SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 20, 1999
CATERPILLAR INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
1-768
(Commission File Number)
37-0602744
(IRS Employer I.D. No.)
100 NE Adams Street, Peoria, Illinois
(Address of principal executive offices)
61629
(Zip Code)
Registrant's telephone number, including area code: (309) 675-1000
Item 5. Other Events
CATERPILLAR REPORTS HIGHEST EVER SALES AND REVENUES;
SECOND MOST PROFITABLE YEAR
SALES AND REVENUES SET A NEW RECORD FOR A FOURTH QUARTER
PEORIA, Ill. -- Caterpillar Inc. (NYSE: CAT) reported highest
ever sales and revenues and its second most profitable year. Sales and
revenues of $20.98 billion rose $2.05 billion (approximately $850
million from Perkins), 11% over 1997's record of $18.93 billion.
Profit of $1.51 billion was $152 million, 9% less than 1997's record of
$1.67 billion. Continued spending for growth initiatives, including
the impact of Perkins, more than offset the additional profit
associated with higher sales and revenues. Profit per share of $4.11
was down 6% from the 1997 record of $4.37, and continues to benefit
from the company's share repurchase programs.
Fourth-quarter sales and revenues of $5.41 billion were a
fourth-quarter record and were up 4% from fourth-quarter 1997. A 37%
increase in Financial Products revenues and the additional sales
provided by Perkins were partially offset by lower sales in other
areas. Profit of $301 million was down 33% from the fourth-quarter
record set in 1997 and profit per share of $.83 was down 31%. The
profit from the higher sales and revenues was more than offset by lower
margin rates and continued spending for growth initiatives.
Caterpillar Chairman and CEO Donald V. Fites said the past year
again demonstrates that Caterpillar's people, structure and culture
react swiftly and decisively in a world of rapid and dynamic change.
"Despite the serious economic downturn in Asia, 1998's record
sales and solid profit performance reflect the strength and diversity
of a growing product line, an expanding customer base throughout the
world and continued impressive growth in the non-traditional areas of
our business. We are well positioned and prepared for continued
success and growth," Fites said.
HIGHLIGHTS
1998 COMPARED WITH 1997
* Sales and revenues of $20.98 billion, the highest ever, rose
11%. Revenues from Financial Products increased 33%. Sales
inside the United States were 51% of worldwide sales compared
with 49% a year ago.
* Profit of $1.51 billion was down 9%.
* Profit per share of $4.11 was down 6%.
* Dividends were increased 20% in June and have now been increased
in each of the last five years.
* 11.6 million shares were repurchased during the year.
FOURTH-QUARTER 1998 COMPARED WITH FOURTH-QUARTER 1997
* Sales and revenues of $5.41 billion, the highest ever for a
fourth quarter, rose 4%. Revenues from Financial Products
increased 37% and were also the highest ever. Sales inside the
United States were 49% of worldwide sales compared with 45% a
year ago.
* Profit of $301 million was down 33%.
* Profit per share of $.83 was down 31%.
* 1.6 million shares were repurchased during the fourth quarter
under the program announced in October 1998 to reduce the number
of shares outstanding to 320 million within the next three to
five years. On December 31, 1998 there were 357.2 million
shares outstanding.
OUTLOOK
We expect 1999 sales and revenues to be slightly below 1998.
Profit for 1999 is expected to be moderately lower. (Complete outlook
begins on page 13.)
DETAILED ANALYSIS
1998 COMPARED WITH 1997
Sales and revenues of $20.98 billion rose $2.05 billion
(approximately $850 million from Perkins), 11% over 1997's record of
$18.93 billion. Profit of $1.51 billion was $152 million, 9% less than
1997's record of $1.67 billion. Continued spending for growth
initiatives, including the impact of Perkins, more than offset the
additional profit associated with higher sales and revenues. Profit
per share of $4.11 was down 6% from the 1997 record of $4.37, and
continues to benefit from the company's share repurchase programs.
MACHINERY AND ENGINES
Sales Table
(Millions of North Latin Asia/
dollars) Total America EAME** America Pacific
1998
Machinery Sales $13,448 $8,352 $2,871 $1,252 $973
Engine Sales * 6,524 3,097 2,134 666 627
$19,972 $11,449 $5,005 $1,918 $1,600
1997
Machinery Sales $13,350 $7,606 $2,714 $1,252 $1,778
Engine Sales * 4,760 2,526 1,088 450 696
$18,110 $10,132 $3,802 $1,702 $2,474
* Does not include internal engine sales of $1,268 million
and $1,162 million in 1998 and 1997, respectively. Internal
engine sales are valued at prices comparable to those for
unrelated parties.
** Europe, Africa & Middle East and Commonwealth of
Independent States
Machinery sales were $13.45 billion, an increase of $98 million
from 1997. The improvement resulted from an increase in physical
volume as higher sales to end users and dealer rental fleets more than
offset a slowdown in dealer inventory accumulation. Price realization
was lower as price increases taken over the past year were more than
offset by higher discounting and the effect of the stronger dollar on
sales denominated in currencies other than U.S. dollars.
Sales were higher in all regions of the world except Asia/Pacific
where severe recessions resulted in lower industry demand and a large
reduction in dealer inventories. Sales in North America were
particularly strong reflecting good economic and industry growth as
well as an increase in dealer inventory levels. Sales were up in both
the United States and Canada. Sales were higher in Europe due to
improved industry demand. In contrast, low commodity prices and
sluggish economic growth kept sales in Africa & Middle East at 1997
levels. Latin America began the year with considerable momentum.
However, a sharp economic downturn brought on by higher interest rates
and government spending cuts kept sales at last year's levels.
Engine sales were $6.52 billion, an increase of $1.76 billion or
37%. Excluding Perkins, sales were up $910 million or 19%. The
increase was due primarily to higher physical volume resulting from
improved end-user and Original Equipment Manufacturer (OEM) demand.
Price realization was about the same.
Sales excluding Perkins were up in all regions except
Asia/Pacific, although turbine sales in developing Asia were higher
despite the severe downturn. Sales in North America were up reflecting
the strong on-highway truck market as well as increased demand for
other applications. Sales also were higher in Latin America with
increases in petroleum, power generation and marine applications.
Sales in Europe, Africa & Middle East and Commonwealth of Independent
States (EAME) were up due primarily to higher demand for petroleum and
power generation applications.
Operating Profit Table
(Millions of dollars) 1998 1997
Machinery Operating Profit $1,584 $1,808
Engine Operating Profit 504 468
$2,088 $2,276
Caterpillar operations are highly integrated;
therefore, the company uses a number of
allocations to determine lines of business
operating profit.
Machinery operating profit decreased $224 million, or 12% from
1997. Margin (sales less cost of goods sold) was about the same, as
the benefit from higher sales was mostly offset by higher fixed
manufacturing costs and an unfavorable change in product sales mix.
The unfavorable impact of the stronger dollar on sales was mostly
offset by a favorable impact on costs. Selling, general, and
administrative and research and development expenses were higher in
support of major growth initiatives.
Engine operating profit increased $36 million, or 8% from 1997.
Margin (sales less cost of goods sold) increased due to the higher
sales volume but was unfavorably impacted by higher fixed manufacturing
costs (primarily due to Perkins) and an unfavorable change in product
sales mix. Selling, general, and administrative and research and
development expenses were higher in support of major growth
initiatives, including Perkins.
Interest expense was $45 million higher than a year ago due to
higher average debt levels to support the Perkins acquisition and
increased working capital needs.
Other income/expense was income of $46 million compared with
income of $153 million last year. The decrease was mostly due to the
discounts taken on the sales of trade receivables to Caterpillar
Financial Services Corporation (Cat Financial). Discounts taken on
this revolving sale of receivables to Cat Financial are reflected in
Machinery and Engines as other expense. Revenues offsetting these
discounts as well as the related borrowing costs are reflected in
Financial Products.
FINANCIAL PRODUCTS
Revenues were a record $1.12 billion, up $278 million or 33%
compared with 1997. The increase was primarily due to Cat Financial's
portfolio growth, resulting from record new retail business and the
purchase of trade receivables from Caterpillar Inc.
Selling, general, and administrative expenses were up $53 million,
principally the result of record new business levels which increased
provision for credit losses and depreciation on leased equipment.
Other increases due to growth were partially offset by favorable
reserve adjustments at Caterpillar Insurance Co. Ltd. (Cat Insurance).
Interest expense was $128 million higher because of increased
borrowings to support the larger portfolio.
INCOME TAXES
1998 tax expense reflects an effective tax rate of 31% and
includes a favorable adjustment to recognize deferred tax assets at
certain European subsidiaries. The 1997 effective tax rate was 33%.
UNCONSOLIDATED AFFILIATED COMPANIES
The company's share of unconsolidated affiliated companies' profit
was $4 million, down $44 million from a year ago. The major factor for
the decrease was less favorable results at Shin Caterpillar Mitsubishi
Ltd.
SUPPLEMENTAL INFORMATION
Dealer Machine Sales to End Users and Deliveries to Dealer Rental
Operations
Sales and deliveries in North America were up in 1998 due to
higher industry demand. The United States economy registered very
good growth with Gross Domestic Product (GDP) increasing about 3.7%,
significantly faster than the 2.0%-2.5% threshold required for
industry expansion. Residential construction was exceptionally strong
all year. Canada started the year with strength, but lower commodity
prices and higher interest rates to defend the Canadian dollar caused
a sharp mid-year deceleration in the economy. In total, sales to end
users rose in all key construction sectors as well as nonmetals
mining, petroleum, agriculture and solid waste. Sales to end users
fell in metals and coal mining and in industrial as well as forestry
applications. Deliveries to dealer rental operations continued to
rise.
Sales and deliveries in the EAME region also were up in 1998 due
to higher industry demand and an improvement in share of industry
sales. GDP growth in Europe was near 3% resulting in better industry
demand, although the United Kingdom represented an important exception
as high interest rates and a strong currency depressed the economy.
Sales to users were higher in Germany, France, Spain and Italy but
lower in the United Kingdom. In Africa & Middle East low commodity
prices, sluggish growth and spending reductions led to lower industry
demand and slightly lower sales to users. Sales to users were higher
in United Arab Emirates, about the same in Turkey, and lower in South
Africa and Egypt. In the Commonwealth of Independent States sales
were lower due to severe recession in Russia and economic difficulties
in other countries. For the region as a whole, sales to users were
higher for construction applications as well as metals and nonmetals
mining.
Sales and deliveries in Latin America were higher for the year
despite a decline in the second half. In the first half, good
economic growth led to strong industry demand and higher sales. In
August, however, countries throughout the region raised interest rates
and cut spending to defend their currencies. These actions along with
low commodity prices led to slower growth for most countries,
recession in Brazil and lower industry demand. For the year as a
whole, sales to users rose in Brazil, Mexico and Argentina, but fell
in Colombia, Chile and Peru. Sales to users were higher for
construction applications, but lower for commodity applications,
particularly metals mining.
Sales and deliveries in Asia/Pacific were down considerably due
to severe recessions in Southeast Asia, Korea and Japan. Economic
contraction, currency depreciation, high interest rates, government
spending reductions and high levels of uncertainty led to a very
significant decline in sales to end users in Southeast Asia and Korea.
In Japan, industry demand continued to fall as low interest rates and
government spending failed to pull the economy out of recession.
Economic growth in China slowed but a large government spending
initiative combined with lower interest rates bolstered the economy
and led to higher sales to users. Good growth continued in Australia
leading to higher industry demand and sales to users. For the
Asia/Pacific region as a whole, sales to users were lower in all key
construction and commodity sectors.
Dealer Inventories of Machines
Worldwide dealer new machine inventories at year end were about
flat compared to year-end 1997 and moderately above normal relative to
current selling rates. Higher inventories in North America, EAME and
Latin America offset a large decline in Asia/Pacific. At year end
inventories compared with current selling rates were about normal in
EAME and Asia/Pacific. Inventories in North America were moderately
above normal compared with current selling rates as dealers took
advantage of special financing and inventory programs to improve
product availability for the 1999 selling season. There was also some
build up in anticipation of reloading rental fleets. Inventories in
Latin America were significantly above current selling rates as sales
fell more sharply than anticipated in the fourth quarter.
Engine Sales to End Users and OEMs (excluding Perkins)
Sales in North America were up due to higher industry demand and
an increased share of industry sales. The on-highway truck market was
particularly strong. Sales were also higher in other applications
including petroleum, power generation, marine and industrial. Sales of
both reciprocating and turbine engines were higher. Sales were up in
Canada as well as the United States.
Sales in EAME also were up. In Europe good economic growth led to
higher sales of reciprocating engines for most applications, especially
power generation. In Africa & Middle East sales of turbines were
higher for oil and natural gas projects. For the region as a whole,
both reciprocating engine and turbine sales were up with gains in all
applications except marine.
Sales in Latin America were higher for the year despite the
second-half economic slowdown. Significantly higher sales of turbines
for oil and natural gas applications accounted for the increase.
Sales in Asia/Pacific were down reflecting severe economic
recession in Southeast Asia, Korea and Japan. Sales were lower in
power generation and industrial applications, flat in petroleum, and
higher in marine and truck applications.
FOURTH-QUARTER 1998 COMPARED WITH FOURTH-QUARTER 1997
Fourth-quarter sales and revenues of $5.41 billion were a
fourth-quarter record and were up 4% from fourth-quarter 1997. A 37%
increase in Financial Products revenues and the additional sales
provided by Perkins were partially offset by lower sales in other
areas. Profit of $301 million was down 33% from the fourth-quarter
record set in 1997 and profit per share of $.83 was down 31%. The
profit from the higher sales and revenues was more than offset by lower
margin rates and continued spending for growth initiatives.
MACHINERY AND ENGINES
Sales Table
(Millions of North Latin Asia/
dollars) Total America EAME** America Pacific
Fourth-Quarter 1998
Machinery Sales $3,111 $1,942 $674 $267 $228
Engine Sales * 2,025 858 662 262 243
$5,136 $2,800 $1,336 $529 $471
Fourth-Quarter 1997
Machinery Sales $3,402 $1,926 $674 $381 $421
Engine Sales * 1,575 739 382 195 259
$4,977 $2,665 $1,056 $576 $680
* Does not include internal engine sales of $304 million and
$316 million in 1998 and 1997, respectively. Internal engine
sales are valued at prices comparable to those for unrelated
parties.
** Europe, Africa & Middle East and Commonwealth of
Independent States
Machinery sales were $3.11 billion, a decrease of $291 million or
9% from fourth-quarter 1997. The lower sales resulted primarily from a
decrease in physical volume due to lower dealer sales to end users.
Price realization was lower as price increases taken over the past year
were more than offset by higher sales discounts.
Sales were flat in North America as an increase in dealer
inventories offset a slight reduction in sales to users. In EAME both
company sales and end-user demand were flat. In Latin America and
Asia/Pacific sales were lower due primarily to a drop in end-user
demand, reflecting economic weakness in those areas.
Engine sales were $2.03 billion, an increase of $450 million or
29%. Excluding Perkins, sales were up $210 million or 13%. The
increase was due to higher physical sales volume resulting from
improved end user and OEM demand. Price realization was about the
same.
Sales excluding Perkins were up in all regions except
Asia/Pacific. Sales in North America were higher due to heightened
demand for both turbines and reciprocating engines. Sales in EAME and
Latin America were up due primarily to higher turbine sales.
Operating Profit Table
(Millions of dollars) Fourth-Quarter Fourth-Quarter
1998 1997
Machinery Operating Profit $235 $418
Engine Operating Profit 165 206
$400 $624
Caterpillar operations are highly integrated;
therefore, the company uses a number of
allocations to determine lines of business
operating profit.
Machinery operating profit decreased $183 million, or 44% from
1997. Margin (sales less cost of goods sold) was lower due to the
lower sales volume, higher fixed manufacturing costs and an unfavorable
change in product sales mix. Selling, general, and administrative and
research and development expenses were higher in support of major
growth initiatives.
Engine operating profit decreased $41 million, or 20% from 1997.
Margin (sales less cost of goods sold) was about the same as the
benefit from higher sales volumes was offset by higher fixed
manufacturing costs (primarily due to Perkins) and an unfavorable
change in product sales mix. Selling, general, and administrative
expenses were higher primarily due to Perkins. Research and
development expenses were slightly lower.
Interest expense was $10 million higher than a year ago due to
higher average debt levels supporting the Perkins acquisition and
increased working capital needs.
Other income/expense was expense of $6 million compared with
income of $32 million last year. The decrease is mostly due to the
discounts taken on the sales of trade receivables to Cat Financial and
the agreement reached with the EPA to reduce emissions.
FINANCIAL PRODUCTS
Revenues were a record $305 million, up $83 million or 37%
compared with 1997. The increase was primarily due to Cat Financial's
portfolio growth, resulting from strong new retail business and the
purchase of trade receivables from Caterpillar Inc.
Selling, general, and administrative expenses were up $22 million,
principally the result of record new business levels which increased
provision for credit losses and depreciation on leased equipment.
Other increases due to growth were partially offset by favorable
reserve adjustments at Cat Insurance.
Interest expense was $32 million higher due to increased
borrowings to support the larger portfolio.
INCOME TAXES
Fourth-quarter 1998 tax expense reflects an effective tax rate of
24% and includes a favorable adjustment to recognize deferred tax
assets at certain European subsidiaries. The fourth-quarter 1997
effective tax rate was 33%.
UNCONSOLIDATED AFFILIATED COMPANIES
The company's share of unconsolidated affiliated companies'
results was a loss of $7 million in 1998, compared with profit of $12
million in 1997. The major factor for the decrease was less favorable
results at Shin Caterpillar Mitsubishi Ltd., including a fourth-quarter
1998 adjustment to write off certain deferred tax assets.
CONDENSED CASH FLOW
Net free cash flow (profit after tax adjusted for depreciation,
changes in working capital, capital expenditures, and dividends) for
Machinery and Engines was $1.73 billion for 1998, an increase of $861
million from 1997. This increase was primarily due to the sale of $1.2
billion in receivables to Cat Financial that was partially offset by
unfavorable changes in accounts payable and inventories. The sale of
receivables to Cat Financial (and a portion of Cat Financial's
increased debt) was related to the financing of the Perkins
acquisition.
For the Year Ended Machinery & Financial
(Millions of dollars) Consolidated Engines * Products
Dec. Dec. Dec. Dec. Dec. Dec.
31, 31, 31, 31, 31, 31,
1998 1997 1998 1997 1998 1997
Profit after tax $1,513 $1,665 $1,513 $1,665 $193 $131
Depreciation and 865 738 697 599 168 139
amortization
Change in working
capital -
excluding cash
and debt (1,359) (552) 889 (248) (2,249) (304)
Capital expenditures
excluding
equipment leased
to others (925) (824) (918) (819) (7) (5)
Expenditures for
equipment leased to
others, net of
disposals (203) (144) 8 10 (211) (154)
Dividends paid (400) (338) (400) (338) (49) (28)
Net Free Cash Flow (509) 545 1,789 869 (2,155) (221)
Other significant cash
flow items:
Treasury shares
purchased (567) (706) (567) (706) - -
Net (increase)
decrease in long-
term finance
receivables (1,177) (501) - - (1,177) (501)
Net increase
(decrease) in debt 3,884 1,109 628 298 3,256 811
Investments and
acquisitions - (net
of cash acquired) (1,428) (59) (1,428) (59) - -
Prefunding of
employee benefit
plans (200) (200) (200) (200) - -
Other 65 (383) (160) (406) 82 (80)
Change in cash and
short-term investments $68 $(195) $62 $(204) $6 $9
* Represents Caterpillar Inc. and its subsidiaries, except for
Financial Products which is accounted for on the equity basis.
Note: Lines titled "Change in working capital - excluding cash and
debt" and "Capital expenditures excluding equipment leased to others"
exclude $74 million and $368 million, respectively, included in the
"Investments and acquisitions - (net of cash acquired)" line for the
year ended December 31, 1998; line titled "Change in working capital -
excluding cash and debt" excludes $7 million for the year ended
December 31, 1997.
EMPLOYMENT
At the end of 1998, Caterpillar's worldwide employment was 65,824
compared with 59,863 one year ago. Hourly employment increased 2,459
to 36,707; salaried and management employment increased 3,502 to
29,117. The increases was almost entirely the result of acquisitions.
OUTLOOK
Summary
World economic growth in 1999 is forecast to be similar to 1998 as
improvement in Asia offsets slower growth in the Western Hemisphere and
continued recession in Japan. Combined with low prices for metals and
oil, this outlook is expected to result in slightly lower industry
demand for construction and mining machinery.
While machine demand is forecast to remain close to 1998 levels in
the United States, lower demand in Japan, Latin America, Canada and
Australia should more than offset higher demand in Europe. Low prices
for agricultural commodities are expected to depress worldwide industry
demand for agricultural equipment.
Worldwide industry demand for engines is forecast to be down
slightly due to low oil prices and a softening in the OEM markets,
including on-highway trucks. While declines are expected in the
Western Hemisphere, demand elsewhere should remain near 1998 levels.
In this environment, company sales and revenues for 1999 are
expected to be slightly below 1998's record levels. Profit is expected
to be moderately lower primarily because of the sales volume decrease
and the continuing competitive pricing environment. As indicated at
the end of the third quarter, our growth initiatives unfavorably
impacted 1998 profit by about 10%. We expect that the dilutive effect
in 1999 will be less than 1998 as some programs near completion. We
anticipate the impact of our growth initiatives to be accretive in
2000.
North America
In the United States, Gross Domestic Product (GDP) growth is
forecast to slow from 3.7% in 1998 to about 2.5% in 1999. Housing
starts should remain strong, and the new six-year highway spending bill
will significantly increase highway construction spending as well as
aggregates production. Metal mining and agriculture, however, are
expected to remain weak due to low worldwide prices. Overall, industry
demand for machines is expected to remain at about last year's level.
Industry demand for engines is forecast to decline due to lower
on-highway truck and turbine engine demand. In Canada, slower economic
growth is expected to result in slightly lower industry demand for both
machines and engines. Company sales for the region are forecast to
decline as dealers are not expected to increase new machine inventory
as they did in 1998 and as industry demand for engines declines.
EAME
In Western Europe, GDP growth is expected to be about 2.7%,
resulting in slightly higher industry demand for construction and
mining machines. Demand in the United Kingdom, however, is anticipated
to decline due to weak growth resulting from high interest rates and a
strong currency. European demand for reciprocating engines is likely
to be flat to down, but turbine demand is forecast to improve. In
Africa & Middle East weak growth and low commodity prices are likely to
keep industry demand for both machines and engines from exceeding 1998
levels. In Russia continued recession and instability are forecast to
result in lower industry demand. For the region as a whole, higher
European industry demand for construction and mining machinery should
lead to higher company sales.
Latin America
As a result of the January 13th Brazilian currency devaluation,
recession is now forecast for the region. Brazil is likely to
experience severe recession in the first half of 1999 which will likely
adversely impact neighboring countries, particularly Argentina. The
whole region is expected to suffer from higher interest rates and
reductions in government spending as countries defend their currencies.
Mexico is expected to avoid recession although growth will likely slow.
For the region as a whole, industry demand for machines and engines is
forecast to decline significantly, leading to a drop in company sales.
Asia/Pacific
In the Asia/Pacific region, the developing countries which
experienced severe recession in 1998 should begin to stabilize and
China should continue to grow at about 7%. As a result, GDP for
developing Asia is expected to increase from .6% in 1998 to 3.3% in
1999. Industry demand for machines is forecast to be flat with an
increase in China offsetting continued decline in Southeast Asia and
Korea. Industry demand for engines should also be about flat. Japan
is expected to remain in recession with GDP forecast to fall 1% and
industry demand expected to further decline. In Australia, slower
economic growth and low commodity prices will likely result in lower
industry demand for both machines and engines. For the region as a
whole, company sales are forecast to be up slightly as higher sales in
developing Asia offset lower sales in Australia.
SAFE HARBOR STATEMENT UNDER THE SECURITIES LITIGATION
REFORM ACT OF 1995
- -----------------------------------------------------
The information included in the "Outlook" section is forward looking
and involves uncertainties that could significantly impact expected
results. These uncertainties include factors that affect all international
businesses, as well as matters specific to the Company and the markets it
serves.
Recent Events in Latin America
- ------------------------------
As a result of large currency devaluations starting January 13, 1999, Brazil
is expected to be in severe recession at least through the first half
due to high interest rates, reduced government spending and increased
uncertainty. Our outlook assumes the Brazilian congress will enact the
necessary fiscal austerity measures over the next few months to reduce
the budget deficit which in turn will allow interest rates to come down
stimulating a better economic performance in the second half. If Brazil
fails to enact the necessary measures, the currency could decline much
further and interest rates would likely have to increase much more
resulting in severe recession in the second half as well. In either case,
recession in Brazil will impact growth prospects in other Latin American
countries, particularly Argentina. Consequently, Gross Domestic
Product (GDP) growth for Latin America is likely to be flat for 1999,
resulting in significantly lower industry demand for machinery and
engines.
Events in Asia, Latin America and Russia
- ------------------------------------------------------------
Unforeseen events in Asia, Latin America, Russia or elsewhere could
impact sales. Our current assessment calls for continued recession in
Japan, Korea, Thailand, Indonesia, Malaysia, and Hong Kong and recession
or weak growth in many other Southeast Asian developing countries. Brazil
and Venezuela are forecast to be in outright recession with other countries
like Argentina very near recession. Mexico will likely experience slower
growth as a result of the Brazilian devaluation but should avoid recession.
This assessment presumes Latin American currencies and stock markets
stabilize over the next several months and that the impact of these events
is limited primarily to the region itself and to lower world commodity
prices. If the region's currencies and/or stock markets fail to stabilize,
if China or Hong Kong were to devalue, or if Japan were to experience a
financial collapse, then the impact on world growth and industry demand
would be more severe which could result in lower company sales. Company
sales also could be negatively impacted by a greater than anticipated flow
of new and used equipment from weak Asian markets to the rest of the world
which could exert pressure on both price realization and share of industry
sales.
Russia remains in severe recession. Political and economic instability
is very high and a further deterioration could impact worldwide stock or
currency markets, which in turn could weaken Company sales.
Monetary and Fiscal Policies
- ----------------------------
For most companies operating in a global economy, monetary and fiscal
policies implemented in the U.S. and abroad could have a significant
impact on economic growth, and, accordingly, demand for a product. For
example, if the Federal Reserve fails to cut interest rates quickly enough
in response to a significant decline in world stock markets, the U.S.
economy could slow and negatively impact demand for the Company's products.
In general, high interest rates, reductions in government spending, higher
taxes, significant currency devaluations, and uncertainty over key policies
are some factors likely to lead to slower economic growth and lower industry
demand. The current outlook is for slower U.S. growth in 1999 and not
recession. If, for whatever reason, the U.S. were to enter a recession
then demand for Company products would fall in the U.S. and Canada and
would also be lower throughout the rest of the world.
Political Factors
- -----------------
Political factors in the U.S. and abroad also have a major impact on
global companies. The Company is one of the largest U.S. exporters as a
percentage of sales. International trade and fiscal policies implemented
in the U.S. this year could impact the Company's ability to expand its
business abroad. U.S. foreign relations with certain countries and any
related restrictions imposed could also have a significant impact on
foreign sales. In addition, political instability in regions such as
the CIS make potential economic growth difficult to predict for those
countries.
Currency Fluctuations
- ---------------------
Currency fluctuations are also a significant unknown for global companies.
If the U.S. dollar strengthens against foreign currencies, the Company's
ability to realize price increases on sales could be negatively impacted.
Most of the Company's key competitors have their principal manufacturing
operations based in Japan or European countries. The majority of our
manufacturing assets are in the United States. Consequently, should an
overvalued dollar persist, our costs compared with these competitors
would be relatively higher. As a major net exporter from the United
States, the persistence of an overvalued dollar, over time, could have
an unfavorable impact on our global competitive position.
Dealer Practices
- ----------------
In addition to these factors, there are uncertainties related to the
Company's industry and specific operations. A major factor contributing
to the Company's success is its dealer distribution network. Dealer
practices, such as changes in inventory levels for both new and rental
equipment, are not within the Company's control (primarily because these
practices depend upon the dealer's assessment of anticipated sales) and
may have a significant positive or negative impact on our results. At
the end of 1998, dealer new machine inventories were significantly above
normal in Latin America and moderately above normal in North America and
could result in lower than anticipated company sales in the first half of
1999.
Other Factors
- -------------
The rate of infrastructure spending, housing starts, commercial construction
and mining also play a significant role in the Company's results. Our
products are an integral component of these activities and as these
activities increase or decrease in the U.S. or abroad, demand for our
products may be significantly impacted.
Another factor which can impact company sales and profit is mix. Our outlook
assumes a certain geographic mix of sales as well as a product mix of sales
(machines vs. engines, small vs. large, high margin vs. low margin). Results
may be impacted positively or negatively by changes in the mix.
The Company operates in a highly competitive environment and our outlook
depends on a forecast of the Company's percentage of industry sales. A
reduction in that percentage could result from pricing or product
strategies pursued by competitors, unanticipated product or manufacturing
difficulties, a failure to price the product competitively, or an unexpected
buildup in competitors' new machine or dealer owned rental fleets.
The outlook also depends on our ability to realize price increases. The
environment remains very competitive and a repeat of the price discounting
that occurred in 1998 would result in lower than anticipated price
realization.
This discussion of uncertainties is by no means exhaustive but is designed
to highlight important factors that may impact our outlook. Obvious factors
such as general economic conditions throughout the world do not warrant
further discussion but are noted to further emphasize the myriad of
contingencies that may cause the Company's actual results to differ from
those currently anticipated.
Caterpillar's latest financial results and current outlook are also
available via :
Telephone:
(800) 228-7717 (Inside the United States and Canada)
(201) 332-8602 (Outside the United States and Canada)
Internet:
http://www.CAT.com
James F. Masterson
Director of Investor Relations
Caterpillar Inc.
January 19, 1999
Website: http://www.CAT.com/investor
E-mail: [email protected]
"Financial Pages Follow"
CATERPILLAR INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
(Millions of dollars except per share data)
Machinery & Financial
Consolidated Engines * Products
Dec. Dec. Dec. Dec. Dec. Dec.
31, 31, 31, 31, 31, 31,
1998 1997 1998 1997 1998 1997
Sales and revenues:
Sales of Machinery
& Engines $5,136 $4,977 $5,136 $4,977 $ - $ -
Revenues of
Financial Products 270 216 - - 305 222
Total sales
and revenues 5,406 5,193 5,136 4,977 305 222
Operating costs:
Cost of goods sold 3,971 3,665 3,971 3,665 - -
Selling, general,
and administrative
expenses 709 626 605 544 110 88
Research and development
expenses 160 144 160 144 - -
Interest expense of
Financial Products 132 101 - - 136 104
Total operating
costs 4,972 4,536 4,736 4,353 246 192
Operating Profit 434 657 400 624 59 30
Interest expense
excluding Financial
Products 66 56 66 56 - -
Other income (expense) 40 55 (6) 32 21 26
Consolidated profit
before taxes 408 656 328 600 80 56
Provision for
income taxes 100 217 72 200 28 17
Profit of consolidated
companies 308 439 256 400 52 39
Equity in profit of
unconsolidated
affiliates (7) 12 (7) 12 - -
Equity in profit of
Financial Products
subsidiaries - - 52 39 - -
Profit $301 $451 $301 $451 $52 $39
Profit per share of
common stock $0.84 $1.22
Profit per share of
common stock
- assuming dilution $0.83 $1.20
Weighted average
shares outstanding
Basic (thousands) 358,073 369,833
Assuming dilution
(thousands) 362,586 375,585
* Represents Caterpillar Inc. and its subsidiaries, except for
Financial Products which is accounted for on the equity basis.
Transactions between Machinery and Engines and Financial Products
have been eliminated to arrive at the Consolidated data.
CATERPILLAR INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
FOR THE YEAR ENDED
(Millions of dollars except per share data)
Machinery & Financial
Consolidated Engines* Products
Dec. Dec. Dec. Dec. Dec. Dec.
31, 31, 31, 31, 31, 31,
1998 1997 1998 1997 1998 1997
Sales and revenues:
Sales of Machinery
& Engines $19,972 $18,110 $19,972 $18,110 $ - $ -
- - -
Revenues of
Financial
Products 1,005 815 - - 1,117 839
Total sales
and revenues 20,977 18,925 19,972 18,110 1,117 839
Operating costs:
Cost of goods sold 15,031 13,374 15,031 13,374 - -
Selling, general,
and administrative
expenses 2,561 2,232 2,210 1,932 377 324
Research and
development
expenses 643 528 643 528 - -
Interest expense
of Financial
Products 489 361 - - 501 373
Total
operating
costs 18,724 16,495 17,884 15,834 878 697
Operating Profit 2,253 2,430 2,088 2,276 239 142
Interest expense
excluding Financial
Products 264 219 264 219 - -
Other income
(expense) 185 202 46 153 65 61
Consolidated profit
before taxes 2,174 2,413 1,870 2,210 304 203
Provision for
income taxes 665 796 554 724 111 72
Profit of
consolidated
companies 1,509 1,617 1,316 1,486 193 131
Equity in profit
of unconsolidated
affiliates 4 48 4 48 - -
Equity in profit
of Financial
Products
subsidiaries - - 193 131 - -
Profit $1,513 $1,665 $1,513 $1,665 $193 $131
Profit per share
of common stock $4.17 $4.44
Profit per share
of common stock
- assuming dilution $4.11 $4.37
Weighted average
shares outstanding
Basic (thousands) 363,189 375,125
Assuming dilution
(thousands) 368,130 380,541
* Represents Caterpillar Inc. and its subsidiaries, except for
Financial Products which is accounted for on the equity basis.
Transactions between Machinery and Engines and Financial Products
have been eliminated to arrive at the Consolidated data.
CATERPILLAR INC.
CONDENSED FINANCIAL POSITION
(Millions of dollars)
Consolidated
(Caterpillar Inc. and
Subsidiaries)
Dec. Dec.
31, 31,
1998 1997
Assets
Current assets:
Cash and short-term investments $360 $292
Receivables -- trade and other 3,660 3,331
Receivables -- finance 3,516 2,660
Deferred income taxes and prepaid
expenses 1,081 928
Inventories 2,842 2,603
Total current assets 11,459 9,814
Property, plant, and equipment -- net 4,866 4,058
Long-term receivables -- trade and
other 85 134
Long-term receivables -- finance 5,058 3,881
Investments in unconsolidated
affiliated companies 773 751
Deferred income taxes 955 1,040
Intangible assets 1,241 228
Other assets 691 850
Total Assets $25,128 $20,756
Liabilities
Current liabilities:
Short-term borrowings:
-- Machinery & Engines $49 $53
-- Financial Products 760 431
Accounts payable and accrued
expenses 3,558 3,358
Accrued wages, salaries, and
employee benefits 1,217 1,128
Dividends payable 107 92
Deferred and current income taxes
payable 15 175
Long-term debt due within one year:
-- Machinery & Engines 60 54
-- Financial Products 2,179 1,088
Total current liabilities 7,945 6,379
Long-term debt due after one year:
-- Machinery & Engines 2,993 2,367
-- Financial Products 6,411 4,575
Liability for postemployment benefits 2,590 2,698
Deferred income taxes and other
liabilities 58 58
Total Liabilities 19,997 16,077
Stockholders' Equity
Common stock 1,063 1,071
Profit employed in the business 6,123 5,026
Accumulated other comprehensive
income 1 95
Treasury stock (2,056) (1,513)
Total Stockholders' Equity 5,131 4,679
Total Liabilities and Stockholders'
Equity $25,128 $20,756
###
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.
By: /s/ R. Rennie Atterbury III
R. Rennie Atterbury III
Vice President
Date: January 20, 1999
