Caterpillar, Inc., is a multinational company that designs, manufactures, and markets products in two principal categories: (1) engines and (2) earthmoving, construction, and materials handling machinery. The company's headquarters are in Peoria, Illinois. In the 1986 annual report of the company, the footnotes to the financial statements included the following:

\section*{NOTES}

\section*{8. Inventories}

Reductions in certain LIFO inventories below the preceding yearend levels increased after-tax profit for 1986 and 1985 by approximately \(\$ 38\) [million] and \(\$ 190\) [million], respectively ( \(\$ 0.39\) and \(\$ 1.94\) per share of common stock, respectively), and reduced the after-tax loss for 1984 by approximately \(\$ 44\) ( \(\$ 0.46\) per share of common stock).

Courtesy of Caterpillar, Inc.

Discuss the financial statement effects of experiencing a reduction in inventory when LIFO is used and explain how this applies to Caterpillar, Inc.