401(k) Retirement Plan 2013


 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
 
 
 
FORM 11-K
 
(Mark
One)
 
[X]
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
OR
 
[  ]
TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
 
 
 
Commission File No. 1-768
 
 
 
 
 
CATERPILLAR 401(K) RETIREMENT PLAN
(Full title of the plan and the address of the plan, if different from that of the issuer named below)
 
 
 
 
CATERPILLAR INC.
100 NE Adams Street, Peoria, Illinois 61629
 (Name of issuer of the securities held pursuant to the plan and the address of its principal executive office)
 
 
 
 
 
 












Caterpillar 401(k) Retirement Plan
Financial Statements and Supplemental Schedules
December 31, 2013 and 2012





Caterpillar 401(k) Retirement Plan
 
Index
 
 
 
 
Page(s)
 
Report of Independent Registered Public Accounting Firm
 
 
Financial Statements
 
 
 
Supplemental Schedules
 
 
 
Exhibit Index
 
23.1 - Consent of Independent Registered Public Accounting Firm
 
Note: Other schedules required by 29 CFR 2520.103-10 of the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 have been omitted because they are not applicable. 
 






Report of Independent Registered Public Accounting Firm
To the Participants, Plan Administrator
and Benefit Funds Committee of the
Caterpillar 401(k) Retirement Plan


In our opinion, the accompanying statements of net assets available for benefits and the related statement of changes in net assets available for benefits present fairly, in all material respects, the net assets available for benefits of the Caterpillar 401(k) Retirement Plan (the “Plan”) at December 31, 2013 and 2012, and the changes in net assets available for benefits for the year ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The Supplemental Schedule H, Line 4i - Schedule of Assets (Held at End of Year) as of December 31, 2013 and the Schedule G, Part III - Nonexempt Transactions for the year ended December 31, 2013 are presented for the purpose of additional analysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. These supplemental schedules are the responsibility of the Plan's management. The supplemental schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole.


/s/ PricewaterhouseCoopers LLP

Peoria, Illinois
June 27, 2014





Caterpillar 401(k) Retirement Plan
Statements of Net Assets Available for Benefits
December 31, 2013 and 2012
 
 
 
 
 
(in thousands of dollars)
 
2013
 
2012
Investments
 
 
 
 
Interest in the Master Trust
 
$
2,687,793

 
$
3,726,296

Other investments – participant directed brokerage accounts
 
55,230

 
79,420

Total investments
 
2,743,023

 
3,805,716

 
Receivables
 
 
 
 
Participant notes receivable
 
45,192

 
74,161

Employer contributions receivable
 
26,168

 
79,795

Total receivables
 
71,360

 
153,956


Liabilities
 
 
 
 
Other payable
 
(2,909
)
 

 
 
 
 
 
Net assets available for benefits, at fair value
 
2,811,474

 
3,959,672

Adjustment from fair value to contract value for the Master Trust's investment in fully benefit-responsive synthetic guaranteed investment contracts
 
(862
)
 
(11,289
)
Net assets available for benefits
 
$
2,810,612

 
$
3,948,383

 
 
 
 
 
The accompanying notes are an integral part of these financial statements.




1



Caterpillar 401(k) Retirement Plan
Statement of Changes in Net Assets Available for Benefits
Year Ended December 31, 2013
 
 
 
 
 
(in thousands of dollars)
 
 
 
2013
Investment income (loss)
 
 
 
 
Plan interest in net investment income (loss) of the Master Trust
 
 
 
$
417,599

Net investment income (loss) from participant directed brokerage accounts
 
 
 
10,801

Net investment income (loss)
 
 
 
428,400

Interest income
 
 
 
 
Participant notes receivable
 
 
 
3,145

 
Contributions
 
 
 
 
Participant
 
 
 
183,401

Employer
 
 
 
142,412

Total contributions
 
 
 
325,813

 
Deductions
 
 
 
 
Participant withdrawals
 
 
 
(288,636
)
Administrative expenses
 
 
 
(3,846
)
Total deductions
 
 
 
(292,482
)
 
 
 
 
 
Increase (decrease) in net assets available for benefits
 
 
 
464,876

 
 
 
 
 
Transfers
 
 
 
 
Transfers from (to) other plans, net
 
 
 
(1,602,647
)
 
 
 
 
 
Net increase (decrease) in net assets available for benefits
 
 
 
(1,137,771
)
Net assets available for benefits
 
 
 
 
Beginning of year
 
 
 
3,948,383

End of year
 
 
 
$
2,810,612

 
 
 
 
 
The accompanying notes are an integral part of these financial statements.
 




2



Caterpillar 401(k) Retirement Plan
Notes to Financial Statements
December 31, 2013 and 2012

1.
Plan Description
The following description of the Caterpillar 401(k) Retirement Plan (the “Plan”) provides only general information. Participants should refer to the Plan documents for more complete information regarding the Plan.

General
The Plan is a profit sharing plan that includes a cash or deferred arrangement under Section 401(k) of the Internal Revenue Code ("IRC") and an "employee stock ownership plan" maintained by Caterpillar Inc. (the “Company”), and enables eligible employees of the Company and its subsidiaries that adopt the Plan (the “participating employers”) to accumulate funds for retirement. The Plan is subject to the provisions of the Employee Retirement Income Security Act, as amended (“ERISA”).

Effective December 14, 2013, the Plan was amended to: (1) close the Plan for new entrants; and (2) reflect the cessation of participation of certain participants. For additional information, refer to the Plan Amendment section of Note 1.

Participation
Management, salaried and non-bargained hourly employees on U.S. payroll who meet certain age and service requirements and who are not eligible to participate in the Caterpillar 401(k) Savings Plan ("401(k) SP") are eligible to participate in the Plan. Participating eligible employees (the “participants”) elect to defer a portion of their compensation through pre-tax and after-tax contributions. For determination of which contribution provisions of the Plan are applicable, participants are divided into “Group 1 Participants” and “Group 2 Participants”. These groups are described as follows:

Group 1 Participants - Plan participants who are not part of Group 2, as described below, are classified as Group 1 Participants.

Group 2 Participants - The following Plan participants are classified as Group 2 Participants:

Plan participants who, as of January 1, 2011, continue to accrue pension benefits or are eligible to continue to accrue pension benefits upon returning from a leave of absence under the pension equity formula of the Caterpillar Inc. Retirement Income Plan ("RIP"). Pension benefit accruals under RIP for these participants will cease on January 1, 2020, at which time these participants will move into Group 1.

Participants that were employed by participating employers that were in existence on December 31, 2010 that did not participate in RIP or the Solar Turbines Incorporated Retirement Plan.

Participants at specified facilities that have adopted the Plan. Effective dates for these employees vary based on the adoption of the Plan. Participants should refer to the Plan documents for a complete list.

Contributions
All Plan participants (i.e., Group 1 Participants and Group 2 Participants) are eligible to make participant contributions through a pre-tax deferral arrangement and an after-tax Roth 401(k) arrangement as elected by the participants. Participants who are at least 50 years old by the end of the calendar year are allowed to make a catch-up contribution for that year. Contributions are subject to certain limitations set by the IRC. All Plan participants also are eligible for employer matching contributions which are 100 percent of participant 401(k) contributions up to a maximum of 6 percent of compensation.


3



In addition, Group 1 Participants are also eligible for an annual employer non-elective contribution. The non-elective contribution is based on a point system calculated on the last day of each Plan year which is the sum of the participant's age plus years of benefit service. Based upon the participant's point total, a non-elective contribution of 3, 4 or 5 percent of base and annual incentive pay will be made after the close of the Plan year. In order to receive the annual non-elective contribution, the participant must complete a year of benefit service and be employed by the Company or a participating employer on December 31st of the Plan year for which the contribution relates. The non-elective contribution is included as an Employer contributions receivable on the Statements of Net Assets Available for Benefits and was $23.4 million and $71.7 million for the 2013 and 2012 Plan years, respectively. Group 2 Participants are not eligible for the annual employer non-elective contribution.
 
Participants direct the investment of their contributions, employer matching and employer non-elective contributions into various investment options offered by the Plan as discussed in Note 3. Participants generally may change their contribution elections and prospective investment elections on a daily basis and reallocate the investment of their existing account balance either daily or every seven business days (if subject to applicable trading restrictions) depending on the investment.

Newly eligible employees are subject to an automatic enrollment process. Unless electing otherwise, employees who become newly eligible will be enrolled with a default 6 percent deferral of their eligible base and incentive pay, and their default investment election is to the Model Portfolio - Moderately Aggressive Fund. The automatic enrollment process has an automatic escalation feature whereby newly eligible employees will have their default 6 percent deferral of base pay increased 1 percent each year until the employee is contributing 15 percent, unless the employee elects otherwise.

Participant Accounts
Accounts are separately maintained for each participant. The participant's account is credited with the participant's contributions, employer matching contributions, employer non-elective contributions and an allocation of Plan earnings/losses and charged with an allocation of administrative expenses. Allocations are based on participant account balances. Participants are entitled to the benefit that can be provided from the participant's vested account.

Vesting and Distribution Provisions
Participants are fully vested in their participant contributions, employer matching contributions and related earnings thereon. Participants fully vest in the employer non-elective contributions and the earnings thereon after being credited with three years of benefit service. The Plan provides for 100 percent vesting of the employer non-elective contributions and the earnings thereon, upon a participant's death while actively employed or a participant's death while performing qualified military service. Company contributions forfeited by terminated participants are used to reduce future Company contributions to the Plan. Upon termination of employment for any reason, including death or retirement, the balance in participants' accounts is distributable in a single lump sum cash payment unless the participant (or beneficiary) elects to receive periodic withdrawals. Participants also have the option to leave their vested account balance in the Plan, subject to certain limitations. A participant also may elect to receive a distribution of Company shares up to the amount of the participant's balance in the Caterpillar Stock Fund. The value of any full or fractional shares paid in cash will be based upon the average price per share the Trustee receives from sales of Company shares for the purpose of making the distribution.

Participant Notes Receivable
The Plan provides for participant loans against eligible participant account balances. Eligible participants obtain loans by filing a loan application with the Plan's recordkeeper and receiving all requisite approvals. Loan amounts are generally limited to the lesser of $50,000 or 50 percent of the individual participant's vested account balance, with certain regulatory restrictions. Each loan specifies a repayment period that cannot extend beyond five years. However, the five-year limit shall not apply to any loan used to acquire any dwelling unit which within a reasonable time is to be used (determined at the time the loan is made) as the principal residence of the participant. Loans bear interest at the prime interest rate plus 1 percent, as determined at the time of loan origination. Loans that transferred to the Plan due to acquisitions are based upon the terms of the plan agreement in effect at the time of loan origination. Repayments, including interest, are made through payroll deductions and are credited to the individual participant's account balance. Participant loans are measured at their unpaid principal balance plus any accrued but unpaid interest.

4



Administration
The Plan is administered by the Company. Pursuant to procedures adopted by the Company, responsibility for the Plan's non-financial matters has been assigned to the U.S. Benefits Manager and responsibility for the Plan's financial matters has been assigned to the Caterpillar Inc. Benefit Funds Committee. The Company and the Benefit Funds Committee have entered into a trust agreement with The Northern Trust Company (the “Trustee”) to receive contributions, administer the assets of the Plan and distribute withdrawals pursuant to the Plan.

Plan Termination
The Company has the right under the Plan at any time to terminate the Plan subject to provisions of ERISA. In the event of Plan termination, Plan assets will be distributed in accordance with the provisions of the Plan.

Plan Qualification
The Plan obtained its latest determination letter on December 8, 2011, in which the Internal Revenue Service ("IRS") stated that the Plan and related trust, as then designed, were in compliance with the applicable requirements of the IRC. Although the Plan has been amended subsequent to the period covered by the determination letter, the Plan Administrator and the Plan's counsel believe that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC, and therefore, believe that the Plan is qualified and the related trust is tax-exempt.

Accounting principles generally accepted in the United States of America require management to evaluate tax positions taken by the Plan and recognize a tax liability if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. The Company has analyzed the tax positions taken by the Plan and has concluded that, as of December 31, 2013 and 2012, there are no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Company believes it is no longer subject to income tax examinations for years prior to 2007.

Plan Amendment
On December 14, 2013, the Plan was closed to new entrants. In addition, certain employees who meet the eligibility requirements of the Plan prior to December, 14, 2013, were transferred to the 401(k) SP plan. This transfer included: (1) all active participants who, as of September 30, 2013, met specific salary grade requirements (pursuant to the Company's standard salary grades) described in the Plan document; (2) all active participants who became participants in the Plan from July 1, 2005 through June 30, 2008, regardless of salary grade; (3) all active participants who were employed in the Company's Global Mining Division and who became eligible for the Plan effective January 1, 2012, as a result of the Company's acquisition of Bucyrus International, Inc.; and (4) all active participants who became participants in the Plan on or after January 1, 2012, regardless of salary grade. On December 14, 2013, $1.6 billion of participant balances and Participant notes receivable were transferred from the Plan to the 401(k) SP plan.
 
2.
Summary of Significant Accounting Policies

New Accounting Guidance
Disclosures about Offsetting Assets and Liabilities - In December 2011, the Financial Accounting Standards Board ("FASB") issued accounting guidance on disclosures about offsetting assets and liabilities. The guidance required entities to disclose both gross and net information about instruments and transactions that are offset in the Plan's financial statements, as well as instruments and transactions that are subject to an enforceable master netting arrangement or similar agreement. In January 2013, the FASB issued guidance clarifying the scope of the disclosures to apply only to derivatives, including bifurcated embedded derivatives, repurchase and reverse repurchase agreements, and securities lending and securities borrowing transactions. This guidance was effective for the Plan year ending December 31, 2013, with retrospective application required. The adoption of this guidance did not have a material impact on the Plan's financial statements.


5



Basis of Accounting
The financial statements of the Plan are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.

Investments
The Plan's interest in the Master Trust and investments included in the participant directed brokerage accounts are valued as described in Note 4. Interest on investments is recorded as earned. Dividends are recorded on the ex-dividend date. Purchases and sales of securities are recorded on a trade-date basis.

Administrative Expenses
In 2013, the Plan charged an annualized 2.3 basis points of the fair value of the assets of each investment fund and a $3 per month per-participant fee, which are transferred monthly from the Caterpillar Investment Trust into a holding account to pay expenses as they come due. The amount accumulated in the holding account is used to pay certain administrative expenses that have been approved by the Benefit Funds Committee including recordkeeping fees, trustee fees, plan education and audit fees. The Company pays any administrative expenses, excluding applicable expenses paid directly from participant accounts described below, which exceed amounts collected from participants annually by the Plan. If amounts collected from participants exceed certain administrative expenses, the Company determines whether a corrective action is appropriate which could include a reallocation of funds back to participant accounts or a structural change to the participant fees. Effective January 1, 2014, the asset-based fee was eliminated and the per-participant fee was increased to $5 per month.

In addition, certain administrative expenses are paid directly from participant accounts. These administrative expenses include quarterly fees for participants invested in the participant directed brokerage option, quarterly fees for participants that utilize managed account services and processing fees for qualified domestic relations orders.

Participant Withdrawals
Participant withdrawals are recorded when paid.

Transfers
As discussed in Note 1, $1.6 billion of participant balances and Participant notes receivable were transferred from the Plan to the 401(k) SP plan.

Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. The Company believes the techniques and assumptions used in establishing these amounts are appropriate.

Risks and Uncertainties
The Plan invests in a combination of stocks, bonds, fixed income securities, mutual funds and other investment securities. Investment securities are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities could occur in the near term and that such changes could materially affect participant account balances and the amounts reported in the Statements of Net Assets Available for Benefits. At December 31, 2013 and 2012, approximately 37 percent and 39 percent of the Plan's investments were invested in Caterpillar Inc. common stock, respectively.

Reclassifications
Certain amounts from the prior year have been reclassified to conform to the current-year financial statements and footnote presentation.


6



3.
Investment Programs
The investment options available to participants consist of three main categories: core investments (including the Caterpillar Stock Fund), model portfolios, and a participant directed brokerage option.

The core investments consist of twelve investment options, each representing a different asset class but collectively offering a broad range of investment alternatives with varying levels of risk and potential returns.

The Caterpillar Stock Fund consists of Caterpillar Inc. common stock and a small amount of cash and/or cash equivalents.

The model portfolios contain a specific mix of the Plan's core investments. Each portfolio's mix of stocks and bonds is automatically rebalanced on the last business day of each calendar quarter. The targeted percentage of stocks and bonds in each of the model portfolios is as follows:
*
Conservative
 
20% stocks and 80% bonds
*
Moderately Conservative
 
40% stocks and 60% bonds
*
Moderately Aggressive
 
60% stocks and 40% bonds
*
Aggressive
 
80% stocks and 20% bonds

The participant directed brokerage option allows participants to invest outside of the standard Plan options. Hewitt Financial Services is the custodian for funds invested through this participant directed brokerage option. The types of investments offered through the participant directed brokerage option are individual company stocks (excluding Caterpillar Inc. common stock), exchange traded funds, fixed income securities such as bonds and registered investment companies. The Net investment income (loss) from the participant directed brokerage accounts primarily consists of net appreciation (depreciation) related to registered investment companies.

4.
Master Trust
Substantially all of the Plan's investments are held in the Caterpillar Investment Trust, which was established for the investment of the Plan and other Company sponsored retirement plans. The Northern Trust Company is the Trustee of the Caterpillar Investment Trust and the custodian for funds invested through the core investments and model portfolios (the funds invested through the core investments and model portfolios are referred to as the “Master Trust” herein). The Plan and the other Company sponsored retirement plans pool their investments in the Master Trust in exchange for a percentage of participation in the Master Trust.

The percentage of the Plan's participation in the Master Trust was determined based on the December 31, 2013 and 2012 net asset values for the investment fund options chosen by participants of each plan. At December 31, 2013 and 2012, the Plan's interest in the net assets of the Master Trust was 31.78 percent and 51.10 percent, respectively.


7



The following table presents the net assets of the Master Trust as of December 31, 2013 and 2012. Investments that represent 5 percent or more of the Master Trust's net assets are individually identified.
(in thousands of dollars)
 
2013
 
2012
ASSETS
 
 
 
 
Investments, at fair value
 
 
 
 
Caterpillar Inc. common stock
 
$
2,668,259

 
$
2,971,978

Common stocks
 
2,232,207

 
1,514,250

Preferred stocks
 
7,947

 
5,594

Preferred corporate bonds and notes
 
118,344

 
61,228

Other corporate bonds and notes
 
167,362

 
90,912

U.S. government securities
 
295,510

 
229,026

Fully benefit-responsive synthetic guaranteed investment contracts 1
 
950,312

 
952,050

Common collective trusts:
 
 
 
 
NT Collective Russell 3000 Index Fund - Non-Lending
 
621,350

 
339,370

Other
 
1,097,871

 
1,084,091

Registered investment companies
 
2,149

 
1,786

Interest bearing cash
 
28,427

 
38,117

Other investments, net
 
56,114

 
38,710

 
 
8,245,852

 
7,327,112

 
 
 
 
 
Other assets
 
 
 
 
Cash
 
821

 
497

Receivable for plan transfers 2
 
258,749

 

Receivables for securities sold
 
44,206

 
13,399

Accrued income
 
7,445

 
5,007

 
 
311,221

 
18,903

 
 
 
 
 
Total Master Trust assets
 
8,557,073

 
7,346,015

 
 
 
 
 
LIABILITIES
 
 
 
 
Payables for securities purchased
 
(100,468
)
 
(53,359
)
 
 
 
 
 
Net Master Trust assets, at fair value
 
8,456,605

 
7,292,656

 
 
 
 
 
Adjustment from fair value to contract value for fully benefit-responsive synthetic guaranteed investment contracts
 
(2,303
)
 
(22,830
)
 
 
 
 
 
Net Master Trust assets
 
$
8,454,302

 
$
7,269,826

 
 
 
 
 
Plan’s interest in net Master Trust assets with fully benefit-responsive synthetic guaranteed investment contracts at contract value
 
$
2,686,931

 
$
3,715,007

 
 
 
 
 
1 In 2013, includes ($61,682) thousand of payables for securities purchased and $4,746 thousand of receivables for securities sold.
2 On December 31, 2013, the Progress Rail Services Corporation 401(k) Plan and the Electro-Motive Diesel, Inc. Salaried Employees Retirement Savings Plan merged into the Caterpillar 401(k) Savings Plan. Plan assets were not transferred into the Master Trust until January 2014.



8



Investments are stated at fair value and are valued as described below:

Common and preferred stocks: Primarily valued at quoted market prices.
Preferred and other corporate bonds and notes: Valued based on matrices or models from reputable pricing vendors and may be determined by factors which include, but are not limited to market quotations, yields, maturities, call features, ratings, institutional size trading in similar groups of securities and developments related to specific securities.
U.S. government securities: Valued based on matrices or models from reputable pricing vendors.
Fully benefit-responsive guaranteed investment contracts: Valued based upon the type of underlying investment: 1) Corporate and government bonds and mortgaged and asset backed securities are valued based on matrices or models from reputable pricing vendors; 2) Common collective trusts are stated at net asset value, which represents the fair value of the underlying investments; and 3) the value of the wrap contacts, if any.
Common collective trusts: Primarily stated at net asset value, which represents the fair value of the underlying investments.
Registered investment companies: Valued at quoted market prices that represent the net asset value of shares held by the Master Trust.
Interest bearing cash: Stated at cost which approximates fair value.
Other investments, net: Primarily valued at quoted market prices, when available, or are valued based on matrices or models from reputable pricing vendors.

The preceding methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The following table summarizes investments measured at fair value based on net asset value per share and other investments that have unfunded commitments or redemption restrictions as of December 31, 2013 and 2012.
(in thousands of dollars)
 
 
 
 
 
December 31, 2013
Fair Value
Unfunded Commitments
Redemption Restrictions
Redemption Frequency (if currently eligible)
Redemption Notice Period
Common collective trusts:
 
 
 
 
 
Stocks
$
1,018,896


None
Daily
None
Short-term investments
$
427,730


None
Daily
None
U.S. government securities
$
256,185


None
Daily
None
Private placement - Mortgages
$
16,410


Yes 1
Monthly 1
Yes 1
 
 
 
 
 
 
Fully benefit-responsive synthetic guaranteed investment contracts:
 
 
 
 
 
Common collective trusts:
 
 
 
 
 
Short-term investments
$
77,654


None
Daily
None
 
 
 
 
 
 
1 Redemptions allowed once per month and restricted to available cash on hand as determined by the trustee of the fund. A notice of redemption is required five days prior to the last business day of the month.


9



(in thousands of dollars)
 
 
 
 
 
December 31, 2012
Fair Value
Unfunded Commitments
Redemption Restrictions
Redemption Frequency (if currently eligible)
Redemption Notice Period
Common collective trusts:
 
 
 
 
 
Stocks
$
584,096


None
Daily
None
Short-term investments
$
400,364


None
Daily
None
Mortgage-backed securities and U.S. government securities
$
234,280


None
Daily
None
Corporate bonds and notes
$
188,876


None
Daily
None
Private placement - Mortgages
$
15,845


Yes 1
Monthly 1
Yes 1
 
 
 
 
 
 
Fully benefit-responsive synthetic guaranteed investment contracts:
 
 
 
 
 
Common collective trusts:
 
 
 
 
 
Corporate bonds and notes
$
896,163


None
Daily
None
Private placement - Mortgages
$
55,139


Yes 1
Monthly 1
Yes 1
 
 
 
 
 
 
1 Redemptions allowed once per month and restricted to available cash on hand as determined by the trustee of the fund. A notice of redemption is required five days prior to the last business day of the month.

During 2013, the Master Trust's investments (including investments bought and sold, as well as held during the year) appreciated (depreciated) as follows:
(in thousands of dollars)
 
 
 
2013
Net appreciation (depreciation) in fair value of investments:
 
 
 
 
Caterpillar Inc. common stock
 
 
 
$
37,065

Common stocks
 
 
 
535,377

Preferred stocks
 
 
 
1,077

Preferred corporate bonds and notes
 
 
 
(2,826
)
Other corporate bonds and notes
 
 
 
(2,651
)
U.S. government securities
 
 
 
(10,482
)
Common collective trusts:
 
 
 
 
NT Collective Russell 3000 Index Fund - Non-Lending
 
 
 
137,163

Other
 
 
 
41,744

Registered investment companies
 
 
 
213

Other investments, net
 
 
 
28,505

Net appreciation (depreciation) in fair value of investments
 
 
 
$
765,185



10



The following table presents the changes in net assets for the Master Trust for the year ended December 31, 2013.
(in thousands of dollars)
 
 
 
2013
Changes in Net Assets:
 
 
 
 
Net appreciation (depreciation) in fair value of investments
 
 
 
$
765,185

Interest
 
 
 
36,863

Dividends
 
 
 
88,725

Other income
 
 
 
1,018

Net investment income (loss)
 
 
 
891,791

 
 
 
 
 
Transfers, net 1
 
 
 
304,772

Administrative expenses not directly allocated to the plans and other expenses 2
 
 
 
(12,087
)
Net increase (decrease) in net assets
 
 
 
1,184,476

 
 
 
 
 
Net assets
 
 
 
 
Beginning of the year
 
 
 
7,269,826

End of the year
 
 
 
$
8,454,302

 
 
 
 
 
1  Represents items recorded at the plan level such as contributions, benefit payments, plan transfers and plan specific administrative expenses.
2  Primarily related to fees and expenses paid to professional money managers who manage the investment funds.

Dividend income is recorded as of the ex-dividend date. Interest is recorded daily as earned. The Master Trust presents in Net investment income (loss), the net appreciation (depreciation) in the fair value of its investments which consists of the realized gains (losses) and the unrealized appreciation (depreciation) on those investments. Purchases and sales of securities are recorded on a trade-date basis.

Investment Contracts
The Master Trust holds fixed income fully benefit-responsive investment contracts, referred to as synthetic guaranteed investment contracts (“synthetic GICs”), in which an investment contract is issued by an insurance company or a financial services institution (American General Life Insurance Company, Monumental Life Insurance Company and State Street Bank and Trust Company). The synthetic GICs, designed to help preserve principal and provide a stable crediting rate of interest, are fully benefit-responsive and provide that plan participant initiated withdrawals will be paid at contract value. The synthetic GICs are primarily backed by a portfolio of fixed income investments, which are effectively owned by the Plan. The assets underlying the synthetic GICs are maintained by a third party custodian, separate from the contract issuer's general assets. In 2013, the underlying investments of the portfolio consisted of corporate and government bonds ($620.0 million), mortgaged and asset backed securities ($309.3 million) and a common collective trust fund ($77.7 million) consisting of short-term investments. In 2012, the underlying investments of the portfolio consisted of common collective trust funds which invested in corporate bonds and notes and private placement mortgages. The synthetic GICs are obligated to provide an interest rate not less than zero. These contracts provide that realized and unrealized gains and losses of the underlying assets are not reflected immediately in the assets of the fund, but rather are amortized, usually over the duration of the underlying assets, through adjustments to the future interest crediting rate. The future interest crediting rate can be adjusted periodically and is primarily based on the current yield-to-maturity of the covered investment, plus or minus amortization of the difference between the market value and contract value of the covered investment over the duration of the covered investment at the time of computation. The issuers guarantee that all qualified participant withdrawals will occur at contract value. There are no reserves against contract value for credit risks of the contract issuers or otherwise.


11



Employer initiated events, if material, may affect the underlying economics of the investment contracts. These events include plant closings, layoffs, plan termination, bankruptcy or reorganization, merger, early retirement incentive programs, tax disqualification of a trust or other events. The occurrence of one or more employer initiated events could limit the Plan's ability to transact at contract value with the issuers. Except for the employer initiated events above, the synthetic GICs do not permit the issuers to terminate the agreement prior to the scheduled maturity date at an amount different from contract value. As of December 31, 2013, the Company does not believe that the occurrence of an event that would limit the ability of the Plan to transact at contract value with the issuers is probable.

A summary of the average yields for the synthetic GICs are as follows:
 
Average Yields
 
December 31, 2013
 
December 31, 2012
 
Based on actual income
 
1.45%
 
1.32%
 
Based on interest rate credited to participants
 
1.83%
 
2.18%

The guidance on reporting of fully benefit-responsive investment contracts requires the Statements of Net Assets Available for Benefits to present the fair value of the synthetic GICs, as well as an adjustment of the fully benefit-responsive synthetic GICs from fair value to contract value.

Fair Value Measurements
The guidance on fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. This guidance also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally-developed market assumptions. In accordance with this guidance, fair value measurements are classified under the following hierarchy:

Level 1 - Quoted prices for identical instruments in active markets.    
Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets.    
Level 3 - Model-derived valuations in which one or more significant inputs or significant value-drivers are unobservable.

When available, quoted market prices are used to determine fair value and such measurements are classified within Level 1. In some cases where market prices are not available, observable market based inputs are used to calculate fair value, in which case the measurements are classified within Level 2. If quoted or observable market prices are not available, fair value is based upon internally developed models that use, where possible, current market-based parameters such as interest rates, yield curves and currency rates. These measurements are classified within Level 3.

Fair value measurements are classified according to the lowest level input or value-driver that is significant to the valuation. A measurement may therefore be classified within Level 3 even though there may be significant inputs that are readily observable.

The availability of observable market data is monitored to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the end of the reporting period.

The significance of transfers between levels was evaluated based upon the nature of the financial instrument and size of the transfer relative to total net Master Trust assets. For the year ended December 31, 2013, there were no transfers in or out of Levels 1, 2 or 3.


12



Master Trust assets that are measured at fair value as of December 31, 2013 and 2012 are summarized below:
 
 
 
Fair Value Measurements as of December 31, 2013
 
(in thousands of dollars)
 
Level 1
 
Level 2
 
Total
 
Stocks:
 
 
 
 
 
 
 
U.S.
 
$
4,367,319

 
$
9

 
$
4,367,328

 
Non-U.S.
 
541,073

 
12

 
541,085

 
Corporate bonds and notes:
 
 
 
 
 
 
 
U.S.
 

 
239,550

 
239,550

 
Non-U.S.
 

 
46,156

 
46,156

 
U.S. government securities:
 
 
 
 
 
 
 
Agency mortgage-backed securities
 

 
192,857

 
192,857

 
Bonds
 

 
102,653

 
102,653

 
Fully benefit-responsive synthetic guaranteed investment contracts 1
 

 
950,312

 
950,312

 
Common collective trusts:
 
 
 
 
 
 
 
Stocks
 

 
1,018,896

 
1,018,896

 
Short-term investments
 

 
427,730

 
427,730

 
U.S. government securities
 

 
256,185

 
256,185

 
Private placement - Mortgages
 

 
16,410

 
16,410

 
Registered investment companies
 
2,149

 

 
2,149

 
Interest bearing cash
 
28,427

 

 
28,427

 
Other investments, net
 
31,767

 
24,347

 
56,114

 
Total assets
 
$
4,970,735

 
$
3,275,117

 
$
8,245,852

 
 
 
 
 
 
 
 
 
1 Includes ($61,682) thousand of payables for securities purchased and $4,746 thousand of receivables for securities sold.


13



 
 
 
Fair Value Measurements as of December 31, 2012
 
(in thousands of dollars)
 
Level 1
 
Level 2
 
Total
 
Stocks:
 
 
 
 
 
 
 
U.S.
 
$
4,079,226

 
$
63

 
$
4,079,289

 
Non-U.S.
 
412,207

 
326

 
412,533

 
Corporate bonds and notes:
 
 
 
 
 
 
 
U.S.
 

 
126,293

 
126,293

 
Non-U.S.
 

 
25,847

 
25,847

 
U.S. government securities:
 
 
 
 
 
 
 
Agency mortgage-backed securities
 

 
126,569

 
126,569

 
Bonds
 

 
102,457

 
102,457

 
Fully benefit-responsive synthetic guaranteed investment contracts
 

 
952,050

 
952,050

 
Common collective trusts:
 
 
 
 
 
 
 
Stocks
 

 
584,096

 
584,096

 
Short-term investments
 

 
400,364

 
400,364

 
Mortgage-backed securities and U.S. government securities
 

 
234,280

 
234,280

 
Corporate bonds and notes
 

 
188,876

 
188,876

 
Private placement - Mortgages
 

 
15,845

 
15,845

 
Registered investment companies
 
1,786

 

 
1,786

 
Interest bearing cash
 
38,117

 

 
38,117

 
Other investments, net
 
20,641

 
18,069

 
38,710

 
Total assets
 
$
4,551,977

 
$
2,775,135

 
$
7,327,112


The participant directed brokerage accounts Plan assets are not included in the Master Trust. The participant directed brokerage accounts assets that are measured at fair value as of December 31, 2013 and 2012 are summarized below:
 
 
 
Fair Value Measurements as of December 31, 2013
 
(in thousands of dollars)
 
Level 1
 
Level 2
 
Total
 
Stocks:
 
 
 
 
 


 
U.S.
 
$
5,516

 
$

 
$
5,516

 
Non-U.S.
 
1,269

 

 
1,269

 
U.S. corporate bonds and notes
 

 
52

 
52

 
Registered investment companies
 
39,968

 
8,111

 
48,079

 
Total assets 1
 
$
46,753

 
$
8,163

 
$
54,916

 
 
 
 
 
 
 
 
 
1 Excludes cash, receivables for securities sold, and payables for securities purchased.


14



 
 
 
Fair Value Measurements as of December 31, 2012
 
(in thousands of dollars)
 
Level 1
 
Level 2
 
Total
 
Stocks:
 
 
 
 
 
 
 
U.S.
 
$
5,285

 
$

 
$
5,285

 
Non-U.S.
 
994

 

 
994

 
Registered investment companies
 
59,194

 
13,475

 
72,669

 
Total assets 1
 
$
65,473

 
$
13,475

 
$
78,948

 
 
 
 
 
 
 
 
 
1 Excludes cash, receivables for securities sold, and payables for securities purchased.

Derivatives
Within the Master Trust, certain investment managers may use derivative financial instruments to meet fund objectives and manage exposure to foreign currency, interest rate and market fluctuations. The following is a description of the types of derivative contracts the Master Trust may use:

Credit contracts: Credit default swaps are used to manage exposure to credit risk. A credit default swap is a contract in which, for a fee, a protection seller agrees to pay a protection buyer an amount resulting from a credit event on a reference entity. If there is no credit default event or settlement trigger, as defined by the contract, then the protection seller makes no payment to the protection buyer and receives only the contractually specified fee. However, if a credit event occurs, the protection seller will be required to make a payment to the protection buyer.
Equity contracts: Equity index futures contracts are used by investment managers to invest excess cash into equity benchmarks, such as the S&P 500. These contracts are settled in cash daily. Investment managers may also invest in equity rights and warrants which gives the holder the right to purchase securities from the issuer at a specific price within a certain time frame.
Foreign exchange contracts: Foreign currency exchange rate movements create a degree of risk by affecting the U.S. dollar value of instruments denominated in foreign currencies. Forward contracts are used by investment managers to manage foreign exchange rate risks associated with certain investments. These contracts are presented gross (buy side of the contract as a receivable and sell side of the contract as a payable) in the Net Master Trust assets.
Interest rate contracts: Interest rate movements create a degree of risk by affecting the amount of interest payments and the value of debt instruments. Investment managers use interest rate swaps, total return swaps, futures contracts, options and swaptions to manage interest rate risk.

The fair value of these derivative contracts are included in Other investments, net, Receivables for securities sold and Payables for securities purchased in the Net Master Trust assets. The related appreciation (depreciation) is included in Other investments, net in the Net investment income (loss) of the Master Trust. As of December 31, 2013 and 2012, the fair value of these derivative financial instruments was $104 thousand and $39 thousand, respectively. In 2013, the effect of these derivatives on Net investment income (loss) of the Master Trust was $27 million, which is primarily related to equity contracts.

5.
Parties-in-Interest
The Trustee is authorized, under contract provisions and by exemption under 29 CFR 408(b) of ERISA regulations, to invest in securities under its control and in securities of the Company.


15



The investment options available to the participants as summarized in Note 3 include the Caterpillar Stock Fund. The Master Trust also invests in the U.S. Equity Broad Index Fund, International Broad Index Fund, and Bond Index Fund, which are sponsored and managed by The Northern Trust Company, the Trustee for the Master Trust. The Northern Trust Company also manages the cash equitization portion of each of the investment options for liquidity purposes. The custodian of the funds invested in the participant directed brokerage option is Hewitt Financial Services, a subsidiary of Aon Hewitt which currently provides third party administrative and other plan-related services to the Plan. These transactions, as well as participant loans, qualify as exempt party-in-interest transactions.

6.
Reconciliation of Financial Statements to Form 5500
The following table reconciles the Net assets available for benefits per the audited financial statements to the Form 5500 Annual Report:
 
(in thousands of dollars)
 
2013
 
2012
 
Net assets available for benefits per financial statements
 
$
2,810,612

 
$
3,948,383

 
Certain deemed distributions of participant loans
 
(2,738
)
 
(5,054
)
 
Adjustment from contract value to fair value for fully benefit-responsive synthetic guaranteed investment contracts
 
862

 
11,289

 
Net assets per Form 5500
 
$
2,808,736

 
$
3,954,618


The following table reconciles the Net investment income (loss) of the Master Trust per the audited financial statements to the Form 5500 Annual Report:
 
(in thousands of dollars)
 
 
 
2013
 
Plan interest in net investment income (loss) of the Master Trust per financial statements
 
 
 
$
417,599

 
Change in adjustment from contract value to fair value for fully benefit-responsive synthetic guaranteed investment contracts
 
 
 
(10,427
)
 
Net investment income (loss) of the Master Trust per Form 5500
 
 
 
$
407,172


16













Supplemental Schedules



17



Caterpillar 401(k) Retirement Plan
EIN 37-0602744
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
December 31, 2013
(a)
 
 
(b)
 
 
(c)
 
 
(d)
 
 
(e)
 
 
 
Identity of issue,
borrower, lessor
or similar party
 
Description of investment, including
maturity date, rate of interest,
collateral, par or maturity value
 
 
 
Cost
 
 
Current
value
 
*
 
 
Plan's interest in the Caterpillar Investment Trust
 
 
Master Trust – at fair value
 
 
**
 
$
2,687,793,110

*
 
Hewitt Financial Services
 
Participant directed brokerage accounts
 
**
 
55,230,329

*
 
Participant notes receivable
 
Participant loans net of deemed distributions (various maturity dates through August 31, 2023, various interest rates ranging from 3.25% to 10.00%)
 
 
42,453,741

 
 
 
 
Total Investments
 
 
 
$
2,785,477,180

*   Denotes party in interest.
** Cost information is not applicable for participant directed investments.



18



Caterpillar 401(k) Retirement Plan
EIN 37-0602744
Schedule G, Part III - Nonexempt Transactions
Year Ended December 31, 2013
(a)
 
 
(b)
 
 
(c)
 
 
(d)
 
 
(e)
 
 
(f)
 
(g)
 
(h)
 
(i)
 
(j)
Identity of party involved
 
Relationship to plan employer or party in interest
 
Description of transaction, including maturity date, rate of interest, collateral, par or maturity value
 
Purchase Price
 
Selling Price
 
Lease Rental
 
Expenses incurred in connection with transaction
 
Cost of Asset *
 
Current Value of Asset **
 
Net gain or (loss) on each transaction
Caterpillar Inc.
 
Plan Sponsor
 
Certain expenses of other Caterpillar Inc. sponsored plans were inadvertently paid from the assets of the Caterpillar 401(k) Retirement Plan from 2009-2013, resulting in an impermissible loan from the Plan to the Plan sponsor. The principal amount and the related earnings were repaid to the Plan in May 2014. The excise tax was paid in June 2014.
 
$

 
$

 
$

 
$

 
$
53,269

 
$
65,373

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
*   Cost of asset represents the principal amount of the loan as of December 31, 2013
 
 
 
 
 
 
** Current value of asset represents the principal amount of the loan and accrued interest as of December 31, 2013


19



SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 

CATERPILLAR 401(K) RETIREMENT PLAN
 
 
 
 
June 27, 2014
 
 
By:
/s/LeAnne K. Moritz
 
 
 
Name:
LeAnne K. Moritz
 
 
 
Title:
Plan Administrator



20




EXHIBIT INDEX

Exhibit No.
Description
 
 
 
 
 
23.1
Consent of Independent Registered Public Accounting Firm
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


21