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 September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________
Commission File No. 1-768
CATERPILLAR INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
37-0602744
(I.R.S. Employer Identification No.)
100 NE Adams Street, Peoria, Illinois
(Address of principal executive offices)
61629
(Zip Code)
(309) 675-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No __.
At September 30, 1996, 191,464,938 shares of common stock of the Registrant
were outstanding.
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. For a detailed
analysis of the company's results for the third quarter, you should read this
entire document carefully.
SUMMARY OF RESULTS
The company reported that profit for the third quarter increased 46% to
$310 million from $213 million the year before. Profit was the highest of
any third quarter and the third highest of any quarter in company history.
Profit per share rose 50% to $1.61 from $1.07.
Sales and revenues were up 8% to a third-quarter record of $4.03
billion, versus $3.73 billion a year ago.
"We are extremely gratified by our continued strong performance, which
has now produced record profits in 9 out of the last 11 quarters," said
Donald V. Fites, chairman and chief executive officer. "Our global
strategies are working and Caterpillar is well positioned for long-term
growth and profitability."
"We saw good sales growth inside and outside the United States," Fites
said. "Importantly, margins increased due to higher sales, lower costs and
improved manufacturing efficiencies."
"We continue to see opportunities for solid growth in the vast majority
of the global markets we serve, particularly in the fast-growing developing
nations where infrastructure needs are greatest," he said.
"Given our strong operating momentum, broad product line and industry
demand throughout the world, sales and profits for 1996 will be at record
levels," Fites said. "Our preliminary sales outlook for 1997 is to slightly
surpass the record levels achieved in 1996."
HIGHLIGHTS: 3Q 1996 COMPARED WITH 3Q 1995
* Operating profit as a percent of sales increased to 11% from 7%.
* Higher sales resulted from a 5% increase in sales volume and a 3%
improvement in price realization.
* Sales inside the U.S. were up 12%; sales outside the U.S. increased 5%.
* Margin (sales less cost of goods sold) as a percent of sales increased to
25% from 19%.
* Dealer sales to end-users increased while dealer inventories remained about
the same.
* Material costs were essentially flat.
* Our preliminary worldwide outlook for 1997 calls for sales to slightly
surpass 1996 levels as higher industry demand in the developing regions,
Canada, and Australia offsets slightly lower industry demand in the U.S.,
Europe, and Japan.
* Caterpillar is on schedule to complete the plan it announced in June 1995
to increase shareholder value by repurchasing up to 10% of its outstanding
common stock over the next three to five years. At the end of the third
quarter, 9.7 million shares had been repurchased under the plan. The
number of shares outstanding on Sept. 30, 1996, was 191.5 million, compared
with 197.5 million at the same time last year.
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 Nine Months Ended
Sep. 30, Sep. 30, Sep. 30, Sep. 30,
1996 1995 1996 1995
MACHINERY AND ENGINES:
Sales ................................ $3,849 $ 3,568 $11,539 $11,400
------ ------ ------ ------
Operating costs:
Cost of goods sold ................. 2,905 2,878 8,661 8,878
Selling, general and
administrative expenses .......... 423 352 1,218 1,091
Research and development expenses .. 104 89 299 273
------ ------ ------ ------
3,432 3,319 10,178 10,242
------ ------ ------ ------
Operating profit ..................... 417 249 1,361 1,158
Interest expense ..................... 48 48 146 144
------ ------ ------ ------
369 201 1,215 1,014
Other income ......................... 32 40 90 72
------ ------ ------ ------
Profit before taxes .................. 401 241 1,305 1,086
------ ------ ------ ------
FINANCIAL PRODUCTS:
Revenues ............................. 184 165 518 459
------ ------ ------ ------
Operating costs:
Selling, general and
administrative expenses .......... 69 57 194 170
Interest expense ................... 83 80 232 218
------ ------ ------ ------
152 137 426 388
------ ------ ------ ------
Operating profit ..................... 32 28 92 71
Other income ......................... 7 11 24 30
------ ------ ------ ------
Profit before taxes .................. 39 39 116 101
------ ------ ------ ------
CONSOLIDATED PROFIT BEFORE TAXES ....... 440 280 1,421 1,187
Provision for income taxes ........... 138 69 462 368
------ ------ ------ ------
Profit of consolidated companies ..... 302 211 959 819
Equity in profit of
affiliated companies (Note 5) ...... 8 2 21 17
------ ------ ------ ------
PROFIT ................................. $ 310 $ 213 $ 980 $ 836
====== ====== ====== ======
PROFIT PER SHARE OF COMMON STOCK (NOTE 7):
Profit ............................... $ 1.61 $ 1.07 $ 5.08 $ 4.19
====== ====== ====== ======
Cash dividends paid per share of
common stock ......................... $ .40 $ .35 $ 1.10 $ .85
See accompanying notes to Consolidated Financial Statements.
CATERPILLAR INC.
Statement of Financial Position *
(Dollars in millions)
CONSOLIDATED
(Caterpillar Inc.
and subsidiaries)
Sep. 30, Dec. 31,
1996 1995
ASSETS
Current assets:
Cash and short-term investments ................. $ 759 $ 638
Receivables -- trade and other .................. 2,735 2,531
Receivables -- finance .......................... 2,608 1,754
Deferred income taxes and prepaid expenses ...... 790 803
Inventories (Note 6) ............................ 2,182 1,921
------- -------
Total current assets .............................. 9,074 7,647
Land, buildings, machinery, and equipment -- net .. 3,546 3,644
Long-term receivables -- trade and other .......... 131 126
Long-term receivables -- finance .................. 3,142 3,066
Investments in affiliated companies (Note 5) ...... 678 476
Investments in Financial Products subsidiaries .... - -
Deferred income taxes ............................. 1,199 1,127
Intangible assets ................................. 221 170
Other assets ...................................... 607 574
------- -------
TOTAL ASSETS ........................................ $18,598 $16,830
======= =======
LIABILITIES
Current liabilities:
Short-term borrowings ........................... $ 1,503 $ 1,174
Accounts payable and accrued expenses ........... 2,824 2,579
Accrued wages, salaries, and employee benefits .. 917 875
Dividends payable ............................... 0 68
Deferred and current income taxes payable ....... 250 91
Long-term debt due within one year .............. 1,392 1,262
------- -------
Total current liabilities ......................... 6,886 6,049
Long-term debt due after one year ................. 4,550 3,964
Liability for postemployment benefits ............. 3,141 3,393
Deferred income taxes ............................. 42 36
------- -------
TOTAL LIABILITIES ................................... 14,619 13,442
------- -------
STOCKHOLDERS' EQUITY
Common stock of $1.00 par value:
Authorized shares: 450,000,000
Issued shares (Sep. 30, 1996 -- 203,723,656;
Dec. 31, 1995 -- 203,723,656) at paid in amount . 884 901
Profit employed in the business ................... 3,675 2,840
Foreign currency translation adjustment ........... 167 215
Treasury stock (Sep. 30, 1996 -- 12,258,718
shares; Dec. 31, 1995 -- 9,708,538 shares)
at cost.......................................... (747) (568)
------- -------
TOTAL STOCKHOLDERS' EQUITY .......................... 3,979 3,388
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $18,598 $16,830
======= =======
See accompanying notes to Consolidated Financial Statements.
* Unaudited except for Consolidated December 31, 1995 amounts.
CATERPILLAR INC.
Statement of Financial Position *
(Dollars in millions)
SUPPLEMENTAL CONSOLIDATING DATA
MACHINERY AND ENGINES
(Caterpillar Inc. with Financial
Products on the equity basis)
Sep. 30, Dec. 31,
1996 1995
ASSETS
Current assets:
Cash and short-term investments ................. $ 713 $ 580
Receivables -- trade and other .................. 2,929 2,910
Receivables -- finance .......................... - -
Deferred income taxes and prepaid expenses ...... 781 834
Inventories (Note 6) ............................ 2,182 1,921
------- -------
Total current assets .............................. 6,605 6,245
Land, buildings, machinery, and equipment -- net .. 3,052 3,199
Long-term receivables -- trade and other .......... 131 126
Long-term receivables -- finance .................. - -
Investments in affiliated companies (Note 5) ...... 678 476
Investments in Financial Products subsidiaries .... 747 658
Deferred income taxes ............................. 1,239 1,171
Intangible assets ................................. 221 170
Other assets ...................................... 319 330
------- -------
TOTAL ASSETS ........................................ $12,992 $12,375
======= =======
LIABILITIES
Current liabilities:
Short-term borrowings ........................... $ 23 $ 14
Accounts payable and accrued expenses ........... 2,489 2,358
Accrued wages, salaries, and employee benefits .. 914 873
Dividends payable ............................... 0 68
Deferred and current income taxes payable ....... 179 40
Long-term debt due within one year .............. 258 156
------- -------
Total current liabilities ......................... 3,863 3,509
Long-term debt due after one year ................. 1,968 2,049
Liability for postemployment benefits ............. 3,141 3,393
Deferred income taxes ............................. 41 36
------- -------
TOTAL LIABILITIES ................................... 9,013 8,987
------- -------
STOCKHOLDERS' EQUITY
Common stock of $1.00 par value:
Authorized shares: 450,000,000
Issued shares (Sep. 30, 1996 -- 203,723,656;
Dec. 31, 1995 -- 203,723,656) at paid in amount . 884 901
Profit employed in the business ................... 3,675 2,840
Foreign currency translation adjustment ........... 167 215
Treasury stock (Sep. 30, 1996 -- 12,258,718
shares; Dec. 31, 1995 -- 9,708,538 shares)
at cost.......................................... (747) (568)
------- -------
TOTAL STOCKHOLDERS' EQUITY .......................... 3,979 3,388
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $12,992 $12,375
======= =======
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide required supplemental disclosure
of information about the Financial Products subsidiaries.
See accompanying notes to Consolidated Financial Statements.
* Unaudited except for Consolidated December 31, 1995 amounts.
CATERPILLAR INC.
Statement of Financial Position *
(Dollars in millions)
SUPPLEMENTAL CONSOLIDATING DATA
FINANCIAL PRODUCTS
Sep. 30, Dec. 31,
1996 1995
ASSETS
Current assets:
Cash and short-term investments ................. $ 46 $ 58
Receivables -- trade and other .................. 157 132
Receivables -- finance .......................... 2,608 1,754
Deferred income taxes and prepaid expenses ...... 14 13
Inventories (Note 6) ............................ - -
------- -------
Total current assets .............................. 2,825 1,957
Land, buildings, machinery, and equipment -- net .. 494 445
Long-term receivables -- trade and other .......... - -
Long-term receivables -- finance .................. 3,142 3,066
Investments in affiliated companies (Note 5) ...... - -
Investments in Financial Products subsidiaries .... - -
Deferred income taxes ............................. 3 -
Intangible assets ................................. - -
Other assets ...................................... 288 244
------- -------
TOTAL ASSETS ........................................ $ 6,752 $ 5,712
======= =======
LIABILITIES
Current liabilities:
Short-term borrowings ........................... $ 1,480 $ 1,160
Accounts payable and accrued expenses ........... 691 776
Accrued wages, salaries, and employee benefits .. 3 2
Dividends payable ............................... - -
Deferred and current income taxes payable ....... 71 51
Long-term debt due within one year .............. 1,134 1,106
------- -------
Total current liabilities ......................... 3,379 3,095
Long-term debt due after one year ................. 2,582 1,915
Liability for postemployment benefits ............. - -
Deferred income taxes ............................. 44 44
------- -------
TOTAL LIABILITIES ................................... 6,005 5,054
------- -------
STOCKHOLDERS' EQUITY
Common stock of $1.00 par value:
Authorized shares: 450,000,000
Issued shares (Sep. 30, 1996 -- 203,723,656
Dec. 31, 1995 -- 203,723,656) at paid in amount . 353 333
Profit employed in the business ................... 392 320
Foreign currency translation adjustment ........... 2 5
Treasury stock (Sep. 30, 1996 -- 12,258,718
shares; Dec. 31, 1995 -- 9,708,538 shares)
at cost.......................................... - -
------- -------
TOTAL STOCKHOLDERS' EQUITY .......................... 747 658
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $ 6,752 $ 5,712
======= =======
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide required supplemental disclosure
of information about the Financial Products subsidiaries.
See accompanying notes to Consolidated Financial Statements.
* Unaudited except for Consolidated December 31, 1995 amounts.
CATERPILLAR INC.
Statement of Cash Flows for Nine Months Ended
(Unaudited)
(Millions of dollars)
CONSOLIDATED
(Caterpillar Inc.
and subsidiaries)
Sep. 30, Sep. 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Profit ............................................ $ 980 $ 836
Adjustments for noncash items:
Depreciation and amortization ..................... 523 517
Profit of Financial Products ...................... - -
Other ............................................. 82 146
Changes in assets and liabilities:
Receivables -- trade and other .................. (189) 468
Inventories ..................................... (261) (344)
Accounts payable and accrued expenses ........... 243 81
Other -- net .................................... (90) (252)
------- -------
Net cash provided by operating activities ........... 1,288 1,452
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- excluding equipment
leased to others ................................ (307) (256)
Expenditures for equipment leased to others ....... (171) (127)
Proceeds from disposals of land, buildings,
machinery, and equipment ........................ 89 66
Additions to finance receivables .................. (4,158) (3,770)
Collections of finance receivables ................ 2,170 1,887
Proceeds from sale of finance receivables.......... 964 935
Net short-term loans to Financial Products......... - -
Other -- net ...................................... (395) (42)
------- -------
Net cash used for investing activities .............. (1,808) (1,307)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid .................................... (213) (169)
Common stock issued, including treasury
shares reissued ................................. 8 -
Treasury shares purchased.......................... (214) (226)
Net short-term loans from Machinery and Engines.... - -
Proceeds from long-term debt issued ............... 809 930
Payments on long-term debt ........................ (761) (792)
Short-term borrowings -- net ...................... 1,024 664
------- -------
Net cash provided by financing activities ........... 653 407
------- -------
Effect of exchange rate changes on cash ............. (12) (74)
------- -------
Increase (decrease) in cash and
short-term investments ............................ 121 478
Cash and short-term investments at the
beginning of the period ........................... 638 419
------- -------
Cash and short-term investments at the
end of the period ................................. $ 759 $ 897
======= =======
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 Nine Months Ended
(Unaudited)
(Millions of dollars)
SUPPLEMENTAL CONSOLIDATING DATA
MACHINERY AND ENGINES
(Caterpillar Inc. with Financial
Products on the equity basis)
Sep. 30, Sep. 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Profit ............................................ $ 980 $ 836
Adjustments for noncash items:
Depreciation and amortization ................... 434 442
Profit of Financial Products .................... (72) (61)
Other ........................................... 65 82
Changes in assets and liabilities:
Receivables -- trade and other .................. (174) 531
Inventories ..................................... (261) (344)
Accounts payable and accrued expenses ........... 139 (1)
Other -- net .................................... (70) (238)
------- -------
Net cash provided by operating activities ........... 1,041 1,247
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- excluding equipment
leased to others ................................ (302) (254)
Expenditures for equipment leased to others ....... (4) (6)
Proceeds from disposals of land, buildings,
machinery, and equipment ........................ 18 13
Additions to finance receivables .................. - -
Collections of finance receivables ................ - -
Proceeds from sale of finance receivables.......... - -
Net short-term loans to Financial Products......... 142 -
Other -- net ...................................... (370) (47)
------- -------
Net cash used for investing activities .............. (516) (294)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid ...................................... (213) (169)
Common stock issued, including treasury
shares reissued ................................. 8 -
Treasury shares purchased.......................... (214) (226)
Net short-term loans from Machinery and Engines.... - -
Proceeds from long-term debt issued ............... 35 -
Payments on long-term debt ........................ (16) (87)
Short-term borrowings -- net ...................... 9 65
------- -------
Net cash used for financing activities . .......... (391) (417)
------- -------
Effect of exchange rate changes on cash ............. (1) (74)
------- -------
Increase (decrease) in cash and
short-term investments ............................ 133 462
Cash and short-term investments at the
beginning of the period ........................... 580 395
------- -------
Cash and short-term investments at the
end of the period ................................. $ 713 $ 857
======= =======
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 Nine Months Ended
(Unaudited)
(Millions of dollars)
SUPPLEMENTAL CONSOLIDATING DATA
FINANCIAL PRODUCTS
Sep. 30, Sep. 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Profit ............................................ $ 72 $ 61
Adjustments for noncash items:
Depreciation and amortization ................... 89 75
Profit of Financial Products .................... - -
Other ........................................... 20 40
Changes in assets and liabilities:
Receivables -- trade and other .................. 3 (27)
Inventories ..................................... - -
Accounts payable and accrued expenses ........... 47 21
Other -- net .................................... 16 35
------- -------
Net cash provided by operating activities ........... 247 205
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- excluding equipment
leased to others ................................ (5) (2)
Expenditures for equipment leased to others ....... (167) (121)
Proceeds from disposals of land, buildings,
machinery, and equipment ........................ 71 53
Additions to finance receivables .................. (4,158) (3,770)
Collections of finance receivables ................ 2,170 1,887
Proceeds from sale of finance receivables.......... 964 935
Net short-term loans to Financial Products......... - -
Other -- net ...................................... (45) (25)
------- -------
Net cash used for investing activities .............. (1,170) (1,043)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid .................................... - -
Common stock issued, including treasury
shares reissued ................................. 20 30
Treasury shares purchased.......................... - -
Net short-term loans from Machinery and Engines.... (142) -
Proceeds from long-term debt issued ............... 774 930
Payments on long-term debt ........................ (745) (705)
Short-term borrowings -- net ...................... 1,015 599
------- -------
Net cash provided by financing activities ........... 922 854
------- -------
Effect of exchange rate changes on cash ............. (11) -
------- -------
Increase (decrease) in cash and
short-term investments ............................ (12) 16
Cash and short-term investments at the
beginning of the period ........................... 58 24
------- -------
Cash and short-term investments at the
end of the period ................................. $ 46 $ 40
======= =======
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 nine-month periods
ended September 30, 1996 and 1995, (b) the consolidated financial
position at September 30, 1996 and December 31, 1995, and (c) the
consolidated statement of cash flows for the nine-month periods ended
September 30, 1996 and 1995 have been made.
2. The results for the three- and nine-month periods ended September 30,
1996 are not necessarily indicative of the results for the entire year
1996.
3. The company buys and sells currencies only in amounts large enough to
cover business needs, and to protect its financial and competitive
position. The company's general approach is to manage future foreign
currency cash flows; it normally does not manage or hedge specific asset
or liability positions. In managing foreign currency, the company's
objective is to maximize consolidated aftertax U.S. dollar cash flows.
At September 30, 1996, the company had approximately $756 in contracts
to buy or sell foreign currency in the future. The carrying value and
the fair market value of such contracts in a net receivable position
was $3. The carrying value and fair market value of contracts in a net
payable position was $3.
4. The company has reviewed the status of its environmental and legal
contingencies and believes there are no material changes from that
disclosed in Form 10-K for the year ended December 31, 1995.
5. Affiliated Companies
The company's investments in affiliated companies consist principally of
a 50% interest in Shin Caterpillar Mitsubishi Ltd., Japan $(397). The
other 50% owner of this company is Mitsubishi Heavy Industries, Ltd.,
Japan.
Combined financial information of the affiliated companies that are
accounted for on the equity basis, as translated to U.S. dollars, was
as follows:
Three Months Ended Nine Months Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
RESULTS OF OPERATIONS
(Unaudited)
Sales ..................... $ 903 $ 957 $2,723 $2,823
====== ====== ====== ======
Profit .................... $ 20 $ 2 $ 47 $ 34
====== ====== ====== ======
FINANCIAL POSITION June 30, Sep. 30,
(Unaudited) 1996 1995
Assets:
Current assets ................................. $2,011 $1,872
Land, buildings, machinery and equipment - net.. 740 780
Other assets ................................... 431 322
------ ------
3,182 2,974
------ ------
Liabilities:
Current liabilities ............................ 1,735 1,676
Long-term debt due after one year .............. 147 215
Other liabilities .............................. 150 155
------ ------
2,032 2,046
------ ------
Ownership ........................................ $1,150 $ 928
====== ======
6. Inventories (principally "last-in, first-out" method) comprised the
following:
Sep. 30, Dec. 31,
1996 1995
(unaudited)
Raw materials and work-in-process ................ $ 854 $ 710
Finished goods ................................... 1,113 1,006
Supplies ......................................... 215 205
------ ------
$2,182 $1,921
====== ======
7. Following is a computation of profit per share:
Three Months Ended Nine Months Ended
Sep. 30, Sep. 30, Sep. 30, Sep. 30,
1996 1995 1996 1995
(Unaudited)
I. Net profit for period:
Profit - consolidated (A) ....... $ 310 $ 213 $ 980 $ 836
====== ====== ====== =======
II. Determination of shares (millions):
Weighted average number of
common shares outstanding (B) .. 192.0 198.3 193.0 199.4
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 1.8
------ ------ ------ -------
Average common shares
outstanding for fully diluted
computation (C) ................ 194.4 200.6 195.4 201.2
====== ====== ====== =======
III. Profit per share of common
stock:
Assuming no dilution (A/B) ...... $1.61 $1.07 $5.08 $4.19
Assuming full dilution (A/C) .... $1.59 $1.06 $5.02 $4.15
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND LIQUIDITY AND CAPITAL RESOURCES
A. Consolidated Results of Operations
THREE MONTHS ENDED SEPTEMBER 30, 1996 VS. THREE MONTHS ENDED SEPTEMBER 30,
1995
Machinery and Engines
Profit before tax of $401 million was up 66% from last year's third
quarter. Sales of Machinery and Engines of $3.85 billion were up 8%. The
higher sales resulted from a 5% increase in sales volume along with a 3%
improvement in price realization.
The increase in sales volume primarily resulted from higher machine
sales inside the United States. Machine sales were also higher outside the
United States. Engine sales were lower inside and higher outside the United
States. Price realization improved primarily because of price increases
taken over the past year, the absence of certain European currency hedges in
place a year ago, and a favorable change in geographic sales mix. (The
adverse impact of currency hedges (forward contracts) that matured during
third-quarter 1995 was about $35 million. All such forward contracts had
matured as of the end of 1995.) These factors were partially offset by the
negative effect of the stronger dollar on sales in European and Asian
currencies.
Margin (sales less cost of goods sold) of $944 million increased 37%
from the third quarter a year ago. Margin as a percent of sales was 24.5%,
up from 19.3%, primarily because of better price realization, higher sales
volume, 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 been boosted by continued improvements in manufacturing
efficiencies and essentially flat material costs (a result of our joint
efforts with suppliers).
Partially offsetting the impact on margin from these favorable items
was an unfavorable product sales mix.
Selling, general and administrative expenses were $423 million,
compared with $352 million during the third-quarter 1995. The $71 million
increase reflects the absence of a favorable adjustment to insurance reserves
during the third quarter last year, higher incentive pay expense, the effect
of inflation on costs, and increased spending levels in support of expanded
operations around the world. Volume-related parts distribution expenses also
contributed to the increase.
Research and development expenses of $104 million were about the same
as a year ago.
Operating profit was $417 million, up $168 million from the third
quarter a year ago. Operating profit, as a percent of sales, was 10.8%
compared with 7.0% a year ago.
Interest expense was essentially the same as third quarter a year ago.
Other income/expense was income of $32 million compared with income of
$40 million last year. A year ago, the third quarter benefited from a $10
million reimbursement under the company's insurance coverage for the
settlement of two class action complaints.
Financial Products
Before-tax profit for Financial Products was $39 million, the same as
last year's third quarter.
Third-quarter record revenues of $184 million were up $19 million
compared with third-quarter 1995, primarily the result of Caterpillar
Financial Services Corporation's (CFSC) larger portfolio.
Selling, general and administrative expenses were $69 million, an
increase of $12 million compared with third quarter a year ago, primarily due
to CFSC's depreciation on a higher volume of leased equipment. Interest
expense was $3 million higher due to increased borrowings to support the
larger CFSC portfolio, substantially offset by lower borrowing rates.
Income Taxes
The provision for income taxes was $138 million, compared with $69
million last year. The increase primarily was due to the higher before-tax
profit. Third-quarter 1995 tax expense reflected an estimated effective
annual tax rate of 31% and a favorable adjustment of $18 million to recognize
the impact of a tax rate change from 33% used for the first six months of the
year. Third-quarter 1996 tax expense reflects an estimated effective annual
tax rate of 32 1/2% and a favorable adjustment of $5 million to recognize the
impact of a change from 33% used for the first six months of the year.
Affiliated Companies
The company's share of affiliated companies' results was $8 million, up
$6 million from a year ago.
THREE MONTHS ENDED SEPTEMBER 30, 1996 VS. THREE MONTHS ENDED JUNE 30, 1996
Third-quarter profit of $310 million or $1.61 per share was $64 million
below second-quarter profit of $374 million or $1.94 per share.
Second-quarter profit was the highest quarterly profit in the company's
history. A decrease in sales volume of 4% was the most significant factor
contributing to the lower profit.
Machinery and Engines
Profit before tax for Machinery and Engines was $401 million, a $105
million decrease from the previous quarter. Sales of $3.85 billion decreased
$159 million because of the 4% lower sales volume. The decrease in sales
volume was primarily the result of lower machine and engine sales inside the
United States. The lower volumes were primarily due to lower production and
shipment schedules as a result of planned employee vacation periods during
the quarter. Outside the United States, lower machine sales were more than
offset by higher engine sales.
Margin was $88 million lower than the second quarter. As a percent of
sales, the margin rate was 24.5% compared with 25.7% last quarter. The lower
margin rate is attributed to the unfavorable impact of lower sales, a less
favorable mix of product sold, and higher discounts.
Selling, general and administrative expenses were $423 million, up $14
million from second quarter. The increase was primarily the result of
increased incentive pay expense.
Research and development expenses of $104 million were about the same
as the second quarter.
Operating profit of $417 million decreased $109 million. As a percent
of sales, operating profit was 10.8%, down 2.3 percentage points from the
second quarter.
Interest expense of $48 million was about the same as second quarter.
Other income/expense was income of $32 million and also about the same
as second quarter.
Financial Products
Financial Products' before-tax profit was $39 million, a decrease of $2
million from second quarter. Revenues were up $12 million, primarily the
result of CFSC's larger portfolio. Selling, general and administrative
expenses were up $7 million mostly due to the absence of the $8 million
favorable insurance reserve adjustment at Caterpillar Insurance Company
Limited (CICL) recorded during second quarter. Interest expense was up $7
million due to increased borrowings to support the larger CFSC portfolio,
partially offset by lower borrowing rates.
Income Taxes
Tax expense of $138 million decreased $43 million from the previous
quarter. The decline reflects lower profit before tax, a change in the
estimated effective annual tax rate from 33% to 32 1/2%, and a favorable
adjustment of $5 million to recognize the impact of the tax rate change for
the first six months.
NINE MONTHS ENDED SEPTEMBER 30, 1996 VS. NINE MONTHS ENDED SEPTEMBER 30, 1995
Profit for the nine months ended September 30, 1996, was $980 million or
$5.08 per share of common stock, an improvement of $144 million over profit
of $836 million or $4.19 per share for the first nine months of 1995. Sales
and revenues of $12.06 billion were $198 million higher than last year.
Machinery and Engines
Sales were $11.54 billion, an increase of $139 million from the same
period last year. Profit before tax was $1.31 billion, an improvement of
$219 million. The primary reasons for the increase in profit was 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.
Sales volume decreased about 1%, a result of higher machine sales
inside the U.S. being more than offset by lower machine sales outside the
U.S., and lower engine sales both inside and outside the United States.
Price realization improved primarily because of price increases taken over
the past year and the absence of certain European currency hedges in place a
year ago. (The adverse impact of currency hedges (forward contracts) that
matured during the first nine months of 1995 was about $100 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 and the
Japanese yen.
Margin (sales less cost of goods sold) increased $356 million primarily
because of the better price realization and the effect of the stronger dollar
as costs incurred in Japanese yen and European currencies translated into
fewer U.S. dollars. In addition, margins have improved by continued
improvements in manufacturing efficiencies and lower material costs (a result
of our joint efforts with suppliers).
These favorable items were partially offset by the effects of lower
sales volume.
Selling, general and administrative expenses were $1.22 billion,
compared with $1.09 billion during the first nine months of 1995. The $127
million increase reflects higher spending levels in support of expanded
operations around the world, the effect of inflation on costs, and higher
incentive pay expense.
Research and development (R&D) expenses were up $26 million from the
first nine months of 1995. The increase primarily reflects continuing high
levels of activity for new product introductions.
Operating profit of $1.36 billion was $203 million higher than the first
nine months of 1995. Operating profit as a percent of sales was 11.8%
compared with 10.2% a year ago.
Interest expense of $146 million was about the same as a year ago.
Other income/expense was income of $90 million compared with income of
$72 million last year. The increase of $18 million is primarily due to
higher interest income and a favorable change in foreign exchange gains and
losses. Partially offsetting these favorable items was the absence of a $10
million reimbursement under the company's insurance coverage for the
settlement of two class action complaints recorded in 1995.
Financial Products
Before-tax profit for Financial Products was $116 million, an increase
of $15 million from the first nine months of 1995. The increase resulted
primarily from higher earnings from a larger portfolio of earning assets at
CFSC, and higher gains recognized on the sale of securities and favorable
insurance reserve adjustments at CICL. Partially offsetting these favorable
items was the absence of an $11 million pre-tax gain in the first half of
1995 for interest rate caps written by CFSC.
Revenues were up $59 million, primarily the result of CFSC's larger
portfolio. Selling, general and administrative expenses were up $24 million,
also primarily due to CFSC's larger portfolio. Interest expense was up $14
million due to increased borrowings to support the larger portfolio,
partially offset by lower borrowing rates. Other income/expense was income
of $24 million, a decrease of $6 million from a year ago. The first nine
months of 1995 included an $11 million favorable mark-to-market adjustment
for CFSC's written interest rate caps. Partially offsetting this were higher
gains recognized in 1996 on the sale of securities in CICL's investment
portfolio.
Income Taxes
Tax expense was $462 million, $94 million higher than a year ago. The
increase reflects higher before-tax profit and a 32 1/2% estimated annual tax
rate compared with 31% for the first nine months of 1995.
Affiliated Companies
The company's share of affiliated companies' results was $21 million, up
$4 million from a year ago.
Sales
Following are summaries of third-quarter company sales and dealer
deliveries compared with the same quarter in 1995.
Caterpillar sales inside the United States were $1.83 billion, a $193
million or 12% increase from the same quarter a year ago as higher machine
sales more than offset lower engine sales. Company machine sales were higher
despite lower sales to end-users as dealers relied less on their inventories
to meet final customer demand. Both volume and price realization improved
from year-earlier levels.
Sales inside the United States during the third quarter were 47% of
total sales, an increase from 46% a year ago.
U.S. dealer machine sales to end-users declined from year-earlier
levels due to a reduced share of industry sales. Industry demand remained at
very strong levels and was up slightly from third quarter last year.
Sales to end-users (including rental purchase options) in the
construction sector were lower due to the decline in highway-related sales.
- Highway-related sales were down from year-earlier levels and reflect
lower government spending on highway construction and repair.
- Sales to the housing sector were near year-earlier levels as housing
starts remained strong.
- Commercial, industrial and government building-related sales were up
reflecting slightly higher construction spending in these areas.
Sales declined for commodity applications in total although the results
are mixed by sector.
- Coal mining-related sales remained near year-earlier levels. Mine
production was up slightly but prices were lower.
- Sales to the sand and quarry mining sector remained near
year-earlier levels despite higher mine production.
- Agricultural-related sales were higher reflecting the introduction
of new models. Industry demand for agricultural equipment in the
size range in which the company competes was virtually unchanged
from third-quarter 1995 levels.
- Sales to the forestry sector were below year-earlier levels
reflecting lower lumber and pulp production and prices.
- Metal mining-related sales also were down reflecting lower mine
production and metals prices.
Sales to landfills and industrial applications were higher.
Deliveries to U.S. dealer rental fleets were down from third-quarter
1995. U.S. dealer dedicated rental inventories rose from the end of second
quarter and remained above year-earlier levels.
U.S. dealer new machine inventories were down from the end of the
second quarter and below year-earlier levels. This level of inventory is
about normal relative to current selling rates.
Company engine sales inside the United States were below year-earlier
levels primarily as a result of weaker industry demand for diesel truck
engines from Original Equipment Manufacturers (OEMs). Total diesel engine
sales to users and OEMs also were down with declines in truck and power
generation applications more than offsetting gains in marine and petroleum
applications.
Sales of turbine engines were relatively flat.
Company sales outside the United States were $2.02 billion, an $88
million or 5% increase over third-quarter 1995. Company sales of both
machines and engines were higher with most of the improvement coming from
better price realization. Sales to users registered a larger increase but a
reduction in dealer new machine inventory levels during the quarter prevented
company sales from rising as much as sales to users.
Sales outside the United States represented 53% of worldwide sales,
compared with 54% for the third quarter last year.
Dealer machine sales to end-users outside the United States were higher
in the third quarter than year earlier. Sales were up in all regions except
Europe and the Commonwealth of Independent States.
- Europe: Sales for the region were lower primarily due to declines
in Germany and France where the construction sector has remained
weak. Sales were higher in the United Kingdom and Central Europe.
- Asia (excluding Japan and China): Sales were up as excellent
economic growth and strong infrastructure spending continues. Sales
rose in all major countries.
- Africa and the Middle East: Demand continues to improve in response
to good commodity prices, exports and economic growth. South Africa
and Turkey registered the largest gains and account for most of the
improvement.
- Latin America: Sales exceeded year-earlier levels as economic
growth continued to accelerate in the region. Sales were up in most
major countries including Brazil, Colombia, Chile, Argentina, and
Mexico.
- Canada: Sales were unchanged as industry demand remained near
third-quarter 1995 levels. Results were mixed by application with
gains in metal, sand and quarry mining and highway construction.
- Australia: Sales were higher than a year ago due primarily to a
large increase in coal mining-related sales.
- Japan: Sales of imported product were up reflecting an improving
industry demand and general economic recovery.
- China: Sales were higher reflecting strong economic growth and
infrastructure investment combined with an easing of credit
restrictions.
- Commonwealth of Independent States (CIS): Sales were below
year-earlier levels.
Dealer new machine inventories outside the United States were down from
the end of the second quarter. Dealer inventories were unchanged from year
earlier and are slightly below normal relative to current selling rates.
Company engine sales outside the United States were above year-ago
levels. Higher diesel engine sales to users in power generation, industrial,
and petroleum applications more than offset lower sales to users and OEMs in
truck and marine applications. Sales to users were higher in Asia and Europe
and lower in Canada and Latin America.
Sales of turbine engines were lower with declines in Latin America,
Canada and the Middle East more than offsetting gains in Asia, Europe and
Australia.
PLANT CLOSING AND CONSOLIDATION COSTS
At September 30, 1996 the reserve for plant closing and consolidation
costs was $262 million. Of this balance, $170 million related to anticipated
costs associated with the closure of the Component Products Division's
York, Pennsylvania, facility. The probable closing of the York facility was
announced in December 1991. The company determined that unless significant
cost reductions were made, the unit would be closed. The company is currently
in the early stages of closing the plant.
Also in the reserve for plant closing and consolidation costs at
September 30, 1996, was $69 million for write-downs of buildings, machinery
and equipment at previously closed facilities. The remainder of the reserve
related to severance benefits provided to former employees at previously
closed facilities. The reserve for such benefits is amortized as the benefits
are provided. Currently amortization periods are through 2003.
EMPLOYMENT
At the end of the third quarter, Caterpillar's worldwide employment was
55,205, compared with 54,267 one year ago. Hourly employment increased 76 to
32,135; salaried and management employment increased 862 to 23,070. The
increased employment is the result of acquisitions and in support of expanded
operations around the world, partially offset by attrition.
ECONOMIC AND INDUSTRY OUTLOOK
The world economic and industry outlook for 1996 is virtually unchanged
from that issued in July. Economic growth will be moderate, and worldwide
industry machine sales are projected to remain near last year's level.
Worldwide demand for engines, however, is still forecast to decline from last
year's record levels.
The U.S. economy is expected to moderate resulting in Gross Domestic
Product (GDP) growth of about 2.5% for the year. U.S. industry demand for
machines in 1996 is forecast to be just slightly below 1995 levels, while
truck engine demand is still expected to decline noticeably.
In Europe, current low interest rates are forecast to result in
better economic growth in the second half, but for the year as a whole GDP
is projected to rise less than 2%. This level of growth is probably not
sufficient to keep industry demand from declining for the year.
Elsewhere, good economic growth should lead to higher industry
demand in Asia, China, and Africa and the Middle East. Moderate economic
growth in Australia and Japan should result in slightly higher industries,
but demand in Latin America will decline despite a stronger economy.
In 1997, moderate economic growth should continue for the world as a
whole, and industry demand for machines should remain near 1996 levels.
In the U.S., slower economic growth is likely to result in lower
machine industry demand although the industry is not expected to
decline much from the strong levels of 1996.
In Europe, economic growth is forecast to improve, but industry
demand is forecast to remain near 1996 levels due to tight fiscal
policies in preparation for candidacy to the European Monetary Union.
In Japan, a slower economy and the April 1997 imposition of a
higher sales tax will probably result in slowing industry demand
during the course of the year. In contrast, better economic growth in
Canada and continued moderate growth in Australia should result in
slightly higher industry demand.
In the rest of the world, good economic growth should lead to
higher industry demand for machines in Latin America, Asia, China,
Africa and the Middle East, and the CIS.
In 1997, worldwide industry demand for engines is expected to increase
despite lower truck engine demand from OEMs in North America. Commercial
engine demand should be higher both inside and outside North America.
COMPANY OUTLOOK
As reported in July, stronger than anticipated sales in the United
States should more than offset weaker than projected sales in Europe and
Latin America. Consolidated sales and profit for 1996 are expected to be
above 1995 levels. Our preliminary expectations are that 1997 company sales
will slightly surpass 1996 record levels.
The information included in the Outlook section is forward looking and
involves risks and uncertainties that could significantly impact expected
results. A discussion of these risks and uncertainties is contained in Form
8-K filed with the Securities & Exchange Commission on October 15, 1996.
B. Liquidity & Capital Resources
Consolidated operating cash flows totaled $1.288 billion through the
third quarter of 1996, compared with $1.452 billion for the first nine months
of 1995.
Total debt at the end of the first nine months was $7.445 billion, an
increase of $1.045 billion from year end 1995. Over this period, debt
related to Machinery & Engines increased $30 million, to $2.249 billion,
while debt related to Financial Products increased $1.015 billion to $5.196
billion.
Machinery and Engines
Operating cash flows totaled $1.041 billion through the third quarter of
1996, compared with $1.247 billion through the third quarter of 1995. The
cash flow decrease is primarily the result of increased receivables.
Capital expenditures, excluding equipment leased to others, totaled $302
million through the third quarter compared with $254 million a year ago. The
percent of debt to debt plus stockholders equity improved to 36% at
September 30, 1996, from 40% at December 31, 1995.
Financial Products
Operating cash flows totaled $247 million through the third quarter of
1996, compared with $205 million through the third quarter of 1995. Cash
used to purchase equipment leased to others totaled $167 million through the
third quarter of 1996. In addition, year-to-date 1996 net cash used for
finance receivables was $1.024 billion, compared with $948 million through
the third quarter of 1995.
Financial Products' debt was $5.196 billion at September 30, 1996, an
increase of $1.015 billion from December 31, 1995. At the end of the third
quarter, finance receivables past due over 30 days were 1.8%, compared with
2.2% at the end of the same period one year ago. The ratio of debt to equity
of Cat Financial was 8.1:1 at September 30, 1996, compared with 7.7:1 at
December 31, 1995.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
10 Directors' Deferred Compensation Plan
27 Financial Data Schedule
(b) One report on Form 8-K, dated July 16, 1996, was filed during the
quarter ending September 30, 1996, pursuant to Item 5 of that form. An
additional Form 8-K was filed on October 15, 1996 pursuant to Item 5. No
financial statements were filed as part of those reports.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CATERPILLAR INC.
Date: November __, 1996 By: /s/ D. R. Oberhelman
D. R. Oberhelman, Vice President
and Chief Financial Officer
Date: November __, 1996 By: /s/ R. R. Atterbury III
R. R. Atterbury III, Secretary
EXHIBIT INDEX
Exhibit
Number Description
10 Directors' Deferred Compensation Plan
27 Financial Data Schedule