FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File No. 1-768
CATERPILLAR INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
37-0602744
(I.R.S. Employer Identification No.)
100 NE Adams Street, Peoria, Illinois
(Address of principal executive offices)
61629
(Zip Code)
(309) 675-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No _____.
At March 31, 1996, 193,864,038 shares of common stock of the Registrant were
outstanding.
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CATERPILLAR INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES
Statement of Consolidated Results of Operations
(Unaudited)
(Millions of dollars except per share data)
Three Months Ended
Mar. 31, Mar. 31,
1996 1995
MACHINERY AND ENGINES:
Sales ................................ $3,682 $ 3,773
------ ------
Operating costs:
Cost of goods sold ................. 2,764 2,890
Selling, general and
administrative expenses .......... 402 361
Research and development expenses .. 98 86
------ ------
3,264 3,337
------ ------
Operating profit ..................... 418 436
Interest expense ..................... 49 48
------ ------
369 388
Other income (expense) ............... 29 12
------ ------
Profit before taxes .................. 398 400
------ ------
FINANCIAL PRODUCTS:
Revenues ............................. 162 140
------ ------
Operating costs:
Selling, general and
administrative expenses .......... 63 54
Interest expense ................... 73 66
------ ------
136 120
------ ------
Operating profit ..................... 26 20
Other income (expense) ............... 10 12
------ ------
Profit before taxes .................. 36 32
------ ------
CONSOLIDATED PROFIT BEFORE TAXES ........ 434 432
Provision for income taxes ........... 143 143
------ ------
Profit of consolidated companies ..... 291 289
<PAGE>
Equity in profit of affiliated
companies (Note 5) ................. 5 11
------ ------
PROFIT ................................. $ 296 $ 300
====== ======
PROFIT PER SHARE OF COMMON STOCK (NOTE 7):
Profit ............................... $ 1.53 $ 1.50
====== ======
Cash dividends paid per share of
common stock ......................... $ .35 $ .25
See accompanying notes to Consolidated Financial Statements.
<PAGE>
CATERPILLAR INC.
Statement of Financial Position *
(Dollars in millions)
CONSOLIDATED
(Caterpillar Inc.
and
subsidiaries)
Mar. 31, Dec. 31,
1996 1995
ASSETS
Current assets:
Cash and short-term investments ................. $ 605 $ 638
Receivables -- trade and other .................. 2,812 2,531
Receivables -- finance .......................... 1,653 1,754
Deferred income taxes and prepaid expenses ...... 807 803
Inventories (Note 6) ............................ 2,118 1,921
------- -------
Total current assets .............................. 7,995 7,647
Land, buildings, machinery, and equipment -- net .. 3,609 3,644
Long-term receivables -- trade and other .......... 125 126
Long-term receivables -- finance .................. 3,245 3,066
Investments in affiliated companies (Note 5) ...... 461 476
Investments in Financial Products subsidiaries .... - -
Deferred income taxes ............................. 1,156 1,127
Intangible assets ................................. 218 170
Other assets ...................................... 603 574
------- -------
TOTAL ASSETS ........................................ $17,412 $16,830
======= =======
LIABILITIES
Current liabilities:
Short-term borrowings ........................... $ 1,123 $ 1,174
Accounts payable and accrued expenses ........... 2,734 2,579
Accrued wages, salaries, and employee benefits .. 847 875
Dividends payable ............................... - 68
Deferred and current income taxes payable ....... 229 91
Long-term debt due within one year .............. 1,365 1,262
------- -------
Total current liabilities ......................... 6,298 6,049
Long-term debt due after one year ................. 4,058 3,964
Liability for postemployment benefits ............. 3,378 3,393
Deferred income taxes ............................. 37 36
------- -------
TOTAL LIABILITIES ................................... 13,771 13,442
------- ------
<PAGE>
STOCKHOLDERS' EQUITY
Common stock of $1.00 par value:
Authorized shares: 450,000,000
Issued shares (March 31, 1996 -- 203,723,656;
Dec. 31, 1995 -- 203,723,656) at paid in amount . 893 901
Profit employed in the business ................... 3,136 2,840
Foreign currency translation adjustment ........... 192 215
Treasury stock (March 31, 1996 -- 9,859,618
shares; Dec. 31, 1995 -- 9,708,538 shares)
at cost.......................................... (580) (568)
------- -------
TOTAL STOCKHOLDERS' EQUITY .......................... 3,641 3,388
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $17,412 $16,830
======= =======
See accompanying notes to Consolidated Financial Statements.
* Unaudited except for Consolidated December 31, 1995 amounts.
<PAGE>
CATERPILLAR INC.
Statement of Financial Position *
(Dollars in millions)
SUPPLEMENTAL CONSOLIDATING DATA
MACHINERY AND ENGINES
(Caterpillar Inc. with Financial
Products on the equity basis)
Mar. 31, Dec. 31,
1996 1995
ASSETS
Current assets:
Cash and short-term investments ................. $ 556 $ 580
Receivables -- trade and other .................. 3,069 2,910
Receivables -- finance .......................... - -
Deferred income taxes and prepaid expenses ...... 818 834
Inventories (Note 6) ............................ 2,118 1,921
------- -------
Total current assets .............................. 6,561 6,245
Land, buildings, machinery, and equipment -- net .. 3,155 3,199
Long-term receivables -- trade and other .......... 125 126
Long-term receivables -- finance .................. - -
Investments in affiliated companies (Note 5) ...... 461 476
Investments in Financial Products subsidiaries .... 679 658
Deferred income taxes ............................. 1,198 1,171
Intangible assets ................................. 218 170
Other assets ...................................... 318 330
------- -------
TOTAL ASSETS ........................................ $12,715 $12,375
======= =======
LIABILITIES
Current liabilities:
Short-term borrowings ........................... $ 5 $ 14
Accounts payable and accrued expenses ........... 2,419 2,358
Accrued wages, salaries, and employee benefits .. 844 873
Dividends payable ............................... - 68
Deferred and current income taxes payable ....... 183 40
Long-term debt due within one year .............. 155 156
------- -------
Total current liabilities ......................... 3,606 3,509
Long-term debt due after one year ................. 2,053 2,049
Liability for postemployment benefits ............. 3,378 3,393
Deferred income taxes ............................. 37 36
------- -------
TOTAL LIABILITIES ................................... 9,074 8,987
------- -------
<PAGE>
STOCKHOLDERS' EQUITY
Common stock of $1.00 par value:
Authorized shares: 450,000,000
Issued shares (March 31, 1996 -- 203,723,656;
Dec. 31, 1995 -- 203,723,656) at paid in amount . 893 901
Profit employed in the business ................... 3,136 2,840
Foreign currency translation adjustment ........... 192 215
Treasury stock (March 31, 1996 -- 9,859,618
shares; Dec. 31, 1995 -- 9,708,538 shares)
at cost.......................................... (580) (568)
------- -------
TOTAL STOCKHOLDERS' EQUITY .......................... 3,641 3,388
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $12,715 $12,375
======= =======
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide required supplemental disclosure
of information about the Financial Products subsidiaries.
See accompanying notes to Consolidated Financial Statements.
* Unaudited except for Consolidated December 31, 1995 amounts.
<PAGE>
CATERPILLAR INC.
Statement of Financial Position *
(Dollars in millions)
SUPPLEMENTAL CONSOLIDATING DATA
FINANCIAL PRODUCTS
Mar. 31, Dec. 31,
1996 1995
ASSETS
Current assets:
Cash and short-term investments ................. $ 49 $ 58
Receivables -- trade and other .................. 154 132
Receivables -- finance .......................... 1,653 1,754
Deferred income taxes and prepaid expenses ...... 14 13
Inventories (Note 6) ............................ - -
------- -------
Total current assets .............................. 1,870 1,957
Land, buildings, machinery, and equipment -- net .. 454 445
Long-term receivables -- trade and other .......... - -
Long-term receivables -- finance .................. 3,245 3,066
Investments in affiliated companies (Note 5) ...... - -
Investments in Financial Products subsidiaries .... - -
Deferred income taxes ............................. - -
Intangible assets ................................. - -
Other assets ...................................... 285 244
------- -------
TOTAL ASSETS ........................................ $ 5,854 $ 5,712
======= =======
LIABILITIES
Current liabilities:
Short-term borrowings ........................... $ 1,118 $ 1,160
Accounts payable and accrued expenses ........... 750 776
Accrued wages, salaries, and employee benefits .. 3 2
Dividends payable ............................... - -
Deferred and current income taxes payable ....... 46 51
Long-term debt due within one year .............. 1,210 1,106
------- -------
Total current liabilities ......................... 3,127 3,095
Long-term debt due after one year ................. 2,005 1,915
Liability for postemployment benefits ............. - -
Deferred income taxes ............................. 43 44
------- -------
TOTAL LIABILITIES ................................... 5,175 5,054
------- -------
<PAGE>
STOCKHOLDERS' EQUITY
Common stock of $1.00 par value:
Authorized shares: 450,000,000
Issued shares (March 31, 1996 -- 203,723,656
Dec. 31, 1995 -- 203,723,656) at paid in amount . 333 333
Profit employed in the business ................... 342 320
Foreign currency translation adjustment ........... 4 5
Treasury stock (March 31, 1996 -- 9,859,618
shares; Dec. 31, 1995 -- 9,708,538 shares)
at cost.......................................... - -
------- -------
TOTAL STOCKHOLDERS' EQUITY .......................... 679 658
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $ 5,854 $ 5,712
======= =======
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide required supplemental disclosure
of information about the Financial Products subsidiaries.
See accompanying notes to Consolidated Financial Statements.
* Unaudited except for Consolidated December 31, 1995 amounts.
<PAGE>
CATERPILLAR INC.
Statement of Cash Flows for Three Months Ended
(Unaudited)
(Millions of dollars)
CONSOLIDATED
(Caterpillar Inc.
and subsidiaries)
Mar. 31, Mar. 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Profit ............................................ $ 296 $ 300
Adjustments for noncash items:
Depreciation and amortization ..................... 174 174
Profit of Financial Products ...................... - -
Other ............................................. 24 1
Changes in assets and liabilities:
Receivables -- trade and other .................. (263) (60)
Inventories ..................................... (197) (260)
Accounts payable and accrued expenses ........... 156 257
Other -- net .................................... 77 8
------- -------
Net cash provided by operating activities ........... 267 420
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- excluding equipment
leased to others ................................ (70) (74)
Expenditures for equipment leased to others ....... (46) (43)
Proceeds from disposals of land, buildings,
machinery, and equipment ........................ 19 21
Additions to finance receivables .................. (966) (966)
Collections of finance receivables ................ 528 583
Proceeds from the sale of finance receivables...... 309 300
Net short-term loans to Financial Products.........
Other -- net ...................................... (131) (51)
------- -------
Net cash used for investing activities .............. (357) (230)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid .................................... (68) (50)
Common stock issued, including treasury
shares reissued ................................. 4 -
Treasury shares purchased ......................... (31) (33)
Net short-term loans from Machinery and Engines ...
Proceeds from long-term debt issued ............... 16 296
Payments on long-term debt ........................ (123) (285)
Short-term borrowings -- net ...................... 268 15
------- -------
<PAGE>
Net cash provided by (used for) financing
activities ........................................ 66 (57)
------- -------
Effect of exchange rate changes on cash ............. (9) (87)
------- -------
Increase (decrease) in cash and
short-term investments ............................ (33) 46
Cash and short-term investments at the
beginning of the period ........................... 638 419
------- -------
Cash and short-term investments at the
end of the period ................................. $ 605 $ 465
======= =======
All short-term investments, which consist primarily of highly liquid
investments with original maturities of three months or less, are considered
to be cash equivalents.
See accompanying notes to Consolidated Financial Statements.
<PAGE>
CATERPILLAR INC.
Statement of Cash Flows for Three Months Ended
(Unaudited)
(Millions of dollars)
SUPPLEMENTAL CONSOLIDATING DATA
MACHINERY AND ENGINES
(Caterpillar Inc. with Financial
Products on the equity basis)
Mar. 31, Mar. 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Profit ............................................ $ 296 $ 300
Adjustments for noncash items:
Depreciation and amortization ................... 146 147
Profit of Financial Products .................... (22) (19)
Other ........................................... 6 6
Changes in assets and liabilities:
Receivables -- trade and other .................. (255) (24)
Inventories ..................................... (197) (260)
Accounts payable and accrued expenses ........... 71 180
Other -- net .................................... 102 2
------- -------
Net cash provided by operating activities ........... 147 332
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- excluding equipment
leased to others ................................ (69) (73)
Expenditures for equipment leased to others ....... - (4)
Proceeds from disposals of land, buildings,
machinery, and equipment ........................ 3 4
Additions to finance receivables .................. - -
Collections of finance receivables ................ - -
Proceeds from sale of finance receivables.......... - -
Net short-term loans to Financial Products......... 91 -
Other -- net ...................................... (90) (44)
------- -------
Net cash used for investing activities .............. (65) (117)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid.................................... (68) (50)
Common stock issued, including treasury
shares reissued ................................. 4 -
Treasury shares purchased ......................... (31) (33)
Net short-term loans from Machinery and Engines.... - -
Proceeds from long-term debt issued ............... 15 -
Payments on long-term debt ........................ (8) (4)
Short-term borrowings -- net ...................... (9) (11)
------- -------
<PAGE>
Net cash used for financing activities .............. (97) (98)
------- -------
Effect of exchange rate changes on cash ............. (9) (88)
------- -------
Increase (decrease) in cash and
short-term investments ............................ (24) 29
Cash and short-term investments at the
beginning of the period ........................... 580 395
------- -------
Cash and short-term investments at the
end of the period ................................. $ 556 $ 424
======= =======
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide supplemental disclosure of
information about the Financial Products subsidiaries.
See accompanying notes to Consolidated Financial Statements.
<PAGE>
CATERPILLAR INC.
Statement of Cash Flows for Three Months Ended
(Unaudited)
(Millions of dollars)
SUPPLEMENTAL CONSOLIDATING DATA
FINANCIAL PRODUCTS
Mar. 31, Mar. 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Profit ............................................ $ 22 $ 19
Adjustments for noncash items:
Depreciation and amortization ................... 28 27
Profit of Financial Products .................... - -
Other ........................................... 18 (5)
Changes in assets and liabilities:
Receivables -- trade and other .................. 1 3
Inventories ..................................... - -
Accounts payable and accrued expenses ........... 56 21
Other -- net .................................... (5) 23
------- -------
Net cash provided by operating activities ........... 120 88
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- excluding equipment
leased to others ................................ (1) (1)
Expenditures for equipment leased to others ....... (46) (39)
Proceeds from disposals of land, buildings,
machinery, and equipment ........................ 16 17
Additions to finance receivables .................. (966) (966)
Collections of finance receivables ................ 528 583
Proceeds from the sale of finance receivables...... 309 300
Net short-term loans to Financial Products......... - -
Other -- net ...................................... (41) (37)
------- -------
Net cash used for investing activities .............. (201) (143)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid .................................... - -
Common stock issued, including treasury
shares reissued ................................. - 30
Treasury shares purchased ......................... - -
Net short-term loans from Machinery and Engines.... (91) -
Proceeds from long-term debt issued ............... 1 296
Payments on long-term debt ........................ (116) (281)
Short-term borrowings -- net ...................... 277 26
------- -------
Net cash provided by financing activities ........... 71 71
------- -------
<PAGE>
Effect of exchange rate changes on cash ............. 1 1
------- -------
Increase (decrease) in cash and
short-term investments ............................ (9) 17
Cash and short-term investments at the
beginning of the period ........................... 58 24
------- -------
Cash and short-term investments at the
end of the period ................................. $ 49 $ 41
======= =======
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide supplemental disclosure of
information about the Financial Products subsidiaries.
See accompanying notes to Consolidated Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions except per share data)
1. In the opinion of management, all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of (a) the
consolidated results of operations for the three-month periods
ended March 31, 1996 and 1995, (b) the consolidated financial
position at March 31, 1996 and December 31, 1995, and (c) the
consolidated statement of cash flows for the three-month periods ended
March 31, 1996 and 1995 have been made.
2. The results for the three-month period ended March 31, 1996 are not
necessarily indicative of the results for the entire year 1996.
3. 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.
At March 31, 1996, the company had approximately $773 in contracts to buy
or sell foreign currency in the future. The carrying value and the fair
market value of such contracts were both a liability of $5.
4. The company has reviewed the status of its environmental and legal
contingencies and believes there are no material changes from that
disclosed in Form 10-K for the year ended December 31, 1995.
5. Affiliated Companies
The company's investments in affiliated companies consist principally of
a 50% interest in Shin Caterpillar Mitsubishi Ltd., Japan $(420). The
other 50% owner of this company is Mitsubishi Heavy Industries, Ltd.,
Japan.
Combined financial information of the affiliated companies, as
translated to U.S. dollars, was as follows:
Three Months Ended
RESULTS OF OPERATIONS Dec. 31, Dec. 31,
(Unaudited) 1995 1994
Sales ..................... $ 908 $ 936
====== ======
Profit .................... $ 11 $ 22
====== ======
<PAGE>
Dec.31, Sept. 30,
1995 1995
FINANCIAL POSITION (unaudited)
Assets:
Current assets ................................. $1,920 $1,872
Land, buildings, machinery and equipment - net.. 738 780
Other assets ................................... 297 322
------ ------
2,955 2,974
------ ------
Liabilities:
Current liabilities ............................ 1,709 1,676
Long-term debt due after one year .............. 196 215
Other liabilities .............................. 146 155
------ ------
2,051 2,046
------ ------
Ownership ........................................ $ 904 $ 928
====== ======
6. Inventories (principally "last- in, first-out" method)
comprised the following
Mar.31, Dec. 31,
1996 1995
(unaudited)
Raw materials and work-in-process ................ $ 831 $ 710
Finished goods ................................... 1,074 1,006
Supplies ......................................... 213 205
------ ------
$2,118 $1,921
====== ======
7. Following is a computation of profit per share:
Three Months Ended
Mar. 31, Mar. 31,
1996 1995
(Unaudited)
I. Net profit for period:
Profit - consolidated (A) .. $ 296 $ 300
====== ======
<PAGE>
II. Determination of shares (millions):
Weighted average number of
common shares outstanding (B) .. 193.9 200.1
Shares issuable on exercise of
stock options, net of shares
assumed to be purchased out
of proceeds at market price .... 2.1 2.1
------ ------
Average common shares
outstanding for fully diluted
computation (C) ................ 196.0 202.2
====== ======
III. Profit per share of common stock:
Assuming no dilution (A/B) ...... $1.53 $1.50
Assuming full dilution (A/C) .... $1.51 $1.48
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND LIQUIDITY AND CAPITAL RESOURCES
A. Consolidated Results of Operations
THREE MONTHS ENDED MARCH 31, 1996 VS. THREE MONTHS ENDED MARCH 31, 1995
The company announced first-quarter profit of $296 million.
This compares with record first-quarter profit of $300 million for
first-quarter 1995. Sales and revenues were $3.84 billion, a decrease of $69
million from the same quarter a year ago. Profit per share for first-quarter
1996 was $1.53, $.03 higher than profit per share for first-quarter
1995. The higher profit per share is due to the repurchase of shares.
On June 7, 1995, the company announced a plan to repurchase
up to 10% of its outstanding common stock over the next three to five years.
As of the end of the first quarter, 7.0 million shares had been repurchased
under the plan. The number of shares outstanding at March 31, 1996, was 193.9
million.
Machinery and Engines
Sales of Machinery and Engines were $3.68 billion, down $91 million from
first-quarter 1995. The lower sales resulted from a 5% decrease in physical
sales volume partially offset by a 2% improvement in price realization.
Profit before tax of $398 million was $2 million lower than last year's first
quarter.
The decrease in physical sales volume primarily resulted from lower
machine and engine sales inside the United States. Sales outside the United
States were about the same. Price realization improved primarily because of
price increases taken over the past year and the absence of currency hedges.
The adverse impact of currency hedges (forward contracts) that matured during
first-quarter 1995 was about $30 million. All such forward contracts had
matured as of the end of 1995.
Margin (sales less cost of goods sold) of $918 million increased $35
million from the first quarter a year ago despite the lower sales. Margin as
a percent of sales was 24.9% compared with 23.4% during last year's first
quarter. The margin improvement resulted from better price realization along
with lower material costs. Partially offsetting these favorable items were
the effects of lower sales volume and unfavorable impact of a lower buildup of
inventory during the current quarter as compared to a year ago. There was a
$197 million inventory increase for the current quarter compared to a $260
million increase in first-quarter 1995. When inventory increases, certain
fixed costs incurred in the current period are inventoried. These inventoried
fixed costs are then charged to cost of goods sold in later periods when
inventory decreases.
Selling, general and administrative (SG&A) expenses were $402 million,
compared with $361 million during first-quarter 1995. The increase reflects
higher spending levels in support of expanded operations around the world and
higher costs due to inflation. Additionally, 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 1996 as those employees have returned to their regular jobs.
<PAGE>
Research and development (R&D) expenses of $98 million were $12 million
higher than the same quarter last year. The increase primarily reflects
continuing high levels of activity for new product introductions.
Operating profit of $418 million was $18 million lower than the first
quarter a year ago. As a percent of sales, operating profit was 11.4% of
sales. For the same period last year the rate of operating profit was 11.6%,
the highest in 14 years.
Interest expense was about the same as the first quarter a year ago.
Other income/expense was income of $29 million compared with income of
$12 million last year. The increase of $17 million is primarily the result of
a favorable change in foreign exchange gains and losses.
Financial Products
Before-tax profit for Financial Products was $36 million compared with
$32 million for last year's first quarter. The increase resulted primarily
from gains recognized on the sale of securities in Caterpillar Insurance
Company Ltd.'s investment portfolio and higher earnings from a larger
portfolio of earning assets at Caterpillar Financial Services Corporation.
These favorable items were partially offset by the absence of a $6 million
gain in the unrealized mark-to-market adjustment for Caterpillar Financial
Services Corporation's written interest rate caps in the first quarter of
1995. (The caps were terminated during the second quarter of 1995.)
Record first quarter revenues of $162 million were up $22 million
compared with first-quarter 1995, primarily the result of Cat Financial's
larger portfolio. Cat Financial's new retail financing business also
established a first-quarter record of $736 million, a $127 million or 21%
increase compared with first-quarter 1995.
Selling, general and administrative expenses were $63 million, $9 million
higher than the same quarter a year ago. The increase reflects staff-related
and other expenses required to increase new business and service the larger
managed portfolio. Interest expense was $7 million higher due to increased
borrowings to support the larger portfolio, partially offset by lower
borrowing rates.
Income Taxes
Tax expense of $143 million was the same as the first quarter last year.
Affiliated Companies
The company's share of affiliated companies' results was $5 million, down
$6 million primarily due to the absence of land sale profits recorded in
first-quarter 1995 at the company's 50%-owned affiliate, Shin Caterpillar
Mitsubishi Ltd. (SCM) in Japan.
THREE MONTHS ENDED MARCH 31, 1996 VS THREE MONTHS ENDED DECEMBER 31, 1995
First-quarter profit of $296 million was $4 million lower than the $300
million reported for the fourth quarter of 1995. Profit per share of $1.53
was the same for both quarters as the company continued its share repurchase
program. A decrease in physical sales volume of 12% was the most significant
factor contributing to the lower profit, partially offset by a 2% improvement
in price realization.
<PAGE>
Machinery and Engines
Profit before tax for Machinery and Engines was $398 million, a decrease
of $10 million from the previous quarter. Sales of $3.68 billion decreased
$369 million, primarily the result of lower engine sales both inside and
outside the United States. Higher machine sales inside the United States were
mostly offset by lower machine sales outside the United States. Price
realization improved primarily because of price increases taken during the
first quarter and the absence of currency hedges. The adverse impact of
currency hedges (forward contracts) that matured during the fourth quarter of
1995 was about $30 million. All such forward contracts had matured as of the
end of 1995.
Margin declined $11 million from the fourth quarter. As a percent of
sales, the margin rate was 24.9% compared with 22.9% last quarter. The margin
rate improvement resulted from better price realization along with lower cost
of goods sold, primarily the result of changes in inventory levels between the
two quarters. There was a $197 million inventory increase for the current
quarter compared to a $267 million decrease in fourth-quarter 1995. When
inventory increases, certain fixed costs incurred in the current period are
inventoried. These inventoried fixed costs are then charged to cost of goods
sold in later periods when inventory decreases. Partially offsetting the
favorable margin items were effects of lower sales volume and absence of $22
million in LIFO (last-in, first-out) inventory benefits in the previous
quarter.
Selling, general and administrative expenses were $402 million, compared
to $392 million for fourth-quarter 1995. The increase was the result of
higher spending levels in support of expanded operations.
Research and development expenses of $98 million were about the same as
the fourth quarter.
Operating profit of $418 million decreased $17 million. As a percent of
sales, operating profit was 11.4%, up 0.7 percentage points from the fourth
quarter.
Interest expense of $49 million was about the same as the fourth quarter.
Other income/expense was income of $29 million compared with income of
$20 million in the fourth quarter. The increase primarily reflects a
favorable change in foreign exchange gains and losses.
Financial Products
Financial Products' before-tax profit was $36 million, an increase of $16
million from fourth-quarter 1995. Selling, general and administrative
expenses were down $7 million due to a lower provision for credit losses at
Cat Financial. Interest expense was down $2 million because of a lower cost
of borrowed funds. Other income/expense was income of $10 million, an
increase of $7 million from fourth-quarter 1995, primarily the result of
higher investment income on portfolio transactions at Caterpillar Insurance.
Income Taxes
Tax expense of $143 million increased $10 million, reflecting the use of
a 33% estimated effective annual tax rate for the first quarter compared with
an effective rate of 31% for the fourth quarter.
<PAGE>
SALES
Following are summaries of first-quarter company sales and dealer
deliveries compared with the same quarter in 1995.
Company Sales Inside the United States
Caterpillar sales inside the United States were $1.88 billion, a $96
million or 5% decrease from the same quarter a year ago. Higher price
realization was more than offset by a drop in volume. A decline in dealer
sales to users for both machines and engines and inventory adjustments by
dealers contributed to the drop in volume.
Sales inside the United States during the first quarter were 51% of total
sales versus 52% in 1995's first quarter.
U.S. Dealer Machine Sales to End-Users
Sales were below year-earlier levels due to weaker industry demand for
construction equipment and a reduced share of industry sales. The industry
declined despite favorable factors such as higher housing starts, increased
nonresidential construction and stronger mining activity. In part, this
reflects the impact of tight monetary policies and weaker growth in cash flow,
and is consistent with a reduction in replacement demand after several years
of strong industry sales. Industry demand for agricultural equipment,
however, continued to grow.
Sales to end-users (including rental purchase options)
declined in most work applications:
- Highway-related sales were below year-earlier levels despite higher
spending on highway construction and repair.
- Sales to the commercial, industrial and government building sector were
also down despite higher levels of construction spending in these
areas.
- Housing-related sales were lower although starts were up compared with
year earlier.
Sales to the commodity sector in total were unchanged as the increase in
metal mining sales offset declines elsewhere:
- Metal mining-related sales increased significantly over year earlier
levels due to higher mine production.
- Sales to the coal mining sector were lower reflecting weaker mine
production.
- Sand and quarry mining-related sales were down while mine production
was about the same.
- Agricultural sector sales of tractors were higher reflecting both the
introduction of new models and a strong industry. Sales of other
construction equipment for agricultural use, however, were lower.
- Forestry-related sales were below year earlier reflecting lower
production and weaker prices for lumber. Pulp prices, although
declining, were still higher than a year ago.
Sales to landfills and industrial applications also were lower.
Deliveries to U.S. Dealer Rental Fleets
Deliveries to U.S. dealers for their dedicated rental fleets were lower
compared to first-quarter 1995. U.S. dealer rental inventories decreased from
fourth-quarter levels, but remained above year-earlier levels.
<PAGE>
U.S. Dealer New Machine Inventories
U.S. dealer new machine inventories were up from the end of the fourth
quarter in preparation for the spring selling season but were down compared to
year earlier. At the end of the first quarter, dealer inventories were
slightly above normal relative to current selling rates.
Company Engine Sales Inside the United States
Sales of diesel engines were below year-earlier levels primarily as a
result of weaker industry demand. The on-highway truck industry in particular
has fallen noticeably from very strong year-earlier levels leading to a
reduction in deliveries of truck engines to Original Equipment Manufacturers
(OEMs). Higher sales to users in marine applications failed to offset weaker
demand for engines used in power generation and industrial applications.
Sales of turbine engines were higher with a gain in industrial power
generation more than offsetting a decline in oil and gas applications.
Company Sales Outside the United States
Caterpillar sales outside the United States of $1.80 billion were
unchanged from first-quarter 1995 as improved price realization offset lower
volume. Even though dealer sales to end-users for both machines and engines
were higher, company sales volume declined because dealers scaled back growth
in their new machine inventories and reduced engine inventories.
Sales outside the United States represented 49% of worldwide sales
compared with 48% a year ago.
Dealer Machine Sales to End-Users Outside the United States
Dealer sales outside the United States were up from first-quarter 1995
due primarily to higher demand in Europe, Africa and the Middle East.
- Europe: Sales rose in most Western European countries reflecting the
impact of low interest rates, low inflation and rising profits.
Particularly good gains were realized in the United Kingdom, France and
Italy. Sales continued to decline in Germany where the economy has
been weak. Higher sales also were realized in Central Europe.
- Asia (excluding China and Japan): Sales declined despite the
continuation of excellent economic growth and infrastructure
investment. Sales were higher in Malaysia but lower in Indonesia and
Thailand.
- Africa and the Middle East: Demand continued to improve in response to
good commodity prices, exports and economic growth. South Africa and
Saudi Arabia registered the largest gains.
- Latin America: Sales were below year-earlier levels reflecting the
impact of last year's severe recession in Mexico. Sales were higher in
Argentina and Colombia but lower in Brazil, Chile, and Mexico.
- Australia: Sales were higher than a year ago due to continued strength
in mining. Construction sector sales declined reflecting slower
economic growth.
- Canada: Sales fell primarily due to competitive pressures. Sales were
down in all applications except highway construction, metal mining and
agriculture.
- China: Sales were lower despite excellent economic growth and
infrastructure investment in China.
<PAGE>
- Japan: Sales of imported product were up and the economy is showing
signs of recovery. The industry, however, remains relatively weak.
- Commonwealth of Independent States (CIS): Sales were up from very low
levels a year ago.
Dealer New Machine Inventories Outside the United States
Dealer new machine inventories outside the United States were up from the
end of the fourth quarter and from the end of first-quarter 1995. However,
because demand has also improved, dealer inventories are about normal relative
to current selling rates.
Company Engine Sales Outside the United States
Despite higher sales to end-users, company sales of diesel engines fell
as dealers adjusted their inventory levels. Sales to users were higher in
all regions, except Canada, with the largest gain in Asia. By work
application, sales were up in marine and industrial, with a large gain in
power generation.
Deliveries to truck OEMs were lower due to weakness in Canada. Sales of
turbine engines were about the same as year earlier with a decline in the
industrial power generation business offsetting an increase in oil and gas
applications.
PLANT CLOSING AND CONSOLIDATION COSTS
At March 31, 1996 the reserve for plant closing and consolidation costs
was $265 million. Of this balance, $172 million related to anticipated costs
associated with the closure of the Component Products Division's York,
Pennsylvania, facility. The probable closing of the York facility was
announced in December 1991. The company determined that unless significant
cost reductions were made, the unit would be closed. The company is currently
in the early stages of closing the plant.
Also in the reserve for plant closing and consolidation costs at
March 31, 1996, was $69 million for write-downs of buildings, machinery and
equipment at previously closed facilities. The remainder of the reserve
related to severance benefits provided to former employees at previously
closed facilities. The reserve for such benefits is amortized as the benefits
are provided. Currently amortization periods are through 2003.
EMPLOYMENT
At the end of the first quarter, Caterpillar's worldwide employment was
54,955, compared with 54,298 one year ago. Hourly employment decreased 197 to
32,134, while salaried and management employment increased 854 to 22,821. The
increased employment is largely the result of acquisitions, partially offset
by attrition.
ECONOMIC AND INDUSTRY OUTLOOK
World economic growth is still expected to be near 1995 levels with
recoveries in Latin America, Japan and the CIS offsetting slower growth in the
United States, Canada, Australia and Europe. Worldwide industry demand for
machines is expected to remain near 1995 levels as lower demand in North
<PAGE>
America is nearly offset by stronger demand elsewhere. Worldwide demand for
engines, however, will likely decline as the forecasted drop in the North
American industry is not expected to be fully offset by growth in the rest of
the world.
Despite recent favorable data, the U.S. economy is still expected to slow
further in 1996 as a result of tight monetary and fiscal policies pursued over
the last several years. 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.
U.S. Gross Domestic Product (GDP) is forecast to grow 1.0%-1.5% in 1996
versus 2.0% in 1995. 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.
In Western Europe, economic growth was weaker than expected at year end,
particularly in Germany and France. Nonetheless, interest rate reductions
over the past year should lead to a resumption of moderate growth in the
second half. For the year as a whole, European economies now seem likely to
register GDP growth of only 2.0%, below earlier expectations and slightly
slower than 1995. In contrast, good economic growth continues in Central
Europe. European industry demand is still forecast to increase in 1996, but
less than earlier anticipated.
Economic recovery appears to finally be taking 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 still 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. Higher sales are also forecast for the Africa/Middle East region where
high commodity prices, good export demand and economic restructuring should
combine for another year of good economic growth.
In Latin America, weak recoveries are still expected in both Mexico and
Argentina with healthy growth forecast for most other major countries. While
the resulting moderate economic growth for the region will be an improvement
over 1995, industry demand is unlikely to improve much. The severe, six-year
decline in the CIS is also forecast to end but political instability will
likely remain. Some growth in industry demand is anticipated for 1996.
COMPANY OUTLOOK
As reported in January, 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. Even though company results for the first quarter of 1996 were
somewhat better than anticipated, the outlook for 1996 remains essentially
unchanged.
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
<PAGE>
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 predominantly based on its
interpretation of what it considers key economic factors. These include, but
are not limited to, the impact 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 at least 2%, 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.
B. Liquidity & Capital Resources
Consolidated operating cash flows totaled $267 million in the first
quarter of 1996, compared with $420 million in the first quarter of 1995.
Total debt at the end of the quarter was $6.55 billion, an increase of
$146 million from year end 1995. Over this period, debt related to Machinery
& Engines decreased $6 million, to $2.21 billion, while debt related to
Financial Products increased $152 million to $4.33 billion.
Machinery and Engines
Operating cash flows totaled $147 million in the first quarter of 1996,
compared with $332 million in the first quarter of 1995. The cash flow
decrease is primarily the result of increased receivables.
Capital expenditures, excluding equipment leased to others, totaled $69
million in the first quarter compared with $73 million a year ago. The percent
of debt to debt plus stockholders equity improved to 38% at March 31, 1996,
from 40% at December 31, 1995.
Financial Products
Operating cash flows totaled $120 million in the first quarter of 1996,
compared with $88 million in the first quarter of 1995. Cash used to purchase
equipment leased to others totaled $46 million in the first quarter of 1996.
In addition, first-quarter 1996 cash used for the net increase in finance
receivables was $129 million, compared with $83 million during the first
quarter of 1995.
Financial Products' debt was $4.33 billion at March 31, 1996, an increase
of $152 million from December 31, 1995. At the end of the first quarter,
finance receivables past due over 30 days were 2.2%, compared with 2.0% at the
<PAGE>
end of the same period one year ago. The ratio of debt to equity of Cat
Financial was 7.6:1 at March 31, 1996, compared with 7.7:1 at December 31,
1995.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of Caterpillar Inc. was held on April
10, 1996, for the purpose of electing a board of directors, approving
the Caterpillar Inc. 1996 Stock Option and Long-Term Incentive Plan,
approving the appointment of auditors, and voting on the proposal described
below. Proxies for the meeting were solicited pursuant to Section 14(a) of
the Securities Exchange Act of 1934 and there was no solicitation in
opposition to management's solicitations.
All of management's nominees for directors as listed in the proxy
statement were elected with the following vote:
Shares Shares
Voted Shares Not
"For" "Withheld" Voted
W. F. Blount 169,486,908 1,467,152 0
J. P. Gorter 168,448,234 2,505,826 0
P. A. Magowan 159,512,497 11,441,563 0
C. K. Yeutter 169,482,915 1,471,145 0
Adoption of the Caterpillar Inc. 1996 Stock Option and Long-Term
Incentive Plan was approved by the following vote:
Shares Shares Shares
Voted Voted Shares Not
"FOR" "AGAINST" "ABSTAINING" Voted
144,737,029 23,706,626 2,510,405 0
<PAGE>
The appointment of Price Waterhouse LLP as independent auditor was
approved by the following vote:
Shares Shares Shares
Voted Voted Shares Not
"FOR" "AGAINST" "ABSTAINING" Voted
169,845,569 592,045 516,446 0
The stockholder proposal to declassify the Board of Directors for the
purpose of director elections was defeated with the following vote:
Shares Shares Shares
Voted Voted Shares Not
"FOR" "AGAINST" "ABSTAINING" Voted
75,229,107 77,545,424 3,711,241 14,468,288
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
27 Financial Data Schedule
(b) One report, dated March 19, 1996, on Form 8-K was filed during the
quarter ending March 31, 1996, pursuant to Item 5 of that form. No financial
statements were filed as part of that report.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CATERPILLAR INC.
Date: May 3, 1996 By: /s/ D. R. Oberhelman
D. R. Oberhelman, Vice President
and Chief Financial Officer
Date: May 3, 1996 By: /s/ R. R. Atterbury III
R. R. Atterbury III, Secretary
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FINANCIAL STATEMENTS FOR THE PERIOD
ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 66
<SECURITIES> 539
<RECEIVABLES> 2,812 <F1>
<ALLOWANCES> 0 <F1><F2>
<INVENTORY> 2,118
<CURRENT-ASSETS> 7,995
<PP&E> 8,414
<DEPRECIATION> 4,805
<TOTAL-ASSETS> 17,412
<CURRENT-LIABILITIES> 6,298
<BONDS> 4,058
0<F2>
0<F2>
<COMMON> 204
<OTHER-SE> 3,437
<TOTAL-LIABILITY-AND-EQUITY> 17,412
<SALES> 3,682
<TOTAL-REVENUES> 3,844
<CGS> 2,764
<TOTAL-COSTS> 3,400
<OTHER-EXPENSES> (39)
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 49
<INCOME-PRETAX> 434
<INCOME-TAX> 143
<INCOME-CONTINUING> 296
<DISCONTINUED> 0<F2>
<EXTRAORDINARY> 0<F2>
<CHANGES> 0<F2>
<NET-INCOME> 296
<EPS-PRIMARY> 1.53
<EPS-DILUTED> 1.51
<FN>
<F1> Notes and accounts receivable - trade are reported net of allowances
for doubtful accounts in the Statement of Financial Position.
<F2> Amounts inapplicable or not disclosed as a separate line on the
Statement of Financial Position or Results of Operations are reported as 0
herein.
</FN>
</TABLE>
