FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________
Commission File No. 1-768
CATERPILLAR INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
37-0602744
(I.R.S. Employer Identification No.)
100 NE Adams Street, Peoria, Illinois
(Address of principal executive offices)
61629
(Zip Code)
(309) 675-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No __.
At June 30, 1998, 364,754,063 shares of common stock of the
Registrant were outstanding.
<PAGE>
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 second quarter, you
should read this entire document carefully.
SUMMARY OF RESULTS
- - ------------------
On July 15, 1998 Caterpillar Inc. reported its best second quarter ever
for sales and revenues, profit, and profit per share. Sales and revenues of
$5.60 billion, rose 15% (including 6% from Perkins) from second-quarter 1997.
Profit of $446 million was up 3%, primarily due to the higher sales volume.
This increase was achieved despite higher spending for major growth
initiatives and product line expansions as well as additional cost associated
with the first-quarter acquisition of Perkins. Profit per share of $1.22
($1.20 assuming dilution) was up 6%, as it continued to benefit from the
ongoing share repurchase program.
Caterpillar has now posted record profit in 16 of the last 18 quarters.
In June, the Board of Directors voted to increase the quarterly cash
dividend from 25 cents to 30 cents per share of common stock -- a 20%
increase. This is the sixth time since 1993 that the Board has increased
the dividend.
Commenting on this excellent performance, Caterpillar Chairman and CEO
Donald V. Fites said, "Once again our organization has delivered record
financial results, while continuing to invest strategically for long-term
growth. The company's product, service, and geographic diversification
strategies are proving to be very effective in generating earnings growth.
This is especially rewarding given the severe economic downturn in several
Southeast Asian countries and Japan.
The dividend increase reflects our Board's confidence about the company's
future financial performance, and its commitment to increasing shareholder
value."
HIGHLIGHTS - SECOND-QUARTER 1998 COMPARED WITH SECOND-QUARTER 1997
- - ------------------------------------------------------------------
* Sales and revenues of $5.60 billion, the highest quarter ever, rose 15%.
* Profit of $446 million, a second-quarter record and the second highest
quarter ever, was up 3%.
* Profit per share of $1.22 ($1.20 assuming dilution), equaling the all-time
record, was up 6%.
* Margin (sales less cost of goods sold) as a percent of sales was 25.7%
compared with 26.2% a year ago. Excluding Perkins, margins would have been
higher than a year ago.
* Operating profit for Machinery and Engines as a percent of sales was 12.4%
compared with 13.0% a year ago.
* Physical sales volume was up 14%, with Perkins adding 6%.
* Sales, excluding Perkins, were up 12% inside the United States and 6% outside
the United States.
* Revenues from Financial Products were up 38%.
* From inception in June 1995 through June 30, 1998, 39.9 million shares have
been repurchased under our share repurchase plan. The number of shares
outstanding at June 30, 1998, was 364.8 million. When the 10% share
repurchase program is completed later this year, approximately 360 million
shares will be outstanding.
OUTLOOK
- - -------
The company's outlook for 1998 worldwide sales and revenues remains
unchanged from that issued with our third-quarter 1997 results, which called
for sales and revenues (excluding Perkins) to slightly surpass 1997's record
levels. The company's outlook for 1998 profit remains unchanged from that
issued with our fourth-quarter 1997 results, which called for profit to be near
1997's record. (Complete outlook begins on page 21.)
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CATERPILLAR INC.
Statement of Results of Operations
(Unaudited)
(Millions of dollars except per share data)
CONSOLIDATED
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
------- -------- ------- -------
SALES AND REVENUES:
Sales of Machinery and Engines ....... $5,357 $ 4,676 $ 9,930 $ 8,748
Revenues of Financial Products ....... 247 194 468 384
------ ------ ------ ------
Total sales and revenues ............. 5,604 4,870 10,398 9,132
OPERATING COSTS:
Cost of goods sold ................... 3,978 3,450 7,312 6,431
Selling, general and
administrative expenses ............ 634 547 1,221 1,045
Research and development expenses .... 165 135 320 252
Interest expense of
Financial Products ................. 121 85 222 164
------ ------ ------ ------
Total operating costs ................ 4,898 4,217 9,075 7,892
------ ------ ------ ------
OPERATING PROFIT ....................... 706 653 1,323 1,240
Interest expense excluding
Financial Products ................. 69 58 130 110
Other income (expense) ............... 29 43 102 85
------ ------ ------ ------
CONSOLIDATED PROFIT BEFORE TAXES 666 638 1,295 1,215
Provision for income taxes ........... 220 217 427 413
------ ------ ------ ------
Profit of consolidated companies ..... 446 421 868 802
Equity in profit of unconsolidated
affiliated companies (Note 4) ...... - 14 8 27
Equity in profit of Financial
Products subsidiaries .............. - - - -
------ ------ ------ ------
PROFIT ................................. $ 446 $ 435 $ 876 $ 829
====== ====== ====== ======
PROFIT PER SHARE OF COMMON STOCK
(NOTE 6) ............................ $ 1.22 $ 1.15 $ 2.39 $ 2.19
====== ====== ====== ======
PROFIT PER SHARE OF COMMON STOCK -
ASSUMING DILUTION(NOTE 6) ........... $ 1.20 $ 1.13 $ 2.36 $ 2.16
====== ====== ====== ======
Cash dividends paid per share of
common stock ........................ $ .25 $ .20 $ .50 $ .40
See accompanying notes to Consolidated Financial Statements.
Page 1
<PAGE>
CATERPILLAR INC.
Statement of Results of Operations
(Unaudited)
(Millions of dollars except per share data)
SUPPLEMENTAL CONSOLIDATING DATA
MACHINERY AND ENGINES<F1>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- -------
SALES AND REVENUES:
Sales of Machinery and Engines ....... $5,357 $ 4,676 $ 9,930 $ 8,748
Revenues of Financial Products ....... - - - -
------ ------ ------ ------
Total sales and revenues ............. 5,357 4,676 9,930 8,748
OPERATING COSTS:
Cost of goods sold ................... 3,978 3,450 7,312 6,431
Selling, general and
administrative expenses ............ 548 483 1,060 907
Research and development expenses .... 165 135 320 252
Interest expense of
Financial Products ................. - - - -
------ ------ ------ ------
Total operating costs ................ 4,691 4,068 8,692 7,590
------ ------ ------ ------
OPERATING PROFIT ....................... 666 608 1,238 1,158
Interest expense excluding
Financial Products ................. 69 58 130 110
Other income (expense) ............... - 34 42 70
------ ------ ------ ------
CONSOLIDATED PROFIT BEFORE TAXES 597 584 1,150 1,118
Provision for income taxes ........... 195 196 374 377
------ ------ ------ ------
Profit of consolidated companies ..... 402 388 776 741
Equity in profit of unconsolidated
affiliated companies (Note 4) ...... - 14 8 27
Equity in profit of Financial
Products subsidiaries .............. 44 33 92 61
------ ------ ------ ------
PROFIT ................................. $ 446 $ 435 $ 876 $ 829
====== ====== ====== ======
[FN]
<F1>Represents Caterpillar Inc. and its subsidiaries except for Financial
Products, which is accounted for on the equity basis.
</FN>
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. Transactions between
Machinery and Engines and Financial Products have been eliminated to arrive
at the consolidated data.
See accompanying notes to Consolidated Financial Statements.
Page 2
<PAGE>
CATERPILLAR INC.
Statement of Results of Operations
(Unaudited)
(Millions of dollars except per share data)
SUPPLEMENTAL CONSOLIDATING DATA
FINANCIAL PRODUCTS
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
SALES AND REVENUES:
Sales of Machinery and Engines ....... $ - $ - $ - $ -
Revenues of Financial Products ....... 276 200 516 396
------ ------ ------ ------
Total sales and revenues ............. 276 200 516 396
OPERATING COSTS:
Cost of goods sold ................... - - - -
Selling, general and
administrative expenses ............ 92 70 173 150
Research and development expenses .... - - - -
Interest expense of
Financial Products ................. 124 89 229 170
------ ------ ------ ------
Total operating costs ................ 216 159 402 320
------ ------ ------ ------
OPERATING PROFIT ....................... 60 41 114 76
Interest expense excluding
Financial Products ................. - - - -
Other income (expense) ............... 9 13 31 21
------ ------ ------ ------
CONSOLIDATED PROFIT BEFORE TAXES 69 54 145 97
Provision for income taxes ........... 25 21 53 36
------ ------ ------ ------
Profit of consolidated companies ..... 44 33 92 61
Equity in profit of unconsolidated
affiliated companies (Note 4) ...... - - - -
Equity in profit of Financial
Products subsidiaries .............. - - - -
------ ------ ------ ------
PROFIT ................................. $ 44 $ 33 $ 92 $ 61
====== ====== ====== ======
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. Transactions between
Machinery and Engines and Financial Products have been eliminated to arrive
at the consolidated data.
See accompanying notes to Consolidated Financial Statements.
Page 3
<PAGE>
CATERPILLAR INC.
Statement of Changes in Stockholders' Equity
For Six Months Ended
(Unaudited)
(Dollars in millions)
CONSOLIDATED
June 30, June 30,
1998 1997
------------ ------------
Common Stock:
Balance at beginning of period ............... $ (442) $ 50
Common Shares issued, including treasury
shares reissued: (June 30, 1998 -- 596,323
shares; June 30, 1997 -- 1,013,804) .......... 12 17
Treasury shares purchased:
June 30, 1998 -- 3,852,600;
June 30, 1997 -- 5,291,600 .................... (200) (218)
Issuance of common stock to effect 2-for-1
stock split ................................... - 188
----- -----
Balance at end of period ...................... (630) 37
----- -----
Profit employed in the business:
Balance at beginning of period ................ 5,026 3,904
Profit ........................................ 876 $876 829 $829
Dividends declared ............................ (201) (170)
Issuance of common stock to effect 2-for-1
stock split ................................... - (188)
----- -----
Balance at end of period ...................... 5,701 4,375
----- -----
Accumulated other comprehensive income:
Foreign currency translation adjustment<F1>:
Balance at beginning of period .............. 95 162
Aggregate adjustment for period ............. (33) (33) (58) (58)
----- ----- ----- ----
Balance at end of period .................... 62 104
----- -----
Comprehensive income .......................... $843 $771
==== ====
Stockholders' equity at end of period ........... $5,133 $4,516
====== ======
[FN]
<F1> No reclassification adjustments or tax effects to report.
</FN>
See accompanying notes to Consolidated Financial Statements.
Page 4
<PAGE>
CATERPILLAR INC.
Statement of Financial Position *
(Dollars in millions)
CONSOLIDATED
June 30, Dec. 31,
1998 1997
-------- --------
ASSETS
Current assets:
Cash and short-term investments ................. $ 221 $ 292
Receivables -- trade and other .................. 3,760 3,331
Receivables -- finance .......................... 3,563 2,660
Deferred income taxes and prepaid expenses ...... 1,010 928
Inventories (Note 5) ............................ 3,132 2,603
------- -------
Total current assets .............................. 11,686 9,814
Property, plant, and equipment -- net ............. 4,444 4,058
Long-term receivables -- trade and other .......... 132 134
Long-term receivables -- finance .................. 4,779 3,881
Investments in unconsolidated
affiliated companies (Note 4) .................. 805 751
Investments in Financial Products subsidiaries .... - -
Deferred income taxes ............................. 988 1,040
Intangible assets ................................. 1,253 228
Other assets ...................................... 1,019 850
------- -------
TOTAL ASSETS ........................................ $25,106 $20,756
======= =======
LIABILITIES
Current liabilities:
Short-term borrowings ........................... $ 1,194 $ 484
Accounts payable and accrued expenses ........... 3,587 3,358
Accrued wages, salaries, and employee benefits .. 1,043 1,128
Dividends payable ............................... 109 92
Deferred and current income taxes payable ....... 153 175
Deferred liability .............................. - -
Long-term debt due within one year .............. 1,593 1,142
------- -------
Total current liabilities ......................... 7,679 6,379
Long-term debt due after one year ................. 9,464 6,942
Liability for postemployment benefits ............. 2,707 2,698
Deferred income taxes and other liabilities ....... 123 58
------- -------
TOTAL LIABILITIES ................................... 19,973 16,077
------- -------
STOCKHOLDERS' EQUITY
Common stock of $1.00 par value:
Authorized shares: 900,000,000
Issued shares (June 30, 1998 -- 407,447,312;
Dec. 31, 1997 -- 407,447,312) at paid in amount . 1,066 1,071
Profit employed in the business ................... 5,701 5,026
Accumulated other comprehensive income ............ 62 95
Treasury stock (June 30, 1998 -- 42,693,249
shares; Dec. 31, 1997 -- 39,436,972 shares)
at cost.......................................... (1,696) (1,513)
------- -------
TOTAL STOCKHOLDERS' EQUITY .......................... 5,133 4,679
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $25,106 $20,756
======= =======
See accompanying notes to Consolidated Financial Statements.
* Unaudited except for Consolidated December 31, 1997 amounts.
Page 5
<PAGE>
CATERPILLAR INC.
Statement of Financial Position *
(Dollars in millions)
SUPPLEMENTAL CONSOLIDATING DATA
MACHINERY AND ENGINES<F1>
June 30, Dec. 31,
1998 1997
-------- --------
ASSETS
Current assets:
Cash and short-term investments ................. $ 168 $ 241
Receivables -- trade and other .................. 2,602 3,346
Receivables -- finance .......................... - -
Deferred income taxes and prepaid expenses ...... 994 935
Inventories (Note 5) ............................ 3,132 2,603
------- -------
Total current assets .............................. 6,896 7,125
Property, plant, and equipment -- net ............. 3,812 3,483
Long-term receivables -- trade and other .......... 132 134
Long-term receivables -- finance .................. - -
Investments in unconsolidated
affiliated companies (Note 4) .................. 805 751
Investments in Financial Products subsidiaries .... 1,085 882
Deferred income taxes ............................. 1,003 1,075
Intangible assets ................................. 1,253 228
Other assets ...................................... 648 510
------- -------
TOTAL ASSETS ........................................ $15,634 $14,188
======= =======
LIABILITIES
Current liabilities:
Short-term borrowings ........................... $ 587 $ 53
Accounts payable and accrued expenses ........... 3,212 3,020
Accrued wages, salaries, and employee benefits .. 1,036 1,120
Dividends payable ............................... 109 92
Deferred and current income taxes payable ....... 8 46
Deferred liability .............................. - -
Long-term debt due within one year .............. 33 54
------- -------
Total current liabilities ......................... 4,985 4,385
Long-term debt due after one year ................. 2,686 2,367
Liability for postemployment benefits ............. 2,707 2,698
Deferred income taxes and other liabilities ....... 123 59
------- -------
TOTAL LIABILITIES ................................... 10,501 9,509
------- -------
STOCKHOLDERS' EQUITY
Common stock of $1.00 par value:
Authorized shares: 900,000,000
Issued shares (June 30, 1998 -- 407,447,312;
Dec. 31, 1997 -- 407,447,312) at paid in amount . 1,066 1,071
Profit employed in the business ................... 5,701 5,026
Accumulated other comprehensive income ............ 62 95
Treasury stock (June 30, 1998 -- 42,693,249
shares; Dec. 31, 1997 -- 39,436,972 shares)
at cost.......................................... (1,696) (1,513)
------- -------
TOTAL STOCKHOLDERS' EQUITY .......................... 5,133 4,679
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $15,634 $14,188
======= =======
[FN]
<F1> Represents Caterpillar Inc. and its subsidiaries except for Financial
Products, which is accounted for on the equity basis.
</FN>
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. Transactions
between Machinery and Engines and Financial Products have been eliminated to
arrive at the consolidated data.
See accompanying notes to Consolidated Financial Statements.
* Unaudited except for Consolidated December 31, 1997 amounts.
Page 6
<PAGE>
CATERPILLAR INC.
Statement of Financial Position *
(Dollars in millions)
SUPPLEMENTAL CONSOLIDATING DATA
FINANCIAL PRODUCTS
June 30, Dec. 31,
1998 1997
-------- --------
ASSETS
Current assets:
Cash and short-term investments ................. $ 53 $ 51
Receivables -- trade and other .................. 1,360 285
Receivables -- finance .......................... 3,563 2,660
Deferred income taxes and prepaid expenses ...... 25 9
Inventories (Note 5) ............................ - -
------- -------
Total current assets .............................. 5,001 3,005
Property, plant, and equipment -- net ............. 632 575
Long-term receivables -- trade and other .......... - -
Long-term receivables -- finance .................. 4,779 3,881
Investments in unconsolidated
affiliated companies (Note 4) .................. - -
Investments in Financial Products subsidiaries .... - -
Deferred income taxes ............................. 6 5
Intangible assets ................................. - -
Other assets ...................................... 371 340
------- -------
TOTAL ASSETS ........................................ $10,789 $ 7,806
======= =======
LIABILITIES
Current liabilities:
Short-term borrowings ........................... $ 607 $ 431
Accounts payable and accrued expenses ........... 455 654
Accrued wages, salaries, and employee benefits .. 7 8
Dividends payable ............................... - -
Deferred and current income taxes payable ....... 145 129
Deferred liability .............................. 130 -
Long-term debt due within one year .............. 1,560 1,088
------- -------
Total current liabilities ......................... 2,904 2,310
Long-term debt due after one year ................. 6,778 4,575
Liability for postemployment benefits ............. - -
Deferred income taxes and other liabilities ....... 22 39
------- -------
TOTAL LIABILITIES ................................... 9,704 6,924
------- -------
STOCKHOLDERS' EQUITY
Common stock of $1.00 par value:
Authorized shares: 900,000,000
Issued shares (June 30, 1998 -- 407,447,312;
Dec. 31, 1997 -- 407,447,312) at paid in amount . 553 403
Profit employed in the business ................... 564 506
Accumulated other comprehensive income ............ (32) (27)
Treasury stock (June 30, 1998 -- 42,693,249
shares; Dec. 31, 1997 -- 39,436,972 shares)
at cost.......................................... - -
------- -------
TOTAL STOCKHOLDERS' EQUITY .......................... 1,085 882
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $10,789 $ 7,806
======= =======
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. Transactions
between Machinery and Engines and Financial Products have been eliminated to
arrive at the consolidated data.
See accompanying notes to Consolidated Financial Statements.
* Unaudited except for Consolidated December 31, 1997 amounts.
Page 7
<PAGE>
CATERPILLAR INC.
Statement of Cash Flow for Six Months Ended
(Unaudited)
(Millions of dollars)
CONSOLIDATED
June 30, June 30,
1998 1997
-------- --------
CASH FLOW FROM OPERATING ACTIVITIES:
Profit ............................................ $ 876 $ 829
Adjustments for noncash items:
Depreciation and amortization ..................... 429 376
Profit of Financial Products ...................... - -
Other ............................................. (223) (65)
Changes in assets and liabilities:
Receivables -- trade and other .................. (95) (238)
Inventories ..................................... (408) (298)
Accounts payable and accrued expenses ........... (33) 306
Other -- net .................................... (172) (67)
------- -------
Net cash provided by operating activities ........... 374 843
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures -- excluding equipment
leased to others ................................ (307) (223)
Expenditures for equipment leased to others ....... (171) (152)
Proceeds from disposals of property, plant,
and equipment ................................... 64 66
Additions to finance receivables .................. (4,497) (3,236)
Collections of finance receivables ................ 2,037 1,547
Proceeds from sale of finance receivables.......... 585 848
Net short-term loans to Financial Products......... - -
Investments and acquisitions(net of cash acquired). (1,324) (22)
Other -- net ...................................... (119) (269)
------- -------
Net cash used for investing activities .............. (3,732) (1,441)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid .................................... (183) (151)
Common stock issued, including treasury
shares reissued ................................. 4 7
Treasury shares purchased.......................... (200) (218)
Net short-term loans from Machinery and Engines.... - -
Proceeds from long-term debt issued ............... 3,317 1,735
Payments on long-term debt ........................ (638) (673)
Short-term borrowings -- net ...................... 1,009 (20)
------- -------
Net cash provided by financing activities ........... 3,309 680
------- -------
Effect of exchange rate changes on cash ............. (22) (12)
------- -------
(Decrease) increase in cash and
short-term investments ............................ (71) 70
Cash and short-term investments at the
beginning of the period ........................... 292 487
------- -------
Cash and short-term investments at the
end of the period ................................. $ 221 $ 557
======= =======
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.
Page 8
<PAGE>
CATERPILLAR INC.
Statement of Cash Flow for Six Months Ended
(Unaudited)
(Millions of dollars)
SUPPLEMENTAL CONSOLIDATING DATA
MACHINERY AND ENGINES<F1>
June 30, June 30,
1998 1997
-------- --------
CASH FLOW FROM OPERATING ACTIVITIES:
Profit ............................................ $ 876 $ 829
Adjustments for noncash items:
Depreciation and amortization ................... 351 310
Profit of Financial Products .................... (92) (61)
Other ........................................... (23) (56)
Changes in assets and liabilities:
Receivables -- trade and other .................. 778 (160)
Inventories ..................................... (408) (298)
Accounts payable and accrued expenses ........... (86) 217
Other -- net .................................... (139) (77)
------- -------
Net cash provided by operating activities ........... 1,257 704
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures -- excluding equipment
leased to others ................................ (304) (222)
Expenditures for equipment leased to others ....... (2) -
Proceeds from disposals of property, plant,
and equipment ................................... 9 1
Additions to finance receivables .................. - -
Collections of finance receivables ................ - -
Proceeds from sale of finance receivables.......... - -
Net short-term loans to Financial Products......... 193 (206)
Investments and acquisitions(net of cash acquired). (1,324) (22)
Other -- net ...................................... (257) (207)
------- -------
Net cash used for investing activities .............. (1,685) (656)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid .................................... (183) (151)
Common stock issued, including treasury
shares reissued ................................. 4 7
Treasury shares purchased.......................... (200) (218)
Net short-term loans from Machinery and Engines.... - -
Proceeds from long-term debt issued ............... 286 459
Payments on long-term debt ........................ (48) (116)
Short-term borrowings -- net ...................... 521 4
------- -------
Net cash provided by(used for)financing activities .. 380 (15)
------- -------
Effect of exchange rate changes on cash ............. (25) (12)
------- -------
(Decrease) increase in cash and
short-term investments ............................ (73) 21
Cash and short-term investments at the
beginning of the period ........................... 241 445
------- -------
Cash and short-term investments at the
end of the period ................................. $ 168 $ 466
======= =======
[FN]
<F1> Represents Caterpillar Inc. and its subsidiaries except for Financial
Products, which is accounted for on the equity basis.
</FN>
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. Transactions
between Machinery and Engines and Financial Products have been eliminated
to arrive at the consolidated data.
See accompanying notes to Consolidated Financial Statements.
Page 9
<PAGE>
CATERPILLAR INC.
Statement of Cash Flow for Six Months Ended
(Unaudited)
(Millions of dollars)
SUPPLEMENTAL CONSOLIDATING DATA
FINANCIAL PRODUCTS
June 30, June 30,
1998 1997
-------- --------
CASH FLOW FROM OPERATING ACTIVITIES:
Profit ............................................ $ 92 $ 61
Adjustments for noncash items:
Depreciation and amortization ................... 78 66
Profit of Financial Products .................... - -
Other ........................................... (67) (8)
Changes in assets and liabilities:
Receivables -- trade and other .................. (968) (33)
Inventories ..................................... - -
Accounts payable and accrued expenses ........... 10 27
Other -- net .................................... 7 26
------- -------
Net cash (used for) provided by operating activities (848) 139
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures -- excluding equipment
leased to others ................................ (3) (1)
Expenditures for equipment leased to others ....... (169) (152)
Proceeds from disposals of property, plant,
and equipment ................................... 55 65
Additions to finance receivables .................. (4,497) (3,236)
Collections of finance receivables ................ 2,037 1,547
Proceeds from sale of finance receivables.......... 585 848
Net short-term loans to Financial Products......... - -
Investments and acquisitions(net of cash acquired). - -
Other -- net ...................................... (12) (62)
------- -------
Net cash used for investing activities .............. (2,004) (991)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid .................................... (35) -
Common stock issued, including treasury
shares reissued ................................. 150 -
Treasury shares purchased.......................... - -
Net short-term loans from Machinery and Engines.... (193) 206
Proceeds from long-term debt issued ............... 3,031 1,276
Payments on long-term debt ........................ (590) (557)
Short-term borrowings -- net ...................... 488 (24)
------- -------
Net cash provided by financing activities ........... 2,851 901
------- -------
Effect of exchange rate changes on cash ............. 3 -
------- -------
Increase in cash and
short-term investments ............................ 2 49
Cash and short-term investments at the
beginning of the period ........................... 51 42
------- -------
Cash and short-term investments at the
end of the period ................................. $ 53 $ 91
======= =======
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. Transactions
between Machinery and Engines and Financial Products have been eliminated
to arrive at the consolidated data.
See accompanying notes to Consolidated Financial Statements.
Page 10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions except per share data)
1. In the opinion of management, all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of (a) the
consolidated results of operations for the three- and six-month periods
ended June 30, 1998 and 1997, (b) the changes in consolidated
stockholders' equity for the six-month periods ended June 30, 1998
and 1997, (c) the consolidated financial position at June 30, 1998 and
December 31, 1997, and (d) the consolidated statement of cash flow for
the six-month periods ended June 30, 1998 and 1997 have been made.
Certain amounts for prior periods have been reclassified to conform with
the current period financial statement presentation.
2. The results for the three- and six-month periods ended June 30, 1998 are
not necessarily indicative of the results for the entire year 1998.
3. 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, 1997, except as
provided in Section C of Item 2 of Part 1 in our quarterly period ended
March 31, 1998 Form 10-Q.
4. Unconsolidated Affiliated Companies
Combined financial information of the unconsolidated affiliated
companies was as follows:
Three Months Ended Six Months Ended
Mar. 31, Mar. 31, Mar. 31, Mar. 31,
1998 1997 1998 1997
-------- -------- -------- ---------
RESULTS OF OPERATIONS
(Unaudited)
Sales ..................... $ 776 $1,756 $1,560 $2,752
====== ====== ====== ======
Profit .................... $ - $ 31 $ 16 $ 58
====== ====== ====== ======
Mar. 31, Sep. 30,
1998 1997
(Unaudited)
----------- --------
FINANCIAL POSITION
Assets:
Current assets ................................. $1,860 $1,949
Property, plant, and equipment - net............ 767 792
Other assets ................................... 420 331
------ ------
3,047 3,072
------ ------
Liabilities:
Current liabilities ............................ 1,622 1,610
Long-term debt due after one year .............. 222 203
Other liabilities .............................. 99 129
------ ------
1,943 1,942
------ ------
Ownership ........................................ $1,104 $1,130
====== ======
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5. Inventories (principally "last-in, first-out" method) comprised the
following:
June 30, Dec. 31,
1998 1997
(Unaudited)
----------- -------
Raw materials and work-in-process ................ $1,277 $1,033
Finished goods ................................... 1,660 1,364
Supplies ......................................... 195 206
------ ------
$3,132 $2,603
====== ======
6. Following is a computation of profit per share:
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
(Unaudited) (Unaudited)
--------- -------- -------- -------
I. Profit - consolidated (A) ....... $ 446 $ 435 $ 876 $ 829
====== ====== ====== =======
II. Determination of shares (millions):
Weighted average common
shares outstanding (B) ......... 365.9 377.1 366.4 378.2
Assumed conversion of stock
options ........................ 5.9 5.5 5.6 4.9
------ ------ ------ -------
Weighted average common
shares outstanding - assuming
dilution (C) ................... 371.8 382.6 372.0 383.1
====== ====== ====== =======
III. Profit per share of common
stock (A/B) ..................... $1.22 $1.15 $2.39 $2.19
Profit per share of common
stock - assuming dilution (A/C).... $1.20 $1.13 $2.36 $2.16
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<PAGE>
7. The reserve for plant closing and consolidation costs includes the
following:
June 30, Dec. 31,
1998 1997
(unaudited)
----------- --------
Write down of property, plant, and equipment ..... $ 103 $ 103
Employee severance benefits ...................... 69 95
Rearrangement, start-up costs, and other ......... 21 47
------ ------
Total reserve .................................... $ 193 $ 245
======= ======
The write-down of property, plant, and equipment establishes a new cost
basis for assets that have been permanently impaired.
Employee severance benefits (e.g., pension, medical, and supplemental
unemployment benefits) are provided to employees affected by plant
closings and consolidations. The reserve for such benefits is reduced
as the benefits are provided.
At June 30, 1998 and December 31, 1997, the above reserve includes
$113 and $153, respectively, of costs associated with the closure of
the Component Products Division's Precision Barstock Products (PBP)
operation located in York, Pennsylvania. The probable closing of the
PBP manufacturing operation was announced in December 1991. In
March 1996, it was announced that the facility would be closed. We
are currently in the process of closing the unit.
8. In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 requires
that an entity record all derivatives in the statement of financial
position at their fair value. It also requires changes in the fair
value of derivatives to be recorded each period in current earnings
or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type
of hedge transaction. We are required to adopt this new accounting
standard for the fiscal year beginning January 1, 2000. Given the
inherent complexities of this standard, we have not yet determined
the full impact that adoption of SFAS 133 will have on our financial
position or results of operation. However, at this time, we do not
believe that the impact will be material.
Page 13
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND LIQUIDITY AND CAPITAL RESOURCES
A. Consolidated Results of Operations
THREE MONTHS ENDED JUNE 30, 1998 VS. THREE MONTHS ENDED JUNE 30, 1997
Second-quarter sales and revenues rose 15%. Profit was up 3% and profit
per share of common stock increased 6% as it also reflected the impact of the
ongoing share repurchase program. Profit of $446 million was a
second-quarter record and the second best quarter ever, an improvement of
$11 million over profit of $435 million in second-quarter 1997. Profit per
share of $1.22 ($1.20 assuming dilution) was up 6% and equaled the all-time
record for any quarter. Sales and revenues of $5.60 billion were
$734 million higher, setting an all-time record for any quarter. An increase
in physical sales volume of 14% was the most significant factor contributing
to the record sales and revenues, and higher profit.
Machinery and Engines
Sales of Machinery and Engines were $5.36 billion, an increase of
$681 million or 15% from second-quarter 1997. The higher sales were
primarily due to the increase in physical sales volume which resulted from
higher machine and engine sales both inside and outside the United States.
Physical sales volume was up 14%, including Perkins which contributed 6%.
Price realization improved slightly.
Profit before tax was $597 million, $13 million higher than the second
quarter a year ago. The primary reasons for the higher profit were the
higher physical sales volume and price increases taken over the past year.
Partially offsetting were increased spending for major growth initiatives and
product line expansions that include electric power generation, agricultural
products, and compact machines. Also offsetting were the additional costs
associated with the first-quarter acquisition of Perkins.
Margin (sales less cost of goods sold) of $1.38 billion increased
$153 million or 12% over second-quarter 1997. Margin as a percent of sales
was 25.7%, compared with 26.2% a year ago as the favorable impact of price
increases and a change in geographic sales mix were more than offset by
higher fixed manufacturing costs, slightly lower manufacturing efficiency,
and a net unfavorable effect of the dollar. Excluding Perkins, margins would
have been higher than a year ago.
Fixed manufacturing costs were higher and manufacturing efficiency was
lower primarily due to the major growth initiatives and product line
expansions.
Selling, general, and administrative expenses (SG&A) were $548 million
compared with $483 million in second-quarter 1997. The $65 million increase
primarily reflects increased spending levels in support of major growth
initiatives and product line expansions. The effect of inflation on costs
also contributed to the increase. SG&A expenses, as a percent of sales, were
10.2%, about the same as the second quarter a year ago.
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<PAGE>
Research and development expenses (R&D) of $165 million were up
$30 million from second-quarter 1997. The increase reflects expected higher
spending in support of new and improved products. R&D expenses, as a percent
of sales, were 3.1% compared with 2.9% a year ago.
Operating profit of $666 million was $58 million or 10% higher than
second-quarter 1997. Operating profit, as a percent of sales, was 12.4%
compared with 13.0% a year ago.
Interest expense of $69 million was $11 million higher than a year ago,
mostly due to higher average debt levels to finance the acquisition of
Perkins during first-quarter 1998.
Other income/expense reflects a net decrease in income of $34 million
from second-quarter 1997 mostly due to the discount taken on the sale of
receivables to Caterpillar Financial Services Corporation (Cat Financial) and
also due to an unfavorable change in foreign exchange gains and losses.
Financial Products
Financial Products' second-quarter revenues were a record $276 million,
up $76 million or 38% compared with second-quarter 1997. The increase
resulted primarily from continued growth in Cat Financial's portfolio. The
portfolio was up $3 billion or 45% from the same period last year, the result
of new business and the purchase of $1 billion of trade receivables from
Caterpillar Inc. in the first half of 1998.
Before-tax profit was $69 million, an increase of $15 million or 28%
from the second quarter a year ago. The increase resulted primarily from
favorable reserve adjustments and higher investment income at Caterpillar
Insurance Co. Ltd. (Cat Insurance), and the portfolio growth at Cat Financial.
Selling, general, and administrative expenses were $92 million, up
$22 million from a year ago, principally the result of provisions for credit
losses and increased depreciation on leased equipment due to Cat Financial's
record new business and other increases due to growth.
Interest expense was up $35 million, a result of increased borrowings to
support the larger portfolio which includes the receivables purchased from
Caterpillar Inc.
Other income and expense was income of $9 million, a decrease of
$4 million from a year ago.
Income Taxes
The provision for income taxes was $220 million, compared with
$217 million last year. The $3 million increase reflects the higher taxes
due on the increased before-tax profit, partially offset by the impact of a
lower effective tax rate of 33% compared with 34% in second-quarter 1997.
The lower tax rate accounted for $7 million in lower taxes.
Unconsolidated Affiliated Companies
Our share of unconsolidated affiliated companies' results decreased
$14 million from the second quarter a year ago. The major factor was
unfavorable results at Shin Caterpillar Mitsubishi Ltd. due primarily to
lower sales volume resulting from the severe economic downturn in Japan and
Southeast Asia.
Page 15
<PAGE>
Sales
Following are summaries of second-quarter company sales and dealer
deliveries compared with the same quarter in 1997.
Caterpillar Sales Inside the United States
- - ------------------------------------------
Caterpillar sales inside the United States were $2.72 billion, a
$303 million or 13% increase over second quarter last year. Both machine and
engine sales benefited from the strong U.S. economy. End-user demand rose in
most applications reflecting the strong economy, low inflation, stable
interest rates, and high levels of consumer and business confidence. In
addition to higher physical sales volume, price realization also increased.
Sales inside the United States during the second quarter were 51% of
worldwide sales compared with 52% a year ago.
U.S. Dealer Machine Sales to End Users
U.S. dealer machine sales to end users increased due to higher industry
demand. Sales into all key construction sectors rose reflecting the robust
activity of the economy over the past year and more than offset a decline in
coal and metal mining, and agricultural applications. However, sales into
the largest commodity sector, non-metal mining, rose in response to higher
aggregate production. Sales also were higher in the petroleum and forestry
sectors. In other applications, sales to landfills increased while sales to
industrial users declined.
Deliveries to U.S. Dealer Dedicated Rental Fleets
Deliveries to U.S. dealer dedicated rental fleets increased from
second-quarter 1997. At the end of the second quarter, U.S. dealer dedicated
rental units were higher than year-earlier levels, and up from the end of the
first quarter.
U.S. Dealer New Machine Inventories
U.S. dealer new machine inventories fell from the end of the first
quarter reflecting strong end-user demand. At the end of the second quarter,
dealer inventories were above year-ago levels and about normal relative to
current selling rates.
Company Engine Sales Inside the United States
Company engine sales inside the United States were above year-earlier
levels reflecting good economic growth and strong industry demand. Sales of
reciprocating engines were higher in all major applications, including
on-highway trucks, power generation, industrial, and marine. Sales of
turbine engines also exceeded year-earlier levels due to gains in industrial
power generation.
Caterpillar Sales Outside the United States
- - -------------------------------------------
Caterpillar sales outside the United States were $2.64 billion, a
$378 million or 17% increase over second-quarter 1997. Approximately
two-thirds of the increase is due to the acquisition of Perkins in the first
quarter of 1998. Sales of both machines and engines increased as higher
sales in Europe, Latin America, Canada, and Africa/Middle East more than
offset lower sales in the Asia/Pacific region. The increase was due to
higher physical sales volume as price realization declined.
Sales outside the United States represented 49% of worldwide sales
compared with 48% a year ago.
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<PAGE>
Dealer Machine Sales to End-Users Outside the United States
Dealer machine sales to end-users outside the United States rose from
year-earlier levels as higher sales in Latin America, Canada, Europe, and
Australia more than offset lower sales elsewhere.
- Europe: Sales for the region were higher, reflecting continued
improvement in economic activity and business confidence. Sales were
up in Germany, France, and Italy, but lower in the United Kingdom and
Spain.
- Canada: Sales increased in response to higher industry demand,
reflecting continued good economic growth, moderate interest rates and
higher housing starts. Sales into construction and petroleum
applications were particularly strong while sales into coal and metal
mining applications were down.
- Latin America: Sales improved as moderate to good economic growth
continued for most of the region. Sales were up in the key countries
of Brazil, Argentina, Mexico, Peru, and Chile.
- Africa/Middle East: Sales remained near year-earlier levels reflecting
the impact of low prices for oil and other commodities. Sales were
higher in Turkey but lower in South Africa.
- Asia (excluding Japan): Sales continued to decline sharply in response
to the severe economic downturn in Southeast Asia and South Korea. In
China, economic growth has slowed from year earlier but demand is
still rising.
- Australia: Sales increased as higher demand in the construction and
coal mining sectors more than offset a decline in metal mining
applications.
- Japan: Sales of imported product fell significantly in response to
the ongoing recession.
- Commonwealth of Independent States (CIS): Sales declined as Russia
slipped back into recession.
Dealer New Machine Inventories Outside the United States
Dealer new machine inventories outside the United States were down from
the end of the first quarter due to a large reduction in Asia. Dealer new
machine inventories were still above year-earlier levels, however, due to
increases in Canada, Latin America, and Europe where end-user demand is
growing. At the end of the second quarter, dealer inventories were about
normal relative to current selling rates.
Company Engine Sales Outside the United States
Company engine sales outside the United States exceeded year-earlier
levels with growth in all regions, especially Europe, Latin America, and
Canada. (Without Perkins, sales still would have been higher in all regions,
including Asia.) Sales of reciprocating engines were higher, reflecting
increased demand for on-highway trucks. Sales of turbine engines also
increased due to gains in oil and gas applications.
Page 17
<PAGE>
THREE MONTHS ENDED JUNE 30, 1998 VS. THREE MONTHS ENDED MARCH 31, 1998
Second-quarter profit of $446 million or $1.22 per share ($1.20 assuming
dilution) was $16 million higher than first-quarter profit of $430 million or
$1.17 per share ($1.15 assuming dilution). An 18% increase in physical sales
volume was the most significant factor contributing to the higher profit.
Machinery and Engines
Profit before tax for Machinery and Engines was $597 million, a
$44 million increase from the previous quarter. Sales of $5.36 billion
increased $784 million or 17%, primarily because of the higher physical sales
volume. Price realization was about 1% lower.
The increase in physical sales volume was the result of higher machine
and engine sales inside and outside the United States. Physical sales volume
was up 18%, including 4% from Perkins. Price realization was about 1% lower
as price increases realized during the quarter were more than offset by
higher sales discounts and the effect of the stronger dollar on sales
denominated in currencies other than the U.S. dollar.
Margin was $140 million higher than the first quarter, primarily the
result of the 18% increase in physical sales volume. As a percent of sales,
the margin rate was 25.7% compared with 27.1% last quarter. The lower margin
rate was primarily due to the higher sales discounts, higher fixed
manufacturing costs, slightly lower manufacturing efficiency, and an
unfavorable net effect of the dollar, partially offset by the price increases
realized during the quarter.
Fixed manufacturing costs were higher and manufacturing efficiency was
lower primarily due to the major growth initiatives and product line
expansions.
Selling, general, and administrative expenses were $548 million, up
$36 million from the first quarter. The increase reflects continued higher
spending levels in support of major growth initiatives and product line
expansions.
Research and development expenses of $165 million were up $10 million
from the first quarter. The increase reflects continued higher spending in
support of new and improved products.
Operating profit of $666 million increased $94 million. As a percent of
sales, operating profit was 12.4% compared with 12.5% in the first quarter.
Interest expense of $69 million was $8 million higher than the first
quarter, mostly due to higher average debt levels to finance the Perkins
acquisition.
Other income/expense reflects a net decrease in income of $42 million
from last quarter primarily due to an unfavorable change in foreign exchange
gains and losses, and discounts taken on the sale of receivables to
Cat Financial.
Financial Products
Financial Products' revenues of $276 million were up $36 million from
the first quarter, primarily due to Cat Financial's portfolio growth.
Before-tax profit was $69 million, a decrease of $7 million, primarily
the result of lower investment income at Cat Insurance, partially offset by
higher earnings from Cat Financial's larger portfolio.
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<PAGE>
Income Taxes
Income tax expense of $220 million increased $13 million from the
previous quarter. The increase reflects the higher profit before tax. The
tax rate was 33% in both quarters.
Unconsolidated Affiliated Companies
Our share of unconsolidated affiliated companies' results decreased
$8 million from the previous quarter. The major factor was unfavorable
results at Shin Caterpillar Mitsubishi Ltd. due primarily to lower sales
volume resulting from the severe economic downturn in Japan and Southeast
Asia.
SIX MONTHS ENDED JUNE 30, 1998 VS. SIX MONTHS ENDED JUNE 30, 1997
Profit for the six months ended June 30, 1998 was $876 million or
$2.39 per share of common stock ($2.36 assuming dilution), an improvement of
$47 million over profit of $829 million or $2.19 per share ($2.16 assuming
dilution) for the first six months of 1997. Sales and revenues of
$10.40 billion were $1.27 billion higher than last year.
Machinery and Engines
Sales were $9.93 billion, an increase of $1.18 billion from the same
period last year. Profit before tax was $1.15 billion, an improvement of
$32 million. The primary reason for the increase in profit was higher
physical sales volume.
The increase in physical sales volume resulted from higher machine and
engine sales both inside and outside the United States.
Price realization improved due to price increases taken over the past
year and a favorable change in geographic sales mix. These favorable items
were partially offset by the negative effect of the stronger dollar on sales
denominated in currencies other than the U.S. and higher sales discounts.
Margin increased $301 million primarily because of the higher physical
sales volume. Margin as a percent of sales was 26.4%, about the same as a
year ago. The favorable impact of the higher physical sales volume and price
increases taken over the past year were offset by higher fixed manufacturing
costs, lower manufacturing efficiency, an unfavorable change in product sales
mix, and higher discounts.
Fixed manufacturing costs were higher and manufacturing efficiency was
lower primarily due to the major growth initiatives and product line
expansions that include electric power generation, agricultural products, and
compact machines. The unfavorable change in product sales mix was primarily
the result of the addition of Perkins product which had a slightly lower
margin. The net effect of the dollar on the margin rate was nominal, as the
favorable effect of the stronger dollar on costs incurred in Japanese yen and
European currencies was offset by the negative impact on price realization.
Selling, general, and administrative expenses were $1.06 billion,
compared with $907 million during the first six months of 1997. The
$153 million increase primarily reflects increased spending levels in support
of major growth initiatives and product line expansions. The effects of
inflation on costs also contributed to the increase.
Page 19
<PAGE>
Research and development expenses were $320 million, compared with
$252 million during the first six months of 1997. The $68 million increase
primarily reflects expected higher spending in support of new and improved
products.
Operating profit of $1.24 billion was $80 million higher than the first
six months of 1997. Operating profit as a percent of sales was 12.5%
compared with 13.2% a year ago.
Interest expense of $130 million was $20 million higher than a year ago,
mostly due to higher average debt levels to finance the acquisition of
Perkins during first-quarter 1998.
Other income/expense was income of $42 million compared with income of
$70 million last year. The decrease of $28 million is mostly due to the
discount taken on the sale of receivables to Cat Financial.
Financial Products
Financial Products' revenues for the six months ended June 30, 1998,
were $516 million, up $120 million from the same period a year ago. The
increase was primarily the result of Cat Financial's portfolio growth.
Before-tax profit for Financial Products was $145 million, an increase
of $48 million from the first six months of 1997. The increase resulted
primarily from more favorable reserve adjustments and higher investment
income at Cat Insurance.
Selling, general and administrative expenses were up $23 million,
principally the result of provisions for credit losses and increased
depreciation on leased equipment due to Cat Financial's record new business
and other increases due to growth, partially offset by more favorable reserve
adjustments at Cat Insurance.
Interest expense was $59 million higher due to increased borrowings to
support the larger portfolio.
Income Taxes
Tax expense was $427 million, $14 million higher than a year ago. The
increase reflects higher before-tax profit partially offset by the impact of
a lower effective tax rate of 33% compared with 34% a year ago.
Unconsolidated Affiliated Companies
The company's share of unconsolidated affiliated companies' profit was
$8 million, down $19 million from a year ago. The major factor for the
decrease was unfavorable results at Shin Caterpillar Mitsubishi Ltd. due
primarily to lower sales volume resulting from the severe economic downturn
in Japan and Southeast Asia.
EMPLOYMENT
At the end of the second quarter, Caterpillar's worldwide employment was
65,947 compared with 58,336 one year ago. Hourly employment increased 3,843
to 37,400; salaried and management employment increased 3,768 to 28,547. The
increases were largely due to acquisitions.
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<PAGE>
ECONOMIC AND INDUSTRY OUTLOOK
In the United States, Gross Domestic Product (GDP) is now expected to
grow almost 3.5% in 1998, slightly better than anticipated in April. Demand
for goods and services has recently been growing at the fastest pace since
1983-1984. The economy is forecast to slow some in the second half, but this
will be an outstanding year in terms of industry demand for both machines and
engines. Overall, industry demand for machines in 1998 is expected to be up
about 10% for the year. Industry demand for engines also is forecast to be
moderately higher with gains in all markets, especially truck Original
Equipment Manufacturers.
In Canada, continued strong economic growth in 1998 should result in
higher machine and engine industry demand for the year.
In Western Europe, economic activity picked up in the first half. This
momentum should carry through the remainder of the year, resulting in GDP
growth of 3% for the year as a whole. Consumer and business confidence should
continue to rise as unemployment falls contributing to an excellent
investment environment. Industry demand is forecast to increase for both
machines and engines.
In Central Europe, good economic growth should continue throughout 1998
with industry demand exceeding 1997 levels.
The outlook for the Asia/Pacific region continues to deteriorate.
Indonesia, Thailand, and Korea are experiencing severe recessions. China is
still growing but at a much slower pace than in 1997. Overall, developing
Asia is now forecast to register no growth in 1998, and industry demand for
both machines and engines will fall significantly from 1997 levels.
Japan is now expected to remain in deep recession throughout this year.
Consequently, industry demand will decline significantly in 1998.
The Australian economy continues to register moderate growth despite
much lower Asian exports. A strong construction sector should offset
weakness in mining and agriculture resulting in slightly higher industry
demand for the year. Engine industry demand should remain near 1997 levels.
In Latin America, GDP growth is still expected to be 3.5% this year
leading to higher industry demand for both machines and engines.
The Africa/Middle East region has been hurt by lower commodity prices,
especially for oil. With weak economic growth, industry demand will likely
decline in 1998 for machines and engines.
In the CIS, Russia has slipped back into recession, struggling with
currency and budget problems. Consequently, industry demand for machines and
engines is forecast to decline in 1998.
In summary, the economic and industry outlook has improved since April
for North America, but continues to deteriorate for Asia. In total,
worldwide industry demand for machines is still expected to decline only
slightly in 1998, unchanged from our January 1998 and April 1998 outlook.
Worldwide industry demand for engines is still expected to exceed 1997 levels
due to continued strength in North America.
COMPANY OUTLOOK
Our outlook for 1998 worldwide sales and revenues remains unchanged from
that issued with our third-quarter 1997 results, which called for sales and
revenues (excluding Perkins, which was acquired during the first quarter) to
slightly surpass 1997's record levels.
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<PAGE>
Investments in major initiatives to enhance long-term growth and
shareholder returns continue in 1998. These initiatives include electric
power generation, agricultural products, compact machines, and further
strengthening of our product support network to better link customer, dealer,
and company operations.
For Machinery and Engines (excluding Perkins), total capital
expenditures, which were $819 million in 1997, are expected to be slightly
higher in 1998. R&D and SG&A expenditures will increase in 1998 in support
of expanded operations and the major growth initiatives, however, the rate of
increase is expected to be less than in recent years.
Despite these expenditures for major growth initiatives, our outlook for
profit in 1998 remains unchanged from that issued with our fourth-quarter
1997 results and is expected to be near 1997's record. Profit per share will
be favorably impacted by the share buy-back program announced in June 1995,
which we anticipate will be completed during 1998. Cash flow from operations
and our financial position are expected to remain strong.
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 July 15, 1998.
B. Liquidity & Capital Resources
Consolidated operating cash flow totaled $374 million through the second
quarter of 1998, compared with $843 million during the first six months of
1997. This decrease is largely attributed to a decrease in accounts payable
and accrued expenses and an increase in inventory over the same period a year
ago.
Total debt at the end of the first six months was $12.25 billion, an
increase of $3.68 billion from year-end 1997. Over this period, debt related
to Machinery and Engines increased $832 million, to $3.31 billion, while
debt related to Financial Products increased $2.85 billion to $8.94 billion.
During 1995, the company announced a plan to repurchase up to 10% of its
outstanding common stock over a three to five year period. From inception
in June 1995 through June 30, 1998, 39.9 million shares have been repurchased
under the plan. The number of shares outstanding at June 30, 1998, was
364.8 million. When the 10% share repurchase program is completed later this
year, approximately 360 million shares will be outstanding.
Machinery and Engines
Operating cash flow totaled $1.26 billion through the second quarter of
1998, compared with $704 million for the same period a year ago. The increase
in operating cash flow primarily results from the $938 million decrease in
accounts receivable compared to same period a year ago. This decrease is
largely attributed to a $1.01 billion sale of receivables to Cat Financial.
Partially offsetting this decrease in receivables was a $303 million
decrease in accounts payable and a $110 million increase in inventory
compared to the same period a year ago.
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Capital expenditures, excluding equipment leased to others, totaled
$304 million through second quarter 1998 compared with $222 million for the
same period a year ago. Total debt increased by $832 million. During the
first quarter 1998, $250 million of Eurobond notes were issued to partially
fund the Perkins acquisition. Additionally, through second quarter 1998,
short term borrowings increased by $534 million in order to meet working
capital needs. This additional debt increased the percent of debt to debt
plus stockholders equity from 35% at December 31, 1997, to 39% at
June 30, 1998.
Financial Products
Operating cash flow totaled $(848) million through the second quarter of
1998, compared with $139 million for the same period a year ago. This
decrease resulted from the purchasing of $1.01 billion of Machinery and
Engines trade receivables. Cash used to purchase equipment leased to others
totaled $169 million through the first six months of 1998. In addition, net
cash used for finance receivables was $1.88 billion through second-quarter
1998, compared with $841 million for the same period a year ago.
Financial Products' debt was $8.94 billion at June 30, 1998, an
increase of $2.85 billion from December 31, 1997 and was primarily comprised
of $5.76 billion of medium term notes, $153 million of notes payable to banks
and $2.93 billion of commercial paper. At the end of the second quarter,
finance receivables past due over 30 days were 1.2%, compared with 1.9% at
the end of the same period one year ago. The ratio of debt to equity of
Cat Financial was 8.9:1 at June 30, 1998, compared with 7.8:1 at
December 31, 1997.
Financial Products had outstanding credit lines totaling $3.80 billion
at June 31, 1998, which included $2.25 billion of shared revolving credit
agreements with Machinery and Engines. These credit lines are with a number
of banks and are considered support for the company's outstanding commercial
paper, commercial paper guarantees, the discounting of bank and trade bills,
and bank borrowings.
PART II. OTHER INFORMATION
Item 2. Changes in Securities
We have twelve employee stock purchase plans administered outside the
United States for our foreign employees. These plans are not registered with
the Securities and Exchange Commission and are exempt from such registration
pursuant to Regulation S under the Securities Act. As of December 31, 1997,
those plans had approximately 2,850 participants in the aggregate. During the
Second Quarter of 1998, a total of 35,632 shares of Caterpillar common stock
or foreign denominated equivalents were distributed under the plans.
Page 23
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
---------- -----------
10 Caterpillar Inc. 1996 Stock Option and
Long-Term Incentive Plan, as amended
and restated
27.1 Restated Financial Data Schedule for Year-End 1995.
27.2 Restated Financial Data Schedule for First Quarter 1996.
27.3 Restated Financial Data Schedule for Second Quarter 1996.
27.4 Restated Financial Data Schedule for Third Quarter 1996.
27.5 Restated Financial Data Schedule for Year-End 1996.
27.6 Restated Financial Data Schedule for First Quarter 1997.
27.7 Restated Financial Data Schedule for Second Quarter 1997.
27.8 Financial Data Schedule for Second Quarter 1998.
(b) One report on Form 8-K, dated April 17, 1998, was filed during
the quarter ending June 30, 1998, pursuant to Item 5 of that form.
Four additional Form 8-Ks dated July 15, 1998 were filed pursuant to
Item 5. No financial statements were filed as part of those reports.
Page 24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CATERPILLAR INC.
Date: August __, 1998 By: /s/ D. R. Oberhelman
----------------------
D. R. Oberhelman, Vice President
and Chief Financial Officer
Date: August __, 1998 By: /s/ R. R. Atterbury III
-------------------------
R. R. Atterbury III, Secretary
Page 25
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
10 Caterpillar Inc. 1996 Stock Option and
Long-Term Incentive Plan, as amended and restated
27.1 Restated Financial Data Schedule for Year-End 1995.
27.2 Restated Financial Data Schedule for First Quarter 1996.
27.3 Restated Financial Data Schedule for Second Quarter 1996.
27.4 Restated Financial Data Schedule for Third Quarter 1996.
27.5 Restated Financial Data Schedule for Year-End 1996.
27.6 Restated Financial Data Schedule for First Quarter 1997.
27.7 Restated Financial Data Schedule for Second Quarter 1997.
27.8 Financial Data Schedule for Second Quarter 1998.
CATERPILLAR INC.
1996 STOCK OPTION AND LONG-TERM INCENTIVE PLAN
(Amended and Restated as of 06/09/98)
Section 1. Purpose
The Caterpillar Inc. 1996 Stock Option and Long-Term Incentive Plan
("Plan") is designed to attract and retain outstanding individuals as
directors, officers and key employees of Caterpillar Inc. and its subsidiaries
(collectively, the "Company"), and to furnish incentives to such individuals
through awards based upon the performance of the Company and its stock. To
this end, the Plan provides for grants of stock options, restricted stock,
and performance awards, or combinations thereof, to non-employee directors,
officers and other key employees of the Company, on the terms and subject to
the conditions set forth in the Plan.
Section 2. Shares Subject to the Plan
2.1 Shares Reserved for Issuance
Seven million shares of Company common stock ("Shares") shall be
available for issuance under the Plan either from authorized but unissued
Shares or from Shares acquired by the Company, including Shares purchased
in the open market. An additional four million Shares authorized but unissued
under prior Company stock option plans shall be available for issuance under
this Plan.
2.2 Stock Splits/Stock Dividends
In the event of a change in the outstanding Shares of the Company
by reason of a stock dividend, recapitalization, merger, consolidation,
split-up, combination, exchange of shares, or similar event, the Compensation
Committee ("Committee") of the Company's Board of Directors ("Board") shall
take any action, which, in its discretion, it deems necessary to preserve
benefits under the Plan, including adjustment to the aggregate number of
Shares reserved for issuance under the Plan, the number and option price of
Shares subject to outstanding options granted under the Plan and the number
and price of Shares subject to other awards under the Plan.
2.3 Reacquired Shares
If Shares issued pursuant to the Plan are not acquired by
participants because of lapse, expiration or termination of an award, such
Shares shall again become available for issuance under the Plan. Shares
tendered upon exercise of an option by a Plan participant may be added back
and made available solely for future grants under the Plan.
Section 3. Administration
The Committee shall have the authority to grant awards under the
Plan to officers and other key employees of the Company. Except as limited
by the express provisions of the Plan or by resolutions adopted by the Board,
the Committee also shall have the authority and discretion to interpret the
Plan, to establish and revise rules and regulations relating to the Plan, and
to make any other determinations that it believes necessary or advisable for
administration of the Plan.
The Committee shall be composed solely of members of the Board
that are outside directors, as that term is defined in Section 162(m) of the
Internal Revenue Code. The Committee shall have no authority with respect
to non-employee director awards under the Plan.
Section 4. Stock Options
4.1 Company Employees
(a) Eligibility
The Committee shall determine Company officers and employees to
whom options shall be granted, the timing of such grants, and the number of
shares subject to the option; provided that the maximum number of Shares
upon which options may be granted to any employee in any calendar year shall
be 400,000.
(b) Option Exercise Price
The exercise price of each option shall not be less than 100% of
the fair market value of Shares underlying the option at the time the option
is granted. The fair market value for purposes of determining the exercise
price shall be the mean between the high and low prices at which Shares are
traded on the New York Stock Exchange the day the option is granted. In the
event this method for determining fair market value is not practicable, fair
market value shall be determined by such other reasonable method as the
Committee shall select.
(c) Option Exercise
Options shall be exercisable in such installments and during such
periods as may be fixed by the Committee at the time of grant. Options that
are not incentive stock options as defined in Section 4.1(f) of the Plan shall
not be exercisable after the expiration of ten years and one day from the date
of grant.
Payment of the exercise price shall be made upon exercise of all
or a portion of any option. Such payment shall be in cash or by tendering
Shares having a fair market value equal to 100% of the exercise price. The
fair market value of Shares for this purpose shall be the mean between the
high and low prices at which Shares are traded on the New York Stock Exchange
on the date of exercise. Upon exercise of an option, any applicable taxes
the Company is required to withhold shall be paid to the Company. Shares to
be received upon exercise may be surrendered to satisfy withholding obligations.
(d) Termination of Employment
The Committee may require a period of continued employment before
an option can be exercised. That period shall not be less than one year,
except that the Committee may permit a shorter period in the event of
termination of employment by retirement or death.
Termination of employment with the Company shall terminate remaining
rights under options then held; provided, however, that an option grant may
provide that if employment terminates after completion of a specific period,
the option may be exercised during a period of time after termination. That
period may not exceed sixty months where termination of employment is caused
by retirement or death or sixty days where termination results from any other
cause. If death occurs after termination of employment but during the period
of time specified, such period may be extended to not more than sixty-six
months after retirement, or thirty-eight months after termination of
employment for any other cause. In the event of termination within two
years after a Change of Control as defined in Section 7.2 of the Plan,
options shall be exercisable for a period of sixty months following the
date of termination or for the maximum term of the option, whichever is
shorter. Notwithstanding the foregoing, the Committee may change the
post-termination period of exercisability of an option provided that change
does not extend the original maximum term of the option.
(e) Transferability of Options
(i) Except as otherwise permitted in Section 4.1(e)(ii),
options shall not be transferable other than by will or the laws of descent
and distribution or pursuant to a qualified domestic relations order as
defined by the Internal Revenue Code or the Employee Retirement Income
Security Act. Options are exercisable during the holder's lifetime only
by the holder, unless the holder becomes incapacitated or disabled, in
which case the option may be exercised by the holder's authorized
representative. A holder may file with the Company a written designation
of beneficiaries with the authority to exercise options in the event of the
holder's death.
(ii) Notwithstanding the provisions of Section 4.1(e)(i),
and in addition to the permissible transfers under that provision, options
granted to persons at the level of Vice President and above, as well as
directors of this corporation and persons retired from those positions, may
be transferred to any one or more "Permitted Transferees," as long as those
options are vested and are not incentive stock options as defined below.
(iii) For purposes of Section 4.1(e)(ii), the term "Permitted
Transferees" shall mean the individual to whom the option is granted; the
lineal descendants of the individual to whom the option is granted; the
spouses of the lineal descendants of the individual to whom the option is
granted; the estate (and any trust that serves a distributive function of
an estate) of the individual to whom the option is granted; and all trusts,
corporations, partnerships, limited liability companies and other entities
in which, directly or indirectly, but for the exercise of a power of
appointment or the death of the survivor of the individuals who are Permitted
Transferees, each owner of an equitable interest is an individual who is a
Permitted Transferee.
(f) Incentive Stock Options
Incentive stock options, as defined in Section 422 of the Internal
Revenue Code, may be granted under the Plan. The decision to grant
incentive stock options to particular persons is within the Committee's
discretion. Incentive stock options shall not be exercisable after
expiration of ten years from the date of grant. The amount of incentive
stock options vesting in a particular year cannot exceed $100,000 per
option recipient, based on the fair market value of the options on the date
of grant; provided that any portion of an option that cannot be exercised
as an incentive stock option because of this limitation may be converted
by the Committee to another form of option. The Board may amend the Plan
to comply with Section 422 of the Internal Revenue Code or other applicable
laws and to permit options previously granted to be converted to incentive
stock options.
4.2 Non-Employee Directors
(a) Terms
Options with a term of ten years and one day are granted to each
non-employee director for 4,000 Shares, effective as of the close of each
annual meeting of stockholders at which an individual is elected a director
or following which such individual continues as a director. Options granted
to non-employee directors shall become exercisable by one-third at the end of
each of the three successive one-year periods since the date of grant.
The exercise price of each option shall be 100% of the fair market value
of Shares underlying the option on the date of grant.
(b) Termination of Directorship
An option awarded to a non-employee director may be exercised any
time within 60 months of the date the director terminates such status. In
the event of a director's death, the director's authorized representative may
exercise the option within 60 months of the date of death, provided that if the
director dies after cessation of director status, the option is exercisable
within 66 months of such cessation. In no event shall an option awarded to
a non-employee director be exercisable beyond the expiration date of that
option.
Section 5. Restricted Stock
5.1 Company Employees
(a) Eligibility
The Committee may determine whether restricted stock shall be
awarded to Company officers and employees, the timing of award, and the
conditions and restrictions imposed on the award.
(b) Terms
During the restriction period, the recipient shall have a
beneficial interest in the restricted stock and all associated rights and
privileges of a stockholder, including the right to vote and receive
dividends, subject to any restrictions imposed by the Committee at the
time of grant.
The following restrictions will be imposed on Shares of
restricted stock until expiration of the restriction period:
(i) The recipient shall not be entitled to delivery of the
Shares;
(ii) None of the Shares issued as restricted stock may be
transferred other than by will or by the laws of descent and distribution; and
(iii) Shares issued as restricted stock shall be forfeited if
the recipient terminates employment with the Company, except for termination
due to retirement after a specified age, disability, death or other special
circumstances approved by the Committee.
Shares awarded as restricted stock will be issued subject to
a restriction period set by the Committee of no less than two nor more than
ten years. The Committee, except for restrictions specified in the
preceding paragraphs, shall have the discretion to remove any or all of
the restrictions on a restricted stock award whenever it determines such
action appropriate. Upon expiration of the restriction period, the Shares
will be made available to the recipient, subject to satisfaction of
applicable tax withholding requirements.
5.2 Non-Employee Directors
(a) On January 1 of each year, 400 Shares of restricted stock shall
be granted to each director who is not currently an employee of the Company.
The stock will be subject to a restriction period of three years from the
date of grant. During the restriction period, the recipient shall have a
beneficial interest in the restricted stock and all associated rights and
privileges of a stockholder, including the right to vote and receive
dividends.
The following restrictions will be imposed on restricted stock
until expiration of the restricted period:
(i) The recipient shall not be entitled to delivery of the Shares;
(ii) None of the Shares issued as restricted stock may be
transferred other than by will or by the laws of descent and
distribution; and
(iii) Shares issued as restricted stock shall be forfeited if the
recipient ceases to serve as a director of the Company, except
for termination due to death, disability, or retirement under
the Company's Directors' Retirement Plan.
Upon expiration of the restriction period, the Shares will be made
available to the recipient, subject to satisfaction of applicable tax
withholding requirements.
(b) Each January 1st, 350 shares of restricted stock, in addition to
shares described in Section 5.2(a), shall be awarded to each director who
is not currently and has not been an employee of the Company. Shares awarded
under this Section 5.2(b) will be held in escrow until the director
terminates service with the Company. During the restriction period, the
recipient shall have a beneficial interest in the restricted stock and
all associated rights and privileges of a stockholder except as discussed
below.
The following restrictions will be imposed on restricted stock awarded under
this Section 5.2(b) until it is made available to the recipient:
(i) The recipient shall not receive dividends on the shares, but
an amount equal to such dividends will be credited to the
director's stock equivalent account in the Company's
Directors' Deferred Compensation Plan;
(ii) The recipient shall not be entitled to delivery of the shares;
(iii) None of the shares awarded may be transferred other than by
will or by the laws of descent and distribution; and
(iv) The right to receive shares shall be subordinate to the claims
of general creditors of the Company.
Upon termination of service, restricted shares will be made
available to the recipient subject to satisfaction of applicable tax
withholding requirements; provided, however, that if the recipient has not
served on the Board for at least five years at the time of such termination,
all restricted shares awarded under this Section 5.2(b) shall be forfeited.
Pursuant to termination of the Company's Directors' Retirement
Plan effective December 31, 1996, each director continuing in office was
awarded an amount of restricted stock equal to the accumulated value of past
pension accruals as determined by the Company's actuary. Those shares will
be subject to the same restrictions as shares awarded annually pursuant to
this Section 5.2(b).
Section 6. Performance Awards
6.1 Eligibility and Terms
The Committee may grant awards to officers and other key employees
("Performance Awards") based upon Company performance over a period of
years ("Performance Period"). The Committee shall have sole discretion to
determine persons eligible to participate, the Performance Period, Company
performance factors applicable to the award ("Performance Measures"), and
the method of Performance Award calculation.
At the time the Committee establishes a Performance Period for a
particular award, it shall also establish Performance Measures and targets
to be attained relative to those measures ("Performance Targets"). Performance
Measures may be based on any of the following factors, alone or in combination,
as the Committee deems appropriate: (i) return on assets; (ii) return on
equity; (iii) return on sales; (iv) total shareholder return; (v) cash flow;
(vi) economic value added; and (vii) net earnings. Performance Targets may
include a minimum, maximum and target level of performance with the size of
Performance Awards based on the level attained. Once established,
Performance Targets and Performance Measures shall not be changed during
the Performance Period; provided, however, that the Committee may eliminate
or decrease the amount of a Performance Award otherwise payable to a
participant. Upon completion of a Performance Period, the Committee shall
determine the Company's performance in relation to the Performance Targets
for that period and certify in writing the extent to which Performance
Targets were satisfied.
6.2 Payment of Awards
Performance Awards may be paid in cash, Shares of restricted
stock (pursuant to terms applicable to restricted stock awarded to Company
employees as described in the Plan) or a combination thereof, as determined
by the Committee. Performance Awards shall be made not later than 90 days
following the end of the relevant Performance Period. The fair market value
of a Performance Award payment to any individual employee in any calendar
year shall not exceed $2.5 million. The fair market value of Shares to be
awarded shall be determined by the average of the high and low price of
Shares on the New York Stock Exchange on the last business day of the
Performance Period. Federal, state and local taxes will be withheld as
appropriate.
6.3 Termination
To receive a Performance Award, the participant must be employed
by the Company on the last day of the Performance Period. If a participant
terminates employment during the Performance Period by reason of death,
disability or retirement, a payout based on the time of employment during
the Performance Period shall be distributed. Participants employed on the
last day of the Performance Period, but not for the entire Performance
Period, shall receive a payout prorated for that part of the Performance
Period for which they were participants. If the participant is deceased at
the time of Performance Award payment, the payment shall be made to the
recipient's designated representative.
Section 7. Election to Receive Non-Employee Director Fees in Shares
Effective April 8, 1998, non-employee directors shall have the
option of receiving all or a portion of their annual retainer fees, as well
as fees for attendance at meetings of the Board and committees of the Board
(including any Committee Chairman stipend), in the form of Shares.
The number of Shares that may be issued pursuant to such election
shall be based on the amount of cash compensation subject to the election
divided by the fair market value of one Share on the date such cash
compensation is payable. The fair market value shall be the mean between
the high and low prices at which shares are traded on the New York Stock
Exchange on payable date.
Shares provided pursuant to the election shall be held in
book-entry form by the Company on behalf of the non-employee director.
Upon request, the Company shall deliver Shares so held to the non-employee
director. While held in book-entry form, the Shares shall have all
associated rights and privileges, including voting rights and the right
to receive dividends.
Section 8. Change of Control
8.1 Effect on Grants and Awards.
Unless the Committee shall otherwise expressly provide in the
agreement relating to a grant or award under the Plan, upon the occurrence
of a Change of Control as defined below: (i) all options then outstanding
under the Plan shall become fully exercisable as of the date of the Change
of Control; (ii) all terms and conditions of restricted stock awards then
outstanding shall be deemed satisfied as of the date of the Change of
Control; and (iii) all Performance Awards for a Performance Period not
completed at the time of the Change of Control shall be payable in an
amount equal to the product of the maximum award opportunity for the
Performance Award and a fraction, the numerator of which is the number of
months that have elapsed since the beginning of the Performance Period
through the later of (A) the date of the Change of Control or (B) the date
the participant terminates employment, and the denominator of which is the
total number of months in the Performance Period; provided, however, that
if this Plan shall remain in force after a Change of Control, a Performance
Period is completed during that time, and the participant's employment has
not terminated, this provision (iii) shall not apply.
8.2 Change of Control Defined
For purposes of the Plan, a "Change of Control" shall be deemed to
have occurred if:
(a) Any person becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 15 percent or more of the combined voting power of the
Company's then outstanding common stock, unless the Board by resolution
negates the effect of this provision in a particular circumstance, deeming
that resolution to be in the best interests of Company stockholders;
(b) During any period of two consecutive years, there shall cease
to be a majority of the Board comprised of individuals who at the beginning
of such period constituted the Board;
(c) The shareholders of the Company approve a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) less than fifty percent of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; or
(d) Company shareholders approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company
of all or substantially all of its assets.
Section 9. Amendment and Termination
The Board may terminate the Plan at any time, except with respect
to grants and awards then outstanding. The Board may amend the Plan
without shareholder approval, unless such approval is necessary to comply
with applicable laws, including provisions of the Exchange Act or Internal
Revenue Code.
Section 10. Regulatory Compliance
Notwithstanding any other provision of the Plan, the issuance or
delivery of any Shares may be postponed for such period as may be required
to comply with any applicable requirements of any national securities
exchange or any requirements under any other law or regulation applicable
to the issuance or delivery of such Shares. The Company shall not be
obligated to issue or deliver any Shares if such issuance or delivery
shall constitute a violation of any provision of any law or regulation of
any governmental authority or national securities exchange.
Section 11. Effective Date
The Plan shall be effective upon its approval by the Company's
stockholders at the 1996 Annual Meeting of Stockholders.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 116
<SECURITIES> 522
<RECEIVABLES> 2,531<F1>
<ALLOWANCES> 0<F1><F2>
<INVENTORY> 1,921
<CURRENT-ASSETS> 7,647
<PP&E> 8,303
<DEPRECIATION> 4,659
<TOTAL-ASSETS> 16,830
<CURRENT-LIABILITIES> 6,049
<BONDS> 3,964
0<F2>
0<F2>
<COMMON> 407<F3>
<OTHER-SE> 2,981<F3>
<TOTAL-LIABILITY-AND-EQUITY> 16,830
<SALES> 15,451
<TOTAL-REVENUES> 16,072
<CGS> 12,000
<TOTAL-COSTS> 14,388<F4>
<OTHER-EXPENSES> (122)<F4>
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 191
<INCOME-PRETAX> 1,615
<INCOME-TAX> 501
<INCOME-CONTINUING> 1,136
<DISCONTINUED> 0<F2>
<EXTRAORDINARY> 0<F2>
<CHANGES> 0<F2>
<NET-INCOME> 1,136
<EPS-PRIMARY> 2.86<F3>
<EPS-DILUTED> 2.84<F3>
<FN>
<F1> Notes and accounts receivable - trade are reported net of allowances for
doubtful accounts in the Statement of Financial Position.
<F2> Amounts inapplicable or not disclosed as a separate line on the Statement
of Financial Position or Results of Operations are reported as zero herein.
<F3> Amount was restated to reflect a two-for-one stock split in the form
of a 100 percent stock dividend. The stock dividend was paid on
July 11, 1997 to shareholders of record on June 23, 1997. The
adoption of Statement of Financial Accounting Standard No. 128,
"Earnings per Share" did not have a material impact on the restatement
of our earnings per share numbers.
<F4> Amount was reclassified to conform with revised financial statement
presentation.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FINANCIAL STATEMENTS FOR THE PERIOD
ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 66
<SECURITIES> 539
<RECEIVABLES> 2,812 <F1>
<ALLOWANCES> 0 <F1><F2>
<INVENTORY> 2,118
<CURRENT-ASSETS> 7,995
<PP&E> 8,414
<DEPRECIATION> 4,805
<TOTAL-ASSETS> 17,412
<CURRENT-LIABILITIES> 5,892 <F4>
<BONDS> 4,464 <F4>
0 <F2>
0 <F2>
<COMMON> 407 <F3>
<OTHER-SE> 3,234 <F3>
<TOTAL-LIABILITY-AND-EQUITY> 17,412
<SALES> 3,682
<TOTAL-REVENUES> 3,844
<CGS> 2,764
<TOTAL-COSTS> 3,396 <F5>
<OTHER-EXPENSES> (35)<F5>
<LOSS-PROVISION> 0 <F2>
<INTEREST-EXPENSE> 49
<INCOME-PRETAX> 434
<INCOME-TAX> 143
<INCOME-CONTINUING> 296
<DISCONTINUED> 0 <F2>
<EXTRAORDINARY> 0 <F2>
<CHANGES> 0 <F2>
<NET-INCOME> 296
<EPS-PRIMARY> .76 <F3>
<EPS-DILUTED> .76 <F3>
<FN>
<F1> Notes and accounts receivable - trade are reported net of allowances for
doubtful accounts in the Statement of Financial Position.
<F2> Amounts inapplicable or not disclosed as a separate line on the Statement
of Financial Position or Results of Operations are reported as zero herein.
<F3> Amount was restated to reflect a two-for-one stock split in the form
of a 100 percent stock dividend. The stock dividend was paid on
July 11, 1997 to shareholders of record on June 23, 1997. The
adoption of Statement of Financial Accounting Standard No. 128,
"Earnings per Share" did not have a material impact on the restatement
of our earnings per share numbers.
<F4> Dollars were reclassified from short-term borrowings to long-term
debt due after one year. This reclassification reflects a change
in management's intent to finance for periods greater than a year
certain portions of debt under revolving credit agreements.
<F5> Amount was reclassified to conform with revised financial statement
presentation.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FINANCIAL STATEMENTS FOR THE PERIOD
ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 109
<SECURITIES> 524
<RECEIVABLES> 2,857 <F1>
<ALLOWANCES> 0 <F1><F2>
<INVENTORY> 2,198
<CURRENT-ASSETS> 8,341
<PP&E> 8,499
<DEPRECIATION> 4,930
<TOTAL-ASSETS> 18,122
<CURRENT-LIABILITIES> 6,383 <F4>
<BONDS> 4,557 <F4>
0 <F2>
0 <F2>
<COMMON> 407 <F3>
<OTHER-SE> 3,378 <F3>
<TOTAL-LIABILITY-AND-EQUITY> 18,122
<SALES> 7,690
<TOTAL-REVENUES> 8,024
<CGS> 5,756
<TOTAL-COSTS> 7,010 <F5>
<OTHER-EXPENSES> (65)<F5>
<LOSS-PROVISION> 0 <F2>
<INTEREST-EXPENSE> 98
<INCOME-PRETAX> 981
<INCOME-TAX> 324
<INCOME-CONTINUING> 670
<DISCONTINUED> 0 <F2>
<EXTRAORDINARY> 0 <F2>
<CHANGES> 0 <F2>
<NET-INCOME> 670
<EPS-PRIMARY> 1.73 <F3>
<EPS-DILUTED> 1.71 <F3>
<FN>
<F1> Notes and accounts receivable - trade are reported net of allowances for
doubtful accounts in the Statement of Financial Position.
<F2> Amounts inapplicable or not disclosed as a separate line on the Statement
of Financial Position or Results of Operations are reported as zero herein.
<F3> Amount was restated to reflect a two-for-one stock split in the form
of a 100 percent stock dividend. The stock dividend was paid on
July 11, 1997 to shareholders of record on June 23, 1997. The
adoption of Statement of Financial Accounting Standard No. 128,
"Earnings per Share" did not have a material impact on the restatement
of our earnings per share numbers.
<F4> Dollars were reclassified from short-term borrowings to long-term
debt due after one year. This reclassification reflects a change
in management's intent to finance for periods greater than a year
certain portions of debt under revolving credit agreements.
<F5> Amount was reclassified to conform with revised financial statement
presentation.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FINANCIAL STATEMENTS FOR THE PERIOD
ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 99
<SECURITIES> 660
<RECEIVABLES> 2,735 <F1>
<ALLOWANCES> 0 <F1><F2>
<INVENTORY> 2,182
<CURRENT-ASSETS> 9,074
<PP&E> 8,612
<DEPRECIATION> 5,066
<TOTAL-ASSETS> 18,598
<CURRENT-LIABILITIES> 6,597 <F4>
<BONDS> 4,839 <F4>
0 <F2>
0 <F2>
<COMMON> 407 <F3>
<OTHER-SE> 3,572 <F3>
<TOTAL-LIABILITY-AND-EQUITY> 18,598
<SALES> 11,539
<TOTAL-REVENUES> 12,057
<CGS> 8,661
<TOTAL-COSTS> 10,587 <F5>
<OTHER-EXPENSES> (97)<F5>
<LOSS-PROVISION> 0 <F2>
<INTEREST-EXPENSE> 146
<INCOME-PRETAX> 1,421
<INCOME-TAX> 462
<INCOME-CONTINUING> 980
<DISCONTINUED> 0 <F2>
<EXTRAORDINARY> 0 <F2>
<CHANGES> 0 <F2>
<NET-INCOME> 980
<EPS-PRIMARY> 2.54 <F3>
<EPS-DILUTED> 2.51 <F3>
<FN>
<F1> Notes and accounts receivable - trade are reported net of allowances for
doubtful accounts in the Statement of Financial Position.
<F2> Amounts inapplicable or not disclosed as a separate line on the Statement
of Financial Position or Results of Operations are reported as zero herein.
<F3> Amount was restated to reflect a two-for-one stock split in the form
of a 100 percent stock dividend. The stock dividend was paid on
July 11, 1997 to shareholders of record on June 23, 1997. The
adoption of Statement of Financial Accounting Standard No. 128,
"Earnings per Share" did not have a material impact on the restatement
of our earnings per share numbers.
<F4> Dollars were reclassified from short-term borrowings to long-term
debt due after one year. This reclassification reflects a change
in management's intent to finance for periods greater than a year
certain portions of debt under revolving credit agreements.
<F5> Amount was reclassified to conform with revised financial statement
presentation.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FINANCIAL STATEMENTS FOR THE YEAR
ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 128
<SECURITIES> 359
<RECEIVABLES> 2,956 <F1>
<ALLOWANCES> 0 <F1><F2>
<INVENTORY> 2,222
<CURRENT-ASSETS> 8,783
<PP&E> 8,817
<DEPRECIATION> 5,050
<TOTAL-ASSETS> 18,728
<CURRENT-LIABILITIES> 6,458 <F4>
<BONDS> 5,087 <F4>
0 <F2>
0 <F2>
<COMMON> 407 <F3>
<OTHER-SE> 3,709 <F3>
<TOTAL-LIABILITY-AND-EQUITY> 18,728
<SALES> 15,814
<TOTAL-REVENUES> 708
<CGS> 11,832
<TOTAL-COSTS> 14,530 <F5>
<OTHER-EXPENSES> (143)<F5>
<LOSS-PROVISION> 0 <F2>
<INTEREST-EXPENSE> 194
<INCOME-PRETAX> 1,941
<INCOME-TAX> 613
<INCOME-CONTINUING> 1,361
<DISCONTINUED> 0 <F2>
<EXTRAORDINARY> 0 <F2>
<CHANGES> 0 <F2>
<NET-INCOME> 1,361
<EPS-PRIMARY> 3.54 <F3>
<EPS-DILUTED> 3.50 <F3>
<FN>
<F1> Notes and accounts receivable - trade are reported net of allowances for
doubtful accounts in the Statement of Financial Position.
<F2> Amounts inapplicable or not disclosed as a separate line on the Statement
of Financial Position or Results of Operations are reported as zero herein.
<F3> Amount was restated to reflect a two-for-one stock split in the form
of a 100 percent stock dividend. The stock dividend was paid on
July 11, 1997 to shareholders of record on June 23, 1997. The
adoption of Statement of Financial Accounting Standard No. 128,
"Earnings per Share" did not have a material impact on the restatement
of our earnings per share numbers.
<F4> Dollars were reclassified from short-term borrowings to long-term
debt due after one year. This reclassification reflects a change
in management's intent to finance for periods greater than a year
certain portions of debt under revolving credit agreements.
<F5> Amount was reclassified to conform with revised financial statement
presentation.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FINANCIAL STATEMENTS FOR THE PERIOD
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 147
<SECURITIES> 371
<RECEIVABLES> 3,057 <F1>
<ALLOWANCES> 0 <F1><F2>
<INVENTORY> 2,478
<CURRENT-ASSETS> 9,079
<PP&E> 8,946
<DEPRECIATION> 5,181
<TOTAL-ASSETS> 19,292
<CURRENT-LIABILITIES> 6,289
<BONDS> 5,603
0 <F2>
0 <F2>
<COMMON> 407 <F3>
<OTHER-SE> 3,959 <F3>
<TOTAL-LIABILITY-AND-EQUITY> 19,292
<SALES> 4,072
<TOTAL-REVENUES> 4,262
<CGS> 2,981
<TOTAL-COSTS> 3,675
<OTHER-EXPENSES> (42)
<LOSS-PROVISION> 0 <F2>
<INTEREST-EXPENSE> 52
<INCOME-PRETAX> 577
<INCOME-TAX> 196
<INCOME-CONTINUING> 394
<DISCONTINUED> 0 <F2>
<EXTRAORDINARY> 0 <F2>
<CHANGES> 0 <F2>
<NET-INCOME> 394
<EPS-PRIMARY> 1.04 <F3>
<EPS-DILUTED> 1.03 <F3>
<FN>
<F1> Notes and accounts receivable - trade are reported net of allowances for
doubtful accounts in the Statement of Financial Position.
<F2> Amounts inapplicable or not disclosed as a separate line on the Statement
of Financial Position or Results of Operations are reported as zero herein.
<F3> Amount was restated to reflect a two-for-one stock split in the form
of a 100 percent stock dividend. The stock dividend was paid on
July 11, 1997 to shareholders of record on June 23, 1997. The
adoption of Statement of Financial Accounting Standard No. 128,
"Earnings per Share" did not have a material impact on the restatement
of our earnings per share numbers.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FINANCIAL STATEMENTS FOR SIX-MONTHS
ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 171
<SECURITIES> 386
<RECEIVABLES> 3,195 <F1>
<ALLOWANCES> 0 <F1><F2>
<INVENTORY> 2,526
<CURRENT-ASSETS> 9,819
<PP&E> 9,110
<DEPRECIATION> 5,324
<TOTAL-ASSETS> 20,197
<CURRENT-LIABILITIES> 6,498
<BONDS> 6,267
0 <F2>
0 <F2>
<COMMON> 407
<OTHER-SE> 4,109
<TOTAL-LIABILITY-AND-EQUITY> 20,197
<SALES> 8,748
<TOTAL-REVENUES> 9,132
<CGS> 6,431
<TOTAL-COSTS> 7,892
<OTHER-EXPENSES> (85)
<LOSS-PROVISION> 0 <F2>
<INTEREST-EXPENSE> 110
<INCOME-PRETAX> 1,215
<INCOME-TAX> 413
<INCOME-CONTINUING> 829
<DISCONTINUED> 0 <F2>
<EXTRAORDINARY> 0 <F2>
<CHANGES> 0 <F2>
<NET-INCOME> 829
<EPS-PRIMARY> $2.19 <F3>
<EPS-DILUTED> $2.16 <F3>
<FN>
<F1> Notes and accounts receivable - trade are reported net of allowances
for doubtful accounts in the Statement of Financial Position.
<F2> Amounts inapplicable or not disclosed as a separate line on the
Statement of Financial Position or Results of Operations are reported
as 0 herein.
<F3> On June 11, 1997 the company announced a two-for-one stock split
in the form of a 100 percent stock dividend. The stock dividend
was paid on July 11, 1997 to shareholders of record on June 23, 1997.
All per share information shown herein reflects the split. Financial
Data Schedules prior to Year-End 1995 have not been restated to
reflect the split.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FINANCIAL STATEMENTS FOR PERIOD
ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 125
<SECURITIES> 96
<RECEIVABLES> 3,760<F1>
<ALLOWANCES> 0<F1><F2>
<INVENTORY> 3,132
<CURRENT-ASSETS> 11,686
<PP&E> 12,523
<DEPRECIATION> 8,079
<TOTAL-ASSETS> 25,106
<CURRENT-LIABILITIES> 7,679
<BONDS> 9,464
0<F2>
0<F2>
<COMMON> 407
<OTHER-SE> 4,726
<TOTAL-LIABILITY-AND-EQUITY> 25,106
<SALES> 9,930
<TOTAL-REVENUES> 10,398
<CGS> 7,312
<TOTAL-COSTS> 9,075
<OTHER-EXPENSES> (102)
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 130
<INCOME-PRETAX> 1,295
<INCOME-TAX> 427
<INCOME-CONTINUING> 876
<DISCONTINUED> 0<F2>
<EXTRAORDINARY> 0<F2>
<CHANGES> 0<F2>
<NET-INCOME> 876
<EPS-PRIMARY> $2.39
<EPS-DILUTED> $2.36
<FN>
<F1> Notes and accounts receivable - trade are reported net of allowances
for doubtful accounts in the Statement of Financial Position.
<F2> Amounts inapplicable or not disclosed as a separate line on the
Statement of Financial Position or Results of Operations are
reported as 0 herein.
</FN>
</TABLE>