-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HiJazraXvq4LDNyiwLm+2WH72JTGrVz1H4fvghzrkucB1BAhZ7Yj0IYHYZ/67jCJ lWN4Ei3UAtlpGcDLldjp9w== 0000950131-97-002066.txt : 19970327 0000950131-97-002066.hdr.sgml : 19970327 ACCESSION NUMBER: 0000950131-97-002066 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970326 SROS: CSX 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-00768 FILM NUMBER: 97563756 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-K405 1 FORM 10-K405 ================================================================================ 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, 1996 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________. Commission File No. 1-768 CATERPILLAR INC. (Exact name of Registrant as specified in its charter) DELAWARE 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 Exchange, Inc. Preferred Stock Purchase Rights Chicago Stock Exchange New York Stock Exchange Pacific Exchange, Inc. 9 3/8% Notes due July 15, 2000 New York Stock Exchange 9 3/8% Notes due July 15, 2001 New York Stock Exchange 9% Debentures due April 15, 2006 New York Stock Exchange 9 3/8% Debentures due August 15, 2011 New York Stock Exchange 9 3/4% Sinking Fund Debentures due June 1, 2019 New York Stock Exchange 9 3/8% Debentures due March 15, 2021 New York Stock Exchange 8% Debentures due February 15, 2023 New York Stock Exchange 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. [X] As of December 31, 1996, there were 190,351,110 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 $14,221,294,174.50. DOCUMENT INCORPORATED BY REFERENCE Portions of the documents listed below have been incorporated by reference into the indicated parts of this Form 10-K, as specified in the responses to the item numbers involved. . 1997 Annual Meeting Proxy Statement ("Proxy Statement") - Part III . Annual Report to Security Holders filed as an appendix to the 1997 Annual Meeting Proxy Statement ("Appendix") - Parts I, II, and IV ================================================================================ 1996 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, mining shovels, pipelayers, motor graders, wheel tractor-scrapers, track and wheel excavators, backhoe loaders, log skidders, log loaders, off-highway trucks, articulated trucks, paving products, and related parts. (2) Engines--Design, manufacture, and marketing of engines for earthmoving and construction machines, on-highway trucks, and locomotives; marine, petroleum, agricultural, industrial, and other applications; electric power generation systems; and related parts. Caterpillar reciprocating diesel and spark-ignited engines meet power needs ranging from 40 to 13,600 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 23 of the Notes to Consolidated Financial Statements on pages A-23 through A-24 of the Appendix 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 dealers, 65 located in the United States and 127 located outside the United States. Worldwide, these dealers have more than 1,300 places of business. Diesel and spark-ignited engines are sold principally 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. The principal markets for the Machinery and Engines segments are located in the United States, Europe, Asia/Pacific, and Latin America. The United States is the principal market for the Financial Products segment. Page 1 The majority of the Company's sales and revenues is derived from the Machinery segment. Further information concerning the Company's operations in 1996 and its outlook for 1997 appears under the caption "Management's Discussion and Analysis" on pages A-28 through A-36 of the Appendix, which pages are incorporated herein by reference. Patents and Trademarks - ---------------------- The Company's products are sold primarily under the marks "Caterpillar," "Cat," "Solar," "Barber-Greene," and "MaK" (acquired 12/31/96). 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 1996, 1995 and 1994, the Company expended $570 million, $532 million and $435 million, respectively, on its research and engineering program. Of these amounts, $410 million in 1996, $375 million in 1995 and $311 million in 1994 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 1996 the Company announced several new products as well as improvements to existing products, such as the D11R Carrydozer, the C-10 and C-12 truck engines, and the 793C off- highway truck. The Company expects to continue the development of new products and improvements to existing products in the future, with a focus in the areas of power generation equipment, smaller machines, and agricultural products. Employment - ---------- At December 31, 1996, the Company employed 57,026 persons of whom 18,455 were located outside the United States. Sales - ----- Sales outside the United States were 51% of consolidated sales in 1996, compared with 52% in 1995 and 49% in 1994. Environmental Matters - --------------------- At this time, based on current regulations, the potential impact of environmental regulation compliance on the Company's capital expenditures, earnings, and competitive position is not expected to be material. The Company is involved in a number of remediation actions to clean up hazardous wastes as required by federal and state laws. These laws often require responsible parties to fund remediation actions regardless of fault, legality of original disposal or ownership of a disposal site. Under accounting guidelines, the Company is required to accrue and charge to income management's best estimate of future costs associated with these sites. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the lower end of that range. For 1996, the amount accrued for potential clean up costs is contained in the line item, "Accounts payable and accrued expenses" in Statement 3 of the Appendix, and represents an immaterial portion of that line item. While the Company may have rights of contribution or reimbursement under insurance policies, amounts that may be recoverable from other entities are not considered in establishing the accrual. Page 2 In deciding upon amounts to be reserved for potential environmental liability at a particular site, the Company looks at several factors including: . prior experience regarding environmental remediation at a similar site; . experience of other companies at a similar site; . technology available for remediation at the time; . the stage of remediation for the particular site (i.e., whether the site is at the identification stage or whether a remedial investigation or feasibility study has been conducted); . documentation, if any, linking the Company to a particular site; . the amount the Company has been asked to contribute to a particular site; and . aspects of the law under which the Company is alleged to be liable for clean up. The Company also looks at these factors in deciding whether it could incur liabilities beyond those which it has accrued for future remediation. It is difficult to estimate potential liability at sites in very early stages of remediation (of which the Company has seven currently). At this time, however, the Company believes the likelihood of incurring any material environmental liability beyond that accrued is remote. ITEM 1a. EXECUTIVE OFFICERS OF THE REGISTRANT AS OF DECEMBER 31, 1996
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 (62) Chairman and Chief Executive Officer (1990) - ---------------------------------------------------------------------------------------------------------------------- Glen A. Barton (57) Group President (1990) - ---------------------------------------------------------------------------------------------------------------------- Gerald S. Flaherty (58) Group President (1990) - ---------------------------------------------------------------------------------------------------------------------- James W. Owens (50) Group President (1995) Vice President; Chief Financial Officer; President, Solar Turbines Incorporated - ---------------------------------------------------------------------------------------------------------------------- Richard L. Thompson (57) Group President (1995) Vice President - ---------------------------------------------------------------------------------------------------------------------- R. Rennie Atterbury III(59) Vice President, General Counsel and Secretary (1991) - ---------------------------------------------------------------------------------------------------------------------- James W. Baldwin (59) Vice President (1991) - ---------------------------------------------------------------------------------------------------------------------- Vito H. Baumgartner (56) Vice President (1990) Chairman, Caterpillar Overseas S.A. - ---------------------------------------------------------------------------------------------------------------------- James S. Beard (55) Vice President (1990) President, Caterpillar Financial Services Corporation - ---------------------------------------------------------------------------------------------------------------------- Richard A. Benson (53) Vice President (1989) President, Caterpillar Industrial Inc. - ---------------------------------------------------------------------------------------------------------------------- Ronald P. Bonati (57) Vice President (1990) - ---------------------------------------------------------------------------------------------------------------------- James E. Despain (59) Vice President (1990) - ---------------------------------------------------------------------------------------------------------------------- Roger E. Fischbach (55) Vice President (1989) - ---------------------------------------------------------------------------------------------------------------------- Michael A. Flexsenhar (57) Vice President (1995) General Manager, Large Engines, Lafayette Plant - ---------------------------------------------------------------------------------------------------------------------- Donald M. Ings (48) Vice President (1993) President, Solar Turbines Incorporated; Plant Manager, York - ---------------------------------------------------------------------------------------------------------------------- Duane H. Livingston (55) Vice President (1995) Director of Corporate Auditing, Corporate Services Division - ---------------------------------------------------------------------------------------------------------------------- Daniel M. Murphy (49) Vice President (1996) General Manager, Mossville Engine Center; Product Manager, Excavators, Aurora Plant - ---------------------------------------------------------------------------------------------------------------------- Douglas R. Oberhelman (43) Vice President (1995) Managing Director and Vice General Manager, Strategic Planning, Shin Caterpillar Mitsubishi Ltd. (Tokyo) - ---------------------------------------------------------------------------------------------------------------------- Gerald Palmer (51) Vice President (1992) Director of Technical Services, Technical Services Division - ---------------------------------------------------------------------------------------------------------------------- Robert C. Petterson (58) Vice President (1991) President, Caterpillar Brasil S.A. - ----------------------------------------------------------------------------------------------------------------------
Page 3
- ----------------------------------------------------------------------------------------------------------------------- John E. Pfeffer (54) Vice President (1995) Chairman, Shin Caterpillar Mitsubshi Ltd.; Business Unit Manager, York Plant; President CONEK S.A. de C.V. - ---------------------------------------------------------------------------------------------------------------------- Siegfried R. Ramseyer (59) Vice President (1992) Managing Director, Caterpillar Overseas S.A. - ---------------------------------------------------------------------------------------------------------------------- Alan J. Rassi (56) Vice President (1992) General Manager, Construction & Mining Products Division, Wheel Loaders & Excavators, Aurora Plant - ---------------------------------------------------------------------------------------------------------------------- Gerald L. Shaheen (52) Vice President (1995) Managing Director,Caterpillar Overseas S.A.; Regional Manager, Eastern Region, N.A. Commercial Division - ---------------------------------------------------------------------------------------------------------------------- Gary A. Stroup (47) Vice President (1992) General Manager, Hauling Units and Motor Graders Business Unit; Business Unit Manager, Component Products Division - ---------------------------------------------------------------------------------------------------------------------- Sherril K. West (49) Vice President (1995) Marketing Support Services Manager, Corporate Services Division - ---------------------------------------------------------------------------------------------------------------------- Donald G. Western (48) Vice President (1995) Managing Director, Caterpillar Belgium S.A. - ---------------------------------------------------------------------------------------------------------------------- Wayne M. Zimmerman (61) Vice President (1989) - ---------------------------------------------------------------------------------------------------------------------- Robert R. Gallagher (56) Controller (1990) - ---------------------------------------------------------------------------------------------------------------------- F. Lynn Mc Pheeters (54) Treasurer (1996) Executive Vice President, Caterpillar Financial Services Corporation - ----------------------------------------------------------------------------------------------------------------------
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, 1996. Total Properties - ---------------- Total properties owned or leased by the Company consist of 65,385,932 square feet of building area, of which 86.6% is owned in fee and 13.4% is leased. Owned Properties - ---------------- Properties owned in fee by the Company consist of 56,645,276 square feet of building area and 18,881 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 35,694 square feet of building area and 5,742 acres of land which are no longer utilized in current operations. These closed properties have been declared surplus and are for sale. Page 4 In December, 1991, the Company announced the probable closure of its manufacturing facility in York, Pennsylvania. In March, 1996, the Company announced that the Precision Barstock Products Business Unit in York, Pennsylvania would be closed. The Company is currently in the process of closing the unit. Leased Properties - ----------------- Properties leased by the Company consist of 8,740,656 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 31 locations inside the United States and 20 locations outside the United States. Remanufacturing and Overhaul activities are conducted at 4 locations inside the United States and 7 locations outside the United States. These facilities have a total building area of 42,690,768 square feet, of which 97.9% is used for manufacturing and 2.1% 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: Plant Locations inside the U.S. Principal Use ------------------------------- ------------- Gardena, California Manufacturing San Diego, California Manufacturing Jacksonville, Florida Manufacturing Jefferson, Georgia 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 Sterling, Illinois Manufacturing Lafayette, Indiana Manufacturing Wamego, Kansas Manufacturing Menominee, Michigan Manufacturing Minneapolis, Minnesota Manufacturing New Ulm, Minnesota Manufacturing Corinth, Mississippi Remanufacturing Prentiss County, Mississippi Remanufacturing Boonville, Missouri Manufacturing Clayton, North Carolina Manufacturing Franklin, North Carolina Manufacturing Leland, North Carolina Manufacturing Sanford, North Carolina Manufacturing Dallas, Oregon Manufacturing York, Pennsylvania Manufacturing Greenville, South Carolina Manufacturing Page 5 Dyersburg, Tennessee Manufacturing Rockwood, Tennessee Manufacturing Desoto, Texas Overhaul Houston, Texas Manufacturing Mabank, Texas Remanufacturing Plant Locations outside the U.S. Principal Use -------------------------------- ------------- Melbourne, Australia Manufacturing Gosselies, Belgium Manufacturing Piracicaba, Brazil Manufacturing Edmonton, Canada Overhaul Shanghai, China Manufacturing Xuzhou, China Manufacturing Leicester, England Manufacturing Peterlee, England Manufacturing Stockton, England Manufacturing Wolverhampton, England Manufacturing Grenoble, France Manufacturing Rantigny, France Manufacturing Kiel, Germany Manufacturing Zweibrucken, Germany Manufacturing Godollo, Hungary Manufacturing Jakarta, Indonesia Manufacturing Bandung, Indonesia Overhaul Bazzano, Italy Manufacturing Jesi, Italy Manufacturing Kuala Lumpur, Malaysia Overhaul Monterrey, Mexico Manufacturing Nuevo Laredo, Mexico Remanufacturing Tijuana, Mexico Overhaul Veracruz, Mexico Overhaul Janow Lubelski, Poland Manufacturing St. Petersburg, Russia Manufacturing Financial Products - ------------------ The Financial Products Division is headquartered in leased offices located in Nashville, Tennessee. The Financial Products Division also leases 5 other office locations inside the United States and 10 office locations outside the United States and shares other office space with other Company entities. Distribution - ------------ The Company's distribution activities are conducted at 12 Distribution Center locations (3 inside the United States and 9 outside the United States) and 14 Regional Distribution Center locations (12 inside the United States and 2 outside the United States). These locations have a total building area of 9,406,054 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. Page 6 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. Changes in Fixed Assets - ----------------------- During the five years ended December 31, 1996, changes in investment in land, buildings, machinery and equipment of the Company were as follows (stated in millions of dollars):
------------------------------------------------------------------------------------- Disposals and Net Increase Expenditures Acquisitions/1/ Provisions for Other (Decrease) Year ------------------------------- U.S. Outside U.S. Outside Depreciation Adjustments During Period U.S. U.S. ------------------------------------------------------------------------------------- 1992 $502 $138 $0 $ 0 $(644) $ (91) $ (95) ------------------------------------------------------------------------------------- 1993 $508 $124 $0 $ 0 $(661) $ (98) $(127) ------------------------------------------------------------------------------------- 1994 $508 $186 $0 $ 0 $(680) $ (65) $ (51) ------------------------------------------------------------------------------------- 1995 $506 $173 $0 $ 0 $(679) $(132) $(132) ------------------------------------------------------------------------------------- 1996 $513 $258 $0 $136 $(690) $ (94) $ 123 ------------------------------------------------------------------------------------- /1/Prior to 1996, Acquisition amounts, if any, are included with Expenditures. - --------------------------------------------------------------------------------
At December 31, 1996, the net book value of properties located outside the United States represented 27% 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 10 of the "Notes to Consolidated Financial Statements" on pages A-10 and A-16, respectively, of the Appendix, which Notes are incorporated herein by reference. Item 3. Legal Proceedings. The Company is involved in litigation matters and claims which are normal in the course of its operations. The results of these matters cannot be predicted with certainty; however, management believes, based on the advice of legal counsel, the final outcome will not have a materially adverse effect on the Company's consolidated financial position. 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-37 and under the caption "Dividends" appearing on page A-33 of the Appendix. In addition, the Company has seven employee stock purchase plans administered outside the United States for our foreign employees exempt from registration under the Securities Act of 1933. As of December 31, 1996, those plans had approximately 1,360 participants in the aggregate. During the Fourth Quarter of 1996, a total of 15,900 shares of Caterpillar common stock or foreign denominated equivalents were distributed under the plans. Page 7 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 under the caption "Eleven-year Financial Summary" but only for the years 1992-1996, 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/2/" (including the footnote indicated), "Profit (loss)/1/," (including the footnote indicated), "Profit (loss) per share of common stock: /1/ /3/Profit (loss) before effects of accounting change(/1/" (including the footnotes indicated), "Profit (loss) per share of common stock:/1/ /3/Effects of accounting changes/2/" (including the footnotes indicated), "Profit (loss) per share of common stock:/1/ /3/Profit (loss)" (including the footnotes indicated), "Dividends declared per share of common stock," "Total assets: Machinery and Engines," "Total assets: 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-36 of the Appendix. 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. 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 4 of the Proxy Statement under the captions "Directors Nominated this Year for Terms Expiring in 2000," "Directors Up for Election in 1999," and "Directors Up for Election in 1998." 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 "Section 16(a) Beneficial Ownership Reporting Compliance" appearing on page 19 of the Proxy Statement. Page 8 Item 11. Executive Compensation. The information required by Item 11 is incorporated by reference from under the caption "Director Compensation" which appears on page 5, from under the caption "Report of the Compensation Committee on Executive Compensation" on pages 8 through 13, from under the caption "Performance Graph" on page 7, and from under the caption "Executive Compensation Tables" which appear on pages 13 through 15 of the Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required by Item 12 is incorporated by reference from page 6 of the Proxy Statement under the caption "Caterpillar Stock Owned by Officers and Directors (as of December 31, 1996)." Item 13. Certain Relationships and Related Transactions. The information required by Item 13 is incorporated by reference from the Proxy Statement from under the caption "Certain Related Transactions" appearing 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 Flow 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) There were three reports, dated October 15, December 11, December 16, filed on Form 8-K pursuant to Item 5 during the last quarter of 1996. No financial statements were filed as part of those reports. * Incorporated by reference from the indicated pages of the Appendix to the 1997 Annual Meeting Proxy Statement. Page 9 (c) Exhibits: 3 (i) (a) Restated Certificate of Incorporation (incorporated by reference from Exhibit 3(a)(i) to Form 10-K for the year ended December 31, 1994, Commission File No. 1-768). 3 (i) (b) Certificate of Designation, Preferences and Rights of the Terms of the Series A Junior Participating Preferred Stock (incorporated by reference from Exhibit 2 to Form 8-A filed December 11, 1996, Commission File No. 1-768). 3 (ii) Bylaws (incorporated by reference from Exhibit 3(ii) to Form 10-Q for the quarter ended September 30, 1995, Commission File No. 1-768). 4 Rights Agreement dated as of December 11, 1996, between Caterpillar Inc. and First Chicago Trust Company of New York (incorporated by reference from Exhibit 1 to Form 8-A filed December 11, 1996, Commission File No. 1-768). 10 (a) Caterpillar Inc. 1996 Stock Option and Long-Term Incentive Plan, as amended and restated.** 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, 1995, Commission File No. 1-768).** 10 (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).** 10 (d) Supplemental Employees' Investment Plan, as amended and restated.** 10 (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).** 10 (f) Directors' Deferred Compensation Plan, as amended and restated.** 10 (g) 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).** 10 (h) Deferred Employees' Investment Plan, as amended and restated.** 11 Computations of Earnings Per Share 12 Statement Setting Forth Computation of Ratios of Profit to Fixed Charges 13 Annual Report to Security Holders attached as an Appendix to the Company's 1997 Annual Meeting Proxy Statement. 21 Subsidiaries and Affiliates of the Registrant 23 Consent of Independent Accountants 27 Financial Data Schedule 99 (a) Form 11-K for Caterpillar Foreign Service Employees' Stock Purchase Plan. ** Compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of this Form 10-K. Page 10 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CATERPILLAR INC. (Registrant) By: /s/R. R. ATTERBURY III ------------------------- Date: March 25, 1997 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, March 25, 1997 /s/DONALD V. FITES Director and Chief ------------------------ Executive Officer (Donald V. Fites) March 25, 1997 /s/GLEN A. BARTON Group President ------------------------ (Glen A. Barton) March 25, 1997 /s/GERALD S. FLAHERTY Group President ------------------------ (Gerald S. Flaherty) March 25, 1997 /s/JAMES W. OWENS Group President ------------------------ (James W. Owens) March 25, 1997 /s/RICHARD L. THOMPSON Group President ------------------------ (Richard L. Thompson) Vice President and March 25, 1997 /s/DOUGLAS R. OBERHELMAN Chief Financial Officer ------------------------ (Douglas R. Oberhelman) Controller and March 25, 1997 /s/ROBERT R. GALLAGHER Chief Accounting Officer ------------------------ (Robert R. Gallagher) March 25, 1997 /s/LILYAN H. AFFINITO Director ------------------------ (Lilyan H. Affinito) March 25, 1997 /s/JOHN W. FONDAHL Director ------------------------ (John W. Fondahl) March 25, 1997 /s/DAVID R. GOODE Director ------------------------ (David R. Goode) March 25, 1997 /s/PETER A. MAGOWAN Director ------------------------ (Peter A. Magowan) March 25, 1997 /s/GORDON R. PARKER Director ------------------------ (Gordon R. Parker)
March 25, 1997 /s/GEORGE A. SCHAEFER Director ------------------------ (George A. Schaefer) March 25, 1997 /s/JOSHUA I. SMITH Director ------------------------ (Joshua I. Smith) March 25, 1997 /s/CLAYTON K. YEUTTER Director ------------------------ (Clayton K. Yeutter)
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Caterpillar Inc.: Our audits of the consolidated financial statements of Caterpillar Inc. referred to in our report dated January 21, 1997 appearing on page A-3 of the Appendix to the 1997 Annual Meeting Proxy Statement (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PRICE WATERHOUSE LLP Peoria, Illinois January 21, 1997 CATERPILLAR INC. AND CONSOLIDATED SUBSIDIARY COMPANIES SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS (Millions of dollars) YEARS ENDED DECEMBER 31,
Balance at Balance Beginning at Close Description of Year Additions Deductions of Year ----------- ---------- --------- ---------- -------- 1996 - ---- Reserves for plant closing and consolidation costs: Included in current liabilities: Accounts payable and accrued expenses..................... $ 55 $ -- $ 1 /1/ $ 54 Accrued wages, salaries, and employee benefits............ 115 -- 12 /1/ 103 Deducted from assets: Land, buildings, machinery, and equipment -- net.......... 99 -- (3) /2/ 102 1995 - ---- Reserves for plant closing and consolidation costs: Included in current liabilities: Accounts payable and accrued expenses..................... $ 56 $ -- $ 1 /1/ $ 55 Accrued wages, salaries, and employee benefits............ 122 -- 7 /1/ 115 Deducted from assets: Land, buildings, machinery, and equipment -- net.......... 149 -- 50 /2/ 99 1994 - ---- Reserves for plant closing and consolidation costs: Included in current liabilities: Accounts payable and accrued expenses..................... $ 58 $ -- $ 2 /1/ $ 56 Accrued wages, salaries, and employee benefits............ 138 -- 16 /1/ 122 Deducted from assets: Land, buildings, machinery, and equipment -- net.......... 150 -- 1 149
(1) Expenditures made. (2) Related to assets disposed of. EX-10.(A) 2 CATERPILLAR INC. 1996 STOCK OPTION & LONG-TERM INC Exhibit 10(a) 1996 STOCK OPTION AND LONG-TERM INCENTIVE PLAN (Restated as of 2/3/97) Section 1. Purpose The Caterpillar Inc. 1996 Stock Option and Long-Term Incentive Plan ("Plan") is designed to attract and retain outstanding individuals as directors, officers and key employees of Caterpillar Inc. and its subsidiaries (collectively, the "Company"), and to furnish incentives to such individuals through awards based upon the performance of the Company and its stock. To this end, the Plan provides for grants of stock options, restricted stock, and performance awards, or combinations thereof, to non-employee directors, officers and other key employees of the Company, on the terms and subject to the conditions set forth in the Plan. Section 2. Shares Subject to the Plan 2.1 Shares Reserved for Issuance Seven million shares of Company common stock ("Shares") shall be available for issuance under the Plan either from authorized but unissued Shares or from Shares acquired by the Company, including Shares purchased in the open market. An additional four million Shares authorized but unissued under prior Company stock option plans shall be available for issuance under this Plan. 2.2 Stock Splits/Stock Dividends In the event of a change in the outstanding Shares of the Company by reason of a stock dividend, recapitalization, merger, consolidation, split- up, combination, exchange of shares, or similar event, the Compensation Committee ("Committee") of the Company's Board of Directors ("Board") shall take any action, which, in its discretion, it deems necessary to preserve benefits under the Plan, including adjustment to the aggregate number of Shares reserved for issuance under the Plan, the number and option price of Shares subject to outstanding options granted under the Plan and the number and price of Shares subject to other awards under the Plan. 2.3 Reacquired Shares If Shares issued pursuant to the Plan are not acquired by participants because of lapse, expiration or termination of an award, such Shares shall again become available for issuance under the Plan. Shares tendered upon exercise of an option by a Plan participant may be added back and made available solely for future grants under the Plan. Section 3. Administration The Committee shall have the authority to grant awards under the Plan to officers and other key employees of the Company. Except as limited by the express provisions of the Plan or by resolutions adopted by the Board, the Committee also shall have the authority and discretion to interpret the Plan, to establish and revise rules and regulations relating to the Plan, and to make any other determinations that it believes necessary or advisable for administration of the Plan. The Committee shall be composed solely of members of the Board that are outside directors, as that term is defined in Section 162(m) of the Internal Revenue Code. The Committee shall have no authority with respect to non-employee director awards under the Plan. Section 4. Stock Options 4.1 Company Employees (a) Eligibility ----------- The Committee shall determine Company officers and employees to whom options shall be granted, the timing of such grants, and the number of shares subject to the option; provided that the maximum number of Shares upon which options may be granted to any employee in any calendar year shall be 200,000. (b) Option Exercise Price --------------------- The exercise price of each option shall not be less than 100% of the fair market value of Shares underlying the option at the time the option is granted. The fair market value for purposes of determining the exercise price shall be the mean between the high and low prices at which Shares are traded on the New York Stock Exchange the day the option is granted. In the event this method for determining fair market value is not practicable, fair market value shall be determined by such other reasonable method as the Committee shall select. (c) Option Exercise --------------- Options shall be exercisable in such installments and during such periods as may be fixed by the Committee at the time of grant. Options that are not incentive stock options as defined in Section 4.1(f) of the Plan shall not be exercisable after the expiration of ten years and one day from the date of grant. Payment of the exercise price shall be made upon exercise of all or a portion of any option. Such payment shall be in cash or by tendering Shares having a fair market value equal to 100% of the exercise price. The fair market value of Shares for this purpose shall be the mean between the high and low prices at which Shares are traded on the New York Stock Exchange on the date of exercise. Upon exercise of an option, any applicable taxes the Company is required to withhold shall be paid to the Company. Shares to be received upon exercise may be surrendered to satisfy withholding obligations. (d) Termination of Employment ------------------------- The Committee may require a period of continued employment before an option can be exercised. That period shall not be less than one year, except that the Committee may permit a shorter period in the event of termination of employment by retirement or death. Termination of employment with the Company shall terminate remaining rights under options then held; provided, however, that an option grant may provide that if employment terminates after completion of a specific period, the option may be exercised during a period of time after termination. That period may not exceed sixty months where termination of employment is caused by retirement or death or sixty days where termination results from any other cause. If death occurs after termination of employment but during the period of time specified, such period may be extended to not more than sixty-six months after retirement, or thirty-eight months after termination of employment for any other cause. In the event of termination within two years after a Change of Control as defined in Section 7.2 of the Plan, options shall be exercisable for a period of sixty months following the date of termination or for the maximum term of the option, whichever is shorter. Notwithstanding the foregoing, the Committee may change the post-termination period of exercisability of an option provided that change does not extend the original maximum term of the option. (e) Transferability of Options -------------------------- Options shall not be transferable other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code or the Employee Retirement Income Security Act. Options are exercisable during the holder's lifetime only by the holder, unless the holder becomes incapacitated or disabled, in which case the option may be exercised by the holder's authorized representative. A holder may file with the Company a written designation of beneficiaries with the authority to exercise options in the event of the holder's death. (f) Incentive Stock Options ----------------------- Incentive stock options, as defined in Section 422A of the Internal Revenue Code, may be granted under the Plan. The decision to grant incentive stock options to particular persons is within the Committee's discretion. Incentive stock options shall not be exercisable after expiration of ten years from the date of grant. The amount of incentive stock options vesting in a particular year cannot exceed $100,000 per option recipient, based on the fair market value of the options on the date of grant; provided that any portion of an option that cannot be exercised as an incentive stock option because of this limitation may be converted by the Committee to another form of option. The Board may amend the Plan to comply with Section 422A of the Internal Revenue Code or other applicable laws and to permit options previously granted to be converted to incentive stock options. 4.2 Non-Employee Directors (a) Terms ----- Options with a term of ten years and one day are granted to each non-employee director for 2,000 Shares, effective as of the close of each annual meeting of stockholders at which an individual is elected a director or following which such individual continues as a director. Options granted to non- employee directors shall become exercisable by one-third at the end of each of the three successive one-year periods since the date of grant. The exercise price of each option shall be 100% of the fair market value of Shares underlying the option on the date of grant. (b) Termination of Directorship --------------------------- An option awarded to a non-employee director may be exercised any time within 60 months of the date the director terminates such status. In the event of a director's death, the director's authorized representative may exercise the option within 60 months of the date of death, provided that if the director dies after cessation of director status, the option is exercisable within 66 months of such cessation. In no event shall an option awarded to a non-employee director be exercisable beyond the expiration date of that option. Section 5. Restricted Stock 5.1 Company Employees (a) Eligibility ----------- The Committee may determine whether restricted stock shall be awarded to Company officers and employees, the timing of award, and the conditions and restrictions imposed on the award. (b) Terms ----- During the restriction period, the recipient shall have a beneficial interest in the restricted stock and all associated rights and privileges of a stockholder, including the right to vote and receive dividends, subject to any restrictions imposed by the Committee at the time of grant. The following restrictions will be imposed on Shares of restricted stock until expiration of the restriction period: (i) The recipient shall not be entitled to delivery of the Shares; (ii) None of the Shares issued as restricted stock may be transferred other than by will or by the laws of descent and distribution; and (iii) Shares issued as restricted stock shall be forfeited if the recipient terminates employment with the Company, except for termination due to retirement after a specified age, disability, death or other special circumstances approved by the Committee. Shares awarded as restricted stock will be issued subject to a restriction period set by the Committee of no less than two nor more than ten years. The Committee, except for restrictions specified in the preceding paragraphs, shall have the discretion to remove any or all of the restrictions on a restricted stock award whenever it determines such action appropriate. Upon expiration of the restriction period, the Shares will be made available to the recipient, subject to satisfaction of applicable tax withholding requirements. 5.2 Non-Employee Directors (a) On January 1 of each year, 200 Shares of restricted stock shall be granted to each director who is not currently an employee of the Company. The stock will be subject to a restriction period of three years from the date of grant. During the restriction period, the recipient shall have a beneficial interest in the restricted stock and all associated rights and privileges of a stockholder, including the right to vote and receive dividends. The following restrictions will be imposed on restricted stock until expiration of the restricted period: (i) The recipient shall not be entitled to delivery of the Shares; (ii) None of the Shares issued as restricted stock may be transferred other than by will or by the laws of descent and distribution; and (iii) Shares issued as restricted stock shall be forfeited if the recipient ceases to serve as a director of the Company, except for termination due to death, disability, or retirement under the Company's Directors' Retirement Plan. Upon expiration of the restriction period, the Shares will be made available to the recipient, subject to satisfaction of applicable tax withholding requirements. (b) On January 1, 1997, and each January 1 thereafter, 175 shares of restricted stock, in addition to shares described in Section 5.2(a), shall be awarded to each director who is not currently and has not been an employee of the Company. Shares awarded under this Section 5.2(b) will be held in escrow until the director terminates service with the Company. During the restriction period, the recipient shall have a beneficial interest in the restricted stock and all associated rights and privileges of a stockholder except as discussed below. The following restrictions will be imposed on restricted stock awarded under this Section 5.2(b) until it is made available to the recipient: (i) The recipient shall not receive dividends on the shares, but an amount equal to such dividends will be credited to the director's stock equivalent account in the Company's Directors' Deferred Compensation Plan; (ii) The recipient shall not be entitled to delivery of the shares; (iii) None of the shares awarded may be transferred other than by will or by the laws of descent and distribution; and (iv) The right to receive shares shall be subordinate to the claims of general creditors of the Company. Upon termination of service, restricted shares will be made available to the recipient subject to satisfaction of applicable tax withholding requirements; provided, however, that if the recipient has not served on the Board for at least five years at the time of such termination, all restricted shares awarded under this Section 5.2(b) shall be forfeited. Pursuant to termination of the Company's Directors' Retirement Plan effective December 31, 1996, each director continuing in office was awarded an amount of restricted stock equal to the accumulated value of past pension accruals as determined by the Company's actuary. Those shares will be subject to the same restrictions as shares awarded annually pursuant to this Section 5.2(b). Section 6. Performance Awards 6.1 Eligibility and Terms The Committee may grant awards to officers and other key employees ("Performance Awards") based upon Company performance over a period of years ("Performance Period"). The Committee shall have sole discretion to determine persons eligible to participate, the Performance Period, Company performance factors applicable to the award ("Performance Measures"), and the method of Performance Award calculation. At the time the Committee establishes a Performance Period for a particular award, it shall also establish Performance Measures and targets to be attained relative to those measures ("Performance Targets"). Performance Measures may be based on any of the following factors, alone or in combination, as the Committee deems appropriate: (i) return on assets; (ii) return on equity; (iii) return on sales; (iv) total shareholder return; (v) cash flow; (vi) economic value added; and (vii) net earnings. Performance Targets may include a minimum, maximum and target level of performance with the size of Performance Awards based on the level attained. Once established, Performance Targets and Performance Measures shall not be changed during the Performance Period; provided, however, that the Committee may eliminate or decrease the amount of a Performance Award otherwise payable to a participant. Upon completion of a Performance Period, the Committee shall determine the Company's performance in relation to the Performance Targets for that period and certify in writing the extent to which Performance Targets were satisfied. 6.2 Payment of Awards Performance Awards may be paid in cash, Shares of restricted stock (pursuant to terms applicable to restricted stock awarded to Company employees as described in the Plan) or a combination thereof, as determined by the Committee. Performance Awards shall be made not later than 90 days following the end of the relevant Performance Period. The fair market value of a Performance Award payment to any individual employee in any calendar year shall not exceed $2.5 million. The fair market value of Shares to be awarded shall be determined by the average of the high and low price of Shares on the New York Stock Exchange on the last business day of the Performance Period. Federal, state and local taxes will be withheld as appropriate. 6.3 Termination To receive a Performance Award, the participant must be employed by the Company on the last day of the Performance Period. If a participant terminates employment during the Performance Period by reason of death, disability or retirement, a payout based on the time of employment during the Performance Period shall be distributed. Participants employed on the last day of the Performance Period, but not for the entire Performance Period, shall receive a payout prorated for that part of the Performance Period for which they were participants. If the participant is deceased at the time of Performance Award payment, the payment shall be made to the recipient's designated representative. Section 7. Change of Control 7.1 Effect on Grants and Awards. Unless the Committee shall otherwise expressly provide in the agreement relating to a grant or award under the Plan, upon the occurrence of a Change of Control as defined below: (i) all options then outstanding under the Plan shall become fully exercisable as of the date of the Change of Control; (ii) all terms and conditions of restricted stock awards then outstanding shall be deemed satisfied as of the date of the Change of Control; and (iii) all Performance Awards for a Performance Period not completed at the time of the Change of Control shall be payable in an amount equal to the product of the maximum award opportunity for the Performance Award and a fraction, the numerator of which is the number of months that have elapsed since the beginning of the Performance Period through the later of (A) the date of the Change of Control or (B) the date the participant terminates employment, and the denominator of which is the total number of months in the Performance Period; provided, however, that if this Plan shall remain in force after a Change of Control, a Performance Period is completed during that time, and the participant's employment has not terminated, this provision (iii) shall not apply. 7.2 Change of Control Defined For purposes of the Plan, a "Change of Control" shall be deemed to have occurred if: (a) Any person becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 15 percent or more of the combined voting power of the Company's then outstanding common stock, unless the Board by resolution negates the effect of this provision in a particular circumstance, deeming that resolution to be in the best interests of Company stockholders; (b) During any period of two consecutive years, there shall cease to be a majority of the Board comprised of individuals who at the beginning of such period constituted the Board; (c) The shareholders of the Company approve a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) less than fifty percent of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (d) Company shareholders approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of its assets. Section 8. Amendment and Termination The Board may terminate the Plan at any time, except with respect to grants and awards then outstanding. The Board may amend the Plan without shareholder approval, unless such approval is necessary to comply with applicable laws, including provisions of the Exchange Act or Internal Revenue Code. Section 9. Regulatory Compliance Notwithstanding any other provision of the Plan, the issuance or delivery of any Shares may be postponed for such period as may be required to comply with any applicable requirements of any national securities exchange or any requirements under any other law or regulation applicable to the issuance or delivery of such Shares. The Company shall not be obligated to issue or deliver any Shares if such issuance or delivery shall constitute a violation of any provision of any law or regulation of any governmental authority or national securities exchange. Section 10. Effective Date The Plan shall be effective upon its approval by the Company's stockholders at the 1996 Annual Meeting of Stockholders. EX-10.(D) 3 CATERPILLAR INC. SUPPLEMENTAL EMPLOYEES' INVESTMEN Exhibit 10(d) CATERPILLAR INC. SUPPLEMENTAL EMPLOYEES' INVESTMENT PLAN (Restated as of April 25, 1996) 1. Purpose ------- The purpose of the Caterpillar Inc. (Company) Supplemental Employees' Investment Plan (SEIP), as set forth in the succeeding sections of this document, is to provide additional investment opportunities for those employees whose participation in the Employees' Investment Plan (EIP) is restricted because of the limitations imposed by Section 401(a)(17) and 415(c)(1)(A) of the Internal Revenue Code of 1986, as amended, or any successor statute thereto (hereinafter referred to as the "Limitation"). The SEIP shall be effective October 14, 1987. 2. Eligibility ----------- An employee shall be eligible for the SEIP if he is participating in the EIP and his contributions and related employer contributions to Part 1 after 1987 can reasonably be expected to be restricted by the Limitation. As used herein, "Part 1" refers to the EIP without the Special Investment Supplement thereto. In addition, effective December 1, 1994, an employee shall be eligible for the SEIP if he is participating in the EIP and contributions to his account in the Special Investment Supplement ("Part 2") are restricted because of the Limitation. 3. Participant Deferrals --------------------- An employee must make a valid election (to become a "Participant") on or before the last Company business day in November of any year to participate in the SEIP during the following calendar year. Such election shall defer all or a portion of his compensation that would otherwise qualify as participant contributions under Part 1, Part 2 or both were it not for the Limitation. Any such election must be made (on a form provided by the Company) and delivered to the Director, Compensation and Benefits before the end of normal office hours on such last Company business day in November and shall remain in effect until it is revised as provided herein. If a Participant wants to change or terminate the amount of compensation deferred, he shall deliver a revised election form to the Director, Compensation and Benefits; provided, however, that (i) such revised election shall become effective (when and so long as the Participant is eligible) for each calendar year following the year in which such form is delivered, and shall remain effective until such election is further revised as provided herein, and (ii) any such election must be filed before the end of normal office hours on the last Company business day in November. When an employee first becomes eligible to participate in the SEIP (including those employees who first become eligible on the effective date), he may elect to defer compensation (or file a revised election) in accordance with the foregoing, except that any such election with respect to compensation payable to him during the calendar year in which he becomes eligible for the SEIP (i) must be filed within a 30-day period that begins on the date he becomes eligible, and (ii) shall be applicable only to compensation paid for months that commence after the date of such election. 4. Employer Amounts ---------------- An employee will be credited with the same amount that would otherwise be contributed to his account as an employer contribution under Part 1 were it not for the Limitation. 5. Status of Accounts ------------------ All amounts in the SEIP shall be held in the general funds of the Company, but the Company will establish an individual bookkeeping account for each Participant. Amounts of compensation deferred by the Participant and employer amounts related to such compensation will be credited to the individual account of the Participant in accordance with his election(s). Each Participant may elect to have all or a specified percentage of his deferred compensation allocated to: (a) an interest account, (b) a stock account and treated as though it were invested in Company common stock ("Stock Election"), or (c) a mutual fund account or accounts and treated as though it were invested in any of the following Preferred Group funds: Asset Allocation, Growth, International, Small Cap or Value. Amounts allocated to the stock account of a Participant who is an officer of the Company subject to Section 16 of the Securities Exchange Act of 1934 ("Officer") may not be transferred to another of his accounts (nor may amounts allocated, respectively, to any such other account be transferred to his stock account) until at least six months after he ceases to be subject to such Section. Under such a Stock Election, dividend equivalents will accrue to the account (when dividends are payable) and will be reinvested and a Participant's account will in all other respects reflect share ownership for events such as a stock split but no voting rights will exist. The number of shares of stock equivalents shall be determined by dividing the amount of deferred compensation (or dividend equivalents credited) by the average of the high and low prices of Company common stock on the New York Stock Exchange on the date of such deferral or dividend credit (or the next succeeding trading day if there is no trading on that date). Stock equivalents will be valued based on the average of the high and low prices of Company common stock on the New York Stock Exchange as of the effective date of a transfer into or out of the stock account ("Transfer"), the date on which the Participant terminates employment, the date of distribution elected by the Participant hereunder or the date as of which he is considered totally and permanently disabled under EIP, whichever date applies (or the next succeeding trading day if there is no trading on that date). The Company will credit interest accounts on a quarterly basis. The interest rate will be equal to the base corporate lending rate (sometimes referred to as the "prime rate") applicable to commercial lending customers of Citibank, N.A., New York, New York (or any successor thereto) on the last business day of each calendar quarter. The annual interest rate will be divided by four and applied effective the last day of each quarter to the average daily amount in each Participant's account in that quarter. In any calendar quarter in which a Participant does not have amounts credited to his account for the entire period of that quarter, interest will be credited pro rata based on the number of business days that amounts are credited to his account in that quarter compared to the total number of business days in that quarter. Participants who are not Officers may Transfer or make changes to the investment allocation of future deferred compensation which shall be effective as of the first day of a calendar quarter, provided that such Participant shall have filed an appropriate form with the Director, Compensation and Benefits, by the twentieth (20th) day of the preceding month. All amounts in the SEIP and the establishment of individual bookkeeping accounts shall not be deemed to have created a trust, and no Participant shall have any ownership interest in any such account. A Participant's rights to any amounts credited to his account shall not be transferable or assignable. Each Participant will receive an annual report showing the status of his account at the close of each calendar year. 6. Disbursement ------------ Following his termination of employment with the Company (or total and permanent disability), the value of the Participant's SEIP account will be payable to him as soon as practicable in cash, in a lump sum (including interest up to the date of payment) unless such Participant has elected a later payment date in writing that is acceptable to and approved by the Director, Compensation and Benefits; provided, however, that no such election shall be effective unless it shall have been filed on or before the last Company business day in November of the calendar year preceding the calendar year of such termination. 7. Death of a Participant ---------------------- Upon the death of a Participant prior to payment of his SEIP account, the balance in the Participant's account (including interest for the elapsed portion of the year of death) shall be determined as of the date of death. Such balance shall be paid as soon as reasonably possible thereafter in a lump sum payment to (i) the same beneficiary or beneficiaries and in the same proportionate amount as he shall have designated under the EIP, in the absence of any designation to the contrary, or (ii) the beneficiary or beneficiaries for purposes of the SEIP as such Participant shall have designated in writing (in a form acceptable to, and filed with, the Director, Compensation and Benefits). 8. Amendment or Termination ------------------------ The Compensation Committee of the Board of Directors or the Investment Plan Committee (for EIP) may at any time amend, merge, consolidate or terminate the SEIP, but no amendment, merger, consolidation or termination will have the effect of reducing the amount that any Participant is entitled to receive prior to such amendment, merger, consolidation or termination nor of changing the time of payment of any amount credited to a Participant's account. 9. Administration -------------- Except as otherwise expressly provided herein, the SEIP shall be administered under the direction of the Director, Compensation and Benefits, of the Company. EX-10.(F) 4 CATERPILLAR INC. DIRECTORS' DEFERRED COMPENSATION Exhibit 10(f) CATERPILLAR INC. DIRECTORS' DEFERRED COMPENSATION PLAN, AS AMENDED (EFFECTIVE AUGUST 15, 1996) 1. Purpose ------- The purpose of the Caterpillar Inc. Directors' Deferred Compensation Plan (the "Plan") is to provide each eligible member of the Board of Directors (the "Board") of Caterpillar Inc. (the "Company") with an opportunity to defer the payment of the compensation (excluding expense reimbursements) payable from time to time either for services as a Director of the Company, including but not limited to annual fees and fees payable for attendance at meetings of the Board and of Committees of the Board, or for others services performed for or on behalf of the Company ("Compensation"). 2. Eligibility ----------- Any member of the Board ("Director") is eligible to participate in the Plan. 3. Election to Defer ----------------- In order to participate in the Plan, a Director must make a valid election, on or before December 1 of any year, to defer payment of all or a stated percentage of the Compensation (but not less than 50% of such Compensation) that would otherwise be payable to him during the following calendar year and each succeeding calendar year until such Director ceases to be eligible to participate in the Plan or until such election is otherwise modified or terminated as provided herein (any such Director being hereinafter called a "Participant"). Any such election must be made by timely written notice delivered to the Director, Compensation and Benefits, of the Company by use of the Deferred Compensation Form attached hereto as Exhibit A which shall specify the amount deferred and form and time of distribution. Any person who shall first become a Director during any calendar year, and who was not a Director on the preceding December 31, may elect, before his term as a Director begins, to defer payment of all or a stated percentage of the Compensation (but not less than 50% of such Compensation) that would otherwise be payable to him during the remainder of such calendar year and each succeeding calendar year until such election is otherwise modified or terminated as provided herein. Any such election must be made by timely written notice delivered to the Director, Compensation and Benefits, of the Company by use of such Deferred Compensation Form. In the event that a Participant desires to modify the amount of Compensation that is being deferred, the Participant may do so by delivering a revised Deferred Compensation Form to the Director, Compensation and Benefits, of the Company. Such modified election shall be effective for each calendar year following the year in which such Form is delivered to the Director, Compensation and Benefits, and until such election is modified or terminated as provided herein. In the event that a Participant desires to change his choice as to when payments from his account commence, as to whether distribution is made in a lump sum or in installments or as to the number of installment payments to be made, the Participant may do so by delivering a revised Deferred Compensation Form to the Director, Compensation and Benefits, of the Company; provided that such modified election (a) shall not apply to amounts deferred prior to the effective date of such modified election unless made prior to the first day of the calendar year specified by the Participant under paragraph 6 after the close of which year distribution shall commence in the following month of January; and (b) shall not accelerate the time when payments from his account commence with respect to amounts deferred prior to the effective date of such modified election. Such modified election shall be effective as of the commencement of the calendar year following the year in which such Form is delivered to the Director, Compensation and Benefits, and shall remain in effect until such election is modified or terminated as provided herein. In the event that a Participant should desire to terminate the deferral of his Compensation, the Participant must elect to do so by written notice delivered to the Director, Compensation and Benefits, of the Company. Such termination shall become effective as of the end of the calendar year in which notice of termination is given with respect to Compensation payable during subsequent calendar years. An election to terminate deferral of Compensation will be effective for all future calendar years unless a new Deferred Compensation Form is completed and delivered to the Director, Compensation and Benefits, of the Company. Amounts credited to the account of a Participant prior to the effective date of termination shall not be affected by such termination election and shall be paid only in accordance with paragraphs 6 and 7 hereof. 4. Amount of Deferral ------------------ A Participant may elect to defer all or a specified portion of the Compensation (but not less than 50% of such Compensation) payable from time to time as a result of his service as a Director. 5. Status of Accounts ------------------ All deferred Compensation shall be held in the general funds of the Company, but the Company will establish an individual bookkeeping account for each Participant to which the deferred Compensation for that Participant will be credited. Deferred Compensation will be credited to the individual account of a Participant at the same time that it would otherwise have been paid to the Director in the absence of a deferral election. The Company will credit interest to the individual account of a Participant on a quarterly basis. The interest rate will be equal to the base corporate lending rate (sometimes referred to as the "prime rate") applicable to commercial lending customers of Citibank, N.A., New York, New York (or any successor thereto) on the last business day of each calendar quarter. The annual interest rate will be divided by four and applied effective the last day of each quarter to the total average daily amount (deferred Compensation and accrued interest) in each Participant's account in that quarter. In any calendar quarter in which a Participant does not have deferred amounts credited to his account for the entire period of that quarter, interest will be credited pro rata based on the number of business days that amounts are credited to his account in that quarter compared to the total number of business days in that quarter. The deferral of Compensation and the establishment of individual bookkeeping accounts shall not be deemed to have created a trust, and no Participant shall have any ownership interest in any and interest thereon under this Plan shall not be transferrable or assignable. Each Participant will receive an annual report showing the status of his account at the close of each calendar year. As an alternative to the crediting of interest to the individual account ("interest election"), each Participant may elect to have all or a specified percentage of his Compensation treated as though it were invested in Company common stock ("stock election"). Pursuant to Rule 16b-3(d)(1) under the Securities Exchange Act of 1934, any stock election or amendment thereto must be approved by the Compensation Committee of the Board prior to taking effect. If a Participant makes a stock election, dividend equivalents will accrue to the account quarterly and will be reinvested and a Participant's account will in all other respects reflect share ownership for events such as a stock split but no voting rights will exist. The number of shares of stock equivalents shall be determined by dividing the amount of Compensation (deferred into stock equivalents) or dividends credited by the average of the high and low prices of Company common stock on the New York Stock Exchange on the date of such deferral or dividend credit (or the next succeeding trading day if there is no trading on that date). A Participant's account will be valued based on the average of the high and low prices for Company common stock on the New York Stock Exchange as of (a) the last trading day in December prior to the January of the year(s) in which distribution occurs or (b) the date of the Participant's death (or the next succeeding trading day if there is no trading on that date). Distribution of account balances shall be in cash. All such elections must be made on forms approved by the Director, Compensation and Benefits. A director may elect to switch previously deferred amounts between the stock equivalent and interest accounts provided that an election to switch amounts from the stock equivalent account to the interest account does not occur within six months of an election to switch from the interest account to the stock equivalent account, and vice versa. Any such election shall be made by written notice to the Director, Compensation & Benefits, and will become effective on the first of the month following the month in which the election was made. 6. Disbursement Schedules ---------------------- Each Participant shall elect on the Deferred Compensation Form one of the following options under which deferred Compensation and interest thereon will be payable: a) A lump sum payment, or b) Annual installments for a period of up to 10 years Each Participant shall elect on the Deferred Compensation Form one of the following options as to when the payment of installments will commence, or a lump sum payment will be made: In January of the first calendar year following: a) the year in which the Participant ceases to be a Director, or b) the year in which the Participant reaches age 72, or c) the year in which the Participant retires from his principal occupation. 7. Death of a Participant ---------------------- Upon the death of a Participant, the balance in the Participant's account (including interest for the elapsed portion of the year of death) shall be determined as of the date of death and such balance shall be paid as soon as reasonably possible thereafter in a lump sum payment to such beneficiary as the Participant shall have designated in writing to the Company and filed with its Director, Compensation and Benefits, or in the absence of such designation, to the Participant's estate. 8. Amendment or Termination of the Plan ------------------------------------ The Board of Directors may at any time amend or terminate this Plan, but no amendment or termination will have the effect of reducing the amount that any Participant is entitled to receive prior to such amendment or termination nor accelerating the distribution of any amount theretofore credited to a Participant's account; provided, however, that in the event a Participant (or, if applicable, the designated beneficiary) incurs a severe financial hardship caused by an accident, illness, or other event beyond the control of the Participant (or, if applicable, designated beneficiary) the Stock Option and Officers' Compensation Committee of the Company, in its sole discretion, may revise such Participant's (or, if applicable, designated beneficiary) payment schedule for distribution from the interest account (but not from the stock-equivalent account) to the extent reasonably necessary to eliminate such financial hardship. 9. Administration -------------- Except as otherwise expressly provided herein, the Plan shall be administered under the direction of the Director, Compensation and Benefits, of the Company. EX-10.(H) 5 CATERPILLAR INC. DEFERRED EMPLOYEES' INVESTMENT Exhibit 10 (h) CATERPILLAR INC. DEFERRED EMPLOYEES' INVESTMENT PLAN (Restated as of 12/10/96) 1. Purpose ------- The purpose of the Caterpillar Inc. (Company) Deferred Employees' Investment Plan (DEIP), as set forth in the succeeding sections of this document, is to provide additional investment opportunities for those employees whose participation in Part 2 of the Employees' Investment Plan (EIP) is restricted because of limitations imposed by the Internal Revenue Code of 1986, as amended. The DEIP shall be effective June 30, 1995. 2. Eligibility ----------- An employee shall be eligible to participate in the DEIP if he is in salary grade 30 or higher and currently defers compensation into Part 2 of EIP (to the maximum allowed by EIP). 3. Participant Deferrals --------------------- An employee must make a valid election (to become a "Participant") on or before the last Company business day in November of any year to participate in the DEIP during the following calendar year. Such election shall defer a portion of his compensation not to exceed the excess of (a) 6% of his base salary over (b) the total amount deferred by him into Part 2 of EIP and into the Supplemental Employees' Investment Plan (SEIP) because of any limitation on the amount that can be deferred under Part 2 of EIP. Any such election must be made (on a form provided by the Company) and delivered to the Director, Compensation and Benefits before the end of normal office hours on such last Company business day in November and shall remain in effect until it is revised as provided herein. Effective January 1, 1996, an employee may also elect to defer all or part of the incentive compensation payable to him for a calendar year; provided, however, that such Participant's election must be filed with such Director on or before the last Company business day in November of the year in which such compensation shall have been accruing (except that in reference to such compensation accrued in 1995 such an election must be filed with such Director before the amount of such compensation is known). Effective September 1, 1996 and notwithstanding the foregoing provisions of this Section, an employee may elect to defer all or part of the base salary payable to him for a calendar year; provided, however, that such Participant's election must be filed with such Director on or before the last Company business day in November of the preceding calendar year. If a Participant wants to change or terminate the amount of compensation deferred, he shall deliver a revised election form to the Director, Compensation and Benefits; provided, however, that (i) such revised election shall become effective (when and so long as the Participant is eligible) for each calendar year following the year in which such form is delivered, and shall remain effective until such election is further revised as provided herein, and (ii) any such election must be filed before the end of normal office hours on the last Company business day in November. When an employee first becomes eligible to participate in the DEIP (including those employees who first become eligible on the effective date), he may elect to defer compensation (or file a revised election) in accordance with the foregoing, except that any such election with respect to compensation payable to him during the calendar year in which he becomes eligible for the DEIP (i) must be filed within a 30-day period that begins on the date he becomes eligible, and (ii) shall be applicable only to compensation paid for months that commence after the date of such election. 4. Status of Accounts ------------------ All amounts in the DEIP shall be held in the general funds of the Company, but the Company will establish an individual bookkeeping account for each Participant. Amounts of compensation deferred by the Participant will be credited to the individual account of the Participant in accordance with his election(s). Each Participant may elect to have all or a specified percentage of his deferred compensation allocated to: an interest account, a stock account and treated as though it were invested in Company common stock ("Stock Election"), or a mutual fund account or accounts and treated as though it were invested in any of the following Preferred Group funds: Asset Allocation, Growth, International, Small Cap or Value. Amounts allocated to the stock account of a Participant who is an officer of the Company subject to Section 16 of the Securities Exchange Act of 1934 ("Officer") may not be transferred to another of his accounts (nor may amounts allocated, respectively, to any such other account be transferred to his stock account) until at least six months after he ceases to be subject to such Section. Under such a Stock Election, dividend equivalents will accrue to the account (when dividends are payable) and will be reinvested and a Participant's account will in all other respects reflect share ownership for events such as a stock split but no voting rights will exist. The number of shares of stock equivalents shall be determined by dividing the amount of deferred compensation (or dividend equivalents credited) by the average of the high and low prices of Company common stock on the New York Stock Exchange on the date of such deferral or dividend credit (or the next succeeding trading day if there is no trading on that date). Stock equivalents will be valued based on the average of the high and low prices of Company common stock on the New York Stock Exchange as of the effective date of a transfer into or out of the stock account ("Transfer"), the date on which the Participant terminates employment, the date of distribution elected by the Participant hereunder or the date as of which he is considered totally and permanently disabled under EIP, whichever date applies (or the next succeeding trading day if there is no trading on that date). The Company will credit interest accounts on a quarterly basis. The interest rate will be equal to the base corporate lending rate (sometimes referred to as the "prime rate") applicable to commercial lending customers of Citibank, N.A., New York, New York (or any successor thereto) on the last business day of each calendar quarter. The annual interest rate will be divided by four and applied effective the last day of each quarter to the average daily amount in each Participant's account in that quarter. In any calendar quarter in which a Participant does not have amounts credited to his account for the entire period of that quarter, interest will be credited pro rata based on the number of business days that amounts are credited to his account in that quarter compared to the total number of business days in that quarter. Participants who are not Officers may Transfer or make changes to the investment allocation of future deferred compensation which shall be effective as of the first day of a calendar quarter, provided that such Participant shall have filed an appropriate form with the Director, Compensation and Benefits, by the twentieth (20th) day of the preceding month. All amounts in the DEIP and the establishment of individual bookkeeping accounts shall not be deemed to have created a trust, and no Participant shall have any ownership interest in any such account. A Participant's rights to any amounts credited to his account shall not be transferable or assignable. Each Participant will receive an annual report showing the status of his account at the close of each calendar year. 5. Disbursement ------------ Following his termination of employment with the Company (or total and permanent disability), the value of the Participant's DEIP account will be payable to him as soon as practicable in cash, in a lump sum (including interest up to the date of payment) unless such Participant has elected a later payment date in writing that is acceptable to and approved by the Director, Compensation and Benefits; provided, however, that no such election shall be effective unless it shall have been filed on or before the last Company business day in November of the calendar year preceding the calendar year of such termination. For Participants who are officers of the Company subject to Section 16 of the Securities Exchange Act of 1934, the payment date under DEIP, with respect to amounts in the stock account, must be at least six months after the date on which the Participant's final deferral into DEIP become irrevocable. 6. Death of a Participant ---------------------- Upon the death of a Participant prior to payment of his DEIP account, the balance in the Participant's account (including interest for the elapsed portion of the year of death) shall be determined as of the date of death. Such balance shall be paid as soon as reasonably possible thereafter in a lump sum payment to (i) the same beneficiary or beneficiaries and in the same proportionate amount as he shall have designated under the EIP, in the absence of any designation to the contrary, or (ii) the beneficiary or beneficiaries for purposes of the DEIP as such Participant shall have designated in writing (in a form acceptable to, and filed with, the Director, Compensation and Benefits). 7. Amendment or Termination ------------------------ The Compensation Committee of the Board of Directors or the Investment Plan Committee (for EIP) may at any time amend, merge, consolidate or terminate the DEIP, but no amendment, merger, consolidation or termination will have the effect of reducing the amount that any Participant is entitled to receive prior to such amendment, merger, consolidation or termination nor of changing the time of payment of any amount credited to a Participant's account. 8. Administration -------------- Except as otherwise expressly provided herein, the DEIP shall be administered under the direction of the Director, Compensation and Benefits, of the Company. EX-11 6 COMPUTATIONS OF EARNINGS PER SHARE Exhibit 11
CATERPILLAR INC. AND CONSOLIDATED SUBSIDIARY COMPANIES COMPUTATIONS OF EARNINGS PER SHARE FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994 ---- ---- ---- I. Net profit for year (millions of dollars):................... $1,361 $1,136 $ 955 ===== ===== ===== II. Determination of shares(millions): Weighted average number of common shares outstanding......... 192.5 198.4 203.0 Shares issuable on exercise of stock options, net of shares assumed to be purchased out of proceeds at average 2.3 1.7 2.1 market price ----- ------ ----- Average common shares outstanding for fully diluted computation................................................ 194.8 200.1 205.1 ===== ===== ===== III. Profit per share of common stock: Assuming no dilution......................................... $ 7.07 $ 5.72 $ 4.70 Assuming full dilution....................................... $ 6.99 $ 5.67 $ 4.65
EX-12 7 COMPUTATION OF RATIOS OF PROFIT TO FIXED CHARGES Exhibit 12 CATERPILLAR INC., CONSOLIDATED SUBSIDIARY COMPANIES, AND 50%-OWNED UNCONSOLIDATED AFFILIATED COMPANIES STATEMENT SETTING FORTH COMPUTATION OF RATIOS OF PROFIT TO FIXED CHARGES (Millions of dollars) YEARS ENDED DECEMBER 31,
1996 1995 1994 ----- ----- ----- Profit.................................................................... $ 1,361 $ 1,136 $ 955 Add: Provision for income taxes.............................................. 653 536 397 ------- ------- ------- Profit before taxes....................................................... $ 2,014 $ 1,672 $ 1,352 Fixed charges: Interest and other costs related to borrowed funds/1/.................... $ 519 $ 502 $ 430 Rentals at computed interest factors/2/.................................. 54 51 51 ------- ------- ------- Total fixed charges....................................................... $ 573 $ 553 $ 481 ------- ------- ------- Profit before provision for income taxes and fixed charges................ $ 2,587 $ 2,225 $ 1,833 ======= ======= ======= Ratio of profit to fixed charges.......................................... 4.5 4.0 3.8 ======= ======= =======
- ----------- (1) Interest expense as reported in the Consolidated Results of Operations plus the Company's proportionate share of 50 percent-owned unconsolidated affiliated companies' interest expense. (2) Amounts represent those portions of rent expense that are reasonable approximations of interest costs. EX-13 8 APPENDIX TO 1997 PROXY STATEMENT EXHIBIT 13 APPENDIX CATERPILLAR INC. GENERAL AND FINANCIAL INFORMATION 1996 A-1 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 -- 1996 Compared with 1995................................. A-28 -- 1995 Compared with 1994................................. A-32 Liquidity & Capital Resources................................... A-32 Employment...................................................... A-33 Other Matters................................................... A-33 1997 Economic and Industry Outlook.............................. A-35 1997 Company Outlook............................................ A-35 Supplemental Stockholder Information............................... A-37 Directors and Officers............................................. A-38
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, 1996, 1995 and 1994, 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 flow. 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, including the internal auditing department, and the independent accountants to review the activities of each and satisfy itself that each is properly discharging its responsibilities. Both the independent accountants and the internal auditors have free access to the Audit Committee and meet with it periodically, with and without management representatives in attendance, to discuss, among other things, their opinions as to the adequacy of internal controls and to review the quality of financial reporting. /s/ Donald V. Fites Chairman of the Board /s/ Douglas R. Oberhelman Chief Financial Officer January 21, 1997 - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS [LOGO APPEARS HERE] TO THE STOCKHOLDERS OF CATERPILLAR INC.: In our opinion, the accompanying consolidated financial statements, in Statements 1 through 4, present fairly, in all material respects, the financial position of Caterpillar Inc. and subsidiaries at December 31, 1996, 1995 and 1994, and the consolidated results of their operations and their consolidated cash flow for the years then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP Peoria, Illinois January 21, 1997 A-3 STATEMENT 1 Consolidated Results of Operations for the Years Ended December 31 (Millions of dollars except per share data) - --------------------------------------------------------------------------------
1996 1995 1994 ------- ------- ------- Machinery and Engines: Sales (note 1B)................................ $15,814 $15,451 $13,863 ------- ------- ------- Operating costs: Cost of goods sold........................... 11,832 12,000 10,834 Selling, general and administrative expenses. 1,715 1,483 1,348 Research and development expenses (note 4)... 410 375 311 ------- ------- ------- 13,957 13,858 12,493 ------- ------- ------- Operating profit............................... 1,857 1,593 1,370 Interest expense............................... 194 191 200 ------- ------- ------- 1,663 1,402 1,170 Other income (expense) (note 6)................ 127 92 43 ------- ------- ------- Profit before taxes............................ 1,790 1,494 1,213 ------- ------- ------- Financial Products: Revenues (note 1B)............................. 708 621 465 ------- ------- ------- Operating costs: Selling, general and administrative expenses. 278 240 191 Interest expense............................. 316 293 210 ------- ------- ------- 594 533 401 ------- ------- ------- Operating profit............................... 114 88 64 Other income (expense) (note 6)................ 37 33 (4) ------- ------- ------- Profit before taxes............................ 151 121 60 ------- ------- ------- Consolidated profit before taxes................. 1,941 1,615 1,273 Provision for income taxes (note 7)............ 613 501 354 ------- ------- ------- Profit of consolidated companies............... 1,328 1,114 919 Equity in profit of unconsolidated affiliated companies (notes 1A and 11)................... 33 22 36 ------- ------- ------- Profit......................................... $ 1,361 $ 1,136 $ 955 ======= ======= ======= Profit per share of common stock................. $ 7.07 $ 5.72 $ 4.70 ======= ======= ======= Dividends declared per share of common stock..... $ 1.55 $ 1.30 $ .63
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) - --------------------------------------------------------------------------------
1996 1995 1994 ------ ------ ------ Common stock (note 18): Balance at beginning of year.................................. $ 333 $ 745 $ 835 Common shares issued, including treasury shares reissued: 1996 - 743,996; 1995 - 713,131; 1994 - 1,144,631............ 21 15 48 Treasury shares purchased: 1996 - 4,408,004; 1995 - 7,140,100; 1994 - 4,426,200........ (304) (427) (240) Issuance of common stock to effect 2-for-1 stock split........ -- -- 102 ------ ------ ------ Balance at year-end........................................... 50 333 745 ------ ------ ------ Profit employed in the business: Balance at beginning of year.................................. 2,840 1,961 1,234 Profit........................................................ 1,361 1,136 955 Dividends declared............................................ (297) (257) (126) Issuance of common stock to effect 2-for-1 stock split........ -- -- (102) ------ ------ ------ Balance at year-end........................................... 3,904 2,840 1,961 ------ ------ ------ Foreign currency translation adjustment (note 3): Balance at beginning of year.................................. 215 205 170 Aggregate adjustment for year................................. (53) 10 35 ------ ------ ------ Balance at year-end........................................... 162 215 205 ------ ------ ------ Stockholders' equity at year-end................................ $4,116 $3,388 $2,911 ====== ====== ======
See accompanying Notes to Consolidated Financial Statements. A-5 STATEMENT 3 Financial Position at December 31 (Dollars in millions) - --------------------------------------------------------------------------------
Consolidated (Caterpillar Inc. and subsidiaries) ----------------------------------- 1996 1995 1994 ----------------------------------- Assets Current assets: Cash and short-term investments...................................... $ 487 $ 638 $ 419 Receivables--trade and other......................................... 2,956 2,531 2,971 Receivables--finance (note 8)........................................ 2,266 1,754 1,319 Deferred income taxes and prepaid expenses (note 7).................. 852 803 865 Inventories (notes 1C and 9)......................................... 2,222 1,921 1,835 ----------------------------------- Total current assets................................................... 8,783 7,647 7,409 Land, buildings, machinery and equipment--net (notes 1D and 10)........ 3,767 3,644 3,776 Long-term receivables--trade and other................................. 128 126 125 Long-term receivables--finance (note 8)................................ 3,380 3,066 2,669 Investments in unconsolidated affiliated companies (notes 1A and 11)... 701 476 455 Investments in Financial Products subsidiaries......................... -- -- -- Deferred income taxes (note 7)......................................... 1,093 1,127 1,243 Intangible assets (notes 1E and 5A).................................... 233 170 237 Other assets (note 20)................................................. 643 574 336 ----------------------------------- Total assets............................................................. $18,728 $16,830 $16,250 =================================== Liabilities Current liabilities: Short-term borrowings (note 13)...................................... $ 1,747 $ 1,174 $ 740 Accounts payable and accrued expenses................................ 2,858 2,579 2,624 Accrued wages, salaries and employee benefits........................ 1,010 875 1,047 Dividends payable.................................................... 76 68 50 Deferred and current income taxes payable (note 7)................... 142 91 144 Long-term debt due within one year (note 14)......................... 1,180 1,262 893 ----------------------------------- Total current liabilities.............................................. 7,013 6,049 5,498 Long-term debt due after one year (note 14)............................ 4,532 3,964 4,270 Liability for postemployment benefits (note 5)......................... 3,019 3,393 3,548 Deferred income taxes and other liabilities (note 7)................... 48 36 23 ----------------------------------- Total liabilities........................................................ 14,612 13,442 13,339 ----------------------------------- Contingencies (notes 17, 20 and 21) Stockholders' equity (Statement 2) Common stock of $1.00 par value (note 18): Authorized shares: 450,000,000 Issued shares (1996, 1995 and 1994--203,723,656) at paid-in amount.................................................. 881 901 923 Profit employed in the business........................................ 3,904 2,840 1,961 Foreign currency translation adjustment (note 3)....................... 162 215 205 Treasury stock (1996--13,372,546 shares; 1995--9,708,538 shares; and 1994--3,281,569 shares) at cost.................................. (831) (568) (178) ----------------------------------- Total stockholders' equity............................................... 4,116 3,388 2,911 ----------------------------------- Total liabilities and stockholders' equity............................... $18,728 $16,830 $16,250 ===================================
See accompanying Notes to Consolidated Financial Statements. A-6 Caterpillar Inc. - --------------------------------------------------------------------------------
Supplemental consolidating data -------------------------------------------------------------------------- Machinery and Engines/1/ Financial Products -------------------------------------------------------------------------- 1996 1995 1994 1996 1995 1994 -------------------------------------------------------------------------- $ 445 $ 580 $ 395 $ 42 $ 58 $ 24 2,960 2,910 2,919 175 132 96 -- -- -- 2,266 1,754 1,319 876 834 888 15 13 3 2,222 1,921 1,835 -- -- -- - -------------------------------------------------------------------------------- 6,503 6,245 6,037 2,498 1,957 1,442 3,242 3,199 3,343 525 445 433 128 126 125 -- -- -- -- -- -- 3,380 3,066 2,669 701 476 455 -- -- -- 759 658 548 -- -- -- 1,132 1,171 1,254 3 -- -- 233 170 237 -- -- -- 368 330 143 275 244 193 - -------------------------------------------------------------------------------- $13,066 $12,375 $12,142 $ 6,681 $ 5,712 $ 4,737 ================================================================================ $ 36 $ 14 $ 17 $ 1,711 $ 1,160 $ 723 2,556 2,358 2,416 520 776 278 1,005 873 1,045 5 2 2 76 68 50 -- -- -- 70 40 112 72 51 32 122 156 86 1,058 1,106 807 - -------------------------------------------------------------------------------- 3,865 3,509 3,726 3,366 3,095 1,842 2,018 2,049 1,934 2,514 1,915 2,336 3,019 3,393 3,548 -- -- -- 48 36 23 42 44 11 - -------------------------------------------------------------------------------- 8,950 8,987 9,231 5,922 5,054 4,189 - -------------------------------------------------------------------------------- 881 901 923 353 333 303 3,904 2,840 1,961 404 320 245 162 215 205 2 5 -- (831) (568) (178) -- -- -- - -------------------------------------------------------------------------------- 4,116 3,388 2,911 759 658 548 - -------------------------------------------------------------------------------- $13,066 $12,375 $12,142 $ 6,681 $ 5,712 $ 4,737 ================================================================================
/1/Represents Caterpillar Inc. and its subsidiaries except for Financial Products, which is accounted for on the equity basis. The supplemental consolidating data is presented for the purpose of additional analysis and to provide required supplemental disclosure of information about the Financial Products subsidiaries. See note 1A on page A-10 for a definition of the groupings in these statements. A-7 STATEMENT 4 Statement of Cash Flow for the Years Ended December 31 (Millions of dollars) - --------------------------------------------------------------------------------
Consolidated (Caterpillar Inc. and subsidiaries) ----------------------------------- 1996 1995 1994 ----------------------------------- Cash flow from operating activities: Profit.....................................$ 1,361 $ 1,136 $ 955 Adjustments for noncash items: Depreciation and amortization............ 696 682 683 Profit of Financial Products............. -- -- -- Other.................................... 158 324 166 Changes in assets and liabilities: Receivables - trade and other............ (319) 461 (308) Inventories.............................. (111) (77) (315) Accounts payable and accrued expenses.... 134 (43) 519 Other - net.............................. (137) (293) 57 ----------------------------------- Net cash provided by operating activities.... 1,782 2,190 1,757 ----------------------------------- Cash flow from investing activities: Capital expenditures - excluding equipment leased to others.......................... (506) (464) (501) Expenditures for equipment leased to others (265) (215) (193) Proceeds from disposals of land, buildings, machinery and equipment................... 135 119 88 Additions to finance receivables........... (5,802) (4,869) (2,934) Collections of finance receivables......... 3,407 2,787 1,850 Proceeds from sale of finance receivables.. 1,425 1,262 241 Net short-term loans to Financial Products. -- -- -- Investments and acquisitions............... (612) (21) -- Other - net................................ (166) (348) (63) ----------------------------------- Net cash used for investing activities....... (2,384) (1,749) (1,512) ----------------------------------- Cash flow from financing activities: Dividends paid............................. (289) (239) (91) Common stock issued, including treasury shares reissued........................... 10 11 12 Treasury shares purchased.................. (303) (427) (240) Net short-term loans from Machinery and Engines............................... -- -- -- Proceeds from long-term debt issued........ 1,088 1,414 1,083 Payments on long-term debt................. (1,335) (997) (746) Short-term borrowings - net................ 1,262 30 74 ----------------------------------- Net cash provided by (used for) financing activities.................................. 433 (208) 92 ----------------------------------- Effect of exchange rate changes on cash...... 18 (14) (1) ----------------------------------- (Decrease) increase in cash and short-term investments................................. (151) 219 336 Cash and short-term investments at the beginning of the period..................... 638 419 83 ----------------------------------- Cash and short-term investments at the end of the period...............................$ 487 $ 638 $ 419 ===================================
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/1/ Financial Products - ----------------------------------------------------------------------------- 1996 1995 1994 1996 1995 1994 - ----------------------------------------------------------------------------- $ 1,361 $ 1,136 $ 955 $ 96 $ 75 $ 39 575 580 588 121 102 95 (96) (75) (39) -- -- -- 118 233 126 43 91 40 (298) 505 (281) (14) (36) (33) (111) (77) (315) -- -- -- 57 (28) 471 65 (5) 47 (143) (328) 73 20 17 (9) - ----------------------------------------------------------------------------- 1,463 1,946 1,578 331 244 179 - ----------------------------------------------------------------------------- (500) (460) (498) (6) (4) (3) (8) (9) (9) (257) (206) (184) 21 35 15 114 84 73 -- -- -- (5,802) (4,869) (2,934) -- -- -- 3,407 2,787 1,850 -- -- -- 1,425 1,262 241 325 (475) -- -- -- -- (612) (21) -- -- -- -- (153) (338) (81) (33) (40) (27) - ----------------------------------------------------------------------------- (927) (1,268) (573) (1,152) (986) (984) - ----------------------------------------------------------------------------- (289) (239) (91) (12) -- -- 10 11 12 20 30 45 (303) (427) (240) -- -- -- -- -- -- (325) 475 -- 37 270 -- 1,051 1,144 1,083 (166) (91) (240) (1,169) (906) (506) 18 (3) (112) 1,244 33 186 - ----------------------------------------------------------------------------- (693) (479) (671) 809 776 808 - ----------------------------------------------------------------------------- 22 (14) (1) (4) -- -- - ----------------------------------------------------------------------------- (135) 185 333 (16) 34 3 580 395 62 58 24 21 - ----------------------------------------------------------------------------- $ 445 $ 580 $ 395 $ 42 $ 58 $ 24 =============================================================================
/1/ Represents Caterpillar Inc. and its subsidiaries except for Financial Products, which is accounted for on the equity basis. The supplemental consolidating data is presented for the purpose of additional analysis and to provide required supplemental disclosure of information about the Financial Products subsidiaries. See note 1A on page A-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 that are more than 50% owned). Investments in companies that are owned 50% or less are accounted for by the equity method. Accordingly, the company's share of the profit or loss is included in Statement 1 as "Equity in profit of unconsolidated 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 unconsolidated affiliated companies." Financial information of the unconsolidated affiliated companies is included in note 11. Information in the accompanying financial statements and supplemental consolidating data, where applicable, has been grouped as follows: CONSOLIDATED - represents the consolidated data of Caterpillar Inc. and all its subsidiaries. MACHINERY AND ENGINES - company operations excluding the Financial Products subsidiaries; consists primarily of the company's manufacturing, marketing and parts distribution operations. FINANCIAL PRODUCTS - the company's finance and insurance subsidiaries, primarily Caterpillar Financial Services Corporation and Caterpillar Insurance Services Corporation. Certain amounts for prior years have been reclassified to conform with the current year financial statement presentation. B. SALES AND REVENUE RECOGNITION Sales of machines and engines are generally unconditional sales that are recorded when product is shipped and invoiced to independently owned and operated dealers or customers. Revenues primarily represent finance and rental revenues of Caterpillar Financial Services Corporation, a wholly owned subsidiary of Caterpillar Inc. Finance revenues are recognized over the term of the contract at a constant rate of return on the scheduled uncollected principal balance, and rental revenues are recognized in the period earned. Recognition of income is suspended when collection of future income is not probable. Income recognition is resumed if the receivable becomes contractually current and collection doubts are removed; previously suspended income is recognized at that time. C. INVENTORIES The cost of inventories is determined principally by the LIFO (last-in, first-out) method of inventory valuation. This method was first adopted for the major portion of inventories in 1950. The value of inventories on the LIFO basis represented approximately 85% of total inventories at current cost value at December 31, 1996, and 90% at December 31, 1995 and 1994. If the FIFO (first-in, first-out) method had been in use, inventories would have been $2,123, $2,103 and $2,035 higher than reported at December 31, 1996, 1995 and 1994, 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. The company's policy is to amortize most intangibles over 25 years or less. When a purchased intangible becomes fully amortized, its cost is eliminated from both the asset and the accumulated amortization accounts. F. DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments are principally used by the company in the management of its interest rate, foreign currency and commodity exposures. Except as described in note 3, derivative instruments are not reflected in the financial statements at fair market value. Amounts payable or receivable under interest rate swap agreements are recognized as adjustments to interest expense in the periods in which they accrue. Gains and losses on foreign currency instruments that hedge net balance sheet exposures and anticipated cash flow during the next 12 months are also recognized in the results of operations as they accrue. Gains and losses, including net premiums paid, related to effective hedges of identifiable firm foreign currency commitments are deferred and recognized in the financial statements in the same period as the hedged transaction. Net premiums paid for derivative financial instruments not designated as effective hedges of identifiable firm foreign currency commitments are deferred and recognized ratably over the life of the instrument. G. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales, expenses and disclosure of contingent liabilities. Actual results could differ from these estimates. Warranty accruals and actuarially determined product liability loss reserves and postemployment benefits require the use of significant estimates. The company believes the techniques and assumptions used in establishing these liabilities are appropriate. Significant estimates are also used in the determination of environmental liabilities, income taxes and plant closing and consolidation costs, which are discussed in the respective notes to the financial statements. 2. ACCOUNTING CHANGES A. CHANGE IN METHOD In the first quarter of 1994, the company changed its method of computing LIFO inventories from a single pool approach to a multiple pool approach for substantially all of its inventories. The company believes that the multiple pool method results in a better matching of revenues and expenses. The cumulative effect of the change on prior years was not determinable. This A-10 CATERPILLAR INC. - -------------------------------------------------------------------------------- change did not have a material effect on 1994 results of operations or financial position. B. IMPACT OF ACCOUNTING STANDARDS ISSUED IN 1996 In June 1996, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This statement establishes new criteria for determining whether a transfer of financial assets should be accounted for as a sale or as a secured borrowing. The accounting treatment of such transactions focuses on who controls the transferred assets, and whether or not those assets have been isolated from the transferor and put beyond the reach of its creditors. This standard is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996, and will therefore be adopted in 1997. It will not have a material impact on the company's financial position or results of operations. 3. FOREIGN EXCHANGE The U.S. dollar is the functional currency for most of Caterpillar's Machinery and Engines consolidated companies. The functional currency for most Financial Products subsidiaries and equity-basis companies is the local currency of the country in which the company is located. Net foreign exchange gains or losses resulting from the translation of foreign currency amounts to the functional currency are included in "Other income (expense)" in Statement 1. Exchange effects resulting from translating all assets and liabilities from the functional currency to the U.S. dollar at current exchange rates are reported as "Foreign currency translation adjustment" in Statements 2 and 3. Profit of consolidated companies for 1996 and 1995 included net pretax foreign exchange gains (losses) of $1 and $(20), respectively. There were no net pretax foreign exchange gains or losses included in profit of consolidated companies for 1994. The aftertax net gains (losses) for 1996, 1995 and 1994 were $1, $(11) and $1, 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 Machinery and Engines operations are subject to foreign exchange risk through future foreign currency cash flow as movement in currency exchange rates impact: (1) the U.S. dollar value of sales made in foreign currencies and (2) the U.S. dollar value of costs incurred in foreign currencies. The company may enter into forward exchange contracts and certain foreign currency option contracts to manage this foreign currency cash flow. The company also enters into forward exchange contracts to hedge the net foreign currency balance sheet exposures of its Financial Products subsidiaries. Other than premiums associated with foreign currency option contracts, gains or losses on this hedging activity are realized in the form of cash receipts or payments at the maturity of the contracts. Realized and unrealized gains or losses on all financial instruments which are designated as, and are effective as, hedges of firmly committed future foreign currency transactions are deferred and recognized in the financial statements when the transaction or event being hedged is recognized. The cash flow from these transactions is classified consistent with the cash flow for the transaction or event being hedged. Similar accounting treatment is applied to gains and losses on purchased foreign currency option hedges of probable net anticipated foreign currency transactions. In those situations where these financial instruments are either terminated or mature prior to the transaction or event being hedged, the gains or losses continue to be deferred until the transaction or event being hedged is recognized. Conversely, deferred gains and losses are recognized in the results of operations immediately when the hedged firmly committed or anticipated transaction is no longer anticipated to occur. At December 31, 1996, the company had approximately $27 in foreign currency option contracts to sell foreign currency to hedge firmly committed revenue (sale) transactions. 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 and balance sheet positions are reported in the results of operations as exchange rates change and included with amounts reported in "Other income (expense)" in Statement 1. At December 31, 1996, the company had approximately $911 in forward exchange and foreign currency option contracts to buy or sell foreign currency to hedge net foreign currency balance sheet positions and anticipated, but not firmly committed, net foreign currency cash flow exposures for the next 12 months. The company also had $122 of cross-currency option and forward exchange contracts to hedge European currency cash flow against the Deutsche mark. The company uses the Deutsche mark to manage its European currency cash flow exposure. These cross-currency contracts, which all mature within the first six months of 1997, were entered into to hedge the risk associated with exchange rate movements between the European currency cash flow exposure and the Deutsche mark. For all contracts not qualifying for deferred accounting treatment, net unrealized losses total $3 and have been recognized in "Other income (expense)" in Statement 1. Unrealized losses of $13 are reflected as a liability ("Accounts payable and accrued expenses") in Statement 3. Unrealized gains of $10 are reflected as an asset ("Receivables - trade and other") in Statement 3. The fair market value of all outstanding forward exchange and foreign currency option contracts based on quoted market prices of comparable instruments was a loss of $3. The value of the contracts upon ultimate settlement is dependent upon actual currency exchange rates at the various maturity dates. The maturity dates for virtually all of the outstanding contracts range through mid-1997. At December 31, 1995 and 1994, the company had approximately $219 and $1,003, respectively, in forward exchange and foreign currency option contracts to buy or sell foreign currency. At December 31, 1995 and 1994, the carrying value of such contracts was a loss of zero and $4, respectively, and the fair value, based on quoted market prices of comparable instruments, was a loss of $1 and $97, respectively. For the first half of 1994, net foreign exchange gains arising from operations in Brazil's highly inflationary economy were removed from "Other income (expense)" in Statement 1 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 A-11 NOTES continued (Dollars in millions except per share data) - -------------------------------------------------------------------------------- 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 1996, 1995 or the second half of 1994 as inflation in Brazil dropped dramatically following the implementation of a new economic reform package. Exchange gains and losses were reclassified as follows: 1994 ----- Interest expense...................................................... $ 10 Cost of goods sold.................................................... 29 Provision for income taxes............................................ 10 Interest income....................................................... (53) ----- $ (4) ===== 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. 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: 1996 1995 1994 _________ _________ _________ Service cost - benefits earned during the period................... $110 $ 95 $108 Interest cost on projected benefit obligation.................. 417 409 393 Return on plan assets:/(1)/ Actual.....................$(1,023) $(1,167) $(124) Deferred................... 491 685 (335) ------- ------- ------ Recognized....................... (532) (482) (459) Amortization of: Net asset existing at adoption of SFAS 87............... (22) (23) (22) Prior service cost/(2)/............. 63 63 60 Net actuarial (gain) loss........... (1) (12) 1 ---- ---- ---- Pension expense....................... $ 35 $ 50 $ 81 ==== ==== ==== /(1)/ Although the actual return on plan assets is shown, the expected long- term rate of return on plan assets was used in determining consolidated pension expense. The difference between the actual return and the recognized return on plan assets is shown as deferred return on plan assets. /(2)/ Prior service costs are amortized using a straight-line method over the average remaining service period of employees expected to receive benefits from the plan amendment. The following assumptions were utilized in determining the costs and benefit obligations for the pension plans: Actuarial assumptions (December 31) 1996 1995 1994 ---- ---- ---- Weighted average discount rate............. 7.4% 7.4% 8.3% Expected annual rate of increase in future compensation................... 4.2% 4.1% 4.6% Expected long-term rate of return on plan assets................. 9.4% 9.4% 9.4% Plan assets consist principally of common stocks, corporate bonds and U.S. government obligations. 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 $3, $130 and $209 was recorded at December 31, 1996, 1995 and 1994, 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. During 1992, the company made several changes to its retiree health care plans. Included in those changes were the establishment of limits on the company's costs related 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: 1996 1995 1994 -------- --------- -------- Service cost - benefits earned during the period...................... $81 $ 73 $ 83 Interest cost on accumulated benefit obligation..................... 226 232 223 Return on plan assets:/(1)/ Actual...................... $ (74) $ (58) $ 3 Deferred.................... 48 34 (26) ----- ----- ---- Recognized........................... (26) (24) (23) Amortization of: Prior service cost/(2)/................ (190) (190) (190) Net actuarial (gain) loss.............. (1) (3) 2 ---- ---- ---- Postretirement benefit expense........... $ 90 $ 88 $ 95 ==== ==== ==== /(1)/ Although the actual return on plan assets is shown, the expected long- term rate of return on plan assets was used in determining consolidated postretirement benefit expense. The difference between the actual return and the recognized return on plan assets is shown as deferred return on plan assets. /(2)/ Prior service costs are amortized using a straight-line method over the average remaining service period of employees impacted by the plan amendment.
CATERPILLAR INC. - --------------------------------------------------------------------------------------------------------------------------------- TABLE I - --------------------------------------------------------------------------------------------------------------------------------- Assets Exceed Accumulated Benefits Accumulated Benefits Exceed Assets --------------------------------- -------------------------------- 1996 1995 1994 1996 1995 1994 --------- --------- --------- --------- --------- --------- Actuarial present value of: Vested benefit obligation............................... $ (3,114) $ (2,844) $ (2,379) $ (2,095) $ (2,124) $ (1,823) Nonvested benefit obligation............................ (146) (142) (146) (364) (383) (402) -------- -------- -------- -------- -------- -------- Accumulated benefit obligation.......................... $ (3,260) $ (2,986) $ (2,525) $ (2,459) $ (2,507) $ (2,225) ======== ======== ======== ======== ======== ======== Actuarial present value of projected benefit obligation.. $ (3,603) $ (3,310) $ (2,829) $ (2,479) $ (2,533) $ (2,248) Plan assets at market value.............................. 4,500 3,917 3,310 2,430 2,282 1,810 -------- -------- -------- -------- -------- -------- Funded status at plan year-end........................... 897 607 481 (49) (251) (438) Unrecognized net asset existing at adoption of SFAS 87... (75) (93) (114) (2) (5) (9) Unrecognized prior service cost.......................... 153 155 158 166 233 279 Unrecognized net actuarial (gain) loss................... (656) (418) (342) (238) (74) (45) Adjustment required to recognize minimum liability....... - - - (3) (130) (209) -------- -------- -------- --------- --------- --------- Prepaid pension cost (pension liability) at December 31.. $ 319 $ 251 $ 183 $ (126) $ (227) $ (422) ======== ======== ======== ========== ======== ========
The following assumptions were utilized in determining the costs and benefit obligations for postretirement benefits (other than pensions): ACTUARIAL ASSUMPTIONS (DECEMBER 31) 1996 1995 1994 ---- ---- ---- Weighted average discount rate............. 7.5% 7.5% 8.5% Expected annual rate of increase in future compensation................... 4.0% 4.0% 4.5% Assumed health care cost trend rate/(1)/... 7.9%/(2)/ 8.7%/(3)/ 9.4%/(3)/ Expected long-term rate of return on plan assets................. 9.5% 9.5% 9.5% /(1)/ Rate is used to measure the Accumulated Postretirement Benefit Obligation at December 31, 1996, 1995 and 1994, respectively, and was used to determine the postretirement benefit expense for 1997, 1996 and 1995, respectively. /(2)/ Gradually declining to 4.5% in 2002. /(3)/ Gradually declining to 5.0% in 2001. Plan assets consist principally of mutual funds, common stocks, corporate bonds and government obligations. The components of the liability for postretirement benefits (other than pensions) as of December 31, were as follows:
1996 1995 1994 -------- -------- --------- Accumulated postretirement benefit obligation: Retirees....................................... $ (2,253) $ (2,149) $ (1,910) Fully eligible active plan participants........ (502) (397) (242) Other active plan participants................. (591) (485) (604) -------- --------- -------- (3,346) (3,031) (2,756) Plan assets at market value...................... 547 297 239 Unrecognized prior service cost.................. (289) (479) (669) Unrecognized net actuarial (gain) loss........... (49) (182) (265) -------- -------- -------- Liability for postretirement benefits (other than pensions).......................... $ (3,137) $ (3,395) $ (3,451) ======== ======== ========
Increasing the assumed health care trend rate by 1% each year would increase the accumulated postretirement benefit obligation as of December 31, 1996, 1995 and 1994 approximately $210, $226 and $202, respectively, and the aggregate of the service and interest cost components of 1996, 1995 and 1994 postretirement benefit expense by approximately $22, $25 and $24, respectively. 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 generally funds plan obligations on a pay-as-you-go basis; however, in July of 1996 the company made a voluntary contribution of $200. Balances in the VEBA trusts have accumulated over time primarily from earnings on assets previously contributed to the trusts. VEBA trust assets for retiree benefits are legally segregated from those for active employees. As such, these assets are recorded as a reduction to the liability for postretirement benefits. The return on plan assets are recorded as a component of postretirement benefits expense. 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, and are paid in accordance with the company's established postemployment benefits policies. Postemployment benefits include disability benefits, supplemental unemployment benefits, workers' compensation benefits and continuation of health care benefits and life insurance coverage. D. SUMMARY OF LONG-TERM LIABILITY The components of the long-term liability for postemployment benefits at December 31 were as follows: 1996 1995 1994 ------ ------ ------ Pensions.......................................... $ 3 $ 130 $ 209 Postretirement benefits other than pensions....... 2,948 3,199 3,275 Other postemployment benefits..................... 68 64 64 ------ ------ ------ $3,019 $3,393 $3,548 ====== ====== ====== A-13 NOTES continued (Dollars in millions except per share data) - -------------------------------------------------------------------------------- 6. OTHER INCOME (EXPENSE) The components of other income (expense) were as follows for the years ended December 31: 1996 1995 1994 ---- ---- ---- Foreign exchange gains (losses).............. $ 1 $(20) $ - Investment and interest income............... 111 90 48 License fees................................. 26 28 23 Miscellaneous income (expense)............... 26 27 (32) ---- ---- ---- $164 $125 $ 39 ==== ==== ==== 7. INCOME TAXES The provision for income taxes for the years ended December 31 was: 1996 1995 1994 ---- ---- ---- Machinery and Engines........................ $560 $456 $333 Financial Products........................... 53 45 21 ---- ---- ---- Provision for income taxes................... $613 $501 $354 ==== ==== ==== The components of the provision for income taxes were as follows for the years ended December 31: 1996 1995 1994 ---- ---- ---- Current tax provision: U.S. federal taxes.......................... $399 $244 $164 Foreign taxes............................... 83 92 73 U.S. state taxes............................ 36 17 25 ---- ---- ---- 518 353 262 ---- ---- ---- Deferred tax provision (credit): U.S. federal taxes.......................... 86 147 87 Foreign taxes............................... 7 (6) (8) U.S. state taxes............................ 2 7 13 ---- ---- ---- 95 148 92 ---- ---- ---- Total provision for income taxes............. $613 $501 $354 ==== ==== ==== Current tax provision is the amount of income taxes reported or expected to be reported on the company's tax returns for the current year. Income taxes paid in 1996, 1995 and 1994 totaled $452, $327 and $199, respectively. During 1996, the company reached a settlement with the U.S. Internal Revenue Service (IRS) covering tax years 1988 through 1991. As a result of this settlement and a related reassessment of the company's tax liability for the remaining open years, U.S. federal and U.S. state tax credits totaling $17 and related net interest income of $2 were recorded. 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: 1996 1995 1994 ------ ------ ------ U.S. federal, U.S. state, and foreign taxes: Deferred tax assets: Postemployment benefits other than pensions............................ $1,212 $1,309 $1,331 Inventory valuation method................ 63 65 62 Unrealized profit excluded from inventories......................... 176 170 156 Plant closing and consolidation costs...................... 49 53 55 Net operating loss carryforwards.......... 101 150 166 Warranty reserves......................... 114 105 108 Accrued vacation.......................... 35 30 29 Qualified deficits........................ - - 33 Sales discounts........................... 41 18 12 Other..................................... 38 23 143 ------ ------ ------ 1,829 1,923 2,095 Deferred tax liabilities: Capital assets............................. (91) (83) (84) Pension.................................... (86) (91) (36) ------ ------ ------ (177) (174) (120) ------ ------ ------ Valuation allowance for deferred tax assets........................ (149) (176) (182) ------ ------ ------ Deferred taxes - net......................... $1,503 $1,573 $1,793 ====== ====== ====== From December 31, 1995 to December 31, 1996, the valuation allowance for deferred tax assets decreased by $27. This was the result of origination and reversal of temporary differences and changes in exchange rates and tax rates at certain foreign locations where valuation allowances are recorded. During 1996, no changes occurred in the conclusions regarding the need for a valuation allowance in any tax jurisdiction. SFAS 109 requires that individual tax paying entities of the company offset all current deferred tax liabilities and assets within each particular tax jurisdiction and present them as a single amount in the Statement of Financial Position. A similar procedure is followed for all noncurrent deferred tax liabilities and assets. Amounts in different tax jurisdictions cannot be offset against each other. Deferred taxes appear in Statement 3, at December 31, on the following lines: 1996 1995 1994 ------ ------ ------ Assets: Deferred income taxes and prepaid expenses......................... $ 444 $ 464 $ 575 Deferred income taxes...................... 1,093 1,127 1,243 ------ ------ ------ 1,537 1,591 1,818 ------ ------ ------ Liabilities: Deferred and current income taxes payable..................... (10) (3) (6) Deferred income taxes and other liabilities.................... (24) (15) (19) ------ ------ ------ (34) (18) (25) ------ ------ ------ Deferred taxes - net......................... $1,503 $1,573 $1,793 ====== ====== ====== The provision for income taxes was different than would result from applying the U.S. statutory rate to profit before taxes for the reasons set forth in the following reconciliation: A-14 Caterpillar Inc. - ---------------------------------------------------------------------------- 1996 1995 1994 ---- ---- ---- Taxes computed at U.S. statutory rates................ $ 679 $ 565 $ 445 Increases (decreases) in taxes resulting from: Subsidiaries' results subject to tax rates other than U.S. statutory rates.................. 6 (7) (9) Net operating loss carryforwards................... (12) (10) (50) Benefit of Foreign Sales Corporation............... (49) (41) (34) IRS settlement..................................... (17) -- -- State income taxes - net of federal taxes.......... 30 15 25 Valuation allowance adjustment..................... -- -- (22) Research and experimentation credit................ (4) (4) -- Other - net........................................ (20) (17) (1) ----- ----- ----- Provision for income taxes............................ $ 613 $ 501 $ 354 ===== ===== ===== U.S. income taxes, net of foreign taxes paid or payable, have been provided on the undistributed profits of subsidiaries and unconsolidated 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, 1996, 1995 and 1994, included the company's share of undistributed profits of subsidiaries and unconsolidated affiliated companies, totaling $962, $932 and $753, 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 other wise become subject to U.S. income taxes, available credits would reduce the amount of taxes otherwise due. Determination of the amount of unrecognized deferred tax liability related to these permanently invested profits is not practicable. The domestic and foreign components of profit before taxes of consolidated companies were as follows: 1996 1995 1994 ----- ----- ----- Domestic........................................... $1,565 $1,205 $ 779 Foreign............................................ 376 410 494 ------ ------ ------ $1,941 $1,615 $1,273 ====== ====== ====== The foreign component of profit before taxes comprises the profit of all consolidated subsidiaries located outside the United States. This profit information differs from that reported in note 23C, which shows operating profit for foreign geographic segments based only on the company's manufacturing and financing operations located outside the United States. Taxation of a multinational company involves many complex variables, such as differing tax structures from country to country and the effect of U.S. taxation of foreign profits. These complexities do not permit meaningful comparisons of the U.S. and foreign components of profit before taxes and the provision for income taxes. Additionally, current relationships between the U.S. and foreign components are not reliable indicators of such relationships in future periods. Net operating loss carryforwards were available in various foreign tax jurisdictions at December 31, 1996. The amounts and expiration dates of these carryforwards are as follows: 2000.............................................................. $ 54 2001.............................................................. 7 2002.............................................................. 14 2003.............................................................. 6 Unlimited......................................................... 239 ------ Total........................................................... $ 320 ====== Realization of deferred tax assets is dependent upon taxable income within the carryback and carryforward periods available under the tax laws. The company's domestic operations have generated significant cumulative profit over the last three years. Although realization of the $1,285 of U.S. deferred tax assets in excess of deferred tax liabilities is not certain, management has concluded that it is "more likely than not" that the company will realize the full benefit of U.S. deferred tax assets. While, in the aggregate, the company's foreign subsidiaries have also generated cumulative profit over the last three years, certain foreign subsidiaries are still in net operating loss carryforward positions. With the exception of one subsidiary, there is not currently sufficient positive evidence as required by SFAS 109 to substantiate recognition of net deferred tax assets in the financial statements for those foreign subsidiaries in net operating loss carryforward positions. Accordingly, a valuation allowance of $149 has been recorded. It is reasonably possible that sufficient positive evidence could be generated in the near term at one or more of these foreign subsidiaries to support a reduction in the valuation allowance and the resulting recognition of additional net deferred tax assets. 8. FINANCE RECEIVABLES Finance receivables are receivables of Caterpillar Financial Services Corporation, which generally may be repaid or refinanced without penalty prior to contractual maturity. Contractual maturities of outstanding receivables (rental fleet financings of $297 are included in 1997 maturities due to the company's experience that most terminate in six months) at December 31, 1996, were: Installment Financing Amounts Due In Contracts Leases Notes Total ----------- -------- ------ ------ 1997...................... $ 587 $ 860 $ 839 $2,286 1998...................... 402 640 398 1,440 1999...................... 251 436 284 971 2000...................... 125 225 176 526 2001...................... 35 97 118 250 Thereafter................ 5 125 158 288 ------ ------ ------ ------ 1,405 2,383 1,973 5,761 Residual value............ -- 564 -- 564 Less: Unearned income..... 160 430 15 605 ------ ------ ------ ------ Total..................... $1,245 $2,517 $1,958 $5,720 ====== ====== ====== ====== The average recorded investment in impaired loans and leases for 1996, 1995 and 1994 was $43, $51 and $49, respectively. The total recorded investment in impaired loans and leases was $33, $37 and $47 at December 31, 1996, 1995 and 1994, respectively. These amounts, less the fair value of the underlying collateral of $21, $25 and $32, represented a $12, $12 and $15 potential loss on impaired loans and leases at December 31, 1996, 1995 and 1994, respectively, for which related allowances for credit losses were recorded. Recognition of income on finance receivables is suspended when management determines that collection of future income is not probable. Accrual is resumed if the receivables become contractually current and collection doubts are removed; previously suspended income is recognized at that time. Total finance receivables reported in Statement 3 are net of an allowance for credit losses. Activity relating to the allowance was as follows: A-15 NOTES continued (Dollars in millions except per share data) ________________________________________________________________________________
1996 1995 1994 ------ ------ ------ Balance at beginning of year............... $ 57 $ 50 $ 41 Provision for credit losses................ 41 43 23 Less: Receivables, net of recoveries, written off............ (21) (33) (13) Other - net................................ (3) (3) (1) ------ ------ ------ Balance at end of year..................... $ 74 $ 57 $ 50 ====== ====== ======
Fair value information for finance receivables can be found in note 16 and in Table IV on Pages A-18 and A-20, respectively. Cat Financial's "Net investment in financing leases" at December 31 consisted of the following components:
1996 1995 1994 ------ ------ ------ Total minimum lease payments receivable............... $2,383 $1,858 $1,387 Estimated residual value of leased assets: Guaranteed.................................... 162 113 84 Unguaranteed.................................. 402 297 208 ------ ------ ------ 2,947 2,268 1,679 Less: Unearned income................................. 430 363 264 ------ ------ ------ Net investment in financing leases.................... $2,517 $1,905 $1,415 ====== ====== ======
9. Inventories Inventories at December 31, by major classification, were as follows:
1996 1995 1994 ------ ------ ------ Raw materials and work-in-process............ $ 909 $ 710 $ 697 Finished goods............................... 1,103 1,006 942 Supplies..................................... 210 205 196 ------ ------ ------ $2,222 $1,921 $1,835 ====== ====== ======
10. Land, buildings, machinery and equipment Land, buildings, machinery and equipment at December 31, by major classification, were as follows:
1996 1995 1994 ------- ------- ------- Land - at original cost............... $ 122 $ 102 $ 105 Buildings............................. 2,704 2,548 2,597 Machinery and equipment............... 3,778 3,657 3,609 Patterns, dies, jigs, etc............. 481 453 441 Furniture and fixtures................ 187 179 163 Computers............................. 537 479 474 Transportation equipment.............. 64 61 44 Equipment leased to others............ 779 674 633 Construction-in-process............... 165 150 164 ------- ------- ------- 8,817 8,303 8,230 Accumulated depreciation.............. (5,050) (4,659) (4,454) ------- ------- ------- Land, buildings, machinery and equipment - net............... $3,767 $ 3,644 $ 3,776 ======= ======= =======
The company had commitments for the purchase or construction of capital assets of approximately $275 at December 31, 1996. Capital expenditure plans are subject to continuous monitoring, and changes in such plans could reduce the amount committed. Maintenance and repair expense for 1996, 1995 and 1994 was $518, $499 and $461, respectively. Equipment leased to others Equipment leased to others, primarily by Caterpillar Financial Services Corporation, consisted of the following components at December 31:
1996 1995 1994 ---- ---- ---- Equipment leased to others - at cost.......... $779 $674 $633 Less: Accumulated depreciation.................... 251 220 189 ---- ---- ---- Equipment leased to others - net.............. $528 $454 $444 ==== ==== ====
Scheduled minimum rental payments to be received for equipment leased to others during each of the years 1997 through 2001, and in total thereafter, are $151, $117, $79, $46, $19 and $5, respectively. 11. Unconsolidated affiliated companies The company's investments in unconsolidated affiliated companies consist principally of a 50% interest in Shin Caterpillar Mitsubishi Ltd., Japan of $400. The other 50% owner of this company is Mitsubishi Heavy Industries, Ltd., Japan. Combined financial information of the unconsolidated affiliated companies, as translated to U.S. dollars (note 3), was as follows:
Years ended September 30, 1996 1995 1994 ------ ------ ------ Results of Operations Sales............................... $3,729 $3,789 $3,324 ====== ====== ====== Profit........................ $ 75 $ 44 $ 63 ====== ====== ======
Profit for the year ended September 30, 1994, includes $19 representing aftertax gain on the sale of surplus assets.
At September 30, 1996 1995 1994 ------ ------ ------ Financial Position Assets: Current assets.............................. $1,995 $1,872 $1,853 Land, buildings, machinery and equipment - net........................... 733 780 781 Other assets................................ 395 322 298 ------ ------ ------ 3,123 2,974 2,932 ------ ------ ------ Liabilities: Current liabilities....................... 1,683 1,676 1,575 Long-term debt due after one year......... 133 215 332 Other liabilities......................... 145 155 150 ------ ------ ------ 1,961 2,046 2,057 ------ ------ ------ Ownership.................................... $1,162 $ 928 $ 875 ------ ------ ------
At December 31, 1996, the company's consolidated "Profit employed in the business" included $151 representing its share of undistributed profit of the unconsolidated affiliated companies. In 1996, 1995 and 1994, the company received $10, $8 and $3, respectively, in dividends from unconsolidated affiliated companies. A-16 Caterpillar Inc. - -------------------------------------------------------------------------------- 12. Credit commitments The company has arrangements with a number of U.S. and non-U.S. banks to provide lines of credit. These credit lines are changed as anticipated needs vary and are not indicative of short-term borrowing capacity. In the United States, the company has a long-term, contractually committed credit agreement, which requires a minimum level of net worth. Caterpillar Financial Services Corporation cannot exceed a maximum debt to equity ratio. Unsecured, confirmed credit lines available from banks were $4,916 at December 31, 1996 (U.S. $2,887 and non-U.S. $2,029), of which $2,271 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, 1996, Machinery and Engines had $2,984 confirmed credit lines (U.S. $2,887 and non-U.S. $97), of which $7 was utilized as backup for bank borrowings. Under the contractually committed credit agreements, $1,650 is available from various banks through October 2001, and $1,237 is available through October 1997. The latter agreement may be extended on an annual basis subject to mutual agreement. These two credit agreements may be used at the company's option by either the company or up to 90% by Caterpillar Financial Services Corporation, with a $300 sublimit for Caterpillar Financial Australia Limited, a wholly owned subsidiary of Cat Financial. Financial Products At December 31, 1996, Financial Products had $3,772 of confirmed lines (U.S. $1,840 and non-U.S. $1,932), of which $2,381 was utilized as backup for outstanding commercial paper and $257 for bank borrowings. Based on long-term credit agreements, $967, $294 and $660 of commercial paper outstanding at December 31, 1996, 1995 and 1994, respectively, was classified as long-term debt due after one year. 13. Short-term borrowings Short-term borrowings at December 31 consisted of the following:
1996 1995 1994 ------ ------ ------ Machinery and Engines: Notes payable to banks........ $ 36 $ 14 $ 17 Financial Products: Notes payable to banks........ 257 712 532 Commercial paper.............. 1,414 416 181 Other......................... 40 32 10 ------ ------ ------ 1,711 1,160 723 ------ ------ ------ $1,747 $1,174 $ 740 ====== ====== ======
Interest paid on short-term borrowings for 1996, 1995 and 1994 was $141, $122 and $99, respectively (interest paid in 1994 was $109 excluding the reclassification described in note 3). At December 31, 1996, 1995 and 1994, the carrying value of short-term borrowings approximated fair value. The weighted average interest rates on short-term borrowings outstanding at December 31 were as follows:
1996 1995 1994 ---- ---- ---- Notes payable to banks......... 3.7% 5.4% 5.8% Notes payable to others........ 5.5% 5.4% 5.3% Commercial paper............... 5.2% 5.9% 6.1%
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 $967, $294 and $660 of commercial paper supported by revolving credit agreements which were classified as long-term debt due after one year (note 12). 14. Long-term debt Debt due after one year at December 31 consisted of the following:
1996 1995 1994 ------ ------ ------ Machinery and Engines: Notes - 9 1/8% due 1996.................. $ - $ - $ 150 Notes - 9 3/8% due 2000.................. 149 149 149 Notes - 9 3/8% due 2001.................. 183 183 183 Debentures - 9% due 2006................. 202 202 202 Debentures - 6% due 2007................. 136 131 127 Debentures - 9 3/8% due 2011............. 123 123 123 Debentures - 9 3/4% due 2000-2019........ 199 199 199 Debentures - 9 3/8% due 2021............. 236 236 236 Debentures - 8% due 2023................. 199 199 199 Medium-term notes........................ 185 300 300 Capital lease obligation - 7.4%.......... 281 257 - Other.................................... 125 70 66 ------ ------ ------ 2,018 2,049 1,934 Financial Products: Commercial paper supported by revolving credit agreement (note 12)....... 967 294 660 Medium-term notes........................ 1,505 1,553 1,616 Other.................................... 42 68 60 ------ ------ ------ 2,514 1,915 2,336 ------ ------ ------ $4,532 $3,964 $4,270 ====== ====== ======
The aggregate amounts of maturities and sinking fund requirements of long-term debt during each of the years 1997 through 2001, including that due within one year and classified as current are:
1997 1998 1999 2000 2001 ------ ------ ------ ------ ------ Machinery and Engines...... $ 122 $ 69 $ 63 $ 172 $ 209 Financial Products......... 1,058 668 499 285 45 ------ ------ ------ ------ ------ $1,180 $ 737 $ 562 $ 457 $ 254 ====== ====== ====== ====== ======
Interest paid on total long-term borrowings, excluding the reclassification described in note 3, for 1996, 1995 and 1994 was $333, $353 and $307, respectively. Other than the notes of the Financial Products subsidiaries, all outstanding notes and debentures itemized above are unsecured direct obligations of the parent company. The capital lease obligation is collateralized by the leased manufacturing equipment and a security deposit. The 6% debentures were sold at significant original issue discounts. This issue is carried net of the unamortized portion of its discount, which is amortized as interest expense over the life of the issue. A-17 NOTES continued (Dollars in millions except per share data) - -------------------------------------------------------------------------------- The 6% debentures, with a principal at maturity of $250 and original issue discount of $144, have an effective annual cost of 13.3%. The 6% debentures may be redeemed at any time, at the company's option, at an amount equal to the respective principal at maturity. The company may, at its option, redeem annually an additional amount for the 9 3/4% sinking fund debenture issue, without premium, equal to 200% of the amount of the sinking fund requirement. The company may also, at its option, redeem additional portions of the sinking fund debentures by the payment of premiums which, starting in 1999, decrease periodically. The premium at the first redemption date of June 1, 1999, is 4.875%. All other notes and debentures are not redeemable prior to maturity. The medium-term notes are offered on a continuous basis through agents and are primarily at fixed rates. Machinery and Engines' medium-term notes may have maturities from nine months to 30 years. At December 31, 1996, these notes had a weighted average interest rate of 7.6% with about six months to seven years remaining to maturity. The notes of the Financial Products subsidiaries primarily represent medium-term notes having a weighted average interest rate of 6.5% with maturities up to 15 years at December 31, 1996. The carrying value and fair value of long-term debt can be found in Table IV on Page A-20. Please refer to note 16 for the methods and assumptions used by the company in estimating the fair value of long-term debt. 15. Interest rate derivative contracts To manage its exposure to interest rate changes and lower the cost of borrowed funds, the company uses various interest rate derivative contracts, including swaps, caps, floors and forward rate agreements. Interest rate derivative contracts are linked to specific debt instruments. Interest differentials currently payable or receivable under the derivative contracts are recognized each period as adjustments to "Interest expense" in Statement 1. Current period income is not affected by the increase or decrease in the fair market value of derivative instruments as interest rates change. Interest rate swap agreements are settled in cash at specified intervals based on the difference between the fixed-rate and floating-rate interest amounts calculated by reference to the contractual notional amount. Premiums paid on purchased interest rate caps and the cash settlement at the initial effective date of forward rate agreements are deferred and recognized ratably as adjustments to "Interest expense" in Statement 1 over the lives of the agreements. Interest accruals in a net payable position are recorded as accrued interest payable. Interest accruals in a net receivable position are recorded as other assets. Early termination of a derivative instrument does not result in recognition of immediate gain or loss except in those cases when the debt instrument to which a contract is specifically linked is terminated. The notional amounts of interest rate swap agreements outstanding (excluding swaps with future effective dates) as of December 31, 1996, segregated by type of instrument and year of maturity are presented in Table II on Page A-19. The weighted average receive and pay interest rates and the primary index to which the floating interest rates are linked are also presented. The notional amounts are not indicative of the company's exposure to credit risk. The floating interest rates presented are based on the interest rates in effect at the reporting date. These rates may change substantially in the future due to open market factors. The company's activity for 1996, 1995 and 1994 for each type of interest rate swap agreement (excluding swaps with future effective dates) is summarized in Table III on Page A-19. At December 31, 1995, Financial Products subsidiaries had swaps having future effective dates with a total notional amount of $59; $3 fixed-to-floating, $56 floating-to-fixed. At December 31, 1994, Financial Products subsidiaries had three written index-amortizing interest rate cap agreements outstanding. Two of these caps had notional amounts of $100 and one had a notional amount of Canadian $50 (U.S. dollar equivalent $36). The company entered into these agreements, in return for a premium, in order to reduce the overall cost of borrowing. Fair value or mark-to-market accounting treatment was applied to these instruments. Accordingly, unrealized and realized gains and losses on these instruments were recorded as "Other income (expense)" in Statement 1 and as "Accounts payable and accrued expenses" in Statement 3. Increases in interest rates during 1994 resulted in a recognized but unrealized mark-to-market loss on these written options of $18. Lower interest rates in 1995 resulted in a reduction of the loss to $7. The company terminated these cap agreements during 1995. In the future, the use of interest rate contracts will be limited to those that qualify for deferred accounting treatment, thereby minimizing fluctuations to the earnings of the company created by mark-to-market accounting treatment. The carrying value and fair value of interest rate swaps and options can be found in Table IV on Page A-20. Please refer to note 16 for the methods and assumptions used by the company in estimating the fair value of interest rate swaps and options. 16. Fair values of financial instruments The following methods and assumptions were used by the company in estimating its fair value disclosures for financial instruments: Cash and Short-term Investments: The carrying amount reported in the balance sheet for cash and short-term investments approximated its fair value. Long-term Investments: The fair value of long-term investments was based on quoted market prices. Foreign Currency Contracts (Forwards and Options): Fair value for foreign currency exchange contracts was based on quoted market prices of comparable instruments. Finance Receivables: Fair value of finance receivables was estimated by discounting the future cash flow 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 Financial Products, fair value is estimated by discounting the future cash flow using the company's current borrowing rates for similar types and maturities of debt, except for floating rate notes for which the carrying amount is considered a reasonable estimate of fair value. A-18
Caterpillar Inc. - ---------------------------------------------------------------------------------------------------------------------- TABLE II - ----------------------------------------------------------------------------------------------------------------------- Interest Rate Swaps Expected Maturity -------------------------------------------------------------------------- At December 31, 1996 1997 1998 1999 2000 2001 2002-06 Total ------- ------- ------- ------- ------- ------ --------- Machinery and Engines: Fixed-to-floating swaps Notional amount............................ $ 150 $ 50 $ 200 $ 150 $ 450 $ - $ 1,000 Weighted average: Receive rate.............................. 6.2% 6.4% 5.6% 6.2% 6.5% - 6.2% Pay rate.................................. 5.7% 5.7% 5.7% 5.7% 5.7% - 5.7% Pay rate index: Federal Reserve H-15 30 day commercial paper Financial Products: Floating-to-fixed swaps Notional amount............................ $ 477 $ 398 $ 209 $ 176 $ 71 $ 54 $ 1,385 Weighted average: Receive rate.............................. 5.0% 5.0% 4.7% 5.4% 5.6% 5.0% 5.0% Pay rate.................................. 5.6% 5.7% 5.6% 6.2% 6.0% 7.4% 5.8% Receive rate index: LIBOR, commercial paper Fixed-to-floating swaps Notional amount............................. $ 115 $ 20 $ - $ - $ - $ - $ 135 Weighted average: Receive rate............................... 7.4% 5.2% - - - - 7.1% Pay rate................................... 5.7% 5.8% - - - - 5.7% Pay rate index: LIBOR Floating-to-floating swaps Notional amount............................. $ 226 $ 50 $ 73 $ - $ - $ - $ 349 Weighted average: Receive rate............................... 5.7% 5.6% 5.2% - - - 5.6% Pay rate................................... 5.5% 5.7% 5.3% - - - 5.5% Receive/Pay rate index: LIBOR - -----------------------------------------------------------------------------------------------------------------------
TABLE 111 - ------------------------------------------------------------------------------------------------------------------------ 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 Additions........................................ 220 420 70 60 550 Maturities/Amortizations......................... - (282) (63) (245) (590) Terminations..................................... (20) (3) - (100) (103) F/X translation adjustment....................... - 15 - - 15 ------- ------- ------- ------- -------- Balance, December 31, 1995........................ $ 800 $ 1,101 $ 311 $ 207 $ 1,619 ------- ------- ------- ------- -------- Additions........................................ 200 814 - 239 1,053 Maturities/Amortizations......................... - (524) (176) (97) (797) Terminations..................................... - - - - - F/X translation adjustment....................... - (6) - - (6) ------- ------- ------- ------- -------- Balance, December 31, 1996........................ $ 1,000 $ 1,385 $ 135 $ 349 $ 1,869 ======= ======= ======= ======= ======== - ------------------------------------------------------------------------------------------------------------------------
A-19 NOTES continued (Dollars in millions except per share data) - -------------------------------------------------------------------------------- Interest Rate Swaps and Options: The fair value is estimated based upon the amount that the company would receive or pay to terminate the agreements as of year-end. The carrying amounts and fair values of the company's financial instruments are presented in Table IV below. 17. Litigation The company is involved in litigation matters which are normal in the course of its operations. The results of these matters cannot be predicted with certainty; however, management believes, based on the advice of legal counsel, the final outcome will not have a materially adverse effect on the company's consolidated financial position. 18. Capital stock A. Stock options In 1996, stockholders approved a plan providing for the granting of options to purchase common stock of the company to officers and other key employees, as well as non-employee directors. This plan reserves 7,000,000 shares for issuance as well as an additional 4,000,000 shares authorized but unissued under prior company stock option plans. The 1996 plan provides for the granting of stock options for 2,000 shares to each non-employee director at the close of each annual meeting of stockholders. 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. The maximum term of options is ten years. Common shares issued under stock options, including treasury shares reissued, totaled 656,966; 713,131; and 1,144,631 in 1996, 1995 and 1994, respectively. Changes in the status of common shares subject to issuance under options are presented in Table V on Page A-21. The fair value of each option grant is estimated at the date of grant using the Black-Scholes option-pricing model. The following weighted average assumptions were used in determining fair value: 6/11/96 4/10/96 6/6/95 4/12/95 ------- ------- ------ ------- Dividend yield.................... 2.13% 2.09% 1.66% 1.79% Expected volatility............... 24.18% 25.22% 25.04% 25.32% Risk-free interest rates.......... 6.59% 6.21% 5.87% 6.77% Expected lives.................... 4 years 4 years 4 years 4 years Options granted under the company's stock option plan carry prices equal to the average market price on the date of grant and therefore, in accordance with Accounting Principles Board (APB) 25, no compensation expense is incurred in association with the options. Below is a summary of the pro forma net income and earnings per share amounts, determined as if the company had applied the fair value provisions of SFAS 123, "Accounting for Stock-Based Compensation." The pro forma effects on net income for 1996 and 1995 are not representative of the effects on reported net income for future years because they do not take into consideration pro forma compensation expense related to grants made prior to 1995. Once the company is past the initial phase-in period, the pro formas should be more representative for future years. 1996 1995 ---- ---- Net income As reported....... $1,361 $1,136 Pro forma......... $1,352 $1,133 Profit per share of common stock As reported....... $ 7.07 $ 5.72 Pro forma......... $ 7.02 $ 5.71
TABLE IV - ---------------------------------------------------------------------------------------------------------------------------------- Fair Values of Financial Instruments 1996 1995 1994 Asset (Liability) ------------------- ------------------- ------------------- At December 31 Carrying Fair Carrying Fair Carrying Fair Note Amount Value Amount Value Amount Value Reference # -------- ------- -------- ------- -------- ------- -------------------- Cash and short-term investments............ $ 487 $ 487 $ 638 $ 638 $ 419 $ 419 Statement 3, Note 20 Long-term investments...................... 508 508 449 449 172 172 Note 20 Foreign currency exchange contracts........ (3) (3) -- (1) (4) (97) Note 3 Finance receivables - net (excluding operating and finance type leases and currency swaps/1/)............. 4,954 4,980 4,207 4,175 3,603 3,582 Note 8 Short-term borrowings...................... 1,747 1,747 1,174 1,174 740 740 Note 13 Long-term debt (including amounts due within one year) Machinery and Engines.................... (2,140) (2,377) (2,205) (2,550) (2,020) (2,127) Note 14 Financial Products....................... (3,572) (3,621) (3,021) (3,083) (3,143) (3,108) Note 14 Interest rate swaps and options Machinery and Engines - in a net receivable position............. 1 4 -- 9 -- -- Note 15 in a net payable position................ (1) (3) (2) (1) (2) (50) Note 15 Financial Products- in a net receivable position............. 1 4 2 7 3 46 Note 15 in a net payable position................ (4) (16) (4) (17) (23) (62) Note 15
/1/Excluded items that have a net carrying value at December 31, 1996, 1995 and 1994, of $692, $613 and $391, respectively. - -------------------------------------------------------------------------------- A-20 Caterpillar Inc. - -------------------------------------------------------------------------------- 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:
1996 1995 1994 --------- ---------- ---------- 1977 stock option plan...................... - 2,547,304 2,547,304 1987 stock option plan...................... - 1,288,509 2,879,292 1996 stock option plan...................... 9,131,580 - - Employee investment and other benefit plans....................... 11,400,178 11,400,178 11,400,178 ---------- ---------- ---------- 20,531,758 15,235,991 16,826,774 ========== ========== ==========
Summarized information about stock options outstanding at December 31, 1996, is presented below in Table VI. B. Restricted stock The 1996 Stock Option and Long-Term Incentive Plan permits the company to award restricted stock to officers and other key employees, as well as non-employee directors. During 1996, the company awarded 84,830 shares of restricted stock to officers and other key employees as Performance Awards, and 2,200 shares of restricted stock were granted to non-employee directors. C. 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 11, 1996, the company's board of directors adopted a new Stockholders' Rights Plan. Under the plan, each share of Caterpillar common stock represents one preferred stock purchase right. Each right entitles the holder to purchase 1/100th of a share of Series A Junior Participating Preferred Stock for the exercise price of $300. These rights are exercisable only in limited circumstances. If someone acquires 15% or more of Caterpillar's common stock or announces a tender offer to do so, each right holder (other than the acquiring person) will have the right to purchase Caterpillar common stock at a 50% discount. Similar rights would attach if the company was acquired in a merger or other transaction. The rights expire December 11, 2006. 19. Operating leases The company leases certain computer and communications equipment, transportation equipment and other property through operating leases. Lease expense on these leases is charged to operations as incurred. Total rental expense for operating leases was $151, $139 and $137 for 1996, 1995 and 1994, respectively. Minimum payments for operating leases having initial or remaining non-cancelable terms in excess of one year are:
Years ending December 31, 1997..................................................................... $107 1998..................................................................... 73 1999..................................................................... 53 2000..................................................................... 19 2001..................................................................... 15 Thereafter............................................................... 44 ---- Total lease commitments.................................................. $311 ====
TABLE V - --------------------------------------------------------------------------------
1996 1995 1994 --------------------- ----------------------- ------------------------ Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ---------- -------- ---------- -------- ---------- ------- Fixed Options Outstanding at beginning of year........... 6,633,824 $ 43.91 6,553,371 $ 37.09 7,351,800 $ 31.19 Granted to officers and key employees...... 1,667,050 $ 65.81 1,602,640 $ 60.31 1,581,540 $ 53.53 Granted to outside directors............... 22,000 $ 66.94 20,000 $ 55.81 22,000 $ 56.69 Exercised.................................. (1,313,970) $ 36.05 (1,503,330) $ 31.69 (2,344,369) $ 29.90 Lapsed..................................... (71,847) $ 56.45 (38,857) $ 49.70 (57,600) $ 35.26 ---------- ---------- --------- Outstanding at end of year................. 6,937,057 $ 50.61 6,633,824 $ 43.91 6,553,371 $ 37.09 =========== ========== ========= Options exercisable at year-end............ 3,772,135 $ 40.87 3,584,140 $ 34.70 3,388,433 $ 30.58 Weighted-average fair value of options granted during the year.................. $ 16.24 $ 15.23 not applicable
- -------------------------------------------------------------------------------- TABLE VI - ----------------------------------------------------------------------------------------------------------------------- Options Outstanding Options Exercisable -------------------------------------------------------- ---------------------------------- Weighted Average Remaining Range of # Outstanding Contractual Life Weighted-Average # Outstanding Weighted-Average Exercise Prices at 12/31/96 (Years) Exercise Price at 12/31/96 Exercise Price - ----------------- -------------- ---------------- --------------- ------------- ---------------- $23.56 to $37.53 2,403,201 4.9 $32.16 2,403,201 $32.16 $53.53 to $66.94 4,533,856 8.5 $60.39 1,368,934 $56.14 --------- --------- 6,937,057 7.3 $50.61 3,772,135 $40.87 ========= =========
- -------------------------------------------------------------------------------- A-21 NOTES continued (Dollars in millions except per share data) - ------------------------------------------------------------------------------- 20. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the company to credit risk consist primarily of trade and finance receivables and short-term and long-term investments. Additionally, to a lesser extent, the company is potentially subject to credit risk associated with counterparties to derivative contracts. Trade receivables are primarily short-term receivables from independently owned and operated dealers which arise in the normal course of business. The company performs regular credit evaluations of its dealers. The company generally doesn't require collateral, and the majority of its trade receivables are unsecured. The company does make use of various devices such as security agreements and letters of credit to protect its interests as it deems necessary. No single dealer or region represents a significant concentration of credit risk. At December 31, 1996, 1995 and 1994, the carrying value of trade receivables approximated fair value. Finance receivables primarily represent receivables under installment sales contracts, receivables arising from leasing transactions and notes receivable. The company generally maintains a secured interest in the equipment financed. Receivables from customers in construction-related industries made up approximately one-third of total finance receivables at December 31, 1996, 1995 and 1994, respectively. No single customer or region represents a significant concentration of credit risk. Fair value information for finance receivables can be found in note 16 and in Table IV on Pages A-18 and A-20, respectively. 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, 1996, 1995 and 1994, 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" in Statement 3. At December 31, 1996 and 1995, the company had a long-term investment which collateralizes a capital lease obligation (note 14). At December 31, 1996, 1995 and 1994, the carrying value of long-term investments was $508, $449 and $172, respectively, which, based on quoted market prices, approximated fair value. At December 31, 1996, 1995 and 1994, Caterpillar Financial Services Corporation was contingently liable under guarantees of securities of certain Caterpillar dealers totaling $253, $282 and $258, respectively, of which $159, $222 and $165 was outstanding, respectively. These guarantees have terms ranging up to two years and are fully secured by dealer assets. No loss has been experienced nor is any anticipated under these agreements. At December 31, 1996, the company had outstanding derivative contracts with notional amounts totaling $3,957 with terms generally ranging up to five years. The company deals only with financial institutions, which in the opinion of management, will not expose the company to undue credit loss exposure. The company does not anticipate nonperformance by any of the counterparties. Collateral is not required of the coun terparties 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, 1996, the company's exposure to credit loss was $14. 21. ENVIRONMENTAL MATTERS At this time, based on current regulations, the potential impact of environmental regulation compliance on the company's capital expenditures, earnings and competitive position is not expected to be material. The company is involved in a number of remediation actions to clean up hazardous wastes as required by federal and state laws. These laws often require responsible parties to fund remediation actions regardless of fault, legality of original disposal or ownership of a disposal site. Under accounting guidelines, the company is required to accrue and charge to income management's best estimate of future costs associated with these sites. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the lower end of that range. For 1996, the amount accrued for potential clean-up costs is contained in the line item, "Accounts payable and accrued expenses" in Statement 3, and represents an immaterial portion of that line item. While the company may have rights of contribution or reimbursement under insurance policies, amounts that may be recoverable from other entities are not considered in establishing the accrual. In deciding upon amounts to be reserved for potential environmental liability at a particular site, the company looks at several factors including: . prior experience regarding environmental remediation at a similar site; . experience of other companies at a similar site; . technology available for remediation at the time; . the stage of remediation for the particular site (i.e., whether the site is at the identification stage or whether a remedial investigation or feasibility study has been conducted); . documentation, if any, linking the company to a particular site; . the amount the company has been asked to contribute to a particular site; and . aspects of the law under which the company is alleged to be liable for clean up. The company also looks at these factors in deciding whether it could incur liabilities beyond those which it has accrued for future remediation. It is difficult to estimate potential liability at sites in very early stages of remediation (of which the company has seven currently). At this time, however, the company believes the likelihood of incurring any material environmental liability beyond that accrued is remote. 22. PLANT CLOSING AND CONSOLIDATION COSTS At December 31, 1996, the reserve for plant closing and consolidation costs was $259. Of this balance, $166 is related to costs associated with the closure of the Component Products Division's Precision Barstock Products (PBP) operation located in York, Pennsylvania. Significant costs related to the York PBP portion of the reserve are employee severance benefits (pension, medical and supplemental unemployment benefits), rearrangement and start-up costs related to the relocation of production, and write-down of buildings, machinery and equipment. The probable closing of the York PBP manufacturing operation was announced in December 1991. In March 1996, it was announced that the facility would be closed. The company is currently in the process of closing the unit. A-22 Caterpillar Inc. - -------------------------------------------------------------------------------- Also included in the reserve for plant closing and consolidation costs at December 31, 1996, was $69 for write-downs of buildings, machinery and equipment at previously closed facilities. The write-downs establish a new cost basis for assets that have been permanently impaired. The remainder of the reserve at December 31, 1996, is related to severance benefits provided to former employees at previously closed facilities. The reserve for such benefits is reduced as the benefits are provided. Currently, benefits are expected to be provided through 2003. 23. Segment information A. Nature of operations The company operates in three principal business segments: (1) Machinery--Design, manufacture and marketing of construction, mining and agricultural machinery -- track and wheel tractors, track and wheel loaders, pipelayers, motor graders, wheel tractor-scrapers, track and wheel excavators, backhoe loaders, mining shovels, log skidders, log loaders, off-highway trucks, articulated trucks, paving products and related parts. (2) Engines--Design, manufacture and marketing of engines for earthmoving and construction machines, on-highway trucks and locomotives; marine, petroleum, agricultural, industrial and other applications; electric power generation systems; and related parts. Caterpillar reciprocating diesel and spark-ignited engines meet power needs ranging from 40 to 13,600 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," "Barber-Greene" and "MaK" (acquired 12/31/96). Machines are distributed principally through a worldwide organization of dealers, 65 located in the United States and 127 located outside the United States. Worldwide, these dealers have more than 1,300 places of business. Diesel and spark-ignited engines are sold principally 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. The principal markets for the Machinery and Engines segments are located in the United States, Europe, Asia/Pacific and Latin America. The United States is the principal market for the Financial Products segment. The majority of the company's sales and revenues is derived from the Machinery segment. B. Business segments The high degree of integration of the company's manufacturing operations necessitates the use of a substantial number of allocations in the determination of business segment information. Intersegment sales and revenues, which primarily represent intersegment engine sales, are valued at prices comparable to those for unrelated parties. Information on the company's business segments was as follows:
1996 1995 1994 ------ ------ ------ For the years ended December 31: Sales: Machinery.................................. $11,862 $11,336 $10,164 Engines.................................... 4,879 4,920 4,381 Elimination of intersegment engine sales.... (927) (805) (682) ------- ------- ------- Consolidated sales.......................... 15,814 15,451 13,863 Financial Products revenues................. 708 621 465 ------- ------- ------- Sales and revenues.......................... $16,522 $16,072 $14,328 ======= ======= ======= Operating profit: Machinery.................................. $ 1,562 $ 1,210 $ 1,099 Engines.................................... 395 462 348 Financial Products......................... 114 88 64 ------- ------- ------- 2,071 1,760 1,511 General corporate expenses.................. (100) (79) (77) ------- ------- ------- Operating profit............................ $ 1,971 $ 1,681 $ 1,434 ======= ======= ======= Capital expenditures -- including equipment leased to others: Machinery................................. $ 314 $ 256 $ 272 Engines................................... 152 179 182 Financial Products........................ 263 210 187 General corporate......................... 42 34 53 ------- ------- ------- $ 771 $ 679 $ 694 ======= ======= ======= Depreciation and amortization: Machinery.................................. $ 372 $ 375 $ 394 Engines.................................... 171 172 168 Financial Products......................... 121 102 95 General corporate.......................... 32 33 26 ------- ------- ------- $ 696 $ 682 $ 683 ======= ======= ======= At December 31: Identifiable assets: Machinery.................................. $ 6,010 $ 5,122 $ 5,773 Engines.................................... 3,023 2,746 2,570 Financial Products......................... 6,572 5,592 4,668 ------- ------- ------- 15,605 13,460 13,011 General corporate assets.................... 2,422 2,894 2,784 Investments in unconsolidated affiliated companies....................... 701 476 455 ------- ------- ------- Total assets................................ $18,728 $16,830 $16,250 ======= ======= =======
A-23 NOTES continued (Dollars in millions except per share data) - ------------------------------------------------------------------------------- Geographic segments Manufacturing activities of the Machinery and Engines segments are carried on in 31 plants in the United States; four in the United Kingdom; two each in China, France, Germany, Italy and Mexico; and one each in Australia, Belgium, Brazil, Hungary, Indonesia, Poland and Russia. Three major distribution centers are located in the United States and ten 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, Europe and Mexico. Caterpillar is a highly integrated company. The product of subsidiary companies' manufacturing operations located outside the United States, in most instances, consists of components manufactured or purchased locally which are assembled with components purchased from related companies. As a result, the profits of these operations do not bear any definite relationship to their assets, and individual subsidiaries' results cannot be viewed in isolation. Prices between Caterpillar companies are established at levels deemed equivalent to those which would prevail between unrelated parties. Information on the company's geographic segments, based on the location of the company's manufacturing operations for Machinery and Engines, was as follows:
1996 1995 1994 ------- -------- -------- For the years ended December 31: Sales: United States.................................. $13,042 $12,191 $10,994 Europe......................................... 2,214 2,638 2,358 All other...................................... 1,138 1,200 1,050 Elimination of intersegment sales from: United States.................................. (265) (308) (266) Europe......................................... (135) (125) (141) All other...................................... (180) (145) (132) ------- ------- ------- Consolidated sales.............................. 15,814 15,451 13,863 Revenues: United States................................ 534 482 362 All other.................................... 174 139 103 ------- ------- ------- Sales and revenues.............................. $16,522 $16,072 $14,328 ======= ======= ======= Operating profit: Machinery and Engines: United States................................ $ 1,708 $ 1,356 $ 1,108 Europe....................................... 166 206 244 All other.................................... 83 110 95 ------- ------- ------- 1,957 1,672 1,447 ------- ------- ------- Financial Products: United States................................ 98 81 61 All other.................................... 16 7 3 ------- ------- ------- Total Financial Products........................ 114 88 64 ------- ------- ------- 2,071 1,760 1,511 General corporate expenses....................... (100) (79) (77) ------- ------- ------- Operating profit................................. $ 1,971 $ 1,681 $ 1,434 ======= ======= ======= 1996 1995 1994 ------- ------- ------- At December 31: Identifiable assets: Machinery and Engines: United States................................. $ 6,495 $ 5,836 $ 6,445 Europe........................................ 1702 1,229 1,160 All other..................................... 836 803 738 ------- ------- ------- 9,033 7,868 8,343 ------- ------- ------- Financial Products: United States................................. 4,687 4,042 3,557 All other..................................... 1,885 1,550 1,111 ------- ------- ------- 6,572 5,592 4,668 ------- ------- ------- 15,605 13,460 13,011 General corporate assets........................ 2,422 2,894 2,784 Investments in unconsolidated affiliated companies........................... 701 476 455 ------- ------- ------- Total assets.................................... $18,728 $16,830 $16,250 ======= ======= =======
D. Non-U.S. sales Sales outside the United States were 51% of consolidated sales for 1996, 52% for 1995 and 49% for 1994. Information on the company's sales outside the United States, based on dealer location, was as follows:
1996 1995 1994 ------- ------- ------- For the years ended December 31: Sales of U.S. manufactured product: Asia/Pacific................................... $1,743 $1,505 $1,338 Europe......................................... 1,065 1,005 821 Latin America.................................. 913 829 763 Africa/Middle East............................. 767 644 522 Canada......................................... 748 852 806 ------ ------ ------ 5,236 4,835 4,250 ------ ------ ------ Sales of non-U.S. manufactured product: Asia/Pacific................................... 817 785 626 Europe......................................... 1,301 1,681 1,257 Latin America.................................. 325 354 388 Africa/Middle East............................. 384 270 231 Canada......................................... 75 104 103 ------ ------ ------ 2,902 3,194 2,605 ------ ------ ------ Total sales outside the United States: Asia/Pacific................................... 2,560 2,290 1,964 Europe......................................... 2,366 2,686 2,078 Latin America.................................. 1,238 1,183 1,151 Africa/Middle East............................. 1,151 914 753 Canada......................................... 823 956 909 ====== ====== ====== $8,138 $8,029 $6,855 ====== ====== ======
A-24 Caterpillar Inc. - -------------------------------------------------------------------------------- 24. Selected quarterly financial results (unaudited) Financial information for interim periods was as follows:
1996 Quarter ------------------------------- 1st 2nd 3rd 4th ------- ------ ------ ------ Sales and revenues.................... $3,844 $4,180 $4,033 $4,465 Less: Revenues........................ 162 172 184 190 ------ ------ ------ ------ Sales................................. 3,682 4,008 3,849 4,275 Cost of goods sold.................... 2,780 2,976 2,905 3,171 ------ ------ ------ ------ Gross margin.......................... 902 1,032 944 1,104 Profit................................ 296 374 310 381 Profit per share of common stock...... $ 1.53 $ 1.94 $ 1.61 $ 1.99 1995 Quarter ------------------------------ 1st 2nd 3rd 4th ------ ------ ------ ------ Sales and revenues.................... $3,913 $4,213 $3,733 $4,213 Less: Revenues........................ 140 154 165 162 ------ ------ ------ ------ Sales................................. 3,773 4,059 3,568 4,051 Cost of goods sold.................... 2,890 3,110 2,878 3,122 ------ ------ ------ ------ Gross margin.......................... 883 949 690 929 Profit................................ 300 323 213 300 Profit per share of common stock...... $ 1.50 $ 1.62 $ 1.07 $ 1.53
A-25 Eleven-year Financial Summary (Dollars in millions except per share data) - --------------------------------------------------------------------------------
1996 1995 1994 1993 --------- --------- --------- --------- For the Years Ended December 31: Sales and revenues................... $16,522 16,072 14,328 11,615 Sales.............................. $15,814 15,451 13,863 11,235 Percent inside the United States.. 49% 48% 51% 51% Percent outside the United States. 51% 52% 49% 49% Revenues........................... $ 708 621 465 380 Profit (loss) before effects of accounting changes/(1)/............. $ 1,361 1,136 955 652 Effects of accounting changes/(2)/... $ -- -- -- -- Profit (loss)/(1)/................... $ 1,361 1,136 955 652 Profit (loss) per share of common stock:/(1)(3)/ Profit (loss) before effects of accounting changes/(1)/........... $ 7.07 5.72 4.70 3.21 Effects of accounting changes/(2)/. $ -- -- -- -- Profit (loss)...................... $ 7.07 5.72 4.70 3.21 Dividends declared per share of common stock........................ $ 1.55 1.30 .63 .30 Return on average common stock equity.............................. 36.3% 36.1% 37.4% 34.6% Capital expenditures: Land, buildings, machinery and equipment......................... $ 506 464 501 417 Equipment leased to others......... $ 265 215 193 215 Depreciation and amortization........ $ 696 682 683 668 Research and engineering expenses.... $ 570 532 435 455 As a percent of sales and revenues. 3.4% 3.3% 3.0% 3.9% Provision (credit) for income taxes/(4)/.......................... $ 613 501 354 42 Wages, salaries and employee benefits............................ $ 3,437 2,919 3,146 3,038 Average number of employees.......... 54,968 54,263 52,778 50,443 At December 31: Total receivables: Trade and other.................... $ 3,084 2,657 3,096 2,769 Finance............................ $ 5,646 4,820 3,988 3,140 Inventories.......................... $ 2,222 1,921 1,835 1,525 Total assets: Machinery and Engines.............. $12,156 11,238 11,582 11,131 Financial Products................. $ 6,572 5,592 4,668 3,676 Long-term debt due after one year: Machinery and Engines.............. $ 2,018 2,049 1,934 2,030 Financial Products................. $ 2,514 1,915 2,336 1,865 Total debt: Machinery and Engines.............. $ 2,176 2,219 2,037 2,387 Financial Products................. $ 5,283 4,181 3,866 3,041 Ratios -- excluding Financial Products: Ratio of current assets to current liabilities.......................1.68 to 1 1.78 to 1 1.62 to 1 1.53 to 1 Percent of total debt to total debt and stockholders' equity..... 34.6% 39.6% 41.2% 52.1%
/(1)/ 1993 profit was after extraordinary loss on early retirement of debt; profit before extraordinary loss was $681, $3.36 per share of common stock. 1987 profit was after extraordinary tax benefit; profit before extraordinary tax benefit was $319, $1.60 per share of common stock. /(2)/ Effective January 1, 1992, the company adopted SFAS 106, SFAS 109 and SFAS 112. /(3)/ Computed on weighted average number of shares outstanding. /(4)/ The company adopted SFAS 109 in 1992. Prior to 1992, the tax provision was determined in accordance with APB 11. The 1987 provision for income taxes, including the reduction for the $31 extraordinary tax benefit, was $87. A-26 Caterpillar Inc. - ----------------------------------------------------------------------------
1992 1991 1990 1989 1988 1987 1986 - --------- --------- --------- --------- --------- --------- --------- 10,194 10,182 11,436 11,126 10,435 8,294 7,380 9,840 9,838 11,103 10,882 10,255 8,180 7,321 45% 41% 45% 47% 50% 52% 54% 55% 59% 55% 53% 50% 48% 46% 354 344 333 244 180 114 59 (218) (404) 210 497 616 350 76 (2,217) -- -- -- -- -- -- (2,435) (404) 210 497 616 350 76 (1.08) (2.00) 1.04 2.45 3.04 1.76 .39 (10.98) -- -- -- -- -- -- (12.06) (2.00) 1.04 2.45 3.04 1.76 .39 .30 .53 .60 .60 .43 .28 .31 (86.7%) (9.4%) 4.7% 11.6% 16.0% 10.4% 2.4% 515 653 926 984 732 463 290 125 121 113 105 61 30 41 654 602 533 471 434 425 453 446 441 420 387 334 298 308 4.4% 4.3% 3.7% 3.5% 3.2% 3.6% 4.2% (114) (152) 78 162 262 118 21 2,795 3,051 3,032 2,888 2,643 2,284 2,184 52,340 55,950 59,662 60,784 57,954 53,770 54,024 2,330 2,133 2,361 2,353 2,349 2,044 1,755 2,525 2,145 1,891 1,498 1,222 795 466 1,675 1,921 2,105 2,120 1,986 1,323 1,211 10,979 9,346 9,626 9,100 8,226 6,647 6,134 2,956 2,696 2,325 1,826 1,460 984 627 2,753 2,676 2,101 1,797 1,428 900 963 1,366 1,216 789 491 525 387 171 3,271 3,136 2,873 2,561 2,116 1,484 1,582 2,401 2,111 1,848 1,433 1,144 712 370 1.57 to 1 1.74 to 1 1.67 to 1 1.78 to 1 1.76 to 1 1.55 to 1 1.50 to 1 67.5% 43.7% 38.8% 36.4% 34.0% 29.4% 33.4%
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 all its subsidiaries (affiliated companies that are more than 50% owned). Machinery and Engines--company operations excluding the Financial Products subsidiaries. This category consists primarily of the company's manufacturing, marketing and parts distribution operations, which are highly integrated. Unless attributed to a particular subsidiary, items discussed in Management's Discussion and Analysis reflect the consolidated effect of contributions by worldwide operations. Financial Products--the company's Financial Products subsidiaries, primarily Caterpillar Financial Services Corporation (Cat Financial) and Caterpillar Insurance Services Corporation. Cat Financial and its subsidiaries in the Americas, Australia and Europe derive earnings from financing sales and leases of Caterpillar products and noncompetitive related equipment and from loans extended to Caterpillar customers and dealers. Caterpillar Insurance Services Corporation provides insurance services to Caterpillar dealers and customers to help support their purchase and financing of Caterpillar equipment. RESULTS OF OPERATIONS - --------------------- 1996 COMPARED WITH 1995 Profit for 1996 was $1.36 billion or $7.07 per share of common stock, an improvement of $225 million over profit of $1.14 billion or $5.72 per share for 1995. Sales and revenues of $16.52 billion were $450 million higher than last year. Machinery and Engines Sales were $15.81 billion, an increase of $363 million from 1995. Profit before tax was $1.79 billion, an improvement of $296 million. The primary reasons for the increase in profit were a 2% improvement in price realization and the effect of the stronger dollar as costs incurred in Japanese yen and European currencies translated into fewer U.S. dollars. Price realization improved primarily because of price increases taken over the past year and the absence of certain European currency hedges in place a year ago. (The adverse impact of currency hedges (forward contracts) that matured during 1995 was about $135 million. All such forward contracts had matured as of the end of 1995.) A favorable change in geographic sales mix also contributed to the improved price realization. These favorable factors were partially offset by higher sales discounts and the negative effect of the stronger dollar on sales in European and Asian currencies. Physical sales volume was about the same as in 1995. Margin (sales less cost of goods sold) increased $531 million or 15%. Margin as a percent of sales was 25.2%, up from 22.3%, primarily because of the better price realization and the effect of the stronger dollar as costs incurred in Japanese yen and European currencies translated into fewer U.S. dollars. In addition, margins have improved as a result of lower material costs (a result of our joint efforts with suppliers) and continued improvements in manufacturing efficiencies. These favorable items were partially offset by higher incentive pay expense. Selling, general and administrative expenses were $1.72 billion, compared with $1.48 billion in 1995. The $232 million increase reflects higher spending levels in support of expanded operations and major initiatives to enhance long-term growth, the effect of inflation on costs and higher incentive pay expense. Research and development (R&D) expenses were up $35 million from 1995. The increase primarily reflects continuing high levels of activity for new product introductions and higher incentive pay expense. Operating profit of $1.86 billion was $264 million higher than 1995. Operating profit as a percent of sales was 11.7% compared with 10.3% a year ago. Interest expense of $194 million was about the same as a year ago. Other income/expense was income of $127 million compared with income of $92 million last year. The increase of $35 million is primarily due to a favorable change in foreign exchange gains and losses, higher interest income and several small favorable items recorded in 1996. Partially offsetting these favorable items was the absence of a $10 million reimbursement recorded in 1995 under the company's insurance coverage for the settlement of two class action complaints. Financial Products Before-tax profit for Financial Products was a record $151 million, up $30 million from 1995. The increase resulted primarily from a larger portfolio of earning assets at Cat Financial and gains recognized on the sale of securities at Caterpillar Insurance Company Limited (Cat Insurance). Partially offsetting these favorable items was the absence of an $11 million pre-tax gain recorded in 1995 for interest rate caps written by Cat Financial. (The caps were terminated during second-quarter 1995.) Revenues of $708 million were a record and were up $87 million, primarily the result of Cat Financial's larger portfolio. Selling, general and administrative expenses were up $38 million, primarily due to Cat Financial's higher depreciation on leased equipment and other increases due to a larger portfolio. Interest expense was up $23 million due to increased borrowings to support the larger portfolio, partially offset by lower borrowing rates. Other income/expense was income of $37 million, an increase of $4 million from a year ago. Income Taxes Income tax expense was $613 million, $112 million higher than a year ago. The increase primarily reflects higher before-tax profit. The effective tax rate was 31.6% compared with 31.0% for 1995. Unconsolidated Affiliated Companies The company's share of unconsolidated affiliated companies' results was $33 million, up $11 million from a year ago. Profits from new unconsolidated affiliates F.G. Wilson, L.L.C. and Caterpillar Elphinstone Pty. Ltd. along with higher profits at Shin Caterpillar Mitsubishi Ltd. were the primary reasons for the increase from 1995. A-28 Caterpillar Inc. - -------------------------------------------------------------------------------- FOURTH-QUARTER 1996 COMPARED WITH FOURTH-QUARTER 1995 Fourth-quarter profit of $381 million or $1.99 per share was $81 million higher than fourth-quarter 1995 profit of $300 million or $1.53 per share. A 4% increase in physical sales volume and a 2% increase in price realization were the most significant factors contributing to the increased profits. Machinery and Engines Profit before tax of $485 million was up 19% or $77 million from last year's fourth-quarter. Sales of Machinery and Engines of $4.28 billion were up 6%. The higher sales resulted from a 4% increase in physical sales volume along with a 2% improvement in price realization. The increase in physical sales volume primarily resulted from higher machine sales inside the United States that were partially offset by lower machine sales outside the United States and lower engine sales inside the United States. Price realization improved primarily because of price increases taken over the past year and the absence of certain European currency hedges in place a year ago. (The adverse impact of currency hedges (forward contracts) that matured during fourth-quarter 1995 was about $30 million. All such forward contracts had matured as of the end of 1995.) These favorable factors were partially offset by higher sales discounts and the negative effect of the stronger dollar on sales in European currencies. Margin (sales less cost of goods sold) of $1.10 billion increased $175 million from the fourth-quarter a year ago. Margin as a percent of sales was 25.8%, up from 22.9%, primarily because of better price realization. Also contributing to the higher margins were the higher volume, the favorable impact of a smaller reduction of inventory during the quarter as compared to a year ago and the effect of the stronger dollar as costs incurred in Japanese yen and European currencies translated into fewer U.S. dollars. Partially offsetting the impact on margin from these favorable items were higher incentive pay expense and an unfavorable product sales mix. Selling, general and administrative expenses were $497 million, compared with $392 million during the fourth-quarter 1995. The $105 million increase reflects increased spending levels in support of expanded operations and major growth initiatives, volume-related parts distribution expenses, the effect of inflation on costs and higher incentive pay expense. Research and development expenses of $111 million were up $9 million from the fourth-quarter a year ago. The increase primarily reflects continuing high levels of activity for new product introductions and higher incentive pay expense. Operating profit was $496 million, up $61 million from the fourth-quarter a year ago. Operating profit, as a percent of sales, was 11.6% compared with 10.7% a year ago. Interest expense was about the same as fourth-quarter a year ago. Other income/expense was income of $37 million compared with income of $20 million last year. The change reflects a favorable change in foreign exchange gains and losses and several small favorable items recorded during the quarter. Financial Products Before-tax profit for Financial Products was $35 million, a record for any fourth-quarter and an improvement of $15 million from last year's fourth- quarter. The higher profit was primarily the result of a larger portfolio of earning assets at Cat Financial. Fourth-quarter record revenues of $190 million were up $28 million compared with fourth-quarter 1995, primarily the result of Cat Financial's larger portfolio. Selling, general and administrative expenses were $84 million, an increase of $14 million compared with fourth-quarter a year ago, primarily due to Cat Financial's higher depreciation on leased equipment and other increases due to a larger portfolio. Interest expense was $9 million higher due to increased borrowings to support the larger Cat Financial portfolio, partially offset by lower borrowing rates. Other income/expense was income of $13 million, an increase of $10 million primarily due to higher investment income from Cat Insurance's investment portfolio. Income Taxes The provision for income taxes was $151 million, compared with $133 million for the fourth-quarter last year. The increase primarily was due to the higher before-tax profit partially offset by a lower effective tax rate. The effective tax rate was 29% compared with 31% for the fourth-quarter of 1995. Unconsolidated Affiliated Companies The company's share of unconsolidated affiliated companies' results was $12 million, up $7 million from a year ago. Higher profits from Shin Caterpillar Mitsubishi Ltd. were the primary reason for the increase. FOURTH-QUARTER 1996 COMPARED WITH THIRD-QUARTER 1996 Fourth-quarter profit of $381 million or $1.99 per share was $71 million higher than third-quarter profit of $310 million or $1.61 per share. A 12% increase in sales volume was the most significant factor contributing to the increased profit. Machinery and Engines Profit before tax for Machinery and Engines was $485 million, an $84 million increase from the previous quarter. Sales of $4.28 billion increased $426 million because of the 12% higher physical sales volume. The increase in physical sales volume was primarily the result of higher machine and engine sales both inside and outside the United States. Price realization was lower due to higher sales discounts. Margin was $160 million higher than the third quarter. As a percent of sales, the margin rate was 25.8% compared with 24.5% last quarter. The higher margin rate is attributed to the favorable impact of higher sales and a more favorable mix of product sold. Partially offsetting these favorable items were higher sales discounts and the unfavorable impact of a reduction of inventory during the quarter. Selling, general and administrative expenses were $497 million, up $74 million from third quarter. The increase was somewhat typical, as the fourth-quarter is generally a higher cost quarter for these types of expenses. However, the increase is primarily reflective of increased activity in support of expanded A-29 MANAGEMENT'S DISCUSSION AND ANALYSIS continued - -------------------------------------------------------------------------------- operations and major growth initiatives. Volume-related parts distribution expenses were also higher. Research and development expenses of $111 million were up $7 million from the third quarter. The increase primarily reflects continuing high levels of activity for new product introductions and higher incentive pay expense. Operating profit of $496 million increased $79 million. As a percent of sales, operating profit was 11.6%, up from 10.8% in the third quarter. Interest expense of $48 million was essentially the same as the third quarter. Other income/expense was income of $37 million, an increase of $5 million resulting from several small favorable items recorded during the quarter. Financial Products Financial Products' before-tax profit was $35 million, a decrease of $4 million from third quarter. Revenues were up $6 million, primarily the result of Cat Financial's larger portfolio. Selling, general and administrative expenses were up $15 million mostly due to a higher provision for credit losses at Cat Financial and other increases due to a larger portfolio. Other income/expense was income of $13 million, up $6 million from the third quarter primarily due to higher investment income from Cat Insurance's investment portfolio. Income Taxes Income tax expense of $151 million increased $13 million from the previous quarter. The increase primarily reflects the higher profit before tax partially offset by a reduction in the effective tax rate to 29%. Unconsolidated Affiliated Companies The company's share of unconsolidated affiliated companies' results was $12 million, up $4 million from the previous quarter. Higher profits from Shin Caterpillar Mitsubishi Ltd. were the primary reason for the increase. 1996 SALES Caterpillar worldwide sales were a record $15.81 billion in 1996, a $363 million or 2% increase over 1995. The primary reason for the increase was improved price realization. Sales increases were highest in the Asia/Pacific region and the United States. Gains also were registered in Africa/Middle East and Latin America while sales declined in Europe/Commonwealth of Independent States (CIS) and Canada.
Sales by Business Segment 1996 1995 1994 ---------------------- (Billions) Machinery..... $11.86 $11.33 $10.16 Engines....... 3.95 4.12 3.70 ------ ------ ------ $15.81 $15.45 $13.86 ====== ====== ====== - -------------------------------------
Worldwide sales for the Machinery segment increased 5% from 1995, setting another all-time record. Most of the improvement was due to higher price realization although sales volume also increased due to higher dealer sales to end-users. Engine segment sales declined 4% from 1995 levels after four consecutive years of record sales. The decline was due primarily to a drop in demand for on- highway truck engines that more than offset an increase in sales to power generation applications. Turbine sales also increased in power generation applications as well as oil and gas applications.
Caterpillar Sales Inside the United States 1996 1995 1994 -------------------- (Billions) Machinery........... $ 5.89 $ 5.49 $ 5.16 Engines............. 1.78 1.93 1.85 ------ ------ ------ $ 7.67 $ 7.42 $ 7.01 ====== ====== ====== - -------------------------------------------
Caterpillar sales inside the United States were $7.67 billion, a $254 million or 3% increase over 1995, as higher sales in the machinery segment more than offset a decline in the engine segment. Company machinery sales rose as dealers increased their new machine inventories in response to the improved economic outlook. This favorable inventory action combined with improved price realization more than offset the impact of slightly lower dealer machine sales to end-users. For the engine segment, higher turbine sales failed to offset the decline in diesel and gas engines. Engine price realization was somewhat lower than 1995. Sales inside the United States represented 49% of the worldwide total versus 48% in 1995. Dealer Machine Sales to End-Users Inside the United States The United States economy registered moderate growth in 1996 with Gross Domestic Product (GDP) increasing about 2.5%. This moderate growth combined with higher construction and mining activity was sufficient to keep industry demand for machines near last year's outstanding level. Machine sales to end-users, however, declined slightly due to a lower share of industry sales primarily in sand and quarry applications as well as in commercial, industrial and government building construction. Deliveries increased to dealers' dedicated rental fleets, which continue to constitute about one-quarter of all dollar deliveries. Sales of machines to end-users in the construction sector declined slightly: . Highway sales were lower as construction spending remained at 1995 levels. . Sales to the commercial, industrial and government building sector also were lower despite growth in private and public nonresidential building construction. . Housing-related sales were flat although housing starts were up 9%. Sales to end-users also declined in the commodity sector: . Coal mining sales were down although mine production was up. Coal prices were generally lower. . Sales to the sand and quarry sector of mining also were lower despite higher mine production. . Metal mining-related sales declined reflecting lower metals prices as well as lower mine production. A-30 Caterpillar Inc. - -------------------------------------------------------------------------------- . Sales to the agricultural sector rose reflecting the addition of new models and a healthy farm economy. . Forestry-related sales were lower. Lumber production was flat and prices were down. Both pulp production and prices were down with prices down significantly. Sales to end-users in industrial and landfill sectors were both higher. Engine Sales to End-Users Inside the United States Engine sales to end-users declined as lower diesel and gas engine sales more than offset an increase in turbine sales: . Sales of engines to truck and bus Original Equipment Manufacturers (OEMs) fell as demand for heavy duty trucks declined significantly. . Diesel and gas engine sales remained near 1995 levels for other applications as higher demand in marine and petroleum applications offset lower demand in power generation and industrial applications. . Higher turbine sales in oil and gas applications more than offset a decline of turbine sales in power generation applications. Caterpillar Sales Outside the United States
1996 1995 1994 --------------------- (Billions) Machinery.................................. $5.97 $5.84 $5.00 Engines.................................... 2.17 2.19 1.85 ----- ----- ----- $8.14 $8.03 $6.85 ===== ===== ===== - -------------------------------------------------------------------------
Caterpillar sales outside the United States were $8.14 billion, a 1% increase from 1995. These sales represented 51% of worldwide sales, down from 52% in 1995. Sales were mixed by region with gains in Asia/Pacific, Africa/Middle East and Latin America offsetting declines in Europe/CIS and Canada. Machinery segment sales surpassed 1995 levels as improved price realization more than offset a drop in sales volume. Dealer sales to end-users, however, increased. Engine segment sales were virtually unchanged as price realization and sales volume remained near 1995 levels. Diesel and gas engine sales declined although gains were registered in the Asian and Latin American areas. Dealer sales to end-users, however, increased with gains in power generation, industrial and petroleum applications more than offsetting a decline in sales to marine and on-highway truck OEM applications. Turbine sales increased in oil and gas applications as well as industrial power generation with the largest gains in Africa/Middle East and Asia/Pacific. Asia/Pacific Sales rose 12% with gains in most major countries. Sales were up in Australia as the economy continued to register moderate growth. Sales in Japan also increased reflecting economic recovery and higher spending in anticipation of a 1997 sales tax increase. In China, strong economic growth continued, but did not lead to higher sales due to tight government policies. Sales rose in the rest of the Asia/Pacific region. Continued strong economic growth and investment in infrastructure projects led to higher end-user demand for machines in most applications including forestry, housing and highway construction. Sales of both diesel and gas engines, as well as turbines increased. Europe/CIS Sales declined 12% due to a reduction in dealer new machine inventories and a drop in industry demand, both of which were caused by slower economic growth of Western Europe in 1996. Sales were lower in most countries, including the United Kingdom, Germany and France. Dealer sales to end-users, however, remained near 1995 levels due to a higher share of industry sales. Sales to Central Europe increased reflecting good economic growth throughout the region. In the CIS, sales declined reflecting the continued recession and high levels of political uncertainty, particularly in Russia. Latin America Sales rose 5% as higher engine sales offset a decline in machine sales. Sales posted sizable gains in Mexico and Argentina as both economies picked up after severe recessions in 1995. Recession led to lower sales in Venezuela, and slower growth caused sales to decline in Brazil. End-user demand for machines was lower for metals mining and highway construction, but higher for coal and nonmetal mining. Canada Sales declined 14% after three years of growth. The economy slowed considerably, especially early in the year, leading to a drop in industry demand. Sales to end-users declined in most applications, although gains were registered in metal mining and agriculture. Both diesel and gas engines, as well as turbine sales were lower. Africa/Middle East Sales rose 26% for the region as a whole. Large gains were registered in Africa which continued to benefit from profitable commodity prices, competitive devaluations and ongoing economic reform. Much of the improvement came from higher turbine sales, particularly in Nigeria, and from higher machine sales in South Africa. Dealer Inventories of Machines United States dealers' new machine inventories increased in 1996 in response to the improved economic and industry outlook, and at year-end were moderately above normal relative to current selling rates. Outside the United States, dealers' new machine inventories declined and at year-end were about normal relative to current selling rates. United States dealers' dedicated rental inventories were higher in December than a year earlier and continue to be about twice the unit size of new machine inventory. A-31 MANAGEMENT'S DISCUSSION AND ANALYSIS continued - -------------------------------------------------------------------------------- 1995 COMPARED WITH 1994 Profit for 1995 of $1.14 billion or $5.72 per share was an all-time record and an improvement of $181 million from 1994 profit of $955 million or $4.70 per share. 1995 sales and revenues of $16.07 billion, also an all-time record, increased 12% from last year and were the most significant reason for the higher profit. Machinery and Engines Sales of Machinery and Engines were $15.45 billion, $1.59 billion higher than 1994. Profit before tax was $1.49 billion, an improvement of $281 million. The primary reason for the increase in profit was higher sales -- a 9% increase in physical sales volume and 2% better price realization. The increase in physical sales volume was due to higher sales of machines and engines both inside and outside the United States. Price realization improved primarily because of price increases taken over the past year and the effect of the weaker dollar as sales in European currencies translated into more U.S. dollars. These factors were partially offset by higher sales discounts and an unfavorable change in geographic sales mix. The benefit to sales (and margin) of the weaker dollar was limited by currency hedges (forward contracts) covering most U.S. manufactured product sold in Europe. The hedges were put in place in 1991 to protect margins against potential strengthening of the U.S. dollar. Without these currency hedges, sales and margin during the year would have been about $135 million higher. All such forward contracts matured during 1995. Margin increased $422 million, primarily a result of higher sales volume and improved price realization. These favorable items were partially offset by the effect of the weaker dollar on costs, proportionately higher sales of lower margin products and higher costs due to inflation. In addition, there was a decrease in LIFO decrement benefits ($28 million in 1994 versus $22 million in 1995). Total margin as a percent of sales was 22.3%, a 0.5 percentage point increase from a year ago. SG&A (selling, general and administrative) expenses were up $135 million from the previous year because of higher spending levels to support increased sales volume and expanded operations around the world, higher costs due to inflation and the effect of the weaker dollar as costs in European currencies translated into more U.S. dollars. In addition, the absence of the assignment of labor costs from SG&A to cost of goods sold for employees working in manufacturing functions during 1994 contributed to the increase. Partially offsetting these factors were a decrease in incentive pay expense and a favorable adjustment to insurance reserves based on an actuarial valuation. R&D (research and development) expenses were $64 million higher than 1994, a result of a decrease in the assignment of labor costs from R&D to cost of goods sold as fewer employees were working in manufacturing areas in 1995 compared with 1994, expanded activity for new product introductions and higher costs due to inflation. Operating profit for 1995 was $1.59 billion, an increase of $223 million from last year. As a percent of sales, operating profit was 10.3%, compared with 9.9% for 1994. Interest expense of $191 million was $9 million lower than a year ago as the benefit of lower average debt of approximately $160 million was partially offset by higher interest rates. Other income/expense was income of $92 million compared with income of $43 million a year earlier. The improvement reflects the absence of a $17 million expense in 1994 for the settlement of two class action complaints and a $10 million recovery in 1995 from the company's insurer related to this settlement. In addition, interest on short-term investments contributed to the increase. Partially offsetting these factors was an unfavorable change in foreign exchange gains and losses. Financial Products Before-tax profit for Financial Products was $121 million, up $61 million from 1994. The increase was a result of Cat Financial's larger portfolio of earning assets and a $29 million favorable change in the mark-to-market adjustment for Cat Financial's written interest rate caps. These written caps were terminated during the second quarter of 1995. Revenues of $621 million increased $156 million from a year ago, the result of Cat Financial's larger portfolio. SG&A expenses were $240 million, compared with $191 million last year. The increase reflects a higher provision for credit losses and other volume-related expenses at Cat Financial. Interest expense was $293 million, up $83 million because of higher average borrowings to support the larger portfolio. Other income/expense was income of $33 million compared with expense of $4 million a year ago. The favorable change resulted from an $11 million mark-to-market gain for interest rate caps in 1995, compared with an $18 million mark-to-market loss in 1994. Income Taxes Income tax expense was $501 million, $147 million higher than a year ago. The increase reflects higher before-tax profit and a 31% effective tax rate compared with 28% in 1994. Unconsolidated Affiliated Companies The company's share of unconsolidated affiliated companies' profits was $22 million, down $14 million because of the unfavorable impact of the stronger yen on SCM (Shin Caterpillar Mitsubishi Ltd.) sales outside Japan and lower land sale gains at SCM in 1995. LIQUIDITY & CAPITAL RESOURCES - ----------------------------- Consolidated operating cash flow totaled $1.78 billion through the fourth-quarter of 1996, compared with $2.19 billion for the twelve months of 1995. Total debt at the end of 1996 was $7.46 billion, an increase of $1.06 billion from year-end 1995. Over this period, debt related to Machinery and Engines decreased $43 million, to $2.18 billion, while debt related to Financial Products increased $1.10 billion to $5.28 billion. During 1995, the company announced a plan to repurchase up to 10% of its outstanding common stock over the next three to five years. At December 31, 1996, 10.9 million shares had been purchased under the plan. A-32 Caterpillar Inc. - -------------------------------------------------------------------------------- Machinery and Engines Operating cash flow totaled $1.46 billion through the fourth-quarter of 1996, compared with $1.95 billion through the fourth-quarter of 1995. The cash flow decrease is primarily the result of increased receivables. Capital expenditures, excluding equipment leased to others and excluding $136 million associated with acquisitions, totaled $500 million through the fourth-quarter of 1996 compared with $460 million in 1995. During 1996, investments and acquisitions totaled $612 million compared with $21 million for the previous year. In addition, employee benefit plans were prefunded by $200 million in 1996. The percent of debt to debt plus stockholders equity improved to 35% at December 31, 1996, from 40% at December 31, 1995. Financial Products Operating cash flow totaled $331 million for 1996, compared with $244 million for 1995. Cash used to purchase equipment leased to others totaled $257 million for 1996. In addition, 1996 net cash used for finance receivables was $970 million, compared with $820 million for 1995. Financial Products' debt was $5.28 billion at December 31, 1996, an increase of $1.10 billion from December 31, 1995, and was primarily comprised of $2.54 billion of medium term notes, $257 million of notes payable to banks and $2.38 billion of commercial paper. At the end of 1996, finance receivables past due over 30 days were 2.1%, compared with 2.0% at the end of the same period one year ago. The ratio of debt to equity of Cat Financial was 7.8:1 at December 31, 1996, compared with 7.7:1 at December 31, 1995. Financial Products had outstanding credit lines totaling $3.77 billion at year-end 1996, which included $1.84 billion of the company's revolving credit agreement. These credit lines are with a number of banks and are considered support for the company's outstanding commercial paper, commercial paper guarantees, the discounting of bank and trade bills and bank borrowings. Dividends Quarterly dividends paid per share of common stock for the last three years were as follows:
Quarter 1996 1995 1994 - ------------------------------------------------------------------------------- First.......................................... $ .35 $ .25 $.07 Second......................................... .35 .25 .08 Third.......................................... .40 .35 .15 Fourth......................................... .40 .35 .15 ----- ----- ---- $1.50 $1.20 $.45 ===== ===== ==== - -------------------------------------------------------------------------------
EMPLOYMENT - ---------- At year-end, Caterpillar's worldwide employment was 57,026, compared with 54,352 one year ago. Hourly employment increased 1,046 to 33,040; salaried and management employment increased 1,628 to 23,986. The increased employment is primarily the result of acquisitions and also due to expanded operations and major growth initiatives, partially offset by attrition.
Year-End Employment 1996 1995 - ------------------------------------------------------------------------------- Inside United States....... 38,571 39,978 Outside United States Europe................... 11,953 8,413 Latin America............ 4,540 4,104 Asia/Pacific............. 1,746 1,630 Canada................... 127 121 Other.................... 89 106 ------ ------ 18,455 18,455 14,374 14,374 ------ ------ Total Employment........... 57,026 54,352 ====== ====== - -------------------------------------------------------------------------------
OTHER MATTERS - ------------- ENVIRONMENTAL MATTERS At this time, based on current regulations, the potential impact of environmental regulation compliance on the company's capital expenditures, earnings and competitive position is not expected to be material. The company is involved in a number of remediation actions to clean up hazardous wastes as required by federal and state laws. These laws often require responsible parties to fund remediation actions regardless of fault, legality of original disposal or ownership of a disposal site. Under accounting guidelines, the company is required to accrue and charge to income management's best estimate of future costs associated with these sites. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the lower end of that range. For 1996, the amount accrued for potential clean-up costs is contained in the line item, "Accounts payable and accrued expenses" in Statement 3, and represents an immaterial portion of that line item. While the company may have rights of contribution or reimbursement under insurance policies, amounts that may be recoverable from other entities are not considered in establishing the accrual. In deciding upon amounts to be reserved for potential environmental liability at a particular site, the company looks at several factors including: . prior experience regarding environmental remediation at a similar site; . experience of other companies at a similar site; . technology available for remediation at the time; . the stage of remediation for the particular site (i.e., whether the site is at the identification stage or whether a remedial investigation or feasibility study has been conducted); . documentation, if any, linking the company to a particular site; . the amount the company has been asked to contribute to a particular site; and . aspects of the law under which the company is alleged to be liable for clean up. The company also looks at these factors in deciding whether it could incur liabilities beyond those which it has accrued for future remediation. It is difficult to estimate potential liability at sites in very early stages of remediation (of which the company has seven currently). At this time, however, the company believes the likelihood of incurring any material environmental liability beyond that accrued is remote. A-33 MANAGEMENT'S DISCUSSION AND ANALYSIS continued - ------------------------------------------------------------------------------- LITIGATION The company is involved in litigation matters which are normal in the course of its operations. The results of these matters cannot be predicted with certainty; however, management believes, based on the advice of legal counsel, the final outcome will not have a materially adverse effect on the company's consolidated financial position. ACCOUNTING CHANGES In the first quarter of 1994, the company changed its method of computing LIFO (last-in, first-out) inventories from a single pool approach to a multiple pool approach for substantially all of its inventories. The company believes that the multiple pool method results in a better matching of revenues and expenses. The cumulative effect of the change on prior years was not determinable. This change did not have a material effect on 1994 results of operations or financial position. In June 1996, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This statement establishes new criteria for determining whether a transfer of financial assets should be accounted for as a sale or as a secured borrowing. The accounting treatment of such transactions focuses on who controls the transferred assets, and whether or not those assets have been isolated from the transferor and put beyond the reach of its creditors. This standard is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996, and will therefore be adopted in 1997. It will not have a material impact on the company's financial position or results of operations. DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments are principally used by the company in the management of foreign currency, interest rate and commodity price exposures. Foreign Currency Movements in foreign currency exchange rates create a degree of risk to the company's operations. These movements affect: . The U.S. dollar value of sales made in foreign currencies, and . The U.S. dollar value of costs incurred in foreign currencies. Changing currency exchange rates also affect the company's competitive position, as exchange rate changes may affect profitability and business and/or pricing strategies of non-U.S. based competitors. The company's policy is to use foreign currency related derivative instruments only as needed to operate the business and protect the company's interests. The company only enters into foreign currency related derivative instruments to neutralize risk -- not as speculative instruments. The company buys and sells currencies only in amounts large enough to cover business needs, and to protect its financial and competitive position. The company's general approach is to manage future foreign currency cash flow for Machinery and Engines operations and net foreign currency balance sheet exposures for Financial Products operations. In managing foreign currency for Machinery and Engines operations, the company's objective is to maximize consolidated aftertax U.S. dollar cash flow. To this end, the company's policy allows for actively managing: . cash flow related to firmly committed foreign currency transactions; . anticipated foreign currency cash flow for a future rolling twelve- month period; and . outstanding hedging transactions. The company uses forward exchange contracts and foreign currency option contracts (purchased option contracts and/or combination option contracts) to manage its foreign currency risk. When using forward exchange contracts, the company is protected from unfavorable exchange rate movements, but has given up any potential benefit from favorable changes in exchange rates. Purchased option contracts, on the other hand, protect from unfavorable rate movements while permitting the company to benefit from the effect of favorable exchange rate fluctuations. The company does not use historic rate rollovers or leveraged options, nor does it sell foreign currency options, except in the case of combination option contracts that limit the unfavorable effect of exchange rate movements, while allowing a limited potential benefit from favorable exchange rate movements. None of the forward exchange or foreign currency option contracts used by the company are exchange traded. Each month, the company's financial officers approve the company's outlook for expected currency exchange rate movements, as well as its policy on desired future foreign currency cash flow positions (long, short, balanced) for those currencies in which the company has significant activity. Financial officers receive a daily report on currency exchange rates, cash flow exposure and open foreign currency hedges. Expected future cash flow positions and strategies are continuously monitored. The company's foreign exchange management practices, including the use of derivative financial instruments, are presented to the Audit Committee of the company's board of directors at least annually. The following table summarizes the anticipated cash inflows and outflows for the next 12 months, including those cash flows from firmly committed foreign currency transactions for Machinery and Engines operations. The table also shows the contractual amounts of related outstanding forward exchange and foreign currency option contracts, excluding European cross-currency hedge contracts totaling $122 million, as of December 31, 1996:
(Millions of dollars) Exposures Hedges --------------------- ------------------- Buy Sell Foreign Foreign Inflows Outflows Currency Currency ------- -------- -------- -------- European Currencies............. $2,394 $3,039 $125 $ -- Japanese Yen.................... 268 633 58 -- Australian Dollar............... 582 256 -- 124 Brazilian Real.................. 306 331 -- -- Canadian Dollar................. 133 143 1 -- All Other Currencies............ 13 173 -- --
In managing foreign currency for Financial Products operations, the company's objective is to minimize earnings volatility resulting from the translation of net foreign currency balance sheet positions. As of December 31, 1996, the Financial Products operations had $630 million in forward exchange contracts to sell European A-34 Caterpillar Inc. - -------------------------------------------------------------------------------- currencies hedging their net European currency denominated asset position. Except for changes related to business volume, the company's annual foreign currency cash flow for Machinery and Engines operations and net balance sheet exposures for Financial Products operations for periods beyond the next twelve months are not expected to be materially different from those indicated above. Interest Rate To manage its exposure to interest rate changes and lower the cost of borrowed funds, the company uses various interest rate derivative instruments, including interest rate swap agreements, interest rate cap (option) agreements and forward rate agreements. At the time these agreements are executed, they are linked to a specific debt instrument. The company enters into such agreements only with financial institutions, which in the opinion of management, will not expose the company to undue credit loss exposure. The company's Financial Products subsidiaries, in connection with their match funding objective, use interest rate derivative instruments to modify debt structures to match fund receivable portfolios. This match funding reduces the risk of deteriorating margins between interest-bearing assets and interest-bearing liabilities, regardless of which direction interest rates move. The company, including Financial Products subsidiaries, also uses these instruments to gain an economic and/or competitive advantage through a lower cost of borrowed funds. This is accomplished by changing the characteristics of existing debt instruments or entering into new agreements in combination with the issuance of new debt. Commodity Prices The company's operations are also subject to commodity price risk, as material prices change with movements in underlying commodity prices. The company has used some commodity swap and option agreements to reduce this risk. However, the use of these types of derivative financial instruments has not been material. 1997 ECONOMIC AND INDUSTRY OUTLOOK - ---------------------------------- World economic growth, excluding the CIS, should be similar to that experienced in 1996. Faster growth in Canada, Europe and Latin America should offset somewhat slower growth in the United States, Japan, Australia and Africa/Middle East. Strong growth should continue in Asia. Including the CIS, where economic recovery is expected, world growth should exceed last year's level. In this economic environment, worldwide industry demand for machines is expected to remain near 1996 levels as slightly lower demand in the United States and Japan is offset by stronger demand in Latin America, Asia and Canada. Worldwide industry demand for engines is also forecast to remain essentially unchanged as lower demand for truck engines is offset by higher demand for commercial engines. Demand for turbines is expected to meet or exceed 1996 levels. U.S. Gross Domestic Product (GDP) is forecast to slow slightly from growth of about 2.5% in 1996 to 2% in 1997 due to lower housing starts and slower growth in consumer and business spending. Mining and nonresidential construction activity should continue to grow. Inflation is forecast to remain near 1996 levels and interest rates are not expected to rise. The slowdown in overall economic growth combined with a decline in housing starts should result in a slight decline in industry demand for machines. Heavy duty on-highway truck demand is forecast to decline further in 1997, but commercial engine demand should continue to rise. In Canada, better economic growth, low interest rates and higher levels of mining and construction activity should lead to higher industry demand for machines. Heavy duty truck engine demand will continue to decline. In Western Europe, GDP growth is forecast to improve somewhat from about 2% in 1996 to about 2.5% in 1997. Short-term interest rates are at record low levels, and there is considerable pent-up demand. Normally, this would lead to a forecast of higher industry demand. Instead, demand is expected to remain near 1996 levels due to delays of infrastructure projects as countries impose fiscal constraints to meet the entry criteria for the European Monetary Union. In Central Europe, good economic growth should continue resulting in better industry demand. Excellent economic growth is forecast to continue throughout developing Asia, leading to higher industry demand. In Japan, the economy is expected to slow as a result of a planned April 1 sales tax increase and the anticipated expiration of fiscal stimulus spending. This slower growth and tighter fiscal policy make any improvement in the industry unlikely. In Australia, growth is forecast to slow somewhat but remain strong enough to keep industry demand near 1996 levels. In Latin America, faster economic growth along with an improvement in construction activity should lead to increased machine demand. In other regions, slower but still moderate growth in Africa/Middle East will likely keep demand near 1996 levels, while recovery in the CIS should contribute to higher sales. 1997 COMPANY OUTLOOK - -------------------- Worldwide company sales and revenues from ongoing operations are expected to slightly surpass 1996 levels as higher industry demand in the developing regions should offset slightly lower industry demand in the United States and Japan. With worldwide industry demand near 1996 levels, the sales improvement is expected from a forecasted increase in share of industry sales and limited price increases. Sales will also be higher due to the acquisition of MaK Motoren GmbH which occurred at the end of 1996. In 1997, company investments to enhance long-term growth will continue to accelerate. Major initiatives include electric power generation, agricultural products, mining systems, compact machines and further strengthening of our product support network to better link customer, dealer and company operations. Additionally, the company will continue investing in manufacturing operations and product support infrastructure in China and the CIS. Total capital expenditures, which were $642 million for 1996 including $136 million associated with acquisitions, are expected to increase 10 to 15% for 1997. (The 10 to 15% estimate for 1997 excludes any capital expenditures associated with potential acquisitions.) R&D expenditures, which totaled $410 million in 1996, are expected to increase about 20% to support product line expansion in 1997. Investments such as these are needed to fuel the company's projected growth over A-35 MANAGEMENT'S DISCUSSION AND ANALYSIS continued - -------------------------------------------------------------------------------- the next few years. Cash flow from operations will be strong and the company's balance sheet will remain solid. Despite the increased level of investment for growth initiatives, profit for 1997 should approximate the 1996 level. Profit per share will continue to benefit from the buy-back program announced in June 1995. The company now anticipates the 10% share repurchase will be largely complete by year-end 1997. The information included in the Outlook section is forward looking and involves risks and uncertainties that could significantly impact expected results. A discussion of these risks and uncertainties is contained in Form 8-K filed with the Securities & Exchange Commission on January 21, 1997. MANAGEMENT'S DISCUSSION AND ANALYSIS [] A-36 SUPPLEMENTAL STOCKHOLDER INFORMATION Annual Meeting On Wednesday, April 9, 1997, at 10:30 a.m., PST, the annual meeting of stockholders will be held at the Loews Coronado, Coronado, California. Requests for proxies are being sent to stockholders with this report mailed on or about February 28, 1997. 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 30,573, compared with 31,585 at the end of 1995. Approximately 4.5% of the outstanding shares are held by 29,274 individuals. The remaining shares are held by trustees, banks and other institutions for additional thousands of owners. Employees' investment and profit-sharing plans acquired 1,378,928 shares of Caterpillar stock in 1996. Investment plans, for which membership is voluntary, held 12,474,796 shares for employee accounts at 1996 year-end. Profit-sharing plans, in which membership is automatic for most U.S. and Canadian employees in eligible categories, held 254,228 shares at 1996 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:
1996 1995 ------------------- ------------------ Quarter High Low High Low - ------- ---- --- ---- --- First..................... 73-7/8 54 58-7/8 48-1/4 Second.................... 71-7/8 62 65-1/4 55 Third..................... 75-7/8 62-3/4 75-1/4 56-1/8 Fourth.................... 81 68-1/4 63-1/8 50-3/4
Automatic Dividend Reinvestment Plan An Automatic Dividend Reinvestment Plan -- administered by First Chicago Trust Company of New York -- is available to stockholders. The plan provides a convenient, low-cost method for stockholders to increase their ownership in Caterpillar common stock. In addition, stockholders who elect to participate can make optional cash payments to purchase more Caterpillar shares. Participation may begin with any regularly scheduled dividend payment if an authorization form is completed and returned to the administrator prior to the dividend record date. Stockholders wishing further information may contact First Chicago Trust Company of New York, P.O. Box 13531, Newark, New Jersey 07188-0001. On the Internet: http://www.fctc.com. E-mail: em@fcnbd.com. Hearing impaired: (201) 222-4955. Publications for Stockholders Single copies of the company's 1996 annual report on Securities and Exchange Commission Form 10-K (without exhibits) will be provided without charge to stockholders after March 31, 1997, upon written request to: Secretary Caterpillar Inc. 100 N.E. Adams Street Peoria, IL 61629-7310 The company also makes available to stockholders copies of its Form 10-Q reports. 10-Q reports are available in May, August and November. Investor Inquiries For those seeking additional information about the corporation -- Institutional analysts, portfolio managers and representatives of financial institutions should contact: James F. Masterson Director of Investor Relations Caterpillar Inc. 100 N.E. Adams Street Peoria, IL 61629-5310 Telephone: (309) 675-4549 Facsimile: (309) 675-4457 E-mail: CATir@CAT.e-mail.com Individual stockholders should contact: Laurie J. Huxtable Assistant Secretary Caterpillar Inc. 100 N.E. Adams Street Peoria, IL 61629-7310 Telephone: (309) 675-4619 Internet Access http://www.CAT.com A-37 DIRECTORS AND OFFICERS DIRECTORS Lilyan H. Affinito/2,4/ Former Vice Chairman, Maxxam Group Inc. W. Frank Blount/1,3/ Chief Executive Officer, Telstra Corporation Limited John T. Dillon/2,4,6/ Chairman and Chief Executive Officer, International Paper Donald V. Fites/3,4/ Chairman and Chief Executive Officer, Caterpillar Inc. John W. Fondahl/2,4,5/ Civil Engineer David R. Goode/1,2/ Chairman, President & Chief Executive Officer, Norfolk Southern Corporation James P. Gorter/1,2/ Chairman, Baker, Fentress & Company Peter A. Magowan/2,4/ Chairman, Safeway Inc.; President & Managing General Partner, San Francisco Giants Gordon R. Parker/1,3/ Former Chairman, Newmont Mining Corporation and Newmont Gold Company George A. Schaefer/1,3/ Former Chairman and Chief Executive Officer, Caterpillar Inc. Joshua I. Smith/3,4/ Chairman & Chief Executive Officer, The MAXIMA Corporation Clayton K. Yeutter/2,4/ Of Counsel to Hogan & Hartson, Washington, D.C. /1/Member of Audit Committee (David R. Goode, chairman) /2/Member of Compensation Committee (James P. Gorter, chairman) /3/Member of Nominating Committee (Joshua I. Smith, chairman) /4/Member of Public Policy Committee (Clayton K. Yeutter, chairman) /5/Retiring from the board of directors effective April 9, 1997 /6/Effective February 12, 1997 OFFICERS Donald V. Fites Chairman Glen A. Barton Group President Gerald S. Flaherty Group President James W. Owens Group President Richard L. Thompson Group President R. Rennie Atterbury III Vice President, General Counsel and Secretary James W. Baldwin Vice President Vito H. Baumgartner Vice President James S. Beard Vice President Richard A. Benson Vice President Ronald P. Bonati Vice President James E. Despain Vice President Roger E. Fischbach Vice President Michael A. Flexsenhar Vice President Donald M. Ings Vice President Duane H. Livingston Vice President Daniel M. Murphy Vice President Douglas R. Oberhelman Vice President Gerald Palmer Vice President Robert C. Petterson Vice President John E. Pfeffer Vice President Siegfried R. Ramseyer Vice President Alan J. Rassi Vice President Gerald L. Shaheen Vice President Gary A. Stroup Vice President Sherril K. West Vice President Donald G. Western Vice President Wayne M. Zimmerman Vice President Robert R. Gallagher Controller F. Lynn McPheeters Treasurer Robin D. Beran Assistant Treasurer Mary J. Callahan Assistant Secretary Laurie J. Huxtable Assistant Secretary __________ Note: All director/officer information is as of December 31, 1996, except as noted above. A-38 EX-21 9 SUBSIDIARIES AND AFFILIATES OF CATERPILLAR INC. Exhibit 21
SUBSIDIARIES AND AFFILIATES OF CATERPILLAR INC. Jurisdiction in Name of Company which Organized - --------------- --------------- Advanced Filtration Systems Inc. Delaware Amur Machinery & Services Russia Anchor Coupling Inc. Delaware AO Caterpillar Commercial Russia AO Nevamash Russia AO NOVOTRUCK Russia Aquila Mining Systems Ltd. Canada Balderson Inc. Kansas Carter Machinery Company, Incorporated Delaware Caterpillar Agricultural Products Inc. Delaware Caterpillar Americas Co. Delaware Caterpillar Americas Funding Inc. Delaware NOIL Participacoes e Comercio S.A. Brazil Lion S.A. Brazil Caterpillar Asia Pacific Holding Inc. Delaware Caterpillar (China) Investment Co., Ltd. China Caterpillar Xuzhou Ltd. China Caterpillar (HK) Limited Hong Kong Caterpillar Shanghai Engine Company Ltd. China V-Trac Holdings Limited Cook Islands V-Trac Infrastructure Development Company Vietnam Caterpillar Asia Pte. Ltd. Singapore Caterpillar of Australia Ltd. Australia Energy Power Systems Australia Pty. Limited Australia Energy Power Systems PNG Pty. Limited New Guinea EPSA Superannuation Nominees Pty. Ltd. Australia Mine Power Australia Pty. Ltd. Australia Caterpillar Brasil Ltda. Brazil Caterpillar Administracao e Participacoes S/C Ltda. Brazil Caterpillar Building Construction Products AG Switzerland Caterpillar of Canada Ltd. Canada Caterpillar Commercial N.V. Belgium Caterpillar Group Services N.V. Belgium Hindustan Powerplus Limited India Caterpillar Commercial Services Ltd. Canada Caterpillar of Delaware, Inc. Delaware Caterpillar Industrial Products, Inc. Delaware Nexus International Inc. Delaware Caterpillar Elphinstone Pty. Ltd. Australia Elphinstone Commercial Services Ltd. Canada Caterpillar Export Limited US Virgin Islands
Caterpillar Financial Services Corporation Delaware Bio-energy Partners Illinois Caterpillar Credit Services Asia Pte. Ltd. Singapore Caterpillar Finance France S.A. France Caterpillar Financial Asset Sales Corporation Nevada Caterpillar Financial Asset Sales L.L.C. Tennessee Caterpillar Financial Australia Limited Australia Caterpillar Financial Corporacion Financiera S.A., E.F. Spain Caterpillar Financial Funding Corporation Nevada Caterpillar Financial Leasing, S.A., S.A.F. Spain Caterpillar Financial Member Company Delaware Caterpillar Financial Nordic Services A.B. Sweden Caterpillar Financial Services Norway AS Norway Caterpillar Financial Receivables Inc. Delaware Caterpillar Financial Renting S.A. Spain Caterpillar Financial Services Holding GmbH Germany Caterpillar Leasing GmbH (Ismaning) Germany Caterpillar Leasing GmbH (Leipzig) Germany Caterpillar Vibra-Ram Verwaltungs GmbH Germany Caterpillar Vibra-Ram GmbH & Co. KG (VIVRA) Germany EDC European Excavator Design Center GmbH & Co. KG Germany EDC European Excavator Design Center Verwaltungs GmbH Germany MaK Motoren GmbH Germany Germanischer Lloyd AG Germany Guangzhou MaK Diesel Engine Ltd. China Machinefabriek Bolier B.V. Netherlands MaK Netherlands B.V. Netherlands Financieringsmaatschappij Boiler B.V. Netherlands Diesel Sales & Services Merwedehaven B.V. Netherlands Laminex V.o.f. Netherlands MaK Americas Inc. Canada MaK Scandinavia A/S Denmark MaK Wohnungsbaugesellschaft mbH Germany Caterpillar Financial Services Limited Canada Caterpillar Financial Services (U.K.) Limited England Caterpillar International Finance plc Ireland Grupo Financiero Caterpillar Mexico, S.A. de C.V. Mexico Caterpillar Arrendadora Financiera, S.A. de C.V. Mexico Caterpillar Credito, S.A. de C.V. Soc. Fin. de Obj. Lim. Mexico Caterpillar Factoraje Financiero, S.A. de C.V. Mexico Caterpillar Leasing Chile S. A. Chile GFCM Servicios, S.A. de C.V. Mexico MICA Energy Systems Michigan Caterpillar Financial Services N.V. Netherlands Antilles Caterpillar Holding (France) S.A.R.L. France MaK Mediterranee S.A.S. France Caterpillar Hungary Component Manufacturing Company Ltd. Hungary Caterpillar Industrial Inc. Ohio Mitsubishi Caterpillar Forklift America Inc. Delaware Material Handling Associates, Inc. Delaware Rapidparts Delaware Mitsubishi Caterpillar Forklift Asia Pte. Ltd. Singapore Mistubishi Caterpillar Forklift Europe B.V. Netherlands Caterpillar Insurance Co. Ltd. Bermuda Caterpillar Insurance Services Corporation Tennessee Caterpillar International Leasing L.L.C. Delaware
Caterpillar Investment Management Ltd. Delaware Caterpillar Securities Inc. Delaware Caterpillar Logistics Services, Inc. Delaware Caterpillar Logistics Services Belgium N.V. Belgium Caterpillar Logistics Services Spain, S.A. Spain Caterpillar Mexico S.A. de C.V. Mexico Inmobiliaria Conek, S.A. Mexico Caterpillar Overseas Credit Corporation S.A. Switzerland Caterpillar Overseas S.A. Switzerland Caterpillar (Africa) (Proprietary) Limited South Africa Caterpillar Asia Limited Hong Kong Caterpillar Belgium S. A. Belgium Caterpillar China Limited Hong Kong Caterpillar Commercial S.A.R.L. France Caterpillar Commerciale S.r.L. Italy Caterpillar France S.A. France Caterpillar Logistics Services Limited England and Whales Caterpillar MHI Marketing Ltd. Japan Mec-Track S.r.L. Italy P.T. Natra Raya Indonesia Shin Caterpillar Mitsubishi Ltd. Japan Akashi GS Co., Ltd. Japan Chubu Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan CM Custom Products Co., Ltd. Japan CM Human Services Co., Ltd. Japan CM Logistics Services Co., Ltd. Japan CMEC Co., Ltd. Japan D.O.M. Ltd. Japan Earthmoving Resources Corporation Japan East Chugoku Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan Top Try Co., Ltd. Japan East Kanto Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan Clean World Co. Japan Tone Lease Co. Japan G. M. Kenki Lease Co. Japan Hama-rental Co. Japan Hokkaido Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan Ryosey Kenpan Co., Ltd. Japan Shin Hokken Ltd. Japan Hokken Service Co. Japan Hokuetsu Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan Akira Shoji Co., Ltd. Japan F. M. K. Co., Ltd. Japan Hokuriku Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan Dia Rental Hokuriku Co., Ltd. Japan Itoh Tekkosho Co., Ltd. Japan Kanagawa Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan Kansai Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan Space Attack Co., Ltd. Japan Kinki Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan Rental Sanwa Co., Ltd. Japan K-Lea Co., Ltd. Japan Koshin Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan Nagano Kouki Co., Ltd. Japan Sanko Rental Co. Japan Kyoei Co. Japan
Nihon Kenki Lease Co., Ltd. Japan North Kanto Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan Takuma Co. Japan Rentec Co. Japan Sagakiko-shokai Co., Ltd. Japan Sagami GS Co., Ltd. Japan SCM Operator Training Co., Ltd. Japan SCM Shoji Co., Ltd. Japan SCM System Service Co., Ltd. Japan Shizuoka Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan Seiryo Co., Ltd. Japan Sowa System Co. Japan Tokuden Co. Japan Tokyo Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan Aiwa Co., Ltd. Japan Tokyo Rental Co. Japan Tunnel Rental Co., Ltd. Japan West Chugoku Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan Yeep Co. Japan Rex World Co., Ltd. Japan Solar Turbines Canada Ltd. Canada Solar Turbines Europe S.A. Belgium Tractor Engineers Limited India Caterpillar Paving Products Inc. Oklahoma Caterpillar Materiels Routiers S.A. France Caterpillar Poland Ltd. Poland Caterpillar Power Systems Inc. Delaware Caterpillar Power Ventures Corporation Delaware Caterpillar Redistribution Services Inc. Delaware Duecosa Limited Channel Islands Caterpillar Rental Services Network Inc. Delaware Caterpillar Risk Management Services Ltd. Delaware Caterpillar Services Limited Delaware Caterpillar (U.K.) Limited England All Wheel Drive (Sales) Limited England and Whales All Wheel Drive (Manufacturing) Limited England and Whales Caterpillar EPG Limited England and Whales Caterpillar Skinningrove Limited England and Whales Brown Group Holdings Limited England and Whales Archer Components Limited England Artix Aviation Limited England Automotive Development Centre Limited England Caterpillar Peterlee Limited England Caterpillar Stockton Limited England and Whales D. J. Industries Limited England MaK (London) Ltd. England Turner Powertrain Systems Limited England Caterpillar World Trading Corporation Delaware Cyclean, Inc. Delaware Depositary (Bermuda) Limited Bermuda
F.G. Wilson, L.L.C. Delaware F.G. Wilson (Engineering) Ltd. Northern Ireland Everton Engineering (N.I.) Limited Northern Ireland F.G. Wilson Australia Pty. Ltd. Australia F.G. Wilson Engineering (Dublin) Limited Ireland F.G. Wilson (Engineering) HK Limited Hong Kong F.G. Wilson Engineering Vertriebs-GmbH Germany F.G. Wilson Incorporated Delaware F.G. Wilson (Proprietary) Limited South Africa F.G. Wilson S.A. France F.G. Wilson Singapore Pte. Ltd. Singapore Genrent Limited Northern Ireland Hydropro S.r.L. Italy Leo, Inc. Washington Vanguard Hydraulic Pipelayer, Inc. Washington Lexington Real Estate Holding Corporation Delaware MaK Americas Inc. Illinois Peoria Medical Research Corporation Illinois Rapisarda Industries S.r.L. Italy RR-1 Limited Partnership Illinois Solar Turbines Incorporated Delaware OTSG, Inc. Delaware Solar Turbines International Company Delaware Energy Services International Group, Ltd. Delaware Energy Services International Limited Bermuda P. T. Solar Services Indonesia Indonesia Servtech Limited Ireland Turboservices SDN BHD Malaysia Solar Turbines Services Company California Turbinas Solar S.A. de C.V. Mexico Turbinas Solar de Venezuela, C.A. Venezuela Turbo Tecnologia de Reparaciones S.A. de C.V. Mexico STI Capital Company Delaware Tecnologia Modificada S.A. de C.V. Mexico UNOC Equipment and Supply, L.L.C. Delaware AO UNOC Equipment and Supply Russia
- ----------------------- For further information see Notes to Consolidated Financial Statements incorporated by reference from the 1997 Annual Meeting Proxy Statement. EX-23 10 CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Forms S-8 (No. 2-90123, as amended, 2-97450, as amended, 33-3718, as amended, 33-8003, 33-14116, 33-37353, 33-39280, 33-40598 and 333-03609) of Caterpillar Inc. of our report dated January 21, 1997 related to the financial statements of Caterpillar Inc., appearing on page A-3 of the Appendix to the Company's 1997 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 Forms S-3 (No. 33-46194 and No. 333-22041) of Caterpillar Inc. of our report dated January 21, 1997 related to the financial statements of Caterpillar Inc., appearing on page A-3 of the Appendix to the Company's 1997 Annual Meeting Proxy Statement which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. PRICE WATERHOUSE LLP Peoria, Illinois March 10, 1997 EX-27 11 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 128 359 2,956 0 2,222 8,783 8,817 5,050 18,728 7,013 4,532 190 0 0 3,926 18,728 15,814 708 11,832 14,551 (164) 0 194 1,941 613 1,361 0 0 0 1,361 7.07 6.99 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) 12 FORM 11-K Exhibit 99(a) ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 11-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required] For the Fiscal Year Ended November 30, 1996 OR [_] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from _____ to _____ Commission File Number 1-768 CATERPILLAR FOREIGN SERVICE EMPLOYEES' STOCK PURCHASE PLAN (Full title of the Plan) CATERPILLAR INC. (Name of issuer of the securities held pursuant to the Plan) 100 NE ADAMS STREET, PEORIA, ILLINOIS 61629 (Address of principal executive offices) ================================================================================ REQUIRED INFORMATION Item 1. Financial Statements for this Plan are not enclosed since the requirements to file such financial statements were deemed inapplicable in accordance with the letter from the Securities and Exchange Commission dated January 26, 1973. Item 2. (See response to Item 1). Item 3. (See response to Item 1). Item 4. Not Applicable -----END PRIVACY-ENHANCED MESSAGE-----