-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UxOfz4kXc3PEArsBH0C7YBkb0mQd5+8J3pbKaGr5InhRCjbYtJFHWCYzBM2mok0m pL28fTTnr8l92x9QBQBbsw== 0000018230-96-000022.txt : 19960816 0000018230-96-000022.hdr.sgml : 19960816 ACCESSION NUMBER: 0000018230-96-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: CSE SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CATERPILLAR INC CENTRAL INDEX KEY: 0000018230 STANDARD INDUSTRIAL CLASSIFICATION: CONSTRUCTION MACHINERY & EQUIP [3531] IRS NUMBER: 370602744 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00768 FILM NUMBER: 96612082 BUSINESS ADDRESS: STREET 1: 100 NE ADAMS ST CITY: PEORIA STATE: IL ZIP: 61629-7310 BUSINESS PHONE: 3096751000 FORMER COMPANY: FORMER CONFORMED NAME: CATERPILLAR TRACTOR CO DATE OF NAME CHANGE: 19860623 10-Q 1 10-Q FOR SECOND QUARTER 1996 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to _______________ Commission File No. 1-768 CATERPILLAR INC. (Exact name of Registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation or organization) 37-0602744 (I.R.S. Employer Identification No.) 100 NE Adams Street, Peoria, Illinois (Address of principal executive offices) 61629 (Zip Code) (309) 675-1000 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____. At June 30, 1996, 192,835,444 shares of common stock of the Registrant were outstanding. Part I. FINANCIAL INFORMATION Item 1. Financial Statements CATERPILLAR INC. AND CONSOLIDATED SUBSIDIARY COMPANIES Statement of Consolidated Results of Operations (Unaudited) (Millions of dollars except per share data) Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 1996 1995 1996 1995 MACHINERY AND ENGINES: Sales ................................ $4,008 $ 4,059 $ 7,690 $ 7,832 ------ ------ ------ ------ Operating costs: Cost of goods sold ................. 2,976 3,110 5,756 6,000 Selling, general and administrative expenses .......... 409 378 795 739 Research and development expenses .. 97 98 195 184 ------ ------ ------ ------ 3,482 3,586 6,746 6,923 ------ ------ ------ ------ Operating profit ..................... 526 473 944 909 Interest expense ..................... 49 48 98 96 ------ ------ ------ ------ 477 425 846 813 Other income ......................... 29 20 58 32 ------ ------ ------ ------ Profit before taxes .................. 506 445 904 845 ------ ------ ------ ------ FINANCIAL PRODUCTS: Revenues ............................. 172 154 334 294 ------ ------ ------ ------ Operating costs: Selling, general and administrative expenses .......... 62 59 125 113 Interest expense ................... 76 72 149 138 ------ ------ ------ ------ 138 131 274 251 ------ ------ ------ ------ Operating profit ..................... 34 23 60 43 Other income ......................... 7 7 17 19 ------ ------ ------ ------ Profit before taxes .................. 41 30 77 62 ------ ------ ------ ------ CONSOLIDATED PROFIT BEFORE TAXES ....... 547 475 981 907 Provision for income taxes ........... 181 156 324 299 ------ ------ ------ ------ Profit of consolidated companies ..... 366 319 657 608 Equity in profit of affiliated companies (Note 5) ...... 8 4 13 15 ------ ------ ------ ------ PROFIT ................................. $ 374 $ 323 $ 670 $ 623 ====== ====== ====== ====== PROFIT PER SHARE OF COMMON STOCK (NOTE 7): Profit ............................... $ 1.94 $ 1.62 $ 3.46 $ 3.11 ====== ====== ====== ====== Cash dividends paid per share of common stock ......................... $ .35 $ .25 $ .70 $ .50 See accompanying notes to Consolidated Financial Statements. CATERPILLAR INC. Statement of Financial Position * (Dollars in millions) CONSOLIDATED (Caterpillar Inc. and subsidiaries) June 30, Dec. 31, 1996 1995 ASSETS Current assets: Cash and short-term investments ................. $ 633 $ 638 Receivables -- trade and other .................. 2,857 2,531 Receivables -- finance .......................... 1,832 1,754 Deferred income taxes and prepaid expenses ...... 821 803 Inventories (Note 6) ............................ 2,198 1,921 ------- ------- Total current assets .............................. 8,341 7,647 Land, buildings, machinery, and equipment -- net .. 3,569 3,644 Long-term receivables -- trade and other .......... 131 126 Long-term receivables -- finance .................. 3,543 3,066 Investments in affiliated companies (Note 5) ...... 546 476 Investments in Financial Products subsidiaries .... - - Deferred income taxes ............................. 1,163 1,127 Intangible assets ................................. 220 170 Other assets ...................................... 609 574 ------- ------- TOTAL ASSETS ........................................ $18,122 $16,830 ======= ======= LIABILITIES Current liabilities: Short-term borrowings ........................... $ 1,404 $ 1,174 Accounts payable and accrued expenses ........... 2,814 2,579 Accrued wages, salaries, and employee benefits .. 905 875 Dividends payable ............................... 77 68 Deferred and current income taxes payable ....... 214 91 Long-term debt due within one year .............. 1,484 1,262 ------- ------- Total current liabilities ......................... 6,898 6,049 Long-term debt due after one year ................. 4,042 3,964 Liability for postemployment benefits ............. 3,360 3,393 Deferred income taxes ............................. 37 36 ------- ------- TOTAL LIABILITIES ................................... 14,337 13,442 ------- ------- STOCKHOLDERS' EQUITY Common stock of $1.00 par value: Authorized shares: 450,000,000 Issued shares (June 30, 1996 -- 203,723,656; Dec. 31, 1995 -- 203,723,656) at paid in amount . 891 901 Profit employed in the business ................... 3,365 2,840 Foreign currency translation adjustment ........... 177 215 Treasury stock (June 30, 1996 -- 10,888,212 shares; Dec. 31, 1995 -- 9,708,538 shares) at cost.......................................... (648) (568) ------- ------- TOTAL STOCKHOLDERS' EQUITY .......................... 3,785 3,388 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $18,122 $16,830 ======= ======= See accompanying notes to Consolidated Financial Statements. * Unaudited except for Consolidated December 31, 1995 amounts. CATERPILLAR INC. Statement of Financial Position * (Dollars in millions) SUPPLEMENTAL CONSOLIDATING DATA MACHINERY AND ENGINES (Caterpillar Inc. with Financial Products on the equity basis) June 30, Dec. 31, 1996 1995 ASSETS Current assets: Cash and short-term investments ................. $ 585 $ 580 Receivables -- trade and other .................. 3,199 2,910 Receivables -- finance .......................... - - Deferred income taxes and prepaid expenses ...... 825 834 Inventories (Note 6) ............................ 2,198 1,921 ------- ------- Total current assets .............................. 6,807 6,245 Land, buildings, machinery, and equipment -- net .. 3,099 3,199 Long-term receivables -- trade and other .......... 131 126 Long-term receivables -- finance .................. - - Investments in affiliated companies (Note 5) ...... 546 476 Investments in Financial Products subsidiaries .... 702 658 Deferred income taxes ............................. 1,205 1,171 Intangible assets ................................. 220 170 Other assets ...................................... 321 330 ------- ------- TOTAL ASSETS ........................................ $13,031 $12,375 ======= ======= LIABILITIES Current liabilities: Short-term borrowings ........................... $ 12 $ 14 Accounts payable and accrued expenses ........... 2,475 2,358 Accrued wages, salaries, and employee benefits .. 902 873 Dividends payable ............................... 77 68 Deferred and current income taxes payable ....... 158 40 Long-term debt due within one year .............. 260 156 ------- ------- Total current liabilities ......................... 3,884 3,509 Long-term debt due after one year ................. 1,965 2,049 Liability for postemployment benefits ............. 3,360 3,393 Deferred income taxes ............................. 37 36 ------- ------- TOTAL LIABILITIES ................................... 9,246 8,987 ------- ------- STOCKHOLDERS' EQUITY Common stock of $1.00 par value: Authorized shares: 450,000,000 Issued shares (June 30, 1996 -- 203,723,656; Dec. 31, 1995 -- 203,723,656) at paid in amount . 891 901 Profit employed in the business ................... 3,365 2,840 Foreign currency translation adjustment ........... 177 215 Treasury stock (June 30, 1996 -- 10,888,212 shares; Dec. 31, 1995 -- 9,708,538 shares) at cost.......................................... (648) (568) ------- ------- TOTAL STOCKHOLDERS' EQUITY .......................... 3,785 3,388 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $13,031 $12,375 ======= ======= The supplemental consolidating data is presented for the purpose of additional analysis and to provide required supplemental disclosure of information about the Financial Products subsidiaries. See accompanying notes to Consolidated Financial Statements. * Unaudited except for Consolidated December 31, 1995 amounts. CATERPILLAR INC. Statement of Financial Position * (Dollars in millions) SUPPLEMENTAL CONSOLIDATING DATA FINANCIAL PRODUCTS June 30, Dec. 31, 1996 1995 ASSETS Current assets: Cash and short-term investments ................. $ 48 $ 58 Receivables -- trade and other .................. 186 132 Receivables -- finance .......................... 1,832 1,754 Deferred income taxes and prepaid expenses ...... 14 13 Inventories (Note 6) ............................ - - ------- ------- Total current assets .............................. 2,080 1,957 Land, buildings, machinery, and equipment -- net .. 470 445 Long-term receivables -- trade and other .......... - - Long-term receivables -- finance .................. 3,543 3,066 Investments in affiliated companies (Note 5) ...... - - Investments in Financial Products subsidiaries .... - - Deferred income taxes ............................. 3 - Intangible assets ................................. - - Other assets ...................................... 288 244 ------- ------- TOTAL ASSETS ........................................ $ 6,384 $ 5,712 ======= ======= LIABILITIES Current liabilities: Short-term borrowings ........................... $ 1,392 $ 1,160 Accounts payable and accrued expenses ........... 885 776 Accrued wages, salaries, and employee benefits .. 3 2 Dividends payable ............................... - - Deferred and current income taxes payable ....... 56 51 Long-term debt due within one year .............. 1,224 1,106 ------- ------- Total current liabilities ......................... 3,560 3,095 Long-term debt due after one year ................. 2,077 1,915 Liability for postemployment benefits ............. - - Deferred income taxes ............................. 45 44 ------- ------- TOTAL LIABILITIES ................................... 5,682 5,054 ------- ------- STOCKHOLDERS' EQUITY Common stock of $1.00 par value: Authorized shares: 450,000,000 Issued shares (June 30, 1996 -- 203,723,656 Dec. 31, 1995 -- 203,723,656) at paid in amount . 333 333 Profit employed in the business ................... 367 320 Foreign currency translation adjustment ........... 2 5 Treasury stock (June 30, 1996 -- 10,888,212 shares; Dec. 31, 1995 -- 9,708,538 shares) at cost.......................................... - - ------- ------- TOTAL STOCKHOLDERS' EQUITY .......................... 702 658 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $ 6,384 $ 5,712 ======= ======= The supplemental consolidating data is presented for the purpose of additional analysis and to provide required supplemental disclosure of information about the Financial Products subsidiaries. See accompanying notes to Consolidated Financial Statements. * Unaudited except for Consolidated December 31, 1995 amounts. CATERPILLAR INC. Statement of Cash Flows for Six Months Ended (Unaudited) (Millions of dollars) CONSOLIDATED (Caterpillar Inc. and subsidiaries) June 30, June 30, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Profit ............................................ $ 670 $ 623 Adjustments for noncash items: Depreciation and amortization ..................... 348 348 Profit of Financial Products ...................... - - Other ............................................. 21 17 Changes in assets and liabilities: Receivables -- trade and other .................. (290) 117 Inventories ..................................... (277) (376) Accounts payable and accrued expenses ........... 254 240 Other -- net .................................... 103 (81) ------- ------- Net cash provided by operating activities ........... 829 888 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures -- excluding equipment leased to others ................................ (174) (155) Expenditures for equipment leased to others ....... (107) (82) Proceeds from disposals of land, buildings, machinery, and equipment ........................ 52 41 Additions to finance receivables .................. (2,739) (2,406) Collections of finance receivables ................ 1,302 1,077 Proceeds from sale of finance receivables.......... 772 300 Net short-term loans to Financial Products......... - - Other -- net ...................................... (251) (55) ------- ------- Net cash used for investing activities .............. (1,145) (1,280) ------- ------- CASH FLOW FROM FINANCING ACTIVITIES: Dividends paid .................................... (136) (100) Common stock issued, including treasury shares reissued ................................. 5 - Treasury shares purchased.......................... (103) (112) Net short-term loans from Machinery and Engines.... - - Proceeds from long-term debt issued ............... 302 906 Payments on long-term debt ........................ (451) (591) Short-term borrowings -- net ...................... 703 630 ------- ------- Net cash provided by financing activities ........... 320 733 ------- ------- Effect of exchange rate changes on cash ............. (9) (64) ------- ------- Increase (decrease) in cash and short-term investments ............................ (5) 277 Cash and short-term investments at the beginning of the period ........................... 638 419 ------- ------- Cash and short-term investments at the end of the period ................................. $ 633 $ 696 ======= ======= All short-term investments, which consist primarily of highly liquid investments with original maturities of three months or less, are considered to be cash equivalents. See accompanying notes to Consolidated Financial Statements. CATERPILLAR INC. Statement of Cash Flows for Six Months Ended (Unaudited) (Millions of dollars) SUPPLEMENTAL CONSOLIDATING DATA MACHINERY AND ENGINES (Caterpillar Inc. with Financial Products on the equity basis) June 30, June 30, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Profit ............................................ $ 670 $ 623 Adjustments for noncash items: Depreciation and amortization ................... 290 294 Profit of Financial Products .................... (47) (37) Other ........................................... 10 5 Changes in assets and liabilities: Receivables -- trade and other .................. (277) 159 Inventories ..................................... (277) (376) Accounts payable and accrued expenses ........... 138 167 Other -- net .................................... 124 (84) ------- ------- Net cash provided by operating activities ........... 631 751 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures -- excluding equipment leased to others ................................ (171) (154) Expenditures for equipment leased to others ....... (2) (5) Proceeds from disposals of land, buildings, machinery, and equipment ........................ 7 7 Additions to finance receivables .................. - - Collections of finance receivables ................ - - Proceeds from sale of finance receivables.......... - - Net short-term loans to Financial Products......... (27) - Other -- net ...................................... (206) (44) ------- ------- Net cash used for investing activities .............. (399) (196) ------- ------- CASH FLOW FROM FINANCING ACTIVITIES: Dividends paid .................................... (136) (100) Common stock issued, including treasury shares reissued ................................. 5 0 Treasury shares purchased.......................... (103) (112) Net short-term loans from Machinery and Engines.... - - Proceeds from long-term debt issued ............... 31 0 Payments on long-term debt ........................ (9) (22) Short-term borrowings -- net ...................... (2) (2) ------- ------- Net cash provided by financing activities ........... (214) (236) ------- ------- Effect of exchange rate changes on cash ............. (13) (65) ------- ------- Increase (decrease) in cash and short-term investments ............................ 5 254 Cash and short-term investments at the beginning of the period ........................... 580 395 ------- ------- Cash and short-term investments at the end of the period ................................. $ 585 $ 649 ======= ======= The supplemental consolidating data is presented for the purpose of additional analysis and to provide supplemental disclosure of information about the Financial Products subsidiaries. See accompanying notes to Consolidated Financial Statements. CATERPILLAR INC. Statement of Cash Flows for Six Months Ended (Unaudited) (Millions of dollars) SUPPLEMENTAL CONSOLIDATING DATA FINANCIAL PRODUCTS June 30, June 30, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Profit ............................................ $ 47 $ 37 Adjustments for noncash items: Depreciation and amortization ................... 58 54 Profit of Financial Products .................... - - Other ........................................... 14 15 Changes in assets and liabilities: Receivables -- trade and other .................. (3) (4) Inventories ..................................... - - Accounts payable and accrued expenses ........... 80 11 Other -- net .................................... 2 24 ------- ------- Net cash provided by operating activities ........... 198 137 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures -- excluding equipment leased to others ................................ (3) (1) Expenditures for equipment leased to others ....... (105) (77) Proceeds from disposals of land, buildings, machinery, and equipment ........................ 45 34 Additions to finance receivables .................. (2,739) (2,406) Collections of finance receivables ................ 1,302 1,077 Proceeds from sale of finance receivables.......... 772 300 Net short-term loans to Financial Products......... - - Other -- net ...................................... (45) (41) ------- ------- Net cash used for investing activities .............. (773) (1,114) ------- ------- CASH FLOW FROM FINANCING ACTIVITIES: Dividends paid .................................... - - Common stock issued, including treasury shares reissued ................................. - 30 Treasury shares purchased.......................... - - Net short-term loans from Machinery and Engines.... 27 - Proceeds from long-term debt issued ............... 271 906 Payments on long-term debt ........................ (442) (569) Short-term borrowings -- net ...................... 705 632 ------- ------- Net cash provided by financing activities ........... 561 999 ------- ------- Effect of exchange rate changes on cash ............. 4 1 ------- ------- Increase (decrease) in cash and short-term investments ............................ (10) 23 Cash and short-term investments at the beginning of the period ........................... 58 24 ------- ------- Cash and short-term investments at the end of the period ................................. $ 48 $ 47 ======= ======= The supplemental consolidating data is presented for the purpose of additional analysis and to provide supplemental disclosure of information about the Financial Products subsidiaries. See accompanying notes to Consolidated Financial Statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions except per share data) 1. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of (a) the consolidated results of operations for the three- and six-month periods ended June 30, 1996 and 1995, (b) the consolidated financial position at June 30, 1996 and December 31, 1995, and (c) the consolidated statement of cash flows for the six-month periods ended June 30, 1996 and 1995 have been made. 2. The results for the three- and six-month periods ended June 30, 1996 are not necessarily indicative of the results for the entire year 1996. 3. The company buys and sells currencies only in amounts large enough to cover business needs, and to protect its financial and competitive position. The company's general approach is to manage future foreign currency cash flows; it normally does not manage or hedge specific asset or liability positions. In managing foreign currency, the company's objective is to maximize consolidated aftertax U.S. dollar cash flows. At June 30, 1996, the company had approximately $701 in contracts to buy or sell foreign currency in the future. The carrying value and the fair market value of such contracts were both an asset of $2. 4. The company has reviewed the status of its environmental and legal contingencies and believes there are no material changes from that disclosed in Form 10-K for the year ended December 31, 1995, except with respect to disposition of the environmental proceeding discussed in Part II, Item 1 of this Form 10-Q. 5. Affiliated Companies The company's investments in affiliated companies consist principally of a 50% interest in Shin Caterpillar Mitsubishi Ltd., Japan $(404). The other 50% owner of this company is Mitsubishi Heavy Industries, Ltd., Japan. Combined financial information of the affiliated companies, as translated to U.S. dollars, was as follows: Three Months Ended Six Months Ended Mar. 31, Mar. 31, Mar. 31, Mar. 31, 1996 1995 1996 1995 RESULTS OF OPERATIONS (Unaudited) Sales ..................... $ 913 $ 930 $1,820 $1,866 ====== ====== ====== ====== Profit .................... $ 16 $ 10 $ 27 $ 32 ====== ====== ====== ====== Mar. 31, Sep. 30, 1996 1995 FINANCIAL POSITION (Unaudited) Assets: Current assets ................................. $1,852 $1,872 Land, buildings, machinery and equipment - net.. 723 780 Other assets ................................... 266 322 ------ ------ 2,841 2,974 ------ ------ Liabilities: Current liabilities ............................ 1,660 1,676 Long-term debt due after one year .............. 152 215 Other liabilities .............................. 141 155 ------ ------ 1,953 2,046 ------ ------ Ownership ........................................ $ 888 $ 928 ====== ====== 6. Inventories (principally "last-in, first-out" method) comprised the following: Jun. 30, Dec. 31, 1996 1995 (unaudited) Raw materials and work-in-process ................ $ 859 $ 710 Finished goods ................................... 1,122 1,006 Supplies ......................................... 217 205 ------ ------ $2,198 $1,921 ====== ====== 7. Following is a computation of profit per share: Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 1996 1995 1996 1995 (Unaudited) I. Net profit for period: Profit - consolidated (A) ....... $ 374 $ 323 $ 671 $ 623 ====== ====== ====== ======= II. Determination of shares (millions): Weighted average number of common shares outstanding (B) .. 193.4 199.7 193.6 199.9 Shares issuable on exercise of stock options, net of shares assumed to be purchased out of proceeds at market price .... 2.1 2.4 2.1 2.4 ------ ------ ------ ------- Average common shares outstanding for fully diluted computation (C) ................ 195.5 202.1 195.7 202.3 ====== ====== ====== ======= III. Profit per share of common stock: Assuming no dilution (A/B) ...... $1.94 $1.62 $3.46 $3.11 Assuming full dilution (A/C) .... $1.91 $1.60 $3.43 $3.08 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES A. Consolidated Results of Operations The company announced the highest quarterly profit in its history. Profit of $374 million surpassed the previous record profit of $323 million set in second-quarter 1995. Profit after tax as a percent of sales and revenues was 8.8%, the best quarterly rate in more than 20 years. Sales and revenues were $4.18 billion, a decrease of $33 million from the same quarter a year ago. Profit per share was a record $1.94, $.32 higher than the previous record established in second-quarter 1995. The company continues to benefit from improved manufacturing efficiencies achieved during 1994 and 1995. In June 1995, the company announced a plan to repurchase up to 10% of its outstanding common stock over the next three to five years. At the end of the second quarter, 8.1 million shares had been repurchased under the plan. The number of shares outstanding at June 30, 1996, was 192.8 million. In June 1996, Caterpillar's Board of Directors announced it was increasing the quarterly dividend from $.35 to $.40 per share payable August 20 to stockholders of record July 22. The 14% increase in the dividend underscores the confidence Caterpillar's directors have in the company's continuing success and marks the fourth increase in the past two years. Since 1994, the dividend per share has increased more than five-fold from $.075. Chairman and Chief Executive Officer Donald V. Fites said, "These financial results in a fast-changing, fiercely competitive marketplace validate the efficiency and effectiveness of the world-class Caterpillar team. Our focus on satisfying customers while managing our assets and the bottom line works." THREE MONTHS ENDED JUNE 30, 1996 VS. THREE MONTHS ENDED JUNE 30, 1995 Machinery and Engines Profit before tax of $506 million was $61 million higher than last year's second quarter. This record profit was achieved despite sales of Machinery and Engines of $4.01 billion being down $51 million from second-quarter 1995. The lower sales resulted from a 2% decrease in physical sales volume partially offset by a 1% improvement in price realization. The decrease in physical sales volume primarily resulted from a reduction in dealer new machine inventories and lower engine sales to users. Machine and engine sales were lower both inside and outside the United States. Price realization improved primarily because of price increases taken over the past year, the absence of certain European currency hedges in place a year ago, and a favorable change in geographic sales mix. (The adverse impact of currency hedges (forward contracts) that matured during second-quarter 1995 was about $30 million. All such forward contracts had matured as of the end of 1995.) These factors were partially offset by higher sales discounts and the negative effect of the stronger dollar on sales in European currencies. Margin (sales less cost of goods sold) of $1.03 billion increased $83 million from the second quarter a year ago despite the lower sales. Margin as a percent of sales was 25.7%, compared with 23.4% during last year's second quarter. The margin improvement resulted from the effect of the stronger dollar as costs incurred in Japanese yen and European currencies translated into fewer U.S. dollars, and better price realization. Also of note is that the improvements in manufacturing efficiencies achieved during 1994 and 1995 have been maintained throughout 1996 and the return to work of employees represented by the United Auto Workers (UAW) has been managed with essentially no impact on results. Material costs also continue to be effectively managed through proactive joint relationships with our suppliers resulting in essentially flat material costs from the second quarter a year ago. Partially offsetting these favorable items were the effects of lower sales volume and the absence of the favorable impact from a buildup of inventory during the second-quarter 1995. When inventory increases, certain fixed costs incurred in the current period are inventoried. These inventoried fixed costs are then charged to cost of goods sold in later periods when inventory decreases. Although the stronger dollar has benefited second quarter margins, over the longer term, a significantly stronger dollar will have an unfavorable impact on Caterpillar. Most of the company's key competitors have their principal manufacturing operations based in Japan or European countries. The majority of Caterpillar's manufacturing assets are in the United States. Consequently, with a stronger dollar, the company's costs compared with these competitors are relatively higher. As a major net exporter from the United States, the stronger dollar, over time, has an unfavorable impact on Caterpillar's global competitive position. Selling, general and administrative (SG&A) expenses were $409 million, compared with $378 million during the second-quarter 1995. The $31 million increase reflects higher spending levels in support of expanded operations around the world and higher costs due to inflation. Research and development (R&D) expenses of $97 million were essentially the same as second quarter last year. Operating profit of $526 million was $53 million higher than the second quarter a year ago. Operating profit was 13.1% compared with 11.7% a year ago. Interest expense was essentially the same as second quarter a year ago. Other income/expense was income of $29 million compared with income of $20 million last year. The increase of $9 million is primarily the result of increased interest income and a favorable change in foreign exchange gains and losses. Financial Products Before-tax profit for Financial Products was a record $41 million, an $11 million improvement over last year's second quarter. The increase resulted primarily from higher earnings from a larger portfolio of earning assets at Caterpillar Financial Services Corporation (CFSC) and favorable insurance reserve adjustments at Caterpillar Insurance Company Ltd. (CICL). Actuarial valuations of CICL's insurance reserves resulted in a favorable $8 million adjustment versus a favorable $4 million adjustment a year ago. Second-quarter revenues of $172 million were up $18 million compared with second-quarter 1995, primarily the result of CFSC's larger portfolio. CFSC's retail financing business established a quarter record of $971 million, a $241 million or 33% increase compared with second-quarter 1995. The increase was the result of financing a higher volume and increased percentage of deliveries of Caterpillar product. CFSC's wholesale financing activity was $799 million, a decrease of $94 million or 11% compared with second-quarter 1995. The decrease in wholesale financing was due to a lower volume of Caterpillar dealer rental fleet financing in North America. Selling, general and administrative expenses were $62 million, an increase of $3 million compared with second quarter a year ago. Higher expenses due to CFSC's larger portfolio were partially offset by the favorable adjustment to insurance reserves at CICL. Interest expense was $4 million higher due to increased borrowings to support the larger portfolio, partially offset by lower borrowing rates. Income Taxes Tax expense of $181 million increased $25 million due to higher before-tax profit. Affiliated Companies The company's share of affiliated companies' results was $8 million, up $4 million from a year ago. CHANGE TO 1Q96 REPORTED COST OF GOODS SOLD AND SG&A During the second quarter of 1996, an error in the classification of certain expenses between cost of goods sold and SG&A was discovered. The error affected only the first quarter of 1996 and did not affect profit in any way. As a result, cost of goods sold was increased $16 million and SG&A was decreased $16 million for the first quarter of 1996. All comparisons to the first quarter reflect the adjusted amounts. THREE MONTHS ENDED JUNE 30, 1996 VS. THREE MONTHS ENDED MARCH 31, 1996 Second-quarter profit of $374 million or $1.94 per share was $78 million higher than profit of $296 million or $1.53 per share in the first quarter of this year. The improvement reflects an increase in sales and revenues of $336 million partially offset by an increase in costs that generally occurs from the first to the second quarter due to timing of expenses. An increase in physical sales volume of 8% was the most significant factor contributing to the higher profit. Machinery and Engines Profit before tax for Machinery and Engines was $506 million, a $108 million increase from the previous quarter. Sales of $4.01 billion increased $326 million because of 8% higher physical sales volume and 1% improved price realization. The increase in physical sales volume was the result of higher engine and machine sales both inside and outside the United States. The improvement in price realization reflects price increases and a favorable change in geographic sales mix, partially offset by higher discounts. Margin improved $130 million from the first quarter. As a percent of sales, the margin rate was 25.7% compared with 24.5% last quarter. The margin rate improvement resulted from the favorable impact of higher sales, better price realization, improved manufacturing efficiencies, and the impact of the stronger dollar on costs. Partially offsetting these favorable items was the absence of the favorable impact from a buildup of inventory during the first quarter. Selling, general and administrative expenses were $409 million, up $23 million from first quarter. The increase was primarily the result of timing of expenses, as the first quarter is generally a lower cost quarter for these types of expenses. Volume-related parts distribution expenses also contributed to the increase. Research and development expenses of $97 million were about the same as the first quarter. Operating profit of $526 million increased $108 million. As a percent of sales, operating profit was 13.1%, up 1.7 percentage points from the first quarter. Interest expense of $49 million was the same as the first quarter. Other income/expense was income of $29 million and also the same as the first quarter. Financial Products Financial Products' before-tax profit was $41 million, an increase of $5 million from first quarter. Revenues were up $10 million, primarily the result of CFSC's larger portfolio. Selling, general and administrative expenses were down due to the $8 million favorable insurance reserve adjustment at CICL, mostly offset by increased CFSC expenses related to the larger portfolio. Income Taxes Tax expense of $181 million increased $38 million due to higher before-tax profit. SIX MONTHS ENDED JUNE 30, 1996 VS. SIX MONTHS ENDED JUNE 30, 1995 Profit for the six months ended June 30, 1996 was $670 million or $3.46 per share of common stock, an improvement of $47 million over profit of $623 million or $3.11 per share for the first six months of 1995. Sales and revenues of $8.02 billion were $102 million lower than last year. Machinery and Engines Sales were $7.69 billion, a decrease of $142 million from the same period last year. Profit before tax was $904 million, an improvement of $59 million. The primary reason for the increase in profit was improved price realization. The decrease in physical sales volume resulted from lower machine and engine sales both inside and outside the United States. 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 the first six months of 1995 was about $60 million. All such forward contracts had matured as of the end of 1995). These favorable factors were partially offset by the negative effect of the stronger dollar on sales in European currencies and the Japanese yen, and higher sales discounts. Margin (sales less cost of goods sold) increased $102 million 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. Material costs also continue to be effectively managed through proactive joint relationships with our suppliers resulting in lower material costs when compared to a year ago. The improvements in manufacturing efficiencies achieved during 1994 and 1995 have been maintained throughout 1996 and the return to work of employees represented by the United Auto Workers (UAW) union has been managed with essentially no impact on results. These favorable items were partially offset by the effects of lower sales volume and the unfavorable impact of a lower buildup of inventory during the first six months of 1996 as compared to a year ago. When inventory increases, certain fixed costs incurred in the current period are inventoried. These inventoried fixed costs are then charged to cost of goods sold in later periods when inventory decreases. Although the stronger dollar has benefited the first six months margins, over the longer term, a significantly stronger dollar will have an unfavorable impact on Caterpillar. Most of the company's key competitors have their principal manufacturing operations based in Japan or European countries. The majority of Caterpillar's manufacturing assets are in the United States. Consequently, with a stronger dollar, the company's costs compared with these competitors are relatively higher. As a major net exporter from the United States, the stronger dollar, over time, has an unfavorable impact on Caterpillar's global competitive position. Selling, general and administrative expenses were $795 million, compared with $739 million during the first six months of 1995. The $56 million increase reflects higher spending levels in support of expanded operations around the world and higher costs due to inflation. Research and development (R&D) expenses were up $11 million from the first six months of 1995. The increase primarily reflects continuing high levels of activity for new product introductions. Operating profit of $944 million was $35 million higher than the first six months of 1995. Operating profit as a percent of sales was 12.3% compared with 11.6% a year ago. Interest expense of $98 million was $2 million higher than a year ago. Other income/expense was income of $58 million compared with income of $32 million last year. The increase of $26 million is primarily the result of a favorable change in foreign exchange gains and losses, and higher interest income. Financial Products Before-tax profit for Financial Products was $77 million, an increase of $15 million from the first six months of 1995. The increase resulted primarily from higher earnings from a larger portfolio of earning assets at CFSC; and favorable portfolio transactions at CICL. Revenues were up $40 million, primarily the result of CFSC's larger portfolio. Selling, general and administrative expenses were up $12 million, also due to CFSC's larger portfolio. Interest expense was up $11 million due to increased borrowings to support the larger portfolio, partially offset by lower borrowing rates. Other income/expense was income of $17 million, a decrease of $2 million from a year ago. The first six months of 1995 included an $11 million favorable mark-to-market adjustment for CFSC's written interest rate caps. Partially offsetting this was $8 million in gains recognized in 1996 on the sale of securities in CICL's investment portfolio. Income Taxes Tax expense was $324 million, $25 million higher than a year ago. The increase reflects higher before-tax profit. Both periods reflect a 33% estimated annual tax rate. Affiliated Companies The company's share of affiliated companies' results was $13 million, down $2 million from a year ago. SALES Following are summaries of second-quarter company sales and dealer deliveries compared with the same quarter in 1995. Company Sales Inside the United States Caterpillar sales inside the United States were $2.02 billion, a $26 million or 1% decrease from the same quarter a year ago. Company sales of both machines and engines were down as a result of lower volume. The lower volume, in turn, reflects greater dealer machine inventory reduction this year than last and lower diesel engine sales. Price realization was unchanged. Sales inside the United States during the second quarter were 50% of total sales, the same as second quarter last year. U.S. Dealer Machine Sales to End-Users Sales were unchanged from year-earlier levels as higher industry demand for construction equipment offset a reduced share of industry sales. Industry demand, reflecting stronger overall economic activity, was higher despite several years of excellent sales. Sales to end-users (including rental purchase options) increased for the construction sector in total due to the strength of housing. - Highway-related sales were unchanged from year-earlier levels. Government spending on highway construction and repair was unchanged. - Sales to the commercial, industrial and government building sector were down -- in line with lower levels of construction spending in these areas. - Housing-related sales were up reflecting a considerably higher level of housing starts in the second quarter. Sales declined for all commodity applications except metal mining and agriculture. - Sand and quarry mining-related sales were down despite slightly higher mine production. - Sales to the coal mining sector were down reflecting lower mine production. - Metal mining-related sales were up despite lower mine production and weaker metal prices. - Sales to the agricultural sector were up reflecting the introduction of new models and a strong industry. - Forestry-related sales were below year-earlier levels reflecting lower lumber and pulp prices. Lumber production was higher but pulp production was lower. Sales to industrial applications were higher while sales to landfills were lower. Deliveries to U.S. Dealer Rental Fleets Deliveries to U.S. dealers for their dedicated rental fleets were unchanged from second-quarter 1995. U.S. dealer dedicated rental inventories rose from first-quarter levels and remained above year-earlier levels. U.S. Dealer New Machine Inventories U.S. dealer new machine inventories were down from the end of the first quarter and below year-earlier levels. This level of inventory is slightly below normal relative to current selling rates. Company Engine Sales Inside the United States Sales of diesel engines were below year-earlier levels primarily as a result of weaker industry demand for truck engines from Original Equipment Manufacturers (OEMs). Total sales to users and OEMs also were down with declines in truck and industrial applications more than offsetting gains in power generation, marine and petroleum applications. Sales of turbine engines remained near last year's levels as gains in industrial power generation offset declines in oil and gas applications. Company Sales Outside the United States Caterpillar sales outside the United States were $1.99 billion, a $25 million or 1% decrease from second-quarter 1995. Price realization improved, but not enough to offset lower volume resulting primarily from lower diesel engine sales. Company sales of machines also declined since dealers did not repeat last year's second quarter inventory expansion. Sales outside the United States represented 50% of worldwide sales, unchanged from second quarter last year. Dealer Machine Sales to End-Users Outside the United States Dealer sales outside the United States were virtually unchanged from second-quarter 1995. Higher sales in Africa and Middle East, Asia, China and Japan offset declines elsewhere. - Europe: Sales for the region were lower due to the continued weakness in Germany. Excluding Germany, Western European sales were up with gains registered in most countries including France and the United Kingdom. Higher sales continue to be realized in Central Europe. - Asia (excluding China and Japan): Sales were higher as excellent economic growth and strong infrastructure spending continue. Sales were up in all major countries with a particularly good gain in Malaysia. - Africa and the Middle East: Demand continues to improve in response to good commodity prices, exports and economic growth. Turkey, South Africa and Saudi Arabia registered the largest gains. - Canada: Sales were down due to both a lower percentage of industry sales and a weaker industry. Sales were off in most applications but gains were made in coal and metal mining and agriculture. - Latin America: Sales were below year-earlier levels in response to last year's severe recessions in Mexico and Argentina and this year's slower economic growth in Brazil, Colombia and Peru. - Australia: Sales were lower than a year ago due to a large decline in metal mining. Gains were registered in coal mining as well as highway and housing construction. - China: Sales were higher reflecting excellent economic growth and infrastructure investment. - Japan: Sales of imported product were up and economic recovery is underway. The industry, however, remains relatively weak. - Commonwealth of Independent States (CIS): Sales were below year-ago levels. Dealer New Machine Inventories Outside the United States Dealer new machine inventories outside the United States were virtually unchanged from the end of the first quarter. Dealer inventories were up from the second quarter last year and are normal relative to current selling rates. Company Engine Sales Outside the United States Sales of diesel engines were below year-earlier levels due primarily to a decline in truck engine demand from Canadian OEMs. Total sales to users and OEMs also were lower with declines in Canada and Europe more than offsetting gains in Asia. By application, lower sales in truck, petroleum and marine more than offset gains in power generation. Sales of turbine engines were higher with increases in oil and gas applications as well as industrial power generation. PLANT CLOSING AND CONSOLIDATION COSTS At June 30, 1996 the reserve for plant closing and consolidation costs was $263 million. Of this balance, $170 million related to anticipated costs associated with the closure of the Component Products Division's York, Pennsylvania, facility. The probable closing of the York facility was announced in December 1991. The company determined that unless significant cost reductions were made, the unit would be closed. The company is currently in the early stages of closing the plant. Also in the reserve for plant closing and consolidation costs at June 30, 1996, was $69 million for write-downs of buildings, machinery and equipment at previously closed facilities. The remainder of the reserve related to severance benefits provided to former employees at previously closed facilities. The reserve for such benefits is amortized as the benefits are provided. Currently amortization periods are through 2003. EMPLOYMENT At the end of the second quarter, Caterpillar's worldwide employment was 55,002, compared with 54,499 one year ago. Hourly employment decreased 368 to 32,040; salaried and management employment increased 871 to 22,962. The increased employment is largely the result of acquisitions, partially offset by attrition. ECONOMIC AND INDUSTRY OUTLOOK World economic growth is now expected to exceed 1995 levels due primarily to improved prospects for the United States. The U.S. economy has been stronger than anticipated and is now forecast to match or exceed last year's growth rate of 2%. As a result of this better than expected demand in the United States, worldwide industry machine sales are projected to remain near last year's levels despite weaker than anticipated demand in Europe. Worldwide demand for engines, however, is still forecast to decline from last year's record levels. The U.S. economy has proven surprisingly resilient to the tight monetary and fiscal policies of the last two years. Second-quarter growth appears to have been very good although slower growth is still expected for the second half due to higher long-term interest rates and rising consumer debt levels. Gross Domestic Product (GDP) is now forecast to grow 2.0% - 2.5% for the year, despite a growing chance the Federal Reserve will raise interest rates to slow the economy. Related to this revised outlook, U.S. housing starts are forecast to match or exceed last year's levels. Growth in nonresidential construction and mining is still expected to slow but may be stronger than earlier anticipated. U.S. industry demand for machines is forecast to be just slightly below 1995 levels - an improvement over our earlier forecast. U.S. industry demand for engines is still expected to decline but less than previously projected. Similar economic growth is forecast for Canada where both the machine and engine industries are still forecast to decline. In Western Europe, interest rate reductions over the past 18 months are expected to stimulate economic growth in the second half. Encouraging signs of increased activity are already evident in Germany and the U.K. For the region as a whole, however, GDP growth is still expected to be only 2.0% which is below last year's rate of 2.6%. Even with better activity in the second half, industry demand is now projected to decline slightly from 1995 levels. In contrast, good economic growth continues in Central Europe. Economic recovery is underway in Japan where a surprisingly strong first quarter points to GDP growth near 3% for the year. Industry demand, however, is still expected to lag the economic recovery and show little improvement in 1996. The economic outlook for Australia also has improved with GDP expected to grow 3%, matching 1995's levels. Construction activity is still expected to decline for the year but mining should remain strong. Better economic growth is still forecast for the developing countries in 1996 leading to higher industry demand. Continued strong growth in the developing countries of Asia should lead to another year of higher industry sales. Higher sales are also forecast for the Africa/Middle East region where good export demand, economic restructuring, and last year's high commodity prices should combine for another year of good economic growth. In Latin America, recoveries are underway in both Mexico and Argentina, but the 1995 Mexican recession was so severe that industry demand there is unlikely to improve before next year. Elsewhere, economic growth has slowed more than expected leading to weaker demand. Consequently, industry demand is now projected to decline for the region as a whole. The severe, six-year decline in the CIS is forecast to end but political instability is likely to remain even with President Yeltsin's reelection. Some growth is still anticipated for 1996. COMPANY OUTLOOK As reported in June, stronger than anticipated sales in the United States should more than offset weaker than projected sales in Europe and Latin America. Consolidated sales and profit are now expected to be above 1995 levels. 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 a Form 8-K filed with the Securities & Exchange Commission on July 16, 1996. B. Liquidity & Capital Resources Consolidated operating cash flows totaled $829 million through the second quarter of 1996, compared with $888 million for the first six months of 1995. Total debt at the end of the first six months was $6.93 billion, an increase of $530 million from year end 1995. Over this period, debt related to Machinery & Engines increased $18 million, to $2.24 billion, while debt related to Financial Products increased $512 million to $4.69 billion. Machinery and Engines Operating cash flows totaled $631 million through the second quarter of 1996, compared with $751 million through the second quarter of 1995. The cash flow decrease is primarily the result of increased receivables. Capital expenditures, excluding equipment leased to others, totaled $171 million through the second quarter compared with $154 million a year ago. The percent of debt to debt plus stockholders equity improved to 37% at June 30, 1996, from 40% at December 31, 1995. Financial Products Operating cash flows totaled $198 million through the second quarter of 1996, compared with $137 million through the second quarter of 1995. Cash used to purchase equipment leased to others totaled $105 million through the second quarter of 1996. In addition, year-to-date 1996 net cash used for finance receivables was $665 million, compared with $1,029 million through the second quarter of 1995. Financial Products' debt was $4.69 billion at June 30, 1996, an increase of $512 million from December 31, 1995. At the end of the second quarter, finance receivables past due over 30 days were 2.5%, compared with 2.2% at the end of the same period one year ago. The ratio of debt to equity of Cat Financial was 8.2:1 at June 30, 1996, compared with 7.7:1 at December 31, 1995. PART II. OTHER INFORMATION Item 1. Legal Proceedings As reported in previous filings with the Securities & Exchange Commission, on September 6, 1994, the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America ("UAW"), UAW Local 974, and Citizens for a Better Environment filed a complaint against the company with the Illinois Pollution Control Board ("Board"). The complaint generally alleged, in seven counts, that the company had violated certain provisions of the Illinois Environmental Protection Act and Board regulations with respect to a particular property in East Peoria, Illinois. In a decision dated August 1, 1996, the Board concluded that no fines or other penalties should be assessed against the company. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description 27 Financial Data Schedule (b) Two reports on Form 8-K, dated June 3 and June 12, 1996, were filed during the quarter ending June 30, 1996, pursuant to Item 5 of those forms. An additional Form 8-K was filed on July 16, 1996 pursuant to Item 5. No financial statements were filed as part of those reports. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CATERPILLAR INC. Date: August 9, 1996 By: /s/ D. R. Oberhelman D. R. Oberhelman, Vice President and Chief Financial Officer Date: August 9, 1996 By: /s/ R. R. Atterbury III R. R. Atterbury III, Secretary EXHIBIT INDEX Exhibit Number Description 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE FOR 2ND QUARTER 1996 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000,000 6-MOS DEC-31-1996 JUNE-30-1996 109 524 2,857 0 2,198 8,341 8,499 4,930 18,122 6,989 4,042 0 0 204 3,581 18,122 7,690 8,024 5,756 7,020 (75) 0 98 981 324 670 0 0 0 670 3.46 3.43 Notes and accounts receivable - trade are reported net of allowances for doubtful accounts in the Statement of Financial Position. Amounts inapplicable or not disclosed as a separate line on the Statement of Financial Position or Results of Operations are reported as 0 herein.
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