<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
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)
1-768 37-0602744
(Commission File Number) (IRS Employer I.D. No.)
100 NE Adams Street, Peoria, Illinois 61629
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (309) 675-1000
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1997
<PAGE>
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock ($1.00 par value) Chicago Stock Exchange
New York Stock Exchange
Pacific Exchange, Inc.
Preferred Stock Purchase Rights Chicago Stock Exchange
New York Stock Exchange
Pacific Exchange, Inc.
9 3/8% Notes due July 15, 2000 New York Stock Exchange
9 3/8% Notes due July 15, 2001 New York Stock Exchange
9% Debentures due April 15, 2006 New York Stock Exchange
6% Debentures due May 1, 2007 New York Stock Exchange
9 3/8% Debentures due August 15, 2011 New York Stock Exchange
9 3/4% Sinking Fund Debentures due June 1, 2019 New York Stock Exchange
9 3/8% Debentures due March 15, 2021 New York Stock Exchange
8% Debentures due February 15, 2023 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of January 31, 1998, there were 366,854,972 shares of common stock of the
Registrant outstanding, and the aggregate market value of the voting stock held
by non-affiliates of the Registrant (assuming only for purposes of this
computation that directors and officers may be affiliates) was $17,438,675,616.
Documents Incorporated by Reference
Portions of the documents listed below have been incorporated by reference into
the indicated parts of this Form 10-K, as specified in the responses to the item
numbers involved.
. 1998 Annual Meeting Proxy Statement ("Proxy Statement") - Part III
. Annual Report to Security Holders filed as an appendix to the 1998
Annual Meeting Proxy Statement ("Appendix") - Parts I, II, and IV
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1997
<PAGE>
PART I
Item 1. Business.
Principal Business Segments
- ---------------------------
Caterpillar 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, mining shovels, log skidders, log loaders,
off-highway trucks, articulated trucks, paving products, telescopic
handlers, 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. Reciprocating engines meet
power needs ranging from 40 to 13,600 horsepower (30 to 10 150
kilowatts). Turbines range from 1,340 to 18,000 horsepower (1000 to 13 500
kilowatts).
3. Financial Products--provides financing alternatives for Caterpillar and
noncompetitive related equipment, and extends loans to our customers and
dealers. Also provides various forms of insurance to our dealers and
customers to help support their purchase and financing of our equipment.
This segment consists primarily of Caterpillar Financial Services
Corporation and its subsidiaries, and Caterpillar Insurance Services
Corporation.
Additional information about our business and geographic segments is
incorporated by reference from Note 20 of the Notes to Consolidated Financial
Statements on pages A-17 through A-18 of the Appendix.
Nature of Operations
- --------------------
We conduct operations in our Machinery and Engines' segments under highly
competitive conditions, including intense price competition. We place great
emphasis upon the high quality and performance of our products and our dealers'
service support. Although no one competitor is believed to produce all of the
same types of machines and engines, there are numerous companies, large and
small, which compete with us in the sale of each of our products.
Machines are distributed principally through a worldwide organization of
dealers, 65 located in the United States and 132 located outside the United
States. Worldwide, these dealers have more than 1,400 places of business.
Reciprocating engines are sold principally through the worldwide dealer
organization and to other manufacturers for use in products manufactured by
them. Our dealers do not deal exclusively with our products; however, in most
cases sales and servicing of our products are our dealers' principal business.
Turbines and large marine reciprocating engines are sold through sales forces
employed by Solar Turbines Incorporated and associated companies and MaK Motoren
GmbH & Co. KG, respectively. Occasionally, these employees are assisted by
independent sales representatives.
Page 3
<PAGE>
The Financial Products' segment also conducts business under highly competitive
conditions. Financing for users of Caterpillar products is available through a
variety of competitive sources, principally commercial banks and finance and
leasing companies. We emphasize prompt and responsive service to meet customer
requirements and offer various financing plans designed to increase the
opportunity for sales of our products and generate financing income for our
company.
On December 11, 1997, we announced an agreement with LucasVarity plc to acquire
the assets of Perkins Engines, LucasVarity's diesel engine subsidiary. Perkins
is a leading manufacturer of small to medium diesel engines, and its 1996 sales
were approximately $1.1 billion. The addition of Perkins to our existing engine
business will create a global full-line producer of reciprocating and turbine
engines. A purchase price of $1.325 billion was agreed upon subject to closing
date adjustments. We will pay for this acquisition using a combination of
existing cash and new debt. The acquisition will be accounted for using the
purchase method of accounting.
Additional information about our operations in 1997 and outlook for 1998 are
incorporated by reference from "Management's Discussion and Analysis" on pages
A-20 through A-28 of the Appendix and are discussed under Item 7 to this Form
10-K.
Patents and Trademarks
- ----------------------
Our products are sold primarily under the marks "Caterpillar," "Cat," "Solar,"
"Barber-Greene," and "MaK". We own a number of patents and trademarks relating
to the products we manufacture, which have been obtained over a period of years.
These patents and trademarks have been of value in the growth of our business
and may continue to be of value in the future. We do not regard any segment of
our business as being dependent upon any single patent or group of patents.
Research and Development
- ------------------------
We have always placed strong emphasis on product-oriented research and
engineering relating to the development of new or improved machines, engines and
major components. In 1997, 1996, and 1995, we spent $700 million, $570 million,
and $532 million, respectively, on our research and engineering programs. Of
these amounts, $528 million in 1997, $410 million in 1996, and $375 million in
1995 were attributable to new prime products and major component development and
major improvements to existing products. The remainders were attributable to
engineering costs incurred during the early production phase as well as ongoing
efforts to improve existing products. During 1997 we announced several new
products as well as improvements to existing products, including our anticipated
entry into the compact construction machine market in 1998. We expect to
continue the development of new products and improvements to existing products
in the future, with a focus in the areas of power generation equipment, smaller
machines, and agricultural products.
Employment
- ----------
At December 31, 1997, we employed 59,863 persons of whom 20,141 were located
outside the United States.
Sales
- -----
Sales outside the United States were 51% of consolidated sales for 1997 and
1996, and 52% for 1995.
Page 4
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Environmental Matters
- ---------------------
The company is regulated by federal, state, and international environmental laws
governing our use of substances and control of emissions. Compliance with these
existing laws has not had a material impact on our capital expenditures,
earnings, or competitive position.
We are cleaning up hazardous waste at a number of locations, often with other
companies, pursuant to federal and state laws. When it is likely we will pay
clean-up costs at a site and those costs can be estimated, the costs are charged
against our earnings. In doing that estimate, we do not consider amounts
expected to be recovered from insurance companies and others.
The amount set aside for environmental clean-up is not material and is included
in "Accounts payable and accrued expenses" in Statement 3 of the Appendix. If a
range of liability estimates is available on a particular site, we accrue the
lower end of that range.
We cannot estimate costs on sites in the very early stages of clean-up.
Currently, we have five of these sites and there is no more than a remote chance
that a material amount for clean-up will be required.
A specific matter involving the United States Enviromental Protection Agency is
discussed under Item 7 to this Form 10-K.
Item 1a. Executive Officers of the Registrant as of December 31, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Present Caterpillar Inc. Principal positions held during the
Name and Age position and date of past five years other than
initial election Caterpillar Inc. position currently held
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Donald V. Fites (64) Chairman and Chief
Executive Officer (1990)
- -------------------------------------------------------------------------------------------------------------------------
Glen A. Barton (58) Group President (1990)
- -------------------------------------------------------------------------------------------------------------------------
Gerald S. Flaherty (59) Group President (1990)
- -------------------------------------------------------------------------------------------------------------------------
James W. Owens (51) Group President (1995) . Vice President (1990-1995)
. President, Solar Turbines Incorporated (1990-1993)
. Chief Financial Officer (1993-1995)
- --------------------------------------------------------------------------------------------------------------------------
Richard L. Thompson (58) Group President (1995) . Vice President (1989-1995)
- --------------------------------------------------------------------------------------------------------------------------
R. Rennie Atterbury III (60) Vice President, General
Counsel and Secretary
(1991)
- --------------------------------------------------------------------------------------------------------------------------
James W. Baldwin (60) Vice President (1991)
- --------------------------------------------------------------------------------------------------------------------------
Sidney C. Banwart (52) Vice President . Technical Resources Manager, Decatur (1991-1993)
(effective 1/1/98) . Product Manager, Motor Graders, Decatur (1993-1995)
. General Manager, Lafayette (1995-1997)
- --------------------------------------------------------------------------------------------------------------------------
Vito H. Baumgartner (57) Vice President (1990) . Chairman, Caterpillar Overseas S.A. (1990-present)
- --------------------------------------------------------------------------------------------------------------------------
James S. Beard (56) Vice President (1990) . President, Caterpillar Financial Services Corporation
(1987-present)
- --------------------------------------------------------------------------------------------------------------------------
Richard A. Benson (54) Vice President (1989) . President, Caterpillar Industrial Inc. (1989-present)
- --------------------------------------------------------------------------------------------------------------------------
Ronald P. Bonati (58) Vice President (1990)
- --------------------------------------------------------------------------------------------------------------------------
James E. Despain (60) Vice President (1990)
- --------------------------------------------------------------------------------------------------------------------------
Roger E. Fischbach (56) Vice President (1989)
- --------------------------------------------------------------------------------------------------------------------------
Michael A. Flexsenhar (58) Vice President (1995) . General Manager, Large Engines, Lafayette Plant (1991-1995)
- --------------------------------------------------------------------------------------------------------------------------
Donald M. Ings (49) Vice President (1993) . Plant Manager, York (1989-1993)
. President, Solar Turbines Incorporated (1993-present)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 5
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Duane H. Livingston (56) Vice President (1995) . Director of Corporate Auditing, Corporate Services Division
(1991-1995)
- ------------------------------------------------------------------------------------------------------------------------------
Robert R. Macier (49) Vice President . Vice President, Engineering, Solar Turbines (1990-1994)
(effective 1/1/98) . Business Unit Manager, Joliet (1994-1997)
- ------------------------------------------------------------------------------------------------------------------------------
David A. McKie (53) Vice President . General Manager, Small Engines, Mossville Plant (1991-1995)
(effective 1/1/98) . Managing Director, Caterpillar Belgium S.A. (1995-1997)
- ------------------------------------------------------------------------------------------------------------------------------
Daniel M. Murphy (50) Vice President (1996) . Product Manager, Excavators, Aurora Plant (1990-1996)
. General Manager, Mossville Engine Center (1996)
- ------------------------------------------------------------------------------------------------------------------------------
Douglas R. Oberhelman (44) Vice President and Chief . Managing Director and Vice General Manager, Strategic Planning,
Financial Officer (1995) Shin Caterpillar Mitsubishi Ltd. (1991-1995)
- ------------------------------------------------------------------------------------------------------------------------------
Gerald Palmer (52) Vice President (1992)
- ------------------------------------------------------------------------------------------------------------------------------
Robert C. Petterson (59) Vice President (1991) . Managing Director, Caterpillar Brasil S.A. (1992-1995)
- ------------------------------------------------------------------------------------------------------------------------------
John E. Pfeffer (55) Vice President (1995) . President, CONEK S.A. de C.V. (1991-1993)
. Business Unit Manager, York Plant (1993-1995)
. Chairman, Shin Caterpillar Mitsubshi Ltd. (1995-present)
- ------------------------------------------------------------------------------------------------------------------------------
Siegfried R. Ramseyer (60) Vice President (1992)
- ------------------------------------------------------------------------------------------------------------------------------
Alan J. Rassi (57) Vice President (1992)
- ------------------------------------------------------------------------------------------------------------------------------
Gerald L. Shaheen (53) Vice President (1995) . Regional Manager, Eastern Region, N.A. Commercial Division
(1989-1993)
. Managing Director, Caterpillar Overseas S.A.(1993-1995)
- ------------------------------------------------------------------------------------------------------------------------------
Gary A. Stroup (48) Vice President (1992) . General Manager, Hauling Units and Motor Graders Business Unit
(1992-1995)
- ------------------------------------------------------------------------------------------------------------------------------
Sherril K. West (50) Vice President (1995) . Marketing Support Services Manager, Corporate Services Division
(1991-1995)
- ------------------------------------------------------------------------------------------------------------------------------
Donald G. Western (49) Vice President (1995) . Managing Director, Caterpillar Belgium S.A. (1990-1995)
- ------------------------------------------------------------------------------------------------------------------------------
Wayne M. Zimmerman (62) Vice President (1989)
(retiring April 1, 1998)
- ------------------------------------------------------------------------------------------------------------------------------
Robert R. Gallagher (57) Controller (1990)
- ------------------------------------------------------------------------------------------------------------------------------
F. Lynn Mc Pheeters (55) Treasurer (1996) . Executive Vice President, Caterpillar Financial Services
Corporation (1990-1996)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Item 2. Properties.
General Information
- -------------------
Caterpillar's operations are highly integrated. Although the majority of our
plants are involved primarily in the production of either machines or engines,
several plants are involved in the manufacture of both. In addition, several
plants are involved in the manufacture of components which are used in the
assembly of both machines and engines. Caterpillar's distribution centers and
regional distribution centers are involved in the storage and distribution of
parts for machines and engines. Also, the research and development activities
carried on at the Technical Center involve both machines and engines.
Properties we own are believed to be generally well maintained and adequate for
present use. Through planned capital expenditures, we expect these properties to
remain adequate for future needs. Properties we lease are covered by leases
expiring over terms of generally 1 to 10 years. We anticipate no difficulty in
retaining occupancy of any leased facilities, either by renewing leases prior to
expiration or by replacing them with equivalent leased facilities.
Page 6
<PAGE>
Consolidations, Closures, and Sales
- -----------------------------------
Over the last five years, in the ordinary course of business, we have
consolidated operations and/or closed a number of facilities. In March 1996, we
announced that the Precision Barstock Products business unit in York,
Pennsylvania would be closed. We are currently in the process of closing the
unit. Additional information regarding plant closing and consolidation costs is
incorporated by reference from Note 19 of the Notes to Consolidated Financial
Statements on page A-16 of the Appendix.
Headquarters
- ------------
Our corporate headquarters are in Peoria, Illinois. Additional marketing
headquarters are located both inside and outside the United States. The
Financial Products Division is headquartered in leased offices located in
Nashville, Tennessee.
Distribution
- ------------
Distribution of our products is conducted from Distribution and Regional
Distribution Centers inside and outside the United States. Caterpillar Logistics
Services, Inc. distributes other companies' products utilizing certain of our
distribution facilities as well as other non-Caterpillar facilities located both
inside and outside the United States. We also own or lease other storage
facilities which support distribution activities.
Technical Center, Training/Demonstration Areas and Proving Grounds
- ------------------------------------------------------------------
We own a Technical Center located in Mossville, Illinois and various other
training/demonstration areas and proving grounds located both inside and outside
the United States.
Changes in Fixed Assets
- -----------------------
During the five years ended December 31, 1997, changes in our investment in
property, plant and equipment were as follows (stated in millions of dollars):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Expenditures Acquisitions/1/ Disposals and Net Increase
Year ------------------------------------------------------- Provisions for Other (Decrease)
U.S. Outside U.S. U.S. Outside U.S. Depreciation Adjustments During Period
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1993 $508 $124 $0 $ 0 $(661) $ (98) $(127)
- ---------------------------------------------------------------------------------------------------------------------------
1994 $508 $186 $0 $ 0 $(680) $ (65) $ (51)
- ---------------------------------------------------------------------------------------------------------------------------
1995 $506 $173 $0 $ 0 $(679) $(132) $(132)
- ---------------------------------------------------------------------------------------------------------------------------
1996 $513 $258 $0 $136 $(690) $ (94) $ 123
- ---------------------------------------------------------------------------------------------------------------------------
1997 $726 $380 $0 $ 2 $(710) $(107) $ 291
- ---------------------------------------------------------------------------------------------------------------------------
/1/ Prior to 1996, Acquisition amounts, if any, are included with
Expenditures.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1997, the net book value of properties located outside the
United States represented 26.9% of the net properties on the consolidated
financial position. Additional information about our investment in plant,
property and equipment is incorporated by reference from Notes 1D and 8 of the
Notes to Consolidated Financial Statements on pages A-7 and A-12, respectively,
of the Appendix.
Page 7
<PAGE>
Manufacturing, Remanufacturing, and Overhaul
- --------------------------------------------
Manufacturing, remanufacturing, and overhaul of our products are conducted at
the following locations. These facilities are believed to be suitable for their
intended purposes with adequate capacities for current and projected needs for
existing products.
<TABLE>
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Manufacturing
Inside the U.S. Michigan Outside the U.S. Germany
- --------------- ----------------
California . Menominee Australia . Kiel
. Gardena Minnesota . Burnie/1/ . Wackersdorf
. San Diego . Minneapolis . Cowell/1/ . Zweibrucken
Florida . New Ulm . Melbourne Hungary
. Jacksonville Mississippi . Perth . Godollo/2/
Georgia . Oxford Belgium India
. Jefferson Missouri . Gosselies . Bangalore/1/
. LaGrange . Boonville Brazil . Mumbai/1/
Illinois West Plains . Piracicaba Indonesia
. Aurora North Carolina Canada . Jakarta/2/
. Champaign/1/ . Clayton . Montreal Italy
. Decatur . Franklin China . Bazzano
. DeKalb . Leland . Guangzhuo/1/ . Jesi
. Dixon . Morganton . ErLiBan/1/ . Milan/1/
. East Peoria . Sanford . Tianjin/2/ Japan
. Joliet Oregon . Xuzhou/2/ . Akashi/1/
. Mapleton . Dallas England . Sagamihara/1/
. Mossville Pennsylvania . Leicester Mexico
. Peoria . York . Peterlee . Monterrey
. Pontiac South Carolina . Skinningrove . Tijuana
. Sterling . Greenville . Stockton Northern Ireland
Indiana . Sumter . Wolverhampton . Larne/1/
. Lafayette Tennessee France Poland
Kansas . Dyersburg . Grenoble . Janow Lubelski/2/
. Wamego . Rockwood . Rantigny Russia
Kentucky Texas . St. Petersburg
. Danville . Houston Sweden
. Soderhamn
/1/ Facility of affiliated company (50% or less owned)
/2/ Facility of partially owned subsidiary (greater than 50%,
less than 100%)
- -------------------------------------------------------------------------------------------
Remanufacturing and Overhaul
Inside the U.S. Outside the U. S. Indonesia
- --------------- -----------------
Mississippi Australia . Bandung
. Corinth . Melbourne Malaysia
. Prentiss County Belgium . Kuala Lumpur
Texas . Gosselies Mexico
. De Soto Canada . Nuevo Laredo
. Mabank . Edmonton . Tijuana
. Veracruz
- -------------------------------------------------------------------------------------------
</TABLE>
Page 8
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Information required by Item 5 is incorporated by reference from "Common Stock
Price Range" and "Number of Stockholders" on page A-29 and from "Dividends paid
per share of common stock" on page A-25 of the Appendix.
We have eleven employee stock purchase plans administered outside the United
States for our foreign employees. These plans are not registered with the
Securities and Exchange Commission and are exempt from such registration
pursuant to Regulation S under the Securities Act. As of December 31, 1997,
those plans had approximately 2,850 participants in the aggregate. During the
Fourth Quarter of 1997, a total of 59,205 shares of Caterpillar common stock or
foreign denominated equivalents were distributed under the plans.
Item 6. Selected Financial Data.
Information required by Item 6 is incorporated by reference from the "Five-year
Financial Summary" on page A-19 of the Appendix.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Information required by Item 7 is incorporated by reference from the
"Management's Discussion and Analysis" on pages A-20 through A-28 of the
Appendix, except as modified and updated by the following:
Environmental Matter
- --------------------
The United States Environmental Protection Agency (EPA) has issued conditional
certificates of conformity with the Clean Air Act for Caterpillar's 1998 model
year heavy-duty diesel engines. The EPA has issued similar conditional
certificates to other heavy-duty diesel engine manufacturers as well. The EPA is
reviewing the impact of advanced electronic control technologies on the
emissions compliance of heavy-duty trucks in certain operating conditions and
whether the use of such technologies is consistent with the Clean Air Act's
requirements. Caterpillar and the other manufacturers are responding to the EPA
requests for information and are engaged in discussions with them and the United
States Department of Justice in an effort to resolve this issue. We believe an
amicable solution will be reached that will not have a material adverse impact
on our financial position or results of operations. If we are unable to reach
such an agreement and do not prevail on legal challenges to the government's
position in that event, resolution of this matter could have a material adverse
effect.
Year 2000
- ---------
We recognize customers and shareholders are concerned about product and service
readiness leading up to and after the turn of the century. We define year 2000
readiness as having systems in place that will not be adversely affected by
dates prior to, during or after the year 2000. We are taking the actions
necessary to ensure our products and services will continue to operate on and
after Jan. 1, 2000.
Page 9
<PAGE>
We have charged managers from each division with responsibility to identify,
evaluate and implement changes to computer systems and applications necessary to
achieve year 2000 readiness with the goal of having no effect on customers or
disruption to business operations. Each division has identified major areas of
potential business impact. These areas have been evaluated and conversion
efforts are in process. Additionally, each division is responsible for
communicating with suppliers, financial institutions and others it does business
with to coordinate year 2000 readiness. These discussions and conversion efforts
are also in process.
Based on the steps we are taking to address this issue and our progress to date,
as well as our estimated cost of remediation, we do not expect the financial
impact of Year 2000 date conversion to be material to our financial position or
results of operations. If, however, modifications and conversions by us, or
those with which we do business, especially foreign and domestic governments and
their agencies, are not made in a timely manner, this matter could have a
material adverse impact on our financial position or results.
Labor Agreement
- ---------------
On March 22, 1998, employees represented by the United Automobile, Aerospace and
Agricultural Implement Workers of America ("UAW") ratified a new six-year labor
agreement with Caterpillar. We believe the new contract preserves Caterpillar's
right to manage key issues and remain globally competitive, while at the same
time providing employees with an excellent compensation and benefits package.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk.
Information required by Item 7a is incorporated by reference from Notes 1F, 2,
15, and 17 of the Notes to Consolidated Financial Statements on pages A-7, A-8,
A-15, and A-16 of the Appendix and from "Derivative Financial Instruments" on
pages A-25 through A-27 of the Appendix.
Item 8. Financial Statements and Supplementary Data.
Information required by Item 8 is incorporated by reference from the Report of
Independent Accountants appearing on page A-3, and the Financial Statements and
Notes to Consolidated Financial Statements appearing on pages A-4 through A-18
of the Appendix.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information required by Item 10 relating to identification of directors is
incorporated by reference from "Directors Nominated this Year for Terms Expiring
in 2001," "Directors Up for Election in 2000," and "Directors Up for Election in
1999." on pages 2 through 4 of the Proxy Statement. Identification of executive
officers appears in Item 1a of this Form 10-K. There are no family relationships
between the officers and directors of the Company. All officers serve at the
pleasure of the Board of Directors and are regularly elected at a meeting of the
Board of Directors in April of each year. Information required by Item 405 of
Regulation S-K is incorporated by reference from "Section 16(a) Beneficial
Ownership Reporting Compliance" on page 23 of the Proxy Statement.
Page 10
<PAGE>
Item 11. Executive Compensation.
Information required by Item 11 is incorporated by reference from "Director
Compensation" on page 5, "Report of the Compensation Committee on Executive
Compensation" on pages 8 through 14, "Performance Graph" on page 7, and
"Executive Compensation Tables" on pages 14 through 17 of the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information required by Item 12 is incorporated by reference from "Caterpillar
Stock Owned by Officers and Directors (as of January 31, 1998)" on page 6 of the
Proxy Statement and from "Persons Owing More than Five Percent of Caterpillar
Stock as of December 31, 1997" on page 7 of the Proxy Statement.
Based on a Form 13G filing by Oppenheimer Capital ("Oppenheimer") on March 10,
1998, information contained on page 7 of our Proxy Statement is updated as
follows.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Persons Owning More than Five Percent of Caterpillar Stock
(As of December 31, 1997)
- ---------------------------------------------------------------------------------------------------------------------------------
Voting Authority Dispositive Authority Total Amount of Percent
-------------------------------------------- Beneficial of
Name and Address Sole Shared Sole Shared Ownership Class
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0 30,326,983 0 30,326,983 30,326,983 8.2%
Oppenheimer Capital
Oppenheimer Tower
World Financial Center
New York, NY 10281
- ----------------------------------------------------------------------------------------------------------------------------
924,650 0 23,411,650 0 23,411,650 6.3%
Joint filing by The Capital Group Companies,
Inc. and Capital Research and Management Company
333 South Hope Street
Los Angeles, CA 90071
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Item 13. Certain Relationships and Related Transactions.
Information required by Item 13 is incorporated by reference from "Certain
Related Transactions" on page 17 of the Proxy Statement.
Page 11
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements (Incorporated by reference from the
indicated Appendix pages):
. Report of Independent Accountants (p. A-3)
. Statement 1 - Consolidated Results of Operations (p.A-4)
. Statement 2 - Changes in Consolidated Stockholders'
Equity (p. A-4)
. Statement 3 - Financial Position (p. A-5)
. Statement 4 - Statement of Cash Flow (p. A-6)
. Notes to Consolidated Financial Statements (pp. A-7
through A-18)
2. Financial Statement Schedule:
. Report of Independent Accountants on Financial Statement
Schedule
. All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or the notes thereto incorporated by
reference.
(b) There were four reports, dated October 15, November 3,
December 1, December 11, filed on Form 8-K pursuant to Item 5
during the last quarter of 1997. No financial statements were
filed as part of those reports.
(c) Exhibits:
3 (i) (a) Restated Certificate of Incorporation (incorporated
by reference from Exhibit 3(a)(i) to the 1994
Form 10-K).
3 (i) (b) Certificate of Designation, Preferences and Rights
of the Terms of the Series A Junior Participating
Preferred Stock (incorporated by reference from
Exhibit 2 to Form 8-A filed December 11, 1996).
3 (ii) Bylaws (incorporated by reference from Exhibit 3(ii)
to Form 10-Q for the third quarter of 1995).
4 Rights Agreement dated as of December 11, 1996,
between Caterpillar Inc. and First Chicago Trust
Company of New York (incorporated by reference from
Exhibit 1 to Form 8-A filed December 11, 1996).
10 (a) Caterpillar Inc. 1996 Stock Option and Long-Term
Incentive Plan, as amended and restated
(incorporated by reference from Exhibit 4.3 to Form
S-3 (Reg. No. 333-43133) filed December 23, 1997).**
10 (b) Caterpillar Inc. 1987 Stock Option Plan, as amended
and restated and Long Term Incentive Supplement
(incorporated by reference from Exhibit 4.2 to Form
S-3 (Reg. No. 333-43133) filed December 23, 1997).**
Page 12
<PAGE>
10 (c) Supplemental Pension Benefit Plan, as amended and
restated (incorporated by reference from Exhibit
10(c) to the 1993 Form 10-K).**
10 (d) Supplemental Employees' Investment Plan, as amended
and restated (incorporated by reference from Exhibit
10(d) to the 1996 Form 10-K).**
10 (e) Caterpillar Inc. 1997 Corporate Incentive
Compensation Plan Management and Salaried Employees,
as amended and restated.**
10 (f) Directors' Deferred Compensation Plan, as amended
and restated (incorporated by reference from Exhibit
10(f) to the 1996 Form 10-K).**
10 (g) Directors' Charitable Award Program (incorporated by
reference from Exhibit 10(h) to the 1993
Form 10-K).**
10 (h) Deferred Employees' Investment Plan, as amended and
restated (incorporated by reference from Exhibit
10(h) to the 1996 Form 10-K).**
11 Statement re: Computation of per Share Earnings
(incorporated by reference from Note 14 of the Notes
to Consolidated Financial Statements appearing on
page A-15 of the Appendix).
12 Statement Setting Forth Computation of Ratios of
Profit to Fixed Charges.
13 Annual Report to Security Holders attached as an
Appendix to the Company's 1998 Annual Meeting Proxy
Statement.
21 Subsidiaries and Affiliates of the Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
99 (a) Form 11-K for Caterpillar Foreign Service Employees'
Stock Purchase Plan.
** Compensatory plan or arrangement required to be filed as an
exhibit pursuant to Item 14(c) of this Form 10-K.
Page 13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CATERPILLAR INC.
(Registrant)
By: /s/R. R. ATTERBURY III
------------------------------
Date: March 27, 1998 R. R. Atterbury III, Secretary
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Chairman of the Board, Director and
March 27, 1998 /s/DONALD V. FITES Chief Executive Officer
- -------- -------------------------------------------
(Donald V. Fites)
March 27, 1998 /s/GLEN A. BARTON Group President
- -------- -------------------------------------------
(Glen A. Barton)
March 27, 1998 /s/GERALD S. FLAHERTY Group President
- -------- -------------------------------------------
(Gerald S. Flaherty)
March 27, 1998 /s/JAMES W. OWENS Group President
- -------- -------------------------------------------
(James W. Owens)
March 27, 1998 /s/RICHARD L. THOMPSON Group President
- -------- -------------------------------------------
(Richard L. Thompson)
Vice President and
March 27, 1998 /s/DOUGLAS R. OBERHELMAN Chief Financial Officer
- -------- -------------------------------------------
(Douglas R. Oberhelman)
Controller and
March 27, 1998 /s/ROBERT R. GALLAGHER Chief Accounting Officer
- -------- -------------------------------------------
(Robert R. Gallagher)
</TABLE>
Page 14
<PAGE>
<TABLE>
<S> <C> <C>
March 27, 1998 /s/LILYAN H. AFFINITO Director
- -------- -------------------------------------------
(Lilyan H. Affinito)
March 27, 1998 /s/W. FRANK BLOUNT Director
- -------- -------------------------------------------
(W. Frank Blount)
March 27, 1998 /s/JOHN T. DILLON Director
- -------- -------------------------------------------
(John T. Dillon)
March 27, 1998 /s/DAVID R. GOODE Director
- -------- -------------------------------------------
(David R. Goode)
March 27, 1998 /s/JAMES P. GORTER Director
- -------- -------------------------------------------
(James P. Gorter)
March 27, 1998 /s/PETER A. MAGOWAN Director
- -------- -------------------------------------------
(Peter A. Magowan)
March 27, 1998 /s/GORDON R. PARKER Director
- -------- -------------------------------------------
(Gordon R. Parker)
March 27, 1998 /s/GEORGE A. SCHAEFER Director
- -------- -------------------------------------------
(George A. Schaefer)
March 27, 1998 /s/JOSHUA I. SMITH Director
- -------- -------------------------------------------
(Joshua I. Smith)
March 27, 1998 /s/CLAYTON K. YEUTTER Director
- -------- -------------------------------------------
(Clayton K. Yeutter)
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Caterpillar Inc.:
Our audits of the consolidated financial statements of Caterpillar Inc. referred
to in our report dated January 21, 1998 appearing on page A-3 of the Appendix to
the 1998 Annual Meeting Proxy Statement (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Peoria, Illinois
January 21, 1998
Report of Accountants Page 1 of 1
<PAGE>
CATERPILLAR INC.
1997 CORPORATE INCENTIVE COMPENSATION PLAN
MANAGEMENT AND SALARIED EMPLOYEES
(AMENDED AND RESTATED THROUGH 10/14/97)
Section 1. Type of Plan and Purpose
1.1 Type of Plan and Purpose. This Plan is an incentive compensation plan.
The purpose of the Plan is to provide contingent benefits to Employees to
reflect their efforts in contribution to the profitability of the Company;
and to serve as an incentive for Employees further to contribute to the
continued and future financial success of the Company and to its ability to
provide continued employment opportunities to its Employees.
This Plan has been adopted in accordance with rules and guidelines
established by the Stock Option and Officers' Compensation Committee of the
Board of Directors of the company. Those guidelines permit business and
service units of Caterpillar Inc. or its subsidiaries to adopt separate
incentive compensation plans within parameters established by that
Committee based upon measurements approved by the company's internal
Incentive Compensation Review Committee. Those guidelines (a) generally
require that a portion of the award under any such unit plan be based upon
the corporate return on assets measurement established under this Plan, and
(b) permit such unit plan to adopt a shorter eligibility period. Those
unit incentive compensation plans with such a corporate measurement form a
part of the Plan.
It is understood that the duty of the Employers, their Boards of Directors,
and the management they select is to provide the Employers' shareholders
protection of, and a maximum return on, their investment, consistent with
retention in the business of such profits as the Board of Directors of the
Company deems prudent, and with fair and competitive prices, wages,
benefits and other terms of employment; no provision of this Plan or any
unit incentive compensation plan shall be construed as altering that
objective or in any way limiting management of such Board of Directors in
the performance of their duties.
1.2 Supplements. The succeeding provisions of this Plan will be expanded
and/or modified by Supplements. Such Supplements will set forth the
particulars wherein the provisions of this Plan, as applied to any group of
Employees are expanded and/or differ from those set forth in the succeeding
provisions of this Plan exclusive of such Supplements. All provisions of
this Plan are subject to any express provisions to the contrary contained
in any such Supplements.
1
<PAGE>
Section 2. Definitions
2.1 Annual Salary Rate for any year means (i) in the case of a Participant who
is a management employee, his monthly salary rate as of December 31 of that
year (or his last day on the management payroll during that year if
earlier) multiplied by 12; or (ii) in the case of a Participant who is a
salaried employee, his weekly salary rate as of December 31 of that year
(or his last day on the salaried payroll during that year if earlier)
multiplied by 52.
The Annual Salary Rate shall include any salary amount deferred under Part
2 of the Employees' Investment Plan and contributed as a basic Employer
contribution thereunder, and any salary amount deferred under the Flexible
Spending Account, but excludes any (a) bonuses or special cash awards, (b)
commissions, (c) international service allowances, (d) extra shift or
overtime payments, (e) night shift premiums, (f) pay for vacation time not
used and (g) payments under this plan or other payments or contributions
(other than EIP 2 contributions) under any employee benefit plan.
2.2 Company means Caterpillar Inc. or any successor to it by merger,
consolidation, reorganization or otherwise.
2.3 Company Service means all periods of full-time employment with the Company
and its subsidiaries, including all periods of leave of absence and all
periods of layoff.
2.4 Effective Date of this Plan means January 1, 1993.
2.5 Employee means, subject to Subsection 3.1, any person who is a resident or
citizen of the United States of America or Canada and who on or after the
Effective Date is in the regular full-time employ of an Employer (or a
part-time or temporary employee included in a group for whom approval to
include in the Plan has been obtained from the Incentive Compensation
Review Committee) on its salaried or management payrolls and is employed
for work on the prevailing schedules of the department to which he is
assigned, and who is included in a group to whom the Plan has been made
available by extension by an Employer and includes any such person while
absent from work under circumstances which do not break continuity of
service.
2.6 Employer means the Company or any subsidiary of the Company that has
adopted or adopts the Plan with the Company's written consent.
2.7 Officer means those Employees who fill the following positions: Vice
President, Group President, and Chairman/Vice Chairman. For purposes of
this Plan, the Controller and Treasurer are not included in the definition
of Officer.
2.8 Participant means any Employee who is eligible to be covered by the Plan
pursuant to Subsection 3.1.
2.9 The first Plan Year will begin on the effective date and will end on the
first December 31 thereafter. Each subsequent Plan Year will end on the
next following December 31.
2
<PAGE>
Section 3. Eligibility and Participation
3.1 Eligibility and Participation. Each Employee of the Employers shall be
eligible to be covered by the Plan and become a Participant as of the
latest to occur of (i) the Effective Date; (ii) the date he has completed
90 days of Company Service (does not include any time with ATS); and (iii)
the date he is included in a group to which the Plan has been and continues
to be extended by an Employer. Notwithstanding anything contained herein
to the contrary, for all purposes of the Plan, any U.S. International
Service Employee who is not an Employee of the Company or any of the other
Employers shall be considered to be an eligible Employee if he then meets
the requirements of Subparagraph (ii) above. As used herein, the term
"U.S. International Service Employee" means an Employee who (i) on the
direction or with the permission of an Employer is transferred to
employment outside of the United States of America with a subsidiary
(whether or not organized or incorporated within the United States of
America) which has not adopted the Plan; and (ii) meets the definition of a
U.S. International Service Employee contained in the Company's U.S.
International Service Practices; and the term Employee shall also include
such other persons as shall be designated by the Committee. A Participant
in the Plan shall continue as such so long as he meets the definition of an
Employee contained in Subsection 2.5 or considered to be an Employee
pursuant to this Subsection 3.1.
Notwithstanding the above, payment amounts shall not be duplicated under
this Plan by amounts paid for the same period of service or corporate
performance measurement under any other profit sharing plan, incentive
compensation plan, gainsharing-type plan, or similar plan sponsored by
Caterpillar Inc. or any of its subsidiaries, or would be paid except for
any applicable waiting period expressed in such plan or except where
specifically provided for in approved plan documentation. However, an
Officer who is eligible to participate in an incentive compensation plan
for a business or service unit under his control may participate in this
Plan for that portion of his Annual Salary Rate not included in the
calculation of his business or service unit incentive compensation payment.
3.2 Employment Requirements. Any Participant shall be eligible for an
incentive compensation benefit under the Plan for any year, provided that
he is actively employed by the Company and any of its subsidiaries on
December 31 of that year or is on leave of absence or layoff from the
Company or any of its subsidiaries on such December 31; except that any
otherwise eligible Employee who died, retired, or received a separation
payment in lieu of layoff during such year shall also be covered as if he
were an active Employee on December 31 of that year.
Section 4. Amount of Benefit
4.1 Salary Grade 23 and Below. The amount payable to a Participant at Salary
Grade 23 and below (as of December 31 of that year) shall be determined by
multiplying the Participant's Annual Salary Rate times 7%, times the
applicable Corporate Performance Factor.
3
<PAGE>
4.2 Salary Grade 24 and Above. The amount payable to a Participant at Salary
Grade 24 and above (as of December 31 of that year) shall be determined by
multiplying his Annual Salary Rate times the Team Award percentage
(determined from Exhibit 1 for non-Officer Participants in Salary Grades 24
and above, and from Exhibit 2 for Officers), for his salary grade as of
December 31, times the applicable Corporate Performance Factor, plus the
amount of his Individual Award, if any. Designated Officers may
participate in their units' incentive compensation plan and may be eligible
for Team Awards based on their division results and the corporate
performance of Caterpillar Inc. (each award to be prorated according to the
approved weighting between the division results and corporate performance).
Individual Awards may be made only from a discretionary pool. A separate
Employee Discretionary Pool will be established for Participants (excluding
Officers) for each Vice Presidential administrative area or for each group
of Participants subject to a business or service unit incentive
compensation plan. A separate discretionary pool will be established for
Officers.
The Individual Award, if any, for which only Participants in Salary Grades
24 and above are eligible, shall be determined solely at the discretion of
the Participant's Unit Manager (or by the Compensation Committee of the
Board of Directors for Officers) and shall not exceed the amount of the
Employee's Team Award. In addition, the sum of the Individual Awards
payable to all Participants in Salary Grade 24 and above shall not exceed
the Employee Discretionary Pool Amount. The Employee Discretionary Pool
Amount shall be 25% of the total amount of the Team Awards paid to
Participants at Salary Grade 24 and above (excluding Officers).
The sum of the Individual Awards payable to Participants who are Officers
shall not exceed the Officer Discretionary Pool Amount. The Officer
Discretionary Pool Amount shall be the sum of each Officer's percentage of
annual salary rate (See Exhibit 1) adjusted by the Corporate Performance
Factor defined in Section 4.4. The Officer Discretionary Pool will be
calculated as if all officers participated wholly and exclusively in the
Corporate Incentive Compensation Plan.
4.3 Individual Performance Level Less Than Five. Notwithstanding the
provisions of Subparagraphs 4.1 or 4.2 to the contrary, Employees or
Officers with a performance rating of Individual Performance Level 5 or
those who have unsatisfactory/unacceptable performance in units not using
specific performance ratings will not be eligible for a Team Award or an
Individual Award, and contributions shall not be made to either the
Participant Discretionary Pool Amount or the Officer Discretionary Pool
Amount for such Employees or Officers.
4.4 Corporate Performance Factor. The Corporate Performance Factor will be
determined each year in relation to minimum, target and maximum corporate
return on asset (ROA) levels determined by the Company (see Exhibit 3).
The actual performance factor will be determined by interpolation based on
the actual ROA achieved at the end of the year compared to these levels,
and the participants team incentive compensation amount, if any, will be
calculated accordingly. The achieved ROA will be determined by dividing
Profit by the Average Gross Assets rounded to the nearest third decimal.
The Company must achieve the minimum ROA percentage specified before any
amount shall be payable.
4
<PAGE>
As used herein, the term "Average Gross Assets" means the total corporate
assets averaged throughout the year. Total corporate assets excludes the
assets of Financial Products but includes the investment in Financial
Products and is reported in the Annual Report and the Quarterly Report to
Stockholders under the column entitled Machinery and Engines as
Supplemental Consolidating Data on the Statement of Financial Position.
The average for the year will be calculated by adding together five points:
the ending balance for the previous year and the ending balance for each of
the four quarters during the year and dividing by five. The term "Profit"
means the amount of profit for the year before income taxes reported in
such Statement 1 (or any equivalent successor statement thereto which
provides such amount of profit) in the subtotal immediately preceding the
provision for income taxes line, but increased by the amount of accrual for
that year for incentive compensation amounts payable under the Plan and any
other similar incentive compensation plan or profit sharing plan of the
Employers (excluding any investment plan of the Employers) and any awards
granted under any bonus plan of the Employers. Such Profit before income
taxes would exclude the effect of extraordinary gains or losses, if any, as
defined by generally accepted accounting principles. Profit shall also
exclude income from nonconsolidated operations. Consolidated Financial
Statements which are prepared using generally accepted accounting
principles and as audited by the Company's independent certified public
accountants shall be final and conclusive.
4.5 Percentage Determination. The Employee's Team Award percentage, Individual
Award percentage, Employee Discretionary Pool Amount percentage, Officer
Discretionary Pool Amount percentage, the Corporate Performance Factors,
the Company's ROA target percentage, and the minimum and maximum percentage
will be determined for each year by the Committee on Stock Options and
Officer's Compensation.
4.6 RIP, EIP, etc. Credit. 100% of the amount paid under the Plan to an
Employee shall be counted as compensation for the month in which payment is
made for purposes of the Retirement Income Plan or any other pension plan
sponsored by Caterpillar Inc. or its subsidiaries, in which the Employee is
a Participant. No incentive compensation amount shall be taken into
account under the Employee's Investment Plan, the Group Insurance Plan, or
any other employee benefit plan or payroll practice of Caterpillar Inc. or
its subsidiaries.
4.7 Proration of Payment Amount. If an Employee is not a Participant or is not
actively employed by an Employer for the entire year but is eligible for an
incentive compensation amount for the year pursuant to the provisions of
Subsection 3.2, his payment amount will be prorated based upon his days of
active employment in that year on the management or salaried payrolls while
a Participant. Days while on disability leave of absence will be counted
as days of active employment in accordance with uniform rules established
by the Committee with respect to the maximum number of such days to be
counted during any period of disability leave of absence, but in no event
shall any days occurring after the expiration of a continuous period of
absence of six months be counted. No other leaves of absence will be
counted for purposes of calculating the payment amount.
5
<PAGE>
4.8 Participation in Another Incentive Compensation Plan. If an Employee, who
otherwise met the eligibility requirements of Section 3, ceased to be a
Participant during the Plan Year because he became a participant in another
incentive compensation plan sponsored by Caterpillar Inc. or one of its
subsidiaries, he shall be eligible for a Team Award and/or an Individual
Award under this Plan for that period of time that he was a Participant in
this Plan. Twenty five percent (25%) of the prorated Team Award paid under
this Plan shall be included in the Employee Discretionary Pool Amount.
4.9 Transfer from Hourly Payroll. Notwithstanding anything contained herein to
the contrary, if a Participant or former Participant is employed by the
Employers on December 31 of any Plan Year and does not receive a payment
for any period of employment in that Plan Year under either this Plan or
the profit sharing plan or an incentive compensation plan covering
employees on the hourly payroll of the Employers, he shall receive a
payment under this Plan for such period of employment in the same amount
which would otherwise have been payable to him under the terms of this Plan
or under such hourly plan but for his ineligibility thereunder because he
was not participating therein on said December 31.
4.10 Supplemental Employees. Notwithstanding anything contained herein to the
contrary, if (a) a Participant ceases to be a full-time Employee of an
Employer, and (b) on December 31 of the year in which said Participant
ceases to be a full-time Employee, he is and has thereafter been
continuously employed as a supplemental employee on either a part-time or
temporary basis by an Employer, his payment amount shall be prorated based
upon his days of active regular full-time employment in that year on the
salaried or management payroll while a Participant. His Annual Salary Rate
shall be the rate in effect when he ceased full-time employment.
Section 5. Incentive Compensation Payment
5.1 Date and Method of Payment. Any amount which is payable for any year shall
be paid to an eligible Participant not later than 3 months of the year
following the year for which the amount is computed. The amount of such
payment shall be paid by check less required withholding for federal,
state, local and other taxes. Payments will be made in the same currency
in which the Employee receives his base salary.
5.2 Beneficiaries. If a Participant is deceased at the time any payment is
payable to him, the amount of such payment shall be payable to the same
person or persons and in the same proportionate amount as shall be payable
to the beneficiary or beneficiaries of his basic life insurance under the
Group Insurance Plan of his Employer.
5.3 Lost Participants. If any payment becomes distributable pursuant to
Subsection 5.1 and the whereabouts of a Participant (or any beneficiary
pursuant to Subsection 5.2) is then unknown to the Employer and the
Employer shall fail to receive a claim for such payment from the person
entitled thereto (or from any other person validly acting on his behalf),
then such payment shall be disposed of in an equitable manner as permitted
by law under rules adopted by the Plan Administrator.
6
<PAGE>
Section 6. Miscellaneous
6.1 Administration of the Plan. Except as otherwise expressly provided, the
Plan shall be administered by the Incentive Compensation Review Committee
("the Committee"), appointed by the Chairman of the Board, who shall be
the Plan Administrator and shall be authorized to (a) determine all
questions arising in the administration of the Plan, (b) establish rules
and procedures to carry out their duties and responsibilities, (c) delegate
such duties and responsibilities to other employees of the Employers, and
(d) do all other acts which in its judgment are necessary for the proper
administration of this Plan.
6.2 Facility of Payment. If the Committee shall receive evidence satisfactory
to it that any Participant or other person entitled to receive a benefit
under this Plan is physically or mentally incompetent to receive such
payment and to give a valid release therefor, the Committee at its
discretion may make payment in one or more of the following ways: (a)
directly to such Participant or person, (b) to his legal guardian or
conservator, or (c) to his spouse or to any other person to be expended for
his benefit. The decision of the Committee shall be in each case final and
binding on all persons in interest.
6.3 Amendment and Termination of Plan. The Company shall have the power at any
time and from time to time, by action of its Board of Directors, to amend
or terminate this Plan; provided, however, that the Committee may also
amend the Plan so long as such amendment does not change the duties and
responsibilities of the Committee or the Stock Option and Officers'
Compensation Committee of the Company's Board of Directors and so long as
the cost of such amendment to the Employers does not exceed $100,000 per
year.
6.4 Employment Rights. Participation in the Plan will not give any Employee or
an Employer any right to be retained in the service of the Company or its
subsidiaries, nor any right or claim to any payment under the Plan unless
such right or claim has specifically accrued under the terms of the Plan.
6.5 Action by Employers. Any action required or permitted to be taken by any
Employer hereunder may, except as otherwise expressly provided, be taken by
the Group President or any Vice President of such Employer or by any other
person designated by the Group President or any Vice President of the
Employer to act for such Employer.
6.6 Gender and Number. Where the context permits, words in the masculine
gender shall include the feminine gender, the plural shall include the
singular, and the singular shall include the plural.
7
<PAGE>
EXHIBIT 12
CATERPILLAR INC.,
CONSOLIDATED SUBSIDIARY COMPANIES,
AND 50%-OWNED UNCONSOLIDATED AFFILIATED COMPANIES
STATEMENT SETTING FORTH COMPUTATION
OF RATIOS OF PROFIT TO FIXED CHARGES
(Millions of dollars)
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Profit...................................................... $ 1,665 $ 1,361 $ 1,136
Add:
Provision for income taxes............................. 837 653 536
---------- --------- ----------
Profit before taxes......................................... $ 2,502 $ 2,014 $ 1,672
Fixed charges:
Interest and other costs related to borrowed funds(1).. $ 586 $ 519 $ 502
Rentals at computed interest factors(2)................ 60 54 51
---------- --------- ----------
Total fixed charges......................................... $ 646 $ 573 $ 553
---------- --------- ----------
Profit before provision for income taxes and fixed charges.. $ 3,148 $ 2,587 $ 2,225
========== ========= ==========
Ratio of profit to fixed charges............................ 4.9 4.5 4.0
========== ========= ==========
</TABLE>
- -----------
(1) Interest expense as reported in the Consolidated Results of Operations plus
the Company's proportionate share of 50 percent-owned unconsolidated
affiliated companies' interest expense.
(2) Amounts represent those portions of rent expense that are reasonable
approximations of interest costs.
Exhibit 12 Page 1 of 1
<PAGE>
Exhibit 13
APPENDIX
CATERPILLAR INC.
GENERAL AND FINANCIAL INFORMATION
1997
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Management....................................................... A-3
Report of Independent Accountants.......................................... A-3
Consolidated Financial Statements and Notes................................ A-4
Five-year Financial Summary................................................ A-19
Management's Discussion and Analysis (MD&A)
Results of Operations
- 1997 Compared with 1996............................................ A-20
- 1996 Compared with 1995............................................ A-24
Liquidity & Capital Resources............................................ A-24
Employment............................................................... A-25
Other Matters............................................................ A-25
1998 Economic and Industry Outlook....................................... A-27
1998 Company Outlook..................................................... A-27
Supplemental Stockholder Information....................................... A-29
Directors and Officers..................................................... A-30
</TABLE>
A-2
<PAGE>
REPORT OF MANAGEMENT Caterpillar Inc.
- --------------------------------------------------------------------------------
The management of Caterpillar Inc. has prepared the accompanying consolidated
financial statements for the years ended December 31, 1997, 1996, and 1995, and
is responsible for their integrity and objectivity. The statements were prepared
in conformity with generally accepted accounting principles, applying certain
estimates and judgments as required.
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 the initial incorporation
of our 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 our 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, including 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 21, 1998
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
Price Waterhouse [LOGO]
TO THE STOCKHOLDERS OF CATERPILLAR INC.:
In our opinion, the accompanying consolidated financial statements, in
Statements 1 through 4, present fairly, in all material respects, the financial
position of Caterpillar Inc. and subsidiaries at December 31, 1997, 1996, and
1995, and the consolidated results of their operations and their consolidated
cash flow 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 21, 1998
A-3
<PAGE>
STATEMENT 1
Consolidated Results of Operations for the Years Ended December 31
(Millions of dollars except per share data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental consolidating data
---------------------------------------------------
Consolidated Machinery and Engines/(1)/ Financial Products
-------------------- -------------------------- --------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales and revenues:
Sales of Machinery and Engines (Note 1B)..... $18,110 $15,814 $15,451 $18,110 $15,814 $15,451 $ -- $ -- $ --
Revenues of Financial Products (Note 1B)..... 815 708 621 -- -- -- 839 732 644
------- ------- ------- ------- ------- ------- ---- ---- ----
Total sales and revenues................. 18,925 16,522 16,072 18,110 15,814 15,451 839 732 644
Operating costs:
Cost of goods sold........................... 13,374 11,832 12,000 13,374 11,832 12,000 -- -- --
Selling, general, and administrative expenses 2,232 1,993 1,723 1,932 1,715 1,483 324 302 263
Research and development expenses............ 528 410 375 528 410 375 -- -- --
Interest expense of Financial Products....... 361 295 290 -- -- -- 373 316 293
------- ------- ------- ------- ------- ------- ---- ---- ----
Total operating costs.................... 16,495 14,530 14,388 15,834 13,957 13,858 697 618 556
------- ------- ------- ------- ------- ------- ---- ---- ----
Operating profit................................ 2,430 1,992 1,684 2,276 1,857 1,593 142 114 88
Interest expense excluding Financial Products 219 194 191 219 194 191 -- -- --
Other income (expense) (Note 4).............. 202 143 122 153 127 92 61 37 33
------- ------- ------- ------- ------- ------- ---- ---- ----
Consolidated profit before taxes................ 2,413 1,941 1,615 2,210 1,790 1,494 203 151 121
Provision for income taxes (Note 7).......... 796 613 501 724 558 456 72 55 45
------- ------- ------- ------- ------- ------- ---- ---- ----
Profit of consolidated companies............. 1,617 1,328 1,114 1,486 1,232 1,038 131 96 76
Equity in profit of unconsolidated affiliated
companies (Note 9)............................. 48 33 22 48 33 22 -- -- --
Equity in profit of Financial Products'
subsidiaries................................... -- -- -- 131 96 76 -- -- --
------- ------- ------- ------- ------- ------- ---- ---- ----
Profit.......................................... $ 1,665 $ 1,361 $ 1,136 $ 1,665 $ 1,361 $ 1,136 $131 $ 96 $ 76
======= ======= ======= ======= ======= ======= ==== ==== ====
Profit per share of common stock (Note 14)...... $ 4.44 $ 3.54 $ 2.86
======= ======= =======
Profit per share of common stock - assuming
dilution (Note 14)............................. $ 4.37 $ 3.50 $ 2.84
======= ======= =======
Dividends declared per share of common stock.... $ .95 $ .78 $ .65
======= ======= =======
</TABLE>
/(1)/ Represents Caterpillar Inc. and its subsidiaries except for Financial
Products, which is accounted for on the equity basis.
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-7 for a definition
of the groupings in these statements. Transactions between Machinery and Engines
and Financial Products have been eliminated to arrive at the consolidated data.
STATEMENT 2
Changes in Consolidated Stockholders' Equity for the Years Ended December 31
(Dollars in millions)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Common stock (Note 13):
Balance at beginning of year.................................................................... $ 50 $ 333 $ 745
Common shares issued, including treasury shares reissued:
1997 -- 1,426,532; 1996 -- 1,487,992; 1995 -- 1,426,262..................................... 26 20 15
Treasury shares purchased:
1997 -- 14,118,412; 1996 -- 8,816,008; 1995 -- 14,280,200................................... (706) (303) (427)
Issuance of common stock to effect 2-for-1 stock split.......................................... 188 -- --
------ ------ ------
Balance at year-end............................................................................. (442) 50 333
------ ------ ------
Profit employed in the business:
Balance at beginning of year.................................................................... 3,904 2,840 1,961
Profit.......................................................................................... 1,665 1,361 1,136
Dividends declared.............................................................................. (355) (297) (257)
Issuance of common stock to effect 2-for-1 stock split.......................................... (188) -- --
------ ------ ------
Balance at year-end............................................................................. 5,026 3,904 2,840
------ ------ ------
Foreign currency translation adjustment (Note 1E):
Balance at beginning of year.................................................................... 162 215 205
Aggregate adjustment for year................................................................... (67) (53) 10
------ ------ ------
Balance at year-end............................................................................. 95 162 215
------ ------ ------
Stockholders' equity at year-end................................................................... $4,679 $4,116 $3,388
====== ====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
A-4
<PAGE>
STATEMENT 3 Caterpillar Inc.
Financial Position at December 31
(Dollars in millions)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental consolidating data
---------------------------------------------------
Consolidated Machinery and Engines/(1)/ Financial Products
-------------------- -------------------------- --------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and short-term investments.......... $ 292 $ 487 $ 638 $ 241 $ 445 $ 580 $ 51 $ 42 $ 58
Receivables - trade and other............ 3,331 2,956 2,531 3,346 2,960 2,910 285 175 132
Receivables - finance (Note 6)........... 2,660 2,266 1,754 - - - 2,660 2,266 1,754
Deferred income taxes and prepaid
expenses (Note 7)....................... 928 852 803 935 876 834 9 15 13
Inventories (Notes 1C and 5)............. 2,603 2,222 1,921 2,603 2,222 1,921 - - -
------- ------- ------- ------- ------- ------- ------ ------ ------
Total current assets......................... 9,814 8,783 7,647 7,125 6,503 6,245 3,005 2,498 1,957
Property, plant, and equipment - net (Notes
1D and 8)................................... 4,058 3,767 3,644 3,483 3,242 3,199 575 525 445
Long-term receivables - trade and other...... 134 128 126 134 128 126 - - -
Long-term receivables - finance (Note 6)..... 3,881 3,380 3,066 - - - 3,881 3,380 3,066
Investments in unconsolidated affiliated
companies (Note 9).......................... 751 701 476 751 701 476 - - -
Investments in Financial Products'
subsidiaries................................ - - - 882 759 658 - - -
Deferred income taxes (Note 7)............... 1,040 1,093 1,127 1,075 1,132 1,171 5 3 -
Intangible assets (Note 1D).................. 228 233 170 228 233 170 - - -
Other assets (Note 17)....................... 850 643 574 510 368 330 340 275 244
------- ------- ------- ------- ------- ------- ------ ------ ------
Total assets.................................... $20,756 $18,728 $16,830 $14,188 $13,066 $12,375 $7,806 $6,681 $5,712
======= ======= ======= ======= ======= ======= ====== ====== ======
Liabilities
Current liabilities:
Short-term borrowings (Note 11)......... $ 484 $ 1,192 $ 1,174 $ 53 $ 36 $ 14 $ 431 $1,156 $1,160
Accounts payable and accrued expenses... 3,358 2,858 2,579 3,020 2,556 2,358 654 520 776
Accrued wages, salaries, and employee
benefits............................... 1,128 1,010 875 1,120 1,005 873 8 5 2
Dividends payable....................... 92 76 68 92 76 68 - - -
Deferred and current income taxes
payable (Note 7)....................... 175 142 91 46 70 40 129 72 51
Long-term debt due within one year (Note
12).................................... 1,142 1,180 1,262 54 122 156 1,088 1,058 1,106
------- ------- ------- ------- ------- ------- ------ ------ ------
Total current liabilities................... 6,379 6,458 6,049 4,385 3,865 3,509 2,310 2,811 3,095
Long-term debt due after one year (Note 12). 6,942 5,087 3,964 2,367 2,018 2,049 4,575 3,069 1,915
Liability for postemployment benefits (Note
3)......................................... 2,698 3,019 3,393 2,698 3,019 3,393 - - -
Deferred income taxes and other liabilities
(Note 7)................................... 58 48 36 59 48 36 39 42 44
------- ------- ------- ------- ------- ------- ------ ------ ------
Total liabilities............................... 16,077 14,612 13,442 9,509 8,950 8,987 6,924 5,922 5,054
------- ------- ------- ------- ------- ------- ------ ------ ------
Contingencies (Notes 17 and 18)
Stockholders' equity (Statement 2)
Common stock of $1.00 par value (Note 13):
Authorized shares: 450,000,000
Issued shares (1997, 1996, and 1995 -
407,447,312) at paid-in amount....... 1,071 881 901 1,071 881 901 403 353 333
Profit employed in the business............. 5,026 3,904 2,840 5,026 3,904 2,840 506 404 320
Foreign currency translation adjustment
(Note 1E).................................. 95 162 215 95 162 215 (27) 2 5
Treasury stock (1997 - 39,436,972 shares;
1996--26,745,092 shares; and 1995 -
19,417,076 shares) at cost............... (1,513) (831) (568) (1,513) (831) (568) - - -
------- ------- ------- ------- ------- ------- ------ ------ ------
Total stockholders' equity...................... 4,679 4,116 3,388 4,679 4,116 3,388 882 759 658
------- ------- ------- ------- ------- ------- ------ ------ ------
Total liabilities and stockholders' equity...... $20,756 $18,728 $16,830 $14,188 $13,066 $12,375 $7,806 $6,681 $5,712
======= ======= ======= ======= ======= ======= ====== ====== ======
</TABLE>
/(1)/ Represents Caterpillar Inc. and its subsidiaries except for Financial
Products, which is accounted for on the equity basis.
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-7 for a definition
of the groupings in these statements. Transactions between Machinery and
Engines and Financial Products have been eliminated to arrive at the
consolidated data.
See accompanying Notes to Consolidated Financial Statements.
A-5
<PAGE>
<TABLE>
<CAPTION>
STATEMENT 4
Statement of Cash Flow for the Years Ended December 31
(Millions of dollars)
- -------------------------------------------------------------------------------------------------------------------------------
Supplemental consolidating data
-------------------------------
Consolidated Machinery and Engines/(1)/
------------------------------- ----------------------------
1997 1996 1995 1997 1996 1995
------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Profit........................................................ $ 1,665 $ 1,361 $ 1,136 $ 1,665 $ 1,361 $ 1,136
Adjustments for noncash items:
Depreciation and amortization.............................. 738 696 682 599 575 580
Profit of Financial Products............................... - - - (131) (96) (75)
Other...................................................... 23 158 324 (16) 118 233
Changes in assets and liabilities:
Receivables - trade and other.............................. (396) (319) 461 (341) (298) 505
Inventories................................................ (375) (111) (77) (375) (111) (77)
Accounts payable and accrued expenses...................... 562 134 (43) 529 57 (28)
Other - net................................................ (121) (137) (293) (129) (143) (328)
------- ------- ------- ------- ------- -------
Net cash provided by operating activities....................... 2,096 1,782 2,190 1,801 1,463 1,946
------- ------- ------- ------- ------- -------
Cash flow from investing activities:
Capital expenditures - excluding equipment leased to others... (824) (506) (464) (819) (500) (460)
Expenditures for equipment leased to others................... (282) (265) (215) (5) (8) (9)
Proceeds from disposals of property, plant, and equipment..... 138 135 119 15 21 35
Additions to finance receivables.............................. (6,644) (5,802) (4,869) - - -
Collections of finance receivables............................ 3,605 3,407 2,787 - - -
Proceeds from sale of finance receivables..................... 1,833 1,425 1,262 - - -
Net short-term loans to Financial Products.................... - - - (94) 325 (475)
Investments and acquisitions.................................. (59) (612) (21) (59) (612) (21)
Other - net................................................... (308) (166) (348) (290) (153) (338)
------- ------- ------- ------- ------- -------
Net cash used for investing activities.......................... (2,541) (2,384) (1,749) (1,252) (927) (1,268)
------- ------- ------- ------- ------- -------
Cash flow from financing activities:
Dividends paid................................................ (338) (289) (239) (338) (289) (239)
Common stock issued, including treasury shares reissued....... 11 10 11 11 10 11
Treasury shares purchased..................................... (706) (303) (427) (706) (303) (427)
Net short-term loans from Machinery and Engines............... - - - - - -
Proceeds from long-term debt issued........................... 2,284 1,088 1,414 462 37 270
Payments on long-term debt.................................... (1,237) (1,335) (997) (177) (166) (91)
Short-term borrowings - net................................... 258 1,262 30 17 18 (3)
------- ------- ------- ------- ------- -------
Net cash provided by (used for) financing activities............ 272 433 (208) (731) (693) (479)
------- ------- ------- ------- ------- -------
Effect of exchange rate changes on cash......................... (22) 18 (14) (22) 22 (14)
------- ------- ------- ------- ------- -------
(Decrease) increase in cash and short-term investments.......... (195) (151) 219 (204) (135) 185
Cash and short-term investments at the beginning of the period.. 487 638 419 445 580 395
------- ------- ------- ------- ------- -------
Cash and short-term investments at the end of the period........ $ 292 $ 487 $ 638 $ 241 $ 445 $ 580
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Supplemental consolidating data
--------------------------------
Financial Products
-------------------------------
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Cash flow from operating activities:
Profit........................................................ $ 131 $ 96 $ 75
Adjustments for noncash items:
Depreciation and amortization.............................. 139 121 102
Profit of Financial Products............................... - - -
Other...................................................... 41 43 91
Changes in assets and liabilities:
Receivables - trade and other.............................. (82) (14) (36)
Inventories................................................ - - -
Accounts payable and accrued expenses...................... 37 65 (5)
Other - net............................................... 57 20 17
------- ------- -------
Net cash provided by operating activities....................... 323 331 244
------- ------- -------
Cash flow from investing activities:
Capital expenditures - excluding equipment leased to others... (5) (6) (4)
Expenditures for equipment leased to others................... (277) (257) (206)
Proceeds from disposals of property, plant, and equipment..... 123 114 84
Additions to finance receivables.............................. (6,644) (5,802) (4,869)
Collections of finance receivables............................ 3,605 3,407 2,787
Proceeds from sale of finance receivables..................... 1,833 1,425 1,262
Net short-term loans to Financial Products.................... - - -
Investments and acquisitions.................................. - - -
Other - net................................................... (68) (33) (40)
------- ------- -------
Net cash used for investing activities.......................... (1,433) (1,152) (986)
------- ------- -------
Cash flow from financing activities:
Dividends paid................................................ (28) (12) -
Common stock issued, including treasury shares reissued....... 50 20 30
Treasury shares purchased..................................... - - -
Net short-term loans from Machinery and Engines............... 94 (325) 475
Proceeds from long-term debt issued........................... 1,822 1,051 1,144
Payments on long-term debt.................................... (1,060) (1,169) (906)
Short-term borrowings - net................................... 241 1,244 33
------- ------- -------
Net cash provided by (used for) financing activities............ 1,119 809 776
------- ------- -------
Effect of exchange rate changes on cash......................... - (4) -
------- ------- -------
(Decrease) increase in cash and short-term investments.......... 9 (16) 34
Cash and short-term investments at the beginning of the period.. 42 58 24
------- ------- -------
Cash and short-term investments at the end of the period........ $ 51 $ 42 $ 58
======= ======= =======
</TABLE>
/(1)/ Represents Caterpillar Inc. and its subsidiaries except for Financial
Products, which is accounted for on the equity basis.
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.
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-7 for a definition
of the groupings in these statements. Transactions between Machinery and
Engines and Financial Products have been eliminated to arrive at the
consolidated data.
See accompanying Notes to Consolidated Financial Statements.
A-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Caterpillar Inc.
(Dollars in millions except per share data)
- --------------------------------------------------------------------------------
1. Summary of significant accounting policies
================================================================================
A. Basis of consolidation
The financial statements include the accounts of Caterpillar Inc. and its
subsidiaries. Investments in companies that are owned 50% or less are accounted
for by the equity method; see Note 9.
The accompanying financial statements and supplemental consolidating data,
where applicable, have been grouped as follows:
Consolidated - Caterpillar Inc. and its subsidiaries.
Machinery and Engines - primarily our manufacturing, marketing, and parts
distribution operations, with the Financial Products' subsidiaries on an equity
basis.
Financial Products - our finance and insurance subsidiaries, primarily
Caterpillar Financial Services Corporation (Cat Financial) 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 Cat Financial, a
wholly owned subsidiary. Finance revenues are recognized over the term of the
contract at a constant rate of return on the scheduled uncollected principal
balance. 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
Inventories are valued principally by the LIFO (last-in, first-out) method. The
value of inventories on the LIFO basis represented approximately 85% of total
inventories at current cost value at December 31, 1997 and 1996, and 90% at
December 31, 1995.
If the FIFO (first-in, first-out) method had been in use, inventories would
have been $2,067, $2,123, and $2,103 higher than reported at December 31, 1997,
1996, and 1995, respectively.
D. Depreciation and amortization
Depreciation of plant and equipment is computed principally using accelerated
methods. Amortization of purchased intangibles is computed using the straight-
line method, generally over a period of 15 years or less.
E. Foreign currency translation
The functional currency for most of our Machinery and Engines' consolidated
companies is the U.S. dollar. The functional currency for most of our Financial
Products' and equity basis companies is the respective local currency. Gains and
losses resulting from the translation of foreign currency amounts to the
functional currency are included in the results of operations. Gains and losses
resulting from translating assets and liabilities from the functional currency
to U.S. dollars are included in stockholders' equity.
F. Derivative financial instruments
We use derivative financial instruments (derivatives) to manage foreign
currency, interest rate, and commodity price exposures that arise in the normal
course of business. Derivatives that we use are primarily foreign currency
contracts (forward and option), interest rate swaps, and commodity contracts
(swap and option). Derivatives are not used for speculative purposes.
Please refer to Note 2 below for more information on derivatives, including
the methods used to account for them.
G. Estimates in financial statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect reported amounts. Examples of the more significant estimates
include: accruals and reserves for warranty and product liability losses,
postemployment benefits, environmental costs, income taxes, and plant closing
and consolidation costs.
2. Derivative financial instruments and risk management
================================================================================
A. Foreign exchange derivative instruments - forward contracts and options
Our Machinery and Engines' operations are subject to foreign exchange risk.
Currency exchange rates impact the U.S. dollar amount of sales made and costs
incurred in foreign currencies. Our Financial Products' operations are subject
to foreign exchange risk when the currency of debt obligations does not match
the currency of the receivables portfolio.
Forward exchange contracts and certain foreign currency option contracts are
used to hedge our foreign exchange risks. Other than the up-front premiums that
we pay on foreign currency option contracts, all cash flow related to these
contracts occurs when the contracts mature.
Our accounting treatment of foreign currency contracts depends upon the nature
of the contracts:
1. Forward contracts designated as hedges of firm future foreign currency
commitments and purchased foreign currency option contracts designated as
hedges of probable foreign currency transactions:
. No gains or losses are reported until the hedged transaction occurs, even
if the contracts are terminated or mature prior to the time of the hedged
transaction.
. Gains and losses are recognized and reported on the same financial
statement line as the hedged transaction when the hedged transaction
occurs.
. Gains and losses are immediately recognized in current income ("Other
income (expense)" in Statement 1) in those unusual instances when the
hedged transaction is no longer expected to occur, or a foreign currency
contract is no longer effective as a hedge.
A-7
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- --------------------------------------------------------------------------------
2. All other foreign currency contracts (those used to hedge net balance sheet
exposures and anticipated net cash flow exposures for the next 12 months):
. All gains or losses are recognized in current income ("Other income
(expense)") as currency exchange rates change.
. Net gains are reflected as an asset ("Receivables - trade and other" in
Statement 3) until cash is actually received. Conversely, net losses are
shown as a liability ("Accounts payable and accrued expenses" in Statement
3) until cash is actually paid.
The notional amounts of outstanding contracts to buy and sell foreign
currency were:
December 31,
1997/(1)/ 1996/(1)/ 1995
--------- --------- ------
Hedges of firm commitments and/or
probable foreign currency transactions......... $ 166 $ 27 $ 95
Hedges of balance sheet exposure and/or
anticipated cash flow exposure for the
next 12 months................................. $1,294 $911 $219
/(1/) In addition, we had outstanding cross-European currency contracts totaling
$6 and $122 at December 31, 1997 and 1996, respectively, to hedge various
European currencies against the Deutsche mark. We use the Deutsche mark to
manage all of our continental European currency cash flows against the
dollar, and then use cross-European currency contracts to manage the risk
of exchange rate movement between the Deutsche mark and the specific
European currency of the cash flow.
The maturity dates for virtually all of the outstanding contracts, including
the cross-European contracts, are less than six months.
Please refer to Note 15 and Table V on Page A-15 for fair value information
on foreign currency contracts.
B. Interest rate derivative instruments
We primarily use interest rate swap contracts to manage our exposure to interest
rate changes and to lower the cost of borrowed funds. We only use interest rate
contracts that qualify for hedge accounting.
Interest rate swap contracts are linked to debt instruments and, in effect,
change the characteristics of the debt (e.g., from fixed rate to floating rate).
Interest rate swap contracts are not reflected in the financial statements at
fair market value. The notional amounts of outstanding interest rate swap
contracts were $2,595, $2,869, and $2,478 at December 31, 1997, 1996, and 1995,
respectively.
The difference between the interest payable and the interest receivable on
each interest rate swap contract is recorded each reporting period as an
adjustment to current income ("Interest expense excluding Financial Products" or
"Interest expense of Financial Products" in Statement 1, as applicable).
Interest rate swap contracts that are in a payable position are shown as
interest payable ("Accounts payable and accrued expenses" in Statement 3);
those in a receivable position are shown as an asset ("Other assets" in
Statement 3). The actual cash settlement on these interest rate swap contracts
occurs at times specified in the agreement. If an interest rate swap contract
is terminated prior to its maturity, no immediate gain or loss is recognized in
the financial statements, except in those cases where the debt instrument to
which the contract is linked is also terminated.
Please refer to Note 15 and Table V on Page A-15 for fair value information on
interest rate swap contracts.
C. Commodity related derivative instruments
Our Machinery and Engines' operations are also subject to commodity price risk
(i.e., potential price increases of our production material as a result of
price increases in raw material). We make limited use of commodity swap and/or
option contracts to manage the risk of unfavorable price movement. The use of
these types of derivative financial instruments has not been material.
3. Postemployment benefit plans
================================================================================
A. Pension plans
We have both U.S. and non-U.S. pension plans covering substantially all of our
employees. The defined benefit plans provide a benefit based on years of service
and/or the employee's average earnings near retirement. Our funding policy for
these plans is to contribute tax deductible amounts which comply with applicable
local laws and regulations. The plan assets consist principally of common
stocks, corporate bonds, and U.S. government obligations.
Please refer to Table I on Page A-9 for additional financial information.
B. Other postretirement benefit plans
We have defined-benefit retirement health care and life insurance plans for
substantially all of our U.S. employees.
Postretirement benefits are funded through our Voluntary Employees'
Beneficiary Association (VEBA) trusts. This includes life insurance for hourly,
salaried, and management employees, and medical expenses for employees not
enrolled in health maintenance organizations. Our general policy is to make
contributions to the VEBA trusts in amounts that cover the actual payments being
made from these trusts (pay-as-you-go basis); however, voluntary contributions
of $200 were made in both 1997 and 1996. Assets in the trusts consist
principally of mutual funds, common stocks, corporate bonds, and U.S. government
obligations.
During 1992, we made several changes to our retiree health care plans.
Included in those changes was the capping of the company's liability for
substantially all retirees' health care costs at December 31, 1999 cost levels.
Please refer to Table II on Page A-10 for additional financial information.
C. Other postemployment benefit plans
We offer long-term disability benefits, continued health care for disabled
employees, survivor income benefits insurance, and supplemental unemployment
benefits to substantially all eligible U.S. employees.
D. Summary of long-term liability
December 31,
1997 1996 1995
------ ------ ------
Pensions........................................ $ 3 $ 3 $ 130
Postretirement benefits other than pensions..... 2,628 2,948 3,199
Other postemployment benefits................... 67 68 64
------ ------ ------
$2,698 $3,019 $3,393
====== ====== ======
A-8
<PAGE>
<TABLE>
<CAPTION>
Caterpillar Inc.
- ---------------------------------------------------------------------------------------------------------
=========================================================================================================
TABLE I - Financial Information Related to Pension Plans
- ---------------------------------------------------------------------------------------------------------
Actuarial assumptions used to determine the costs and benefit obligations for the pension plans:
December 31,
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Weighted average discount rate.................................... 7.0% 7.4% 7.4%
Expected rate of compensation increase............................ 4.0% 4.2% 4.1%
Expected long-term rate of return on plan assets.................. 9.5% 9.4% 9.4%
Components of pension expense:
Years ended December 31,
1997 1996 1995
------- ------- -------
Service cost -- benefits earned during the period................. $ 114 $ 110 $ 95
Interest cost on projected benefit obligation..................... 434 417 409
Return on plan assets:/(1)/
Actual.......................................................... (1,188) (1,023) (1,167)
Deferred........................................................ 608 491 685
------- ------- -------
Recognized.................................................... (580) (532) (482)
Amortization of:
Net asset existing at adoption of SFAS 87....................... (23) (22) (23)
Prior service cost/(2)/......................................... 62 63 63
Net actuarial (gain) loss....................................... (1) (1) (12)
------- ------- -------
Total pension expense............................................. $ 6 $ 35 $ 50
======= ======= =======
</TABLE>
/(1)/ Although the actual return on plan assets is shown, the expected long-term
rate of return on plan assets was used in determining consolidated
pension expense. 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.
Reconciliation of the funded status of the pension plans with amounts recognized
in the consolidated financial position:
<TABLE>
<CAPTION>
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
--------------------------------- --------------------------
1997 1996 1995 1997 1996 1995
------- -------- ------- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation.................................. $(5,768) $(3,114) $(2,844) $(45) $(2,095) $(2,124)
Nonvested benefit obligation............................... (488) (146) (142) (24) (364) (383)
------- ------- ------- ---- ------- -------
Accumulated benefit obligation............................. $(6,256) $(3,260) $(2,986) $(69) $(2,459) $(2,507)
======= ======= ======= ==== ======= =======
Actuarial present value of projected benefit obligation.... $(6,621) $(3,603) $(3,310) $(92) $(2,479) $(2,533)
Plan assets at market value................................ 7,677 4,500 3,917 41 2,430 2,282
------- ------- ------- ---- ------- -------
Funded status at plan year-end............................. 1,056 897 607 (51) (49) (251)
Unrecognized (net asset) net liability existing at
adoption of SFAS 87...................................... (73) (75) (93) 14 (2) (5)
Unrecognized prior service cost............................ 329 153 155 3 166 233
Unrecognized net actuarial (gain) loss..................... (1,057) (656) (418) (1) (238) (74)
Adjustment required to recognize minimum liability......... -- -- -- (3) (3) (130)
------- ------- ------- ---- ------- -------
Prepaid pension cost (pension liability) at December 31.... $ 255 $ 319 $ 251 $(38) $ (126) $ (227)
======= ======= ======= ==== ======= =======
==============================================================================================================================
</TABLE>
A-9
<PAGE>
<TABLE>
<CAPTION>
NOTES continued
(Dollars in millions except per share data)
- --------------------------------------------------------------------------------
================================================================================
TABLE II - Financial Information Related to Other Postretirement Benefit Plans
- --------------------------------------------------------------------------------
Actuarial assumptions used to determine the costs and benefit obligations for
postretirement benefits (other than pensions):
December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate.............. 7.0% 7.5% 7.5%
Expected rate of compensation increase...... 4.0% 4.0% 4.0%
Expected long-term rate of
return on plan assets..................... 9.5% 9.5% 9.5%
Assumed health care cost trend rate/(1)/.... 7.1%/(2)/ 7.9%/(2)/ 8.7%/(3)/
</TABLE>
/(1)/ Rate used to measure the Accumulated Postretirement Benefit Obligation at
December 31, 1997, 1996, and 1995, respectively, and the postretirement
benefit expense for 1998, 1997, and 1996, respectively.
/(2)/ Gradually declining to 4.5% in 2002.
/(3)/ Gradually declining to 5.0% in 2001.
Components of postretirement benefit expense (other than pensions):
<TABLE>
<CAPTION>
Years ended December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost - benefits earned
during the period................. $ 72 $ 81 $ 73
Interest cost on accumulated
benefit obligation................ 249 226 232
Return on plan assets:/(4)/
Actual............................ (76) (74) (58)
Deferred.......................... 29 48 34
----- ----- -----
Recognized...................... (47) (26) (24)
Amortization of:
Prior service cost/(5)/........... (190) (190) (190)
Net actuarial (gain) loss......... - (1) (3)
----- ----- -----
Total postretirement benefit expense $ 84 $ 90 $ 88
===== ===== =====
</TABLE>
/(4)/ Although the actual return on plan assets is shown, the expected long-term
rate of return on plan assets was used in determining consolidated
postretirement benefit expense. The difference between the actual return
and the recognized return on plan assets is shown as deferred return on
plan assets.
/(5)/ Prior service costs are amortized using a straight-line method over the
average remaining service period of employees impacted by the plan
amendment.
Components of the liability for postretirement benefits (other than pensions):
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees..........................................$(2,400) $(2,253) $(2,149)
Fully eligible active plan participants........... (563) (502) (397)
Other active plan participants.................... (640) (591) (485)
------- ------ ------
(3,603) (3,346) (3,031)
Plan assets at market value......................... 804 547 297
Unrecognized prior service cost..................... (98) (289) (479)
Unrecognized net actuarial (gain) loss.............. 38 (49) (182)
------- ------ ------
Liability for postretirement benefits
(other than pensions).............................$(2,859) $(3,137) $(3,395)
======= ======= =======
</TABLE>
Effects of a 1% increase in the assumed health care cost trend rates for each
future year:
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Approximate increase in the accumulated
postretirement benefit obligation.................. $224 $210 $226
Approximate increase in the aggregate
of the service and interest cost components
of the postretirement benefit expense.............. $ 22 $ 22 $ 25
</TABLE>
================================================================================
4. Other income (expense)
================================================================================
<TABLE>
<CAPTION>
Years ended December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Investment and interest income $115 $ 90 $ 87
License fees 25 26 28
Foreign exchange (losses) gains (10) 1 (20)
Miscellaneous income 72 26 27
---- ---- ----
$202 $143 $122
==== ==== ====
</TABLE>
5. Inventories
================================================================================
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Raw materials and work-in-process.............. $1,033 $ 909 $ 710
Finished goods................................. 1,364 1,103 1,006
Supplies....................................... 206 210 205
------ ------ ------
$2,603 $2,222 $1,921
====== ====== ======
</TABLE>
6. Finance receivables
================================================================================
Finance receivables are receivables of Cat Financial, which generally could be
repaid or refinanced without penalty prior to contractual maturity. Total
finance receivables reported in Statement 3 are net of an allowance for credit
losses.
Please refer to Table III on Page A-11 for additional finance receivables
information and Note 15 and Table V on Page A-15 for fair value information.
A-10
<PAGE>
<TABLE>
<CAPTION>
Caterpillar Inc.
- --------------------------------------------------------------------------------
================================================================================
TABLE III - Finance Receivables Information
- --------------------------------------------------------------------------------
Contractual maturities of outstanding receivables:
December 31, 1997
Installment Financing
Amounts Due In Contracts Leases Notes Total
- -------------- ----------- --------- ------- -------
<S> <C> <C> <C> <C>
1998...................... $ 613 $ 1,047 $ 1,065 $ 2,725
1999...................... 418 774 411 1,603
2000...................... 267 503 404 1,174
2001...................... 131 256 178 565
2002...................... 44 96 84 224
Thereafter................ 12 108 151 271
------- ------- ------- -------
1,485 2,784 2,293 6,562
Residual value............ -- 725 -- 725
Less: Unearned income..... 165 478 19 662
------- ------- ------- -------
Total..................... $ 1,320 $ 3,031 $ 2,274 $ 6,625
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Impaired loans and leases:
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Average recorded investment.................. $ 47 $ 43 $ 51
====== ====== ======
At December 31:
Recorded investment........................ $ 30 $ 33 $ 37
Less: Fair value of underlying collateral.. 18 21 25
------ ------ ------
Potential loss............................... $ 12 $ 12 $ 12
====== ====== ======
Allowance for credit loss activity:
1997 1996 1995
------ ------ ------
Balance at beginning of year................. $ 74 $ 57 $ 50
Provision for credit losses.................. 39 41 43
Less: Net credit losses...................... 19 21 33
Less: Other-net.............................. 10 3 3
------ ------ ------
Balance at end of year....................... $ 84 $ 74 $ 57
====== ====== ======
Cat Financial's net investment in financing leases:
December 31,
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Total minimum lease payments receivable...... $2,784 $2,383 $1,858
Estimated residual value of leased assets:
Guaranteed................................. 206 162 113
Unguaranteed............................... 519 402 297
------ ------ ------
3,509 2,947 2,268
Less: Unearned income........................ 478 430 363
------ ------ ------
Net investment in financing leases........... $3,031 $2,517 $1,905
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
7. Income taxes
================================================================================
The components of profit before taxes were:
Years ended December 31,
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Domestic..................................... $2,071 $1,565 $1,205
Foreign...................................... 342 376 410
------ ------ ------
$2,413 $1,941 $1,615
====== ====== ======
</TABLE>
The components of the provision for income taxes were:
<TABLE>
Years ended December 31,
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Current tax provision:
Federal..................................... $ 571 $ 399 $ 244
Foreign..................................... 103 83 92
State....................................... 54 36 17
------ ------ ------
$ 728 $ 518 $ 353
------ ------ ------
Deferred tax provision (credit):
Federal..................................... 60 86 147
Foreign..................................... 7 7 (6)
State....................................... 1 2 7
------ ------ ------
68 95 148
------ ------ ------
Total provision.............................. $ 796 $ 613 $ 501
====== ====== ======
Reconciliation of the U.S. federal statutory rate to effective rate:
Years ended December 31,
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
U.S statutory rate........................... 35.0% 35.0% 35.0%
Increases (decreases) in taxes resulting from:
Benefit of Foreign Sales Corporation....... (2.8)% (2.5)% (2.5)%
Other - net................................ .8% (.9)% (1.5)%
------ ------ ------
Provision for income taxes................... 33.0% 31.6% 31.0%
====== ====== ======
</TABLE>
We paid income taxes of $709, $452, and $327 in 1997, 1996, and 1995,
respectively.
During 1996, a settlement was reached with the U.S. Internal Revenue Service
(IRS) covering tax years 1988 through 1991. The settlement had a slight
favorable impact on our 1996 effective tax rate.
We have recorded income tax expense at U.S. tax rates on all profits, except
for undistributed foreign profits which are considered permanently invested.
Determination of the amount of unrecognized deferred tax liability related to
permanently invested profits is not feasible.
<TABLE>
<CAPTION>
Deferred tax assets and liabilities:
December 31,
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Deferred tax assets:
Postemployment benefits
other than pensions....................... $1,107 $1,212 $1,309
Unrealized profit excluded from inventories. 201 176 170
Net operating loss carryforwards............ 76 105 154
Warranty reserves........................... 159 114 105
Other....................................... 275 296 256
------ ------ ------
1,818 1,903 1,994
------ ------ ------
Deferred tax liabilities:
Capital assets.............................. (177) (161) (151)
Pension..................................... (79) (86) (91)
------ ------ ------
(256) (247) (242)
------ ------ ------
Valuation allowance for deferred tax assets.. (129) (153) (179)
------ ------ ------
Deferred taxes - net......................... $1,433 $1,503 $1,573
====== ====== ======
</TABLE>
A-11
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- -----------------------------------------------------------------------------
As of December 31, 1997, amounts and expiration dates of net operating loss
carryforwards in various foreign taxing jurisdictions were:
2000 2001 2002 Unlimited Total
------------------------------------------
$13 $9 $23 $203 $248
Of our foreign subsidiaries that are in net operating loss carryforward
positions, there is only sufficient evidence to substantiate recognition of net
deferred tax assets in one foreign taxing jurisdiction. Accordingly, a
valuation allowance has been recorded for the difference. It is possible that
circumstances could change in the near term at one or more of these foreign
subsidiaries which would allow us to reduce the valuation allowance and to
record additional net deferred tax assets.
<TABLE>
<CAPTION>
8. Property, plant, and equipment
================================================================================
December 31,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Land - at original cost........................ $ 121 $ 122 $ 102
Buildings...................................... 2,773 2,704 2,548
Machinery and equipment........................ 3,955 3,778 3,657
Patterns, dies, jigs, etc...................... 515 481 453
Furniture and fixtures......................... 248 212 203
Computers...................................... 519 512 455
Transportation equipment....................... 72 64 61
Equipment leased to others..................... 843 779 674
Construction-in-process........................ 357 165 150
-------- -------- --------
9,403 8,817 8,303
Less: Accumulated depreciation................. 5,345 5,050 4,659
-------- -------- --------
Property, plant, and equipment - net........... $ 4,058 $ 3,767 $ 3,644
======== ======== ========
</TABLE>
We had commitments for the purchase or construction of capital assets of
approximately $425 at December 31, 1997.
<TABLE>
Assets recorded under capital leases (included in above table):
December 31,
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Gross capital leases(1)........................ $ 717 $ 405 $ 395
Less: Accumulated depreciation................. 561 279 253
------- ------- -------
Net capital leases............................. $ 156 $ 126 $ 142
======= ======= =======
</TABLE>
(1)Consists primarily of machinery and equipment.
<TABLE>
Equipment leased to others (primarily by Financial Products):
December 31,
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Equipment leased to others -
at original cost.............................. $ 843 $ 779 $ 674
Less: Accumulated depreciation................. 272 251 220
-------- -------- -------
Equipment leased to others - net............... $ 571 $ 528 $ 454
======== ======== =======
</TABLE>
Scheduled minimum rental payments to be received for equipment leased to
others:
December 31,
After
1998 1999 2000 2001 2002 2002
--------------------------------------------
$151 $101 $77 $42 $14 $2
<TABLE>
<CAPTION>
9. Unconsolidated affiliated companies
================================================================================
Combined financial information of the unconsolidated affiliated companies was as
follows:
Years ended September 30,
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Results of Operations
Sales....................................... $ 3,613 $ 3,729 $ 3,789
======= ======= =======
Profit...................................... $ 104 $ 75 $ 44
======= ======= =======
September 30,
1997 1996 1995
------- -------- -------
Financial Position
Assets:
Current assets............................. $ 1,949 $ 1,995 $ 1,872
Property, plant, and equipment - net....... 792 733 780
Other assets............................... 331 395 322
------- -------- -------
3,072 3,123 2,974
------- -------- -------
Liabilities:
Current liabilities......................... 1,610 1,683 1,676
Long-term debt due after one year........... 203 133 215
Other liabilities........................... 129 145 155
------- -------- -------
1,942 1,961 2,046
------- -------- -------
Ownership..................................... $ 1,130 $ 1,162 $ 928
======= ======== =======
</TABLE>
At December 31, 1997, consolidated "Profit employed in the business" in
Statement 2 included $172 representing undistributed profit of the
unconsolidated affiliated companies. In 1997, 1996, and 1995, we received $36,
$10, and $8, respectively, in dividends from unconsolidated affiliated
companies.
<TABLE>
<CAPTION>
10. Credit commitments
================================================================================
December 31, 1997
Machinery Financial
Consolidated and Engines Products
------------ ----------- -----------
<S> <C> <C> <C>
Credit lines available:
U.S........................... $ 2,500(1) $ 2,500(1) $ 2,250(1)
Non-U.S....................... 1,843 258 1,585
---------- --------- ---------
Total credit lines available.... 4,343 2,758 3,835
Utilized credit:
Backup for outstanding
commercial paper............ 2,536 -- 2,536
Backup for bank borrowings.... 198 53 145
---------- --------- ---------
Unused credit................... $ 1,609 $ 2,705 $ 1,154
========== ========= =========
</TABLE>
(1) The total U.S. line of credit of $2,500 is available to both Machinery and
Engines and Financial Products (Cat Financial). Cat Financial may use up to 90%
of the available line subject to a maximum debt to equity ratio. Machinery and
Engines may use up to 100% of the available line subject to a minimum level of
net worth. Based on these restrictions, and the allocating decisions of
available credit made by management, the line of credit available to Cat
Financial at December 31, 1997, was $2,250.
Based on long-term credit agreements, $2,301, $1,522, and $294 of commercial
paper outstanding at December 31, 1997, 1996, and 1995, respectively, were
classified as long-term debt due after one year.
A-12
<PAGE>
<TABLE>
<CAPTION>
Caterpillar Inc.
- --------------------------------------------------------------------------------
11. Short-term borrowings
================================================================================
December 31,
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Machinery and Engines:
Notes payable to banks...................... $ 53 $ 36 $ 14
Financial Products:
Notes payable to banks...................... 145 257 712
Commercial paper............................ 235 859 416
Other....................................... 51 40 32
-------- -------- -------
431 1,156 1,160
-------- -------- -------
Total short-term borrowings................... $ 484 $ 1,192 $ 1,174
======== ======== =======
</TABLE>
<TABLE>
The weighted average interest rates on short-term borrowings outstanding were:
December 31,
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Notes payable to banks........................ 4.9% 3.7% 5.4%
Commercial paper.............................. 5.2% 5.2% 5.9%
Other......................................... 5.5% 5.5% 5.4%
Please refer to Note 15 and Table V on Page A-15 for fair value information on
short-term borrowings.
</TABLE>
<TABLE>
<CAPTION>
12. Long-term debt
================================================================================
December 31,
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Machinery and Engines:
Notes - 9 3/8% due 2000...................... $ 150 $ 149 $ 149
Notes - 9 3/8% due 2001...................... 184 183 183
Debentures - 9% due 2006..................... 202 202 202
Debentures - 6% due 2007..................... 141 136 131
Debentures - 9 3/8% due 2011................. 123 123 123
Debentures - 9 3/4% due 2000-2019............ 199 199 199
Debentures - 9 3/8% due 2021................. 236 236 236
Debentures - 8% due 2023..................... 199 199 199
Debentures - 7 3/8% due 2097................. 297 -- --
Medium-term notes............................ 153 185 300
Capital lease obligations.................... 438 281 257
Other........................................ 45 125 70
-------- -------- -------
2,367 2,018 2,049
Financial Products:
Commercial paper supported by revolving
credit agreement (Note 10).................. 2,301 1,522 294
Medium-term notes............................ 2,241 1,505 1,553
Other........................................ 33 42 68
-------- -------- -------
Total Financial Products....................... 4,575 3,069 1,915
-------- -------- -------
Total long-term debt due after one year........ $ 6,942 $ 5,087 $ 3,964
======== ======== =======
</TABLE>
Other than the debt of the Financial Products' subsidiaries, all outstanding
notes and debentures itemized above are unsecured direct obligations of
Caterpillar Inc. The capital lease obligations are collateralized by leased
manufacturing equipment and security deposits.
The 6% debentures were sold at significant original issue discounts ($144).
This issue is carried net of the unamortized portion of its discount, which is
amortized as interest expense over the life of the issue. These debentures have
a principal at maturity of $250 and an effective annual cost of 13.3%. We may
redeem them, at our option, at an amount equal to the respective principal at
maturity.
We may redeem annually, at our option, 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. Also, we may redeem additional portions of the
sinking fund debentures by the payment of premiums which, starting in 1999,
decrease periodically. The premium at the first redemption date of June 1,
1999, is 4.875%.
The terms of other notes and debentures do not specify a redemption option
prior to maturity.
All medium-term notes are offered on a continuous basis through agents and are
primarily at fixed rates. Machinery and Engines' medium-term notes have
maturities from nine months to 30 years. At December 31, 1997, these notes had a
weighted average interest rate of 7.7% with one month to six years remaining to
maturity. Financial Products' medium-term notes have a weighted average interest
rate of 6.1% with maturities up to 15 years at December 31, 1997.
The aggregate amounts of maturities and sinking fund requirements of long-term
debt during each of the years 1998 through 2002, including that due within one
year and classified as current are:
<TABLE>
December 31,
1998 1999 2000 2001 2002
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Machinery and Engines......... $ 54 $ 66 $ 167 $ 204 $ 89
Financial Products............ 1,088 1,192 624 287 116
------ ------ ------ ------ ------
$1,142 $1,258 $ 791 $ 491 $ 205
====== ====== ====== ====== ======
</TABLE>
Interest paid on short-term and long-term borrowings for 1997, 1996, and 1995
was $508, $474, and $475, respectively.
Please refer to Note 15 and Table V on Page A-15 for fair value information on
long-term debt.
13. Capital stock
================================================================================
A. Stock options
In 1996, stockholders approved a plan providing for the granting of options to
purchase common stock to officers and other key employees, as well as non-
employee directors. This plan reserves 22,000,000 shares of common stock for
issuance. Options vest at the rate of one-third per year over the three years
following the date of grant, and have a maximum term of ten years. Common shares
issued under stock options, including treasury shares reissued, totaled
1,264,539; 1,313,932; and 1,426,262 in 1997, 1996, and 1995, respectively.
Our plan grants options which have exercise prices equal to the average market
price on the date of grant. We account for our stock options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Therefore, no compensation expense is incurred in association with
these options. As required by Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation," a summary of the pro forma
net income and profit per share amounts are shown in Table IV on Page A-14.
These pro forma amounts are not representative of the impact on future
disclosures because they do not take into consideration compensation expense
related to grants made prior to 1995. The fair value of each option grant is
estimated at the date of grant using the Black-Scholes option-pricing model.
Please refer to Table IV on Page A-14 for additional financial information on
our stock options.
A-13
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- --------------------------------------------------------------------------------
B. Restricted stock
The 1996 Stock Option and Long-Term Incentive Plan permits the award of
restricted stock to officers and other key employees, as well as non-employee
directors. During 1997, 137,893 shares of restricted stock were awarded to
officers and other key employees as Performance Awards, and 24,100 shares of
restricted stock were granted to non-employee directors.
C. Stockholders' rights plan
We are 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 have been
issued.
Stockholders would receive certain preferred stock purchase rights if someone
acquired or announced a tender offer to acquire 15% or more of outstanding
Caterpillar stock. In essence, those rights would permit each holder (other than
the acquiring person) to purchase one share of Caterpillar stock at a 50%
discount for every share owned. The rights, designed to protect the interests of
Caterpillar stockholders during a takeover attempt, expire December 11, 2006.
<TABLE>
<CAPTION>
=================================================================================================================
TABLE IV - Financial Information Related to Capital Stock
- -----------------------------------------------------------------------------------------------------------------
SFAS 123 pro forma net income and earnings per share:
Years ended December 31,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net Income:
As reported.............................. $ 1,665 $ 1,361 $ 1,136
Pro forma................................ $ 1,640 $ 1,352 $ 1,133
Profit per share of common stock:
As reported:
Basic................................. $ 4.44 $ 3.54 $ 2.86
Assuming dilution..................... $ 4.37 $ 3.50 $ 2.84
Pro forma:
Basic................................. $ 4.37 $ 3.51 $ 2.85
Assuming dilution..................... $ 4.32 $ 3.48 $ 2.83
</TABLE>
Weighted-average assumptions used in determining fair value of option grants:
<TABLE>
<CAPTION>
Grant Year
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
Dividend yield........................ 1.94% 2.13% 1.66%
Expected volatility................... 25.51% 24.19% 25.04%
Risk-free interest rates.............. 6.42% 6.59% 5.88%
Expected lives........................ 4 years 4 years 4 years
</TABLE>
Changes in the status of common shares subject to issuance under options:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- --------------------- ----------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Fixed Options
Outstanding at beginning of year......... 13,874,114 $ 25.31 13,267,648 $ 21.96 13,106,742 $ 18.55
Granted to officers and key employees.... 3,491,650 $ 51.66 3,334,100 $ 32.91 3,205,280 $ 30.16
Granted to outside directors............. 40,000 $ 39.19 44,000 $ 33.47 40,000 $ 27.91
Exercised................................ (2,274,474) $ 22.16 (2,627,940) $ 18.03 (3,006,660) $ 15.85
Lapsed................................... (74,878) $ 32.61 (143,694) $ 28.23 (77,714) $ 24.85
----------- ---------- -----------
Outstanding at end of year............... 15,056,412 $ 31.89 13,874,114 $ 25.31 13,267,648 $ 21.96
=========== =========== ===========
Options exercisable at year-end 8,386,814 $ 23.58 7,544,270 $ 20.44 7,168,280 $ 17.35
Weighted-average fair value of options
granted during the year................ $ 16.15 $ 8.12 $ 7.62
</TABLE>
Stock options outstanding and exercisable:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------- ---------------------------------
Weighted-Average
Remaining
# Outstanding Contractual Life Weighted-Average # Outstanding Weighted-Average
Exercise Prices at 12/31/97 (Years) Exercise Price at 12/31/97 Exercise Price
---------------- ------------- ---------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
$11.78 to $18.77 3,598,990 4.0 $16.01 3,598,990 $16.01
$26.77 to $39.19 7,970,872 7.6 $30.42 4,787,824 $29.28
$51.66 3,486,550 9.4 $51.66 - -
---------- ---------
15,056,412 7.2 $31.89 8,386,814 $23.58
========== =========
=================================================================================================================
</TABLE>
A-14
<PAGE>
Caterpillar Inc.
- --------------------------------------------------------------------------------
14. Profit per share
================================================================================
Years ended December 31,
1997 1996 1995
---- ---- ----
Profit (A)........................ $ 1,665 $ 1,361 $ 1,136
============ ============ ============
Determination of shares:
Weighted average common
shares outstanding (B)........ 375,124,745 384,960,440 396,858,256
Assumed conversion
of stock options.............. 5,416,215 3,724,630 3,462,442
------------ ------------ ------------
Weighted average common
shares outstanding --
assuming dilution (C)......... 380,540,960 388,685,070 400,320,698
============ ============ ============
Profit per share of
common stock (A/B).............. $ 4.44 $ 3.54 $ 2.86
Profit per share of common
stock -- assuming
dilution (A/C).................. $ 4.37 $ 3.50 $ 2.84
Stock options to purchase 3,521,250 and 3,191,380 shares of common stock at
$51.66 and $30.16 were outstanding during 1997 and 1995, respectively, but were
not included in the computation of diluted profit per share, because the
options' exercise price was greater than the average market price of the common
shares. During 1996, there were no stock options excluded from the computation
of diluted profit per share.
15. Fair values of financial instruments
================================================================================
We used the following methods and assumptions to estimate the fair value of our
financial instruments:
Cash and short-term investments - carrying amount approximated fair value.
Long-term investments (other than investments in unconsolidated affiliated
companies) - fair value was estimated based on quoted market prices.
Foreign currency contracts (forwards and options) - fair value was estimated
based on quoted market prices of comparable instruments.
Finance receivables - fair value was estimated by discounting the future cash
flow using current rates, representative of receivables with similar remaining
maturities. Historical bad debt experience was also considered.
Short-term borrowings - carrying amount approximated fair value.
Long-term debt - for Machinery and Engines' notes and debentures, fair value
was estimated based on quoted market prices. For Financial Products, fair value
was estimated by discounting the future cash flow using our current borrowing
rates for similar types and maturities of debt, except for floating rate notes
for which the carrying amount was considered a reasonable estimate of fair
value.
Interest rate swaps - fair value was estimated based on the amount that we
would receive or pay to terminate our agreements as of year end.
Please refer to Table V below for the fair values of our financial
instruments.
<TABLE>
<CAPTION>
====================================================================================================================================
TABLE V - Fair Values of Financial Instruments
- ------------------------------------------------------------------------------------------------------------------------------------
Asset (Liability) 1997 1996 1995
------------------- ----------------- ------------------
At December 31 Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value Reference #
-------- ----- -------- ----- -------- ----- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and short-term investments.... $ 292 $ 292 $ 487 $ 487 $ 638 $ 638 Statement 3, Note 17
Long-term investments.............. 701 701 508 508 449 449 Note 17
Foreign currency contracts......... 41 47 (3) (3) -- (1) Note 2
Finance receivables - net
(excluding operating and
finance type leases and
currency swaps(1))............... 5,788 5,815 4,954 4,980 4,207 4,175 Note 6
Short-term borrowings.............. (484) (484) (1,192) (1,192) (1,174) (1,174) Note 11
Long-term debt
(including amounts due within
one year)
Machinery and Engines............ (2,421) (2,785) (2,140) (2,377) (2,205) (2,550) Note 12
Financial Products............... (5,663) (5,721) (4,127) (4,176) (3,021) (3,083) Note 12
Interest rate swaps
Machinery and Engines -
in a net receivable position... 1 10 1 4 -- 9 Note 2
in a net payable position...... (3) (1) (1) (3) (2) (1) Note 2
Financial Products -
in a net receivable position... -- 20 1 4 2 7 Note 2
in a net payable position...... (3) (12) (4) (16) (4) (17) Note 2
(1) Excluded items have a net carrying value at December 31, 1997, 1996 and 1995, of $753, $692, and $ 613, respectively.
====================================================================================================================================
</TABLE>
A-15
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- --------------------------------------------------------------------------------
16. Operating leases
================================================================================
We lease certain computer and communications equipment, transportation
equipment, and other property through operating leases. Total rental expense for
operating leases was $176, $151, and $139 for 1997, 1996, and 1995,
respectively.
Minimum payments for operating leases having initial or remaining non-cancelable
terms in excess of one year are:
Years ended December 31,
After
1998 1999 2000 2001 2002 2002 Total
-----------------------------------------------------
$109 $78 $43 $28 $25 $79 $362
17. Concentration of credit risk
================================================================================
Financial instruments with potential credit risk consist primarily of trade and
finance receivables and short-term and long-term investments. Additionally, to
a lesser extent, we have a potential 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. We
perform regular credit evaluations of our dealers. Collateral is generally not
required, and the majority of our trade receivables are unsecured. We do
however, when deemed necessary, make use of various devices such as security
agreements and letters of credit to protect our interests. No single dealer
represents a significant concentration of credit risk.
Finance receivables primarily represent receivables under installment sales
contracts, receivables arising from leasing transactions and notes receivable.
Receivables from customers in construction-related industries made up
approximately one-third of total finance receivables at December 31, 1997,
1996, and 1995, respectively. We generally maintain a secured interest in the
equipment financed. No single customer or region represents a significant
concentration of credit risk.
Short-term and long-term investments are held with high quality institutions
and, by policy, the amount of credit exposure to any one institution is limited.
Long-term investments are comprised of investments which collateralize capital
lease obligations (note 12) and investments of Caterpillar Insurance Co. Ltd.
supporting insurance reserve requirements. Long-term investments are a component
of "Other Assets" in Statement 3.
At December 31, 1997, 1996, and 1995, Cat Financial was contingently liable
under guarantees for certain Caterpillar dealers' obligations totaling $261,
$253, and $282, respectively, of which $109, $159, and $222, respectively, was
outstanding. These guarantees have terms ranging up to two years and are fully
secured by dealer assets. No loss has been experienced nor is any anticipated
under these agreements.
Outstanding derivative instruments, with notional amounts totaling $4,079 and
terms generally ranging up to five years, were held at December 31, 1997.
Collateral is not required of the counterparties or of our company. We do not
anticipate nonperformance by any of the counterparties. Our exposure to credit
loss in the event of nonperformance by the counterparties is limited to only
those gains that we have recorded, but have not yet received cash payment. At
December 31, 1997, the exposure to credit loss was $49.
Please refer to Note 15 and Table V on Page A-15 for fair value information.
18. Environmental matters
================================================================================
The company is regulated by federal, state, and international environmental laws
governing our use of substances and control of emissions. Compliance with these
existing laws has not had a material impact on our capital expenditures,
earnings, or competitive position.
We are cleaning up hazardous waste at a number of locations, often with other
companies, pursuant to federal and state laws. When it is likely we will pay
clean-up costs at a site and those costs can be estimated, the costs are charged
against our earnings. In doing that estimate, we do not consider amounts
expected to be recovered from insurance companies and others.
The amount set aside for environmental clean-up is not material and is
included in "Accounts payable and accrued expenses" in Statement 3. If a range
of liability estimates is available on a particular site, we accrue the lower
end of that range.
We cannot estimate costs on sites in the very early stages of clean-up.
Currently, we have five of these sites and there is no more than a remote chance
that a material amount for clean-up will be required.
The United States Environmental Protection Agency (EPA) has issued conditional
certificates of conformity with the Clean Air Act for Caterpillar's 1998 model
year heavy-duty diesel engines. The EPA has issued similar conditional
certificates to other heavy-duty diesel engine manufacturers as well. The EPA
is reviewing the impact of advanced electronic control technologies on the
emissions compliance of heavy-duty trucks in certain operating conditions and
whether the use of such technologies is consistent with the Clean Air Act's
requirements. Caterpillar and the other manufacturers are responding to the EPA
requests for information and are engaged in discussions with them and the
United States Department of Justice in an effort to resolve this issue. We do
not expect the outcome of this matter to have a material impact on our
financial position or results of operations.
<TABLE>
<CAPTION>
19. Plant closing and consolidation costs
================================================================================
The reserve for plant closing and consolidation costs includes the following:
December 31,
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Write-down of property, plant, and equipment....... $ 103 $ 102 $ 99
Employee severance benefits........................ 95 103 115
Rearrangement, start-up costs, and other........... 47 54 55
----- ----- -----
Total reserve...................................... $ 245 $ 259 $ 269
===== ===== =====
</TABLE>
The write-down of property, plant, and equipment establishes a new cost basis
for assets that have been permanently impaired.
Employee severance benefits (e.g., pension, medical, and supplemental
unemployment benefits) are provided to employees affected by plant closings and
consolidations. The reserve for such benefits is reduced as the benefits are
provided.
At December 31, 1997, the above reserve includes $153 of costs associated with
the closure of the Component Products Division's Precision Barstock Products
(PBP) operation located in York, Pennsylvania. The probable closing of the PBP
manufacturing operation was announced in December 1991. In March 1996, it was
announced that the facility would be closed. We are currently in the process of
closing the unit.
A-16
<PAGE>
Caterpillar Inc.
- --------------------------------------------------------------------------------
20. Segment information
================================================================================
A. Nature of operations
We operate 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, mining shovels, log skidders, log loaders,
off-highway trucks, articulated trucks, paving products, telescopic
handlers, 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. Reciprocating engines meet
power needs ranging from 40 to 13,600 horsepower (30 to 10 150 kilowatts).
Turbines range from 1,340 to 18,000 horsepower (1000 to 13 500 kilowatts).
3. Financial Products -- provides financing alternatives for Caterpillar and
noncompetitive related equipment, and extends loans to our customers and
dealers. Also provides various forms of insurance to our dealers and
customers to help support their purchase and financing of our equipment.
This segment consists primarily of Cat Financial and its subsidiaries and
Cat Insurance Services Corporation.
Our products are sold primarily under the marks "Caterpillar," "Cat," "Solar,"
"Barber-Greene," and "MaK."
We conduct operations in our Machinery and Engines' segments under highly
competitive conditions, including intense price competition. We place great
emphasis upon the high quality and performance of our products and our dealers'
service support. Although no one competitor is believed to produce all of the
same types of machines and engines, there are numerous companies, large and
small, which compete with us in the sale of each of our products.
Machines are distributed principally through a worldwide organization of
dealers, 65 located in the United States and 132 located outside the United
States. Worldwide, these dealers have more than 1,400 places of business.
Reciprocating engines are sold principally through the worldwide dealer
organization and to other manufacturers for use in products manufactured by
them. Our dealers do not deal exclusively with our products; however, in most
cases sales and servicing of our products are our dealers' principal business.
Turbines and large marine reciprocating engines are sold through sales forces
employed by Solar Turbines Incorporated and associated companies and MaK
Motoren GmbH & Co. KG, respectively. Occasionally these employees are assisted
by independent sales representatives.
The Financial Products' segment also conducts business under highly
competitive conditions. Financing for users of Caterpillar products is
available through a variety of competitive sources, principally commercial banks
and finance and leasing companies. We emphasize prompt and responsive service
to meet customer requirements and offer various financing plans designed to
increase the opportunity for sales of our products and generate financing income
for our company.
B. Business segments
We use a substantial number of allocations to determine business segment
information because our manufacturing operations are highly integrated.
Intersegment sales, which primarily represent intersegment engine sales, are
valued at prices comparable to those for unrelated parties.
<TABLE>
<CAPTION>
Years ended December 31: 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Sales:
Machinery......................................... $ 13,350 $ 11,862 $ 11,336
Engines........................................... 5,922 4,879 4,920
Elimination of intersegment engine sales............ (1,162) (927) (805)
-------- -------- --------
Consolidated sales.................................. 18,110 15,814 15,451
Financial Products revenues......................... 815 708 621
-------- -------- --------
Sales and revenues.................................. $ 18,925 $ 16,522 $ 16,072
======== ======== ========
Operating profit:
Machinery......................................... $ 1,889 $ 1,562 $ 1,210
Engines........................................... 497 395 462
Financial Products................................ 142 114 88
Elimination of intersegment expenses.............. 12 21 3
-------- -------- --------
2,540 2,092 1,763
General corporate expenses.......................... (110) (100) (79)
-------- -------- --------
Operating profit.................................... $ 2,430 $ 1,992 $ 1,684
======== ======== ========
Capital expenditures -- including
equipment leased to others:
Machinery....................................... $ 452 $ 314 $ 256
Engines......................................... 329 152 179
Financial Products.............................. 282 263 210
General corporate............................... 43 42 34
-------- -------- --------
$ 1,106 $ 771 $ 679
======== ======== ========
Depreciation and amortization:
Machinery......................................... $ 370 $ 372 $ 375
Engines........................................... 196 171 172
Financial Products................................ 139 121 102
General corporate................................. 33 32 33
-------- -------- --------
$ 738 $ 696 $ 682
======== ======== ========
December 31:
Identifiable assets:
Machinery......................................... $ 6,632 $ 6,010 $ 5,122
Engines........................................... 3,434 3,023 2,746
Financial Products................................ 7,755 6,572 5,592
-------- -------- --------
17,821 15,605 13,460
General corporate assets............................ 2,184 2,422 2,894
Investments in unconsolidated
affiliated companies.............................. 751 701 476
-------- -------- --------
Total assets........................................ $ 20,756 $ 18,728 $ 16,830
======== ======== ========
</TABLE>
C. Geographic segments
Manufacturing activities of the Machinery and Engines' segments are conducted in
37 plants in the United States; five in the United Kingdom; three in China; two
each in Australia, France, Germany, Italy, and Mexico; and one each in Belgium,
Brazil, Canada, Hungary, Indonesia, Poland, Russia, and Sweden. Four major parts
distribution centers are located in the United States and ten are located
outside the United States. Financial Products' segment activity is primarily
conducted in the United States, with additional business activity conducted in
Asia, Australia, Canada, Chile, Europe, and Mexico.
A-17
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- --------------------------------------------------------------------------------
We are a highly integrated company. The products of our manufacturing
operations located outside the United States, in most instances, consist of
components manufactured or purchased locally which are assembled with components
transferred from other sources within our company. As a result, the profits of
these operations do not bear any definite relationship to their assets.
Therefore, financial information of the individual geographic segments cannot
be viewed in isolation. Intersegment sales are valued at prices comparable to
those for unrelated parties.
Geographic segments are based on the location of the manufacturing
operations, which either manufactures or purchases products, for Machinery and
Engines.
<TABLE>
<CAPTION>
Years ended December 31: 1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Sales:
United States.......................... $14,468 $13,042 $12,191
Europe................................. 3,225 2,214 2,638
All other.............................. 1,287 1,138 1,200
Elimination of intersegment sales from:
United States.......................... (459) (265) (308)
Europe................................. (192) (135) (125)
All other.............................. (219) (180) (145)
------- ------- -------
Consolidated sales....................... 18,110 15,814 15,451
Revenues:
United States.......................... 612 534 482
All other.............................. 203 174 139
------- ------- -------
Sales and revenues....................... $18,925 $16,522 $16,072
======= ======= =======
Operating profit:
Machinery and Engines:
United States........................ $ 1,976 $ 1,708 $ 1,356
Europe............................... 310 166 206
All other............................ 100 83 110
------- ------- -------
2,386 1,957 1,672
------- ------- -------
Financial Products:
United States........................ 126 98 81
All other............................ 16 16 7
------- ------- -------
Total Financial Products............... 142 114 88
------- ------- -------
Elimination of intersegment expenses... 12 21 3
General corporate expenses............. (110) (100) (79)
------- ------- -------
Operating profit......................... $ 2,430 $ 1,992 $ 1,684
======= ======= =======
December 31:
Identifiable assets:
Machinery and Engines:
United States........................ $ 7,388 $ 6,495 $ 5,836
Europe............................... 1,668 1,702 1,229
All other............................ 1,010 836 803
------- ------- -------
10,066 9,033 7,868
------- ------- -------
Financial Products:
United States........................ 5,311 4,687 4,042
All other............................ 2,444 1,885 1,550
------- ------- -------
Total Financial Products............... 7,755 6,572 5,592
------- ------- -------
17,821 15,605 13,460
General corporate assets............... 2,184 2,422 2,894
Investments in unconsolidated
affiliated companies................... 751 701 476
------- ------- -------
Total assets............................. $20,756 $18,728 $16,830
======= ======= =======
</TABLE>
D. Non-U.S. sales
Sales outside the United States (based on dealer location) were 51% of
consolidated sales for 1997 and 1996, and 52% for 1995.
<TABLE>
<CAPTION>
Years ended December 31: 1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Sales of U.S. manufactured product:
Asia/Pacific........................... $1,686 $1,743 $1,505
Latin America.......................... 1,101 913 829
Europe................................. 1,067 1,065 1,005
Canada................................. 1,048 748 852
Africa/Middle East..................... 757 767 644
------ ------ ------
5,659 5,236 4,835
------ ------ ------
Sales of non-U.S. manufactured product:
Asia/Pacific........................... 788 817 785
Latin America.......................... 601 325 354
Europe................................. 1,552 1,301 1,681
Canada................................. 158 75 104
Africa/Middle East..................... 426 384 270
------ ------ ------
3,525 2,902 3,194
------ ------ ------
Total sales outside the United States:
Asia/Pacific........................... 2,474 2,560 2,290
Latin America.......................... 1,702 1,238 1,183
Europe................................. 2,619 2,366 2,686
Canada................................. 1,206 823 956
Africa/Middle East..................... 1,183 1,151 914
------ ------ ------
$9,184 $8,138 $8,029
====== ====== ======
</TABLE>
21. Acquisition of Perkins Engines
================================================================================
On December 11, 1997, we announced an agreement with LucasVarity plc to acquire
the assets of Perkins Engines, LucasVarity's diesel engine subsidiary. Perkins
is a leading manufacturer of small to medium diesel engines, and its 1996 sales
were approximately $1,100. The addition of Perkins to our existing engine
business will create a global full-line producer of reciprocating and turbine
engines. A purchase price of $1,325 was agreed upon subject to closing date
adjustments. We will pay for this acquisition using a combination of existing
cash and new debt. The acquisition will be accounted for using the purchase
method of accounting. It is anticipated that the acquisition will be finalized
during the first quarter of 1998.
22. Selected quarterly financial results (unaudited)
================================================================================
<TABLE>
<CAPTION>
1997 Quarter
----------------------------------------
1st 2nd 3rd 4th
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales and revenues....................... $ 4,262 $ 4,870 $ 4,600 $ 5,193
Less: Revenues........................... 190 194 215 216
------- ------- ------- -------
Sales.................................... 4,072 4,676 4,385 4,977
Cost of goods sold....................... 2,981 3,450 3,278 3,665
------- ------- ------- -------
Gross margin............................. 1,091 1,226 1,107 1,312
Profit................................... 394 435 385 451
Profit per share of common stock......... $ 1.04 $ 1.15 $ 1.03 $ 1.22
Profit per share of common stock
-- assuming dilution................... $ 1.03 $ 1.13 $ 1.01 $ 1.20
<CAPTION>
1996 Quarter
----------------------------------------
1st 2nd 3rd 4th
------- ------- ------- -------
Sales and revenues....................... $ 3,844 $ 4,180 $ 4,033 $ 4,465
Less: Revenues........................... 162 172 184 190
------- ------- ------- -------
Sales.................................... 3,682 4,008 3,849 4,275
Cost of goods sold....................... 2,780 2,976 2,905 3,171
------- ------- ------- -------
Gross margin............................. 902 1,032 944 1,104
Profit................................... 296 374 310 381
Profit per share of common stock......... $ .76 $ .97 $ .81 $ 1.00
Profit per share of common stock
-- assuming dilution................... $ .76 $ .96 $ .80 $ .98
</TABLE>
A-18
<PAGE>
Five-year Financial Summary Caterpillar Inc.
(Dollars in millions except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31, 1997 1996 1995 1994 1993
--------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Sales and revenues............................. $ 18,925 16,522 16,072 14,328 11,615
Sales........................................ $ 18,110 15,814 15,451 13,863 11,235
Percent inside the United States........... 49% 49% 48% 51% 51%
Percent outside the United States.......... 51% 51% 52% 49% 49%
Revenues..................................... $ 815 708 621 465 380
Profit(1)...................................... $ 1,665 1,361 1,136 955 652
Profit per share of common stock(1)(2)......... $ 4.44 3.54 2.86 2.35 1.61
Profit per share of common stock -
assuming dilution(1)(2)................ $ 4.37 3.50 2.84 2.33 1.60
Dividends declared per share of common stock... $ .95 .78 .65 .32 .15
Return on average common stock equity.......... 37.9% 36.3% 36.1% 37.4% 34.6%
Capital expenditures:
Property, plant, and equipment............... $ 824 506 464 501 417
Equipment leased to others................... $ 282 265 215 193 215
Depreciation and amortization.................. $ 738 696 682 683 668
Research and engineering expenses.............. $ 700 570 532 435 455
As a percent of sales and revenues........... 3.7% 3.4% 3.3% 3.0% 3.9%
Wages, salaries, and employee benefits......... $ 3,773 3,437 2,919 3,146 3,038
Average number of employees.................... 58,366 54,968 54,263 52,778 50,443
December 31,
Total assets:
Machinery and Engines........................ $ 13,001 12,156 11,238 11,582 11,131
Financial Products........................... $ 7,755 6,572 5,592 4,668 3,676
Long-term debt due after one year:
Machinery and Engines........................ $ 2,367 2,018 2,049 1,934 2,030
Financial Products........................... $ 4,575 3,069 1,915 2,336 1,865
Total debt:
Machinery and Engines........................ $ 2,474 2,176 2,219 2,037 2,387
Financial Products........................... $ 6,094 5,283 4,181 3,866 3,041
Percent of total debt to total debt
and stockholders' equity
(Machinery and Engines)...................... 34.6% 34.6% 39.6% 41.2% 52.1%
</TABLE>
(1) 1993 profit was after extraordinary loss on early retirement of debt; profit
before extraordinary loss was $681, $1.68 per share of common stock.
(2) Computed on weighted-average number of shares outstanding.
A-19
<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 all
its subsidiaries (affiliated companies that are more than 50% owned).
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 (Cat Financial) and Caterpillar
Insurance Services Corporation. Cat Financial and its subsidiaries in the
Americas, Australia, 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. Caterpillar Insurance Services
Corporation provides insurance services to Caterpillar dealers and customers to
help support their purchase and financing of Caterpillar equipment.
RESULTS OF OPERATIONS
1997 COMPARED WITH 1996
Profit for 1997 was up 22% on a 15% increase in sales and revenues. Profit per
share of common stock increased 25%, reflecting the impact of the higher profit
and the ongoing share repurchase program. Profit of $1.67 billion or $4.44 per
share was the best in our history, an improvement of $304 million over profit
of $1.36 billion or $3.54 per share in 1996. Sales and revenues of $18.93
billion were $2.40 billion higher and also an all-time record. An increase in
physical sales volume of 15% was the most significant factor contributing to the
higher sales and revenues, and profit.
Machinery and Engines
Sales of Machinery and Engines were $18.11 billion, an increase of $2.30 billion
or 15% from 1996. The higher sales resulted from a 15% increase in physical
sales volume. Profit before tax was $2.21 billion, an improvement of $420
million or 23% from last year. The primary reason for the improved profit was
the higher physical sales volume, which resulted from higher machine and engine
sales inside and outside the United States.
Price realization was about the same as price increases taken over the past
year and a favorable change in geographic sales mix was more than offset by the
effect of the stronger dollar on sales denominated in currencies other than the
U.S.
Margin (sales less cost of goods sold) of $4.74 billion increased $754 million
or 19% over 1996. Margin as a percent of sales was 26.2%, up from 25.2%,
primarily because of the favorable impact of higher physical sales volume and
price increases taken over the past year. Partially offsetting these favorable
items were increased fixed manufacturing costs and an unfavorable change in
product sales mix.
The increased fixed manufacturing costs were primarily in support of major
growth initiatives and product line expansions that include electric power
generation, agricultural products, mining systems, and compact machines.
The unfavorable change in product sales mix was primarily the result of
selling a higher percentage of mid-range truck engines, and a change in the mix
of turbine products.
Selling, general, and administrative (SG&A) expenses were $1.93 billion
compared with $1.72 billion in 1996. The $217 million increase primarily
reflects increased spending levels in support of major growth initiatives and
product line expansions. The effect of inflation on costs also contributed to
the increase. SG&A expenses, as a percent of sales, were 10.7%, down slightly
from 10.8% in 1996.
Research and development (R&D) expenses of $528 million were up $118 million
from 1996. The increase reflects expected higher spending in support of new and
improved products. R&D expenses, as a percent of sales, were 2.9%, up from 2.6%
in 1996.
Operating profit of $2.28 billion was $419 million or 23% higher than 1996.
Operating profit, as a percent of sales, was 12.6% compared with 11.7% a year
ago. Operating profit rates have continued to grow, a result of balancing
favorable margin growth with controlled spending for SG&A and R&D to enhance
longer-term growth.
Interest expense of $219 million was $25 million higher than a year ago,
mostly due to higher average debt levels.
Other income/expense was income of $153 million compared with income of $127
million last year. The increase of $26 million is primarily due to several
small favorable items, partially offset by an unfavorable change in foreign
exchange gains and losses.
Financial Products
Financial Products' revenues of $839 million were a record, up $107 million or
15% compared with 1996, primarily the result of Cat Financial's larger
portfolio.
Selling, general, and administrative expenses were up $22 million, primarily
due to Cat Financial's higher depreciation on leased equipment and other
increases due to growth, partially offset by a favorable reserve adjustment at
Caterpillar Insurance Co. Ltd. (Cat Insurance). Interest expense was up $57
million due to increased borrowings to support the larger portfolio. Other
income/expense was income of $61 million, an increase of $24 million from a year
ago. The increase in other income was primarily the result of higher gains on
sales of used equipment, exchange gains, and increased use of securitization by
Cat Financial, and higher investment income at Cat Insurance.
Before-tax profit was a record $203 million, up $52 million or 34% from last
year. The increase resulted primarily from the continued growth of Cat Financial
and favorable reserve adjustments at Cat Insurance.
Income Taxes
The provision for income taxes was $796 million, compared with $613 million last
year. The $183 million increase reflects the higher before-tax profit and a
higher effective tax rate of 33% compared with 31.6% for 1996. The higher tax
rate accounted for $34 million of the increase.
A-20
<PAGE>
Caterpillar Inc.
- --------------------------------------------------------------------------------
Unconsolidated Affiliated Companies
Our share of unconsolidated affiliated companies' results was $48 million, up
$15 million from a year ago. Profits from F.G. Wilson, L.L.C., an affiliate
acquired in 1996, along with higher profits at Shin Caterpillar Mitsubishi Ltd.
were the primary reasons for the increase from 1996.
1997 SALES
Caterpillar worldwide sales were a record $18.11 billion in 1997, a $2.30
billion or 15% increase over 1996, due to higher physical sales volume. Sales
increases in the United States accounted for about half the total increase.
Gains also were registered in Latin America, Canada, Europe/Commonwealth of
Independent States (CIS), and Africa/Middle East. Sales declined slightly in the
Asia/Pacific region.
Sales by Business Segment
1997 1996 1995
--------------------
(Billions)
Machinery.......... $13.35 $11.86 $11.33
Engines............ 4.76 3.95 4.12
------ ------ ------
$18.11 $15.81 $15.45
====== ====== ======
Worldwide sales for the Machinery segment increased 13% from 1996, setting
another all-time record. Most of the improvement was due to higher physical
sales volume resulting from higher dealer sales to end users. Company sales were
higher in most key applications including construction, sand and quarry
operations, and forestry.
Engine segment sales increased 21% from 1996 levels after a decline in 1996.
The improvement reflected higher end-user demand for reciprocating gas and
diesel engines as well as turbines. Company sales were higher in all key
applications including on-highway trucks, power generation, oil and gas,
industrial, and marine. Sales were also higher due to the acquisition of MaK
Motoren GmbH & Co. KG on December 31, 1996.
Caterpillar Sales Inside the United States
1997 1996 1995
----------------------
(Billions)
Machinery............ $ 6.71 $ 5.89 $ 5.49
Engines.............. 2.22 1.78 1.93
------ ------ ------
$ 8.93 $ 7.67 $ 7.42
====== ====== ======
Caterpillar sales inside the United States were $8.93 billion, a $1.25 billion
or 16% increase over 1996. Both machinery and engine segment sales exceeded
last year's levels due primarily to higher physical sales volume as improved
end-user demand more than offset a slowdown in machine inventory accumulation.
Higher price realization in both segments also contributed to the increase in
company sales.
Sales inside the United States represented 49% of the worldwide total,
unchanged from 1996.
Dealer Machine Sales to End Users
Inside the United States
The United States economy registered very good growth in 1997 with Gross
Domestic Product (GDP) increasing about 3.7%, considerably better than the 2.5%
rate for 1996. This pickup in growth combined with higher construction and
mining activity led to increased industry demand for construction and mining
equipment. A healthy farm economy also boosted industry demand for agricultural
equipment. With total industry demand up, dealer machine sales to end users
increased in both the construction and commodity sectors.
Sales of machines to end users rose in two of the three key construction
sectors:
. Highway sales increased in response to higher construction spending.
. Sales to the housing sector also increased as housing starts remained
strong.
. Commercial, industrial, and government building sector sales remained
near 1996 levels despite growth in private and public building
construction.
Sales to end users rose in all but one key commodity sector:
. Coal mining sales rose reflecting higher mine production.
. Sales to the sand and quarry sector of mining also were higher in
response to higher construction activity.
. Agricultural-related sales increased, reflecting a healthy farm
economy and strong industry demand.
. Sales to the forestry sector rose in response to higher lumber and
pulp production. Lumber prices were higher while pulp prices were
lower.
. Metal mining-related sales declined reflecting lower metals prices.
Sales to end users increased in industrial applications but declined in
landfill applications.
Deliveries to dealers' dedicated rental fleets increased in 1997 as in 1996
and constituted about one-third of all dollar deliveries to U.S. dealers.
Engine Sales to End Users and
OEMs Inside the United States
Engine sales increased primarily as a result of better economic growth and
higher industry demand.
. On-highway truck engine sales to Original Equipment Manufacturers
(OEMs) rose reflecting an increase in industrial production.
. Reciprocating engine sales to users also increased with a large gain
in oil and gas applications. Sales to marine, power generation, and
industrial applications also rose.
. Turbine sales increased due to a gain in deliveries to oil and gas
applications. Sales into power generation remained near 1996 levels.
A-21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS continued
- --------------------------------------------------------------------------------
Caterpillar Sales Outside the United States
1997 1996 1995
----------------------
(Billions)
Machinery............. $ 6.64 $ 5.97 $ 5.84
Engines............... 2.54 2.17 2.19
______ ______ ______
$ 9.18 $ 8.14 $ 8.03
====== ====== ======
- --------------------------------------------------------------------------------
Caterpillar sales outside the United States were $9.18 billion, a $1.05 billion
or 13% increase from 1996. These sales represented 51% of worldwide sales, the
same percentage as 1996. Sales were higher in Latin America, Canada, Europe/CIS,
and Africa/Middle East. Sales declined slightly in the Asia/Pacific region.
Machinery segment sales surpassed 1996 levels as higher sales volume more than
offset a decline in price realization. The improvement in sales volume
resulted from an increase in industry demand and higher dealer inventory levels.
Engine segment sales also surpassed last year's levels due to higher physical
sales volume. Sales of diesel and gas reciprocating engines rose with gains in
on-highway truck, marine, power generation, and industrial applications. Sales
of turbines also increased with gains in both power generation and oil and gas
applications.
Europe/CIS
Sales rose 11% reflecting higher machine and engine sales. Sales were higher in
Germany and Spain, lower in France, and about the same in Italy and the United
Kingdom. Industry demand for machines declined slightly due to tight fiscal
policies, but sales to end users remained near 1996 levels due to a higher
share of industry sales. Company sales of machines rose primarily as a result of
dealers replenishing their new machine inventory. Industry demand for engines,
however, was higher leading to improved engine sales.
Sales to Central Europe were lower primarily due to economic difficulties in
the Czech Republic. Sales also declined in the CIS reflecting continued
economic sluggishness and high levels of political uncertainty, particularly in
Russia.
Asia/Pacific
Sales declined 3% for the year reflecting the impact of the currency crisis on
the region's economy. Industry demand for machines declined sharply in the
second half of the year in a number of Southeast Asia countries including
Thailand, Indonesia, Malaysia, and the Philippines. As a result, sales to end
users for the entire year slipped below 1996 levels.
In China (including Hong Kong), both company sales and sales to end users
declined reflecting slower economic growth.
In Australia, both company sales and sales to end users fell as economic
growth slowed and commodity prices declined.
In Japan, sales of imported product were higher for the year due to a surge in
demand during the first quarter in advance of the April 1 sales tax increase.
After the first quarter, both the economy and sales of imported product
weakened.
Sales of turbines increased for the region in 1997, with especially strong
sales in Australia and developing Asia. Sales of reciprocating engines remained
near 1996 levels.
Latin America
Sales rose 38% due to a rebound in economic activity throughout most of the
region. Sales of both machines and engines were higher with sizable gains in
Brazil, Mexico, Peru, Chile, and Argentina, all of which registered good
economic growth. End-user demand for machines was higher in all key
construction sectors as well as metal and nonmetal mining. Lower demand was
registered only in coal mining and agricultural applications.
Canada
Sales rose 46%, reflecting excellent economic growth and an increase in industry
demand for both machines and engines. Sales of machines to end users rose in
all applications except metal mining. Company engines sales were higher with
gains in all key applications.
Africa/Middle East
Sales rose 3% for the region as a whole, despite slightly lower machine sales to
end users. Large gains were registered in the Middle East, with most of the
improvement coming from higher sales in Turkey and Saudi Arabia. Sales were
lower in Africa, including the country of South Africa. Sales of reciprocating
engines were higher, while sales of turbines declined.
Dealer Inventories of Machines
United States dealers' new machine inventories increased in 1997 in response to
a good economy and strong industry demand. At year-end 1997, inventories were
slightly above normal relative to current selling rates. Outside the United
States, dealers' new machine inventories also increased and ended the year
slightly above normal relative to current selling rates.
FOURTH-QUARTER 1997
COMPARED WITH FOURTH-QUARTER 1996
Fourth-quarter sales and revenues increased 16% while profit rose 18%. Profit
per share was up 22%, reflecting the impact of the higher profit and the
ongoing share repurchase program. Profit of $451 million or $1.22 per share was
$70 million or 22 cents per share higher than fourth-quarter 1996 profit of
$381 million or $1.00 per share. Physical sales volume increased 17% and was the
most significant factor contributing to the increased profit.
Machinery and Engines
Profit before tax of $600 million increased 24% or $115 million from last year's
fourth quarter. Sales of Machinery and Engines of $4.98 billion rose 16%. The
higher sales resulted from the 17% increase in physical sales volume, partially
offset by 1% lower price realization.
The increase in physical sales volume was primarily the result of higher machine
and engine sales inside and outside the United States. Price realization was
about 1% lower, as price increases taken over the past year were more than
offset by the effect of the stronger dollar on sales denominated in currencies
other than the U.S. and higher sales discounts.
A-22
<PAGE>
Caterpillar Inc.
- --------------------------------------------------------------------------------
Margin of $1.31 billion increased $208 million from the fourth quarter a year
ago. Margin as a percent of sales was 26.4%, up from 25.8% a year ago. The
favorable impact of higher physical sales volume and price increases taken over
the past year was partially offset by increased fixed manufacturing costs and
higher sales discounts. The increased manufacturing costs were primarily in
support of major growth initiatives and product line expansions. The net effect
of the stronger dollar on the margin rate was minimal.
Selling, general, and administrative expenses were $544 million, compared with
$497 million during the fourth-quarter 1996. The $47 million increase primarily
reflects increased spending levels in support of major growth initiatives and
product line expansions, and the effect of inflation on costs. Partially
offsetting these items were lower incentive pay expense compared with the fourth
quarter a year ago and the favorable effect of the stronger dollar on costs.
Research and development expenses of $144 million increased $33 million from
fourth-quarter 1996. The increase reflects expected higher spending in support
of new and improved products.
Operating profit was $624 million, up $128 million from the fourth quarter a
year ago. Operating profit, as a percent of sales, was 12.5% compared with
11.6% a year ago.
Interest expense was $8 million higher than fourth quarter a year ago mostly
due to higher average debt levels.
Other income/expense was income of $32 million compared with income of $37
million last year. The change primarily reflects an unfavorable change in
foreign exchange gains and losses.
Financial Products
Financial Products' fourth-quarter revenues were a record $222 million, up $26
million compared with fourth-quarter 1996, primarily due to Cat Financial's
portfolio growth.
Before-tax profit was $56 million, an improvement of $21 million from last
year's fourth quarter. The increase resulted primarily from Cat Financial's
continued portfolio growth and favorable reserve adjustments at Cat Insurance.
Income Taxes
The provision for income taxes was $217 million, compared with $151 million for
the fourth quarter last year. The increase was primarily due to the higher
before-tax profit. Fourth-quarter 1996 tax expense reflected an effective tax
rate of 29% which included a favorable adjustment of $13 million to recognize
the impact of a tax rate change from that used for the first three quarters of
the year. Fourth-quarter 1997 tax expense reflects an effective tax rate of 33%.
Unconsolidated Affiliated Companies
Our share of unconsolidated affiliated companies' results was $12 million, the
same as a year ago.
FOURTH-QUARTER 1997
COMPARED WITH THIRD-QUARTER 1997
Fourth-quarter profit of $451 million or $1.22 per share was $66 million higher
than third-quarter profit of $385 million or $1.03 per share. A 14% increase in
physical sales volume was the most significant factor contributing to the higher
profit.
Machinery and Engines
Profit before tax for Machinery and Engines was $600 million, a $108 million
increase from the previous quarter. Sales of $4.98 billion increased $592
million primarily because of the 14% higher physical sales volume. Price
realization was about 1% lower.
The increase in physical sales volume was primarily the result of higher machine
and engine sales outside the United States. Machine and engine sales inside the
United States were also higher. Price realization was lower due to higher sales
discounts.
Margin was $205 million higher than the third quarter, primarily the result of
higher physical sales volume. As a percent of sales, the margin rate was 26.4%
compared with 25.2% last quarter. The higher margin rate was primarily due to
the higher physical sales volume and a favorable product sales mix, partially
offset by the higher sales discounts.
The net effect of the dollar on the margin rate was minimal.
Selling, general, and administrative expenses were $544 million, up $63 million
from the third quarter. The increase was somewhat typical, as the fourth
quarter is generally a higher cost quarter for these types of expenses. However,
the increase is also reflective of increased spending levels in support of major
growth initiatives and product line expansions.
Research and development expenses of $144 million were up $12 million from the
third quarter. The increase reflects continued higher spending in support of new
and improved products.
Operating profit of $624 million increased $130 million. As a percent of sales,
operating profit was 12.5% compared with 11.3% in the third quarter.
Interest expense of $56 million was about the same as the third quarter.
Other income/expense was income of $32 million compared with $51 million last
quarter. The change reflects the absence of several small favorable items
recorded during the third quarter.
Financial Products
Financial Products' revenues of $222 million were up $1 million from the third
quarter. Before-tax profit was $56 million, an increase of $6 million. The
increase in profit resulted primarily from increased investment income at Cat
Insurance.
Income Taxes
Income tax expense of $217 million increased $51 million from the previous
quarter. The increase reflects the higher profit before tax and the absence of
a favorable adjustment of $12 million in the third quarter to recognize the
impact of the tax rate change for the first half of the year from 34% to 33%.
Unconsolidated Affiliated Companies
Our share of unconsolidated affiliated companies' results was $12 million, an
increase of $3 million from the previous quarter.
A-23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS continued
- --------------------------------------------------------------------------------
1996 COMPARED WITH 1995
Profit for 1996 was $1.36 billion or $3.54 per share of common stock, an
improvement of $225 million over profit of $1.14 billion or $2.86 per share for
1995. Sales and revenues of $16.52 billion were $450 million higher than last
year.
Machinery and Engines
Sales were $15.81 billion, an increase of $363 million from 1995. Profit before
tax was $1.79 billion, an improvement of $296 million. The primary reasons for
the increase in profit were a 2% improvement in price realization and the effect
of the stronger dollar as costs incurred in Japanese yen and European currencies
translated into fewer U.S. dollars.
Price realization improved primarily because of price increases taken over the
past year and the absence of certain European currency hedges in place a year
ago. (The adverse impact of currency hedges (forward contracts) that matured
during 1995 was about $135 million. All such forward contracts had matured as
of the end of 1995.) A favorable change in geographic sales mix also contributed
to the improved price realization. These favorable factors were partially offset
by higher sales discounts and the negative effect of the stronger dollar on
sales in European and Asian currencies.
Physical sales volume was about the same as in 1995.
Margin (sales less cost of goods sold) increased $531 million or 15%. Margin
as a percent of sales was 25.2%, up from 22.3%, primarily because of the better
price realization and the effect of the stronger dollar as costs incurred in
Japanese yen and European currencies translated into fewer U.S. dollars. In
addition, margins have improved as a result of lower material costs (a result of
our joint efforts with suppliers) and continued improvements in manufacturing
efficiencies.
These favorable items were partially offset by higher incentive pay expense.
Selling, general, and administrative expenses were $1.72 billion, compared
with $1.48 billion in 1995. The $232 million increase reflects higher spending
levels in support of expanded operations and major initiatives to enhance long-
term growth, the effect of inflation on costs and higher incentive pay expense.
Research and development expenses were up $35 million from 1995. The increase
primarily reflects continuing high levels of activity for new product
introductions and higher incentive pay expense.
Operating profit of $1.86 billion was $264 million higher than 1995. Operating
profit as a percent of sales was 11.7% compared with 10.3% a year ago.
Interest expense of $194 million was about the same as a year ago.
Other income/expense was income of $127 million compared with income of $92
million last year. The increase of $35 million is primarily due to a favorable
change in foreign exchange gains and losses, higher interest income, and several
small favorable items recorded in 1996. Partially offsetting these favorable
items was the absence of a $10 million reimbursement recorded in 1995 under the
company's insurance coverage for the settlement of two class action complaints.
Financial Products
Before-tax profit for Financial Products was a record $151 million, up $30
million from 1995. The increase resulted primarily from a larger portfolio of
earning assets at Cat Financial and gains recognized on the sale of securities
at Cat Insurance. Partially offsetting these favorable items was the absence of
an $11 million pre-tax gain recorded in 1995 for interest rate caps written by
Cat Financial. (The caps were terminated during second-quarter 1995.)
Revenues of $732 million were a record and were up $88 million, primarily the
result of Cat Financial's larger portfolio. Selling, general, and
administrative expenses were up $39 million, primarily due to Cat Financial's
higher depreciation on leased equipment and other increases due to a larger
portfolio. Interest expense was up $23 million due to increased borrowings to
support the larger portfolio, partially offset by lower borrowing rates. Other
income/expense was income of $37 million, an increase of $4 million from a year
ago.
Income Taxes
Income tax expense was $613 million, $112 million higher than a year ago. The
increase primarily reflects higher before-tax profit. The effective tax rate
was 31.6% compared with 31.0% for 1995.
Unconsolidated Affiliated Companies
Our share of unconsolidated affiliated companies' results was $33 million, up
$11 million from a year ago. Profits from new unconsolidated affiliates F.G.
Wilson, L.L.C. and Caterpillar Elphinstone Pty. Ltd. along with higher profits
at Shin Caterpillar Mitsubishi Ltd. were the primary reasons for the increase
from 1995.
LIQUIDITY & CAPITAL RESOURCES
- -----------------------------
Consolidated operating cash flow totaled $2.10 billion for 1997, compared with
$1.78 billion for 1996.
Total debt at year-end 1997 was $8.57 billion, an increase of $1.11 billion
from year-end 1996. Over this period, debt related to Machinery and Engines
increased $298 million, to $2.47 billion, while debt related to Financial
Products increased $811 million to $6.09 billion.
During 1995, we announced a plan to repurchase up to 10% of our outstanding
common stock over three to five years. From inception in June 1995 to the end of
1997, 36 million shares have been repurchased under the plan. The number of
shares outstanding at December 31, 1997, was 368 million. When the 10% share
repurchase program is complete, we will have approximately 360 million shares
outstanding. We anticipate this program will be completed in 1998.
Machinery and Engines
Operating cash flow totaled $1.80 billion for 1997, compared with $1.46 billion
for 1996. The increase in operating cash flow primarily results from the
increase in profits over the same period a year ago.
Capital expenditures, excluding equipment leased to others, totaled $819
million for 1997, compared with $500 million a year ago.
A-24
<PAGE>
Caterpillar Inc.
- --------------------------------------------------------------------------------
During 1997, debt related to Machinery and Engines increased from the issuance
of $300 million of 100-year debentures and a new $162 million capital lease
obligation, collateralized by leased manufacturing equipment and a security
deposit. We also retired $115 million of medium-term notes during 1997. The
percent of debt to debt plus stockholders' equity was 35% at both December 31,
1997 and 1996.
Financial Products
Operating cash flow totaled $323 million for 1997, compared with $331 million
for 1996. Cash used to purchase equipment leased to others totaled $277 million
for 1997. In addition, 1997 net cash used for finance receivables was $1.21
billion, compared with $970 million for 1996.
Financial Products' debt was $6.09 billion at December 31, 1997, an increase
of $811 million from December 31, 1996, and was primarily comprised of $3.32
billion of medium-term notes, $145 million of notes payable to banks and $2.54
billion of commercial paper. At the end of 1997, finance receivables past due
over 30 days were 1.7%, compared with 2.1% at the end of 1996. The ratio of debt
to equity of Cat Financial was 7.8:1 at both December 31, 1997 and 1996.
Financial Products had outstanding credit lines totaling $3.84 billion at
December 31, 1997, which included $2.25 billion of shared revolving credit
agreements with Machinery and Engines. 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.
Reclassification
During 1997, management reclassified $779 million of short-term borrowings to
long-term debt due after one year. This reclassification reflects a change in
management's intent to finance for periods greater than a year certain portions
of debt under revolving credit agreements. For purposes of improving
comparability, $555 million was reclassified at December 31, 1996, from short-
term borrowings to long-term debt due after one year. This change impacted the
Consolidated and Financial Products' portions of the financial position, but
had no impact on the Machinery and Engines' portion. Furthermore, this change
had no impact on the results of operations. All yearly comparisons for 1997 and
1996 are with the reclassified amounts.
Dividends paid per share of common stock
Quarter 1997 1996 1995
- -----------------------------------------------------
First.................... $ .20 $ .18 $ .13
Second................... .20 .17 .12
Third.................... .25 .20 .18
Fourth................... .25 .20 .17
----- ----- -----
$ .90 $ .75 $ .60
===== ===== =====
- -----------------------------------------------------
EMPLOYMENT
- ----------
At year end, our worldwide employment was 59,863 compared with 57,026 one year
ago. Hourly employment increased 1,208 to 34,248; salaried and management
employment increased 1,629 to 25,615.
Year-End Employment 1997 1996
- ---------------------------------------------------------
Inside United States... 39,722 38,571
Outside United States
Europe............... 12,627 11,953
Latin America........ 5,340 4,540
Asia/Pacific......... 1,843 1,746
Canada............... 219 127
Other................ 112 89
------ ------
Total Outside.......... 20,141 18,455
------ ------
Total Employment....... 59,863 57,026
====== ======
- ---------------------------------------------------------
OTHER MATTERS
- -------------
ENVIRONMENTAL MATTERS
The company is regulated by federal, state, and international environmental laws
governing our use of substances and control of emissions. Compliance with these
existing laws has not had a material impact on our capital expenditures,
earnings, or competitive position.
We are cleaning up hazardous waste at a number of locations, often with other
companies, pursuant to federal and state laws. When it is likely we will pay
clean-up costs at a site and those costs can be estimated, the costs are charged
against our earnings. In doing that estimate, we do not consider amounts
expected to be recovered from insurance companies and others.
The amount set aside for environmental clean-up is not material and is
included in "Accounts payable and accrued expenses" in Statement 3. If a range
of liability estimates is available on a particular site, we accrue the lower
end of that range.
We cannot estimate costs on sites in the very early stages of clean-up.
Currently, we have five of these sites and there is no more than a remote
chance that a material amount for clean-up will be required.
The United States Environmental Protection Agency (EPA) has issued conditional
certificates of conformity with the Clean Air Act for Caterpillar's 1998 model
year heavy-duty diesel engines. The EPA has issued similar conditional
certificates to other heavy-duty diesel engine manufacturers as well. The EPA
is reviewing the impact of advanced electronic control technologies on the
emissions compliance of heavy-duty trucks in certain operating conditions and
whether the use of such technologies is consistent with the Clean Air Act's
requirements. Caterpillar and the other manufacturers are responding to the EPA
requests for information and are engaged in discussions with them and the
United States Department of Justice in an effort to resolve this issue. We do
not expect the outcome of this matter to have a material impact on our
financial position or results of operations.
DERIVATIVE FINANCIAL INSTRUMENTS
I. Market Risk and Risk Management Policies
Our earnings and cash flow are subject to fluctuations due to changes in foreign
currency exchange rates, interest rates, and commodity prices. Our risk
management policy includes the use of derivative financial instruments to manage
foreign currency exchange rate, interest rate, and commodity price exposures.
A-25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS continued
- --------------------------------------------------------------------------------
Foreign Currency Exchange Rate
Foreign currency exchange rate movements create a degree of risk to our
operations by affecting:
. The U.S. dollar value of sales made in foreign currencies, and
. The U.S. dollar value of costs incurred in foreign currencies.
Foreign currency exchange rate movements also affect our competitive position,
as exchange rate changes may affect business practices and/or pricing strategies
of non-U.S. based competitors.
Our general policy is to use foreign currency derivative instruments as needed
to operate our business and protect our interests. We enter into foreign
currency derivative instruments only to manage risk -- not as speculative
instruments. We buy and sell currencies only to cover business needs and to
protect our financial and competitive position. Our general approach is to
manage future foreign currency cash flow for Machinery and Engines' operations
and net foreign currency balance sheet exposures for Financial Products'
operations.
Our Machinery and Engines' operations manufacture products in, and purchase
raw materials from, many locations around the world. Consequently, our cost
base is well diversified over a number of European, Asia/Pacific, and Latin
American currencies, as well as the U.S. dollar. This diversified cost base
serves to counterbalance the cash flow and earnings impact of non-U.S. dollar
revenues and, therefore, minimizes the effect of exchange rate movements on
consolidated earnings. We use derivative financial instruments to manage the
currency exchange risk that results when the cash inflows and outflows by
currency are not completely matched.
In managing foreign currency for Machinery and Engines' operations, our
objective is to maximize consolidated after-tax U.S. dollar cash flow. To this
end, our policy allows for actively managing:
. Cash flow related to firmly committed foreign currency transactions;
. Anticipated foreign currency cash flow for the future rolling twelve-
month period; and
. Any hedges (derivative instruments) that are outstanding.
We limit the types of derivative instruments we use to forward exchange
contracts and foreign currency option contracts (net purchased option
contracts). When using forward exchange contracts, we are protected from
unfavorable exchange rate movements, but have given up any potential benefit
from favorable changes in exchange rates. Purchased option contracts, on the
other hand, protect us from unfavorable rate movements while permitting us to
benefit from the effect of favorable exchange rate fluctuations. We do not use
historic rate rollovers or leveraged options, nor do we sell or write 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. The forward exchange
or foreign currency option contracts that we use are not exchange traded.
Each month, our financial officers approve the company's outlook for expected
currency exchange rate movements, as well as the policy on desired future
foreign currency cash flow positions (long, short, balanced) for those
currencies in which we have 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. Foreign exchange management practices, including the use
of derivative financial instruments, are presented to the Audit Committee of our
Board of Directors at least annually.
In managing foreign currency risk for our Financial Products' operations, our
objective is to minimize earnings volatility resulting from the translation of
net foreign currency balance sheet positions. We use forward exchange contracts
to offset the risk when the currency of our receivable portfolio does not match
the currency of our debt portfolio.
Interest Rate
We use various interest rate derivative instruments, including interest rate
swap agreements, interest rate cap (option) agreements, and forward rate
agreements to manage exposure to interest rate changes and lower the cost of
borrowed funds. All interest rate derivative instruments are linked to debt
instruments upon entry. We enter into such agreements only with those financial
institutions with strong bond ratings which, in the opinion of management,
virtually negates exposure to credit loss.
Our Financial Products' operations have a "match funding" objective whereby
the interest rate profile (fixed rate or floating rate) of their debt portfolio
must match the interest rate profile of their receivable, or asset portfolio
within specified boundaries. In connection with that objective, we use interest
rate derivative instruments to modify the debt structure to match the receivable
portfolio. This "match funding" reduces the risk of deteriorating margins
between interest-bearing assets and interest-bearing liabilities, regardless of
which direction interest rates move. We also use these instruments to gain an
economic and/or competitive advantage through 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
Our Machinery and Engines' operations are subject to commodity price risk, as
the price we must pay for raw materials changes with movements in underlying
commodity prices. We use commodity swap and option agreements to reduce this
risk. However, our use of these types of derivative financial instruments is
not material.
II. Sensitivity
Exchange Rate Sensitivity
Based on the anticipated and firmly committed cash inflows and outflows for our
Machinery and Engines' operations for the next 12 months and the foreign
currency derivative instruments in place at year end, a hypothetical 10%
weakening of the U.S. dollar relative to all other currencies would adversely
affect our expected 1998 cash flows for our Machinery and Engines' operations
by $92 million.
A-26
<PAGE>
Caterpillar Inc.
- --------------------------------------------------------------------------------
Since our policy for Financial Products' operations is to hedge the foreign
exchange risk when the currency of our debt portfolio does not match the
currency of our receivable portfolio, a 10% change in the value of the U.S.
dollar relative to all other currencies would not have a material effect on our
consolidated financial position, results of operations, or cash flow.
The effect of the hypothetical change in exchange rates ignores the affect
this movement may have on other variables including competitive risk. If it
were possible to quantify this competitive impact, the results could well be
different than the sensitivity effects shown above. In addition, it is unlikely
that all currencies would uniformly strengthen or weaken relative to the U.S.
dollar. In reality, some currencies may weaken while others may strengthen.
Interest Rate Sensitivity
For our Machinery and Engines' operations, we currently use interest rate swaps
to lower the cost of borrowed funds by attaching fixed-to-floating interest
rate swaps to fixed rate debt. A hypothetical 100 basis point adverse move
(increase) in interest rates along the entire interest rate yield curve would
adversely affect 1998 pretax earnings of Machinery and Engines by $9 million.
For our Financial Products' operations, we use interest rate derivative
instruments primarily to meet our "match funding" objectives and strategies. A
hypothetical 100 basis point adverse move (increase) in interest rates along the
entire interest rate yield curve would adversely affect the 1998 pretax
earnings of Financial Products by $10 million.
The effect of the hypothetical change in interest rates ignores the affect
this movement may have on other variables including changes in actual sales
volumes that could be indirectly attributed to changes in interest rates. The
actions that management would take in response to such a change are also
ignored. If it were possible to quantify this impact, the results could well be
different than the sensitivity effects shown above.
1998 ECONOMIC AND INDUSTRY OUTLOOK
- ----------------------------------
World economic growth in 1998 is forecast to be somewhat below the 1997 pace.
Faster growth in Europe and the CIS will likely be more than offset by
moderating growth in the United States and Latin America, and the significant
slowdown in the Asia/Pacific region.
Worldwide industry demand for machines is expected to decline slightly from
1997 levels as slightly higher demand in the United States, Canada, Europe, and
CIS is more than offset by sharp declines in the Asia/Pacific region. Worldwide
industry demand for reciprocating engines is expected to remain near 1997
levels, while demand for turbines should continue to grow.
In the United States, Gross Domestic Product (GDP) growth is expected to slow
from 3.7% in 1997 to 2.5% in 1998. Non-residential construction spending should
continue to grow and housing starts should remain near 1997 levels because of
low interest rates. Coal and aggregate production also should continue to
increase, but metal mine production is likely to be flat or down slightly due to
falling metals' prices. Overall, industry demand for machines is expected to be
slightly higher due to strength in the construction sector. Industry demand for
both commercial engines and turbines should continue to rise enough to offset
anticipated lower on-highway truck demand.
In Canada, economic growth is forecast to remain strong leading to an increase
in both machine and engine industry demand.
In Western Europe, economic activity should continue to improve with GDP
accelerating from 2.5% in 1997 to about 3% in 1998. The major economies ended
last year with considerable momentum. Industry demand is expected to increase
slightly for machines and engines.
In Central Europe, good economic growth should continue, resulting in improved
industry demand for both machines and engines.
In the Asia/Pacific region, sharp slowdowns have occurred in many countries.
In response to declines in their currencies, many governments have raised
interest rates, cut spending, and begun restructuring their economies. These
restructurings will ultimately strengthen their economies, but the short-term
effect is likely to be slower growth in Malaysia and the Philippines and
recessions in Thailand, South Korea, and Indonesia. Slower growth also is
forecast for China. GDP for developing Asia is now forecast to grow 3%, and
industry demand for machines is likely to fall significantly. Demand for
engines, though, is forecast to remain near 1997 levels.
Japan slipped back into recession in 1997. Despite the temporary income tax
reduction announced in December, recessionary conditions are likely to persist
in 1998, and industry demand is forecast to decline further. The Australian
economy also will be affected by a drop in exports to Asia as well as lower
metals' prices. Consequently, industry machine demand is forecast to decline
despite lower interest rates, moderate economic growth, and higher housing
starts. Industry demand for turbines also is forecast to decline, however,
demand for reciprocating engines should be higher.
In Latin America, industry demand for machines and engines should continue to
improve despite a slowdown in GDP growth from 5% in 1997 to 3% in 1998.
In Africa/Middle East, industry demand for engines is forecast to rise, but
lower commodity prices will likely keep industry demand for machines near 1997
levels.
In CIS, economic recovery should lead to higher industry sales.
1998 COMPANY OUTLOOK
- --------------------
Worldwide sales and revenues are expected to slightly surpass 1997's record
levels. The acquisition of Perkins Engines is expected to be finalized during
first-quarter 1998. Perkins Engines sales are not reflected in the above sales
outlook.
Investments in major initiatives to enhance long-term growth and shareholder
returns will continue in 1998. These initiatives include electric power
generation, agricultural products, compact machines, and further strengthening
of our product support network to better link customer, dealer, and company
operations. For Machinery and Engines, total capital expenditures, which were
$819 million in 1997, are expected to be about the same in 1998. R&D and SG&A
expenditures will increase in 1998 in support of expanded operations and the
major growth initiatives;
A-27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS continued
- --------------------------------------------------------------------------------
however, the rate of increase is expected to be less than in recent years.
Despite these expenditures for major growth initiatives, profit for 1998 is
expected to be near 1997's record. Profit per share will be favorably impacted
by the share buy-back program announced in June 1995, which we anticipate will
be completed during 1998. Cash flow from operations and our financial position
are expected to remain strong.
Events in Asia are dynamic and ultimate resolution will depend on many yet to
be determined actions taken by Asian governments and world monetary authorities.
A significant change in the Asian economic climate, or an extension of these
events into other areas of the world, could impact Caterpillar. Plans are in
place to respond to such changes if they develop. The situation is being
reviewed carefully on an ongoing basis.
The information included in the Outlook section is forward looking and
involves risks and uncertainties that could significantly impact expected
results. A discussion of these risks and uncertainties is contained in Form 8-K
filed with the Securities and Exchange Commission on January 21, 1998.
MANAGEMENT'S DISCUSSION AND ANALYSIS [ ]
A-28
<PAGE>
SUPPLEMENTAL STOCKHOLDER INFORMATION
Annual Meeting
On Wednesday, April 8, 1998, at 10:30 a.m., MST, the annual meeting of
stockholders will be held at the Loews Ventana Canyon Hotel, Tucson, Arizona.
Requests for proxies are being sent to stockholders with this report mailed on
or about February 27, 1998.
Stock Transfer Agent
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, NJ 07303-2500
Telephone: (201) 324-0498
Hearing impaired: (201) 222-4955
Internet: http://www.fctc.com
E-mail: [email protected]
Stock Exchange Listings
Caterpillar common stock is listed on the New York, Pacific, and Chicago stock
exchanges in the United States and on stock exchanges in Belgium, France,
Germany, Great Britain, and Switzerland.
Number of Stockholders
Stockholders of record at year end totaled 32,409, compared with 30,573 at the
end of 1996. Approximately 65% of our shares are held by institutions and banks,
20% by individuals, and 15% by Caterpillar benefit plans and as treasury shares.
Employees' investment and profit-sharing plans acquired 11,507,195 shares of
Caterpillar stock in 1997, including 9,532,894 shares received through the
stock split in the form of a 100% stock dividend. Investment plans, for which
membership is voluntary, held 26,365,175 shares for employee accounts at 1997
year end. Profit-sharing plans, in which membership is automatic for most U.S.
and Canadian employees in eligible categories, held 494,675 shares at 1997 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>
1997 1996
------------------ -----------------
Quarter High Low High Low
- ------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First........... 41 7/8 36 1/4 36 15/16 27
Second.......... 54 11/16 38 3/16 35 15/16 31
Third........... 61 1/2 52 1/4 37 15/16 31 3/8
Fourth.......... 60 15/16 44 40 1/2 34 1/8
</TABLE>
Automatic Dividend Reinvestment Plan
An Automatic Dividend Reinvestment Plan - administered by First Chicago Trust
Company of New York - is available to stockholders. The plan provides a
convenient, low-cost method for stockholders to increase their ownership in
Caterpillar common stock. In addition, stockholders who elect to participate
can make optional cash payments to purchase more Caterpillar shares.
Participation may begin with any regularly scheduled dividend payment if an
authorization form is completed and returned to the administrator prior to the
dividend record date. Stockholders wishing further information may contact
First Chicago Trust Company of New York, P.O. Box 13531, Newark, New Jersey
07188-0001. On the Internet: http://www.fctc.com. E-mail:[email protected].
Hearing impaired: (201) 222-4955.
Publications for Stockholders
Single copies of the company's 1997 annual report on Securities and Exchange
Commission Form 10-K (without exhibits) will be provided without charge to
stockholders after March 31, 1998, 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
E-mail: [email protected]
Individual stockholders should contact:
Laurie J. Huxtable
Assistant Secretary
Caterpillar Inc.
100 N.E. Adams Street
Peoria, IL 61629-7310
Telephone: (309) 675-4619
Internet Access
http://www.CAT.com
A-29
<PAGE>
DIRECTORS AND OFFICERS
DIRECTORS
Lilyan H. Affinito/2,4/ Former Vice Chairman, Maxxam Group Inc.
W. Frank Blount/1,3/ Chief Executive Officer, Telstra Corporation Limited
John T. Dillon/2,4/ Chairman and Chief Executive Officer, International
Paper
Donald V. Fites/3,4/ Chairman and Chief Executive Officer, Caterpillar Inc.
Juan Gallardo T./5/ Chairman and Chief Executive Officer, Grupo
Embotelladoras Unidas S.A. de C.V.
David R. Goode/1,2/ Chairman and Chief Executive Officer, Norfolk Southern
Corporation
James P. Gorter/1,2/ Chairman, Baker, Fentress & Company
Peter A. Magowan/2,4/ Chairman, Safeway Inc.; President and 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 and Chief Executive Officer, The MAXIMA
Corporation
Clayton K. Yeutter/2,4/ Of Counsel to Hogan & Hartson, Washington, D.C.
/1/Member of Audit Committee (David R. Goode, chairman)
/2/Member of Compensation Committee (James P. Gorter, chairman)
/3/Member of Nominating Committee (Joshua I. Smith, chairman)
/4/Member of Public Policy Committee (Clayton K. Yeutter, chairman)
/5/Effective February 12, 1998
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
Sidney C. Banwart/6/ 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
Robert R. Macier/6/ Vice President
David A. McKie/6/ Vice President
Daniel M. Murphy 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/7/ Vice President
Robert R. Gallagher Controller
F. Lynn McPheeters Treasurer
Robin D. Beran Assistant Treasurer
Mary J. Callahan Assistant Secretary
Laurie J. Huxtable Assistant Secretary
__________
Note: All director/officer information is as of December 31, 1997, except as
noted.
/6/Effective January 1, 1998
/7/Retiring April 1, 1998
A-30
<PAGE>
EXHIBIT 21
SUBSIDIARIES AND AFFILIATES OF CATERPILLAR INC.
(as of December 31, 1997)
<TABLE>
<CAPTION>
Jurisdiction in
Name of Company which Organized
- --------------- ---------------
<S> <C>
Advanced Filtration Systems Inc. Delaware
Amur Machinery & Services Company Russia
Anchor Coupling Inc. Delaware
Aquila Mining Systems Ltd. Canada
Balderson Inc. Kansas
Carter Machinery Company, Incorporated Delaware
Caterpillar Agricultural Products Inc. Delaware
Caterpillar Claas America LLC Delaware
Claas Caterpillar Europe GmbH & Co KG Germany
Claas Caterpillar Europe Verwaltungs GmbH Germany
Caterpillar Americas Co. Delaware
Caterpillar Americas Funding Inc. Delaware
NOIL Participacoes e Comercio S.A. Brazil
Lion S.A. Brazil
Caterpillar Andes S.A. Chile
Caterpillar Asia Pacific Holding Inc. Delaware
Caterpillar (China) Investment Co., Ltd. China
AsiaForge (Tianjin) Ltd. China
AsiaTrak (Tianjin) Ltd. China
Caterpillar Xuzhou Ltd. China
Caterpillar (HK) Limited Hong Kong
Shanxi International Casting Co.,Ltd. China
Caterpillar Shanghai Engine Company Ltd. China
V-Trac Holdings Limited Cook Islands
V-Trac Infrastructure Development Company Vietnam
Caterpillar Asia Pte. Ltd. Singapore
Caterpillar Attachments Canada Ltd. Canada
Caterpillar of Australia Ltd. Australia
Caterpillar Brasil Ltda. Brazil
Caterpillar Administracao e Participacoes S/C Ltda. Brazil
Caterpillar Building Construction Products Ag Switzerland
Caterpillar Commercial SARL Switzerland
Caterpillar of Canada Ltd. Canada
Caterpillar Commercial N.V. Belgium
Caterpillar Group Services N.V. Belgium
Hindustan Powerplus Limited India
Caterpillar Commercial Services Ltd. Canada
Caterpillar of Delaware, Inc. Delaware
Caterpillar Industrial Products, Inc. Delaware
Nexus International Inc. Delaware
Nexus International S.r.L. Italy
Caterpillar Elphinstone Pty. Ltd. Australia
Elphinstone Commercial Services Ltd. Canada
</TABLE>
Exhibit 21 Page 1 of 5
<PAGE>
<TABLE>
<S> <C>
Caterpillar Energy Company S.A. Guatemala
Caterpillar Export Limited US Virgin Islands
Caterpillar Financial Services Corporation Delaware
Bio-energy Partners Illinois
Caterpillar Credit Services Asia Pte. Ltd. Singapore
Caterpillar Finance France S.A. France
Caterpillar Financial Asset Sales Corporation Nevada
Caterpillar Financial Australia Limited Australia
Caterpillar Financial Corporacion Financiera S.A., E.F.C. Spain
Caterpillar Financial Funding Corporation Nevada
Caterpillar Financial Member Company Delaware
Caterpillar Financial Nordic Services A.B. Sweden
Caterpillar Financial Renting, S.A. Spain
Caterpillar Financial Services CR, s.r.o. Czechoslovakia
Caterpillar Financial Services Limited Canada
Caterpillar Financial Services Poland Sp.z.o.o. Poland
Caterpillar Financial Services (U.K.) Limited England
Caterpillar Holding Germany GmbH Germany
Caterpillar Financial Services GmbH & Co KG Germany
Caterpillar Leasing GmbH (Leipzig) Germany
Caterpillar Vibra-Ram Verwaltungs GmbH Germany
Caterpillar Vibra-Ram GmbH & Co. KG Germany
EDC European Excavator Design Center GmbH & Co. KG Germany
EDC European Excavator Design Center Verwaltungs GmbH Germany
MaK Motoren GmbH & Co. KG Germany
Germanischer Lloyd AG Germany
Guangzhou MaK Diesel Engine Ltd. China
Machinefabriek Bolier B.V. Netherlands
Financieringsmaatschappij Boiler B.V. Netherlands
Diesel Sales and Services Merwedehaven B.V. Netherlands
Laminex V.o.F. Netherlands
MaK Netherlands B.V. Netherlands
MaK Americas (Canada) Inc. Canada
MaK Scandinavia A/S Denmark
MaK Wohnungsbaugesellschaft Germany
Caterpillar International Finance plc Ireland
Caterpillar International Services Corporation Nevada
Caterpillar Leasing Chile, S.A. Chile
Caterpillar Leasing (Thailand) Limited Thailand
Grupo Financiero Caterpillar Mexico, S.A. de C.V. Mexico
Caterpillar Arrendadora Financiera, S.A. de C.V. Mexico
Caterpillar Credito, S.A. de C.V. Soc. Fin. de Obj. Lim. Mexico
Caterpillar Factoraje Financiero, S.A. de C.V. Mexico
GFCM Servicios, S.A. de C.V. Mexico
MICA Energy Systems Michigan
Caterpillar Financial Services N.V. Netherlands Antilles
Caterpillar Forest Products Inc. Delaware
Caterpillar Holding (France) S.A.R.L. France
Caterpillar Logistics Services (France) SARL France
MaK Mediterranee S.A.S. France
</TABLE>
Exhibit 21 Page 2 of 5
<PAGE>
<TABLE>
<S> <C>
Caterpillar Hungary Ltd. Hungary
Caterpillar Impact Products Limited United Kingdom
Caterpillar Industrial Inc. Ohio
Mitsubishi Caterpillar Forklift America Inc. Delaware
Material Handling Associates, Inc. Delaware
Rapidparts Inc. Delaware
Mitsubishi Caterpillar Forklift Asia Pte. Ltd. Singapore
Mistubishi Caterpillar Forklift Europe B.V. Netherlands
Caterpillar Insurance Co. Ltd. Bermuda
Caterpillar Assurance Company Limited Grand Cayman Island
Caterpillar Insurance Services Corporation Tennessee
Caterpillar International Leasing L.L.C. Delaware
Caterpillar Investment Management Ltd. Delaware
Caterpillar Securities Inc. Delaware
Caterpillar Logistics Services, Inc. Delaware
Caterpillar Logistics Services Belgium N.V. Belgium
Caterpillar Logistics N.V. Belgium
Caterpillar Logistics Services Spain, S.A. Spain
Caterpillar Mexico S.A. de C.V. Mexico
Inmobiliaria Conek, S.A. Mexico
Caterpillar Overseas Credit Corporation S.A. Switzerland
Caterpillar Overseas S.A. Switzerland
Caterpillar (Africa) (Proprietary) Limited South Africa
Caterpillar Asia Limited Hong Kong
Caterpillar Belgium S. A. Belgium
Caterpillar China Limited Hong Kong
Caterpillar Commercial S.A.R.L. France
Caterpillar Commerciale S.r.L. Italy
Caterpillar France S.A. France
Caterpillar Logistics Services Limited England
Caterpillar MHI Marketing Ltd. Japan
Mec-Track S.r.L. Italy
Mec-3 S.r.L. Italy
P.T. Natra Raya Indonesia
Shin Caterpillar Mitsubishi Ltd. Japan
Aishin Co. Japan
Akashi GS Co., Ltd. Japan
Chubu Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan
CM Custom Product Co., Ltd. Japan
CM Human Services Co., Ltd. Japan
CM Logistics Services Co., Ltd. Japan
CMEC Co., Ltd. Japan
Diamond Office Management Co., Ltd. Japan
Earthmoving Resources Corporation Japan
East Chugoku Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan
Top Try Co., Ltd. Japan
East Kanto Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan
Clean World Co. Japan
Tone Lease Co. Japan
Hama-rental Co. Japan
Hokkaido Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan
Shin Hokken Ltd. Japan
</TABLE>
Exhibit 21 Page 3 of 5
<PAGE>
<TABLE>
<S> <C>
Hokken Service Co. Japan
Hokuetsu Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan
Akira Shoji Co., Ltd. Japan
F. M. K. Co., Ltd. Japan
Hokuriku Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan
Dia Rental Hokuriku Co., Ltd. Japan
Itoh Tekkosho Co., Ltd. Japan
Kanagawa Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan
Kansai Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan
Space Attack Co., Ltd. Japan
Kinki Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan
Rental Sanwa Co., Ltd. Japan
K-Lea Co., Ltd. Japan
Koshin Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan
Nagano Kouki Co., Ltd. Japan
Sanko Rental Co. Japan
Kyoei Co. Japan
Machida Kiko Co., Ltd. Japan
Nihon Kenki Lease Co., Ltd. Japan
North Kanto Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan
Takuma Co. Japan
Rentec Co. Japan
Sagakiko-shokai Co., Ltd. Japan
Sagami GS Co., Ltd. Japan
SCM Operator Training Co., Ltd. Japan
SCM Shoji Co., Ltd. Japan
SCM System Service Co., Ltd. Japan
Shizuoka Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan
Seiryo Co., Ltd. Japan
Sowa System Co. Japan
Tokuden Co. Japan
Tokyo Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan
Aiwa Co., Ltd. Japan
Tokyo Rental Co., Ltd. Japan
Tunnel Rental Co., Ltd. Japan
West Chugoku Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan
Rex World Co., Ltd. Japan
Yeep Co. Japan
Solar Turbines Canada Ltd. Canada
Solar Turbines Europe S.A. Belgium
Solar Turbines Overseas Pension Scheme Trustees Limited United Kingdom
Tractor Engineers Limited India
Caterpillar Paving Products Inc. Oklahoma
Caterpillar Materiels Routiers S.A. France
Caterpillar Poland Sp.zo.o. Poland
Caterpillar Power Systems Inc. Delaware
Caterpillar Power Ventures Corporation Delaware
Caterpillar Power Ventures International, Ltd. Bermuda
Caterpillar Redistribution Services Inc. Delaware
DUECOSA Limited Channel Islands
Caterpillar Redistribution Services S.A.R.L. Switzerland
Caterpillar Rental Services Network Inc. Delaware
Caterpillar Service Center Russia
Caterpillar Services Limited Delaware
</TABLE>
Exhibit 21 Page 4 of 5
<PAGE>
<TABLE>
<S> <C>
Caterpillar (U.K.) Limited England
All Wheel Drive (Sales) Limited England and Wales
Brown Group Holdings Limited England and Wales
Archer Components Limited England
Artix Aviation Limited England
Automotive Development Centre Limited England
Caterpillar Peterlee Limited England
Caterpillar Stockton Limited England and Wales
D. J. Industries Limited England
Caterpillar EPG Limited England and Wales
Caterpillar Logistics Services (UK) Limited England and Wales
Caterpillar Skinningrove Limited England and Wales
MaK (London) Limited England
Systemjoin Limited England and Wales
Turner Powertrain Systems Limited England
Caterpillar World Trading Corporation Delaware
Cyclean, Inc. Delaware
Depositary (Bermuda) Limited Bermuda
F.G. Wilson, L.L.C. Delaware
F.G. Wilson (Engineering) Limited Northern Ireland
Everton Engineering (N.I.) Limited Northern Ireland
F.G. Wilson Australia PTY Limited Australia
F.G. Wilson Engineering (Dublin) Limited Ireland
F.G. Wilson (Engineering) HK Limited Hong Kong
F.G. Wilson Engineering Vertriebs-GmbH Germany
F.G. Wilson Incorporated Delaware
F.G. Wilson (Proprietary) Limited South Africa
F.G. Wilson S.A. France
F.G. Wilson Singapore Pte. Limited Singapore
Genrent Limited Northern Ireland
Hydropro S.r.l. Italy
Leo, Inc. Washington
Vanguard Hydraulic Pipelayer, Inc. Washington
Lexington Real Estate Holding Corporation Delaware
MaK Americas (USA) Inc. Illinois
Mincom Pty Ltd. Australia
Nevamash Russia
Novotruck Russia
Peoria Medical Research Corporation Illinois
Rapisarda Industries SrL Italy
Solar Turbines Incorporated Delaware
OTSG, Inc. Delaware
Solar Turbines International Company Delaware
Energy Services International Group, Ltd. Delaware
Energy Services International Limited Bermuda
P. T. Solar Services Indonesia Indonesia
Servtech Limited Ireland
Turboservices SDN BHD Malaysia
Solar Turbines Services Company California
Turbinas Solar de Venezuela, C.A. Venezuela
Turbinas Solar S.A. de C.V. Mexico
Turbo Tecnologia de Reparaciones S.A. de C.V. Mexico
STI Capital Company Delaware
Tecnologia Modificada S.A. de C.V. Mexico
UNOC Equipment and Supply, L.L.C. Delaware
UNOC Equipment and Supply Russia
</TABLE>
Exhibit 21 Page 5 of 5
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Forms S-8 (No. 2-90123, as amended, 2-97450, as amended, 33-3718,
as amended, 33-8003, 33-14116, 33-37353, 33-39280, 33-40598, 333-03609, 333-
32853, and 333-32851) of Caterpillar Inc. of our report dated January 21, 1998
related to the financial statements of Caterpillar Inc., appearing on page A-3
of the Appendix to the Company's 1998 Annual Meeting Proxy Statement which is
incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule
listed in Item 14(a) of this Form 10-K.
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Forms S-3 (Nos. 33-46194,
333-22041, 333-43133, and 333-43983) of Caterpillar Inc. of our report dated
January 21, 1998 related to the financial statements of Caterpillar Inc.,
appearing on page A-3 of the Appendix to the Company's 1998 Annual Meeting Proxy
Statement which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule listed in Item 14(a) of this Form 10-K.
PRICE WATERHOUSE LLP
Peoria, Illinois
March 25, 1998
Exhibit 23 Page 1 of 1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 110
<SECURITIES> 182
<RECEIVABLES> 3,331<F1>
<ALLOWANCES> 0<F1><F2>
<INVENTORY> 2,603
<CURRENT-ASSETS> 9,814
<PP&E> 9,403
<DEPRECIATION> 5,345
<TOTAL-ASSETS> 20,756
<CURRENT-LIABILITIES> 6,379
<BONDS> 6,942
0<F2>
0<F2>
<COMMON> 407
<OTHER-SE> 4,272
<TOTAL-LIABILITY-AND-EQUITY> 20,756
<SALES> 18,110
<TOTAL-REVENUES> 815
<CGS> 13,374
<TOTAL-COSTS> 16,495
<OTHER-EXPENSES> (202)
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 219
<INCOME-PRETAX> 2,413
<INCOME-TAX> 796
<INCOME-CONTINUING> 1,665
<DISCONTINUED> 0<F2>
<EXTRAORDINARY> 0<F2>
<CHANGES> 0<F2>
<NET-INCOME> 1,665
<EPS-PRIMARY> 4.44
<EPS-DILUTED> 4.37
<FN>
<F1> Notes and accounts receivable - trade are reported net of allowances for
doubtful accounts in the Statement of Financial Position.
<F2> Amounts inapplicable or not disclosed as a separate line on the Statement
of Financial Position or Results of Operations are reported as zero herein.
</FN>
</TABLE>
<PAGE>
Exhibit 99(a)
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the Fiscal Year Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from _____ to _____
Commission File Number 1-768
CATERPILLAR FOREIGN SERVICE EMPLOYEES'
STOCK PURCHASE PLAN
(Full title of the Plan)
CATERPILLAR INC.
(Name of issuer of the securities held
pursuant to the Plan)
100 NE ADAMS STREET, PEORIA, ILLINOIS 61629
(Address of principal executive offices)
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REQUIRED INFORMATION
Item 1.
Financial Statements for this Plan are not enclosed since the requirements to
file such financial statements were deemed inapplicable in accordance with the
letter from the Securities and Exchange Commission dated January 26, 1973.
Item 2.
(See response to Item 1).
Item 3.
(See response to Item 1).
Item 4.
Not Applicable
