-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, HnfqxLbQb2o65GrfOaG3Z1ih1SEQofcKovjOd6wznTMckpV30sTQS4LpoF+2M6K6 7x5iO+7tw0FsNY4ThrgQXQ== 0000950131-95-000431.txt : 19950224 0000950131-95-000431.hdr.sgml : 19950224 ACCESSION NUMBER: 0000950131-95-000431 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950223 SROS: MSE 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-00768 FILM NUMBER: 95514603 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-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________. Commission File No. 1-768 CATERPILLAR INC. (Exact name of Registrant as specified in its charter) DELAWARE 37-0602744 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 100 NE ADAMS STREET, PEORIA, ILLINOIS 61629 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (309) 675-1000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- --------------------- Common Stock ($1.00 par value) Chicago Stock Exchange New York Stock Exchange Pacific Stock Exchange Preferred Stock Purchase Rights Chicago Stock Exchange New York Stock Exchange Pacific Stock Exchange 9 1/8% Notes due December 15, 1996 New York Stock Exchange 9 3/8% Notes due July 15, 2000 New York Stock Exchange 9 3/8% Notes due July 15, 2001 New York Stock Exchange 9% Debentures due April 15, 2006 New York Stock Exchange 9 3/8% Debentures due August 15, 2011 New York Stock Exchange 9 3/4% Sinking Fund Debentures due New York Stock Exchange June 1, 2019 9 3/8% Debentures due March 15, 2021 New York Stock Exchange 8% Debentures due February 15, 2023 New York Stock Exchange 6% Debentures due May 1, 2007 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of December 31, 1994, there were 200,442,087 shares of common stock of the Registrant outstanding, and the aggregate market value of the voting stock held by non-affiliates of the Registrant (assuming only for purposes of this computation that directors and officers may be affiliates) was $10,995,126,605. DOCUMENT INCORPORATED BY REFERENCE Portions of the document listed below have been incorporated by reference into the indicated parts of this report, as specified in the responses to the item numbers involved. 1995 Annual Meeting Proxy Statement (Parts I, II, III and IV) PART I Item 1. Business. Principal Business Segments - --------------------------- Caterpillar Inc. together with its consolidated subsidiaries (the "Company") operates in three principal business segments: (1) Machinery--Design, manufacture, and marketing of construction, mining, and agricultural machinery--track and wheel tractors, track and wheel loaders, pipelayers, motor graders, wheel tractor-scrapers, track and wheel excavators, backhoe loaders, log skidders, log loaders, off-highway trucks, articulated trucks, paving products, and related parts. (2) Engines--Design, manufacture, and marketing of engines for earthmoving and construction machines, on-highway trucks, and locomotives; marine, petroleum, agricultural, industrial, and other applications; electric power generation systems; and related parts. Caterpillar diesel and spark-ignited engines meet power needs ranging from 54 to 8,000 horsepower. Turbines range from 1,340 to 15,000 horsepower (1000 to 11 200 kilowatts). (3) Financial Products--Provides financing alternatives for Caterpillar and noncompetitive related equipment, and extends loans to Caterpillar customers and dealers. Also provides various forms of insurance for Caterpillar dealers and customers to help support their purchase and financing of Caterpillar equipment. Note 24 of the Notes to Consolidated Financial Statements on pages A-24 and A-25 of the Appendix to the Company's 1995 Annual Meeting Proxy Statement contains additional information regarding the Company's business segments and geographic segments and is incorporated herein by reference. Company Operations - ------------------ The Company conducts operations in the Machinery and Engines segments of its business under highly competitive conditions, including intense price competition. It places great emphasis upon the high quality and performance of its products and the service support for such products which is supplied by its dealers. Although no one competitor is believed to produce all of the same types of machines and engines produced by the Company, there are numerous companies, large and small, which compete with the Company in the sale of each of its products. Machines are distributed principally through a worldwide organization of independent full-line dealers, and one company-owned dealership, 65 located in the United States and 122 located outside the United States. Worldwide, these dealers have more than 1,250 places of business. Diesel and spark-ignited engines are sold through the worldwide dealer organization and to other manufacturers for use in products manufactured by them. Caterpillar dealers do not deal exclusively in the Company's products, although in most cases sales and servicing of the Company's products are the dealers' principal business. Turbines are sold through a sales force employed by Solar Turbines Incorporated, a wholly owned subsidiary, or its subsidiaries and associated companies. These employees are from time to time assisted by independent sales representatives. Financial Products consists primarily of Caterpillar Financial Services Corporation and its subsidiaries, and Caterpillar Insurance Services Corporation. 1 Further information concerning the Company's operations in 1994 and its outlook for 1995 appears under the caption "Management's Discussion and Analysis" on pages A-28 through A-37 of the Appendix to the Company's 1995 Annual Meeting Proxy Statement, which pages are incorporated herein by reference. Patents and Trademarks - ---------------------- The Company's products are sold primarily under the marks "Caterpillar," "Cat," "Solar," and "Barber-Greene." The Company owns a number of patents and trademarks relating to the products manufactured by it, which have been obtained over a period of years. These patents and trademarks have been of value in the growth of the Company's business and may continue to be of value in the future. The Company does not regard any segment of the Company's business as being dependent upon any single patent or group of patents. Research and Development - ------------------------ The Company has always placed strong emphasis on product-oriented research and engineering relating to the development of new or improved machines, engines and major components. In 1994, 1993 and 1992, the Company expended $435 million, $455 million and $446 million, respectively, on its research and engineering program. Of these amounts, $311 million in 1994, $319 million in 1993 and $310 million in 1992 were attributable to new prime products and major component development and major improvements to existing products. The remainders were attributable to engineering costs incurred during the early production phase as well as ongoing efforts to improve existing products. During 1994 the Company announced several new products as well as improvements to existing products. The Company expects to continue the development of new products and improvements to existing products in the future. Employment - ---------- At December 31, 1994, the Company employed 53,986 persons of whom 14,237 were located outside the United States. Sales - ----- Sales outside the United States were 49% of consolidated sales in 1994, compared with 49% in 1993 and 55% in 1992. Environmental Matters - --------------------- CAPITAL EXPENDITURES AND EXPENSES The Company is subject to extensive environmental regulation at the federal, state, and local level. Research, engineering, depreciation, and administrative expenses related to environmental regulation compliance totaled approximately $125 million in 1994 and are expected to increase moderately in 1995. Capital expenditures for pollution abatement and control were approximately $11 million in 1994 and are expected to increase moderately in 1995. These expenses and expenditures are expected to remain relatively constant through 1999 and are not expected to have a material impact upon Company capital expenditures, earnings, or competitive position, subject to the evolving nature and interpretation of the environmental laws by applicable authorities and future technology. With respect to compliance with the 1990 amendments to the Clean Air Act in particular, research, engineering, and operating expenses totaled $29 million and capital expenditures totaled $4 million in 1994. In 1995, expenses and capital expenditures associated with Clean Air Act compliance are expected to remain constant. 2 The 1990 Amendments to the Clean Air Act are scheduled to be implemented throughout the 1990s and the first decade of the 21st Century. Many regulations necessary for implementation have not been promulgated. Accordingly, the overall impact of the amendments on Company capital expenditures and product design is still uncertain. REMEDIATION COSTS As of December 31, 1994, the Company, in conjunction with numerous other parties, has been identified as a potentially responsible party ("PRP") and is actively participating in 17 sites identified by the EPA or similar state authorities for remediation under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") or comparable federal or state statutes ("CERCLA sites"). The Company is also involved in remediation activities at other sites located on property either currently or formerly owned by the Company. Lawsuits and claims involving additional environmental matters are likely to arise from time to time. In assessing potential environmental liability, the Company considers: . whether it has been designated as a PRP under CERCLA; . if the Company has been so designated, the number of other PRPs designated at a site; . the relative volume contribution alleged for the Company at a particular site; . documentation, if any, linking the Company to a particular site; . stage of the proceedings; . available technology; . studies conducted by independent environmental consultants; . prior experience regarding environmental remediation; and . experience of other companies and industries regarding environmental remediation. With respect to potential liability amounts that are probable and reasonably estimable, the Company has accrued and charged to income those amounts. For specific sites where only a range of liability is probable and reasonably estimable and no amount in the range is a better estimate than another, the Company has accrued, in accordance with appropriate accounting literature, the low end of that range. While the Company may have rights of contribution or reimbursement under insurance policies, amounts that may be recoverable from other entities by the Company with respect to a particular site are not considered in establishing the accrual. The amounts accrued in 1994 with respect to potential liability are recorded as part of "Accounts payable and accrued expenses" on the Company's Statement of Financial Position appearing on pages A-6 and A-7 of the Appendix to the 1995 Annual Meeting Proxy Statement. This amount represents less than one percent of that line item and accordingly is not material to the Company's financial position. The Company also assesses reasonably possible environmental liability beyond that which it has accrued. This liability is not probable, but is more likely than remote. As of December 31, 1994, the amount of Company environmental liability that is reasonably possible is not expected to have a material impact on the Company's liquidity, capital resources or results of operations. Factors considered in assessing reasonably possible liability and its potential impact on the Company are those stated above. Amounts that may be recoverable from other entities are not considered. As of December 31, 1994, potential liability at four sites cannot be assessed because they are in very early stages of investigation. 3 Item 1a. Executive Officers of the Registrant as of December 31, 1994.
- --------------------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------------------- Donald V. Fites (60) Chairman of the Board (1990) President - --------------------------------------------------------------------------------------------------------------- James W. Wogsland (63) Vice Chairman (1990) Executive Vice President - --------------------------------------------------------------------------------------------------------------- Glen A. Barton (55) Group President (1990) Executive Vice President - --------------------------------------------------------------------------------------------------------------- Gerald S. Flaherty (56) Group President (1990) Executive Vice President - --------------------------------------------------------------------------------------------------------------- R. Rennie Atterbury III (57) Vice President, General Associate General Counsel Counsel and Secretary (1991) - --------------------------------------------------------------------------------------------------------------- James W. Baldwin (57) Vice President (1991) General Manager, Parts and Service Support; Manager, Parts Distribution, General Office - --------------------------------------------------------------------------------------------------------------- Vito H. Baumgartner (54) Vice President (1990) Chairman, Caterpillar Overseas S.A.; President, Caterpillar Brasil S.A. - --------------------------------------------------------------------------------------------------------------- James S. Beard (53) Vice President (1990) President, Caterpillar Financial Services Corporation - --------------------------------------------------------------------------------------------------------------- Richard A. Benson (51) Vice President (1989) President, Caterpillar Industrial Inc. - --------------------------------------------------------------------------------------------------------------- Ronald P. Bonati (55) Vice President (1990) Manager, Products Control, General Office - --------------------------------------------------------------------------------------------------------------- James E. Despain (57) Vice President (1990) Manager, East Peoria Plant - --------------------------------------------------------------------------------------------------------------- Robert C. Dryden (58) Vice President (1981) - --------------------------------------------------------------------------------------------------------------- Roger E. Fischbach (53) Vice President (1989) - --------------------------------------------------------------------------------------------------------------- Donald M. Ings (46) Vice President (1993) President, Solar Turbines Incorporated; Manager, Precision Barstock Products, York Plant - --------------------------------------------------------------------------------------------------------------- Keith G. Johnson (63) Vice President (1988) Chairman, Shin Caterpillar Mitsubishi Ltd. - --------------------------------------------------------------------------------------------------------------- James W. Owens (48) Vice President (1990) President, Solar Turbines Incorporated; Managing Director, P.T. Natra Raya - --------------------------------------------------------------------------------------------------------------- Gerald Palmer (49) Vice President (1992) Director of Technical Services, Technical Services Division; President, CONEK S.A. de C.V. - --------------------------------------------------------------------------------------------------------------- Robert C. Petterson (56) Vice President (1991) President, Caterpillar Brasil S.A.; Regional Manager, Caterpillar Overseas S.A. - --------------------------------------------------------------------------------------------------------------- Siegfried R. Ramseyer (57) Vice President (1992) Managing Director, Caterpillar Overseas S.A.; Manager, Construction Equipment and Dealer Administration, Caterpillar Overseas S.A. - --------------------------------------------------------------------------------------------------------------- Alan J. Rassi (54) Vice President (1992) General Manager, Aurora Plant; Plant Manager, Aurora Plant - --------------------------------------------------------------------------------------------------------------- Gary A. Stroup (45) Vice President (1992) Business Unit Manager, Component Products Division; Assistant Director of Manufacturing, General Office; Planning and Tooling Manager, East Peoria Plant - --------------------------------------------------------------------------------------------------------------- Richard L. Thompson (55) Vice President (1989) President, Solar Turbines Incorporated - --------------------------------------------------------------------------------------------------------------- Wayne M. Zimmerman (59) Vice President (1989) - --------------------------------------------------------------------------------------------------------------- Robert R. Gallagher (54) Controller (1990) Manager of Tax, General Office - --------------------------------------------------------------------------------------------------------------- Rudolf W. Wuttke (56) Treasurer (1991) Secretary and Treasurer, Caterpillar Overseas S.A. - ---------------------------------------------------------------------------------------------------------------
4 ITEM 2. PROPERTIES. The Company's operations are highly integrated. Although the majority of the Company's plants are involved primarily in the production of either machines or engines, several of the Company's plants are involved in the manufacture of both machines and engines. In addition, several plants are involved in the manufacture of components which are used in the assembly of both machines and engines. The Company's distribution centers and regional distribution centers are involved in the storage and distribution of parts for machines and engines. Also, the research and development activities carried on at the Technical Center involve both machines and engines. The corporate headquarters for the Company are located in Peoria, Illinois. Additional marketing headquarters are located both inside and outside the United States. All square footage and acreage provided herein is approximated as of December 31, 1994. Total Properties - ---------------- Total properties owned or leased by the Company consist of 67,257,861 square feet of building area, of which 89.8% is owned in fee and 10.2% is leased. Owned Properties - ---------------- Properties owned in fee by the Company consist of 60,395,936 square feet of building area and 19,123 acres of land. Properties owned by the Company are believed to be generally well maintained and adequate for the purposes for which they are presently used. Through planned capital expenditures, the Company expects these properties to remain adequate for future needs. Consolidations / Closures / Sales - --------------------------------- Over the last five years, in the ordinary course of business, the Company has consolidated operations and / or closed a number of its facilities. The Company continues to own closed properties totaling 2,676,643 square feet of building area and 6,611 acres of land which are no longer utilized in current operations. These closed properties have been declared surplus and are for sale. In December, 1991, the Company announced the probable closure of its manufacturing facility in York, Pennsylvania. The timing of the closure of the York facility is still pending. In December, 1994, the Company's manufacturing facility in Vernon, France was sold. The previously closed distribution facility located in New Orleans was also sold in 1994. Leased Properties - ----------------- Properties leased by the Company consist of 6,861,925 square feet of building area. These properties are covered by leases expiring over terms of generally 1 to 10 years. The Company anticipates no difficulty in retaining occupancy of any of its leased facilities, either by renewing leases prior to expiration or by replacing them with equivalent leased facilities. Manufacturing - ------------- Manufacturing activities are conducted at 26 locations inside the United States and 12 locations outside the United States. Remanufacturing and Overhaul activities are conducted at 3 locations inside the United States and 3 locations outside the United States. These facilities have a total building area of 43,294,650 square feet, of which 98.6% is used for manufacturing and 1.4% is used for remanufacturing and overhaul. These facilities are believed to be suitable for their intended purposes with adequate capacities for current and projected needs for existing Company products. A list of the Company's manufacturing, remanufacturing and overhaul facilities follows with principal use indicated: 5 Plant Locations inside the U.S. Principal Use ------------------------------- ------------- Gardena, California.................................... Manufacturing San Diego, California.................................. Manufacturing Jacksonville, Florida.................................. Manufacturing Aurora, Illinois....................................... Manufacturing Decatur, Illinois...................................... Manufacturing DeKalb, Illinois....................................... Manufacturing Dixon, Illinois........................................ Manufacturing East Peoria, Illinois.................................. Manufacturing Joliet, Illinois....................................... Manufacturing Mapleton, Illinois..................................... Manufacturing Mossville, Illinois.................................... Manufacturing Peoria, Illinois....................................... Manufacturing Pontiac, Illinois...................................... Manufacturing Lafayette, Indiana..................................... Manufacturing Wamego, Kansas......................................... Manufacturing Menominee, Michigan.................................... Manufacturing Minneapolis, Minnesota................................. Manufacturing New Ulm, Minnesota..................................... Manufacturing Corinth, Mississippi................................... Remanufacturing Boonville, Missouri.................................... Manufacturing Clayton, North Carolina................................ Manufacturing Leland, North Carolina................................. Manufacturing Dallas, Oregon......................................... Manufacturing York, Pennsylvania..................................... Manufacturing Greenville, South Carolina............................. Manufacturing Rockwood, Tennessee.................................... Manufacturing DeSoto, Texas.......................................... Overhaul Houston, Texas......................................... Manufacturing Mabank, Texas.......................................... Overhaul Plant Locations outside the U.S. Principal Use -------------------------------- ------------- Melbourne, Australia................................... Manufacturing Gosselies, Belgium..................................... Manufacturing Piracicaba, Brazil..................................... Manufacturing Edmonton, Canada....................................... Overhaul Shanghai, China........................................ Manufacturing Leicester, England..................................... Manufacturing Grenoble, France....................................... Manufacturing Rantigny, France....................................... Manufacturing Godollo, Hungary....................................... Manufacturing Jakarta, Indonesia..................................... Manufacturing Bazzano, Italy......................................... Manufacturing Monterrey, Mexico...................................... Manufacturing Nuevo Laredo, Mexico................................... Remanufacturing Tijuana, Mexico........................................ Overhaul St. Petersburg, Russia................................. Manufacturing 6 Financial Products - ------------------ A majority of the activity of the Financial Products Division is conducted from its leased headquarters located in Nashville, Tennessee. The Financial Products Division also leases 5 other office locations inside the United States and 9 office locations outside the United States and shares other office space with other Company entities. Distribution - ------------ The Company's distribution activities are conducted at 10 Distribution Center locations (3 inside the United States and 7 outside the United States) and 13 Regional Distribution Center locations (12 inside the United States and 1 outside the United States). These locations have a total building area of 9,230,277 square feet and are used for the distribution of Company products. Caterpillar Logistics Services, Inc. distributes other companies' products utilizing certain of the Company's distribution facilities as well as other non-Company facilities located both inside and outside the United States. The Company also owns or leases other storage facilities which support distribution activities. Technical Center, Training / Demonstration Areas and Proving Grounds - --------------------------------------------------------------------- The Company owns a Technical Center located in Mossville, Illinois and various other training / demonstration areas and proving grounds located both inside and outside the United States. Capital Expenditures - -------------------- During the five years ended December 31, 1994, changes in investment in land, buildings, machinery and equipment of the Company were as follows (stated in millions of dollars): Expenditures Disposals Net Increase -------------------- Provisions for and Other (Decrease) Year U.S. Outside U.S. Depreciation Adjustments During Period - ------------------------------------------------------------------------------- 1990 $708 $331 $(513) $ (45) $ 481 - ------------------------------------------------------------------------------- 1991 $610 $164 $(593) $(118) $ 63 - ------------------------------------------------------------------------------- 1992 $502 $138 $(644) $ (91) $ (95) - ------------------------------------------------------------------------------- 1993 $508 $124 $(661) $ (98) $(127) - ------------------------------------------------------------------------------- 1994 $508 $186 $(680) $ (65) $ (51) - ------------------------------------------------------------------------------- At December 31, 1994, the net book value of properties located outside the United States represented 25.9% of the net properties on the consolidated financial position. Further information concerning the Company's investment in land, buildings, machinery and equipment appears under Notes 1D and 11 of the "Notes to Consolidated Financial Statements" on pages A-10 and A-16 and A-17 respectively, of the Appendix to the 1995 Annual Meeting Proxy Statement, which Notes are incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS. The Company is a party to litigation matters and claims which are normal in the course of its operations, and, while the results of such litigation and claims cannot be predicted with certainty, management believes, based on the advice of counsel, the final outcome of such matters will not have a materially adverse effect on the consolidated financial position. 7 On September 6, 1994, the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America ("UAW"), UAW Local 974, and Citizens for a Better Environment filed a complaint against the Company with the Illinois Pollution Control Board ("Board"). The complaint generally alleges, in seven counts, that the Company has violated certain provisions of the Illinois Environmental Protection Act and Board regulations with respect to a particular property in East Peoria, Illinois. The complaint further alleges that the maximum penalties for the alleged violations total $199 million. The Company believes the claims are without merit and will vigorously contest them. The Company further believes final resolution of this matter will not have a material impact on the Company's liquidity, capital resources, or results of operations. On May 12, 1993, a Statement of Objections ("Statement") was filed by the Commission of European Communities against Caterpillar Inc. and certain overseas subsidiaries ("Company"). The Statement alleges that certain service fees payable by dealers, certain dealer recordkeeping obligations, a restriction which prohibits a European Community ("EC") dealer from appointing subdealers, and certain export pricing practices and parts policies violate EC competition law under Article 85 of the European Economic Community Treaty. The Statement seeks injunctive relief and unspecified fines. Based on an opinion of counsel, the Company believes it has strong defenses to each allegation set forth in the Statement. On November 19, 1993, the Commission of European Communities informed the Company that a new complaint has been received by it alleging that certain export parts policies violate Article 85 and Article 86 of the European Economic Community Treaty. The Commission advised the Company that it intends to deal with the new complaint within the framework of the proceedings initiated on May 12, 1993. Based on an opinion of counsel, the Company believes it has strong defenses to the allegations set forth in the new complaint. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The information required by Item 5 is incorporated by reference from under the caption "Common Stock Price Range" and the first paragraph under the caption "Number of Stockholders" appearing on page A-38 and under the caption "Dividends" on page A-33 of the Appendix to the Company's 1995 Annual Meeting Proxy Statement. ITEM 6. SELECTED FINANCIAL DATA. The information required by Item 6 is incorporated by reference from pages A-26 and A-27 of the Appendix to the Company's 1995 Annual Meeting Proxy Statement under the caption "Eleven-year Financial Summary" but only for the years 1990-1994, inclusive, and then only with respect to the information set forth for each of such years under the following captions: "Sales and revenues," "Profit (loss) before effects of accounting changes/(1)/" (including the footnote indicated), "Effects of accounting changes (note 2)" (including the note indicated), "Profit (loss)/(1)/ (including the footnote indicated)," "Profit (loss) per share of common stock: /(1)(2)/ Profit (loss) before effects of accounting changes/(1)/" (including the footnote indicated), "Profit (loss) per share of common stock:/(1)(2)/ Effects of accounting changes (note 2)" (including the footnotes and note indicated), "Profit (loss) per share of common stock:/(1)(2)/ Profit (loss)" (including the footnotes indicated), "Dividends declared per share of common stock," "Total assets: Machinery and Engines," "Total assets: 8 Financial Products," "Long-term debt due after one year: Machinery and Engines," and "Long-term debt due after one year: Financial Products." ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required by Item 7 is incorporated by reference from under the caption "Management's Discussion and Analysis" on pages A-28 through A-37 of the Appendix to the Company's 1995 Annual Meeting Proxy Statement. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by Item 8 is incorporated by reference from the Report of Independent Accountants appearing on page A-3, and the Financial Statements and Notes to Consolidated Financial Statements appearing on pages A-4 through A-25 of the Appendix to the Company's 1995 Annual Meeting Proxy Statement. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by Item 10 relating to identification of directors is incorporated by reference from pages 3 through 7 of the Company's 1995 Annual Meeting Proxy Statement under the captions "Nominees for Election as Directors for Terms Expiring in 1998," "Directors Continuing in Office in the Class of 1996," and "Directors Continuing in Office in the Class of 1997." Identification of executive officers appears herein under Item 1a. There are no family relationships between the officers and directors of the Company. All officers serve at the pleasure of the Board of Directors and are regularly elected at a meeting of the Board of Directors in April of each year. Information required under Item 405 of Regulation S-K is incorporated by reference from under the caption "Filings Pursuant to Section 16 of the Securities and Exchange Act of 1934" appearing on page 24 of the Company's 1995 Annual Meeting Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION. The information required by Item 11 is incorporated by reference from under the caption "Compensation of Directors" which appears on page 9, from under the caption "Report of the Compensation Committee" on pages 11 through 15, from under the caption "Performance Graph" on page 16, from under the caption "Executive Compensation" and the tables thereunder which appear on pages 17 through 19, from under the caption "Pension Program" (including footnotes) and the table thereunder which appear on pages 19 and 20, and from under the caption "Compensation Committee Interlocks and Insider Participation" which appears on page 16 of the Company's 1995 Annual Meeting Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by Item 12 is incorporated by reference from pages 10 and 11 of the Company's 1995 Annual Meeting Proxy Statement under the caption "Equity Security Ownership of Management and Certain Other Beneficial Owners (as of December 31, 1994)." 9 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by Item 13 is incorporated by reference from the Company's 1995 Annual Meeting Proxy Statement from under the caption "Certain Relationships and Related Transactions" appearing on page 20 and from under the caption "Compensation Committee Interlocks and Insider Participation" on page 16. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) The following documents are filed as part of this report: 1. Financial Statements: Report of Independent Accountants (p. A-3)* Statement 1 Consolidated Results of Operations for the Years Ended December 31 (p. A-4)* Statement 2 Changes in Consolidated Stockholders' Equity for the Years Ended December 31 (p. A-5)* Statement 3 Financial Position at December 31 (p. A-6 and p. A-7)* Statement 4 Statement of Cash Flows for the Years Ended December 31 (p. A-8 and p. A-9)* Notes to Consolidated Financial Statements (pp. A-10 through A-25)* 2. Financial Statement Schedule: Report of Independent Accountants on Financial Statement Schedule Schedule VIII Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto incorporated by reference. (b) One report on Form 8-K, dated December 14, 1994, was filed during the last quarter of 1994. The Form 8-K reported information pursuant to Item 5 "Other Events." No financial statements were filed as part of the report on Form 8-K. (c) Exhibits: 3 (a)(i) Restated Certificate of Incorporation. 3 (a)(ii) Certificate of Designation, Preferences and Rights of the Terms of the Series A Junior Participating Preferred Stock (incorporated by reference from Exhibit 3(a) to Form 10-K for the year ended December 31, 1991, Commission File No. 1-768). (b) Bylaws (incorporated by reference from Exhibit 3(b) to Form 10-K for the year ended December 31, 1990, Commission File No. 1-768). 4 (a) Rights Agreement dated as of November 12, 1986, between Caterpillar Inc., the Registrant hereunder, and First Chicago Trust Company of New York (formerly Morgan Shareholder Services Trust Company) (incorporated by reference from Exhibit 10(a) to Form 10-K for the year ended December 31, 1990, Commission File No. 1-768) and First Amendment to Rights Agreement dated December 9, 1992 (incorporated by reference from Exhibit 10(a) to Form 10-K for the year ended December 31, 1992, Commission File No. 1-768). 10 (a) 1977 Stock Option Plan as amended (incorporated by reference from Exhibit 10(b) to Form 10-K for the year ended December 31, 1984, Commission File No. 1-768).** 10 (b) 1987 Stock Option Plan as amended and Long Term Incentive Supplement (incorporated by reference from Exhibit 10(b) to Form 10-K for the year ended December 31, 1993, Commission File No. 1-768).** (c) Supplemental Pension Benefit Plan, as amended and restated (incorporated by reference from Exhibit 10(c) to Form 10-K for the year ended December 31, 1993, Commission File No. 1-768).** (d) Supplemental Employees' Investment Plan (incorporated by reference from Exhibit 10(e) to Form 10-K for the year ended December 31, 1987, Commission File No. 1-768).** (e) Caterpillar Inc. 1993 Corporate Incentive Compensation Plan Management and Salaried Employees, as amended and restated (incorporated by reference from Exhibit 10(e) to Form 10-K for the year ended December 31, 1993, Commission File No. 1-768).** (f) Directors' Deferred Compensation Plan, as amended and restated (incorporated by reference from Exhibit 10(f) to Form 10-K for the year ended December 31, 1993, Commission File No. 1-768).** (g) Directors' Retirement Plan (incorporated by reference from Exhibit 10(i) to Form 10-K for the year ended December 31, 1991, Commission File No. 1-768).** (h) Directors' Charitable Award Program (incorporated by reference from Exhibit 10(h) to Form 10-K for the year ended December 31, 1993, Commission File No. 1-768).** 11 Computations of Earnings Per Share 12 Statement Setting Forth Computation of Ratios of Profit to Fixed Charges (The ratio of profit to fixed charges for the year ended December 31, 1994 was 3.8. Because of pretax losses for the year ended December 31, 1992, profit was not sufficient to cover fixed charges. The coverage deficiency was approximately $341 million.) 21 Subsidiaries and Affiliates of the Registrant 23 Consent of Independent Accountants 27 Financial Data Schedule 99 (a) Appendix to the Company's 1995 Annual Meeting Proxy Statement (furnished for the information of the Commission and not deemed to be filed except for those portions expressly incorporated by reference herein). ________________________________________________________________________________ * Incorporated by reference from the indicated pages of the Appendix to the 1995 Annual Meeting Proxy Statement. ** Compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of this Form 10-K. 11 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE COMPANY HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. CATERPILLAR INC. (Registrant) By: R. R. ATTERBURY III ___________________________________ Date: February 23, 1995 R. R. Atterbury III, Secretary PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE COMPANY AND IN THE CAPACITIES AND ON THE DATES INDICATED. Chairman of the Board, Director February 23, 1995 DONALD V. FITES and Chief Executive Officer ________________________ (Donald V. Fites) February 23, 1995 JAMES W. WOGSLAND Vice Chairman and Director ________________________ (James W. Wogsland) February 23, 1995 GLEN A. BARTON Group President ________________________ (Glen A. Barton) February 23, 1995 GERALD S. FLAHERTY Group President ________________________ (Gerald S. Flaherty) February 23, 1995 RICHARD L. THOMPSON Group President ________________________ (Richard L. Thompson) February 23, 1995 JAMES W. OWENS Group President ________________________ (James W. Owens) Vice President and February 23, 1995 DOUGLAS R. OBERHELMAN Chief Financial Officer ________________________ (Douglas R. Oberhelman) Controller and February 23, 1995 ROBERT R. GALLAGHER Chief Accounting Officer ________________________ (Robert R. Gallagher) February 23, 1995 LILYAN H. AFFINITO Director ________________________ (Lilyan H. Affinito) 12 February 23, 1995 JOHN W. FONDAHL Director ----------------------- (John W. Fondahl) February 23, 1995 DAVID R. GOODE Director ------------------------ (David R. Goode) February 23, 1995 JAMES P. GORTER Director ------------------------ (James P. Gorter) February 23, 1995 WALTER H. HELMERICH, III Director ------------------------ (Walter H. Helmerich, III) February 23, 1995 JERRY R. JUNKINS Director ------------------------ (Jerry R. Junkins) February 23, 1995 PETER A. MAGOWAN Director ------------------------ (Peter A. Magowan) February 23, 1995 GORDON R. PARKER Director ------------------------ (Gordon R. Parker) February 23, 1995 GEORGE A. SCHAEFER Director ------------------------ (George A. Schaefer) February 23, 1995 JOSHUA I. SMITH Director ------------------------ (Joshua I. Smith) February 23, 1995 CLAYTON K. YEUTTER Director ------------------------ (Clayton K. Yeutter) 13 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Caterpillar Inc.: Our audits of the consolidated financial statements of Caterpillar Inc. referred to in our report dated January 19, 1995 appearing on page A-3 of the Appendix to the 1995 Annual Meeting Proxy Statement (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ Price Waterhouse LLP PRICE WATERHOUSE LLP Peoria, Illinois January 19, 1995 CATERPILLAR INC. AND CONSOLIDATED SUBSIDIARY COMPANIES SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS (Millions of dollars) YEARS ENDED DECEMBER 31,
Balance at Balance at Beginning Close of Description of Year Additions Deductions Year ----------- ---------- --------- ---------- ---------- 1994 - ---- Reserves for plant closing and consolidation costs: Included in current liabilities: Accounts payable and accrued expenses $ 58 $ -- $ 2(2) $ 56 Accrued wages, salaries, and employee benefits 138 -- 16(2) 122 Deducted from assets: Land, buildings, machinery, and equipment--net 150 -- 1 149 1993 - ---- Reserves for plant closing and consolidation costs: Included in current liabilities: Accounts payable and accrued expenses $ 80 $ -- $ 22(2) $ 58 Accrued wages, salaries, and employee benefits 150 -- 12(2) 138 Deducted from assets: Land, buildings, machinery, and equipment--net 164 -- 14(3) 150 1992 - ---- Reserves for plant closing and consolidation costs: Included in current liabilities: Accounts payable and accrued expenses $ 87 $ 4(1) $ 11(2) $ 80 Accrued wages, salaries, and employee benefits 170 15(1) 35(2) 150 Deducted from assets: Land, buildings, machinery, and equipment--net 161 7(1) 4(3) 164
- ---------- (1) Additions related to the sale of assets to the lift truck joint venture that were included in the net gain on the sale and not charged to Provision for plant closing and consolidation costs. (2) Expenditures made. (3) Related to assets disposed of. EX-3.(A)(I) 2 EXHIBIT 3(A)(I) RESTATED CERTIFICATE OF INCORPORATION OF CATERPILLAR INC. Caterpillar Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. The name of the corporation is Caterpillar Inc. The date of filing its original Certificate of Incorporation with the Secretary of State was March 12, 1986. 2. This Restated Certificate of Incorporation only restates and integrates and does not further amend the provisions of the Certificate of Incorporation of this corporation as heretofore amended or supplemented and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation. 3. The text of the Certificate of Incorporation as amended or supplemented heretofore is hereby restated without further amendments or changes to read as herein set forth in full: FIRST: The name of this corporation is Caterpillar Inc. SECOND: The address of the registered office of the corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, and the name of its registered agent at that address is The Corporation Trust Company. THIRD: The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: (a) The corporation is authorized to issue two classes of shares to be designated, respectively, "common stock" and "preferred stock." The total number of such shares shall be four hundred fifty five million (455,000,000), all of which shares shall have a par value of $1.00 per share. The total number of shares of common stock authorized to be issued shall be four hundred fifty million (450,000,000) and the total number of shares of preferred stock authorized to be issued shall be five million (5,000,000). (b) The shares of preferred stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized to establish from time to time by resolution or resolutions the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof, including but not limited to the fixing or alteration of the dividend rights, dividend rate or rates, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices, and the liquidation preferences of any wholly unissued series of shares of preferred stock, and the number of shares constituting any such series and the designation thereof, or any or all of them; and to increase or decrease the number of shares of any series subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. FIFTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors shall have power to make, alter, amend and repeal the bylaws (except so far as the bylaws adopted by the stockholders shall otherwise provide). Any bylaws made by the Board of Directors under the powers conferred hereby may be altered, amended or repealed by the Board of Directors or by the stockholders. Notwithstanding the foregoing and anything contained in this Certificate of Incorporation to the contrary, Sections 1(b)(ii), 1(c) and 3(e) of Article II, and Section 1 of Article III of the bylaws shall not be altered, amended or repealed, and no provisions inconsistent therewith shall be adopted, without the affirmative vote of the holders of not less than seventy-five percent (75%) of the outstanding stock of the corporation entitled to vote generally in the election of directors, voting together as a single class (it being understood that for the purposes of this Article FIFTH, each share shall have one vote except as otherwise provided in accordance with Article FOURTH). SIXTH: (a) The number of directors which shall constitute the whole Board of Directors of this corporation shall be as specified in the bylaws of the corporation, subject to the provisions of Article FIFTH herein and this Article SIXTH. (b) The Board of Directors shall be and is divided into three classes: Class I, Class II and Class III, which shall be as nearly equal in number as possible. Each director shall serve for a term ending on the date of the third annual meeting of stockholders following the annual meeting at which the director was elected, provided, however, that each initial director in Class I shall hold office until the annual meeting of stockholders in 1987; each initial director in Class II shall hold office until the annual meeting of stockholders in 1988; and each initial director in Class III shall hold office until the annual meeting of stockholders in 1989. Notwithstanding the foregoing provisions of this Article, each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. (c) In the event of any increase or decrease in the authorized number of directors, the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the Board of Directors among the three classes of directors so as to maintain such classes as nearly equal as possible. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. (d) Newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office (and not by stockholders), even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. (e) Any director may be removed from office without cause but only by the affirmative vote of the holders of not less than seventy-five percent (75%) of the outstanding stock of the corporation entitled to vote generally in the election of directors, voting together as a single class (it being understood that for the purpose of this Article SIXTH, each share shall have one vote except as otherwise provided in accordance with Article FOURTH). (f) Notwithstanding the foregoing, whenever the holders of any one or more classes or series of stock issued by this corporation having a preference over the common stock as to dividends or upon liquidation, shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies, terms of removal and other features of such directorships shall be governed by the terms of Article FOURTH and the resolution or resolutions establishing such class or series adopted pursuant thereto and such directors so elected shall not be divided into classes pursuant to this Article SIXTH unless expressly provided by such terms. SEVENTH: (a) Any action required or permitted to be taken by the stockholders of the corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. (b) Special meetings of the stockholders of this corporation for any purpose or purposes may be called at any time by the Chairman of the Board or the President, or by the Board of Directors pursuant to a resolution approved by a majority of the entire Board of Directors, but such special meetings may not be called by any other person or persons. (c) Advance notice of stockholder nominations for the election of directors shall be given in the manner provided in the bylaws of this corporation. (d) Election of directors need not be by written ballot unless the bylaws of this corporation shall so provide. EIGHTH: The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute and this Certificate of Incorporation, and all rights conferred on stockholders herein are granted subject to this reservation. Notwithstanding the foregoing, the affirmative vote of not less than seventy-five percent (75%) of the total voting power of all outstanding shares of stock in this corporation entitled to vote generally in the election of directors voting together as a single class (it being understood that for the purposes of this Article EIGHTH, each share shall have one vote except as otherwise provided in accordance with Article FOURTH) shall be required to alter, amend or repeal, or adopt any provisions inconsistent with the provisions set forth in Articles FIFTH, SIXTH, SEVENTH, and this Article EIGHTH. NINTH: No director shall be personally liable to the corporation or any stockholders for monetary damages for breach of fiduciary duty as a director, except for any matter in respect of which such director shall be liable under Section 174 of Title 8 of the Delaware Code (relating to the Delaware General Corporation Law) or any amendment thereto or any successor provision thereto or shall be liable by reason that, in addition to any and all other requirements for such liability, such director (i) shall have breached the duty of loyalty to the corporation of its stockholders, (ii) shall not have acted in good faith, or, in failing to act, shall not have acted in good faith, (iii) shall have acted in a manner involving intentional misconduct or a knowing violation of law or, in failing to act, shall have acted in a manner involving intentional misconduct or a knowing violation of law, or (iv) shall have derived an improper personal benefit. Neither the amendment nor repeal of this Article NINTH, nor the adoption of any provision of the Certificate of Incorporation inconsistent with this Article NINTH, shall eliminate or reduce the effect of this Article NINTH in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article NINTH would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. 4. This Restated Certificate of Incorporation was duly adopted by unanimous written consent of the stockholders in accordance with Section 245 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said Caterpillar Inc. has caused this certificate to be signed by Donald V. Fites, its Chairman of the Board of Directors, and attested by R. Rennie Atterbury III, its Secretary, this 15th day of February, 1995. CATERPILLAR INC. By /s/ Donald V. Fites ---------------------- Donald V. Fites Chairman of the Board ATTEST: By /s/ R. Rennie Atterbury III ------------------------------- R. Rennie Atterbury III Secretary EX-11 3 EXHIBIT 11 EXHIBIT 11 CATERPILLAR INC. AND CONSOLIDATED SUBSIDIARY COMPANIES COMPUTATIONS OF EARNINGS PER SHARE FOR THE YEARS ENDED DECEMBER 31,
1994 1993 1992 ____ ____ ____ I. Net profit (loss) for year (millions of dollars):..................... $ 955 $ 652 $(2,435) ====== ====== ======= II. Determination of shares (millions): Weighted average number of common shares outstanding.................. 203.0 202.7 201.9 Shares issuable on exercise of stock options, net of shares assumed to be purchased out of proceeds at average market price............. 2.1 2.2 .2 ------ ------ ------- Average common shares outstanding for fully diluted computation....... 205.1 204.9 202.1 ====== ====== ======= III. Profit (loss) per share of common stock: Assuming no dilution.................................................. $ 4.70 $ 3.21 $(12.06) Assuming full dilution................................................ $ 4.65 $ 3.18 $(12.05)
EX-12 4 EXHIBIT 12 EXHIBIT 12 CATERPILLAR INC., CONSOLIDATED SUBSIDIARY COMPANIES, AND 50%-OWNED AFFILIATED COMPANIES STATEMENT SETTING FORTH COMPUTATION OF RATIOS OF PROFIT TO FIXED CHARGES (Millions of dollars) YEARS ENDED DECEMBER 31,
1994 1993 1992 ____ ____ ____ Profit (loss)............................................................. $ 955 $ 681 $(218) Add: Provision (credit) for income taxes................................... 397 43 (123) ------ ------ ----- Profit (loss) before taxes................................................ $1,352 $ 724 $(341) Fixed charges: Interest and other costs related to borrowed funds/1/................. $ 430 $ 464 $ 527 Rentals at computed interest factors/2/............................... 51 53 52 ------ ------ ----- Total fixed charges....................................................... $ 481 $ 517 $ 579 ------ ------ ----- Profit before provision (credit) for income taxes and fixed charges....... $1,833 $1,241 $ 238 ====== ====== ===== Ratio of profit to fixed charges/3/....................................... 3.8 2.4 -- ====== ====== =====
- -------------------- /1/Interest expense as reported in the Consolidated Results of Operations plus the Company's proportionate share of 50 percent-owned affiliated companies' interest expense. /2/Amounts represent those portions of rent expense that are reasonable approximations of interest costs. /3/Because of pretax losses for the year ended December 31, 1992, profit was not sufficient to cover fixed charges. The coverage deficiency was approximately $341 million. EX-21 5 EXHIBIT 21 SUBSIDIARIES AND AFFILIATES OF THE REGISTRANT
Percentage of Voting Securities Jurisdiction Owned Directly or in which Indirectly at Name of Company Organized December 31, 1994* - --------------- --------- ------------------ Caterpillar Inc. (Registrant) Delaware (Parent Company) Affiliates of the Registrant: Advanced Filtration Systems Inc. Delaware 50 Cyclean, Inc. Delaware 9.74 DUECO, Inc. Delaware 5 Health Plan of Central Illinois Inc. Illinois 18.5 Novotruck Russia 33.33 Peoria Medical Research Corporation Illinois 14.29 Rapisarda Industries, Srl Italy 25.01 Unoc Equipment and Supply, L.L.C. Delaware 30 Subsidiary: A/O UNOC Equipment and Supply Russia 100 Subsidiaries of the Registrant: Advanced Fuels, L.L.C. Delaware 51 Advanced Technology Services, Inc. Illinois 91.29 Anchor Coupling Inc. Delaware 100 A/O Nevamash Russia 65 Balderson Inc. Kansas 100 Carter Machinery Company, Incorporated Delaware 100 Caterpillar Americas Co. Delaware 100 Caterpillar Asia Pacific Holding Inc. Delaware 100 Subsidiaries: Caterpillar Shanghai Engine Company Ltd. China 55 Caterpillar Xuzhou Ltd. China 60 Caterpillar Asia Pte. Ltd. Singapore 100 Caterpillar of Australia Ltd. Australia 100 Affiliates: Energy Power Systems Australia Pty Limited Australia 50 Subsidiary: Energy Power Systems PNG Pty Limited New Guinea 100 Caterpillar Brasil S. A. Brazil 100 Subsidiary: Caterpillar Administracao e Participacoes S/C Ltda. Brazil 100 Caterpillar of Canada Ltd. Canada 100 Caterpillar Capital Company, Inc. Delaware 100 Caterpillar Commercial A/O Russia 100 Caterpillar Commercial N.V. Belgium 100 Affiliate: Hindustan Powerplus Limited India 37.74 Subsidiary: Caterpillar Group Services N.V. Belgium 100 Caterpillar Commercial Services Ltd. Canada 100 Caterpillar of Delaware, Inc. Delaware 100
Subsidiary: Caterpillar Industrial Products, Inc. Delaware 100 Subsidiary: Nexus International Inc. Delaware 100 Caterpillar Export Limited Virgin Islands 100 Caterpillar Financial Services Corporation Delaware 100 Affiliate: Bio-energy Partners Illinois 50 Subsidiaries: Caterpillar Finance France S.A. France 100 Caterpillar Financial Australia Limited Australia 100 Caterpillar Financial Leasing, S.A. Spain 100 Caterpillar Financial Corporacion Financiero S.A. Spain 100 Caterpillar Financial Nordic Services A.B. Sweden 100 Subsidiary: Caterpillar Financial Services Norway AS Norway 100 Caterpillar Financial Receivables Inc. Delaware 100 Caterpillar Financial Services Holding GmbH Germany 100 Affiliates: EDC European Excavator Design Center GmbH & Co. KG Germany 40 EDC European Excavator Design Center Verwaltungs GmbH Germany 40 Subsidiaries: Caterpillar Leasing GmbH (Ismaning) Germany 100 Caterpillar Leasing GmbH (Leipzig) Germany 100 Caterpillar Financial Services Limited Canada 100 Caterpillar Financial Services (U.K.) Limited England 100 Caterpillar Financial Services N.V. Netherlands Antilles 100 Caterpillar Industrial Inc. Ohio 100 Affiliates: Mitsubishi Caterpillar Forklift America Inc. Delaware 20 Affiliate: Material Handling Associates, Inc. Delaware 50 Mitsubishi Caterpillar Forklift Asia Pte. Ltd. Singapore 20 Mistubishi Caterpillar Forklift Europe B.V. Netherlands 20 Rapidparts Inc. Michigan 50 Subsidiary: Matchparts N.V. Belgium 50.5 Caterpillar Insurance Co. Ltd. Bermuda 100 Caterpillar Insurance Services Corporation Tennessee 100 Caterpillar Investment Management Ltd. Delaware 100 Caterpillar Logistics Services, Inc. Delaware 100 Subsidiary: Caterpillar Logistics Services Belgium N.V. Belgium 100 Caterpillar Logistics Services Spain Spain 100 Caterpillar Overseas Credit Corporation S.A. Switzerland 100 Caterpillar Overseas S.A. Switzerland 100 Affiliates: Caterpillar MHI Marketing Ltd. Japan 50 Shin Caterpillar Mitsubishi Ltd. Japan 50 Affiliates: Aishin Co. Japan 40 D.O.M. Ltd. Japan 10 G. M. Kenki Lease Co. Japan 37.57 Hokken Service Co. Japan 40
Itoh Tekkosho Co., Ltd. Japan 34 K-Lea Co., Ltd. Japan 9.8 Rentec Co. Japan 10 Sowa System Co. Japan 35 Tunnel Rental Co., Ltd. Japan 9.5 Subsidiaries: Chubu Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan 100 CMEC Co., Ltd. Japan 100 CM Human Services Co., Ltd. Japan 100 East Chugoku Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan 100 East Kanto Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan 100 Affiliate: Tone Lease Co. Japan 18.3 Hokkaido Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan 100 Subsidiary: Shin Hokken Ltd. Japan 100 Hokuetsu Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan 100 Affiliates: F. M. K. Co., Ltd. Japan 25 Hokuriku Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan 51 Affiliate: Dia Rental Hokuriku Co., Ltd. Japan 15 Kanagawa Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan 100 Kansai Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan 100 Kinki Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan 100 Affiliate: Rental Sanwa Co., Ltd. Japan 30 Koshin Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan 100 North Kanto Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan 100 Sagami GS Co., Ltd. Japan 100 SCM Operator Training Co., Ltd. Japan 100 SCM System Service Co., Ltd. Japan 100 Shizuoka Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan 51 Tokyo Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan 100 West Chugoku Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan 100 Affiliate: Yeep Co. Japan 16.7 Tractor Engineers Limited India 50 Subsidiaries: Caterpillar (Africa) (Proprietary) Limited South Africa 100 Caterpillar Belgium S. A. Belgium 100 Caterpillar Commercial APS Denmark 100
Caterpillar Commercial S.A.R.L. France 100 Caterpillar Commerciale S.r.L. Italy 100 Caterpillar Far East Limited Hong Kong 100 Subsidiaries: Caterpillar China Limited Hong Kong 100 Caterpillar Asia Limited Hong Kong 100 Caterpillar France S.A. France 100 Caterpillar Hungary Component Manufacturing Company Ltd. Hungary 85.7 Caterpillar Logistics Services Limited England 100 Mec-Track S.r.L. Italy 100 Caterpillar (U.K.) Limited England 100 P.T. Natra Raya Indonesia 80 Solar Turbines Canada Ltd. Canada 100 Solar Turbines S.A. Belgium 100 Caterpillar Paving Products Inc. Oklahoma 100 Subsidiary: Caterpillar Materiels Routiers S.A. France 100 Caterpillar Securities Inc. Delaware 100 Caterpillar Risk Management Services Ltd. Delaware 100 Caterpillar Services Limited Delaware 100 Caterpillar World Trading Corporation Delaware 100 Caterpillar Mexico S.A. de C.V. Mexico 100 Subsidiary: Inmobiliaria Conek, S.A. Mexico 100 Engine Service Specialists, Inc. Delaware 100 Subsidiaries: Road Ready Inc. Delaware 100 RR-1 Limited Partnership Illinois 68.35 Solar Turbines Incorporated Delaware 100 Subsidiaries: Compsolven Corporation California 100 OTSG, Inc. Delaware 100 Affiliate: Innovative Steam Technologies California 50 Solar Turbines International Company Delaware 100 Affiliate: Turboservices SDN BHD Malaysia 26 Subsidiaries: Energy Services International Denmark Denmark 100 Energy Services International Limited Bermuda 100 Servtech Limited Ireland 100 Turbinas Solar S.A. de C.V. Mexico 100 Turbinas Solar de Venezuela, C.A. Venezuela 100 Turbo Tecnologia de Reparaciones S.A. de C.V. Mexico 100 Tecnologia Modificada S.A. de C.V. Mexico 100
____________________________ * Qualifying shares have been ignored in giving ownership percentage figures. For further information see Notes to Consolidated Financial Statements incorporated by reference from the 1995 Annual Meeting Proxy Statement. EX-23 6 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 and 33-40598) of Caterpillar Inc. of our report dated January 19, 1995 related to the financial statements of Caterpillar Inc., appearing on page A-3 of the Appendix to the Company's 1995 Annual Meeting Proxy Statement which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule listed in Item 14(a) of such Annual Report on Form 10-K. We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 33-46194) of Caterpillar Inc. of our report dated January 19, 1995 related to the financial statements of Caterpillar Inc., appearing on page A-3 of the Appendix to the Company's 1995 Annual Meeting Proxy Statement which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. /s/ Price Waterhouse LLP PRICE WATERHOUSE LLP Peoria, Illinois February 17, 1995 EX-27 7 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000,000 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 69 350 2,971 0 1,835 7,409 8,230 4,454 16,250 5,498 4,270 200 0 0 2,711 16,250 13,863 14,328 10,834 12,894 (39) 0 200 1,273 354 955 0 0 0 955 4.70 4.65 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 zero herein.
EX-99.A 8 EXHIBIT 99(A) APPENDIX CATERPILLAR INC. GENERAL AND FINANCIAL INFORMATION 1994 A-1 DESCRIPTION OF BUSINESS Caterpillar Inc. together with its consolidated subsidiaries (the company) operates in three principal business segments: (1) Machinery -- Design, manufacture, and marketing of construction, mining, and agricultural machinery -- track and wheel tractors, track and wheel loaders, pipelayers, motor graders, wheel tractor-scrapers, track and wheel excavators, backhoe loaders, log skidders, log loaders, off-highway trucks, articulated trucks, paving products, and related parts. (2) Engines -- Design, manufacture, and marketing of engines for earthmoving and construction machines, on-highway trucks, and locomotives; marine, petroleum, agricultural, industrial, and other applications; electric power generation systems; and related parts. Caterpillar diesel and spark-ignited engines meet power needs ranging from 54 to 8,000 horsepower. Turbines range from 1,340 to 15,000 horsepower (1000 to 11 200 kilowatts). (3) Financial Products -- Provides financing alternatives for Caterpillar and noncompetitive related equipment, and extends loans to Caterpillar customers and dealers. Also provides various forms of insurance to Caterpillar dealers and customers to help support their purchase and financing of Caterpillar equipment. The company conducts operations in the Machinery and Engines segments of its business under highly competitive conditions, including intense price competition. It places great emphasis upon the high quality and performance of its products and the service support for such products which is supplied by its dealers. Although no one competitor is believed to produce all of the same types of machines and engines produced by the company, there are numerous companies, large and small, which compete with the company in the sale of each of its products. The company's products are sold primarily under the marks "Caterpillar," "Cat," "Solar," and "Barber-Greene." Machines are distributed principally through a worldwide organization of independent full-line dealers, and one company-owned dealership, 65 located in the United States and 122 located outside the United States. Worldwide, these dealers have more than 1,250 places of business. Diesel and spark-ignited engines are sold through the worldwide dealer organization and to other manufacturers for use in products manufactured by them. Caterpillar dealers do not deal exclusively in the company's products, although in most cases sales and servicing of the company's products are the dealers' principal business. Turbines are sold through a sales force employed by Solar Turbines Incorporated, a wholly owned subsidiary, or its subsidiaries and associated companies. These employees are from time to time assisted by independent sales representatives. Financial Products consists primarily of Caterpillar Financial Services Corporation and its subsidiaries, and Caterpillar Insurance Services Corporation. - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page Report of Management............................................. A-3 Report of Independent Accountants................................ A-3 Consolidated Financial Statements and Notes...................... A-4 Eleven-year Financial Summary.................................... A-26 Management's Discussion and Analysis (MD&A) Results of Operations -- 1994 Compared with 1993....................... A-28 -- 1993 Compared with 1992....................... A-32 Liquidity & Capital Resources............................ A-33 Employment............................................... A-33 Other Matters............................................ A-34 Labor Update............................................. A-37 1995 Economic and Industry Outlook....................... A-37 1995 Company Outlook..................................... A-37 Supplemental Stockholder Information............................. A-38 Directors and Officers........................................... A-39 A-2 REPORT OF MANAGEMENT Caterpillar Inc. - -------------------------------------------------------------------------------- The management of Caterpillar Inc. has prepared the accompanying consolidated financial statements for the years ended December 31, 1994, 1993, and 1992, and is responsible for their integrity and objectivity. The statements were prepared in conformity with generally accepted accounting principles and, reflecting management's best judgment, present fairly the company's results of operations, financial position, and cash flows. Management maintains a system of internal accounting controls which has been designed to provide reasonable assurance that: transactions are executed in accordance with proper authorization, transactions are properly recorded and summarized to produce reliable financial records and reports, assets are safeguarded, and the accountability for assets is maintained. The system of internal controls includes statements of policies and business practices, widely communicated to employees, which are designed to require them to maintain high ethical standards in their conduct of company affairs. The internal controls are augmented by careful selection and training of supervisory and other management personnel, by organizational arrangements that provide for appropriate delegation of authority and division of responsibility, and by an extensive program of internal audit with management follow-up. The financial statements have been audited by Price Waterhouse LLP, independent accountants, in accordance with generally accepted auditing standards. They have made similar annual audits since initial incorporation of the company. Their role is to render an objective, independent opinion on management's financial statements. Their report appears below. Through its Audit Committee, the board of directors reviews the company's financial and accounting policies, practices, and reports. The Audit Committee consists exclusively of five directors who are not salaried employees and who are, in the opinion of the board of directors, free from any relationship that would interfere with the exercise of independent judgment as a committee member. The Audit Committee meets several times each year with representatives of management, the internal auditing department, and the independent accountants to review the activities of each and satisfy itself that each is properly discharging its responsibilities. Both the independent accountants and the internal auditors have free access to the Audit Committee and meet with it periodically, with and without management representatives in attendance, to discuss, among other things, their opinions as to the adequacy of internal controls and to review the quality of financial reporting. /s/ Donald V. Fites ----------------------- Chairman of the Board /s/ Douglas R. Oberhelman ------------------------- Chief Financial Officer January 19, 1995 - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS [Logo of Price Waterhouse LLP] TO THE STOCKHOLDERS OF CATERPILLAR INC.: In our opinion, the accompanying consolidated financial statements, Statements 1 through 4, present fairly, in all material respects, the financial position of Caterpillar Inc. and subsidiaries at December 31, 1994, 1993, and 1992, and their results of operations and cash flows for the years then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 2 to the consolidated financial statements, in 1992 the company adopted the provisions of Statement of Financial Accounting Standards (SFAS) 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions"; the provisions of SFAS 112, "Employers' Accounting for Postemployment Benefits"; and the provisions of SFAS 109, "Accounting for Income Taxes." /s/ Price Waterhouse LLP Peoria, Illinois January 19, 1995 A-3 STATEMENT 1 CONSOLIDATED RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31 (Millions of dollars except per share data)
- --------------------------------------------------------------------------------------------------------------- 1994 1993 1992 ------- ------- -------- MACHINERY AND ENGINES: Sales (note 1B)............................................................ $13,863 $11,235 $ 9,840 ------- ------- -------- Operating costs: Cost of goods sold........................................................ 10,834 9,075 8,444 Selling, general, and administrative expenses............................. 1,348 1,262 1,263 Research and development expenses (note 4)................................ 311 319 310 Gain on sale of lift truck assets (note 6)................................ - - (53) ------- ------- -------- 12,493 10,656 9,964 ------- ------- -------- Operating profit (loss).................................................... 1,370 579 (124) Interest expense........................................................... 200 268 324 ------- ------- -------- 1,170 311 (448) Net interest income on U.S. tax settlement (note 8)........................ - 251 - Other income (expense) (note 7)............................................ 43 92 75 ------- ------- -------- Profit (loss) before taxes................................................. 1,213 654 (373) ------- ------- -------- FINANCIAL PRODUCTS: Revenues (note 1B)......................................................... 465 380 354 ------- ------- -------- Operating costs: Selling, general, and administrative expenses............................. 191 161 146 Interest expense.......................................................... 210 172 173 ------- ------- -------- 401 333 319 ------- ------- -------- Operating profit........................................................... 64 47 35 Other income (expense) (note 7)............................................ (4) 21 20 ------- ------- -------- Profit before taxes........................................................ 60 68 55 ------- ------- -------- CONSOLIDATED PROFIT (LOSS) BEFORE TAXES..................................... 1,273 722 (318) Provision (credit) for income taxes (note 8)............................... 354 42 (114) ------- ------- -------- Profit (loss) of consolidated companies.................................... 919 680 (204) Equity in profit (loss) of affiliated companies (notes 1A and 12).......... 36 1 (14) ------- ------- -------- PROFIT (LOSS) BEFORE EXTRAORDINARY LOSS AND EFFECTS OF ACCOUNTING CHANGES............................................. 955 681 (218) Extraordinary loss on early retirement of debt (note 15)................... - (29) - Effects of accounting changes (note 2)..................................... - - (2,217) ------- ------- -------- PROFIT (LOSS).............................................................. $ 955 $ 652 $ (2,435) ------- ------- -------- PROFIT (LOSS) PER SHARE OF COMMON STOCK: Profit (loss) before extraordinary loss and effects of accounting changes.. $4.70 $3.36 $ (1.08) Extraordinary loss on early retirement of debt............................. - (.15) - Effects of accounting changes.............................................. - - (10.98) ------- ------- -------- Profit (loss).............................................................. $4.70 $3.21 $ (12.06) Dividends declared per share of common stock................................ $.63 $.30 $ .30
See accompanying Notes to Consolidated Financial Statements. A-4 STATEMENT 2 Caterpillar Inc. CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31 (Dollars in millions) - ------------------------------------------------------------------------------
1994 1993 1992 ------- ------- -------- COMMON STOCK (NOTE 19): Balance at beginning of year........... $ 835 $ 799 $ 798 Common shares issued, including treasury shares reissued: 1994 - 1,144,631; 1993 - 1,819,130; 1992 - 80,928............. 48 36 1 Treasury shares purchased: 1994 - 4,426,200..................... (240) -- -- Issuance of common stock to effect 2-for-1 stock split.................. 102 -- -- ------ ------ ------- Balance at year-end.................... 745 835 799 ------ ------ ------- PROFIT EMPLOYED IN THE BUSINESS: Balance at beginning of year........... 1,234 643 3,138 Profit (loss).......................... 955 652 (2,435) Dividends declared..................... (126) (61) (60) Issuance of common stock to effect 2-for-1 stock split........ (102) -- -- ------ ------ ------- Balance at year-end.................... 1,961 1,234 643 ------ ------ ------- MINIMUM PENSION LIABILITY ADJUSTMENT (NOTE 5A).............................. -- (40) -- ------ ------ ------- FOREIGN CURRENCY TRANSLATION ADJUSTMENT (NOTE 3): Balance at beginning of year........... 170 133 108 Aggregate adjustment for year.......... 35 37 25 ------ ------ ------- Balance at year-end.................... 205 170 133 ------ ------ ------- STOCKHOLDERS' EQUITY AT YEAR-END......... $2,911 $2,199 $ 1,575 ====== ====== =======
See accompanying Notes to Consolidated Financial Statements. A-5 STATEMENT 3 FINANCIAL POSITION AT DECEMBER 31 (Dollars in millions) - ------------------------------------------------------------------------------
CONSOLIDATED (Caterpillar Inc. and subsidiaries) --------------------------------------- 1994 1993 1992 --------------------------------------- ASSETS Current assets: Cash and short-term investments............... $ 419 $ 83 $ 119 Receivables - trade and other..................... 2,971 2,637 2,190 Receivables - finance (note 9).................. 1,319 988 758 Refundable income taxes (note 8).................. - - 86 Deferred income taxes and prepaid expenses (note 8).................. 865 838 709 Inventories (notes 1C and 10)................... 1,835 1,525 1,675 --------------------------------- Total current assets......... 7,409 6,071 5,537 Land, buildings, machinery, and equipment - net (notes 1D and 11)..... 3,776 3,827 3,954 Long-term receivables - trade and other............. 125 132 140 Long-term receivables - finance (note 9)............ 2,669 2,152 1,767 Investments in affiliated companies (notes 1A and 12)......................... 455 395 345 Investments in Financial Products subsidiaries....... - - - Deferred income taxes (note 8).................... 1,243 1,321 1,254 Intangible assets (notes 1E and 5A).................. 237 353 357 Other assets (notes 5B and 21)..................... 336 556 581 --------------------------------- TOTAL ASSETS.................. $16,250 $14,807 $13,935 ================================= LIABILITIES Current liabilities: Short-term borrowings (note 14)................. $ 740 $ 822 $ 941 Accounts payable and accrued expenses.......... 2,624 2,055 1,772 Accrued wages, salaries, and employee benefits.................. 1,047 957 828 Dividends payable.......... 50 15 15 Deferred and current income taxes payable (note 8).................. 144 111 59 Long-term debt due within one year (note 15)....................... 893 711 612 --------------------------------- Total current liabilities.... 5,498 4,671 4,227 Long-term debt due after one year (note 15).......... 4,270 3,895 4,119 Liability for postemployment benefits (note 5).................... 3,548 4,018 3,995 Deferred income taxes and other liabilities (note 8).......................... 23 24 19 --------------------------------- TOTAL LIABILITIES............. 13,339 12,608 12,360 --------------------------------- CONTINGENCIES (NOTE 18) STOCKHOLDERS' EQUITY (STATEMENT 2) Common stock of $1.00 par value (note 19): Authorized shares: 450,000,000 Issued shares (1994 - 203,723,656; 1993 - 203,723,656; and 1992 - 202,907,852) at paid-in amount......... 923 835 821 Profit employed in the business.................... 1,961 1,234 643 Minimum pension liability adjustment (note 5A)........ - (40) - Foreign currency translation adjustment (note 3).................... 205 170 133 Treasury stock (1994 - 3,281,569 shares; and 1992 - 1,003,326 shares) at cost........... (178) - (22) --------------------------------- TOTAL STOCKHOLDERS' EQUITY.... 2,911 2,199 1,575 --------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $16,250 $14,807 $13,935 =================================
See accompanying Notes to Consolidated Financial Statements. A-6 Caterpillar Inc. - --------------------------------------------------------------------------------
SUPPLEMENTAL CONSOLIDATING DATA ---------------------------------------------------------- MACHINERY AND ENGINES (Caterpillar Inc. with Financial Products on the equity basis) FINANCIAL PRODUCTS ---------------------------------------------------------- 1994 1993 1992 1994 1993 1992 ---------------------------------------------------------- $ 395 $ 62 $ 104 $ 24 $ 21 $ 15 2,919 2,612 2,201 96 63 56 - - - 1,319 988 758 - - 86 - - - 888 869 734 3 2 1 1,835 1,525 1,675 - - - ---------------------------------------------------------- 6,037 5,068 4,800 1,442 1,074 830 3,343 3,456 3,673 433 371 281 125 132 140 - - - - - - 2,669 2,152 1,767 455 395 345 - - - 548 457 375 - - - 1,254 1,334 1,269 - - - 237 353 357 - - - 143 398 437 193 158 144 ---------------------------------------------------------- $12,142 $11,593 $11,396 $4,737 $3,755 $3,022 ========================================================== $ 17 $ 139 $ 398 $ 723 $ 683 $ 543 2,416 1,925 1,669 278 201 196 1,045 955 827 2 2 1 50 15 15 - - - 112 71 25 32 40 34 86 218 120 807 493 492 ---------------------------------------------------------- 3,726 3,323 3,054 1,842 1,419 1,266 1,934 2,030 2,753 2,336 1,865 1,366 3,548 4,018 3,995 - - - 23 23 19 11 14 15 ---------------------------------------------------------- 9,231 9,394 9,821 4,189 3,298 2,647 ---------------------------------------------------------- 923 835 821 303 258 238 1,961 1,234 643 245 206 141 - (40) - - - - 205 170 133 - (7) (4) (178) - (22) - - - ---------------------------------------------------------- 2,911 2,199 1,575 548 457 375 ---------------------------------------------------------- $12,142 $11,593 $11,396 $4,737 $3,755 $3,022 ==========================================================
The supplemental consolidating data is presented for the purpose of additional analysis and to provide required supplemental disclosure of information about the Financial Products subsidiaries. See Note 1A on page A-10 for a definition of the groupings in these statements. A-7 STATEMENT 4 STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 (Millions of dollars) - -------------------------------------------------------------------------------
CONSOLIDATED (Caterpillar Inc. and subsidiaries) ----------------------------------- 1994 1993 1992 ----------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Profit (loss)........................ $ 955 $ 652 $(2,435) Adjustments for noncash items: Depreciation and amortization...... 683 668 654 Effects of accounting changes, net of tax........................ - - 2,217 Gain on sale of lift truck assets.. - - (53) Profit of Financial Products....... - - - Other.............................. 166 (153) (4) Changes in assets and liabilities: Receivables - trade and other...... (308) (524) (251) Inventories........................ (315) 154 188 Accounts payable and accrued expenses.......................... 519 315 165 Other - net........................ 57 293 22 ---------------------------------- Net cash provided by operating activities........................... 1,757 1,405 503 ---------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures - excluding equipment leased to others.......... (501) (417) (515) Expenditures for equipment leased to others........................... (193) (215) (125) Proceeds from disposals of land, buildings, machinery, and equipment. 88 90 57 Proceeds from sale of lift truck assets.............................. - - 141 Additions to finance receivables..... (2,934) (2,024) (1,601) Collections of finance receivables... 1,850 1,389 1,198 Proceeds from sale of finance receivables......................... 241 - - Other - net.......................... (63) (41) (78) ---------------------------------- Net cash used for investing activities........................... (1,512) (1,218) (923) ---------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid....................... (91) (61) (60) Common stock issued, including treasury shares reissued............ 12 36 1 Treasury shares purchased............ (240) - - Proceeds from long-term debt issued.. 1,083 1,218 1,044 Payments on long-term debt........... (746) (936) (1,140) Short-term borrowings - net.......... 74 (451) 585 ---------------------------------- Net cash provided by financing activities........................... 92 (194) 430 ---------------------------------- Effect of exchange rate changes on cash.............................. (1) (29) 5 ---------------------------------- INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS............... 336 (36) 15 Cash and short-term investments at the beginning of the period.......... 83 119 104 ---------------------------------- Cash and short-term investments at the end of the period................ $ 419 $ 83 $ 119 ==================================
All short-term investments, which consist primarily of highly liquid investments with original maturities of three months or less, are considered to be cash equivalents. See accompanying Notes to Consolidated Financial Statements. A-8 Caterpillar Inc. - --------------------------------------------------------------------------------
SUPPLEMENTAL CONSOLIDATING DATA ---------------------------------------------------------- MACHINERY AND ENGINES (Caterpillar Inc. with Financial Products on the equity basis) FINANCIAL PRODUCTS ---------------------------------------------------------- 1994 1993 1992 1994 1993 1992 ---------------------------------------------------------- $ 955 $ 652 $(2,435) $ 39 $ 43 $ 39 588 598 591 95 70 63 - - 2,220 - - (3) - - (53) - - - (39) (43) (39) - - - 126 (201) (5) 40 48 1 (281) (488) (242) (33) (7) 3 (315) 154 188 - - - 471 322 183 47 (28) - 73 279 (26) (9) 5 22 ---------------------------------------------------------- 1,578 1,273 382 179 131 125 ---------------------------------------------------------- (498) (415) (513) (3) (2) (2) (9) (12) (6) (184) (203) (119) 15 57 26 73 33 31 - - 141 - - - - - - (2,934) (2,024) (1,601) - - - 1,850 1,389 1,198 - - - 241 - - (81) (85) (118) (27) 15 41 ---------------------------------------------------------- (573) (455) (470) (984) (792) (452) ---------------------------------------------------------- (91) (61) (60) - - (15) 12 36 1 45 30 10 (240) - - - - - - 201 427 1,083 1,017 617 (240) (419) (572) (506) (517) (568) (112) (620) 310 186 169 275 ---------------------------------------------------------- (671) (863) 106 808 699 319 ---------------------------------------------------------- (1) 3 7 - (32) (2) ---------------------------------------------------------- 333 (42) 25 3 6 (10) 62 104 79 21 15 25 ---------------------------------------------------------- $ 395 $ 62 $ 104 $ 24 $ 21 $ 15 ==========================================================
The supplemental consolidating data is presented for the purpose of additional analysis and to provide required supplemental disclosure of information about the Financial Products subsidiaries. See note 1A on page A-10 for a definition of the groupings in these statements. A-9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions except per share data) - ------------------------------------------------------------------------------- 1. Summary of significant accounting policies A. Basis of consolidation The accompanying financial statements include the accounts of Caterpillar Inc. and all its subsidiaries. Affiliated companies (50% interest or less) are accounted for by the equity method. Accordingly, the company's share of the affiliates' profit or loss is included in Statement 1 as "Equity in profit (loss) of affiliated companies" and the company's investments in these affiliates, including its share of their retained profits, are included in Statement 3 as "Investments in affiliated companies." Financial information of the affiliated companies is included in note 12. Information in the accompanying financial statements and supplemental consolidating data, where applicable, has been grouped as follows: Consolidated -- represents the consolidated data of Caterpillar Inc. and subsidiaries, in accordance with Statement of Financial Accounting Standards (SFAS) 94. Machinery and Engines -- company operations excluding the Financial Products subsidiaries; consists primarily of the company's manufacturing, marketing, and parts distribution operations. Financial Products -- the company's finance and insurance subsidiaries, primarily Caterpillar Financial Services Corporation and Caterpillar Insurance Co. Ltd. Certain amounts for prior years have been reclassified to conform with the current year financial statement presentation. B. Sales and revenue recognition Sales of machines and engines are generally unconditional sales that are recorded after product is shipped and invoiced to independently owned and operated dealers or customers. Revenues primarily represent finance and rental revenues of Caterpillar Financial Services Corporation, a wholly owned subsidiary of Caterpillar Inc. Finance revenues are recognized over the term of the contract at a constant rate of return on the scheduled uncollected principal balance, and rental revenues are recognized in the period earned. Recognition of income is suspended when collection of future income is not probable. Income recognition is resumed if the receivable becomes contractually current and collection doubts are removed; previously suspended income is recognized at that time. C. Inventories The cost of inventories is determined principally by the LIFO (last-in, first-out) method of inventory valuation. This method was first adopted for the major portion of inventories in 1950. The value of inventories on the LIFO basis represented approximately 90% of total inventories at current cost value on December 31, 1994, 1993, and 1992. If the FIFO (first-in, first-out) method had been in use, inventories would have been $2,035, $1,818, and $1,950 higher than reported at December 31, 1994, 1993, and 1992, respectively. D. Depreciation Depreciation is computed principally using accelerated methods. These methods result in a larger allocation of the cost of buildings, machinery, and equipment to operations in the early years of the lives of assets than does the straight-line method, which allocates costs evenly over the lives of assets. When an asset becomes fully depreciated, its cost is eliminated from both the asset and the accumulated depreciation accounts. E. Amortization The cost of purchased intangibles is amortized using the straight-line method. Amortization periods are based on estimated remaining useful lives which, at December 31, 1994, averaged 25 years. Accumulated amortization was $182, $178, and $172, at December 31, 1994, 1993, and 1992, respectively. When a purchased intangible becomes fully amortized, its cost is eliminated from the reported accumulated amortization. F. Derivative Financial Instruments Derivative financial instruments are principally used by the company in the management of its interest rate, foreign currency and commodity exposures. Except as described in Note 16, derivative instruments are not reflected in the financial statements at fair market value. Amounts payable or receivable under interest rate swap agreements are recognized as adjustments to interest expense in the periods in which they accrue. Gains and losses on foreign currency instruments that hedge anticipated cash flows during the next twelve months are also recognized in the results of operations as they accrue. Gains and losses related to effective hedges of identified firm foreign currency commitments are deferred and recognized in the results of operations in the same period as the hedged transaction. Net premiums paid for derivative financial instruments are deferred and recognized ratably over the life of the instrument. 2. Accounting changes Effective January 1, 1992, the company adopted SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions"; SFAS 112, "Employers' Accounting for Postemployment Benefits"; and SFAS 109, "Accounting for Income Taxes." The effect of these changes, as of January 1, 1992, was as follows:
Profit (loss) per share Profit of common (loss) stock ------- ----------- Postretirement benefits other than pensions, net of applicable income taxes (note 5B)............ $(2,141) $(10.61) Postemployment benefits, net of applicable income taxes (note 5C).............................. (29) (.14) Income taxes (note 8)................................ (47) (.23) ------- ------- $(2,217) $(10.98) ======= =======
In addition to the transition effects, incremental expense for 1992 resulting from the accounting changes was $117 before tax, $28 after tax, and $.14 per share. In the first quarter of 1994, the company changed its method of computing LIFO inventories from a single pool approach to a multiple pool approach for substantially all of its inventories. The company believes that the multiple pool method results in a better matching of revenues and expenses. The cumulative effect of the change on prior years was not determinable. This change did not have a material effect on 1994 results of operations or financial position. Effective January 1, 1994, the company adopted SFAS 114, "Accounting by Creditors for Impairment of a Loan," as A-10 Caterpillar Inc. - ------------------------------------------------------------------------------- amended by SFAS 118. The adoption of these standards did not have a material effect on the company's financial position or results of operations. 3. Foreign exchange The U.S. dollar is the functional currency for substantially all of Caterpillar's consolidated companies. The functional currency for equity-basis companies is the local currency of the country in which the company is located. Net foreign exchange gains or losses for companies with the U.S. dollar as their functional currency are included in "Other income" in Statement 1, except as noted below. For all other companies, the exchange effects from translating all assets and liabilities at current exchange rates are reported as "Foreign currency translation adjustment" in Statements 2 and 3. For 1992, 1993, and the first half of 1994, net foreign exchange gains arising from operations in Brazil's highly inflationary economy were removed from "Other income" in Statement 1 and included on the operating statement lines where the related inflationary effects were reported. Consequently, exchange gains and losses on local currency denominated debt and cash deposits, where the interest rates reflect the rate of inflation, were offset against interest expense and interest income, respectively. Similarly, exchange gains on local currency liabilities subject to monetary correction were offset against the related expense. Additionally, in the first half of 1994, noninterest bearing trade receivables in Brazil were discounted to present value with the implicit interest income reported as a component of interest income. Exchange losses on these receivables were offset against interest income. These reclassifications were no longer applicable in the second half of 1994 as inflation in Brazil dropped dramatically following the implementation of a new economic reform package. Exchange gains and losses were reclassified as follows:
1994 1993 1992 ---- ---- ---- Interest expense....................................... $ 10 $ 72 $102 Cost of goods sold..................................... 29 33 15 Provision for income taxes............................. 10 11 4 Interest Income........................................ (53) -- -- ---- ---- ---- $ (4) $116 $121 ==== ==== ====
There were no net foreign exchange gains or losses included in profit of consolidated companies for 1994. Profit of consolidated companies for 1993 and 1992 included net foreign exchange gains (losses) of $(25) and $(5), respectively. The aftertax net gains (losses) for 1994, 1993, and 1992 were $1, $(19), and $3, respectively. Certain gains or losses may impact either taxes or pretax income, when stated in U.S. dollars, without impacting the other and; accordingly, the relationship between the pretax and aftertax effects may be disproportionate. The company's operations are subject to foreign exchange risk through future foreign currency cash flows as movement in currency exchange rates impact: (1) the U.S. dollar value of its foreign currency denominated sales, and (2) the U.S. dollar value of the foreign currency denominated costs of its manufacturing facilities or purchases of material or services from suppliers. The company enters into forward exchange contracts and certain foreign currency option contracts to manage the risk that the eventual U.S. dollar net cash flows related to its operations will be adversely affected by changes in currency exchange rates. Other than the initial payment of a premium associated with purchased foreign currency option contracts, gains or losses on this hedging activity are realized in the form of cash receipts or payments at the maturity of the contracts. Realized and unrealized gains or losses on all financial instruments which are designated as, and are effective as hedges of firmly committed future foreign currency transactions are deferred and are recognized in the results of operations when the operating revenues and/or expenses are recognized. The cash flows from these transactions are classified consistent with the cash flows for the transaction or event being hedged. Similar accounting treatment is applied to gains and losses on purchased foreign currency option hedges of probable anticipated transactions that expose the enterprise to foreign currency risk. In those situations where these financial instruments are either terminated or mature prior to the transaction or event being hedged, the gains or losses continue to be deferred and are recognized in the results of operations when the transaction or event being hedged is recognized. Conversely, deferred gains and losses are recognized in the results of operations immediately when the hedged firmly committed or anticipated transaction is no longer anticipated to occur. Gains or losses on financial instruments, other than certain purchased foreign currency options used as hedges of anticipated but not firmly committed foreign currency cash flow exposures, are reported in the results of operations as exchange rates change and included with amounts reported in "Other income" on Statement 1. Realized gains or losses not yet recognized in the results of operations and the offset for gains and losses recognized but not realized are included with amounts reported as "Receivables trade and other" on Statement 3. At December 31, 1994, the company had approximately $354 in forward exchange and foreign currency option contracts to buy or sell foreign currency to hedge anticipated, but not firmly committed, net foreign currency cash flow exposures for the next twelve months. In conjunction with this hedging activity, losses totaling $15 have been recognized in "Other income" (Statement 1) but have not been realized. This amount is reflected as a reduction of assets in Statement 3. Additionally, at December 31, 1994, the company had approximately $649 in forward exchange and foreign currency option contracts to sell foreign currency to hedge firmly committed revenue (sale) transactions for the next twelve months. Losses totaling $11, associated with hedges of future firmly committed revenue transactions that had matured or been canceled prior to December 31, 1994, have been realized, and will be recognized when the underlying hedged transactions occur. This amount is reflected as an asset in Statement 3. The fair market value of all forward exchange and foreign currency option contracts based on quoted market prices of comparable instruments was a liability of $97. The value of the contracts upon ultimate settlement is dependent upon actual currency exchange rates at the various maturity dates which range through 1995. At December 31, 1993, and 1992, the company had approximately $1,345, and $1,705, respectively, in forward exchange and foreign currency option contracts to buy or sell foreign currency in the future. At December 31, 1993, and 1992, the carrying value of such contracts was an asset (liability) of $(2) and $10, and the fair value, based on quoted market prices of comparable instruments, was a liability of $16, and $70, respectively. A-11 NOTES continued (Dollars in millions except per share data) - ----------------------------------------------------------------------------- 4. Research and engineering expenses Research and engineering expenses are charged against operations as incurred. The portions of these expenses related to new product development and major improvements to existing products are classified as "Research and development expenses" in Statement 1. The remaining portions, attributable to engineering expenses incurred during the early production phase, as well as ongoing efforts to improve existing products, are included in "Cost of goods sold" in Statement 1. 5. Postemployment benefit plans A. Pension plans The company has pension plans covering substantially all employees. These defined benefit plans provide a benefit based on years of service and/or the employee's average earnings near retirement. Pension expense for 1994, 1993, and 1992 was $81, $95, and $72, respectively. The company's funding policy for these plans is to contribute amounts which comply with applicable laws and regulations and are tax deductible. Cost components of consolidated pension expense were as follows:
1994 1993 1992 --------------- ------------- --------------- Service cost -- benefits earned during the period.. $108 $103 $ 96 Interest cost on projected benefit obligation........ 393 387 366 Return on plan assets:(1) Actual.................... $(124) $(674) $(553) Deferred.................. (335) 248 138 ----- ----- ----- Recognized.............. (459) (426) (415) Amortization of: Net asset existing at adoption of SFAS 87...... (22) (22) (24) Prior service cost(2)..... 60 51 47 Net actuarial (gain) loss. 1 2 2 ---- ---- ---- Pension expense............ $ 81 $ 95 $ 72 ==== ==== ====
(1) Although the actual return on plan assets is shown, the expected long-term rate of return on plan assets of 9.4%, 9.9%, and 9.9% was used in determining consolidated pension expense for 1994, 1993, and 1992, respectively. The difference between the actual return and the recognized return on plan assets is shown as deferred return on plan assets. (2) Prior service costs are amortized using a straight-line method over the average remaining service period of employees expected to receive benefits from the plan amendment. A reconciliation of the funded status of both U.S. and non-U.S. pension plans at their plan year-end (November 30 for U.S. plans and September 30 for non-U.S. plans) with the amount recognized in Statement 3 is presented in Table I on page A-13. For certain pension plans with accumulated benefits in excess of plan assets, an additional long-term liability was recorded as required by SFAS 87. This amount is included in Table I as "Adjustment required to recognize minimum liability." A related intangible asset of $209, $323, and $329 was recorded at December 31, 1994, 1993, and 1992. As the intangible asset may not exceed unrecognized prior service cost, at December 31, 1993, this adjustment resulted in a reduction to stockholders' equity of $40 (after deferred taxes of $24). Plan assets consist principally of common stocks, corporate bonds, and U.S. government obligations. The actuarial present value of benefits was determined using a weighted average discount rate of 8.3%, 7.3%, and 7.9% for 1994, 1993, and 1992, respectively. The projected benefit, for those plans with benefit payments based upon earnings near retirement, includes an expected annual rate of increase in future compensation of 4.6%, 4.1%, and 5.0% for 1994, 1993, and 1992, respectively. A point-in-time comparison of the projected benefit obligation to the market value of assets is only one indicator of the pension plans' ability to pay benefits when due. The benefit information is based on estimated conditions over many future years, while the asset information relates to market values prevailing at a specific moment. The plans' long-range ability to pay benefits also depends on the future financial health of the company. B. Other postretirement benefit plans The company has defined benefit retirement health care and life insurance plans for substantially all U.S. employees. Most of the plans are non-contributory although some plans require retiree contributions. Effective January 1, 1992, the company adopted SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS 106 requires recognition of the cost of providing postretirement health care and life insurance benefits over the employee service period. Caterpillar, like most U.S. companies, formerly charged the cost of providing these benefits against operations as claims were incurred. This standard does not affect cash flow, but merely accelerates recognition of costs. The company recognized the liability for past service (the transition obligation) as of January 1, 1992, of $2,141, net of income taxes of $1,247, as a one-time charge to earnings. During the second quarter of 1992, the company announced several changes to its retiree health care plans. Among the changes was the establishment of contractual agreements with certain health care providers at most U.S. locations in which the company operates. The agreements set base prices for certain medical procedures and limit future inflationary increases. In addition, eligibility requirements for plan benefits based on age and years of service were established. During the fourth quarter of 1992, limits were placed on the company's contribution to substantially all future retirees' health care benefits. Such limits will be effective January 1, 2000. Cost components of postretirement benefit expense were as follows:
1994 1993 1992 -------------- ------------ ----------- Service cost -- benefits earned during the period................ $ 83 $ 79 $ 98 Interest cost on accumulated benefit obligation............... 223 227 260 Return on plan assets:(1) Actual........................... $ 3 $ -- $ -- Deferred......................... (26) -- -- ---- ____ ____ Recognized..................... (23) -- -- Amortization of: Prior service cost(2)............ (190) (189) (104) Net actuarial loss............... 2 1 -- ___ ___ ___ Postretirement benefit expense.... $ 95 $118 $254 === === ===
(1) Although the actual return on plan assets is shown, the expected long-term rate of return on plan assets of 9.5% was used in determining consolidated postretirement benefit expense for 1994. The difference between the actual return and the recognized return on plan assets is shown as deferred return on plan assets. (2) Prior service costs are amortized using a straight-line method over the average remaining service period of employees impacted by the plan amendment. A-12 Caterpillar Inc.
- ------------------------------------------------------------------------------------------------------------------------------- TABLE I - ------------------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 --------------------------- --------------------------- --------------------------- Assets Accumulated Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed Accumulated Exceed Benefits Assets Benefits Assets Benefits Assets ----------- ----------- ----------- ----------- ----------- ----------- Actuarial present value of: Vested benefit obligation....... $ (2,379) $ (1,823) $ (2,453) $ (2,047) $ (2,197) $ (1,838) Nonvested benefit obligation.... (146) (402) (190) (476) (181) (482) -------- -------- -------- -------- -------- -------- Accumulated benefit obligation.. $ (2,525) $ (2,225) $ (2,643) $ (2,523) $ (2,378) $ (2,320) ======== ======== ======== ======== ======== ======== Actuarial present value of projected benefit obligation.................... $ (2,829) $ (2,248) $ (2,928) $ (2,587) $ (2,699) $ (2,395) Plan assets at market value..... 3,310 1,810 3,257 1,922 2,999 1,800 -------- -------- -------- -------- -------- -------- Funded status at plan year-end.. 481 (438) 329 (665) 300 (595) Unrecognized net asset existing at adoption of SFAS 87....................... (114) (9) (160) 13 (192) 18 Unrecognized prior service cost.......................... 158 279 115 351 125 402 Unrecognized net actuarial (gain) loss................... (342) (45) (124) 63 (96) (37) Adjustment required to recognize minimum liability... -- (209) -- (387) -- (329) -------- -------- -------- -------- -------- -------- Prepaid pension cost (pension liability) at December 31..... $ 183 $ (422) $ 160 $ (625) $ 137 $ (541) ======== ======== ======== ======== ======== ======== - -------------------------------------------------------------------------------------------------------------------------------
The company makes contributions to Voluntary Employees' Beneficiary Association (VEBA) trusts for payment of certain employee benefits for substantially all active and retired U.S. employees. Postretirement benefits funded through VEBA contributions include life insurance for hourly and salaried employees and medical expenses for employees not enrolled in health maintenance organizations. The company currently funds plan obligations on a pay-as-you-go basis. Balances in the VEBA trusts have accumulated over time primarily from earnings on assets previously contributed to the trusts. Assets in the trusts consist principally of mutual funds, common stocks, corporate bonds, and government obligations. In accordance with the company's prior accounting policy, trust assets and earnings were not previously reflected in the company's financial statements. In conjunction with the adoption of SFAS 106, the fair value of previously unrecognized trust assets of $201 for future retiree health care and life insurance benefits were recorded as investments and as a liability for postretirement benefits. The SFAS 106 transition obligation is the accumulated postretirement benefit obligation at January 1, 1992, less the amount recognized from trust assets. Earnings from trust assets of $34 were included in Statement 1 as a component of "Other income" (note 7) for 1993. As of December 31, 1993, the carrying value of trust assets was $220, and was a component of "Other assets" in Statement 3. Effective January 1, 1994, trust assets for retiree benefits were legally segregated from those for active employees. As such, these assets have been recorded as a reduction to the liability for postretirement benefits rather than as a component of "Other assets." Beginning in 1994, return on plan assets was a component of postretirement benefit expense rather than a component of "Other income." The components of the liability for postretirement benefits (other than pensions) as of December 31, were as follows:
1994 1993 1992 ------ ------ ------ Accumulated postretirement benefit obligation: Retirees..................................... $(1,910) $(1,965) $(1,820) Fully eligible active plan participants...... (242) (323) (370) Other active plan participants............... (604) (722) (699) ------- ------- ------- (2,756) (3,010) (2,889) Plan assets at market value.................... 239 -- -- Unrecognized prior service cost................ (669) (861) (1,029) Unrecognized net actuarial (gain) loss......... (265) 132 161 ------- ------- ------- Liability for postretirement benefits (other than pensions)........................ $(3,451) $(3,739) $(3,757) ======= ======= =======
The assumed health care cost trend rate used to measure the accumulated postretirement benefit obligation at December 31, 1994, was 9.4% for 1995, declining gradually to 5.0% in 2001. Postretirement benefit expense for 1994 and the accumulated postretirement benefit obligation at December 31, 1993, were determined using a health care cost trend rate of 10.2% for 1994, declining gradually to 4.5% in 2001. Postretirement benefit expense for 1993 and the accumulated postretirement benefit obligation at December 31, 1992 were determined using a health care cost trend rate of 11.5% for 1993, declining gradually to 5.0% in 2001. Postretirement benefit expense for 1992 was determined using a health care cost trend rate of 12% for 1992, declining gradually to 5.5% in 2001. Increasing the assumed health care trend rate by 1% each year would increase the accumulated postretirement benefit obligation as of December 31, 1994, 1993, and 1992 approximately $202, $234, and $279, respectively, and the aggregate of the service and interest cost components of 1994, 1993, and 1992 postretirement benefit expense by approximately $24, $25, and $62, respectively. The A-13 NOTES continued (Dollars in millions except per share data) - ------------------------------------------------------------------------------- accumulated postretirement benefit obligation was determined using a weighted average discount rate of 8.5%, 7.4%, and 8.0% for 1994, 1993, and 1992, respectively. C. Other postemployment benefit plans The company offers various other postemployment benefits to substantially all U.S. employees. These benefits are provided to former or inactive employees after employment but before retirement. Inactive employees are those who are not currently rendering service but have not been terminated, excluding those who have not been terminated but have been laid off for greater than one year. Postemployment benefits include disability benefits, supplemental unemployment benefits, workers' compensation benefits, and continuation of health care benefits and life insurance coverage. Effective January 1, 1992, the company adopted SFAS 112, "Employers' Accounting for Postemployment Benefits." SFAS 112 requires recognition of the cost of providing postemployment benefits when it is probable that such benefits will be provided, generally when the employee becomes inactive. The company previously accounted for certain types of these benefits, primarily disability benefits and continuation of health care benefits, on a pay-as-you-go basis. D. Summary of long-term liability The components of the long-term liability for postemployment benefits at December 31 were as follows:
1994 1993 1992 ------ ------ ------ Pensions...................................... $ 209 $ 387 $ 329 Postretirement benefits other than pensions... 3,275 3,566 3,598 Other postemployment benefits................. 64 65 68 ------ ------ ------ $3,548 $4,018 $3,995 ====== ====== ======
6. Sale of lift truck assets In July 1992, the company formed three lift truck joint ventures with Mitsubishi Heavy Industries, Ltd. (MHI). The joint ventures are known as Mitsubishi Caterpillar Forklift (MCF) America Inc., MCF Asia Pte Ltd, and MCF Europe B.V. MHI owns 80% of each joint venture; the company owns 20% of each. The joint venture companies design, manufacture, and distribute lift trucks, other materials handling equipment, and related parts. The company received $141 in cash for assets sold to the joint ventures. A pretax gain of $53 was recognized from the sales in 1992. The gain, which includes $51 resulting from liquidations of inventory valued on a LIFO basis, is net of related disposal costs. 7. Other income The components of other income were as follows for the years ended December 31:
1994 1993 1992 ---- ---- ---- Foreign exchange gains (losses)............... $ -- $(25) $ (5) Investment and interest income................ 48 97 78 License fees.................................. 23 28 32 Miscellaneous income (expense)................ (32) 13 (10) ---- ---- ---- $ 39 $113 $ 95 ==== ==== ====
8. Income taxes Effective January 1, 1992, the company adopted SFAS 109, "Accounting for Income Taxes." For years prior to 1992, income taxes were computed based on Accounting Principles Board Opinion (APB) 11. Net assets as of January 1, 1992, were reduced by $47 as a result of the adoption of SFAS 109. The provision (credit) for income taxes for the years ended December 31 was:
1994 1993 1992 ---- ---- ----- Machinery and Engines......................... $333 $ 19 $(131) Financial Products............................ 21 23 17 ---- ---- ----- Provision (credit) for income taxes........... $354 $ 42 $(114) ==== ==== =====
The components of the provision (credit) for income taxes were as follows for the years ended December 31:
1994 1993 1992 ---- ---- ----- Current tax provision (credit): U.S. federal taxes.......................... $164 $ 63 $ (63) Foreign taxes............................... 73 25 28 U.S. state taxes............................ 25 10 (2) ---- ---- ----- 262 98 (37) ---- ---- ----- Deferred tax provision (credit): U.S. federal taxes.......................... 87 (51) (61) Foreign taxes............................... (8) (2) (1) U.S. state taxes............................ 13 (3) (15) ---- ---- ----- 92 (56) (77) ---- ---- ----- Total provision (credit) for income taxes..... $354 $ 42 $(114) ==== ==== =====
Current tax provision (credit) is the amount of income taxes reported or expected to be reported on the company's tax returns. Income taxes paid (refunded) in 1994, 1993, and 1992 totaled $199, $10, and $(26), respectively. During 1993, the company reached a settlement with the U.S. Internal Revenue Service (IRS) covering tax years 1979 through 1987. As a result of this settlement, credits of $134 and $10 were recorded to U.S. federal and U.S. state taxes, respectively. Net interest income associated with the settlement was $251 upon which U.S. federal taxes of $88 and U.S. state taxes of $7 were provided. Refundable income taxes of $86 at December 31, 1992 resulted from the carryback of tax credits from prior years for U.S. federal income tax purposes. Refunds related to these carrybacks were received in connection with the IRS settlement. In August 1993, the U.S. federal income tax rate for corporations was increased from 34% to 35% effective January 1, 1993. As a result of the rate increase, net U.S. deferred tax assets were increased $36, and a credit of the same amount was recorded to the 1993 provision for income taxes. Differences between accounting rules and tax laws cause differences between the bases of certain assets and liabilities for financial reporting purposes and tax purposes. The tax effects of these differences, to the extent they are temporary, are recorded as deferred tax assets and liabilities under SFAS 109, and consisted of the following components at December 31: A-14 CATERPILLAR INC. - --------------------------------------------------------------------------------
1994 1993 1992 ------ ------ ------ U.S. federal, U.S. state, and foreign taxes: Deferred tax assets: Postemployment benefits other than pensions............................ $1,331 $1,345 $1,316 Inventory valuation method................ 62 66 71 Unrealized profit excluded from inventories......................... 156 193 209 Plant closing and consolidation costs..... 55 58 69 Net operating loss carryforwards.......... 166 253 239 Warranty reserves......................... 108 67 50 Accrued vacation.......................... 29 29 30 Qualified deficits........................ 33 54 40 Foreign tax credit carryforwards.......... -- 62 11 Minimum tax credit carryforwards.......... -- 18 30 Other..................................... 155 126 40 ------ ------ ------ 2,095 2,271 2,105 Deferred tax liabilities: Capital assets............................ (84) (77) (68) Pension................................... (36) (22) (49) ------ ------ ------ (120) (99) (117) ------ ------ ------ Valuation allowance for deferred tax assets........................ (182) (284) (265) ------ ------ ------ Deferred taxes -- net......................... $1,793 $1,888 $1,723 ====== ====== ======
From December 31, 1993 to December 31, 1994, the valuation allowance for deferred tax assets decreased by $102. This was the result of origination and reversal of temporary differences, changes in exchange rates at certain foreign locations where valuation allowances are recorded, and a change in the conclusion regarding the need for a valuation allowance at one of the company's foreign subsidiaries. SFAS 109 requires that individual tax paying entities of the company offset all current deferred tax liabilities and assets within each particular tax jurisdiction and present them as a single amount in the Statement of Financial Position. A similar procedure is followed for all noncurrent deferred tax liabilities and assets. Amounts in different tax jurisdictions cannot be offset against each other. Deferred taxes appear in Statement 3, at December 31, on the following lines:
1994 1993 1992 ------ ------ ------ Assets: Deferred income taxes and prepaid expenses........................... $ 575 $ 584 $ 491 Deferred income taxes....................... 1,243 1,321 1,254 ------ ------ ------ 1,818 1,905 1,745 ------ ------ ------ Liabilities: Deferred and current income taxes payable....................... (6) (2) (3) Deferred income taxes and other liabilities...................... (19) (15) (19) ------ ------ ------ (25) (17) (22) ------ ------ ------ Deferred taxes -- net......................... $1,793 $1,888 $1,723 ====== ====== ======
The provision (credit) for income taxes was different than would result from applying the U.S. statutory rate to profit (loss) before taxes for the reasons set forth in the following reconciliation:
1994 1993 1992 ------ ------ ------ Taxes computed at U.S. statutory rates........ $445 $253 $(108) Increases (decreases) in taxes resulting from: Subsidiaries' results subject to tax rates other than U.S. statutory rates........... (9) 13 60 Net operating loss carryforwards........... (50) (19) -- Benefit of Foreign Sales Corporation....... (34) (21) (20) Qualified deficits......................... 21 (12) (21) IRS settlement............................. -- (144) -- Change in U.S. tax rate.................... -- (36) -- State income taxes -- net of federal taxes. 25 11 (11) Valuation allowance adjustment............. (22) -- -- Research and experimentation credit........ -- (4) -- Other -- net............................... (22) 1 (14) ---- ----- ----- Provision (credit) for income taxes........... $354 $ 42 $(114) ==== ===== =====
U.S. income taxes, net of foreign taxes paid or payable, have been provided on the undistributed profits of subsidiaries and affiliated companies, except in those instances where such profits have been permanently invested and are not considered to be available for distribution to the parent company. In accordance with this practice, the consolidated "Profit employed in the business" in Statement 3 at December 31, 1994, 1993, and 1992, included the company's share of undistributed profits of subsidiaries and affiliated companies, totaling $753, $680, and $718, respectively, on which U.S. income taxes, net of foreign taxes paid or payable, have not been provided. If for some reason not presently contemplated, such profits were to be remitted or otherwise become subject to U.S. income taxes, available credits would reduce the amount of taxes otherwise due. Determination of the amount of unrecognized deferred tax liability related to these permanently invested profits is not practicable. The domestic and foreign components of profit (loss) before taxes of consolidated companies were as follows:
1994 1993 1992 ------ ------ ------ Domestic...................................... $ 779 $611 $(215) Foreign....................................... 494 111 (103) ------ ---- ----- $1,273 $722 $(318) ====== ==== =====
The foreign component of profit before taxes comprises the profit of all consolidated subsidiaries located outside the United States. This profit information differs from that reported in note 24B, which shows operating profit for foreign geographic segments based only on the company's manufacturing and financing operations located outside the United States. Taxation of a multinational company involves many complex variables, such as differing tax structures from country to country and the effect of U.S. taxation of foreign profits. These complexities do not permit meaningful comparisons of the U.S. and foreign components of profit before taxes and the provision for income taxes. Additionally, current relationships between the U.S. and foreign components are not reliable indicators of such relationships in future periods. Net operating loss carryforwards were available in various foreign tax jurisdictions at December 31, 1994. The amounts and expiration dates of these carryforwards are as follows:
1997................................ $ 22 1998................................ -- 1999................................ 29 2000................................ 38 Unlimited........................... 305 ---- Total............................. $394 ====
A-15 NOTES continued (Dollars in millions except per share data) - ------------------------------------------------------------------------------- With the exception of one foreign taxing jurisdiction where there was sufficient positive evidence to support recognition of net deferred tax assets, a valuation allowance has been recorded for all of the deferred tax assets related to these carryforwards to the extent the assets are not offset with deferred tax liabilities in the same tax jurisdiction. For United States federal tax purposes, qualified deficits of $94, as defined by Internal Revenue Code section 952, are available for an indefinite future period to offset the future profits of certain foreign entities whose earnings are subject to U.S. taxation when earned. There were no tax credit carryforwards available in the United States at December 31, 1994. 9. Finance receivables Finance receivables are receivables of Caterpillar Financial Services Corporation, which generally may be repaid or refinanced without penalty prior to contractual maturity. Contractual maturities of outstanding receivables at December 31, 1994 were:
Installment Financing Amounts Due In Contracts Leases Notes Total - -------------- ----------- --------- ------ ------ 1995................... $ 468 $ 493 $ 573 $1,534 1996................... 351 371 334 1,056 1997................... 220 256 364 840 1998................... 90 136 167 393 1999................... 21 55 106 182 Thereafter............. 2 77 78 157 ------ ------ ------ ------ 1,152 1,388 1,622 4,162 Residual value......... -- 292 -- 292 Less: Unearned Income.. (137) (265) (14) (416) ------ ------ ------ ------ Total.................. $1,015 $1,415 $1,608 $4,038 ====== ====== ====== ======
The average recorded investment in impaired loans and leases (those for which management does not expect to collect all amounts due according to the contractual terms of the agreement) during 1994 was $49. The total recorded investment in impaired loans and leases at December 31, 1994 of $47 less the fair value of the underlying collateral of $32 represent a $15 projected loss on impaired loans and leases for which there is a related allowance for credit losses. Recognition of income on finance receivables is suspended when management determines that collection of future income is not probable. Accrual is resumed if the receivables become contractually current and collection doubts are removed; previously suspended income is recognized at that time. Total finance receivables reported in Statement 3 are net of an allowance for credit losses. Activity relating to the allowance was as follows:
1994 1993 1992 ---- ---- ---- Balance at beginning of year........................... $ 41 $ 37 $ 31 Provision for credit losses............................ 23 20 20 Less: Receivables, net of recoveries, written off.......................... (13) (19) (14) Other -- net........................................... (1) 3 -- ---- ---- ---- Balance at end of year................................. $ 50 $ 41 $ 37 ==== ==== ====
At December 31, 1994, 1993, and 1992, the fair value of finance receivables (excluding finance type leases classified as finance receivables with net carrying value of $391, $333, and $272, respectively) was $3,582, $2,822, and $2,275, respectively. Fair value was estimated by discounting the future cash flows using the current rates at which receivables of similar remaining maturities would be entered into. Historical bad debt experience was also considered. Cat Financial's "Net investment in financing leases" at December 31 consisted of the following components:
1994 1993 1992 ------ ------ ------ Total minimum lease payments receivable........... $1,387 $1,135 $ 982 Estimated residual value of leased assets: Guaranteed...................................... 84 71 55 Unguaranteed.................................... 208 149 124 ------ ------ ------ 1,679 1,355 1,161 Less: Unearned income............................. 265 229 212 ------ ------ ------ Net investment in financing leases................ $1,415 $1,126 $ 949 ====== ====== ======
10. Inventories Inventories at December 31, by major classification, were as follows:
1994 1993 1992 ------ ------ ------ Raw materials and work-in-process..................... $ 697 $ 545 $ 505 Finished goods........................................ 942 812 1,006 Supplies.............................................. 196 168 164 ------ ------ ------ $1,835 $1,525 $1,675 ====== ====== ======
Reductions in individual LIFO inventory pools decreased cost of goods sold for 1994, 1993, and 1992 by $28, $38, and $30, respectively. The company has entered into commodity price swap and option agreements to reduce the company's exposure to changes in the price of material purchased from various suppliers resulting from underlying commodity price changes. The results of these hedging transactions become a part of the cost of the related inventory transactions. At December 31, 1994, 1993, and 1992, the amounts of the contracts hedging future commodity purchases were immaterial. 11. Land, buildings, machinery, and equipment Land, buildings, machinery, and equipment at December 31, by major classification, were as follows:
1994 1993 1992 ------ ------ ------ Land -- at original cost.............................. $ 105 $ 105 $ 109 Buildings............................................. 2,597 2,485 2,479 Machinery and equipment............................... 3,609 3,594 3,458 Patterns, dies, jigs, etc............................. 441 428 405 Furniture and fixtures................................ 637 613 589 Transportation equipment.............................. 44 28 27 Equipment leased to others............................ 633 536 429 Construction-in-process............................... 164 176 346 ------ ------ ------ 8,230 7,965 7,842 Accumulated depreciation.............................. (4,454) (4,138) (3,888) ------ ------ ------ Land, buildings, machinery, and equipment -- net.................................... $3,776 $3,827 $3,954 ====== ====== ======
The company had commitments for the purchase or construction of capital assets of approximately $195 at December 31, 1994. Capital expenditure plans are subject to continuous monitoring, and changes in such plans could reduce the amount committed. Maintenance and repair expense for 1994, 1993, and 1992 was $461, $458, and $451, respectively. A-16 Caterpillar Inc. - ------------------------------------------------------------------------------- Equipment leased to others Equipment leased to others, primarily of Caterpillar Financial Services Corporation, consisted of the following components at December 31:
1994 1993 1992 ---- ---- ---- Equipment leased to others -- at cost.................. $633 $536 $429 Less: Accumulated depreciation............................. 189 150 134 ---- ---- ---- Equipment leased to others -- net...................... $444 $386 $295 ==== ==== ====
Scheduled minimum rental payments to be received for equipment leased to others during each of the years 1995 through 1999, and in total thereafter, are $135, $104, $66, $41, $18, and $9, respectively. 12. Affiliated companies The company's investments in affiliated companies consist principally of a 50% interest in Shin Caterpillar Mitsubishi Ltd., Japan ($423). The other 50% owner of this company is Mitsubishi Heavy Industries, Ltd., Japan. Combined financial information of the affiliated companies, as translated to U.S. dollars (note 3), was as follows:
Years ended September 30, 1994 1993 1992 ------ ------ ------ Results of Operations Sales.......................................... $3,324 $2,776 $2,450 ====== ====== ====== Profit (loss) before effect of accounting change............................ $ 63 $ 1 $ (41) ====== ====== ====== Profit (loss)................................. $ 63 $ 1 $ (65) ====== ====== ======
Profit for the year ended September 30, 1994, includes $19 representing aftertax gain on the sale of surplus assets.
September 30, 1994 1993 1992 ------ ------ ------ Financial Position Assets: Current assets................................... $1,853 $1,691 $1,880 Land, buildings, machinery, and equipment -- net................................ 781 750 712 Other assets..................................... 298 310 250 ------ ------ ------ 2,932 2,751 2,842 ------ ------ ------ Liabilities: Current liabilities.............................. 1,575 1,441 1,649 Long-term debt due after one year................ 332 449 396 Other liabilities................................ 150 90 85 ------ ------ ------ 2,057 1,980 2,130 ------ ------ ------ Ownership.......................................... $ 875 $ 771 $ 712 ====== ====== ======
At December 31, 1994, the company's consolidated "Profit employed in the business" included $113 representing its share of undistributed profit of the affiliated companies. In 1994, 1993, and 1992, the company received $3, $3, and $2, respectively, in dividends from affiliated companies. 13. Credit commitments The company has arrangements with a number of U.S. and non-U.S. banks to provide lines of credit. These credit lines are changed as anticipated needs vary and are not indicative of short-term borrowing capacity. Unsecured, confirmed credit lines available from banks were $3,194 at December 31, 1994 (in U.S. $1,897 and outside U.S. $1,297), of which $1,814 was unused. For the purpose of computing unused credit lines, the total borrowings under these lines and outstanding commercial paper supported by these lines was considered to constitute utilization. Machinery and Engines At December 31, 1994, Machinery and Engines had $2,139 confirmed credit lines (in U.S. $1,897 and outside U.S. $242), of which $17 was utilized as backup for bank borrowings. In the United States, the company has a long-term, contractually committed credit agreement, under which $1,200 is available from various banks through October 1999, and another agreement under which $600 is available through October 1995. The latter agreement may be extended on an annual basis subject to mutual agreement. These two credit agreements may be used at the company's option by either the company or up to 80% by Caterpillar Financial Services Corporation, with a $250 sublimit for Caterpillar Financial Australia Limited, a wholly owned subsidiary of Cat Financial. Based on a previous long-term agreement, $425 of commercial paper outstanding at December 31, 1992 was classified as long-term debt due after one year. No commercial paper was classified as long-term at December 31, 1994 or 1993. Financial Products At December 31, 1994, Financial Products had $2,495 of confirmed lines (in U.S. $1,440 and outside U.S. $1,055), including the $1,440 of the company's credit agreements, of which $841 was utilized as backup for outstanding commercial paper and $523 for bank borrowings. Based on long-term credit agreements, $660, $455, and $370 of commercial paper outstanding at December 31, 1994, 1993, and 1992, respectively, was classified as long-term debt due after one year. 14. Short-term borrowings Short-term borrowings at December 31 consisted of the following:
1994 1993 1992 ---- ---- ---- Machinery and Engines: Notes payable to banks............................... $ 17 $104 $184 Commercial paper..................................... -- 35 214 ---- ---- ---- 17 139 398 Financial Products: Notes payable to banks............................... 532 336 195 Commercial paper..................................... 181 342 344 Other................................................ 10 5 4 ---- ---- ---- 723 683 543 ---- ---- ---- $740 $822 $941 ==== ==== ====
Interest paid on short-term borrowings for 1994, 1993, and 1992 was $99, $94, and $123, respectively (interest paid in 1994, 1993, and 1992 was $109, $166, and $225, respectively, excluding the reclassification described in note 3). At December 31, 1994, 1993, and 1992, the carrying value of short-term borrowings approximated fair value. A-17 NOTES continued (Dollars in millions except per share data) - ------------------------------------------------------------------------------ The weighted average interest rates on short-term borrowings at December 31 were as follows: 1994 1993 1992 ----- ----- ----- Notes payable to banks........ 5.8% 6.6% 7.1% Notes payable to others....... 5.3% 3.6% 3.8% Commercial paper.............. 6.1% 3.6% 4.3% The balances used to calculate the weighted average interest rates for notes payable to banks exclude borrowings in high inflation countries (including Brazil). The weighted average interest rates for these borrowings were not considered meaningful because rates were impacted by the effect of significant inflation. The balances used to calculate the weighted average interest rates for commercial paper included $660, $455, and $370 of commercial paper supported by revolving credit agreements which were classified as long-term debt due after one year (note 13). 15. Long-term debt Debt due after one year at December 31 consisted of the following: 1994 1993 1992 ------ ------ ------- Machinery and Engines: Commercial paper supported by revolving credit agreement (note 13)................ $ -- $ -- $ 425 Notes -- Zero coupon due 1994.............. -- -- 117 Notes -- 9 1/8% due 1996................... 150 150 150 Notes -- 8% extendable to 1997............. -- -- 3 Notes -- 9 3/8% due 2000................... 149 149 149 Notes -- 9 3/8% due 2001................... 183 183 199 Debentures -- 8% due through 2001.......... -- -- 92 Debentures -- 9% due 2006.................. 202 202 248 Debentures -- 6% due 2007.................. 127 124 121 Debentures -- 9 3/8% due 2011.............. 123 123 149 Debentures -- 9 3/4% due 2000-2019......... 199 200 300 Debentures -- 9 3/8% due 2021.............. 236 236 250 Debentures -- 8% due 2023.................. 199 199 - Medium-term notes.......................... 300 379 451 Other...................................... 66 85 99 ------ ------ ------ 1,934 2,030 2,753 Financial Products: Commercial paper supported by revolving credit agreement (note 13).............. 660 455 370 Medium-term notes.......................... 1,616 1,366 988 Other...................................... 60 44 8 ------ ------ ------- 2,336 1,865 1,366 ------ ------ ------- $4,270 $3,895 $4,119 ====== ====== ====== The aggregate amounts of maturities and sinking fund requirements of long-term debt during each of the years 1995 through 1999, including that due within one year and classified as current are: 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- Machinery and Engines....... $ 86 $157 $119 $ 41 $ 62 Financial Products.......... 807 575 397 368 155 ---- ---- ---- ---- ---- $893 $732 $516 $409 $217 ==== ==== ==== ==== ==== Interest paid on total long-term borrowings, excluding the reclassification described in note 3, for 1994, 1993, and 1992 was $307, $308, and $314, respectively. In 1993, portions of various long-term debt issuances with total principal of $203 were repurchased on the open market by utilizing a portion of the proceeds received from the tax settlement with the IRS (note 8). As a result, the company incurred an extraordinary loss on early retirement of debt of $29 (net of income tax benefit of $19). The extraordinary loss consisted primarily of redemption premiums paid to holders. In 1992, the company utilized a portion of the proceeds received from the sale of lift truck assets (note 6) for the in-substance defeasance of the $100 10 1/8% sinking fund debentures. Sufficient funds were deposited in an irrevocable trust to redeem the principal, plus accrued interest through the redemption date of January 21, 1993. Other than the notes of the Financial Products subsidiaries, all outstanding notes and debentures itemized above are unsecured direct obligations of the parent company. The 6% debentures were sold at significant original issue discounts. This issue is carried net of the unamortized portion of its discount, which is amortized as interest expense over the life of the issue. The 6% debentures, with a principal at maturity of $250 and original issue discount of $144, have an effective annual cost of 13.3%. The 6% debentures may be redeemed at any time, at the company's option, at an amount equal to the respective principal at maturity. The company may, at its option, redeem annually an additional amount for the 9 3/4% sinking fund debenture issue, without premium, equal to 200% of the amount of the sinking fund requirement. The company may also, at its option, redeem additional portions of the sinking fund debentures by the payment of premiums which, starting in 1999, decrease periodically. The premium at the first redemption date of June 1, 1999, is 4.875%. The 8% extendable notes were redeemed at their principal amount at the company's option in 1994. All other notes and debentures are not redeemable prior to maturity. The medium-term notes are offered on a continuous basis through agents and are primarily at fixed rates. Machinery and Engines' medium-term notes may have maturities from nine months to 30 years. At December 31, 1994, these notes had a weighted average interest rate of 7.2% with about six months to nine years remaining to maturity. The notes of the Financial Products subsidiaries primarily represent medium-term notes having a weighted average interest rate of 6.3% with maturities up to 15 years at December 31, 1994. At December 31, 1994, 1993, and 1992, the fair value of long-term debt, including that due within one year, was approximately $2,127, $2,646 and $3,125, respectively, for Machinery and Engines and $3,108, $2,397, and $1,890, respectively, for Financial Products. For Machinery and Engines notes and debentures, the fair value was estimated based on quoted market prices. For other issues and for Financial Products, the fair value was estimated using discounted cash flow analyses, based on the company's current incremental borrowing rates for similar types of borrowing arrangements. 16. Interest Rate Derivative Contracts The company utilizes a variety of interest rate derivative contracts, particularly interest rate swap agreements, to manage its exposure to changes in interest rates arising from imbalances between assets and liabilities, and to lower the cost of borrowed funds. Interest rate swap agreements are settled in cash at specified intervals based on the difference between the fixed-rate and A-18 Caterpillar Inc. - -------------------------------------------------------------------------------- TABLE II - -------------------------------------------------------------------------------- INTEREST RATE SWAPS
Expected Maturity --------------------------------------------------------------- At December 31, 1994 1995 1996 1997 1998 1999 2000-04 Total ----- ----- ----- ----- ----- -------- ----- Machinery & Engines: Fixed-to-Floating Swaps Notional Amount............................. $ - $ - $150 $250 $200 $ - $600 Weighted Average: Receive Rate............................... - - 6.2% 5.3% 5.6% - 5.7% Pay Rate................................... - - 6.0% 6.0% 6.0% - 6.0% Pay Rate Index: Federal Reserve H-15 Commercial Paper Financial Products: Floating-to-Fixed Swaps Notional Amount............................. $270 $367 $167 $107 $ 5 $ 35 $951 Weighted Average: Receive Rate............................... 6.0% 5.7% 6.0% 6.0% 5.6% 5.9% 5.9% Pay Rate................................... 6.2% 5.8% 6.1% 5.7% 5.1% 6.9% 6.0% Receive Rate Index: LIBOR, Commercial Paper Fixed-to-Floating Swaps Notional Amount............................. $ 63 $176 $ 45 $ 20 $ - $ - $304 Weighted Average: Receive Rate............................... 7.8% 4.6% (1) 6.2% 5.2% - - 5.5% Pay Rate................................... 7.2% 5.8% 6.3% 5.7% - - 6.2% Pay Rate Index: LIBOR Floating-to-Floating Swaps Notional Amount............................. $245 $ 37 $ 50 $100 $ 60 $ - $492 Weighted Average: Receive Rate............................... 5.1% 3.5% (1) .1% (1) 6.9% 6.4% - 5.0% Pay Rate................................... 5.8% 5.5% 5.7% 6.1% 5.5% - 5.8% Receive/Pay Rate Indices: LIBOR
(1) Low rate offset by low pay rate on related structured medium-term notes. - ------------------------------------------------------------------------------- TABLE III - ------------------------------------------------------------------------------- INTEREST RATE SWAPS
Machinery & Engines Financial Products ---------- -------------------------------------------- Fixed-to Floating- Fixed-to Floating- Floating to-Fixed Floating to-Floating Total ---------- ---------- --------- ------------ ------- Balance, December 31, 1993.... $ 500 $ 851 $329 $ 867 $2,047 Additions................... 200 363 89 287 739 Maturities/Amortizations.... (100) (220) (96) (241) (557) Terminations................ - (54) (18) (421) (493) F/X Translation Adjustment.. - 11 - - 11 ----- ----- ---- ----- ------ Balance, December 31, 1994.... $ 600 $ 951 $304 $ 492 $1,747 ===== ===== ==== ===== ====== - ----------------------------------------------------------------------------------------
floating-rate interest amounts calculated by reference to the contractual notional amount. Hedge accounting treatment is applied to interest rate derivative contracts that are designated as hedges of specific debt positions. That is, interest differentials currently payable or receivable under the derivative contract are recognized each period as an adjustment to "Interest expense" in Statement 1. Under hedge accounting treatment, current period income is not affected by the increase or decrease in the fair market value of derivative instruments as interest rates change. Premiums paid on forward rate agreements and/or purchased interest rate caps are deferred and recognized ratably as adjustments to "Interest expense" on Statement 1 over the lives of the agreement. Interest accruals in a net payable position are recorded as accrued interest payable, while those accruals in a net receivable position are recorded as other assets. Early termination of a hedging instrument does not result in recognition of immediate gain or loss except in those cases when the debt instrument to which a contract is specifically linked is terminated. The notional amounts of interest rate swap agreements outstanding as of December 31, 1994, segregated by type of instrument and year of maturity are presented in Table II on Page A-19. The weighted average receive and pay interest rates and the primary index to which the floating interest rates are linked are A-19 NOTES continued (Dollars in millions except per share data) - -------------------------------------------------------------------------------- also presented. The notional amounts are not indicative of the company's exposure to credit risk. The floating interest rates presented are based on the interest rates in effect at the reporting date. These rates may change substantially in the future due to open market factors. The notional amount of Financial Products subsidiaries' outstanding forward rate agreements, which are utilized to hedge interest rate exposure on short-term borrowings, totaled $3 at December 31, 1994. These agreements generally range up to six months. As of December 31, 1994, Financial Products subsidiaries had three written index-amortizing interest rate cap agreements outstanding. Two of these caps have notional amounts of $100 with strike rates of 5.0% and 4.75% based on three month LIBOR and maturity dates in 1997. One has a notional amount of Canadian $50 (U.S. dollar equivalent $36) with a strike rate of 5.15% based on three month Canadian Banker's Acceptance and a maturity date in 1997. The maturity dates of all three interest rate cap agreements may be earlier based on the notional amount index-amortizing feature of each agreement. The company entered into these instruments, in return for a premium, in order to reduce the overall cost of borrowing. Fair value or mark to market accounting treatment is being applied to these instruments. Accordingly, unrealized and realized gains and losses on these instruments are recorded as "Other income" on Statement 1 and as "Accounts payable and accrued expenses" on Statement 3. Increases in interest rates during 1994 have resulted in a recognized but unrealized mark to market loss on these written options of $18 during the year. The company does not currently intend to liquidate these instruments, but will evaluate alternatives as economic conditions change. In the future, the use of interest rate contracts will be limited to those that qualify for deferred accounting treatment, thereby minimizing fluctuations to the earnings of the company created by mark to market accounting treatment. The company's activity for 1994 for each type of interest rate swap agreement is summarized in Table III on Page A-19. The notional amounts of interest rate swaps, caps and forward rate agreements outstanding at December 31, 1993, and 1992 were as follows:
1993 1992 ------ ----- Machinery and Engines: Interest rate swaps: Fixed to floating rate........ $ 500 $ 250 ====== ===== Financial Products: Interest rate swaps and caps: Floating to fixed rate........ $1,051 $ 527 Fixed to floating rate........ 629 338 Floating to floating rate..... 867 80 ------ ----- $2,547 $ 945 ====== ===== Forward rate agreements......... $ 246 $ 59 ====== =====
For Machinery and Engines, the carrying value and the fair value of interest rate swaps and options in a net receivable position were approximately zero at December 31, 1994. The carrying value of interest rate swaps and options in a net receivable position was $1 at both December 31, 1993 and 1992, respectively, and the fair value was $8 and $2 at December 31, 1993 and 1992, respectively. At December 31, 1994, the carrying value of interest rate swaps and options in a net payable position was $2, and the fair value was $50. For Financial Products, at December 31, 1994, 1993, and 1992, the carrying value of interest rate swaps and options in a TABLE IV ________________________________________________________________________________ FAIR VALUES OF FINANCIAL INSTRUMENTS
Asset (Liability) 1994 1993 1992 -------------------- ------------------- ------------------- At December 31 Carrying Fair Carrying Fair Carrying Fair Note Amount Value Amount Value Amount Value Reference # --------- --------- --------- -------- --------- -------- -------------------- Cash and Short-term Investments.......... $ 419 $ 419 $ 83 $ 83 $ 119 $ 119 Statement 3, Note 21 Long-term Investments.................... 172 172 362 362 353 353 Note 21 Foreign Currency Exchange Contracts...... (4) (97) (2) (16) 10 (70) Note 3 Finance Receivables - net (excluding finance type leases and currency swaps)........................ 3,603 3,582 2,807 2,822 2,253 2,275 Note 9 Short-term Borrowings.................... 740 740 822 822 941 941 Note 14 Long-term Debt (including amounts due within one year) Machinery and Engines................ (2,020) (2,127) (2,248) (2,646) (2,873) (3,125) Note 15 Financial Products................... (3,143) (3,108) (2,358) (2,397) (1,858) (1,890) Note 15 Interest Rate Swaps and Options Machinery and Engines.................. - - 1 8 1 2 Note 16 Machinery and Engines.................. (2) (50) - - - - Note 16 Financial Products..................... 3 46 3 8 1 3 Note 16 Financial Products..................... (23) (62) (7) (24) (7) (22) Note 16 - -------------------------------------------------------------------------------------------------------------------------------
A-20 Caterpillar Inc. - -------------------------------------------------------------------------------- net receivable position was $3, $3, and $1, respectively, and the fair value was $46, $8, and $3, respectively. The carrying value of interest rate swaps and options in a net payable position was $23 at December 31, 1994 and was $7 at both December 31, 1993 and 1992, and the fair value was $62, $24, and $22 at December 31, 1994, 1993, and 1992, respectively. The fair values represent the estimated amount that the company would receive or pay to terminate the agreements taking into account current interest rates. Fair values for related short-term borrowings and long-term debt are presented in Table IV on page A-20. 17. Fair Values of Financial Instruments The following methods and assumptions were used by the company in estimating its fair value disclosures for financial instruments: Cash and Short-term Investments: The carrying amount reported in the balance sheet for cash and short-term investments approximated its fair value. Long-term Investments: The fair value of long-term investments was based on quoted market prices. Foreign Currency Exchange Contracts: Fair value for foreign currency exchange contracts was based on quoted market prices of comparable instruments. Finance Receivables: Fair value of finance receivables was estimated by discounting the future cash flows using the current rates at which receivables of similar remaining maturities would be entered into. Historical bad debt experience was also considered. Short-term Borrowings: The carrying amount of short-term borrowings approximated fair value. Long-term Debt: For Machinery and Engines notes and debentures, the fair value was estimated based on quoted market prices. For other issues and for Financial Products, the fair value was estimated using discounted cash flow analyses, based on the company's current incremental borrowing rates for similar types of borrowing arrangements. Interest Rate Swaps and Options: The fair values of interest rate swaps and options represent the estimated amount that the company would receive or pay to terminate the agreements taking into account current interest rates. Dealer quotes are available for most of these agreements. The carrying amounts and fair values of the company's financial instruments are presented in Table IV on Page A-20. 18. Litigation On September 6, 1994, the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America ("UAW"), UAW Local 974, and Citizens for a Better Environment filed a complaint againt the company with the Illinois Pollution Control Board ("Board"). The complaint generally alleges, in seven counts, that the company has violated certain provisions of the Illinois Environmental Protection Act and Board regulations with respect to a particular property in East Peoria, Illinois. The complaint further alleges that the maximum penalties for the alleged violations total $199. The company believes the claims are without merit and will vigorously contest them. The company further believes final resolution of this matter will not have a material impact on the company's liquidity, capital resources, or results of operations. On May 12, 1993, a Statement of Objections ("Statement") was filed by the Commission of European Communities against Caterpillar Inc. and certain overseas subsidiaries. The Statement alleges that certain service fees payable by dealers, certain dealer recordkeeping obligations, a restriction which prohibits a European Community ("EC") dealer from appointing subdealers, and certain export pricing practices and parts policies violate EC competition law under Article 85 of the European Economic Community Treaty. The Statement seeks injunctive relief and unspecified fines. Based on an opinion of counsel, the company believes it has strong defenses to each allegation set forth in the Statement. On November 19, 1993, the Commission of European Communities informed the company that a new complaint has been received by it alleging that certain export parts policies violate Article 85 and Article 86 of the European Economic Community Treaty. The Commission advised the company that it intends to deal with the new complaint within the framework of the proceedings initiated on May 12, 1993. Based on an opinion of counsel, the company believes it has strong defenses to the allegations set forth in the new complaint. The company is party to other litigation matters and claims which are normal in the course of its operations, and while the results of litigation and claims cannot be predicted with certainty, management believes, based on advice of counsel, the final outcome of such matters will not have a materially adverse effect on the consolidated financial position. 19. Capital stock A. Stock Options In 1977 and 1987, stockholders approved plans providing for the granting to officers and other key employees of options to purchase common stock of the company. In 1988, the 1987 plan was amended to annually grant each non-employee director options to purchase 2,000 shares each year of the company's common stock. The 1987 plan provided an additional 6,000,000 shares for grants. In 1993 and 1991, the 1987 plan was amended to provide an additional 2,000,000 and 7,000,000 shares, respectively, for grants. Options granted under both plans carry prices equal to the average market price on the date of grant and therefore, in accordance with APB 25, no compensation expense is incurred in association with the options. Options are exercisable upon completion of one full year of service following the grant date (except in the case of death or retirement) and vest at the rate of one-third per year over the three years following the grant. Common shares issued under stock options, including treasury shares reissued, totaled 1,144,631; 1,819,130; and 80,928 in 1994, 1993, and 1992, respectively. No treasury stock was held at December 31, 1993. Shares held as treasury stock at December 31, 1994 and 1992 were 3,281,569 and 1,003,326, respectively. Stock appreciation rights may be granted as part of 1977 or 1987 plan options or as separate rights to holders of options previously granted. Stock appreciation rights permit option holders to exchange exercisable options for shares of common stock, cash, or a combination of both. No stock appreciation rights have been issued since 1990. Compensation expense related to stock appreciation rights was not material in 1994, 1993, or 1992. Of the shares covered by options outstanding at December 31, 1994, 3% were the subject of stock appreciation rights. A-21 NOTES continued (Dollars in millions except per share data) - ------------------------------------------------------------------------------- Changes in the status of common shares subject to issuance under options were as follows:
Shares ----------------------------------- 1994 1993 1992 --------- ---------- ---------- Options outstanding at beginning of year....................... 7,351,800 10,012,730 8,329,558 Granted to officers and key employees in 1994, 1993, and 1992 at $53.53, $37.53, and $29.94 per share, respectively................. 1,581,540 1,488,280 2,069,340 Granted to outside directors in 1994, 1993, and 1992 at $56.69, $30.38, and $24.09 per share, respectively................. 22,000 16,000 20,000 Exercised................................. (2,344,369) (4,122,368) (246,990) Lapsed.................................... (57,600) (42,842) (159,178) --------- ---------- ---------- Options outstanding at year-end........... 6,553,371 7,351,800 10,012,730 ========= ========== ==========
Options outstanding at December 31, 1994, had exercise prices ranging from $16.97 to $56.69 per share with an average exercise price of $37.09 per share and had expiration dates ranging from June 9, 1995, to June 7, 2004. At December 31, 1994, the number of shares exercisable totaled 3,388,433. At December 31, unissued common shares were reserved for potential stock option grants and for issuance to other employee benefit plans in the following amounts:
Shares ------------------------------------ 1994 1993 1992 ---------- ---------- ---------- 1977 stock option plan.................... 2,547,304 2,547,304 2,546,164 1987 stock option plan.................... 2,879,292 4,425,232 3,887,810 Employee investment and other benefit plans..................... 11,400,178 11,400,178 11,400,178 ---------- ---------- ---------- 16,826,774 18,372,714 17,834,152 ========== ========== ==========
B. Stockholders' Rights Plan The company is authorized to issue 5,000,000 shares of preferred stock, of which 2,000,000 shares have been designated as Series A Junior Participating Preferred Stock of $1.00 par value. None of the preferred shares or the Series A Junior Participating Preferred Stock have been issued. On December 1, 1986, the company distributed a dividend of one preferred stock purchase right for each outstanding share of common stock. Each right entitles the holder to purchase one one-hundredth of a share of the Series A Junior Participating Preferred Stock, $1.00 par value, for $150, subject to adjustment. As a result of a two for one split of the company's common stock in the form of a 100% dividend in 1994, such an adjustment was made whereby each share of common stock now evidences one-half of a purchase right. The rights are exercisable only after a third party acquires 20% or more of the company's common stock or after commencement of a tender offer by a third party, which upon consummation, would result in such party's control of 30% or more of the company's common stock. The rights, which do not have voting rights, expire on December 1, 1996, and may be redeemed by the company at a price of 5 cents per right at any time until ten days after a 20% ownership position has been acquired, unless such period is extended. The right of redemption may be reinstated under certain circumstances. In addition, the company amended the stockholder rights plan in December 1992 to permit stockholders, by a two-thirds vote taken at a special meeting of stockholders, to require the redemption of outstanding rights if a cash tender offer is made for all shares of common stock by a person owning not more than 5% of the outstanding common stock and if certain other requirements are satisfied. If the company is acquired in a merger or other business combination at any time after the rights become exercisable and the company is not the surviving corporation or its common stock is changed or exchanged or 50% or more of the company's assets or earning power is sold or transferred, each such right will entitle its holder to purchase common shares of the acquiring company having a market value of twice the exercise price of each right (i.e., at a 50% discount). If a 20% or greater holder acquires the company and the company is the surviving corporation and its common stock is not changed or exchanged, or such holder engages in one or more "self-dealing" transactions as set forth in the Rights Agreement or increases its beneficial ownership of the company by more than 1% in a transaction involving the company, each right will entitle its holder, other than the acquirer, to purchase common stock of the company (or under certain circumstances to receive cash, preferred stock, or other securities of the company), at a similar 50% discount from market value at that time. 20. Leases The company leases certain computer and communications equipment, transportation equipment, and other property through operating leases. Lease expense on these leases is charged to operations as incurred. Total rental expense for operating leases was $137, $137, and $138 for 1994, 1993, and 1992, respectively. Minimum payments for operating leases having initial or remaining non-cancelable terms in excess of one year are: Years ending December 31, 1995............................ $ 90 1996............................ 71 1997............................ 43 1998............................ 20 1999............................ 16 Thereafter...................... 53 ---- Total lease commitments......... $293 ==== 21. Concentration of credit risk Financial instruments which potentially subject the company to credit risk consist primarily of trade and finance receivables and short-term and long-term investments. Additionally, to a lesser extent, the company is potentially subject to credit risk associated with counterparties to derivative contracts. Trade receivables are primarily short-term receivables from independently owned and operated dealers which arise in the normal course of business. The company performs regular credit evaluations of its dealers. The company generally doesn't require collateral, and the majority of its trade receivables are unsecured. The company does make use of various devices such as security agreements and letters of credit to protect its interests as it deems necessary. No single dealer or region represents a significant concentration of credit risk. At December 31, 1994, 1993, and 1992, the carrying value of trade receivables approximated fair value. Finance receivables primarily represent receivables under installment sales contracts, receivables arising from leasing transactions, and notes receivable. The company generally maintains A-22 CATERPILLAR INC. - ------------------------------------------------------------------------------- a secured interest in the equipment financed. Receivables from customers in construction-related industries made up approximately one-third of total finance receivables at December 31, 1994, 1993, and 1992, respectively. No single customer or region represents a significant concentration of credit risk. Fair value information on finance receivables is included in note 9. The company has short-term and long-term investments with high quality institutions and, by policy, limits the amount of credit exposure to any one institution. At December 31, 1994, 1993, and 1992, the carrying value of short-term investments approximated fair value. Long-term investments are held by Caterpillar Insurance Co. Ltd. and are a component of "Other assets" on Statement 3. VEBA trusts were a component of "Other assets" on Statement 3 at December 31, 1993 and 1992. At December 31, 1994, VEBA trust assets were recorded as a reduction to the liability for postretirement benefits (note 5B). At December 31, 1994, 1993, and 1992, the carrying value of long-term investments was $172, $362, and $353, respectively, which, based on quoted market prices, approximated fair value. At December 31, 1994, Caterpillar Financial Services Corporation was contingently liable under guarantees of securities of certain Caterpillar dealers totaling $258 of which $165 was outstanding. These guarantees are fully secured by dealer inventories. No loss is anticipated from these guarantees. At December 31, 1994, the company had outstanding derivative contracts with notional amounts totaling $3,350 with terms generally ranging up to five years. To minimize the risk of credit losses, the company deals only with major financial institutions. The company does not anticipate nonperformance by any of the counterparties. Collateral is not required of the counterparties or of the company. The company's exposure to credit loss in the event of nonperformance by the counterparties is limited to only the recognized but not realized gains incurred on the derivative contracts. At December 31, 1994, the company's exposure to credit loss was $3. 22. Environmental matters Capital Expenditures and Expenses The company is subject to extensive environmental regulation at the federal, state, and local level. Research, engineering, depreciation, and administrative expenses related to environmental regulation compliance totaled approximately $125 in 1994. Capital expenditures for pollution abatement and control were approximately $11 in 1994. With respect to compliance with the 1990 amendments to the Clean Air Act in particular, research, engineering, and operating expenses totaled $29 and capital expenditures totaled $4 in 1994. The 1990 Amendments to the Clean Air Act are scheduled to be implemented throughout the 1990s and the first decade of the 21st century. Many regulations necessary for implementation have not been promulgated. Accordingly, the overall impact of the amendments on company capital expenditures and product design is still uncertain. Remediation Costs As of December 31, 1994, the company, in conjunction with numerous other parties, has been identified as a potentially responsible party (PRP) and is actively participating in 17 sites identified by the EPA or similar state authorities for remediation under the Comprehensive Environmental Response Compensation and Liability Act of 1980 (CERCLA) or comparable federal or state statutes (CERCLA sites). The company is also involved in remediation activities at other sites located on property either currently or formerly owned by the company. Lawsuits and claims involving additional environmental matters are likely to arise from time to time. In assessing potential environmental liability, the company considers: . whether it has been designated as a PRP under CERCLA; . if the company has been so designated, the number of other PRPs designated at a site; . the relative volume contribution alleged for the company at a particular site; . documentation, if any, linking the company to a particular site; . stage of the proceedings; . available technology; . studies conducted by independent environmental consultants; . prior experience regarding environmental remediation; and . experience of other companies and industries regarding environmental remediation. With respect to potential liability amounts that are probable and reasonably estimable, the company has accrued and charged to income those amounts. For specific sites where only a range of liability is probable and reasonably estimable and no amount in the range is a better estimate than another, the company has accrued, in accordance with appropriate accounting literature, the low end of that range. While the company may have rights of contribution or reimbursement under insurance policies, amounts that may be recoverable from other entities by the company with respect to a particular site are not considered in establishing the accrual. The amounts accrued in 1994 with respect to potential liability are recorded as "Accounts payable and accrued expenses" on Statement 3. This amount represents less than one percent of that line item and accordingly is not material to the company's financial position. The company also assesses reasonably possible environmental liability beyond that which it has accrued. This liability is not probable, but is more likely than remote. As of December 31, 1994, the amount of company environmental liability that is reasonably possible is not expected to have a material impact on the company's liquidity, capital resources, or results of operations. Factors considered in assessing reasonably possible liability and its potential impact on the company are those stated above. Amounts that may be recoverable from other entities are not considered. As of December 31, 1994, potential liability at four sites cannot be assessed because they are in very early stages of investigation. 23. Plant Closing and Consolidation Costs At December 31, 1994, the reserve for plant closing and consolidation costs was $327. Of this balance, $176 related to costs associated with the probable closure of the Component Products Division's York, Pennsylvania, facility. Significant costs related to the York portion of the reserve are employee severance benefits (pension, medical, and supplemental unemployment benefits), rearrangement and start-up costs related to the relocation of production, and write-down of buildings, machinery, and equipment. A-23 NOTES continued (Dollars in millions except per share data) - ------------------------------------------------------------------------------- The probable closing of the York facility was announced in December 1991. The company determined that unless significant cost reductions were made, the unit would be closed. The company has notified the United Auto Workers union (UAW), which represents approximately 1,200 of the 1,500 active employees of the York facility, of its willingness to negotiate a labor agreement that would allow the unit to remain open. The UAW is currently on strike at eight U.S. facilities, including York, and no contract has been signed. Unless a satisfactory contract is reached, the company plans to close the plant in the 1996 time frame. Also included in the reserve for plant closing and consolidation costs at December 31, 1994, was $119 for write-downs of buildings, machinery, and equipment at previously closed facilities. The write-downs establish a new cost basis for assets that have been permanently impaired. The remainder of the reserve at December 31, 1994, related to severance benefits provided to former employees at previously closed facilities. Such benefits are amortized over the expected time period over which the benefits are provided. Currently amortization periods are through 2003. 24. Segment information A. Business segments The company operates in three principal business segments: Machinery (Construction, Mining, and Agricultural), Engines, and Financial Products. The company designs, manufactures, and markets products in both the Machinery and Engines segments. Financial Products includes the company's finance and insurance subsidiaries. "Operating profit (loss)" for 1992 includes incremental operating expense resulting from the accounting changes (note 2) of $141 which is included in the Machinery and Engines segments and "General corporate expenses" in the amounts of $101, $38, and $2, respectively. In addition, "Operating profit (loss)" for 1992 includes the gain on sale of lift truck assets of $53 (note 6) included in the Machinery segment and charges for environmental clean-up, employee redundancy costs, and write-off of surplus assets of $29 included in the Machinery and Engines segments in the amounts of $14 and $15, respectively. The high degree of integration of the company's manufacturing operations necessitates the use of a substantial number of allocations in the determination of business segment information. Intersegment sales and revenues, which primarily represent intersegment engine sales, are valued at prices comparable to those for unaffiliated customers. Information on the company's business segments was as follows:
1994 1993 1992 ------- ------- ------- For the years ended December 31: Sales: Machinery.................................. $10,164 $ 8,132 $ 7,209 Engines.................................... 4,381 3,735 3,225 Elimination of intersegment engine sales..... (682) (632) (594) ------- ------- ------- Consolidated sales........................... 13,863 11,235 9,840 Financial Products revenues.................. 465 380 354 ------- ------- ------- Sales and revenues........................... $14,328 $11,615 $10,194 ======= ======= ======= Operating profit (loss): Machinery.................................. $ 1,099 $ 436 $ (107) Engines.................................... 348 226 79 Financial Products......................... 64 47 35 ------- ------- ------- 1,511 709 7 General corporate expenses................... (77) (83) (96) ------- ------- ------- Operating profit (loss)...................... $ 1,434 $ 626 $ (89) ======= ======= ======= Capital expenditures -- including equipment leased to others: Machinery.................................. $ 272 $ 243 $ 338 Engines.................................... 182 154 153 Financial Products......................... 187 205 121 General corporate.......................... 53 30 28 ------- ------- ------- $ 694 $ 632 $ 640 ======= ======= ======= Depreciation and amortization: Machinery.................................. $ 394 $ 405 $ 410 Engines.................................... 168 163 155 Financial Products......................... 95 70 63 General corporate.......................... 26 30 26 ------- ------- ------- $ 683 $ 668 $ 654 ======= ======= ======= At December 31: Identifiable assets: Machinery.................................. $ 5,773 $ 5,393 $ 5,569 Engines.................................... 2,570 2,358 2,201 Financial Products......................... 4,668 3,676 2,956 ------- ------- ------- 13,011 11,427 10,726 General corporate assets..................... 2,784 2,986 2,864 Investments in affiliated companies.......... 455 394 345 ------- ------- ------- Total assets................................. $16,250 $14,807 $13,935 ======= ======= =======
B. Geographic segments Manufacturing activities of the Machinery and Engines segments are carried on in 26 plants in the United States, two in France, and one each in Australia, Belgium, Brazil, Indonesia, Italy, Mexico, and the United Kingdom. Three major distribution centers are located in the United States and eight are located outside the United States. While the majority of the activity of the Financial Products segment is carried on in the United States, it also conducts operations in Australia, Canada, and Europe. Caterpillar is a highly integrated company. The product of subsidiary companies' manufacturing operations located outside the United States, in most instances, consists of components manufactured or purchased locally which are assembled with components purchased from related companies. As a result, the profits of these operations do not bear any definite relationship to their assets, and individual subsidiaries' results cannot be viewed in isolation. Prices between Caterpillar companies are established at levels deemed equivalent to those which would prevail between unrelated parties. For 1992, incremental operating expense resulting from the accounting changes (note 2) of $141 is included in "Operating profit (loss)" for "United States" and "General corporate expenses" in the amounts of $139 and $2, respectively. The gain on sale of lift truck assets of $53 (note 6) is included in "Operating profit (loss)" for "United States." In addition, charges for environmental clean-up, employee redundancy costs, and write-off of surplus assets of $29 are included in "Operating profit (loss)" for "Europe" and "All other" in the amounts of $8 and $21, respectively. A-24 Caterpillar Inc. - ------------------------------------------------------------------------------- Information on the company's geographic segments, based on the location of the company's manufacturing operations for Machinery and Engines, was as follows:
1994 1993 1992 ------- ------- ------- For the years ended December 31: Sales: United States........................... $10,994 $ 9,159 $ 7,462 Europe.................................. 2,358 1,678 1,908 All other............................... 1,050 737 748 Elimination of intersegment sales from: United States........................... (266) (154) (144) Europe.................................. (141) (97) (61) All other............................... (132) (88) (73) ------- ------- ------- Consolidated sales........................ 13,863 11,235 9,840 Revenues: United States........................... 362 309 298 All other............................... 103 71 56 ------- ------- ------- Sales and revenues........................ $14,328 $11,615 $10,194 ======= ======= ======= Operating profit (loss): Machinery and Engines: United States........................... $ 1,108 $ 620 $ (3) Europe.................................. 244 46 (3) All other............................... 95 (4) (22) ------- ------- ------- 1,447 662 (28) ------- ------- ------- Financial Products: United States........................... 61 43 34 All other............................... 3 4 1 ------- ------- ------- Total Financial Products................. 64 47 35 ------- ------- ------- 1,511 709 7 General corporate expenses................ (77) (83) (96) ------- ------- ------- Operating profit (loss)................... $ 1,434 $ 626 $ (89) ======= ======= ======= At December 31: Identifiable assets: Machinery and Engines: United States........................... $ 6,445 $ 5,996 $ 5,820 Europe.................................. 1,160 1,101 1,211 All other............................... 738 654 739 ------- ------- ------- 8,343 7,751 7,770 ------- ------- ------- Financial Products: United States........................... 3,557 2,896 2,448 All other............................... 1,111 780 508 ------- ------- ------- 4,668 3,676 2,956 ------- ------- ------- 13,011 11,427 10,726 General corporate assets.................. 2,784 2,986 2,864 Investments in affiliated companies....... 455 394 345 ------- ------- ------- Total assets.............................. $16,250 $14,807 $13,935 ======= ======= =======
C. Non-U.S. sales Sales outside the United States were 49% of consolidated sales for 1994, 49% for 1993, and 55% for 1992. Information on the company's sales outside the United States, based on dealer location, was as follows:
1994 1993 1992 ------- ------- ------- For the years ended December 31: Sales of U.S. manufactured product: Europe.................................. $ 821 $ 645 $ 608 Asia/Pacific............................ 1,338 1,172 938 Latin America........................... 763 570 628 Canada.................................. 806 625 417 Africa/Middle East...................... 522 577 606 ------- ------- ------- 4,250 3,589 3,197 ------- ------- -------
1994 1993 1992 ------- ------- ------- Sales of non-U.S. manufactured product: Europe.................................. 1,257 933 1,177 Asia/Pacific............................ 626 440 371 Latin America........................... 388 279 280 Canada.................................. 103 59 108 Africa/Middle East...................... 231 225 286 ------- ------- ------- 2,605 1,936 2,222 ------- ------- ------- Total sales outside the United States: Europe.................................. 2,078 1,578 1,785 Asia/Pacific............................ 1,964 1,612 1,309 Latin America........................... 1,151 849 908 Canada.................................. 909 684 525 Africa/Middle East...................... 753 802 892 ------- ------- ------- $6,855 $5,525 $5,419 ======= ======= =======
25. Selected quarterly financial results (unaudited) Financial information for interim periods was as follows:
1994 Quarter ------------------------------------- 1st 2nd 3rd 4th ------ ------ ------ ------ Sales and revenues.................. $3,286 $3,605 $3,509 $3,928 Less: Revenues...................... 105 113 119 128 ------ ------ ------ ------ Sales............................... 3,181 3,492 3,390 3,800 Cost of goods sold.................. 2,483 2,730 2,674 2,947 ------ ------ ------ ------ Gross margin........................ 698 762 716 853 Profit.............................. 192 240 244 279 Profit per share of common stock.... $ .94 $ 1.18 $ 1.20 $ 1.38
1993 Quarter ------------------------------------- 1st 2nd 3rd 4th ------ ------ ------ ------ Sales and revenues................... $2,697 $2,905 $2,845 $3,168 Less: Revenues....................... 89 95 95 101 ------ ------ ------ ------ Sales................................ 2,608 2,810 2,750 3,067 Cost of goods sold................... 2,172 2,298 2,224 2,381 ------ ------ ------ ------ Gross margin......................... 436 512 526 686 Profit before extraordinary loss..... 34 67 432 148 Profit............................... 34 67 432 119 Profit per share of common stock: Profit before extraordinary loss.. $ .17 $ .33 $ 2.13 $ .73 Profit............................ $ .17 $ .33 $ 2.13 $ .58
Third quarter 1993 results included after-tax nonrecurring gains of $300 related to the settlement with the IRS for taxes and related interest for the period 1979-1987 and of $36 related to revaluation of the company's net U.S. deferred tax asset position as a result of the increase in the U.S. federal corporate tax rate (note 8). Fourth quarter 1993 results included an extraordinary loss on early retirement of debt of $29, net of tax (note 15). A-25 ELEVEN-YEAR FINANCIAL SUMMARY (Dollars in millions except per share data) - -------------------------------------------------------------------------------
1994 1993 1992 1991 --------- --------- --------- --------- FOR THE YEARS ENDED DECEMBER 31: Sales and revenues......................................... $ 14,328 11,615 10,194 10,182 Sales.................................................... $ 13,863 11,235 9,840 9,838 Percent inside the United States....................... 51% 51% 45% 41% Percent outside the United States...................... 49% 49% 55% 59% Revenues................................................. $ 465 380 354 344 Profit (loss) before effects of accounting changes (1)..... $ 955 652 (218) (404) Effects of accounting changes (note 2)..................... $ -- -- (2,217) -- Profit (loss)(1)........................................... $ 955 652 (2,435) (404) Profit (loss) per share of common stock: (1)(2) Profit (loss) before effects of accounting changes(1).... $ 4.70 3.21 (1.08) (2.00) Effects of accounting changes (note 2)................... $ -- -- (10.98) -- Profit (loss)............................................ $ 4.70 3.21 (12.06) (2.00) Dividends declared per share of common stock............... $ .63 .30 .30 .53 Return on average common stock equity...................... 37.4% 34.6% (86.7%) (9.4%) Capital expenditures: Land, buildings, machinery, and equipment................ $ 501 417 515 653 Equipment leased to others............................... $ 193 215 125 121 Depreciation and amortization.............................. $ 684 668 654 602 Research and engineering expenses.......................... $ 435 455 446 441 As a percent of sales and revenues....................... 3.0% 3.9% 4.4% 4.3% Provision (credit) for income taxes(3)..................... $ 354 42 (114) (152) Wages, salaries, and employee benefits..................... $ 3,146 3,038 2,795 3,051 Average number of employees................................ 52,778 50,443 52,340 55,950 AT DECEMBER 31: Total receivables: Trade and other.......................................... $ 3,096 2,769 2,330 2,133 Finance.................................................. $ 3,988 3,140 2,525 2,145 Inventories................................................ $ 1,835 1,525 1,675 1,921 Total assets: Machinery and Engines.................................... $ 11,582 11,131 10,979 9,346 Financial Products....................................... $ 4,668 3,676 2,956 2,696 Long-term debt due after one year: Machinery and Engines.................................... $ 1,934 2,030 2,753 2,676 Financial Products....................................... $ 2,336 1,865 1,366 1,216 Total debt: Machinery and Engines.................................... $ 2,037 2,387 3,271 3,136 Financial Products....................................... $ 3,866 3,041 2,401 2,111 Ratios -- excluding Financial Products: Ratio of current assets to current liabilities........... 1.62 to 1 1.53 to 1 1.57 to 1 1.74 to 1 Percent of total debt to total debt and stockholders' equity................................ 41.2% 52.1% 67.5% 43.7%
(1) 1993 profit was after extraordinary loss on early retirement of debt; profit before extraordinary loss was $681, $3.36 per share of common stock. 1987 profit was after extraordinary tax benefit; profit before extraordinary tax benefit was $319, $1.60 per share of common stock. (2) Computed on weighted average number of shares outstanding. (3) As discussed in note 2, the company adopted SFAS 109 in 1992. Prior to 1992, the tax provision was determined in accordance with APB 11. The 1987 provision for income taxes, including the reduction for the $31 extraordinary tax benefit, was $87. A-26 Caterpillar Inc. - -------------------------------------------------------------------------------
1990 1989 1988 1987 1986 1985 1984 --------- --------- --------- --------- --------- --------- --------- 11,436 11,126 10,435 8,294 7,380 6,760 6,597 11,103 10,882 10,255 8,180 7,321 6,725 6,576 45% 47% 50% 52% 54% 56% 58% 55% 53% 50% 48% 46% 44% 42% 333 244 180 114 59 35 21 210 497 616 350 76 198 (428) -- -- -- -- -- -- -- 210 497 616 350 76 198 (428) 1.04 2.45 3.04 1.76 .39 1.01 (2.24) -- -- -- -- -- -- -- 1.04 2.45 3.04 1.76 .39 1.01 (2.24) .60 .60 .43 .28 .31 .25 .63 4.7% 11.6% 16.0% 10.4% 2.4% 6.7% (13.8%) 926 984 732 463 290 228 234 113 105 61 30 41 55 23 533 471 434 425 453 485 497 420 387 334 298 308 326 345 3.7% 3.5% 3.2% 3.6% 4.2% 4.8% 5.2% 78 162 262 118 21 25 (115) 3,032 2,888 2,643 2,284 2,184 2,173 2,426 59,662 60,784 57,954 53,770 54,024 55,815 61,189 2,361 2,353 2,349 2,044 1,755 1,305 1,135 1,891 1,498 1,222 795 466 108 64 2,105 2,120 1,986 1,323 1,211 1,139 1,246 9,626 9,100 8,226 6,647 6,134 5,951 6,084 2,325 1,826 1,460 984 627 235 169 2,101 1,797 1,428 900 963 1,177 1,384 789 491 525 387 171 87 4 2,873 2,561 2,116 1,484 1,582 1,404 1,861 1,848 1,433 1,144 712 370 130 26 1.67 to 1 1.78 to 1 1.76 to 1 1.55 to 1 1.50 to 1 1.69 to 1 1.43 to 1 38.8% 36.4% 34.0% 29.4% 33.4% 31.4% 39.5%
A-27 MANAGEMENT'S DISCUSSION AND ANALYSIS The discussions of Results of Operations, and Liquidity and Capital Resources are grouped as follows: Consolidated -- Represents the consolidated data of Caterpillar Inc. and subsidiaries, including the Financial Products subsidiaries. Machinery and Engines -- Company operations excluding the Financial Products subsidiaries. This category consists primarily of the company's manufacturing, marketing, and parts distribution operations, which are highly integrated. Unless attributed to a particular subsidiary, items discussed in Management's Discussion and Analysis reflect the consolidated effect of contributions by worldwide operations. Financial Products -- The company's Financial Products subsidiaries, primarily Caterpillar Financial Services Corporation and Caterpillar Insurance Co. Ltd. Cat Financial and its subsidiaries in Australia, Canada, and Europe derive earnings from financing sales and leases of Caterpillar products and noncompetitive related equipment and from loans extended to Caterpillar customers and dealers. Cat Insurance provides insurance services to Caterpillar dealers and customers to help support their purchase and financing of Caterpillar equipment. RESULTS OF OPERATIONS - -------------------- 1994 COMPARED WITH 1993 Profit for 1994 was $955 million or $4.70 per share, an all-time record and a significant improvement from 1993 profit of $345 million (excluding nonrecurring tax-related items and extraordinary loss totalling $307 million). 1994 sales and revenues of $14.33 billion, also an all-time record, were 23% higher than a year ago and were the most significant factor contributing to the increase in profit. At year-end, the United Auto Workers (UAW) union's strike, which began on June 21, 1994, at eight U.S. facilities was ongoing. At the outset of the strike, the company implemented plans designed to meet the needs of its customers and quickly ramped up production schedules. These plans have been immensely successful. The average production rate at the struck manufacturing facilities was 14% higher during the last six months than during the first six months of 1994. (See Labor Update and Outlook sections for additional information.) Machinery and Engines Sales of Machinery and Engines were $13.86 billion for 1994, $2.63 billion higher than last year. The improvement resulted from a 19% increase in physical sales volume and a 4% improvement in price realization. Profit before tax was $1.21 billion, up $810 million from last year (excluding net interest income of $251 million on the nonrecurring U.S. tax settlement). Higher physical sales volume was the primary reason for the significant improvement in profit. Sales volume increased substantially both inside and outside the United States, a result of strong worldwide demand. The improvement in price realization reflects price increases taken over the past year. Margin increased $869 million from 1993 primarily because of higher sales. Margin as a percent of sales was 21.8%, up 2.6 percentage points from a year ago. The margin rate improved because of higher sales volume and better price realization. These favorable items were partially offset by proportionately higher sales of lower margin products, inflation on costs, higher incentive compensation expense (related to the higher profit), and a decrease in LIFO (last-in, first-out) decrement benefits ($28 million in 1994 versus $38 million in 1993). The favorable impact on margin resulting from the absence of labor costs for UAW-represented employees on strike for a portion of 1994 was offset by strike-related costs. These include costs for temporary and contract personnel, overtime, other incremental expenses related to the strike, and the inclusion in cost of goods sold of labor costs for employees working in manufacturing operations that are normally included in SG&A (selling, general, and administrative) or R&D (research and development) expense. SG&A expenses were $86 million higher than in 1993. The increase was a result of additional volume-related parts distribution costs and higher incentive compensation expense (related to the higher profit). The assignment of labor costs for SG&A employees working in manufacturing areas to cost of goods sold partially offset the increase. All other costs were about the same despite inflation. R&D expenses declined $8 million to $311 million. The decrease reflects the assigning of labor costs for R&D employees working in manufacturing functions to cost of goods sold, partially offset by increased activity for new product introductions. Interest expense declined $68 million as average debt outstanding was $768 million lower compared with 1993. Other income/expense was income of $43 million in 1994, compared with income of $92 million last year. The decline resulted principally from the reclassification of investment income from the company's VEBA (Voluntary Employees' Beneficiary Association) trusts to operating profit (as a reduction of employee benefit expense). VEBA income included in operating profit in 1994 was $23 million. VEBA income included in other income/expense in 1993 was $34 million. In addition, the decline reflects a $17 million charge in 1994 for the settlement of two class action complaints and the absence of a 1993 gain on the sale of a closed facility at the company's Brazilian subsidiary. These unfavorable items were partially offset by a favorable change in foreign exchange gains and losses. Brazilian operations for 1994 returned to a more normal level of profit in line with sales volume. Results were significantly improved from a year ago but had no material effect on 1994 consolidated results. Financial Products The before-tax profit for Financial Products was $60 million, $8 million lower than 1993. The primary reason for the decrease in profit was unrealized mark-to-market charges of $18 million for interest rate caps and swaptions written by Cat Financial, partially offset by increased profit from Cat Financial's larger portfolio of earning assets. Revenues of $465 million were up $85 million from 1993, reflecting Cat Financial's larger portfolio. Cat Financial financed new retail business of $2.18 billion, a $267 million or 14% increase compared with 1993. SG&A expenses increased $30 million from last year reflecting higher depreciation of equipment on operating leases and A-28 Caterpillar Inc. - ------------------------------------------------------------------------------ other volume-related expenses at Cat Financial. Interest expense of $210 million was $38 million higher, a result of increased borrowings to support Cat Financial's larger portfolio. Other income/expense was expense of $4 million, compared with income of $21 million a year ago. The primary reason for the change was unrealized mark-to-market charges for Cat Financial's written interest rate caps and swaptions and a decrease in investment income at Cat Insurance. Income Taxes Tax expense was $354 million. 1993 income tax expense of $42 million included $85 million of favorable nonrecurring items related to a tax settlement with the U.S. Internal Revenue Service and restatement of net deferred tax assets as a result of a change in the U.S. corporate tax rate. Excluding these items, tax expense for 1993 was $127 million. The increase of $227 million was a result of higher before-tax profit and an effective tax rate of 28% for 1994, compared with a rate of 27% for 1993. Affiliated Companies The company's share of affiliated companies' results was a profit of $36 million, a $35 million improvement from a year ago. The increase was a result of higher sales and cost-cutting measures at SCM (Shin Caterpillar Mitsubishi) plus favorable nonrecurring items at SCM, primarily a gain on the sale of surplus land. FOURTH-QUARTER RESULTS The company reported its fourth consecutive quarter of record profit. Profit of $279 million and profit per share of $1.38 were records (after excluding nonrecurring tax-related items from third quarter 1993). Profit improved $131 million or 65 cents per share from the $148 million or 73 cents per share profit before an extraordinary loss ($29 million) in the fourth quarter of 1993. Sales and revenues of $3.93 billion were also the highest for any quarter in the company's history and increased 24% from the same quarter a year ago. The improvement in sales was the primary reason for the higher profit. FOURTH QUARTER 1994 COMPARED WITH FOURTH QUARTER 1993 Machinery and Engines Sales of Machinery and Engines were $3.80 billion, an improvement of $733 million from the fourth quarter of 1993. The increase was primarily due to 18% higher physical sales volume, reflecting continued strong demand both inside and outside the United States. Price realization increased 6%, a result of price increases taken over the past year, the impact of stronger European currencies as sales translated into more U.S. dollars and lower sales discounts. Profit before tax of $354 million was up $159 million from a year ago primarily because of the higher sales. Margin (sales less cost of goods sold) of $853 million improved $167 million primarily because of higher sales. As a percent of sales, the margin rate of 22.4% was the same as the fourth quarter of 1993. The benefit from higher sales and improved price realization was offset by proportionately higher sales of lower margin products, by the impact from stronger European currencies as costs translated into more U.S. dollars and by inflation on costs. LIFO inventory decrement benefits were $28 million in the fourth quarter of 1994 compared with $23 million in the fourth quarter of 1993. The favorable impact on margin resulting from the absence of labor costs for UAW-represented employees on strike was offset by strike-related costs. These include costs for temporary and contract personnel, overtime, other incremental expenses related to the strike and the inclusion in cost of goods sold of labor costs for employees working in manufacturing operations that are normally included in SG&A or R&D expenses. SG&A expenses were $374 million, compared with $359 million a year ago. The increase reflects higher volume-related parts distribution costs and increased incentive pay expense (related to the higher profit). The higher costs were partially offset by the assigning of labor costs for SG&A employees working in manufacturing areas to cost of goods sold. All other costs were about the same despite inflation. R&D expenses of $82 million decreased $8 million from the same quarter last year. The decline was the result of assigning labor costs for R&D employees working in manufacturing functions to cost of goods sold, partially offset by activity for new product introductions. Interest expense declined $11 million as average debt outstanding was $597 million lower compared with the fourth quarter of 1993. Other income/expense was income of $7 million compared with income of $19 million in the fourth quarter last year. The change was primarily because of the absence of investment income from the company's VEBA. In 1994, the company modified its VEBA trusts to qualify as plan assets in accounting for employee postretirement benefits other than pensions. Income from the trusts has been reclassified as a component of employee benefit expense and reduces operating costs, primarily cost of goods sold. VEBA income included in operating profit in the fourth quarter of 1994 was $5 million. VEBA income included in other income/expense in the fourth quarter of 1993 was $11 million. Results of Brazilian operations continued to be profitable and improved significantly from a year ago but had no material effect on fourth-quarter 1994 results. Financial Products Financial Products' profit before tax was $12 million, a decrease of $5 million from the fourth quarter of 1993. The lower profit resulted from a $4 million unrealized charge due to the mark-to-market valuation of interest rate caps written by Caterpillar Financial Services Corporation and lower investment income at Caterpillar Insurance Company, Ltd. These unfavorable items were partially offset by increased profit from Cat Financial's larger portfolio of earning assets. Revenues of $128 million increased $27 million from the same quarter a year ago, reflecting Cat Financial's larger portfolio. Cat Financial financed new retail business of $705 million, a $49 million or 8% increase compared with the fourth quarter of 1993. SG&A expenses were up $10 million, reflecting higher depreciation of equipment on operating leases and other volume-related expenses at Cat Financial. Interest expense increased $15 million primarily due to higher borrowings to support the larger portfolio. A-29 MANAGEMENT'S DISCUSSION AND ANALYSIS continued - ------------------------------------------------------------------------------- Other income/expense was a $2 million expense compared with income of $5 million in the fourth quarter of 1993. The unfavorable change was a result of the unrealized mark-to-market charge for interest rate caps and lower investment income previously mentioned. Income Taxes Tax expense of $100 million reflects an effective tax rate of 28%. Tax expense of $64 million for the fourth quarter of 1993 resulted from a 27% effective tax rate and an unfavorable adjustment of $7 million as actual taxes for the year were slightly higher than the estimated rate used for the first nine months of 1993. Affiliated Companies The company's share of affiliated companies' results was $13 million, compared with break-even a year ago. The improvement was primarily the result of higher sales and cost-cutting measures at the company's 50%-owned affiliate SCM in Japan. FOURTH QUARTER 1994 COMPARED WITH THIRD QUARTER 1994 Fourth-quarter profit of $279 million or $1.38 per share improved $35 million from the $244 million or $1.20 per share profit reported in the third quarter of this year. An increase in sales volume was the most significant factor contributing to the higher profit. Machinery and Engines Profit before tax for Machinery and Engines was $354 million, compared with $289 million last quarter. Sales of $3.80 billion increased $410 million, primarily because of higher machine sales both inside and outside the United States and higher turbine engine sales outside the United States. Margin improved $137 million from the third quarter, largely a result of higher sales. As a percent of sales, the margin rate of 22.4% was 1.3 percentage points higher than the third quarter. The increase reflects higher sales volume and LIFO decrement benefits of $28 million recorded in the fourth quarter versus none in the third quarter. SG&A expenses increased $42 million, to $374 million. The increase was primarily the result of timing of expenses, as the fourth quarter is generally a higher cost quarter for these types of expenses. In addition, fewer SG&A employees were working in manufacturing areas during the fourth quarter than in the third quarter thus reducing labor costs being assigned to cost of goods sold. R&D expenses were $82 million, compared with $69 million in the third quarter. The change reflects a decrease in labor costs assigned to cost of goods sold as fewer R&D employees were working in manufacturing functions during the fourth quarter and an increase in activity for new product introduction programs. Interest expense of $50 million was about the same as the third quarter. Other Income/Expense was income of $7 million compared with income of $23 million last quarter. The change resulted from several relatively small unfavorable nonrecurring items in the fourth quarter and the absence of several relatively small favorable nonrecurring items recorded in the third quarter. Financial Products Before-tax profit for Financial Products was $12 million, a decrease of $11 million from the third quarter. The decrease occurred because of an increase in the unrealized mark-to-market charge for written interest rate caps at Cat Financial, the absence of a $3 million favorable adjustment to reserves at Cat Insurance made in the third quarter, Cat Financial's higher cost of borrowed funds, and increased provision for credit losses due to increased volume of new retail financing. Income Taxes Tax expense of $100 million increased $25 million, reflecting higher profit before tax and the absence of a favorable year-to-date adjustment of $12 million made in the third quarter. Affiliated Companies The company's share of affiliated companies' results improved $6 million, a result of favorable year-end adjustments, cost-cutting measures at SCM, and a gain on the sale of surplus land. 1994 SALES
1994 1993 1992 ------------------------ (Billions) Sales................................................ $13.86 $11.24 $ 9.84 - -------------------------------------------------------------------------------
Caterpillar worldwide sales were a record $13.86 billion in 1994, a $2.62 billion or 23% increase over 1993. Total physical sales volume increased about 19% due primarily to higher industry demand around the world. An increased share of industry sales and a reversal of 1993's dealer machine inventory reduction outside the United States also contributed to the higher sales volume. Sales increased in all regions of the world except the Middle East and China with large gains registered in many areas. Sales by Business Segment
1994 1993 1992 ------------------------ (Billions) Machinery........................................... $10.16 $ 8.14 $ 7.21 Engines............................................. 3.70 3.10 2.63 ------ ------ ------ $13.86 $11.24 $ 9.84 ====== ====== ====== - -------------------------------------------------------------------------------
Worldwide sales for the Machinery segment increased 25% from 1993, setting an all-time record. About one-half of the improvement was due to higher industry demand, particularly in North and South America, Europe and Australia. An increase in dealer inventories, higher price realization and an increased share of industry sales also contributed to the gain. Engine segment sales increased 19% over 1993 levels for a third consecutive year of record sales. Sales volume increased significantly in the United States and Canada due to higher industry demand and an increased share of industry sales for both truck and commercial engines. Company diesel and gas engine sales also rose considerably in Latin America and moderately in Asia. Company sales of turbines rose moderately. Caterpillar Sales Inside the United States
1994 1993 1992 ------------------------ (Billions) Machinery............................................ $ 5.16 $ 4.27 $ 3.23 Engines.............................................. 1.85 1.44 1.19 ------ ------ ------ $ 7.01 $ 5.71 $ 4.42 ====== ====== ====== - -------------------------------------------------------------------------------
A-30 Caterpillar Inc. - ------------------------------------------------------------------------------- Caterpillar sales inside the United States were $7.01 billion, a $1.30 billion or 23% increase over 1993, resulting primarily from stronger industry demand for both machines and engines. The increase also reflects an increased share of industry sales and higher price realization. Sales inside the United States represented 51% of the worldwide total, the same as 1993. In 1994, industry growth for both machines and engines was fueled by relatively low interest rates, strong growth in cash flow, favorable economic prospects and better growth in the activities that use our equipment. By year end, after two years of excellent growth, the machine and commercial engine industries were near previous peaks reached in 1988-1989, and the diesel truck engine industry had surpassed its 1988 peak. As a result of the higher industry demand and improved share of industry sales, dealer sales of Caterpillar machinery increased significantly in 1994 for the second consecutive year. Dealer machine sales into most construction sectors increased substantially: . Commercial, industrial and government building sector sales were higher for the third year in a row after registering very rapid growth early in the year. Private building construction trended up throughout the year with very noticeable improvements in commercial and industrial construction. Government building construction, however, trended down through the year. . Highway sales were moderately higher for the year due to increased spending on highway construction. . Sales to the housing sector were higher for the third consecutive year in response to moderately higher housing starts. Dealer machine sales into the commodity sectors were up slightly over 1993 levels, although results were mixed by sector: . Sand and quarry mining sales increased moderately, reflecting higher mine production in response to greater levels of construction. . Sales into coal mining applications were moderately lower for the year although sales have begun to trend up in response to an increase in coal production. . Metal mining-related sales increased significantly with an especially sharp rise in the second half of the year. Metal mine production was flat but prices increased noticeably in the second half leading to the higher sales. . Agricultural-related sales were up moderately as the farm economy continued to improve. . Sales to the forestry sector declined slightly in response to lower forest production. Forestry prices rose slightly in contrast to the very large increase registered in 1993. . Petroleum sales were unchanged and in line with flat pipeline construction. Dealer machine sales into other sectors rose moderately. Sales to industrial applications (primarily manufacturing and service industries) increased significantly, while sales to solid waste applications were essentially unchanged. Engine segment sales rose 28% in 1994 reflecting strong growth in both diesel and turbine engines. The increase in engine sales is attributable to moderately higher industry demand, an increased share of industry sales for both truck and commercial engines, higher price realization and an increase in dealer inventories to keep pace with sales. In particular, sales to truck Original Equipment Manufacturers (OEMs) and to marine and petroleum applications showed good gains over 1993. Caterpillar Sales Outside the United States
1994 1993 1992 ------------------------ (Billions) Machinery........................................... $ 5.00 $ 3.87 $ 3.98 Engines............................................. 1.85 1.66 1.44 ------ ------ ------ $ 6.85 $ 5.53 $ 5.42 ====== ====== ====== - -------------------------------------------------------------------------------
Caterpillar sales outside the United States were $6.85 billion, a $1.32 billion or 24% increase from 1993. These sales represented 49% of the worldwide total, the same as 1993. Sales increased significantly in all regions except the Middle East and China, where sales declined. Machinery segment sales rose 29% reflecting higher industry demand, a reversal of 1993's dealer inventory reduction, higher price realization and an increased share of industry sales. Engine segment sales rose 11% primarily due to higher industry demand. An increased share of industry sales and improved price realization also contributed to higher sales and more than offset slower growth in dealer inventories. Diesel and gas engine sales rose noticeably in Latin America, Canada and Asia with gains in marine, petroleum and power generation applications as well as sales to truck OEMs. Company sales of turbines rose moderately. Europe/CIS Sales increased about 32% as the economic recovery in Western Europe gained momentum. Higher sales were registered in all countries except Italy, Switzerland and Greece. Sales were up moderately in Germany and significantly in most other countries including the United Kingdom, France and Spain. Company sales increased more rapidly than dealer sales to users in this region as dealers made the transition from inventory reduction in 1993 to inventory accumulation in 1994 to keep pace with higher sales. Sales to Central European countries were unchanged from 1993 levels and remain limited due to balance of payments constraints. Sales into the Commonwealth of Independent States (CIS) rose significantly as a result of several large transactions to provide equipment for the natural resource sector in Russia. Asia/Pacific Sales rose about 22%, similar to the increase registered in 1993. Sales were up significantly in Australia as the economy registered excellent economic growth. Sales of machines to end-users were up in most applications, including coal and metal mining and commercial construction. Sales of diesel engines to end-users were also up considerably. Sales also rose in Japan as the economy began to recover from the deepest recession since World War II. After three years of industry sales declines, demand has begun to grow, Caterpillar's share of industry sales has increased, and dealer inventories are being replenished in line with the higher sales rates. A-31 MANAGEMENT'S DISCUSSION AND ANALYSIS continued - ------------------------------------------------------------------------------ In China, sales fell significantly due to delays in major infrastructure projects as the government tried to limit the increase in inflation. In the rest of the Asia/Pacific region company sales rose moderately. Excellent economic growth combined with numerous infrastructure projects led to significant increases in machine end-user demand for the construction sectors as well as forestry, sand and quarry mining and agriculture. Company sales rose in all major countries except Hong Kong, India, Pakistan and the Philippines. Sales of diesel and gas engines also registered good growth in this region in 1994. Latin America Sales rose about 36% after declining slightly in 1993. In Brazil, the second year of economic recovery brought excellent economic growth and a significant increase in sales. Machine sales to end-users were up sharply, especially in agriculture and construction. Outside Brazil, sales also rose significantly due to better economic growth and improved investor confidence in the region. Machine sales to users registered gains in virtually all applications. Sales were up considerably in all major countries except Venezuela which remains mired in severe recession. In Mexico, sales benefited from both economic recovery and the North American Free Trade Agreement (NAFTA). Canada Sales rose 33% following 30% growth in 1993. The improvement reflects significantly higher industry demand as well as an increased share of industry sales. The economy registered good growth and the investment climate continued to improve despite uncertainties over the budget deficit and Quebec. Relatively low interest rates, good cash flow, and a special public works program contributed to significant machine growth in nearly all market applications. Diesel and gas engine sales also rose considerably, primarily to truck manufacturers and petroleum applications. Africa/Middle East Sales declined 6% for the region as a whole. In the Middle East sales dropped significantly with particularly large declines in Iran, United Arab Emirates and Saudi Arabia--all of which experienced budget or financial difficulties. In contrast, sales rose considerably in Africa as economic growth improved and commodity prices strengthened. In South Africa, sales rose sharply as economic recovery and democracy building got underway. Dealer Inventories of New Machines and Engines U.S. dealers' new machine inventories rose significantly in 1994, and at year-end were slightly above normal relative to current selling rates. U.S. dealer new engine inventories at year-end were significantly higher but about normal relative to current selling rates. Outside the United States, dealers' new machine inventories also rose considerably, reversing a significant decline in 1993. By year end, dealer inventories were still less than at the end of 1992 and slightly below normal relative to current selling rates. Engine inventories were slightly above 1993 levels but about normal relative to current selling rates. 1993 COMPARED WITH 1992 Profit for 1993 was $681 million or $3.36 per share excluding an extraordinary loss of $29 million. A 14% improvement in sales and revenues was the most significant reason for the turnaround from last year's loss of $218 million (excluding the transition effect of new accounting standards adopted in 1992). Sales and revenues were $11.62 billion, up $1.42 billion--a substantial improvement from 1992. When comparing 1993 with 1992, several material nonrecurring items should be considered. In 1992, the reported loss of $2,435 million included a $2,217 million charge for transition effects of three new accounting standards. In 1993, the reported profit of $652 million included a $29 million extraordinary loss net of taxes related to premiums paid on the early retirement of $203 million of relatively high interest rate debt. In addition, 1993 included two nonrecurring income tax related items that favorably affected after-tax profit by $336 million: 1) a $300 million after-tax impact related to the settlement with the Internal Revenue Service of interest and taxes for the period 1979-1987; and 2) a tax credit of $36 million related to the 1% increase in the U.S. federal corporate tax rate enacted during the year. The credit was the result of revaluing the company's net U.S. deferred tax asset position. Excluding the extraordinary loss and the effect of the tax-related items, profit was $345 million, a $563 million improvement compared with the 1992 loss of $218 million before the transition effect of new accounting standards. The following table summarizes the items mentioned above:
After Tax ------------------------------ 1993 1992 ------------------------------ (Millions) Profit (Loss)........................ $ 652 $(2,435) 1992 Item - --------- . Transition Effects of New Accounting Standards.............. (2,217) 1993 Items - ---------- . Extraordinary Loss................ (29) . Nonrecurring Income Tax Related Gains..................... 336 ----- ------- Profit Excluding the Above Items..... $ 345 $ (218) ===== ======= - ----------------------------------------------------------------------
Machinery and Engines Sales of $11.24 billion were $1.40 billion higher than in 1992. Profit before tax related to Machinery and Engines was $654 million. Excluding the interest portion of the tax refund, profit before tax was $403 million--a $776 million improvement over 1992. Profit (Loss) Before Tax and Before the Interest Effects of the Tax Refund
Before Tax ------------------------------ 1993 1992 ------------------------------ (Millions) Profit (Loss)........................ $ 654 $ (373) Less: Interest Effects of the Tax Refund.................. 251 ----- ------- $ 403 $ (373) ===== =======
- ---------------------------------------------------------------------- A-32 Caterpillar Inc. - ------------------------------------------------------------------------------ The primary reasons for the increase in profit were: . A 14% increase in sales -- 10% higher physical sales volume and a 4% improvement in price realization. The higher volume was primarily due to an increased share of industry sales and improved U.S. industry demand. The increase was partially offset by the effect of dealer inventory reductions and the absence of most lift-truck-related sales because of the lift truck joint venture established in July 1992 with Mitsubishi Heavy Industries, Ltd. The improvement in price realization was the result of price increases since the beginning of last year and a favorable shift in the geographic mix where sales occurred, partially offset by exchange rates that caused sales in European currencies to translate into fewer U.S. dollars; . Lower costs as a result of weaker European currencies as expenses incurred in those currencies translated into fewer U.S. dollars; . The full-year effect of employee benefit plan changes implemented during 1992; . Lower average employment, despite the increase in physical sales volume; . Lower interest expense due to lower average debt and lower interest rates; and . An $8 million increase in LIFO inventory decrement benefits ($38 million in 1993 vs. $30 million in 1992). These favorable factors were somewhat offset by the effect of inflation on costs; absence of the $53 million net gain related to the sale of lift truck assets recorded in 1992; a change in the mix of sales as relatively more lower margin machines and engines were sold than in 1992; the impact of the stronger yen on purchases from Japan; and a $20 million increase in currency exchange losses. Results of the company's Brazilian operations improved, but remained unprofitable. They continued to have a material adverse effect on consolidated results. Financial Products For 1993, Financial Products generated before-tax profit of $68 million, compared with $55 million in 1992. The increase was primarily due to a larger portfolio of earning assets and a lower cost of borrowed funds. Revenues totaled $380 million, an increase of $26 million from 1992. The increase in revenues, despite the low interest rate environment, resulted primarily from a larger portfolio of earning assets. Cat Financial financed new retail business of $1.97 billion, a $436 million or 28% increase, compared with 1992. Receivables of $19 million were written off against the allowance for credit losses in 1993, compared with $14 million in 1992. At year-end, the allowance was $41 million or 1.3% of finance receivables, compared with $37 million or 1.4% at year-end 1992. Affiliated Companies The company's share of affiliated companies' results was a profit of $1 million, a $15 million improvement from the loss in 1992. The improvement was primarily due to lower net interest and cost-cutting measures implemented at the company's 50%-owned affiliate, Shin Caterpillar Mitsubishi Ltd. in Japan. Liquidity & Capital Resources - ----------------------------- Consolidated operating cash flows totaled $1.76 billion in 1994, compared with $1.41 billion in 1993. Total debt at the end of 1994 was $5.90 billion, an increase of $475 million from year-end 1993. Over this period, debt related to Machinery and Engines decreased $350 million, to $2.04 billion, while debt related to Financial Products increased $825 million, to $3.87 billion. During 1994, the company purchased 4.4 million shares to be held as Treasury Stock, which have been and will be used to satisfy the requirements of its stock option plans. The company intends to continue repurchasing shares in the market for this purpose. Machinery and Engines Operating cash flows totaled $1.58 billion in 1994, compared with $1.27 billion in 1993. The improvement in cash flow is primarily the result of increased profitability, partially offset by higher receivables due to increased sales. Capital expenditures, excluding equipment leased to others, totaled $498 million in 1994, compared with $415 million a year ago. During 1994, Machinery and Engines debt dropped $350 million. Long-term debt totaling $238 million matured or was repurchased. The percent of debt to debt plus stockholders equity improved to 41% at December 31, 1994, from 52% a year ago. Financial Products Operating cash flows totaled $179 million in 1994, compared with $131 million in 1993. Cash used to purchase equipment leased to others totaled $183 million in 1994. In addition, at December 31, 1994, net finance receivables increased $843 million from December 31, 1993 levels. Financial Products' debt was $3.87 billion at December 31, 1994, an increase of $825 million from a year ago. At the end of the year, finance receivables past due over 30 days were 2.2%, compared with 1.9% at the end of the same period one year ago. The ratio of debt to equity of Cat Financial was 7.7:1 at December 31, 1994, compared with 7.3:1 at December 31, 1993. Financial Products had outstanding credit lines totaling $2.50 billion at year-end 1994, which included $1,440 million of the company's revolving credit agreement. Credit lines of $1.53 billion were utilized for backup for commercial paper, for bank borrowings, and as backup for a credit/liquidity enhancement facility. The balance was available to support the issuance of additional commercial paper or other borrowings. Dividends Quarterly dividends paid per share of common stock for the last three years were as follows:
Quarter 1994 1993 1992 - --------------------------------------------------------- First......................... $.07 $.07 $.07 Second........................ .08 .08 .08 Third......................... .15 .07 .07 Fourth........................ .15 .08 .08 ---- ---- ---- $.45 $.30 $.30 ==== ==== ====
A-33 MANAGEMENT'S DISCUSSION AND ANALYSIS continued - ------------------------------------------------------------------------------ EMPLOYMENT - ---------- At year-end, Caterpillar's worldwide employment, including UAW members on strike, was 53,986, compared with 51,250 one year ago. Hourly employment increased 2,569 to 32,027, while salaried and management employment increased 167 to 21,959.
Year-End Employment 1994 1993 - --------------------------------------------------------------------- Inside United States 39,749 38,103 Outside United States Europe 8,146 7,999 Latin America 4,500 3,735 Asia/Pacific 1,383 1,235 Canada 117 91 Other 91 87 ______ ______ 14,237 14,237 13,147 13,147 ______ ______ Total Employment 53,986 51,250 ====== ====== - ---------------------------------------------------------------------
OTHER MATTERS ENVIRONMENTAL MATTERS Capital Expenditures and Expenses The company is subject to extensive environmental regulation at the federal, state, and local level. Research, engineering, depreciation, and administrative expenses related to environmental regulation compliance totaled approximately $125 million in 1994 and are expected to increase moderately in 1995. Capital expenditures for pollution abatement and control were approximately $11 million in 1994 and are expected to increase moderately in 1995. These expenses and expenditures are expected to remain relatively constant through 1999 and are not expected to have a material impact upon company capital expenditures, earnings, or competitive position, subject to the evolving nature and interpretation of the environmental laws by applicable authorities and future technology. With respect to compliance with the 1990 amendments to the Clean Air Act in particular, research, engineering, and operating expenses totaled $29 million and capital expenditures totaled $4 million in 1994. In 1995, expenses and capital expenditures associated with Clean Air Act compliance are expected to remain constant. The 1990 Amendments to the Clean Air Act are scheduled to be implemented throughout the 1990s and the first decade of the 21st century. Many regulations necessary for implementation have not been promulgated. Accordingly, the overall impact of the amendments on company capital expenditures and product design is still uncertain. Remediation Costs As of December 31, 1994, the company, in conjunction with numerous other parties, has been identified as a potentially responsible party (PRP) and is actively participating in 17 sites identified by the EPA or similar state authorities for remediation under the Comprehensive Environmental Response Compensation and Liability Act of 1980 (CERCLA) or comparable federal or state statutes (CERCLA sites). The company is also involved in remediation activities at other sites located on property either currently or formerly owned by the company. Lawsuits and claims involving additional environmental matters are likely to arise from time to time. In assessing potential environmental liability, the company considers: . whether it has been designated as a PRP under CERCLA; . if the company has been so designated, the number of other PRPs designated at a site; . the relative volume contribution alleged for the company at a particular site; . documentation, if any, linking the company to a particular site; . stage of the proceedings; . available technology; . studies conducted by independent environmental consultants; . prior experience regarding environmental remediation; and . experience of other companies and industries regarding environmental remediation. With respect to potential liability amounts that are probable and reasonably estimable, the company has accrued and charged to income those amounts. For specific sites where only a range of liability is probable and reasonably estimable and no amount in the range is a better estimate than another, the company has accrued, in accordance with appropriate accounting literature, the low end of that range. While the company may have rights of contribution or reimbursement under insurance policies, amounts that may be recoverable from other entities by the company with respect to a particular site are not considered in establishing the accrual. The amounts accrued in 1994 with respect to potential liability are recorded as part of "Accounts payable and accrued expenses" on Statement 3. This amount represents less than one percent of that line item and accordingly is not material to the company's financial position. The company also assesses reasonably possible environmental liability beyond that which it has accrued. This liability is not probable, but is more likely than remote. As of December 31, 1994, the amount of company environmental liability that is reasonably possible is not expected to have a material impact on the company's liquidity, capital resources, or results of operations. Factors considered in assessing reasonably possible liability and its potential impact on the company are those stated above. Amounts that may be recoverable from other entities are not considered. As of December 31, 1994, potential liability at four sites cannot be assessed because they are in very early stages of investigation. LITIGATION On September 6, 1994, the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America ("UAW"), UAW Local 974, and Citizens for a Better Environment filed a complaint against the company with the Illinois Pollution Control Board ("Board"). The complaint generally alleges, in seven counts, that the company has violated certain provisions of the Illinois Environmental Protection Act and Board regulations with respect to a particular property in East Peoria, Illinois. The complaint further alleges that the maximum penalties for the alleged violations total $199 million. The company believes the claims are without merit and will vigorously contest them. The company further believes final resolution of this matter will not have a material impact on the company's liquidity, capital resources, or results of operations. On May 12, 1993, a Statement of Objections ("Statement") was filed by the Commission of European Communities against A-34 Caterpillar Inc. - ------------------------------------------------------------------------------- Caterpillar Inc. and certain overseas subsidiaries. The Statement alleges that certain service fees payable by dealers, certain dealer recordkeeping obligations, a restriction which prohibits a European Community ("EC") dealer from appointing subdealers, and certain export pricing practices and parts policies violate EC competition law under Article 85 of the European Economic Community Treaty. The Statement seeks injunctive relief and unspecified fines. Based on an opinion of counsel, the company believes it has strong defenses to each allegation set forth in the Statement. On November 19, 1993, the Commission of European Communities informed the company that a new complaint has been received by it alleging that certain export parts policies violate Article 85 and Article 86 of the European Economic Community Treaty. The Commission advised the company that it intends to deal with the new complaint within the framework of the proceedings initiated on May 12, 1993. Based on an opinion of counsel, the company believes it has strong defenses to the allegations set forth in the new complaint. The company is party to other litigation matters and claims which are normal in the course of its operations, and while the results of litigation and claims cannot be predicted with certainty, management believes, based on advice of counsel, the final outcome of such matters will not have a materially adverse effect on the consolidated financial position. ACCOUNTING CHANGES In the first quarter of 1994, the company changed its method of computing LIFO inventories from a single pool approach to a multiple pool approach for substantially all of its inventories. The company believes that the multiple pool method results in a better matching of revenues and expenses. The cumulative effect of the change on prior years was not determinable. This change did not have a material effect on 1994 results of operations or financial position. Effective January 1, 1994, the company adopted SFAS 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS 118. The adoption of these standards did not have a material effect on the company's financial position or results of operations. In the fourth quarter of 1992, effective January 1, 1992, Caterpillar adopted SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions"; SFAS 112, "Employers' Accounting for Postemployment Benefits"; and SFAS 109, "Accounting for Income Taxes." SFAS 106 requires recognition of the cost of providing postretirement health care and life insurance benefits over the employee service period. Caterpillar, like most U.S. companies, formerly charged the cost of providing these benefits against operations as claims were incurred. SFAS 112 requires recognition of the cost of providing other postemployment benefits when it is probable that the benefit will be provided. Such benefits include disability and workers' compensation benefits and continuation of health care benefits. Caterpillar had previously charged the cost of providing certain types of these benefits, primarily health care benefits, against operations as claims were incurred. SFAS 109 requires changing the method of accounting for income taxes from the deferred method to the liability method. None of the accounting changes affect cash flows. The effect of the changes, as of January 1, 1992, was as follows:
Profit (loss) per share Profit of common (loss) stock ------------------------------ (Dollars in millions except per share data) Postretirement benefits other than pensions, net of applicable income taxes (SFAS 106)............... $(2,141) $(10.61) Postemployment benefits, net of applicable income taxes (SFAS 112)............................ (29) (.14) Income taxes (SFAS 109)................. (47) (.23) ------- ------- $(2,217) $(10.98) ======= ======= - ------------------------------------------------------------------------
In addition to the above transition effects, incremental expense for 1992 resulting from the accounting changes was as follows:
(Expense)/Income ------------------------------ Before Tax After Tax ------------------------------ (Millions) Postretirement benefits other than pension (SFAS 106).................... $ (113) $ (65) Postemployment benefits (SFAS 112)............................ (11) (7) Income taxes (SFAS 109)................. 7 44 ------- ------- $ (117) $ (28) ======= ======= - ------------------------------------------------------------------------
INCOME TAXES SFAS 109, "Accounting for Income Taxes," requires, among other things, the separate recognition, measured at currently enacted tax rates, of deferred tax assets and deferred tax liabilities for the tax effect of temporary differences between the financial reporting and tax reporting bases of assets and liabilities, and net operating loss and tax credit carryforwards for tax purposes. A valuation allowance must be established for deferred tax assets if it is "more likely than not" that all or a portion will not be realized. The company's domestic operations recorded profit of $779 million for 1994 and $611 million for 1993, a significant turnaround from the $215 million loss recorded by its domestic operations for 1992. When the three years are combined, the company is in a cumulative profit position. Management has concluded that it is "more likely than not" that the company will ultimately realize the full benefit of its U.S. deferred tax assets related to future deductible items and qualified deficits. Accordingly, a valuation allowance is not required for $1,588 million of U.S. deferred tax assets in excess of deferred tax liabilities, of which $1,331 million is associated with future deductible items related to other postretirement and postemployment benefits under SFAS 106 and SFAS 112. At the end of 1994, foreign net operating loss carryforwards of $394 million were available in various tax jurisdictions. Of these carryforwards, $89 million are available for limited periods of time, expiring between 1997 and 2000 based on local tax law. A-35 MANAGEMENT'S DISCUSSION AND ANALYSIS continued - ------------------------------------------------------------------------------- The balance of $305 million is available for an unlimited time period. Management believes it is likely that tax benefits will be realized for net deferred tax assets in those foreign tax jurisdictions in which the company has a net operating loss carryforward. However, with the exception of one foreign subsidiary, there is not sufficient positive evidence as required by SFAS 109 to substantiate recognition in the financial statements. Accordingly, a valuation allowance of $182 million has been recorded for deferred tax assets at these foreign subsidiaries to the extent the assets are not offset with deferred tax liabilities in the same jurisdiction. DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments are principally used by the company in the management of foreign currency, interest rate, and commodity price exposures. Foreign Currency The company's operations are subject to foreign exchange risk through future foreign currency cash flows as movement in currency exchange rates impact: (1) the U.S. dollar value of its foreign currency denominated sales, and (2) the U.S. dollar value of the foreign currency denominated costs of its manufacturing facilities or purchases of material or services from suppliers. Additionally, the company faces foreign exchange risk from a competitive perspective as movements in currency exchange rates increase or decrease the local currency cash flow of foreign based competitors and may affect their profitability and pricing strategies. It is the company's policy to conduct currency transactions only to the extent necessary to operate the business and protect the company's interests. The company does not conduct currency transactions for speculative purposes. The company buys and sells currencies in amounts large enough to cover requirements for the business, and to protect its financial and competitive positions in those currencies whose relative values may change in foreign exchange markets. The company manages foreign exchange exposures that arise from cash inflows or outflows denominated in currencies other than the U.S. dollar with the objective to maximize consolidated aftertax U.S. dollar cash flows. The company's foreign currency management involves the active management of: 1) anticipated foreign currency cash flows for a future rolling twelve month period, including cash flows related to firmly committed foreign currency transactions, 2) cash flows related to firmly committed future foreign currency transactions for periods beyond the next twelve months, and 3) outstanding hedging transactions. The company normally does not manage or hedge specific asset or liability positions. Some foreign exchange exposures are managed through hedging with forward exchange contracts. Foreign currency option contracts (purchased option contracts and/or combination option contracts) are also used to hedge some foreign currency exposures, including firmly committed future transactions. To the extent that foreign currency exposures are hedged using forward exchange contracts, the company has neutralized the foreign exchange risk; i.e., the company is protected from unfavorable exchange rate movement, but has given up any potential benefit of favorable fluctuations in foreign currency exchange rates. Purchased option contacts, on the other hand, protect from unfavorable rate movement while still permitting the ability to benefit from the effect of favorable exchange rate fluctuations. None of the forward exchange or foreign currency option contracts used by the company are exchange traded. The company does not use historic rate rollovers or leveraged options, nor does it sell foreign currency options except in the case of combination option contracts where the purchased to sell ratio is limited to one-to-one. The combination option contracts used by the company are only those which limit the unfavorable effect of exchange rate movement while allowing a limited potential benefit from favorable exchange rate movement. Monthly, financial officers of the company approve the company's outlook relative to the expected currency exchange rate movement and company policy concerning desired future cash flow exposure positions (long, short, balanced) for those currencies in which the company has significant activity. Reports which provide information on current and anticipated currency exchange rates, cash flow exposures, and open hedging contracts for each major currency are distributed to financial officers daily. Hedging positions and strategies are continuously monitored. The company's foreign exchange management practices, including the use of derivative financial products are periodically presented to the Audit Committee of the company's Board of Directors. The company's anticipated cash inflows and outflows for the next twelve months, including cash flows related to firmly committed foreign currency transactions, along with the contractual amounts of outstanding forward exchange and foreign currency option contracts as of December 31, 1994, are summarized in the following table:
Exposures Hedges ------------------ ------------------- Buy Sell Foreign Foreign Inflows Outflows Currency Currency ------- -------- -------- -------- European Currencies.................. $2,355 $2,637 $-- $562 Japanese Yen......................... 166 591 1 17 Australian Dollar.................... 834 167 -- 402 Brazilian Real....................... 247 253 -- -- Canadian Dollar...................... 158 178 14 -- All Other Currencies................. 55 120 -- 7
Except for changes in foreign currency cash flows which are related to changes in business volume, the company's annual foreign currency cash flows for periods beyond the next twelve months are not expected to be materially different than those included in the above table. Interest Rate The company utilizes a variety of interest rate derivative contracts including interest rate swap agreements, interest rate cap (option) agreements, and forward rate agreements to manage its exposure to changes in interest rates and to lower the cost of borrowed funds. Derivative contracts are linked to a specific debt instrument at the time the contracts are entered. The company enters into such agreements only with major financial institutions and does not enter into them without an underlying operating need for the position created. In connection with its match funding objectives, the company's Financial Products subsidiaries use interest rate derivative contracts to modify debt structures in order to match fund receivable portfolios. This match funding reduces the risk of deteriorating margins between interest-bearing assets and interest-bearing liabilities regardless of the direction A-36 of interest rate movement. The company, including Financial Products subsidiaries, also uses these instruments to gain an economic and/or a competitive advantage through a lower cost of borrowed funds by changing the characteristics of existing debt instruments or entering into new agreements in combination with the issuance of new debt. Commodity Price The company's operations are also subject to commodity price risk as the price of materials purchased from various suppliers are subject to change based upon movement of underlying commodity prices. The company has entered into some commodity swap and option agreements to reduce this risk. However, the use of these types of derivative financial instruments has not been material. LABOR UPDATE - ------------ Since June 21, 1994, approximately 9,000 members of the United Auto Workers union have been on strike at eight of the company's U.S. facilities. Even so, the average production rate at the struck facilities was 14% higher in the last half of 1994 than in the first half. Caterpillar's traditional product quality was maintained throughout this period of increased production. This substantial accomplishment was due, in large part, to the dedication and teamwork of thousands of hourly, salaried and management employees and temporary and contract personnel. A few examples of the 1994 production and shipment milestones include: . The Mossville, Illinois, engine facility set an all-time shipment record in 1994. . During the fourth quarter, the Mapleton, Illinois, foundry set an all-time record for tons of product shipped for any quarter from the current foundry operation. . The Aurora, Illinois, manufacturing facility built and shipped the highest number of units in the last thirteen years. . Production rates at the Decatur, Illinois, manufacturing facility were 26% higher in the fourth quarter than those in the first half of 1994. . At the Pontiac, Illinois, manufacturing facility unit injector production was 60% higher in the fourth quarter than pre-strike levels. Work on critical product programs continued throughout the strike utilizing employees who remained on their normal job assignments, as well as overtime. During the fourth quarter more than half of the salaried and management employees who were temporarily working in manufacturing assignments returned to their regular jobs. As a result, activities that these employees normally work on, such as research and development, new product introduction programs and systems development, will return to more normal levels in 1995. Caterpillar is prepared to continue meeting customer demand indefinitely, with or without resolution of the strike. 1995 ECONOMIC AND INDUSTRY OUTLOOK - ---------------------------------- World economic growth is forecast to improve as accelerating growth in Europe, Japan, Africa and the Middle East is anticipated to more than offset moderation in the United States and any slowing in Latin America. Good growth is expected to continue in Canada and Australia with strong growth forecast to continue in Asia. In this improving global economic environment, industry demand is likely to increase moderately in all regions with the exception of the United States where demand is expected to remain near 1994 levels. The U.S. economy registered surprisingly good growth in 1994, especially in the second half. In response to this momentum, the Federal Reserve is expected to raise short-term interest rates further which, combined with the six rate increases already taken, should slow the economy in 1995. Although corporate cash flow and activities like mining and commercial construction are expected to register good increases in 1995, higher interest rates, lower housing starts and a slower pace of replacement demand are likely to result in a U.S. industry near 1994 levels. In contrast, a stronger economy in Canada should lead to another year of better industry demand. In Western Europe, economic growth is forecast to accelerate as short-term interest rates remain near 20-year lows. Long-term rates have risen but are still below year-ago levels, and with inflation at the lowest levels since the sixties, neither short- or long-term rates are expected to increase enough to jeopardize faster growth in 1995. Leading indicators also suggest that the economy now has enough momentum to accelerate despite tighter government budgets. In 1995, moderate to excellent economic growth is forecast for all Western European countries which should lead to another year of higher industry demand. Economic recovery is expected to continue in Japan leading to moderate improvement in industry demand. In Australia, good economic growth is forecast to continue despite somewhat higher interest rates, leading to moderately higher demand. An end to the severe economic decline in the CIS may be near but political instability remains high and fewer sales to the natural resource sector are expected in 1995. Reform is much further along in Central Europe where good economic and industry growth is forecast for the year. The economic and industry outlook for developing countries is generally favorable with the possible exceptions of Latin America and China. Excellent economic prospects for the Asia/Pacific region should lead to a higher industry, although anti-inflation policies and a potential trade dispute with the U.S. may limit sales in China. Stronger economies and a recovery in industry demand are expected in the Africa/Middle East region in response to higher commodity prices, greater export demand and economic restructuring. In Latin America, economic growth had been expected to accelerate but the recent drop in the Mexican peso will slow improvement in that country and the loss of investor confidence could spill over into several other countries as well. At this time, the Latin American industry is still expected to grow moderately but it is too early to assess the full impact of the recent devaluation. 1995 COMPANY OUTLOOK - -------------------- Worldwide, company sales of machines and engines are forecast to improve moderately, primarily due to increases outside the United States. Profits are also expected to be higher. The 1995 outlook remains the same regardless of the duration of the current UAW strike as the company intends to continue meeting the needs of its customers. MANAGEMENT'S DISCUSSION AND ANALYSIS [ ] A-37 SUPPLEMENTAL STOCKHOLDER INFORMATION ANNUAL MEETING On Wednesday, April 12, 1995, at 10:30 a.m., MST, the annual meeting of stockholders will be held at the Loews Ventana Canyon Hotel, Tucson, Arizona. Requests for proxies are being sent to stockholders with this report mailed on or about February 24, 1995. STOCK TRANSFER AGENT First Chicago Trust Company of New York P.O. Box 2500 Jersey City, NJ 07303-2500 Telephone: (201) 324-0498 STOCK EXCHANGE LISTINGS Caterpillar common stock is listed on stock exchanges in the United States, Belgium, France, Germany, Great Britain, and Switzerland. NUMBER OF STOCKHOLDERS Stockholders of record at year-end totaled 29,363, compared with 29,968 at the end of 1993. Approximately 5% of the outstanding shares are held by about 29,000 individuals. The remaining shares are held by trustees, banks, and other institutions for additional thousands of owners. Employees' investment and profit-sharing plans acquired 5,984,298 shares of Caterpillar stock in 1994, including 5,156,838 shares received through the stock split in the form of a 100% stock dividend. Investment plans, for which membership is voluntary, held 13,253,668 shares for employee accounts at 1994 year-end. Profit-sharing plans, in which membership is automatic for most U.S. and Canadian employees in eligible categories, held 245,563 shares at 1994 year-end. COMMON STOCK PRICE RANGE Quarterly price ranges of Caterpillar common stock on the New York Stock Exchange, the principal market in which the stock is traded, were: 1994 1993 --------------- --------------- Quarter High Low High Low - ------- ------ ------ ------ ------ First....... 60 3/4 44 1/2 30 1/4 27 Second...... 60 5/8 50 39 1/8 28 7/8 Third....... 58 1/4 50 41 5/8 36 3/8 Fourth...... 59 7/8 50 5/8 46 1/2 39 1/2 Market prices have been adjusted to give retroactive effect to a 2 for 1 stock split in 1994. AUTOMATIC DIVIDEND REINVESTMENT PLAN An Automatic Dividend Reinvestment Plan -- administered by First Chicago Trust Company of New York -- is available to stockholders. The plan provides a convenient, low-cost method for stockholders to increase their ownership in Caterpillar common stock. In addition, stockholders who elect to participate can make optional cash payments to purchase more Caterpillar shares. Participation may begin with any regularly scheduled dividend payment if an authorization form is completed and returned to the administrator prior to the dividend record date. Stockholders wishing further information may contact First Chicago Trust Company of New York, P.O. Box 13531, Newark, New Jersey 07188-0001. PUBLICATIONS FOR STOCKHOLDERS Single copies of the company's 1994 annual report on Securities and Exchange Commission Form 10-K (without exhibits) will be provided without charge to stockholders after March 31, 1995, upon written request to: Secretary Caterpillar Inc. 100 N.E. Adams Street Peoria, IL 61629-7310 The company also makes available to stockholders copies of its quarterly financial reports, annual meeting report, and Form 10-Q reports. The quarterly reports are mailed in April, July, and October. The annual meeting report is mailed in May; 10-Q reports are available in May, August, and November. INVESTOR INQUIRIES For those seeking additional information about the corporation-- Institutional analysts, portfolio managers, and representatives of financial institutions should contact: James F. Masterson Director of Investor Relations Caterpillar Inc. 100 N.E. Adams Street Peoria, IL 61629-5310 Telephone: (309) 675-4549 Facsimile: (309) 675-4457 Individual stockholders should contact: Laurie J. Huxtable Assistant Secretary Caterpillar Inc. 100 N.E. Adams Street Peoria, IL 61629-7310 Telephone: (309) 675-4619 A-38 DIRECTORS AND OFFICERS DIRECTORS Lilyan H. Affinito(1,4) Former Vice Chairman, Maxxam Group Inc. Donald V. Fites(3,4) Chairman and Chief Executive Officer, Caterpillar Inc. John W. Fondahl(1,4) Former Professor of Civil Engineering, Stanford University David R. Goode(1,2) Chairman, Chief Executive Officer & President, Norfolk Southern Corporation James P. Gorter(1,2) Chairman, Baker, Fentress & Company Walter H. Helmerich, III(2,3) Chairman, Helmerich & Payne, Inc. Jerry R. Junkins(2,4) Chairman, President, and Chief Executive Officer, Texas Instruments Incorporated Peter A. Magowan(2,3) Chairman, Safeway, Inc.; President & Managing General Partner, San Francisco Giants Gordon R. Parker Former Chairman, Newmont Mining Corporation and Newmont Gold Company George A. Schaefer(1,3) Former Chairman and Chief Executive Officer, Caterpillar Inc. Joshua I. Smith(3,4) Chairman & Chief Executive Officer, The MAXIMA Corporation James W. Wogsland Vice Chairman, Caterpillar Inc. Clayton K. Yeutter(2,4) Of Counsel to Hogan & Hartson, Washington, D.C. (1) Member of Audit Committee (Lilyan H. Affinito, chairman) (2) Member of Compensation Committee (James P. Gorter, chairman) (3) Member of Nominating Committee (Walter H. Helmerich, III, chairman) (4) Member of Public Policy Committee (Clayton K. Yeutter, chairman) OFFICERS Donald V. Fites Chairman James W. Wogsland Vice Chairman Glen A. Barton Group President Gerald S. Flaherty Group President R. Rennie Atterbury III Vice President, General Counsel, and Secretary James W. Baldwin Vice President Vito H. Baumgartner Vice President James S. Beard Vice President Richard A. Benson Vice President Ronald P. Bonati Vice President James E. Despain Vice President Robert C. Dryden Vice President Roger E. Fischbach Vice President Donald M. Ings Vice President Keith G. Johnson Vice President Duane H. Livingston Vice President(2) Douglas R. Oberhelman Vice President(2) James W. Owens Vice President(1) Gerald Palmer Vice President Robert C. Petterson Vice President Siegfried R. Ramseyer Vice President Alan J. Rassi Vice President Gerald L. Shaheen Vice President(2) Gary A. Stroup Vice President Richard L. Thompson Vice President(1) Sherril K. West Vice President(2) Donald G. Western Vice President(2) Wayne M. Zimmerman Vice President Robert R. Gallagher Controller Rudolf W. Wuttke Treasurer Robin D. Beran Assistant Treasurer Mary J. Callahan Assistant Secretary Laurie J. Huxtable Assistant Secretary __________ Note: All director/officer information above is as of December 31, 1994, except as noted below. (1) Group President effective January 1, 1995 (2) Effective January 1, 1995 A-39 -----END PRIVACY-ENHANCED MESSAGE-----