150
---- ---- ----
Equipment leased to others - net..................... $454 $444 $386
==== ==== ====
Scheduled minimum rental payments to be received for equipment leased to
others during each of the years 1996 through 2000, and in total thereafter, are
$133, $95, $67, $38, $20, and $5, respectively.
A-16
<PAGE>
Caterpillar Inc.
- --------------------------------------------------------------------------------
11. Affiliated companies
The company's investments in affiliated companies consist principally of a
50% interest in Shin Caterpillar Mitsubishi Ltd., Japan ($438). 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:
Years ended
September 30,
1995 1994 1993
------ ------ ------
Results of Operations
Sales..................................... $3,789 $3,324 $2,776
====== ====== ======
Profit.................................... $ 44 $ 63 $ 1
====== ====== ======
Profit for the year ended September 30, 1994, includes $19 representing
aftertax gain on the sale of surplus assets.
September 30,
1995 1994 1993
------ ------ ------
Financial Position
Assets:
Current assets........................... $1,872 $1,853 $1,691
Land, buildings, machinery, and
equipment - net........................ 780 781 750
Other assets............................. 322 298 310
------ ------ ------
2,974 2,932 2,751
------ ------ ------
Liabilities:
Current liabilities...................... 1,676 1,575 1,441
Long-term debt due after one year........ 215 332 449
Other liabilities........................ 155 150 90
------ ------ ------
2,046 2,057 1,980
------ ------ ------
Ownership.................................. $ 928 $ 875 $ 771
====== ====== ======
At December 31, 1995, the company's consolidated "Profit employed in the
business" included $125 representing its share of undistributed profit of the
affiliated companies. In 1995, 1994, and 1993, the company received $8, $3, and
$3, respectively, in dividends from affiliated companies.
12. 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. In the United
States, the company has a long-term, contractually committed credit agreement,
which requires a minimum level of net worth and a maximum ratio of debt to
capitalization.
Unsecured, confirmed credit lines available from banks were $4,000 at
December 31, 1995 (U.S. $2,453 and non-U.S. $1,547), of which $2,573 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, 1995, Machinery and Engines had $2,633 confirmed credit
lines (U.S. $2,453 and non-U.S. $180), of which $5 was utilized as backup for
bank borrowings. Under the contractually committed credit agreements, $1,427 is
available from various banks through October 2000, and $918 is available
through October 1996. 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 90% by Caterpillar Financial
Services Corporation, with a $300 sublimit for Caterpillar Financial Australia
Limited, a wholly owned subsidiary of Cat Financial.
Financial Products
At December 31, 1995, Financial Products had $2,807 of confirmed lines (U.S.
$1,440 and non-U.S. $1,367), including the $1,440 of the company's credit
agreements, of which $710 was utilized as backup for outstanding commercial
paper and $712 for bank borrowings.
Based on long-term credit agreements, $294, $660, and $455 of commercial
paper outstanding at December 31, 1995, 1994, and 1993, respectively, was
classified as long-term debt due after one year.
13. Short-term borrowings
Short-term borrowings at December 31 consisted of the following:
1995 1994 1993
------ ------ ------
Machinery and Engines:
Notes payable to banks.................... $ 14 $ 17 $104
Commercial paper.......................... - - 35
------ ---- ----
14 17 139
Financial Products:
Notes payable to banks.................... 712 532 336
Commercial paper.......................... 416 181 342
Other..................................... 32 10 5
------ ---- ----
1,160 723 683
------ ---- ----
$1,174 $740 $822
====== ==== ====
Interest paid on short-term borrowings for 1995, 1994, and 1993 was $122,
$99, and $94, respectively (interest paid in 1994 and 1993 was $109 and $166,
respectively, excluding the reclassification described in note 3).
At December 31, 1995, 1994, and 1993, the carrying value of short-term
borrowings approximated fair value.
The weighted average interest rates on short-term borrowings at December 31
were as follows:
1995 1994 1993
---- ---- ----
Notes payable to banks......................... 5.4% 5.8% 6.6%
Notes payable to others........................ 5.4% 5.3% 3.6%
Commercial paper............................... 5.9% 6.1% 3.6%
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 $294, $660, and $455 of commercial paper
supported by revolving credit agreements which were classified as long-term
debt due after one year (note 12).
A-17
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- --------------------------------------------------------------------------------
14. Long-term debt
Debt due after one year at December 31 consisted of the following:
1995 1994 1993
------ ------ ------
Machinery and Engines:
Notes - 9-1/8% due 1996..................... $ - $ 150 $ 150
Notes - 9-3/8% due 2000..................... 149 149 149
Notes - 9-3/8% due 2001..................... 183 183 183
Debentures - 9% due 2006.................... 202 202 202
Debentures - 6% due 2007.................... 131 127 124
Debentures - 9-3/8% due 2011................ 123 123 123
Debentures - 9-3/4% due 2000-2019........... 199 199 200
Debentures - 9-3/8% due 2021................ 236 236 236
Debentures - 8% due 2023.................... 199 199 199
Medium-term notes........................... 300 300 379
Capital lease obligation - 7.4%............. 257 - -
Other....................................... 70 66 85
------ ------ ------
2,049 1,934 2,030
Financial Products:
Commercial paper supported by revolving
credit agreement (note 12)................ 294 660 455
Medium-term notes........................... 1,553 1,616 1,366
Other....................................... 68 60 44
------ ------ ------
1,915 2,336 1,865
------ ------ ------
$3,964 $4,270 $3,895
====== ====== ======
The aggregate amounts of maturities and sinking fund requirements of
long-term debt during each of the years 1996 through 2000, including that due
within one year and classified as current are:
1996 1997 1998 1999 2000
------ ---- ---- ---- ----
Machinery and Engines.............. $ 156 $129 $ 41 $ 61 $169
Financial Products................. 1,106 711 486 238 82
------ ---- ---- ---- ----
$1,262 $840 $527 $299 $251
====== ==== ==== ==== ====
Interest paid on total long-term borrowings, excluding the reclassification
described in note 3, for 1995, 1994, and 1993 was $353, $307, and $308,
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 7). 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.
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 capital lease obligation is collateralized by the leased
manufacturing equipment and a security deposit.
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%.
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, 1995, these notes had
a weighted average interest rate of 7.6% with about 17 months to eight years
remaining to maturity.
The notes of the Financial Products subsidiaries primarily represent
medium-term notes having a weighted average interest rate of 6.2% with
maturities up to 15 years at December 31, 1995.
At December 31, 1995, 1994, and 1993, the fair value of long-term debt,
including that due within one year, was approximately $2,550, $2,127 and
$2,646, respectively, for Machinery and Engines and $3,083, $3,108, and $2,397,
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.
15. Interest rate derivative contracts
To manage its exposure to interest rate changes and lower the cost of
borrowed funds, the company uses various interest rate derivative contracts,
including swaps, caps, floors, and forward rate agreements.
Interest rate derivative contracts are linked to specific debt instruments.
Interest differentials currently payable or receivable under the derivative
contracts are recognized each period as adjust ments to "Interest expense" in
Statement 1. Current period income is not affected by the increase or decrease
in the fair market value of derivative instruments as interest rates change.
Interest rate swap agreements are settled in cash at specified intervals based
on the difference between the fixed-rate and floating-rate interest amounts
calculated by reference to the contractual notional amount. Premiums paid on
purchased interest rate caps and the cash settlement at the initial effective
date of forward rate agreements are deferred and recognized ratably as
adjustments to "Interest expense" on Statement 1 over the lives of the
agreements. 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 derivative 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 amount of Financial Products subsidiaries' outstanding forward
rate agreements, which are utilized to manage interest rate exposure on
short-term borrowings, totaled $14 and $3 at December 31, 1995 and 1994,
respectively. These agreements generally range up to six months.
At December 31, 1995, Financial Products subsidiaries also had swaps having
future effective dates with a total notional amount of $59, which will
effectively change $3 of fixed rate
A-18
<PAGE>
<TABLE>
<CAPTION>
Caterpillar Inc.
- --------------------------------------------------------------------------------------------------------
TABLE II
- --------------------------------------------------------------------------------------------------------
Interest Rate Swaps
Expected Maturity
-----------------------------------------------------------------------
At December 31, 1995 1996 1997 1998 1999 2000 2001-05 Total
---- ---- ---- ---- ---- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Machinery & Engines:
Fixed-to-Floating Swaps
Notional Amount............. $ - $150 $300 $200 $150 $ - $ 800
Weighted Average:
Receive Rate.............. - 6.2% 5.5% 5.6% 6.2% - 5.8%
Pay Rate.................. - 5.8% 5.8% 5.8% 5.8% - 5.8%
Pay Rate Index:
Federal Reserve H-15
30 Day Commercial Paper
Financial Products:
Floating-to-Fixed Swaps
Notional Amount............. $436 $284 $211 $ 16 $ 33 $ 121 $1,101
Weighted Average:
Receive Rate.............. 5.8% 6.0% 5.9% 6.5% 5.9% 5.8% 5.9%
Pay Rate.................. 5.9% 6.4% 6.3% 7.3% 6.4% 6.7% 6.2%
Receive Rate Index: LIBOR,
Commercial Paper
Fixed-to-Floating Swaps
Notional Amount............. $176 $115 $ 20 $ - $ - $ - $ 311
Weighted Average:
Receive Rate.............. 4.6% 7.4% 5.2% - - - 5.7%
Pay Rate.................. 5.8% 5.6% 5.9% - - - 5.7%
Pay Rate Index: LIBOR
Floating-to-Floating Swaps
Notional Amount............. $ 97 $ - $ 50 $ 60 $ - $ - $ 207
Weighted Average:
Receive Rate.............. 5.0% - 6.4% 5.0% - - 5.3%
Pay Rate.................. 5.9% - 6.0% 5.7% - - 5.9%
Receive/Pay Rate Indices: LIBOR
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TABLE III
- --------------------------------------------------------------------------------------------------------
Interest Rate Swaps
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
---- ------ ---- ---- ------
Additions................................ 220 420 70 60 550
Maturities/Amortizations................. - (282) (63) (245) (590)
Terminations............................. (20) (3) - (100) (103)
F/X Translation Adjustment............... - 15 - - 15
---- ------ ---- ---- ------
Balance, December 31, 1995................. $800 $1,101 $311 $207 $1,619
==== ====== ==== ==== ======
- --------------------------------------------------------------------------------------------------------
</TABLE>
debt to floating rate debt and $56 of floating rate debt to fixed rate debt. The
effective dates of the future dated swaps range from 1996 through 1998, and the
terms of these swaps generally range up to four years.
The notional amounts of interest rate swap agreements outstanding (excluding
swaps with future effective dates) as of December 31, 1995, 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 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.
At December 31, 1994, Financial Products subsidiaries had three written
index-amortizing interest rate cap agreements
A-19
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- --------------------------------------------------------------------------------
outstanding. Two of these caps had notional amounts of $100 and one had a
notional amount of Canadian $50 (U.S. dollar equivalent $36).
The company entered into these agreements, in return for a premium, in order
to reduce the overall cost of borrowing. Fair value or mark-to-market
accounting treatment was applied to these instruments. Accordingly, unrealized
and realized gains and losses on these instruments were recorded as "Other
income (expense)" on Statement 1 and as "Accounts payable and accrued expenses"
on Statement 3. Increases in interest rates during 1994 resulted in a
recognized but unrealized mark-to-market loss on these written options of $18.
Lower interest rates in 1995 resulted in a reduction of the loss to $7. The
company terminated these cap agreements during 1995. 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 1995 and 1994 for each type of interest rate swap
agreement (excluding swaps with future effective dates) 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 were as follows:
1993
-----
Machinery and Engines:
Interest rate swaps:
Fixed to floating rate.................... $ 500
=====
Financial Products:
Interest rate swaps and caps:
Floating to fixed rate.................... $1,051
Fixed to floating rate.................... 629
Floating to floating rate................. 867
------
$2,547
======
Forward rate agreements.................... $ 246
======
For Machinery and Engines, the carrying value of interest rate swaps and
options in a net receivable position was approximately zero at December 31,
1995, and the fair value was $9. The carrying value and the fair value of
interest rate swaps and options in a net receivable position at December 31,
1994 were approximately zero. The carrying value of interest rate swaps and
options in a net receivable position was $1 at December 31, 1993, and the fair
value was $8. The carrying value of interest rate swaps and options in a net
payable position was $2 at both December 31, 1995 and 1994, and the fair value
was $1 and $50, respectively.
For Financial Products, at December 31, 1995, 1994, and 1993, the carrying
value of interest rate swaps and options in a net receivable position was $2,
$3, and $3, respectively, and the fair value was $7, $46, and $8, respectively.
The carrying value of interest rate swaps and options in a net payable position
at December 31, 1995, 1994, and 1993 was $4, $23, and $7, respectively. The
fair value was $17, $62, and $24 at December 31, 1995, 1994, and 1993,
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.
16. 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.
<TABLE>
<CAPTION>
TABLE IV
- ------------------------------------------------------------------------------------------------------------------------------------
Fair Values of Financial Instruments
1995 1994 1993
Asset (Liability) ------------------- ------------------- -------------------
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............. $ 638 $ 638 $ 419 $ 419 $ 83 $ 83 Statement 3, Note 20
Long-term Investments....................... 449 449 172 172 362 362 Note 20
Foreign Currency Exchange Contracts......... - (1) (4) (97) (2) (16) Note 3
Finance Receivables - net
(excluding operating and finance type
leases and currency swaps)................. 4,207 4,175 3,603 3,582 2,807 2,822 Note 8
Short-term Borrowings....................... 1,174 1,174 740 740 822 822 Note 13
Long-term Debt
(including amounts due within one year)
Machinery and Engines.................... (2,205) (2,550) (2,020) (2,127) (2,248) (2,646) Note 14
Financial Products....................... (3,021) (3,083) (3,143) (3,108) (2,358) (2,397) Note 14
Interest Rate Swaps and Options
Machinery and Engines...................... - 9 - - 1 8 Note 15
Machinery and Engines...................... (2) (1) (2) (50) - - Note 15
Financial Products......................... 2 7 3 46 3 8 Note 15
Financial Products......................... (4) (17) (23) (62) (7) (24) Note 15
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-20
<PAGE>
Caterpillar Inc.
- --------------------------------------------------------------------------------
Foreign Currency Contracts (Forwards and Options): 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.
17. 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 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.
18. Capital stock
A. Stock Options
In 1977 and 1987, stockholders approved plans providing for the granting to
officers and other key employees of options to purchase common stock of the
company. In 1988, the 1987 plan was amended to annually grant each non-employee
director options to purchase 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 713,131; 1,144,631; and 1,819,130 in 1995,
1994, and 1993, 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 1995, 1994, or 1993. Of the shares
covered by options outstanding at December 31, 1995, 2% were the subject of
stock appreciation rights.
Changes in the status of common shares subject to issuance under options
were as follows:
Shares
-----------------------------------
1995 1994 1993
--------- --------- ----------
Options outstanding at
beginning of year..................... 6,553,371 7,351,800 10,012,730
Granted to officers and key employees
in 1995, 1994, and 1993 at
$60.31, $53.53, and $37.53,
per share, respectively............... 1,602,640 1,581,540 1,488,280
Granted to outside directors in
1995, 1994, and 1993 at $55.81,
$56.69, and $30.38,
per share, respectively............... 20,000 22,000 16,000
Exercised..............................(1,503,330) (2,344,369) (4,122,368)
Lapsed................................. (38,857) (57,600) (42,842)
---------- ---------- ----------
Options outstanding at year-end........ 6,633,824 6,553,371 7,351,800
========== ========== ==========
Options outstanding at December 31, 1995, had exercise prices ranging from
$23.56 to $60.31 per share with an average exercise price of $43.91 per share
and had expiration dates ranging from June 10, 1996, to June 6, 2005. At
December 31, 1995, the number of shares exercisable totaled 3,584,140.
A-21
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- -------------------------------------------------------------------------------
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:
Shares
-----------------------------------
1995 1994 1993
---------- ---------- -----------
1977 stock option plan 2,547,304 2,547,304 2,547,304
1987 stock option plan 1,288,509 2,879,292 4,425,232
Employee investment and
other benefit plans 11,400,178 11,400,178 11,400,178
---------- ---------- ----------
15,235,991 16,826,774 18,372,714
========== ========== ==========
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.
Under the company's Stockholders' Rights Plan, every two shares of common
stock represent one preferred stock purchase right. Every right entitles the
holder to purchase 1/100th of a share of the company's Series A Junior
Participating Preferred Stock, $1.00 par value, at $150.00. 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
would result in control of 30% or more of the company's common stock. If after
the rights become exercisable, the company is involved in a business
combination or the acquiror engages in certain self-dealing transactions, each
right entitles the holder to purchase stock of the resulting company at a 50%
discount. The rights expire on December 1, 1996.
19. Operating 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 $139, $137, and $137 for 1995, 1994, and 1993, respectively. Minimum
payments for operating leases having initial or remaining non-cancelable terms
in excess of one year are:
Years ending December 31,
1996......................................... $ 99
1997......................................... 65
1998......................................... 34
1999......................................... 14
2000......................................... 12
Thereafter................................... 53
----
Total lease commitments...................... $277
====
20. Concentration of credit risk
Financial instruments which potentially subject the company to credit risk
consist primarily of trade and finance receivables and short-term and long-term
investments. 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, 1995, 1994, and 1993, the carrying value of
trade receivables approximated fair value.
Finance receivables primarily represent receivables under installment sales
contracts, receivables arising from leasing transactions, and notes receivable.
The company generally maintains a secured interest in the equipment financed.
Receivables from customers in construction-related industries made up
approximately one-third of total finance receivables at December 31, 1995,
1994, and 1993, respectively. No single customer or region represents a
significant concentration of credit risk. Fair value information on finance
receivables is included in note 8.
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, 1995, 1994, and 1993, 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. Beginning in 1994, VEBA trust assets were recorded as a
reduction to the liability for postretirement benefits (note 5B). At December
31, 1995, the company had a long-term investment which collateralizes a capital
lease obligation (note 14). At December 31, 1995, 1994, and 1993, the carrying
value of long-term investments was $449, $172, and $362, respectively, which,
based on quoted market prices, approximated fair value.
At December 31, 1995 and 1994, Caterpillar Financial Services Corporation
was contingently liable under guarantees of securities of certain Caterpillar
dealers totaling $282 and $258, respectively, of which $222 and $165 was
outstanding, respectively. These guarantees are fully secured by dealer
inventories. No loss is anticipated from these guarantees.
At December 31, 1995, the company had outstanding derivative contracts with
notional amounts totaling $2,892 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, 1995, the
company's exposure to credit loss was $2.
21. Environmental matters
Environmental considerations are a very important factor in the company's
product development and operations planning.
In 1995, the company had capital expenditures of about $11 for projects
related to the environment (including $3 in costs related to compliance with
the Clean Air Act), approximately equal to amounts for 1994.
In addition to these expenditures, the company had depreciation, research
and engineering, administrative, and operating expenses related to
environmental regulation of about $131 in 1995 (including $28 for compliance
with the Clean Air Act), slightly more than comparable expenses in 1994.
A-22
<PAGE>
Caterpillar Inc.
- -------------------------------------------------------------------------------
The company also is involved in a number of remediation actions to clean up
hazardous wastes as required by federal and state laws. These laws often
require responsible parties to fund remediation actions regardless of fault,
legality of original disposal or ownership of a disposal site. Under accounting
guidelines, the company is required to accrue and charge to income management's
best estimate of future costs associated with these sites. When there appears
to be a range of possible costs with equal likelihood, liabilities are based on
the lower end of that range. For 1995, the amount accrued for potential
clean-up costs is contained in the line item, "Accounts payable and accrued
expenses" on Statement 3, and represents an immaterial portion of that line
item. While the company may have rights of contribution or reimbursement under
insurance policies, amounts that may be recoverable from other entities are not
considered in establishing the accrual.
In deciding upon amounts to be reserved for potential environmental liability
at a particular site, the company looks at several factors including:
. prior experience regarding environmental remediation at a similar site;
. experience of other companies and industries with respect to a similar
site;
. technology available for remediation at the time;
. the stage of remediation for the particular site (i.e., whether the site is
at the identification stage or whether a remedial investigation or
feasibility study has been conducted);
. documentation, if any, linking the company to a particular site;
. the amount the company has been asked to contribute to a particular site;
and
. aspects of the law under which the company is alleged to be liable for
clean up.
The company also looks at these factors in deciding whether it could incur
liabilities beyond that which it has accrued for future remediation. Although
it is difficult to estimate with any meaning potential liability at sites in
very early stages of remediation (of which the company has seven currently) or
sites yet to be identified because of the many uncertainties involved,
including uncertainties about the status of the law, regulation, technology and
information related to individual sites, at this time the company believes the
likelihood of incurring any material environmental liability beyond that
accrued is remote.
22. Plant closing and consolidation costs
At December 31, 1995, the reserve for plant closing and consolidation costs
was $269. Of this balance, $173 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.
The probable closing of the York manufacturing 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 1,100 of the 1,400 active
employees of the York facility, of its willingness to negotiate a labor
agreement that would allow the unit to remain open. Unless a satisfactory
contract is reached, the company plans to close the plant beginning in the 1996
time frame.
Also included in the reserve for plant closing and consolidation costs at
December 31, 1995, was $69 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, 1995, 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.
23. Segment information
A. Nature of operations
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 reciprocating
diesel and spark-ignited engines meet power needs ranging from 40 to
8,050 horsepower. Turbines range from 1,340 to 15,000 horsepower (1,000
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 121 located
outside the United States. Worldwide, these dealers have more than 1,300 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,
A-23
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- --------------------------------------------------------------------------------
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.
The principal markets for the Machinery and Engines segments are located in
the United States, Europe, Asia/Pacific, and Latin America. The United States is
the principal market for the Financial Products segment. The majority of the
company's sales and revenues is derived from the Machinery segment.
B. Business segments
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:
1995 1994 1993
------- ------- -------
For the years ended December 31:
Sales:
Machinery................................. $11,336 $10,164 $ 8,132
Engines................................... 4,920 4,381 3,735
Elimination of intersegment engine sales... (805) (682) (632)
------- ------- -------
Consolidated sales......................... 15,451 13,863 11,235
Financial Products revenues................ 621 465 380
------- ------- -------
Sales and revenues......................... $16,072 $14,328 $11,615
======= ======= =======
Operating profit:
Machinery................................. $ 1,210 $ 1,099 $ 436
Engines................................... 462 348 226
Financial Products........................ 88 64 47
------- ------- -------
1,760 1,511 709
General corporate expenses................. (79) (77) (83)
------- ------- -------
Operating profit........................... $ 1,681 $ 1,434 $ 626
======= ======= =======
Capital expenditures - including
equipment leased to others:
Machinery................................ $ 256 $ 272 $ 243
Engines.................................. 179 182 154
Financial Products....................... 210 187 205
General corporate........................ 34 53 30
------- ------- -------
$ 679 $ 694 $ 632
======= ======= =======
Depreciation and amortization:
Machinery................................. $ 375 $ 394 $ 405
Engines................................... 172 168 163
Financial Products........................ 102 95 70
General corporate......................... 33 26 30
------- ------- -------
$ 682 $ 683 $ 668
======= ======= =======
At December 31:
Identifiable assets:
Machinery................................. $ 5,122 $ 5,773 $ 5,393
Engines................................... 2,746 2,570 2,358
Financial Products........................ 5,592 4,668 3,676
------- ------- -------
13,460 13,011 11,427
General corporate assets................... 2,894 2,784 2,986
Investments in affiliated companies........ 476 455 394
------- ------- -------
Total assets............................... $16,830 $16,250 $14,807
======= ======= =======
C. Geographic segments
Manufacturing activities of the Machinery and Engines segments are carried on in
30 plants in the United States, two each in France and China, and one each in
Australia, Belgium, Brazil, United Kingdom, Hungary, Indonesia, Italy, Mexico,
and Russia. Three major distribution centers are located in the United States
and seven 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. Information on the
company's geographic segments, based on the location of the company's
manufacturing operations for Machinery and Engines, was as follows:
1995 1994 1993
------- ------- -------
For the years ended December 31:
Sales:
United States........................... $12,191 $10,994 $ 9,159
Europe.................................. 2,638 2,358 1,678
All other............................... 1,200 1,050 737
Elimination of intersegment sales from:
United States........................... (308) (266) (154)
Europe.................................. (125) (141) (97)
All other............................... (145) (132) (88)
------- ------- -------
Consolidated sales....................... 15,451 13,863 11,235
Revenues:
United States........................... 482 362 309
All other............................... 139 103 71
------- ------- -------
Sales and revenues....................... $16,072 $14,328 $11,615
======= ======= =======
Operating profit:
Machinery and Engines:
United States.......................... $ 1,356 $ 1,108 $ 620
Europe................................. 206 244 46
All other.............................. 110 95 (4)
------- ------- -------
1,672 1,447 662
------- ------- -------
Financial Products:
United States.......................... 81 61 43
All other.............................. 7 3 4
------- ------- -------
Total Financial Products................ 88 64 47
------- ------- -------
1,760 1,511 709
General corporate expenses............... (79) (77) (83)
------- ------- -------
Operating profit......................... $ 1,681 $ 1,434 $ 626
======= ======= =======
A-24
<PAGE>
Caterpillar Inc.
- --------------------------------------------------------------------------------
1995 1994 1993
------- ------- -------
At December 31:
Identifiable assets:
Machinery and Engines:
United States........................ $ 5,836 $ 6,445 $ 5,996
Europe............................... 1,229 1,160 1,101
All other............................ 803 738 654
------- ------- -------
7,868 8,343 7,751
------- ------- -------
Financial Products:
United States........................ 4,042 3,557 2,896
All other............................ 1,550 1,111 780
------- ------- -------
5,592 4,668 3,676
------- ------- -------
13,460 13,011 11,427
General corporate assets............... 2,894 2,784 2,986
Investments in affiliated companies.... 476 455 394
------- ------- -------
Total assets........................... $16,830 $16,250 $14,807
======= ======= =======
D. Non-U.S. sales
Sales outside the United States were 52% of consolidated sales for 1995, and
49% for both 1994 and 1993. Information on the company's sales outside the
United States, based on dealer location, was as follows:
1995 1994 1993
------ ------ ------
For the years ended December 31:
Sales of U.S. manufactured product:
Europe................................ $1,005 $ 821 $ 645
Asia/Pacific.......................... 1,505 1,338 1,172
Latin America......................... 829 763 570
Canada................................ 852 806 625
Africa/Middle East.................... 644 522 577
------ ------ ------
4,835 4,250 3,589
------ ------ ------
Sales of non-U.S. manufactured product:
Europe................................ 1,681 1,257 933
Asia/Pacific.......................... 785 626 440
Latin America......................... 354 388 279
Canada................................ 104 103 59
Africa/Middle East.................... 270 231 225
------ ------ ------
3,194 2,605 1,936
------ ------ ------
Total sales outside the United States:
Europe................................ 2,686 2,078 1,578
Asia/Pacific.......................... 2,290 1,964 1,612
Latin America......................... 1,183 1,151 849
Canada................................ 956 909 684
Africa/Middle East.................... 914 753 802
------ ------ ------
$8,029 $6,855 $5,525
====== ====== ======
24. Selected quarterly financial results (unaudited)
Financial information for interim periods was as follows:
1995 Quarter
-----------------------------
1st 2nd 3rd 4th
------ ------ ------ ------
Sales and revenues...................... $3,913 $4,213 $3,733 $4,213
Less: Revenues.......................... 140 154 165 162
------ ------ ------ ------
Sales................................... 3,773 4,059 3,568 4,051
Cost of goods sold...................... 2,890 3,110 2,878 3,122
------ ------ ------ ------
Gross margin............................ 883 949 690 929
Profit.................................. 300 323 213 300
Profit per share of common stock........ $ 1.50 $ 1.62 $ 1.07 $ 1.53
1994 Quarter
-----------------------------
1st 2nd 3rd 4th
------ ------ ------ ------
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
A-25
<PAGE>
<TABLE>
<CAPTION>
Eleven-year Financial Summary
(Dollars in millions except per share data)
- ------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992
------- ------- ------- -------
<S> <C> <C> <C> <C>
For the Years Ended December 31:
Sales and revenues................................................. $16,072 14,328 11,615 10,194
Sales............................................................ $15,451 13,863 11,235 9,840
Percent inside the United States............................... 48% 51% 51% 45%
Percent outside the United States.............................. 52% 49% 49% 55%
Revenues......................................................... $ 621 465 380 354
Profit (loss) before effects of accounting changes(1).............. $ 1,136 955 652 (218)
Effects of accounting changes(2)................................... $ - - - (2,217)
Profit (loss)(1)................................................... $ 1,136 955 652 (2,435)
Profit (loss) per share of common stock:(1)(3)
Profit (loss) before effects of accounting changes(1)............ $ 5.72 4.70 3.21 (1.08)
Effects of accounting changes(2)................................. $ - - - (10.98)
Profit (loss).................................................... $ 5.72 4.70 3.21 (12.06)
Dividends declared per share of common stock....................... $ 1.30 .63 .30 .30
Return on average common stock equity.............................. 36.1% 37.4% 34.6% (86.7%)
Capital expenditures:
Land, buildings, machinery, and equipment........................ $ 464 501 417 515
Equipment leased to others....................................... $ 215 193 215 125
Depreciation and amortization...................................... $ 682 684 668 654
Research and engineering expenses.................................. $ 532 435 455 446
As a percent of sales and revenues............................... 3.3% 3.0% 3.9% 4.4%
Provision (credit) for income taxes(4)............................. $ 501 354 42 (114)
Wages, salaries, and employee benefits............................. $ 2,919 3,146 3,038 2,795
Average number of employees 54,263 52,778 50,443 52,340
At December 31:
Total receivables:
Trade and other................................................. $ 2,657 3,096 2,769 2,330
Finance......................................................... $ 4,820 3,988 3,140 2,525
Inventories....................................................... $ 1,921 1,835 1,525 1,675
Total assets:
Machinery and Engines........................................... $11,238 11,582 11,131 10,979
Financial Products.............................................. $ 5,592 4,668 3,676 2,956
Long-term debt due after one year:
Machinery and Engines........................................... $ 2,049 1,934 2,030 2,753
Financial Products.............................................. $ 1,915 2,336 1,865 1,366
Total debt:
Machinery and Engines........................................... $ 2,219 2,037 2,387 3,271
Financial Products.............................................. $ 4,181 3,866 3,041 2,401
Ratios - excluding Financial Products:
Ratio of current assets to current liabilities..................1.78 to 1 1.62 to 1 1.53 to 1 1.57 to 1
Percent of total debt to total debt
and stockholders' equity...................................... 39.6% 41.2% 52.1% 67.5%
</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) Effective January 1, 1992, the company adopted SFAS 106, SFAS 109, and
SFAS 112.
(3) Computed on weighted average number of shares outstanding.
(4) 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.
- ------------------------------------------------------------------------------
1991 1990 1989 1988 1987 1986 1985
--------- --------- --------- --------- --------- --------- ---------
10,182 11,436 11,126 10,435 8,294 7,380 6,760
9,838 11,103 10,882 10,255 8,180 7,321 6,725
41% 45% 47% 50% 52% 54% 56%
59% 55% 53% 50% 48% 46% 44%
344 333 244 180 114 59 35
(404) 210 497 616 350 76 198
-- -- -- -- -- -- --
(404) 210 497 616 350 76 198
(2.00) 1.04 2.45 3.04 1.76 .39 1.01
-- -- -- -- -- -- --
(2.00) 1.04 2.45 3.04 1.76 .39 1.01
.53 .60 .60 .43 .28 .31 .25
(9.4%) 4.7% 11.6% 16.0% 10.4% 2.4% 6.7%
653 926 984 732 463 290 228
121 113 105 61 30 41 55
602 533 471 434 425 453 485
441 420 387 334 298 308 326
4.3% 3.7% 3.5% 3.2% 3.6% 4.2% 4.8%
(152) 78 162 262 118 21 25
3,051 3,032 2,888 2,643 2,284 2,184 2,173
55,950 59,662 60,784 57,954 53,770 54,024 55,815
2,133 2,361 2,353 2,349 2,044 1,755 1,305
2,145 1,891 1,498 1,222 795 466 108
1,921 2,105 2,120 1,986 1,323 1,211 1,139
9,346 9,626 9,100 8,226 6,647 6,134 5,951
2,696 2,325 1,826 1,460 984 627 235
2,676 2,101 1,797 1,428 900 963 1,177
1,216 789 491 525 387 171 87
3,136 2,873 2,561 2,116 1,484 1,582 1,404
2,111 1,848 1,433 1,144 712 370 130
1.74 to 1 1.67 to 1 1.78 to 1 1.76 to 1 1.55 to 1 1.50 to 1 1.69 to 1
43.7% 38.8% 36.4% 34.0% 29.4% 33.4% 31.4%
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
Services Corporation. 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
1995 COMPARED WITH 1994
Profit for 1995 of $1.14 billion or $5.72 per share was an all-time record and
an improvement of $181 million from 1994 profit of $955 million or $4.70 per
share. 1995 sales and revenues of $16.07 billion, also an all-time record,
increased 12% from last year and were the most significant reason for the higher
profit.
Machinery and Engines
Sales of Machinery and Engines were $15.45 billion, $1.59 billion higher than
1994. Profit before tax was $1.49 billion, an improvement of $281 million. The
primary reason for the increase in profit was higher sales--a 9% increase in
physical sales volume and 2% better price realization.
The increase in physical sales volume was due to higher sales of machines
and engines both inside and outside the United States. Price realization
improved primarily because of price increases taken over the past year and the
effect of the weaker dollar as sales in European currencies translated into more
U.S. dollars. These factors were partially offset by higher sales discounts and
an unfavorable change in geographic sales mix. The benefit to sales (and margin)
of the weaker dollar was limited by currency hedges (forward contracts) covering
most U.S. manufactured product sold in Europe. The hedges were put in place in
1991 to protect margins against potential strengthening of the U.S. dollar.
Without these currency hedges, sales and margin during the year would have been
about $135 million higher. All such forward contracts matured during 1995.
Margin increased $422 million, primarily a result of higher sales volume
and improved price realization. These favorable items were partially offset by
the effect of the weaker dollar on costs, proportionately higher sales of lower
margin products and higher costs due to inflation. In addition, there was a
decrease in LIFO decrement benefits ($28 million in 1994 versus $22 million in
1995). Total margin as a percent of sales was 22.3%, a 0.5 percentage point
increase from a year ago.
SG&A (selling, general and administrative) expenses were up $135 million
from the previous year because of higher spending levels to support increased
sales volume and expanded operations around the world, higher costs due to
inflation and the effect of the weaker dollar as costs in European currencies
translated into more U.S. dollars. In addition, the absence of the assignment of
labor costs from SG&A to cost of goods sold for employees working in
manufacturing functions during 1994 contributed to the increase. Partially
offsetting these factors were a decrease in incentive pay expense and a
favorable adjustment to insurance reserves based on an actuarial valuation.
R&D (research and development) expenses were $64 million higher than 1994,
a result of a decrease in the assignment of labor costs from R&D to cost of
goods sold as fewer employees were working in manufacturing areas in 1995
compared with 1994, expanded activity for new product introductions and higher
costs due to inflation.
Operating profit for 1995 was $1.59 billion, an increase of $223 million
from last year. As a percent of sales, operating profit was 10.3%, compared with
9.9% for 1994.
Interest expense of $191 million was $9 million lower than a year ago as
the benefit of lower average debt of approximately $160 million was partially
offset by higher interest rates.
Other income/expense was income of $92 million compared with income of $43
million a year earlier. The improvement reflects the absence of a $17 million
expense in 1994 for the settlement of two class action complaints and a $10
million recovery in 1995 from the company's insurer related to this settlement.
In addition, interest on short-term investments contributed to the increase.
Partially offsetting these factors was an unfavorable change in foreign exchange
gains and losses.
Financial Products
Before-tax profit for Financial Products was $121 million, up $61 million from
1994. The increase was a result of Cat Financial's larger portfolio of earning
assets and a $29 million favorable change in the mark-to-market adjustment for
Cat Financial's written interest rate caps. These written caps were terminated
during the second quarter of 1995.
Revenues of $621 million increased $156 million from a year ago, the result
of Cat Financial's larger portfolio.
SG&A expenses were $240 million, compared with $191 million last year. The
increase reflects a higher provision for credit losses and other volume-related
expenses at Cat Financial. Interest expense was $293 million, up $83 million
because of higher average borrowings to support the larger portfolio.
Other income/expense was income of $33 million compared with expense of $4
million a year ago. The favorable change resulted from an $11 million mark-to-
market gain for interest rate caps in 1995, compared with an $18 million
mark-to-market loss in 1994.
Income Taxes
Tax expense was $501 million, $147 million higher than a year ago. The increase
reflects higher before-tax profit and a 31% effective tax rate compared with 28%
in 1994.
A-28
<PAGE>
Caterpillar, Inc.
- ------------------------------------------------------------------------------
Affiliated Companies
The company's share of affiliated companies' profits was $22 million, down
$14 million because of the unfavorable impact of the stronger yen on SCM (Shin
Caterpillar Mitsubishi Ltd.) sales outside Japan and lower land sale gains at
SCM in 1995.
FOURTH QUARTER 1995
COMPARED WITH FOURTH QUARTER 1994
Machinery and Engines
Sales of Machinery and Engines were $4.05 billion, up $251 million from the
fourth quarter of 1994. The sales increase resulted from a 7% increase in
physical sales volume. Profit before tax of $408 million was $54 million better
than last year's fourth quarter primarily because of the higher sales.
The increase in physical sales volume resulted principally from higher
machine sales outside the United States and higher worldwide engine sales.
Machine sales inside the United States declined. Price realization was about the
same as a year ago. The benefits from price increases taken over the past year
and the effect of the weaker dollar on sales in European currencies were offset
by higher sales discounts, which were unusually low a year ago, and an
unfavorable change in geographic sales mix. The benefit to sales (and margin) of
the weaker dollar was limited by currency hedges (forward contracts) covering
most U.S. manufactured product sold in Europe. The hedges were put in place in
1991 to protect margins against potential strengthening of the U.S. dollar.
Without these currency hedges, sales and margin during the fourth quarter would
have been about $30 million higher. As of the end of the quarter, all such
forward contracts had matured.
Margin (sales less cost of goods sold) of $929 million increased $76
million primarily because of higher sales. Margin as a percent of sales was
22.9% compared with 22.4% during last year's fourth quarter. In addition to
higher sales volume, the improvement reflects a favorable change in product
sales mix as relatively more higher margin products were sold. These factors
were partially offset by the effect of the weaker dollar as costs in European
currencies translated into more U.S. dollars and a decrease in LIFO (last-in,
first-out) inventory decrement benefits from $28 million a year ago to $22
million in the current quarter. Manufacturing costs incurred during the quarter
were lower than last year's fourth quarter; however, this benefit was about
offset by an increase in cost of goods sold resulting from changes in inventory
levels between the two quarters. There was a $104 million inventory increase in
the fourth quarter of 1994 compared with a $267 million inventory decrease in
the current quarter. When inventory increases, a benefit results from absorption
of certain of the period's fixed costs. When inventory decreases, these fixed
costs inventoried in prior periods are charged to cost of goods sold.
SG&A expenses were $392 million, compared with $374 million during the
fourth quarter of 1994. Last year, a number of SG&A employees were working in
manufacturing areas as a result of the United Auto Workers (UAW) union's strike.
Consequently, the labor costs associated with those employees were assigned to
cost of goods sold. SG&A expenses increased in 1995 as those employees have
returned to their regular jobs. The increase also reflects activity to support
higher sales volume and expanded operations around the world, inflation and the
effect of the weaker dollar as costs in European currencies translated into more
U.S. dollars. Partially offsetting these items was lower incentive pay expense.
R&D expenses of $102 million were $20 million higher because R&D employees
who worked in manufacturing functions last year were back in their regular jobs
in 1995. In addition, there was expanded activity in new product introductions.
Operating profit of $435 million was up $38 million from a year ago. As a
percent of sales, operating profit was 10.7%, up slightly from the year-earlier
quarter.
Interest expense was about the same as the fourth quarter of last year.
Other income/expense was income of $20 million compared with income of $7
million a year ago. The change reflects the absence of several small unfavorable
items recorded in the fourth quarter of 1994 and interest on short-term
investments partially offset by an unfavorable change in foreign exchange gains
and losses.
Financial Products
Before-tax profit for Financial Products was $20 million, an improvement of $8
million from last year's fourth quarter. The higher profit was primarily a
result of a larger portfolio of earning assets at Caterpillar Financial Services
Corporation.
Revenues of $162 million were up $34 million, reflecting Cat Financial's
larger portfolio. Cat Financial financed new retail business of $906 million, a
$201 million or 29% increase compared with the fourth quarter a year ago.
SG&A expenses were $70 million, $15 million higher than the same quarter of
1994. The increase reflects a higher provision for credit losses and other
volume-related expenses at Cat Financial. Interest expense was $16 million
higher because of an increase in average borrowings to support the larger
portfolio.
Other income/expense was income of $3 million compared with expense of $2
million during the year-earlier quarter. The improvement reflects the absence of
a $4 million mark-to-market charge for Cat Financial's written interest rate
caps. The caps were terminated during the second quarter of 1995.
Income Taxes
Tax expense of $133 million was $33 million higher than the same quarter last
year. The increase was due to higher before-tax profit and an effective tax rate
of 31% compared with 28% for the fourth quarter of 1994.
Affiliated Companies
The company's share of affiliated companies' profits was $5 million, down $8
million. The decrease reflects the unfavorable impact of the stronger yen on
sales outside Japan plus the absence of favorable year-end adjustments and a
gain on sale of surplus land recorded in 1994 at the company's 50%-owned
affiliate, SCM in Japan.
A-29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS continued
- ------------------------------------------------------------------------------
FOURTH QUARTER 1995
COMPARED WITH THIRD QUARTER 1995
Fourth-quarter profit of $300 million or $1.53 per share improved $87
million from the $213 million or $1.07 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 $408 million, an increase of
$167 million from the previous quarter. Sales of $4.05 billion were up $483
million because of higher machine and engine sales both inside and outside the
United States.
Margin improved $239 million from the third quarter, largely a result of
higher sales. As a percent of sales, the margin rate was 22.9% compared with
19.3% last quarter. The increase reflects higher sales volume, a favorable
change in sales mix and LIFO decrement benefits of $22 million recorded in the
fourth quarter versus none in the third quarter.
SG&A expenses of $392 million increased $40 million. The increase was the
result of the absence of a favorable adjustment to insurance reserves recorded
in the third quarter and timing of expenses, as the fourth quarter is generally
a higher cost quarter for these types of expenses.
R&D expenses were $13 million higher than the previous quarter because of
expanded activity for new product introductions.
Operating profit of $435 million increased $186 million. As a percent of
sales, operating profit was 10.7%, up 3.7 percentage points from the third
quarter.
Interest expense was about the same as last quarter.
Other income/expense was income of $20 million compared with income of $40
million in the third quarter. The decrease reflects the absence of a $10
million reimbursement under the company's insurance coverage for the settlement
of two class action complaints recorded last quarter and an unfavorable change
in foreign exchange gains and losses.
Financial Products
Financial Products' before-tax profit was $20 million, $19 million less than
the previous quarter. The decrease reflects a higher provision for credit
losses at Cat Financial, lower investment income at Cat Insurance, and the
absence of a gain on sale of receivables at Cat Financial recognized in the
third quarter.
Income Taxes
Tax expense of $133 million increased $64 million, reflecting higher profit
before tax and the absence of a favorable year-to-date adjustment of $18
million made in the third quarter.
1995 SALES
1995 1994 1993
------------------------
(Billions)
Sales...................................... $15.45 $13.86 $11.24
- ---------------------------------------------------------------------
Caterpillar worldwide sales were a record $15.45 billion in 1995, a $1.59
billion or 11% increase over 1994. Total physical sales volume increased about
9% due primarily to higher industry demand. Sales increased in all regions of
the world except Japan and the Commonwealth of Independent States (CIS). Large
gains were registered in Europe, Africa and developing Asia. Dealer sales to
end-users were at an all-time high and Caterpillar's share of the global market
continued at record levels.
Sales by Business Segment
1995 1994 1993
----------------------
(Billions)
Machinery.................................. $11.33 $10.16 $ 8.14
Engines.................................... 4.12 3.70 3.10
------ ------ ------
$15.45 $13.86 $11.24
====== ====== ======
- ---------------------------------------------------------------------
Worldwide sales for the Machinery segment increased 12% from 1994, setting
an all-time record. Most of the improvement was due to higher industry demand,
with double digit increases in Europe, Africa/Middle East, and developing Asia.
Higher price realization also contributed to the gain.
Engine sales increased 11% over 1994 levels for a fourth consecutive year
of record sales. Higher industry demand as well as an increased share of
industry sales for turbines contributed most to the increase with volume gains
recorded in all regions of the world. Truck and commercial engine demand was
particularly strong in the United States, while demand for turbines was strong
outside the United States.
Caterpillar Sales Inside the United States
1995 1994 1993
----------------------
(Billions)
Machinery.................................. $ 5.49 $ 5.16 $ 4.27
Engines.................................... 1.93 1.85 1.44
------ ------ ------
$ 7.42 $ 7.01 $ 5.71
====== ====== ======
- ---------------------------------------------------------------------
Caterpillar sales inside the United States were $7.42 billion, a $414
million or 6% increase over 1994. Higher industry demand and improved price
realization more than offset the impact of a reduction in dealer machine
inventories. Sales inside the United States represented 48% of the worldwide
total versus 51% in 1994.
In 1995, both the machine and engine industries surpassed their previous
1988-1989 peak. Moderate economic growth, good profitability, favorable
economic prospects and continued growth in many of the industries that employ
Caterpillar equipment all contributed to the record year.
As a result of the higher industry demand and continued record share of
industry sales, deliveries of Caterpillar machinery increased in 1995 for the
third consecutive year. Increases were registered in both sales to end-users
and deliveries to dealers' dedicated rental fleets which constituted about one
quarter of all deliveries.
Sales to end-users of machines increased in construction due to growth in
the highway sector:
. Highway sales were higher even though highway construction spending
remained near 1994 levels.
. Sales to the commercial, industrial and government building sector
fell after three years of growth despite higher levels of private and
public non-residential building construction.
. Housing-related sales were flat although housing starts declined.
A-30
<PAGE>
Caterpillar Inc.
- --------------------------------------------------------------------------------
Sales to end-users increased in all the commodity sectors except metals:
. Coal mining sales were higher although mine production was up only
slightly and coal prices were down.
. Sales to the sand and quarry mining sector improved in line with higher
mine production.
. Metal mining-related sales were flat despite higher mine production and
better metals prices.
. Sales to agriculture were higher reflecting the addition of several new
models in 1995 as well as a healthy farm economy.
. Forestry-related sales were up. Although lumber prices and production
were near 1994 levels, pulp production and especially pulp prices were
higher.
. Sales to the petroleum sector were also higher although pipeline
construction continues to trend down.
Sales to both solid waste and industrial applications were lower.
Engine segment sales rose 4% in 1995 reflecting higher industry demand for
diesel and gas engines. Turbine sales remained near 1994 levels.
. Sales to end-users for diesel and gas engines rose in all major
applications including power generation, marine, material handling, oil
and gas, and agriculture.
. Sales to truck Original Equipment Manufacturers (OEMs) also increased.
Caterpillar Sales Outside the United States
1995 1994 1993
---------------------
(Billions)
Machinery.............. $5.84 $5.00 $3.87
Engines................ 2.19 1.85 1.66
----- ----- -----
$8.03 $6.85 $5.53
===== ===== =====
- ----------------------------------------------
Caterpillar sales outside the United States were $8.03 billion, a $1.17
billion or 17% increase from 1994. These sales represented 52% of worldwide
sales, up from 49% in 1994. Sales increased in all regions except Japan and the
CIS.
Machinery segment sales rose 17%. Higher industry demand, improved price
realization and an increase in dealer inventories contributed to the gain.
Dollar sales registered the largest increases in Europe, Asia and Africa/Middle
East.
Engine segment sales rose 18% primarily due to higher industry demand and an
increased share of industry sales for turbines. Diesel and gas engine sales
registered gains in all regions except Canada, with the largest gains in Europe
and Africa/Middle East. Sales increased to all major applications except truck
OEMs, with the largest increases in demand for marine engines and power
generation sets. Turbine sales also increased in key applications including oil
and gas and industrial power generation with the largest gain in Latin America.
Europe/CIS
Sales increased 29% as the western European economy continued to register
moderate growth despite worries early in the year that stronger currencies would
derail recovery. Low interest rates and continued expansion of construction
activity fueled replacement demand leading to higher sales in all major western
European countries.
Sales to central European countries increased reflecting the economic recovery
underway in the region.
In the CIS sales declined from very favorable 1994 levels which had benefited
from large deals to the natural resource sectors.
Asia/Pacific
Sales rose 17%, just slightly less than the increases posted the last two years.
Sales were up in Australia as the economy continued to register moderate growth.
Sales in Japan remained near 1994 levels as the economy failed to gain enough
momentum to end the three year recession.
In China sales increased due to an acceleration of infrastructure work.
Overall economic activity remained strong.
Sales also rose in the rest of the Asia/Pacific region. Excellent economic
growth combined with numerous infrastructure projects led to higher end-user
demand for machines in all major applications except housing. Company sales rose
in most countries with large gains in Thailand, Indonesia and Malaysia. Sales of
diesel and gas engines also increased.
Latin America
Sales remained near 1994 levels as strong engine sales offset weak machine
sales. Turbine sales in particular registered large gains, especially in
Venezuela. Sales fell in both Mexico and Argentina due to the year-long
recessions, but increased in all other key countries. Concerns over a trade
imbalance led to slower growth in Brazil, and Venezuela remained in recession
but sales still exceeded 1994 levels for both countries. End-user demand for
machines, however, did decline for the region as a whole as a result of the
sharp declines in Mexico and Argentina.
Canada
Sales rose 5% following two years of strong growth. The improvement was due
primarily to higher industry demand despite slower economic growth, much lower
housing starts and uncertainty over the future of Quebec.
End-user demand for machines was up in most applications including highway
construction, metals and nonmetals mining and forestry. Diesel and gas engine
sales were flat but turbine sales rose.
Africa/Middle East
After three years of decline, sales rose 21% for the region as a whole,
primarily due to gains in Africa. Higher commodity prices, devaluations and
economic reform contributed to much better growth in the region. South Africa,
in particular, registered a large improvement in sales.
Sales were flat in the Middle East. Sales increased in half the countries of
the region including Saudi Arabia and United Arab Emirates but these gains were
offset by declines elsewhere, including Israel and Egypt.
Dealer Inventories of Machines
U.S. dealers' new machine inventories declined in 1995, and at year-end were
about normal relative to current selling rates. Outside the United States,
dealers' new machine inventories rose and at year-end were about normal relative
to current selling rates.
A-31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS continued
- --------------------------------------------------------------------------------
U.S. dealers' dedicated rental inventories were higher in December than a year
earlier but lower than the peak reached in October. At year-end, dedicated
rental fleets were about twice the size of new machine inventory.
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 1993 and were the most significant factor contributing to the
increase in profit.
At December 31, 1994, 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.
Machinery and Engines
Sales of Machinery and Engines were $13.86 billion for 1994, $2.63 billion
higher than 1993. 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 1993 (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 during 1994.
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 1993. 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
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 or R&D 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 in 1993. 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 1993 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 1993 reflecting higher depreciation
of equipment on operating leases and 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 in 1993. 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
A-32
<PAGE>
Caterpillar Inc.
- --------------------------------------------------------------------------------
increase was a result of higher sales and cost-cutting measures at SCM plus
favorable nonrecurring items at SCM, primarily a gain on the sale of surplus
land.
LIQUIDITY & CAPITAL RESOURCES
- -----------------------------
Consolidated operating cash flows totaled $2.19 billion in 1995, compared with
$1.76 billion in 1994.
Total debt at the end of 1995 was $6.40 billion, an increase of $497 million
from year end 1994. Over this period, debt related to Machinery and Engines
increased $182 million, to $2.22 billion, while debt related to Financial
Products increased $315 million to $4.18 billion.
During 1995, the company announced a plan to repurchase up to 10% of its
outstanding common stock over the next three to five years. At December 31,
1995, 6.5 million shares had been purchased under the plan.
Machinery and Engines
Operating cash flows totaled $1.95 billion in 1995, compared with $1.58 billion
in 1994. The cash flow increase is primarily the result of improved
profitability and lower receivables, partially offset by a decrease in payables
and an increase in inventories.
Capital expenditures, excluding equipment leased to others, totaled $460
million in 1995, compared with $498 million a year ago.
During 1995, Machinery and Engines debt increased $182 million. During 1995
the company entered into a $257 million capital lease obligation,
collateralized by leased manufacturing equipment and a security deposit. In
addition, $91 million of long-term debt matured or was retired.
The percent of debt to debt plus stockholders equity improved to 40% at
December 31, 1995, from 41% at December 31, 1994.
Financial Products
Operating cash flows totaled $244 million in 1995, compared with $179 million in
1994. Cash used to purchase equipment leased to others totaled $206 million in
1995. In addition, at December 31, 1995 net finance receivables increased $820
million from December 31, 1994 levels.
Financial Products' debt was $4.18 billion at December 31, 1995, an increase
of $315 million from December 31, 1994 and was primarily comprised of $2.62
billion of medium-term notes, $712 million of notes payable to banks and $710
million of commercial paper. At the end of 1995, finance receivables past due
over 30 days were 2.0%, compared with 2.2% 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,
1995, compared with 7.3:1 at December 31, 1994.
Financial Products had outstanding credit lines totaling $2.80 billion at
year-end 1995, which included $1.44 billion of the company's revolving credit
agreement. These credit lines are with a number of banks and are considered
support for the company's outstanding commercial paper, commercial paper
guarantees, the discounting of bank and trade bills, and bank borrowings.
Dividends
Quarterly dividends paid per share of common stock for the last three years
were as follows:
Quarter 1995 1994 1993
- -------------------------------------
First...........$ .25 $.07 $.07
Second.......... .25 .08 .08
Third........... .35 .15 .07
Fourth.......... .35 .15 .08
----- ---- ----
$1.20 $.45 $.30
===== ==== ====
- -------------------------------------
EMPLOYMENT
- ----------
At year-end, Caterpillar's worldwide employment, including UAW members that had
not yet been called back to work, was 54,352, compared with 53,986 one year ago.
Hourly employment decreased 33 to 31,994, while salaried and management
employment increased 399 to 22,358.
Year-End Employment 1995 1994
- --------------------------------------------------------------
Inside United States........... 39,978 39,749
Outside United States
Europe....................... 8,413 8,146
Latin America................ 4,104 4,500
Asia/Pacific................. 1,630 1,383
Canada....................... 121 117
Other........................ 106 91
------ ------
14,374 14,374 14,237 14,237
------ ------
Total Employment............... 54,352 53,986
====== ======
- --------------------------------------------------------------
OTHER MATTERS
- -------------
ENVIRONMENTAL MATTERS
Environmental considerations are a very important factor in the company's
product development and operations planning. This past year, two company
manufacturing facilities were recognized by the state of Illinois for their
pollution prevention efforts and the company's Engine Division announced
participation in a joint government-industry effort to reduce on-highway engine
emissions.
In 1995, the company had capital expenditures of about $11 million for
projects related to the environment (including $3 million in costs related to
compliance with the Clean Air Act), approximately equal to amounts for 1994. In
1996 and 1997, these expenditures are expected to increase moderately.
In addition to these expenditures, the company had depreciation, research and
engineering, administrative, and operating expenses related to environmental
regulation of about $131 million in 1995 (including $28 million for compliance
with the Clean Air Act), slightly more than comparable expenses in 1994. These
expenses are expected to remain at similar levels for 1996 and 1997.
The company also is involved in a number of remediation actions to clean up
hazardous wastes as required by federal and state laws. These laws often require
responsible parties to fund remediation actions regardless of fault, legality of
original disposal or ownership of a disposal site. Under accounting guidelines,
the company is required to accrue and charge to income
A-33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS continued
- --------------------------------------------------------------------------------
management's best estimate of future costs associated with these sites. When
there appears to be a range of possible costs with equal likelihood, liabilities
are based on the lower end of that range. For 1995, the amount accrued for
potential clean-up costs is contained in the line item, "Accounts payable and
accrued expenses" on Statement 3, and represents an immaterial portion of that
line item. While the company may have rights of contribution or reimbursement
under insurance policies, amounts that may be recoverable from other entities
are not considered in establishing the accrual.
In deciding upon amounts to be reserved for potential environmental liability
at a particular site, the company looks at several factors including:
. prior experience regarding environmental remediation at a similar site;
. experience of other companies and industries with respect to a similar
site;
. technology available for remediation at the time;
. the stage of remediation for the particular site (i.e., whether the site
is at the identification stage or whether a remedial investigation or
feasibility study has been conducted);
. documentation, if any, linking the company to a particular site;
. the amount the company has been asked to contribute to a particular site;
and
. aspects of the law under which the company is alleged to be liable for
clean up.
The company also looks at these factors in deciding whether it could incur
liabilities beyond that which it has accrued for future remediation. Although it
is difficult to estimate with any meaning potential liability at sites in very
early stages of remediation (of which the company has seven currently) or sites
yet to be identified because of the many uncertainties involved, including
uncertainties about the status of the law, regulation, technology and
information related to individual sites, at this time the company believes the
likelihood of incurring any material environmental liability beyond that accrued
is remote.
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 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.
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.
In March 1995, the Financial Accounting Standards Board issued SFAS 121,
"Accounting for the Impairment of Long-Lived Assets." The new statement
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill. This standard is effective for
fiscal years beginning after December 15, 1995, and will therefore be adopted in
1996. It will not have a material impact on the company's financial position or
results of operations.
In October 1995, SFAS 123, "Accounting for Stock-Based Compensation" was
issued, which is effective for fiscal years beginning after December 15, 1995.
The new standard encourages companies to adopt a fair value based method of
accounting for employee stock options, but allows companies to continue to
account for those plans using the accounting prescribed by APB Opinion 25,
"Accounting for Stock Issued to Employees." The company will adopt the
disclosure requirements of the standard in 1996 and plans to continue accounting
for stock compensation using APB 25, making pro forma disclosures of net income
and earnings per share as if the fair value based method had been applied.
A-34
<PAGE>
Caterpillar Inc.
- ------------------------------------------------------------------------------
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
Movements in foreign currency exchange rates create a degree of risk to the
company's operations. These movements affect:
. The U.S. dollar value of sales made in foreign currencies, and
. The U.S. dollar value of costs incurred in foreign currencies.
Changing currency exchange rates also affect the company's competitive
position, as exchange rate changes may affect profitability and business and/or
pricing strategies of non-U.S. based competitors.
The company's policy is to use foreign currency related derivative
instruments only as needed to operate the business and protect the company's
interests. The company only enters into foreign currency related derivative
instruments to neutralize risk--not as speculative instruments. The company buys
and sells currencies only in amounts large enough to cover business needs, and
to protect its financial and competitive position. The company's general
approach is to manage future foreign currency cash flows; it normally does not
manage or hedge specific asset or liability positions. In managing foreign
currency, the company's objective is to maximize consolidated aftertax U.S.
dollar cash flows. To this end, the company's policy allows for actively
managing:
. cash flows related to firmly committed foreign currency transactions;
. anticipated foreign currency cash flows for a future rolling twelve-
month period; and
. outstanding hedging transactions.
The company uses forward exchange contracts and foreign currency option
contracts (purchased option contracts and/or combination option contracts) to
manage foreign currency cash flows, including firmly committed future
transactions. When using forward exchange contracts, the company is protected
from unfavorable exchange rate movements, but has given up any potential benefit
from favorable changes in exchange rates. Purchased option contracts, on the
other hand, protect from unfavorable rate movements while permitting the company
to benefit from the effect of favorable exchange rate fluctuations. 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
that limit the unfavorable effect of exchange rate movements, while allowing a
limited potential benefit from favorable exchange rate movements. None of the
forward exchange or foreign currency option contracts used by the company is
exchange traded.
Each month, the company's financial officers approve the company's outlook
for expected currency exchange rate movements, as well as its policy on desired
future foreign currency cash flow positions (long, short, balanced) for those
currencies in which the company has significant activity. Financial officers
receive a daily report on currency exchange rates, cash flow exposure, and open
foreign currency hedges. Expected future cash flow positions and strategies are
continuously monitored. The company's foreign exchange management practices,
including the use of derivative financial instruments, are presented to the
Audit Committee of the company's Board of Directors at least annually.
The following table summarizes the company's anticipated cash inflows and
outflows for the next 12 months, including those cash flows from firmly
committed foreign currency transactions. The table also shows the contractual
amounts of related outstanding forward exchange and foreign currency option
contracts as of December 31, 1995:
<TABLE>
<CAPTION>
Exposures Hedges
------------------ -------------------
Buy Sell
Foreign Foreign
Inflows Outflows Currency Currency
------- -------- -------- --------
<S> <C> <C> <C> <C>
European Currencies... $2,951 $3,276 $ 41 $ 4
Japanese Yen.......... 150 618 67 --
Australian Dollar..... 612 223 -- 191
Brazilian Real........ 207 201 -- --
Canadian Dollar....... 182 168 5 --
All Other Currencies.. 5 126 6 --
</TABLE>
Except for changes related to business volume, the company's annual foreign
currency cash flows for periods beyond the next 12 months are not expected to be
materially different from those indicated in the above table.
Interest Rate
To manage its exposure to interest rate changes and lower the cost of borrowed
funds, the company uses various interest rate derivative instruments, including
interest rate swap agreements, interest rate cap (option) agreements, and
forward rate agreements. At the time these agreements are executed, they are
linked to a specific debt instrument. The company enters into such agreements
only with major financial institutions. The company's Financial Products
subsidiaries, in connection with their match funding objective, use interest
rate derivative instruments to modify debt structures to match fund receivable
portfolios. This match funding reduces the risk of deteriorating margins between
interest-bearing assets and interest-bearing liabilities, regardless of which
direction interest rates move. The company, including Financial Products
subsidiaries, also uses these instruments to gain an economic and/or competitive
advantage through a lower cost of borrowed funds. This is accomplished by
changing the characteristics of existing debt instruments or entering into new
agreements in combination with the issuance of new debt.
Commodity Prices
The company's operations are also subject to commodity price risk, as material
prices change with movements in underlying commodity prices. The company has
used some commodity swap and option agreements to reduce this risk. However, the
use of these types of derivative financial instruments has not been material.
A-35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS continued
- ------------------------------------------------------------------------------
LABOR UPDATE
In early December 1995, UAW leaders informed Caterpillar and their members that
they were recessing the strike that began on June 21, 1994, at eight U.S.
facilities. Following the announcement, the UAW membership rejected a new six-
year contract proposal from the company. The company completed the return-to-
work process by the end of January, 1996. They are working under the company's
previously implemented contract proposal. The transition went very smoothly and
production targets and customer needs continue to be met.
1996 ECONOMIC AND INDUSTRY OUTLOOK
World economic growth should be similar to that experienced in 1995 but the
geographic mix will be different. Recoveries in Latin America, Japan and the
CIS, combined with faster growth in Africa and Middle East, should offset slower
growth in the United States, Canada and Australia. Moderate growth should
continue in Europe with strong growth forecast to continue in Asia, including
China. In this economic environment, worldwide industry demand for machines is
expected to remain near 1995 levels as lower demand in North America is nearly
offset by stronger demand elsewhere. Worldwide demand for engines, however, will
likely decline as the expected drop in North America industry demand is not
expected to be fully offset by growth in the rest of the world.
The U.S. Gross Domestic Product (GDP) is expected to slow further in 1996
to the 1.0% to 1.5% range primarily due to the tight monetary policy pursued by
the Federal Reserve since 1994. Although further interest rate cuts are
anticipated, they are not expected to reverse the slowdown which will likely be
more pronounced in the second half and could result in a mild recession. Housing
starts are forecast to decline, and growth in commercial construction and mining
should slow. The weaker U.S. economy combined with a drop in replacement demand
is expected to result in lower industry demand for both machines and engines.
Heavy duty truck industry demand in particular is forecast to drop sharply in
1996 from its 1995 peak. Industry demand for machines and engines is also
expected to be lower in Canada due to a weakening economy and reduced spending
for infrastructure. Better growth in North America could result if the Federal
Reserve cuts interest rates aggressively or if Congress enacts substantial tax
cuts early in 1996.
In western Europe, moderate economic growth is forecast to continue.
Although some economies slowed in the second half of 1995, interest rate
reductions last year should lead to a resumption of moderate growth of 2.5% in
1996. Inflation and interest rates remain low, capacity utilization is high and
profits are rising. In central Europe good economic growth has resumed in many
countries and should continue in 1996. In this environment, European industry
demand is expected to increase again in 1996. Demand in Germany, however, is
unlikely to exceed last year's levels as unification-related construction
activity continues to wind down.
Economic recovery is finally expected to take hold in Japan although growth
will likely be too weak to support much improvement in industry demand. In
Australia, slower economic growth should result in a declining construction
industry, but mining activity is forecast to remain strong.
Economic growth is forecast to accelerate in the developing countries
leading to higher industry demand. Continued strong growth in the developing
countries of Asia should lead to another year of higher industry sales.
Inflation concerns are expected to moderate China's growth slightly but sales
are still expected to grow considerably. Higher sales are also forecast for the
Africa/Middle East region where economic growth is expected to accelerate in
response to high commodity prices, good export demand and economic
restructuring.
In Latin America, the recessions in Mexico and Argentina are forecast to
end and healthy growth is forecast for most other major countries. Nevertheless,
industry demand is unlikely to improve much over 1995 levels. The severe, six-
year decline in the CIS is also forecast to end but the political instability
will likely remain. Some growth in industry demand is anticipated for 1996.
1996 COMPANY OUTLOOK
Worldwide company sales are expected to be somewhat lower than 1995 levels as
improved sales in the developing regions and Europe are not expected to offset
lower sales in the United States, Canada and Australia.
However, if moderate economic growth continues in the United States
throughout 1996, rather than the projected weaker growth and mild recession,
then company sales should increase from 1995 levels. Improved manufacturing
flexibility should allow the company to readily adjust to changes in demand
during 1996. Profit is expected to be in line with physical sales volume.
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: The information included in the Outlook section is forward looking and
involves risks and uncertainties that could significantly impact expected
results. While it is impossible to itemize the many factors and specific events
that could affect the outlook of any company operating in the global economy,
the company's outlook for 1996 is predominately based on its interpretation of
what it considers key economic assumptions. These include, but are not limited
to, measures of monetary and fiscal policies. If, as most economists are
projecting, the U.S. economy realizes a "soft landing" rather than the slowdown
and mild recession forecast by the company, business in the U.S. could prove
better than is currently anticipated. Conversely, if, as some economists
predict, the European economy fails to grow as expected by the company, sales
could suffer and fail to partially offset projected declines in North America.
Lower than expected growth in other regions also could reduce company sales.
World economic activity will be greatly influenced by government actions and
political policies. The above contingencies are seen as the principal risks to
the company's 1996 Outlook. Other significant risks include factors discussed in
Item 7 of the company's Form 10-K for 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS.
A-36
<PAGE>
SUPPLEMENTAL STOCKHOLDER INFORMATION
Annual Meeting
On Wednesday, April 10, 1996, 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 March 1, 1996.
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 31,585, compared with 29,363 at the
end of 1994. Approximately 5% of the outstanding shares are held by about 30,500
individuals. The remaining shares are held by trustees, banks, and other
institutions for additional thousands of owners.
Employees' investment and profit-sharing plans acquired 1,486,881 shares of
Caterpillar stock in 1995. Investment plans, for which membership is voluntary,
held 13,180,250 shares for employee accounts at 1995 year-end. Profit-sharing
plans, in which membership is automatic for most U.S. and Canadian employees in
eligible categories, held 269,343 shares at 1995 year-end.
Common Stock Price Range
Quarterly price ranges of Caterpillar common stock on the New York Stock
Exchange, the principal market in which the stock is traded, were:
<TABLE>
<CAPTION>
1995 1994
----------------- -----------------
Quarter High Low High Low
- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
First........ 58-7/8 48-1/4 60-3/4 44-1/2
Second....... 65-1/4 55 60-5/8 50
Third........ 75-1/4 56-1/8 58-1/4 50
Fourth....... 63-1/8 50-3/4 59-7/8 50-5/8
</TABLE>
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 1995 annual report on Securities and Exchange
Commission Form 10-K (without exhibits) will be provided without charge to
stockholders after March 31, 1996, 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 Form 10-Q
reports. 10-Q reports are available in May, August, and November.
Investor Inquiries
For those seeking additional information about the corporation--
Institutional analysts, portfolio managers, and representatives of financial
institutions should contact:
James F. Masterson
Director of Investor Relations
Caterpillar Inc.
100 N.E. Adams Street
Peoria, IL 61629-5310
Telephone: (309) 675-4549
Facsimile: (309) 675-4457
Individual stockholders should contact:
Laurie J. Huxtable
Assistant Secretary
Caterpillar Inc.
100 N.E. Adams Street
Peoria, IL 61629-7310
Telephone: (309) 675-4619
A-37
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS AND OFFICERS
DIRECTORS
<S> <C>
Lilyan H. Affinito/1,3/ Former Vice Chairman, Maxxam Group Inc.
W. Frank Blount/1,3/ Chief Executive Officer, Telstra Corporation
Donald V. Fites/3,4/ Chairman and Chief Executive Officer, Caterpillar Inc.
John W. Fondahl/2,4/ 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
Jerry R. Junkins/2,3/ Chairman, President, and Chief Executive Officer, Texas Instruments Incorporated
Peter A. Magowan/2,4/ Chairman, Safeway, Inc.; President & Managing General Partner, San Francisco Giants
Gordon R. Parker/1,3/ 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
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 (Jerry R. Junkins, chairman)
/4/Member of Public Policy Committee (Clayton K. Yeutter, chairman)
OFFICERS
Donald V. Fites Chairman
Glen A. Barton Group President
Gerald S. Flaherty Group President
James W. Owens Group President
Richard L. Thompson 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
Roger E. Fischbach Vice President
Michael A. Flexsenhar Vice President
Donald M. Ings Vice President
Duane H. Livingston Vice President
Douglas R. Oberhelman Vice President
Gerald Palmer Vice President
Robert C. Petterson Vice President
John E. Pfeffer Vice President
Siegfried R. Ramseyer Vice President
Alan J. Rassi Vice President
Gerald L. Shaheen Vice President
Gary A. Stroup Vice President
Sherril K. West Vice President
Donald G. Western Vice President
Wayne M. Zimmerman Vice President
Robert R. Gallagher Controller
F. Lynn McPheeters/1/ Treasurer
Robin D. Beran Assistant Treasurer
Mary J. Callahan Assistant Secretary
Laurie J. Huxtable Assistant Secretary
</TABLE>
- ----------
Note: All director/officer information is as of December 31, 1995, except as
noted below.
/1/Effective January 19, 1996
A-38
<PAGE>
NOTES
- ------------------------------------------------------------------------------
A-39
<PAGE>
NOTES
- ------------------------------------------------------------------------------
A-40
<PAGE>
NOTES
- ------------------------------------------------------------------------------
A-41
<PAGE>
[LOGO OF CATERPILLAR]
<PAGE>
- --------------------------------------------------------------------------------
[X] Please mark your votes as in this example. | 1433
Unless otherwise specified, proxies will be voted FOR the election of the
nominees for directors listed, FOR proposals 2 and 3, and AGAINST
proposal 4.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR election of directors and
proposals 2 and 3.
- --------------------------------------------------------------------------------
1. Election of Directors (See Reverse)
FOR WITHHELD
[_] [_]
For, except vote withheld from the following nominee(s):
-------------------------------------------------------------------
2. Adopt 1996 Stock Option and Long-Term Incentive Plan
FOR AGAINST ABSTAIN
[_] [_] [_]
3. Appointment of Independent Auditors
FOR AGAINST ABSTAIN
[_] [_] [_]
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote AGAINST stockholder proposal 4.
- --------------------------------------------------------------------------------
4. Stockholder proposal
FOR AGAINST ABSTAIN
[_] [_] [_]
- --------------------------------------------------------------------------------
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE(S) DATE
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
Annual Meeting
of
Caterpillar Inc. Stockholders
Wednesday, April 10, 1996
10:30 a.m.
Loews Ventana Canyon Hotel
7000 North Resort Drive
Tucson, Arizona
================================================================================
Agenda
------
* Election of Directors
* Adopt 1996 Stock Option and Long-Term Incentive Plan
* Ratification of the appointment of independent public accountants
* Act upon one stockholder proposal
* Transact such other business as may properly be brought before the
meeting.
================================================================================
<PAGE>
- --------------------------------------------------------------------------------
PROXY AND VOTING INSTRUCTION
CATERPILLAR INC.
ANNUAL MEETING OF STOCKHOLDERS -- APRIL 10, 1996
This Proxy is solicited on behalf of the Board of Directors
At the Annual Meeting of Stockholders of the Company on April 10, 1996, or at
any adjournment thereof, the undersigned hereby appoints (i) L.H. AFFINITO and
J.W. FONDAHL, and each of them, proxies with power of substitution to vote the
common stock of the undersigned and (ii) THE NORTHERN TRUST COMPANY, as Trustee,
to appoint L.H. AFFINITO and J.W. FONDAHL and each or either of them, with power
of substitution, proxies to vote all shares of the Company's stock credited to
the accounts of the undersigned under the Employees' Investment Plan Trust
and/or the Caterpillar Inc. Investment Trust at the close of business on
February 12, 1996, as directed hereon on the following matters, and, in their
discretion, on any other matters that may come before the meeting.
Election of Directors. Nominees: W.F. Blount, J.P. Gorter, P.A. Magowan, C.K.
Yeutter
You are encouraged to specify your choices by marking the appropriate boxes, SEE
REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance
with the Board of Directors' recommendations. THIS CARD ALSO CONSTITUTES VOTING
INSTRUCTIONS FOR ANY SHARES HELD BY THE UNDERSIGNED IN ANY COMPANY EMPLOYEE
INVESTMENT PLANS.
Please mark, sign, date and return this Proxy and Voting Instruction card
promptly using the enclosed envelope.
-------------
SEE REVERSE
SIDE
-------------
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
Caterpillar's most recent financial news releases
are now available free of charge by fax or mail!
Just call our toll-free number to request your copy.
800-CAT-7717
800-228-7717
(from the U.S. or Canada)
201-332-8602
(toll-free to callers outside the U.S. or Canada)
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
[X] Please mark your votes as in this example. | 1433
Unless otherwise specified, proxies will be voted FOR the election of the
nominees for directors listed, FOR proposals 2 and 3 and AGAINST
proposal 4.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR election of directors and
proposals 2 and 3.
- --------------------------------------------------------------------------------
1. Election of Directors (See Reverse)
FOR WITHHELD
[_] [_]
For, except vote withheld from the following nominee(s):
-------------------------------------------------------------------
2. Adopt 1996 Stock Option and Long-Term Incentive Plan
FOR AGAINST ABSTAIN
[_] [_] [_]
3. Appointment of Independent Auditors
FOR AGAINST ABSTAIN
[_] [_] [_]
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote AGAINST stockholder proposal 4.
- --------------------------------------------------------------------------------
4. Stockholder proposal
FOR AGAINST ABSTAIN
[_] [_] [_]
- --------------------------------------------------------------------------------
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE(S) DATE
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
Annual Meeting
of
Caterpillar Inc. Stockholders
Wednesday, April 10, 1996
10:30 a.m.
Loews Ventana Canyon Hotel
7000 North Resort Drive
Tucson, Arizona
================================================================================
Agenda
------
* Election of Directors
* Adopt 1996 Stock Option and Long-Term Incentive Plan
* Ratification of the appointment of independent public accountants
* Act upon one stockholder proposal
* Transact such other business as may properly be brought before the
meeting.
================================================================================
<PAGE>
- --------------------------------------------------------------------------------
PROXY
CATERPILLAR INC.
ANNUAL MEETING OF STOCKHOLDERS -- APRIL 10, 1996
This Proxy is solicited on behalf of the Board of Directors
At the Annual Meeting of Stockholders of the Company on April 10, 1996, or at
any adjournments thereof, the undersigned hereby appoints L.H. AFFINITO and J.W.
FONDAHL, and each of them, proxies with power of substitution to vote the stock
of the undersigned on the following matters, and, in their discretion, on any
other matters that may come before the meeting.
Election of Directors. Nominees: W.F. Blount, J.P. Gorter, P.A. Magowan, C.K.
Yeutter
You are encouraged to specify your choices by marking the appropriate boxes, SEE
REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance
with the Board of Directors' recommendations. Please mark, sign, date and return
this Proxy promptly using the enclosed envelope.
-------------
SEE REVERSE
SIDE
-------------
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
Caterpillar's most recent financial news releases
are now available free of charge by fax or mail!
Just call our toll-free number to request your copy.
800-CAT-7717
800-228-7717
(from the U.S. or Canada)
201-332-8602
(toll-free to callers outside the U.S. or Canada)
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
[X] Please mark your votes as in this example. | 1433
Unless otherwise specified, proxies will be voted FOR the election of the
nominees for directors listed, FOR proposals 2 and 3 and AGAINST
proposal 4.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR election of directors and
proposals 2 and 3.
- --------------------------------------------------------------------------------
1. Election of Directors (See Reverse)
FOR WITHHELD
[_] [_]
For, except vote withheld from the following nominee(s):
-------------------------------------------------------------------
2. Adopt 1996 Stock Option and Long-Term Incentive Plan
FOR AGAINST ABSTAIN
[_] [_] [_]
3. Appointment of Independent Auditors
FOR AGAINST ABSTAIN
[_] [_] [_]
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote AGAINST stockholder proposal 4.
- --------------------------------------------------------------------------------
4. Stockholder proposal
FOR AGAINST ABSTAIN
[_] [_] [_]
- --------------------------------------------------------------------------------
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE(S) DATE
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
Annual Meeting
of
Caterpillar Inc. Stockholders
Wednesday, April 10, 1996
10:30 a.m.
Loews Ventana Canyon Hotel
7000 North Resort Drive
Tucson, Arizona
================================================================================
Agenda
------
* Election of Directors
* Adopt 1996 Stock Option and Long-Term Incentive Plan
* Ratification of the appointment of independent public accountants
* Act upon one stockholder proposal
* Transact such other business as may properly be brought before the
meeting.
================================================================================
<PAGE>
- --------------------------------------------------------------------------------
VOTING INSTRUCTION
CATERPILLAR INC.
ANNUAL MEETING -- APRIL 10, 1996
This voting instruction is solicited on behalf of the Board of Directors
At the Annual Meeting of Stockholders of the Company on April 10, 1996, or at
any adjournments thereof, the undersigned hereby authorizes THE NORTHERN TRUST
COMPANY, as Trustee, to appoint L.H. AFFINITO and J.W. FONDAHL, and each or
either of them, with power of substitution, proxies to vote all shares of the
Company's stock credited to the accounts of the undersigned under the Employees'
Investment Plan Trust at the close of business on February 12, 1996, as directed
hereon on the following matters, and, in their discretion, on any other matters
that may come before the meeting.
Election of Directors. Nominees: W.F. Blount, J.P. Gorter, P.A. Magowan, C.K.
Yeutter
-------------
SEE REVERSE
SIDE
-------------
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
Caterpillar's most recent financial news releases
are now available free of charge by fax or mail!
Just call our toll-free number to request your copy.
800-CAT-7717
800-228-7717
(from the U.S. or Canada)
201-332-8602
(toll-free to callers outside the U.S. or Canada)
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
[X] Please mark your votes as in this example. | 9050
Unless otherwise specified, proxies will be voted FOR the election of the
nominees for directors listed, FOR proposals 2 and 3 and AGAINST
proposal 4.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR election of directors and
proposals 2 and 3.
- --------------------------------------------------------------------------------
1. Election of Directors (See Reverse)
FOR WITHHELD
[_] [_]
For, except vote withheld from the following nominee(s):
-------------------------------------------------------------------
2. Adopt 1996 Stock Option and Long-Term Incentive Plan
FOR AGAINST ABSTAIN
[_] [_] [_]
3. Appointment of Independent Auditors
FOR AGAINST ABSTAIN
[_] [_] [_]
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote AGAINST stockholder proposal 4.
- --------------------------------------------------------------------------------
4. Stockholder proposal
FOR AGAINST ABSTAIN
[_] [_] [_]
- --------------------------------------------------------------------------------
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE(S) DATE
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
Annual Meeting
of
Caterpillar Inc. Stockholders
Wednesday, April 10, 1996
10:30 a.m.
Loews Ventana Canyon Hotel
7000 North Resort Drive
Tucson, Arizona
================================================================================
Agenda
------
* Election of Directors
* Adopt 1996 Stock Option and Long-Term Incentive Plan
* Ratification of the appointment of independent public accountants
* Act upon one stockholder proposal
* Transact such other business as may properly be brought before the
meeting.
================================================================================
<PAGE>
- --------------------------------------------------------------------------------
VOTING INSTRUCTION
CATERPILLAR INC.
ANNUAL MEETING -- APRIL 10, 1996
This voting instruction is solicited on behalf of the Board of Directors
At the Annual Meeting of Stockholders of the Company on April 10, 1996, or at
any adjournments thereof, the undersigned hereby authorizes THE NORTHERN TRUST
COMPANY LTD., TORONTO, as Trustee, to appoint L.H. AFFINITO and J.W. FONDAHL,
and each or either of them, with power of substitution, proxies to vote all
shares of the Company's stock credited to the accounts of the undersigned under
the Employees' Investment Plan Trust at the close of business on February 12,
1996, as directed below on the following matters, and, in their discretion, on
any other matters that may come before the meeting.
Election of Directors. Nominees: W.F. Blount, J.P. Gorter, P.A. Magowan, C.K.
Yeutter
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
Caterpillar's most recent financial news releases
are now available free of charge by fax or mail!
Just call our toll-free number to request your copy.
800-CAT-7717
800-228-7717
(from the U.S. or Canada)
201-332-8602
(toll-free to callers outside the U.S. or Canada)
- --------------------------------------------------------------------------------
<PAGE>
SPECIMEN
- --------------------------------------------------------------------------------
[X] Please mark your votes as in this example. | 1433
Unless otherwise specified, proxies will be voted FOR the election of the
nominees for directors listed, FOR proposals 2 and 3, and AGAINST
proposal 4.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR election of directors and
proposals 2 and 3.
- --------------------------------------------------------------------------------
1. Election of Directors (See Reverse)
FOR WITHHELD
[_] [_]
For, except vote withheld from the following nominee(s):
-------------------------------------------------------------------
2. Adopt 1996 Stock Option and Long-Term Incentive Plan
FOR AGAINST ABSTAIN
[_] [_] [_]
3. Appointment of Independent Auditors
FOR AGAINST ABSTAIN
[_] [_] [_]
SPECIMEN
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote AGAINST stockholder proposal 4.
- --------------------------------------------------------------------------------
4. Stockholder proposal
FOR AGAINST ABSTAIN
[_] [_] [_]
- --------------------------------------------------------------------------------
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE(S) DATE
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
Annual Meeting
of
Caterpillar Inc. Stockholders
Wednesday, April 10, 1996
10:30 a.m.
Loews Ventana Canyon Hotel
7000 North Resort Drive
Tucson, Arizona
================================================================================
Agenda
------
* Election of Directors
* Adopt 1996 Stock Option and Long-Term Incentive Plan
* Ratification of the appointment of independent public accountants
* Act upon one stockholder proposal
* Transact such other business as may properly be brought before the
meeting.
================================================================================
<PAGE>
- --------------------------------------------------------------------------------
PROXY
CATERPILLAR INC.
ANNUAL MEETING OF STOCKHOLDERS -- APRIL 10, 1996
This Proxy is solicited on behalf of the Board of Directors
At the Annual Meeting of Stockholders of the Company on April 10, 1996, or at
any adjournments thereof, the undersigned hereby appoints L.H. AFFINITO and J.W.
FONDAHL, and each of them, proxies with power of substitution to vote the stock
of the undersigned on the following matters, and, in their discretion, on any
other matters that may come before the meeting.
Election of Directors. Nominees: W.F. Blount, J.P. Gorter, P.A. Magowan, C.K.
Yeutter
You are encouraged to specify your choices by marking the appropriate boxes, SEE
REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance
with the Board of Directors' recommendations. Please mark, sign, date and return
this Proxy promptly using the enclosed envelope.
-------------
SEE REVERSE
SIDE
-------------
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
Caterpillar's most recent financial news releases
are now available free of charge by fax or mail!
Just call our toll-free number to request your copy.
800-CAT-7717
800-228-7717
(from the U.S. or Canada)
201-332-8602
(toll-free to callers outside the U.S. or Canada)
- --------------------------------------------------------------------------------
<PAGE>
ADMISSION TICKET
Caterpillar Inc.
Annual Meeting of Stockholders
Wednesday, April 10, 1996
10:30 a.m.
Loews Ventana Canyon Resort
7000 North Resort Drive
Tucson, Arizona
