FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________
Commission File No. 1-768
CATERPILLAR INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
37-0602744
(I.R.S. Employer Identification No.)
100 NE Adams Street, Peoria, Illinois
(Address of principal executive offices)
61629
(Zip Code)
(309) 675-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No _____.
At June 30, 1995, 198,958,123 shares of common stock of the Registrant were
outstanding.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CATERPILLAR INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES
Statement of Consolidated Results of Operations
(Unaudited)
(Millions of dollars except per share data)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
MACHINERY AND ENGINES:
Sales ................................ $4,059 $ 3,492 $ 7,832 $ 6,673
------ ------ ------ ------
Operating costs:
Cost of goods sold ................. 3,110 2,730 6,000 5,213
Selling, general and
administrative expenses .......... 378 329 739 642
Research and development expenses .. 98 84 184 160
------ ------ ------ ------
3,586 3,143 6,923 6,015
------ ------ ------ ------
Operating profit ..................... 473 349 909 658
Interest expense ..................... 48 50 96 101
------ ------ ------ ------
425 299 813 557
Other income ......................... 20 21 32 13
------ ------ ------ ------
Profit before taxes .................. 445 320 845 570
------ ------ ------ ------
FINANCIAL PRODUCTS:
Revenues ............................. 154 113 294 218
------ ------ ------ ------
Operating costs:
Selling, general and
administrative expenses .......... 59 47 113 90
Interest expense ................... 72 51 138 97
------ ------ ------ ------
131 98 251 187
------ ------ ------ ------
Operating profit ..................... 23 15 43 31
Other income (expense) ............... 7 (1) 19 (6)
------ ------ ------ ------
Profit before taxes .................. 30 14 62 25
------ ------ ------ ------
CONSOLIDATED PROFIT BEFORE TAXES ....... 475 334 907 595
Provision for income taxes ........... 156 100 299 179
------ ------ ------ ------
Profit of consolidated companies ..... 319 234 608 416
Equity in profit (loss) of
affiliated companies (Note 7) ...... 4 6 15 16
------ ------ ------ ------
PROFIT ................................. $ 323 $ 240 $ 623 $ 432
====== ====== ====== ======
PROFIT PER SHARE OF COMMON STOCK (NOTE 9):
Profit ............................... $ 1.62 $ 1.18 $ 3.11 $ 2.12
====== ====== ====== ======
Cash dividends paid per share of
common stock ......................... $ .25 $ .08 $ .50 $ .15
See accompanying notes to Consolidated Financial Statements.
CATERPILLAR INC.
Statement of Financial Position *
(Dollars in millions)
CONSOLIDATED
(Caterpillar Inc.
and subsidiaries)
June 30, Dec. 31,
1995 1994
ASSETS
Current assets:
Cash and short-term investments ................. $ 696 $ 419
Receivables -- trade and other .................. 2,889 2,971
Receivables -- finance .......................... 1,748 1,319
Deferred income taxes and prepaid expenses ...... 922 865
Inventories (Note 8) ............................ 2,211 1,835
------- -------
Total current assets .............................. 8,466 7,409
Land, buildings, machinery, and equipment -- net .. 3,640 3,776
Long-term receivables -- trade and other .......... 118 125
Long-term receivables -- finance .................. 3,289 2,669
Investments in affiliated companies (Note 7) ...... 531 455
Investments in Financial Products subsidiaries .... - -
Deferred income taxes ............................. 1,229 1,243
Intangible assets ................................. 236 237
Other assets ...................................... 369 336
------- -------
TOTAL ASSETS ........................................ $17,878 $16,250
======= =======
LIABILITIES
Current liabilities:
Short-term borrowings ........................... $ 1,025 $ 740
Accounts payable and accrued expenses ........... 2,828 2,624
Accrued wages, salaries, and employee benefits .. 931 1,047
Dividends payable ............................... 69 50
Deferred and current income taxes payable ....... 231 144
Long-term debt due within one year .............. 836 893
------- -------
Total current liabilities ......................... 5,920 5,498
Long-term debt due after one year ................. 5,042 4,270
Liability for postemployment benefits ............. 3,517 3,548
Deferred income taxes ............................. 21 23
------- -------
TOTAL LIABILITIES ................................... 14,500 13,339
------- -------
STOCKHOLDERS' EQUITY
Common stock of $1.00 par value:
Authorized shares: 450,000,000
Issued shares (June 30, 1995 -- 203,723,656;
Dec. 31, 1994 -- 203,723,656) at paid in amount . 911 923
Profit employed in the business ................... 2,465 1,961
Foreign currency translation adjustment ........... 272 205
Treasury stock (June 30, 1995 -- 4,765,533
shares; Dec. 31, 1994 -- 3,281,569 shares)
at cost.......................................... (270) (178)
------- -------
TOTAL STOCKHOLDERS' EQUITY .......................... 3,378 2,911
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $17,878 $16,250
======= =======
See accompanying notes to Consolidated Financial Statements.
* Unaudited except for Consolidated December 31, 1994 amounts.
CATERPILLAR INC.
Statement of Financial Position *
(Dollars in millions)
SUPPLEMENTAL CONSOLIDATING DATA
MACHINERY AND ENGINES
(Caterpillar Inc. with Financial
Products on the equity basis)
June 30, Dec. 31,
1995 1994
ASSETS
Current assets:
Cash and short-term investments ................. $ 649 $ 395
Receivables -- trade and other .................. 2,795 2,919
Receivables -- finance .......................... - -
Deferred income taxes and prepaid expenses ...... 905 888
Inventories (Note 8)............................. 2,211 1,835
------- -------
Total current assets .............................. 6,560 6,037
Land, buildings, machinery, and equipment -- net .. 3,199 3,343
Long-term receivables -- trade and other .......... 118 125
Long-term receivables -- finance .................. - -
Investments in affiliated companies (Note 7) ...... 531 455
Investments in Financial Products subsidiaries .... 621 548
Deferred income taxes ............................. 1,245 1,254
Intangible assets ................................. 236 237
Other assets ...................................... 133 143
------- -------
TOTAL ASSETS ........................................ $12,643 $12,142
======= =======
LIABILITIES
Current liabilities:
Short-term borrowings ........................... $ 15 $ 17
Accounts payable and accrued expenses ........... 2,536 2,416
Accrued wages, salaries, and employee benefits .. 929 1,045
Dividends payable ............................... 69 50
Deferred and current income taxes payable ....... 173 112
Long-term debt due within one year .............. 70 86
------- -------
Total current liabilities ......................... 3,792 3,726
Long-term debt due after one year ................. 1,935 1,934
Liability for postemployment benefits ............. 3,517 3,548
Deferred income taxes ............................. 21 23
------- -------
TOTAL LIABILITIES ................................... 9,265 9,231
------- -------
STOCKHOLDERS' EQUITY
Common stock of $1.00 par value:
Authorized shares: 450,000,000
Issued shares (June 30, 1995 -- 203,723,656;
Dec. 31, 1994 -- 203,723,656) at paid in amount . 911 923
Profit employed in the business ................... 2,465 1,961
Foreign currency translation adjustment ........... 272 205
Treasury stock (June 30, 1995 -- 4,765,533
shares; Dec. 31, 1994 -- 3,281,569 shares)
at cost.......................................... (270) (178)
------- -------
TOTAL STOCKHOLDERS' EQUITY .......................... 3,378 2,911
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $12,643 $12,142
======= =======
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide required supplemental disclosure
of information about the Financial Products subsidiaries.
See accompanying notes to Consolidated Financial Statements.
* Unaudited except for Consolidated December 31, 1994 amounts.
CATERPILLAR INC.
Statement of Financial Position *
(Dollars in millions)
SUPPLEMENTAL CONSOLIDATING DATA
FINANCIAL PRODUCTS
June 30, Dec. 31,
1995 1994
ASSETS
Current assets:
Cash and short-term investments ................. $ 47 $ 24
Receivables -- trade and other .................. 100 96
Receivables -- finance .......................... 1,748 1,319
Refundable income taxes ......................... - -
Deferred income taxes and prepaid expenses ...... 20 3
Inventories (Note 8) ............................ - -
------- -------
Total current assets .............................. 1,915 1,442
Land, buildings, machinery, and equipment -- net .. 441 433
Long-term receivables -- trade and other .......... - -
Long-term receivables -- finance .................. 3,289 2,669
Investments in affiliated companies (Note 7) ...... - -
Investments in Financial Products subsidiaries .... - -
Deferred income taxes ............................. - -
Intangible assets ................................. - -
Other assets ...................................... 236 193
------- -------
TOTAL ASSETS ........................................ $ 5,881 $ 4,737
======= =======
LIABILITIES
Current liabilities:
Short-term borrowings ........................... $ 1,010 $ 723
Accounts payable and accrued expenses ........... 300 278
Accrued wages, salaries, and employee benefits .. 2 2
Dividends payable ............................... - -
Deferred and current income taxes payable ....... 58 32
Long-term debt due within one year .............. 766 807
------- -------
Total current liabilities ......................... 2,136 1,842
Long-term debt due after one year ................. 3,107 2,336
Liability for postemployment benefits ............. - -
Deferred income taxes ............................. 17 11
------- -------
TOTAL LIABILITIES ................................... 5,260 4,189
------- -------
STOCKHOLDERS' EQUITY
Common stock of $1.00 par value:
Authorized shares: 450,000,000
Issued shares (June 30, 1995 -- 203,723,656
Dec. 31, 1994 -- 203,723,656) at paid in amount . 333 303
Profit employed in the business ................... 282 245
Foreign currency translation adjustment ........... 6 -
Treasury stock (June 30, 1995 -- 4,765,533
shares; Dec. 31, 1994 -- 3,281,569 shares)
at cost.......................................... - -
------- -------
TOTAL STOCKHOLDERS' EQUITY .......................... 621 548
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $ 5,881 $ 4,737
======= =======
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide required supplemental disclosure
of information about the Financial Products subsidiaries.
See accompanying notes to Consolidated Financial Statements.
* Unaudited except for Consolidated December 31, 1994 amounts.
CATERPILLAR INC.
Statement of Cash Flows for Six Months Ended
(Unaudited)
(Millions of dollars)
CONSOLIDATED
(Caterpillar Inc.
and subsidiaries)
June 30, June 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Profit ............................................ $ 623 $ 432
Adjustments for noncash items:
Depreciation and amortization ..................... 348 339
Profit of Financial Products ...................... - -
Other ............................................. 17 64
Changes in assets and liabilities:
Receivables -- trade and other .................. 117 (349)
Inventories ..................................... (376) (147)
Accounts payable and accrued expenses ........... 240 258
Other -- net .................................... (81) 96
------- -------
Net cash provided by operating activities ........... 888 693
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- excluding equipment
leased to others ................................ (155) (171)
Expenditures for equipment leased to others ....... (82) (80)
Proceeds from disposals of land, buildings,
machinery, and equipment ........................ 41 53
Additions to finance receivables .................. (2,406) (1,351)
Collections of finance receivables ................ 1,077 782
Proceeds from sale of finance receivables.......... 300 241
Other -- net ...................................... (55) (48)
------- -------
Net cash used for investing activities .............. (1,280) (574)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid .................................... (100) (30)
Common stock issued, including treasury
shares reissued ................................. - 13
Treasury shares purchased.......................... (112) (77)
Proceeds from long-term debt issued ............... 906 548
Payments on long-term debt ........................ (591) (403)
Short-term borrowings -- net ...................... 630 (82)
------- -------
Net cash provided by financing activities ........... 733 (31)
------- -------
Effect of exchange rate changes on cash ............. (64) 2
------- -------
Increase (decrease) in cash and
short-term investments ............................ 277 90
Cash and short-term investments at the
beginning of the period ........................... 419 83
------- -------
Cash and short-term investments at the
end of the period ................................. $ 696 $ 173
======= =======
All short-term investments, which consist primarily of highly liquid
investments with original maturities of three months or less, are considered
to be cash equivalents.
See accompanying notes to Consolidated Financial Statements.
CATERPILLAR INC.
Statement of Cash Flows for Six Months Ended
(Unaudited)
(Millions of dollars)
SUPPLEMENTAL CONSOLIDATING DATA
MACHINERY AND ENGINES
(Caterpillar Inc. with Financial
Products on the equity basis)
June 30, June 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Profit ............................................ $ 623 $ 432
Adjustments for noncash items:
Depreciation and amortization ................... 294 294
Profit of Financial Products .................... (37) (17)
Other ........................................... 5 50
Changes in assets and liabilities:
Receivables -- trade and other .................. 159 (322)
Inventories ..................................... (376) (147)
Accounts payable and accrued expenses ........... 167 204
Other -- net .................................... (84) 111
------- -------
Net cash provided by operating activities ........... 751 605
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- excluding equipment
leased to others ................................ (154) (170)
Expenditures for equipment leased to others ....... (5) (3)
Proceeds from disposals of land, buildings,
machinery, and equipment ........................ 7 7
Additions to finance receivables .................. - -
Collections of finance receivables ................ - -
Proceeds from sale of finance receivables.......... - -
Other -- net ...................................... (44) (39)
------- -------
Net cash used for investing activities .............. (196) (205)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid .................................... (100) (30)
Common stock issued, including treasury
shares reissued ................................. 0 13
Treasury shares purchased.......................... (112) (77)
Proceeds from long-term debt issued ............... 0 0
Payments on long-term debt ........................ (22) (144)
Short-term borrowings -- net ...................... (2) (74)
------- -------
Net cash provided by financing activities ........... (236) (312)
------- -------
Effect of exchange rate changes on cash ............. (65) 1
------- -------
Increase (decrease) in cash and
short-term investments ............................ 254 89
Cash and short-term investments at the
beginning of the period ........................... 395 62
------- -------
Cash and short-term investments at the
end of the period ................................. $ 649 $ 151
======= =======
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide supplemental disclosure of
information about the Financial Products subsidiaries.
See accompanying notes to Consolidated Financial Statements.
CATERPILLAR INC.
Statement of Cash Flows for Six Months Ended
(Unaudited)
(Millions of dollars)
SUPPLEMENTAL CONSOLIDATING DATA
FINANCIAL PRODUCTS
June 30, June 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Profit ............................................ $ 37 $ 17
Adjustments for noncash items:
Depreciation and amortization ................... 54 45
Profit of Financial Products .................... - -
Other ........................................... 15 11
Changes in assets and liabilities:
Receivables -- trade and other .................. (4) 0
Inventories ..................................... - -
Accounts payable and accrued expenses ........... 11 16
Other -- net .................................... 24 (1)
------- -------
Net cash provided by operating activities ........... 137 88
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- excluding equipment
leased to others ................................ (1) (1)
Expenditures for equipment leased to others ....... (77) (77)
Proceeds from disposals of land, buildings,
machinery, and equipment ........................ 34 46
Additions to finance receivables .................. (2,406) (1,351)
Collections of finance receivables ................ 1,077 782
Proceeds from sale of finance receivables.......... 300 241
Other -- net ...................................... (41) (34)
------- -------
Net cash used for investing activities .............. (1,114) (394)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid .................................... - -
Common stock issued, including treasury
shares reissued ................................. 30 25
Treasury shares purchased.......................... - -
Proceeds from long-term debt issued ............... 906 548
Payments on long-term debt ........................ (569) (259)
Short-term borrowings -- net ...................... 632 (8)
------- -------
Net cash provided by financing activities ........... 999 306
------- -------
Effect of exchange rate changes on cash ............. 1 1
------- -------
Increase (decrease) in cash and
short-term investments ............................ 23 1
Cash and short-term investments at the
beginning of the period ........................... 24 21
------- -------
Cash and short-term investments at the
end of the period ................................. $ 47 $ 22
======= =======
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide supplemental disclosure of
information about the Financial Products subsidiaries.
See accompanying notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions except per share data)
1. In the opinion of management, all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of (a) the
consolidated results of operations for the three- and six-month periods
ended June 30, 1995 and 1994, (b) the consolidated financial position at
June 30, 1995 and December 31, 1994, and (c) the consolidated statement
of cash flows for the six-month periods ended June 30, 1995 and 1994
have been made.
2. The results for the three- and six-month periods ended June 30, 1995 are
not necessarily indicative of the results for the entire year 1995.
3. When inflationary effects are material, the company removes certain
components of foreign currency exchange gains and losses arising from
operations in Brazil's highly inflationary economy from "Other income" on
the Statement of Consolidated Results of Operations and includes these
amounts on the operating statement lines where the related inflationary
effects are reported. Consequently, exchange gains and losses on local
currency denominated debt and cash deposits, where the interest rates
reflect the rate of inflation, are offset against interest expense or
interest income, respectively. Similarly, exchange gains on local
currency liabilities subject to monetary correction are offset against
the related expense. This treatment was applied for the first half
of 1994. The 1995 inflationary effects through the second quarter were
immaterial.
4. The company buys and sells currencies in amounts large enough to cover
requirements for the business, and to protect its financial and
competitive positions in those currencies whose relative values may
change in foreign exchange markets. The company manages foreign
exchange exposures that arise from cash inflows or outflows denominated
in currencies other than the U.S. dollar with the objective to maximize
consolidated aftertax U.S. dollar cash flows. At June 30, 1995, the
company had approximately $725 in contracts to buy or sell foreign
currency in the future. The carrying value of such contracts was a
liability of $3 and the fair market value was a liability of $76.
5. The company has reviewed the status of its environmental and legal
contingencies and believes there are no material changes from that
disclosed in Form 10-K for the year ended December 31, 1994.
6. The company and Caterpillar Financial Services Corporation (Cat
Financial) have an agreement whereby the company agrees to ensure that
Cat Financial maintains a tangible net worth of at least $20 at all times
("Support Agreement"). The Support Agreement also requires Cat Financial
to maintain for the fiscal year a minimum ratio of earnings before tax
plus interest expense to interest expense of 1.15 to 1. If it appeared
Cat Financial could not achieve that ratio for a particular year, the
company would make a payment to Cat Financial or forgive a payment due
from Cat Financial to ensure achievement of that ratio. The obligations
of the company under the Support Agreement are to Cat Financial only and
are not directly enforceable by any creditor of Cat Financial.
7. Affiliated Companies
The company's investments in affiliated companies consist principally of
a 50% interest in Shin Caterpillar Mitsubishi Ltd., Japan $(492). The
other 50% owner of this company is Mitsubishi Heavy Industries, Ltd.,
Japan.
Combined financial information of the affiliated companies, as
translated to U.S. dollars, was as follows:
Three Months Ended Six Months Ended
Mar. 31, Mar. 31, Mar. 31, Mar. 31,
1995 1994 1995 1994
RESULTS OF OPERATIONS
(Unaudited)
Sales ..................... $ 930 $ 814 $1,866 $1,598
====== ====== ====== ======
Profit (loss) ............. $ 10 $ 9 $ 32 $ 25
====== ====== ====== ======
Mar. 31, Sep. 30,
1995 1994
FINANCIAL POSITION
(Unaudited)
Assets:
Current assets ................................. $2,194 $1,853
Land, buildings, machinery and equipment - net.. 866 781
Other assets ................................... 333 298
------ ------
3,393 2,932
------ ------
Liabilities:
Current liabilities ............................ 1,888 1,575
Long-term debt due after one year .............. 300 332
Other liabilities .............................. 151 150
------ ------
2,339 2,057
------ ------
Ownership ........................................ $1,054 $ 875
====== ======
8. Inventories (principally "last-in, first-out" method) comprised the
following:
Jun. 30, Dec. 31,
1995 1994
(unaudited)
Raw materials and work-in-process ................ $ 860 $ 697
Finished goods ................................... 1,145 942
Supplies ......................................... 206 196
------ ------
$2,211 $1,835
====== ======
9. Following is a computation of profit (loss) per share:
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
(Unaudited)
I. Net profit for period:
Profit - consolidated (A) ....... $ 323 $ 240 $ 623 $ 432
====== ====== ====== =======
II. Determination of shares (millions):
Weighted average number of
common shares outstanding (B) .. 199.7 203.5 199.9 203.7
Shares issuable on exercise of
stock options, net of shares
assumed to be purchased out
of proceeds at market price .... 2.4 2.3 2.4 2.2
------ ------ ------ -------
Average common shares
outstanding for fully diluted
computation (C) ................ 202.1 205.8 202.3 205.9
====== ====== ====== =======
III. Profit per share of common
stock:
Assuming no dilution (A/B) ...... $1.62 $1.18 $3.11 $2.12
Assuming full dilution (A/C) .... $1.60 $1.17 $3.08 $2.10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND LIQUIDITY AND CAPITAL RESOURCES
A. Consolidated Results of Operations
THREE MONTHS ENDED JUNE 30, 1995 VS. THREE MONTHS ENDED JUNE 30, 1994
Caterpillar Inc. announced its sixth consecutive quarter of record
profit. Profit of $323 million and profit per share of $1.62 were records
(after excluding nonrecurring tax-related items from third quarter 1993).
Profit improved $83 million or 44 cents per share from the $240 million or
$1.18 per share profit in the second quarter of 1994. Sales and revenues of
$4.21 billion were also the highest for any quarter in the company's history
and increased 17% from the same quarter a year ago. The improvement in sales
was the primary reason for the higher profit.
In addition to company sales at record levels, dealer sales to users were
also at all-time highs. Worldwide dealer machine inventories increased from
a year ago and are about normal relative to current strong selling rates.
U.S. dealer inventories are slightly above normal and non-U.S. dealer
inventories are slightly below normal.
On June 7, 1995, the company announced a plan to repurchase up to 10% of
its outstanding common stock over the next three to five years. As of the
end of the second quarter, 1.27 million shares had been repurchased under the
plan.
Machinery and Engines
Sales of Machinery and Engines were $4.06 billion, up $567 million from
the second quarter of 1994. The sales improvement reflects a 12% increase in
volume and 4% better price realization. Profit before tax of $445 million
was $125 million higher than the same quarter last year primarily because of
the sales increase.
The increase in physical sales volume resulted primarily from higher
machine sales both inside and outside the United States as customer demand
continued to improve. The continued weakness of the U.S. dollar contributed
to higher sales as the company's products manufactured in the United States
are more competitive with products sourced in countries that have stronger
currencies compared with the dollar. 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. The benefit to sales (and margin) of the weaker dollar was limited
by currency hedges (forward contracts) covering most U.S. manufactured
products 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 second quarter would have been
about $30 million higher. All remaining forward contracts mature during 1995.
Margin (sales less cost of goods sold) improved $187 million principally
because of higher sales volume and better price realization. Margin as a
percent of sales was 23.4%, a 1.6 percentage point increase from the second
quarter a year ago. The benefits of improved volume and price realization
were partially offset by the effect of the weaker dollar as costs in European
currencies and the Japanese yen translated into more U.S. dollars and
proportionately higher sales of lower margin products. Sales of lower margin
products continue to increase and contribute to the company's overall margin,
but at a rate that is slightly less than the average margin on other products.
Over the long term, a weaker dollar should favorably impact Caterpillar's
sales and margins. Most of the company's key competitors have their principal
manufacturing operations based in Japan or European countries with strong
currencies. The majority of Caterpillar's manufacturing assets are in the
United States. Consequently, with a weaker dollar, the company's costs
compared with these competitors are relatively lower. As a major net exporter
from the United States, the weaker dollar has a favorable impact on
Caterpillar's global competitive position.
Company inventories were up from one year ago; however, inventory levels
are consistent with current selling rates and inventory turnover continues to
improve.
Selling, general and administrative expenses of $378 million were $49
million higher than the second quarter a year ago. The increase reflects
higher spending levels to support increased sales volume (including parts
distribution costs), inflation on costs and the effect of the weaker dollar as
costs in European currencies translated into more U.S. dollars.
Research and development expenses of $98 million increased $14 million
from the same period last year, a result of expanded activity for new product
introductions.
Operating profit of $473 million was $124 million higher than the second
quarter of 1994. As a percent of sales, operating profit of 11.7% was up 1.7
percentage points and has continued to improve.
Interest expense decreased $2 million from the year-earlier quarter as
the benefit of lower average debt of approximately $300 million was partially
offset by higher interest rates.
Other income/expense was income of $20 million, about the same as a year
ago.
Financial Products
Financial Products' before tax profit was $30 million, compared with $14
million in the second quarter of 1994. The improvement reflects a $9 million
favorable change in the mark-to-market adjustment for Caterpillar Financial
Services Corporation's written interest rate caps and Cat Financial's larger
average portfolio of earnings assets. The written interest rate caps were
terminated by Cat Financial during the second quarter of 1995.
Revenues of $154 million were $41 million higher primarily because of Cat
Financial's larger portfolio. Cat Financial's new retail business was $730
million, a $189 million or 35% increase compared with the same quarter last
year.
Selling, general and administrative expenses increased $12 million from a
year ago resulting from depreciation of a higher volume of equipment on
operating leases and other volume-related expenses at Cat Financial. Interest
expense of $72 million was up $21 million because of an increase in average
borrowings to support the larger portfolio.
Other income/expense was income of $7 million compared with expense of $1
million in the second quarter of 1994. The favorable change reflects a $5
million mark-to-market gain for interest rate caps in the current quarter,
compared with a $4 million mark-to-market loss in the same quarter last year.
Income Taxes
Tax expense of $156 million increased $56 million due to higher
before-tax profit and a 33% estimated annual tax rate compared with 30% a year
ago.
THREE MONTHS ENDED JUNE 30, 1995 VS THREE MONTHS ENDED MARCH 31, 1995
Second-quarter profit of $323 million or $1.62 per share was $23 million
higher than profit of $300 million or $1.50 per share in the first quarter of
this year. The improvement reflects an increase in sales and revenues of $300
million partially offset by an increase in costs that generally occurs from
the first to the second quarter due to timing of expenses.
Machinery and Engines
Profit before tax for Machinery and Engines was $445 million, up $45
million from the previous quarter. Sales of $4.06 billion increased $286
million because of 6% higher physical sales volume and 2% improved price
realization. The increase in physical sales volume was primarily due to
higher machine and engine sales outside the United States. The improvement in
price realization reflects price increases and the benefit of the weaker
dollar on sales.
Margin of $949 million was up $66 million because of the sales increase.
Margin as a percent of sales was the same as last quarter as the favorable
impact of higher sales was partially offset by the impact of the weaker dollar
on costs and proportionately higher sales of lower margin products.
Selling, general and administrative expenses were $378 million, up $17
million from the first quarter. The increase was primarily the result of
timing of expenses, as the first quarter is generally a lower cost quarter for
these types of expenses. In addition, the weaker dollar and volume-related
parts distribution expenses contributed to the increase.
Research and development expenses were $12 million higher than the
previous quarter primarily because of timing of expenses.
Operating profit of $473 million increased $37 million from the first
quarter. Operating profit as a percent of sales was 11.7%, up from the strong
11.6% for the first quarter.
Interest expense of $48 million was the same as last quarter.
Other income/expense was income of $20 million, compared with income of
$12 million in the first quarter. The increase was principally because of a
favorable change in foreign exchange gains and losses.
Financial Products
Profit before tax for Financial Products was $30 million, slightly less
than first-quarter profit of $32 million.
Income Taxes
Tax expense was up $13 million from the first quarter because of higher
before-tax profit.
Affiliated Companies
The company's share of affiliated companies' results was $4 million,
compared with $11 million last quarter. The decline resulted from a slight
decrease in sales and lower land sale gains at the company's 50%-owned
affiliate, Shin Caterpillar Mitsubishi Ltd. in Japan.
SIX MONTHS ENDED JUNE 30, 1995 VS. SIX MONTHS ENDED JUNE 30, 1994
Profit for the six months ended June 30, 1995 was $623 million or $3.11
per share of common stock, an improvement of $191 million over profit of $432
million or $2.12 per share for the first six months of 1994. Sales and
revenues of $8.13 billion were $1.24 billion higher than last year and were
the primary reason for the improvement in profit.
Machinery and Engines
Sales were $7.83 billion, an increase of $1.12 billion from the same
period last year. Before-tax profit was $845 million, an improvement of $275
million. The primary reason for the increase in profit was higher sales -- a
13% increase in physical sales volume and a 4% improvement in price
realization.
The increase in physical sales volume resulted primarily
from higher machine sales both inside and outside the United
States as customer demand continued to improve over the past year. The
continued weakness of the U.S. dollar contributed to higher sales as the
company's products manufactured in the United States are more competitive with
products sourced in countries that have stronger currencies compared with the
dollar. 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. The benefit to sales (and
margin) of the weaker dollar was limited by currency hedges (forward
contracts) covering most U.S. manufactured products 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 period would have been about $60 million higher. All
remaining forward contracts mature during 1995.
Margin (sales less cost of goods sold) increased $372 million primarily
because of higher sales volume and better 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 inflation on
material costs. Sales of lower margin products continue to increase and
contribute to the company's overall margin, but at a rate that is slightly
less than the average margin on other products. Total margin as a percent of
sales was 23.4%, a 1.5 percentage point increase from a year ago.
Selling, general and administrative expenses were $97 million higher than
the same period last year because of higher spending levels to support
increased sales volume (including parts distribution costs), inflation on
costs and the effect of the weaker dollar as costs in European currencies
translated into more U.S. dollars.
Research and development expenses were up $24 million from the first six
months of 1994, a result of expanded activity for new product introductions.
Interest expense of $96 million was $5 million lower than a year ago as
the benefit of lower average debt of approximately $300 million was partially
offset by higher interest rates.
Other income/expense was income of $32 million compared with income of
$13 million last year. The improvement primarily reflects the absence of a
$17 million 1994 charge related to the settlement of two class action
complaints.
Financial Products
Before-tax profit for Financial Products was $62 million, up $37 million
from the first six months of 1994. The increase was a result of a $24 million
favorable change in the unrealized mark-to-market adjustment for Cat
Financial's written interest rate caps and from Cat Financial's larger
portfolio of earning assets. These written caps were terminated during the
second quarter of 1995.
Revenues of $294 million increased $76 million from a year ago, a result
of Cat Financial's larger portfolio.
Selling, general and administrative expenses were $113 million, compared
with $90 million in the first six months of 1994. The increase reflects
depreciation of a higher volume of equipment on operating leases and other
volume-related expenses at Cat Financial. Interest expense was $138 million
for the first six months, up $41 million because of higher average borrowings
to support the larger portfolio.
Other income/expense was income of $19 million compared with expense of
$6 million a year ago. The favorable change resulted from a $11 million
mark-to-market gain for interest rate caps in the current period, compared
with a $13 million unrealized mark-to-market loss during the same period last
year.
Income Taxes
Tax expense was $299 million, $120 million higher than a year ago. The
increase reflects higher before-tax profit and a 33% estimated annual tax rate
compared with 30% for the first six months of 1994.
Affiliated Companies
The company's share of affiliated companies' results was $15 million,
down $1 million from a year ago.
SALES
Following are summaries of second-quarter company sales and dealer
deliveries compared with the same quarter in 1994.
Company Sales Inside the United States
Caterpillar sales inside the United States were $2.05 billion, a $236
million or 13% increase from the same quarter a year ago. The improvement was
due primarily to stronger industry demand for machines and engines. Company
sales also benefited from higher price realization and less dealer inventory
reduction than in the second quarter of 1994.
Sales inside the United States were 50% of total sales.
U.S. Dealer Machine Sales to End-Users
Sales were up from a year ago, with an increase in the commodity sectors
more than offsetting declines in the construction and industrial sectors.
Sales to the construction sector declined:
- Highway sales were above year-earlier levels even though spending on
highway construction and repair was down.
- Sales to the commercial, industrial and government building sector were
lower despite higher levels of construction spending in these areas.
- Housing-related sales fell from a year ago, reflecting the decline in
housing starts.
Sales increased in all commodity sectors, registering a gain over
year-earlier levels:
- Sand and quarry mining sector sales were higher, reflecting stronger
mining activity in response to greater levels of nonresidential
construction.
- Sales for coal mining applications were up despite lower mine
production.
- Metal mining-related sales also were up over last year's levels. Mine
production and metal prices were up.
- Sales to the agricultural sector were up reflecting the introduction of
new models.
- Forestry-related sales were above year ago levels even though forestry
production was lower. Lumber and especially pulp prices, however, were
higher.
- Sales to the petroleum sector also were up even though pipeline
construction continued to trend down. Oil prices were higher than a
year ago but natural gas prices were lower.
Sales into the solid waste applications were unchanged while sales to
industrial applications were down.
Deliveries to U.S. Dealer Rental Fleets
Deliveries to U.S. dealers for their dedicated rental fleets increased
over second quarter 1994 levels. U.S. dealer rental inventories increased
from first quarter levels and were above year ago levels at the end of the
second quarter.
U.S. Dealer New Machine Inventories
U.S. dealer new machine inventories were down from the end of the first
quarter. Compared to second quarter 1994 inventories are up, however, this
level is only slightly above normal relative to current strong selling rates.
Company Engine Sales Inside the United States
Sales of diesel engines increased over the same quarter last year due to
higher demand for on-highway truck engines from Original Equipment
Manufacturers and due to stronger end-user demand for engines in power
generation, marine and material handling applications. Sales of turbine
engines declined.
Company Sales Outside the United States
Caterpillar sales outside the United States were $2.01 billion, a $331
million or 20% increase from second quarter 1994. The improvement was due
primarily to higher demand from end-users. Company sales also benefited from
improved price realization and from an increase in dealer's new machine
inventories which had declined in the second quarter of 1994.
Sales outside the United States represented 50% of worldwide sales.
Dealer Machines Sales to End-Users Outside the United States
Dealer sales outside the United States were up from second-quarter 1994
levels. Sales were higher in all regions except Latin America, the
Commonwealth of Independent States (CIS), Japan and China.
<PAGE<
- Europe: Sales rose in all but a few countries. These gains reflect
continued economic recovery and a rebound in investment activity.
Demand increased in each of the five largest economies and especially
in the United Kingdom.
- Asia (excluding China and Japan): Sales increased as excellent
economic growth continues. Thailand, Indonesia and Malaysia
experienced the largest gains.
- Canada: Strong industry demand and an increased share of industry
sales pushed dealer sales above year-earlier levels. Increases were
registered in all natural resource sectors as well as highway
construction.
- Africa and the Middle East: Demand was up reflecting improved
commodity prices, exports and economic growth. Africa, particularly
South Africa, registered large gains while sales to the Middle East
declined.
- Latin America: Sales declined due primarily to severe recession in
Mexico. Argentina, Venezuela and Ecuador also registered large sales
declines.
- Australia: Sales were higher than the same quarter a year ago with
gains registered in coal and metal mining as well as housing.
- CIS: Sales were below second quarter last year which was exceptionally
strong.
- Japan: Sales were down reflecting the current weakness in the market.
- China: Sales were down from second-quarter 1994 levels but
year-to-date sales remain ahead of last year.
Dealer New Machine Inventories Outside the United States
Dealer new machine inventories outside the United States were up from the
end of the first quarter and from the end of second quarter 1994. However,
because demand has also improved, dealer inventories remain slightly below
normal relative to current selling rates.
Company Engine Sales Outside the United States
Sales of diesel engines increased as user demand strengthened in all
regions and all applications. The largest gains were registered in the power
generation and marine markets. Sales of turbine engines were unchanged.
PLANT CLOSING AND CONSOLIDATION COSTS
At June 30, 1995 the reserve for plant closing and consolidation costs
was $321 million. Of this balance, $175 million related to costs associated
with the probable closure of the Component Products Division's York,
Pennsylvania, facility. The probable closing of the York facility was
announced in December 1991. The company determined that unless significant
cost reductions wee made, the unit would be closed -- probably in the 1996
time frame.
Also in the reserve for plant closing and consolidation costs at June 30,
1995, was $119 million for write-downs of buildings, machinery and equipment
at previously closed facilities. The remainder of the reserve related to
severance benefits provided to former employees at previously closed
facilities. The reserve for such benefits is amortized as the benefits are
provided. Currently amortization periods are through 2003.
LABOR UPDATE
The strike by the United Auto Workers (UAW) union that began on June 21,
1994, at eight of the company's U.S. facilities continued. These striking
employees represent about 16% of Caterpillar's total work force. The ongoing
strike had no impact on the company's ability to meet the needs of its
customers.
EMPLOYMENT
At the end of the second quarter, Caterpillar's worldwide employment,
including UAW members on strike, was 54,499, compared with 52,712 one year
ago. Hourly employment increased 1,639 to 32,408, while salaried and
management employment increased 148 to 22,091.
1995 OUTLOOK
The worldwide industry outlook for 1995 remains essentially unchanged
from that issued at the beginning of the year. Industry demand for machines
and engines is forecast to grow moderately with stronger sales in Europe,
Africa and the Middle East, Asia and Canada. Demand for machines in the
United States, Australia and Latin America should remain near 1994 levels
while demand for engines is expected to surpass last year's levels.
Industry demand is expected to be stronger than last year in Europe and
Africa and the Middle East. We continue to believe that European central
banks will lower interest rates if necessary to sustain moderate economic
growth. In the United States actions by the Federal Reserve over the past 18
months are expected to slow the economy, resulting in lower industry demand
for the second half.
In Japan, the forecast has been revised down as the economy has failed to
develop the momentum for recovery that was earlier anticipated. The strong
yen and a host of other factors point to very weak growth in 1995 which will
likely result in a slight decline in industry demand. The economic outlook
also has been revised down for Canada and Australia which are now expected to
experience moderate instead of good economic growth.
Elsewhere, weak growth remains the forecast for Latin America and
industry demand is unlikely to surpass 1994 levels. Strong economic and
industry growth are still forecast for Asia including China.
In summary, the outlook for worldwide industry demand remains essentially
unchanged despite weaker economic outlooks for several countries. The 1995
outlook for company sales and profits remains unchanged.
B. Liquidity & Capital Resources
Consolidated operating cash flows totaled $468 million in the second
quarter of 1995, compared with $541 million in the second quarter of 1994.
Total debt at the end of the quarter was $6.90 billion, an increase of
$1.00 billion from year-end 1994. Over this period, debt related to
Machinery & Engines decreased $17 million, to $2.02 billion, while debt
related to Financial Products increased $1.02 billion to $4.88 billion.
Machinery and Engines
Operating cash flows totaled $419 million in the second quarter of 1995,
compared with $538 million in the second quarter of 1994. The cash flow
increase is primarily the result of increased profitability and a decrease in
receivables.
Capital expenditures, excluding equipment leased to others, totaled $80
million in the second quarter compared with $88 million a year ago. The
percent of debt to debt plus stockholders equity improved to 37% at June 30,
1995, from 41% at December 31, 1994.
Financial Products
Operating cash flows totaled $49 million in the second quarter of 1995,
compared with $3 million in the second quarter of 1994. Cash used to purchase
equipment leased to others totaled $38 million in the second quarter of 1995.
In addition, second-quarter 1995 net cash used for finance receivables was
$946 million, compared with $184 million during the second quarter of 1994.
Financial Products' debt was $4.88 billion at June 30, 1995, an increase
of $1.02 billion from December 31, 1994. At the end of the second quarter,
finance receivables past due over 30 days were 2.2%, compared with 3.2% at the
end of the same period one year ago. The ratio of debt to equity of Cat
Financial was 8.5:1 at June 30, 1995, compared with 7.3:1 at June 30, 1994.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
27 Financial Data Schedule
(b) One report, dated June 7, 1995, on Form 8-K was filed during the
quarter ending June 30, 1995, pursuant to Item 5 of that form. No financial
statements were filed as part of that report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CATERPILLAR INC.
Date: August 3, 1995 By: /s/ D. R. Oberhelman
D. R. Oberhelman, Vice President
and Chief Financial Officer
Date: August 3, 1995 By: /s/ R. R. Atterbury III
R. R. Atterbury III, Secretary
EXHIBIT INDEX
Exhibit
Number Description
27 Financial Data Schedule