<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[CATERPILLAR LOGO]
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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)
1-768 37-0602744
(Commission File Number) (IRS Employer I.D. No.)
100 NE Adams Street, Peoria, Illinois 61629
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (309) 675-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock ($1.00 par value) Chicago Stock Exchange
New York Stock Exchange
Pacific Exchange, Inc.
Preferred Stock Purchase Rights Chicago Stock Exchange
New York Stock Exchange
Pacific Exchange, Inc.
9 3/8% Notes due July 15, 2000 New York Stock Exchange
9 3/8% Notes due July 15, 2001 New York Stock Exchange
9% Debentures due April 15, 2006 New York Stock Exchange
6% Debentures due May 1, 2007 New York Stock Exchange
9 3/8% Debentures due August 15, 2011 New York Stock Exchange
9 3/4% Sinking Fund Debentures due June 1, 2019 New York Stock Exchange
9 3/8% Debentures due March 15, 2021 New York Stock Exchange
8% Debentures due February 15, 2023 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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 [_].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of December 31, 1998, there were 357,198,355 shares of common stock of the
Registrant outstanding, and the aggregate market value of the voting stock held
by non-affiliates of the Registrant (assuming only for purposes of this
computation that directors and officers may be affiliates) was $16,237,606,240.
Documents Incorporated by Reference
Portions of the documents listed below have been incorporated by reference into
the indicated parts of this Form 10-K, as specified in the responses to the item
numbers involved.
. 1999 Annual Meeting Proxy Statement ("Proxy Statement") - Part III
. Annual Report to Security Holders filed as an appendix to the
1999 Annual Meeting Proxy Statement ("Appendix") - Parts I, II, and IV
===============================================================================
1998
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TABLE OF CONTENTS
<TABLE>
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Page
<S> <C> <C> <C>
Part I Item 1. Business............................................... 1
Item 1a. Executive Officers of the Registrant
as of December 31, 1998............................. 3
Item 2. Properties............................................. 5
Part II Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters........................ 8
Item 6. Selected Financial Data................................ 8
Item 7. Management's Discussion and Analysis
of Financial Condition and
Results of Operations............................... 8
Item 7a. Quantitative and Qualitative Disclosures
About Market Risk................................... 11
Item 8. Financial Statements and Supplementary Data............ 11
Part III Item 10. Directors and Executive Officers
of the Registrant................................... 11
Item 11. Executive Compensation................................. 12
Item 12. Security Ownership of Certain Beneficial
Owners and Management............................... 12
Part IV Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K............................. 12
</TABLE>
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PART I
Item 1. Business.
Principal Lines of Business
- ---------------------------
Caterpillar operates in three principal lines of business:
1. Machinery - design, manufacture, and marketing of construction, mining,
agricultural, and forestry machinery - track and wheel tractors, track and
wheel loaders, pipelayers, motor graders, wheel tractor-scrapers, track and
wheel excavators, backhoe loaders, mining shovels, log skidders, log
loaders, off-highway trucks, articulated trucks, paving products,
telescopic handlers, skid steer loaders, and related parts.
2. Engines - design, manufacture, and marketing of engines for Caterpillar
Machinery, on-highway trucks, and locomotives; marine, petroleum,
construction, industrial, and other applications; electric power generation
systems; and related parts. Reciprocating engines meet power needs ranging
from 5 to over 21,000 horsepower (4 to over 15 660 kilowatts). Turbines
range from 1,340 to 18,000 horsepower (1000 to 13 500 kilowatts).
3. Financial Products - financing to customers and dealers for the purchase
and lease of Caterpillar and noncompetitive related equipment, as well as
some financing for Caterpillar sales to dealers. Also provides various
forms of insurance to customers and dealers to help support the purchase
and lease of our equipment. This line of business consists primarily of
Caterpillar Financial Services Corporation and its subsidiaries and
Caterpillar Insurance Services Corporation.
Due to financial information required by Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information, we have also divided our business into eight operating segments for
financial reporting purposes. Information about our operating segments,
including geographic information, is incorporated by reference from Note 20 of
the Notes to Consolidated Financial Statements on pages A-16 through A-19 of the
Appendix.
Nature of Operations
- --------------------
We conduct operations in our Machinery and Engines' lines of business under
highly competitive conditions, including intense price competition. In 1998,
pricing strategies pursued by our competitors had a negative impact on price
realization for our products, as price increases taken over the year were offset
by, among other things, higher price discounting.
Foreign currency exchange rate movements also affect our competitive position,
as exchange rate changes may affect business practices and/or pricing strategies
of non-U.S. based competitors. In 1998, the effect of the stronger dollar on
sales denominated in currencies other than U.S. dollars also had a negative
impact on price realization for our products.
Page 1
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We place great emphasis upon the high quality and performance of our products
and our dealers' service support. Although no one competitor is believed to
produce all of the same types of machines and engines, there are numerous
companies, large and small, which compete with us in the sale of each of our
products.
Machines are distributed principally through a worldwide organization of
dealers, 64 located in the United States and 131 located outside the United
States. Worldwide, these dealers have more than 1,400 places of business and
serve 166 countries. Reciprocating engines are sold principally through the
worldwide dealer organization and to other manufacturers for use in products
manufactured by them. Some of the reciprocating engines manufactured by Perkins
are also sold through their worldwide distributor network. Our dealers do not
deal exclusively with our products; however, in most cases sales and servicing
of our products are our dealers' principal business. Turbines and large marine
reciprocating engines are sold through sales forces employed by Solar and MaK,
respectively. Occasionally, these employees are assisted by independent sales
representatives.
Our Financial Products' line of business also conducts business under highly
competitive conditions. Financing for users of Caterpillar products is
available through a variety of competitive sources, principally commercial banks
and finance and leasing companies. We emphasize prompt and responsive service
to meet customer requirements and offer various financing plans designed to
increase the opportunity for sales of our products and generate financing income
for our company. Financial Products' activity is primarily conducted in the
United States, with additional offices in Asia, Australia, Canada, Europe, and
Latin America.
During the first quarter of 1998, we acquired the net assets of Perkins Ltd. and
the stock of several related subsidiaries for $1.328 billion. We paid for this
acquisition using a combination of existing cash and new debt. Perkins is a
leading manufacturer of small- to medium-sized diesel engines.
Information about our operations in 1998 and outlook for 1999, including risks
associated with foreign operations, are incorporated by reference from
"Management's Discussion and Analysis" on pages A-21 through A-31 of the
Appendix. Additional information about our outlook for 1999 and associated risks
and uncertainties is incorporated by reference from reports filed on Form 8-K on
January 20, 1999 and March 12, 1999.
Patents and Trademarks
- ----------------------
Our products are sold primarily under the marks "Caterpillar," "Cat," "Solar,"
"Barber-Greene," "MaK" and "Perkins." We own a number of patents and trademarks
relating to the products we manufacture, which have been obtained over a period
of years. These patents and trademarks have been of value in the growth of our
business and may continue to be of value in the future. We do not regard any of
our business as being dependent upon any single patent or group of patents.
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Research and Development
- ------------------------
We have always placed strong emphasis on product-oriented research and
engineering relating to the development of new or improved machines, engines and
major components. In 1998, 1997, and 1996, we spent $838 million, $700 million,
and $570 million, respectively, on our research and engineering programs. Of
these amounts, $643 million in 1998, $528 million in 1997, and $410 million in
1996 were attributable to new prime products, major component development and
major improvements to existing products. The remainders were attributable to
engineering costs incurred during the early production phase as well as ongoing
efforts to improve existing products. We expect to continue the development of
new products and improvements to existing products in the future, with a focus
in the areas of power generation equipment, smaller machines, and agricultural
products.
Employment
- ----------
At December 31, 1998, we employed 65,824 persons of whom 25,563 were located
outside the United States.
Sales
- -----
Sales outside the United States were 49% of consolidated sales for 1998 and 51%
for 1997 and 1996.
Environmental Matters
- ---------------------
The company is regulated by federal, state, and international environmental laws
governing our use of substances and control of emissions. Compliance with these
existing laws has not had a material impact on our capital expenditures,
earnings, or competitive position.
We are cleaning up hazardous waste at a number of locations, often with other
companies, pursuant to federal and state laws. When it is likely we will pay
clean-up costs at a site and those costs can be estimated, the costs are charged
against our earnings. In making that estimate, we do not consider amounts
expected to be recovered from insurance companies and others.
The amount set aside for environmental clean-up is not material and is included
in "Accounts payable and accrued expenses" in Statement 3 of the Appendix. If a
range of liability estimates is available on a particular site, we accrue the
lower end of that range.
We cannot estimate costs on sites in the very early stages of clean-up.
Currently, we have five of these sites and there is no more than a remote chance
that a material amount for clean-up will be required.
Item 1a. Executive Officers of the Registrant as of December 31, 1998 (except
as noted)
<TABLE>
<CAPTION>
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Present Caterpillar Inc. Principal positions held during the
Name and Age position and date of past five years other than
initial election Caterpillar Inc. position currently held
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Glen A. Barton (59) Chairman and Chief . Vice Chairman (11/98 - 2/1/99)
Executive Officer . Group President (1990 - 1998)
(effective 2/1/99)
- --------------------------------------------------------------------------------------------------------
Donald V. Fites (64) Retired (effective 2/1/99) . Chairman and Chief Executive Officer (1990 -
2/1/99)
- --------------------------------------------------------------------------------------------------------
Gerald S. Flaherty (60) Group President (1990)
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</TABLE>
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<TABLE>
<CAPTION>
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Present Caterpillar Inc. Principal positions held during the
Name and Age position and date of past five years other than
initial election Caterpillar Inc. position currently held
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
James W. Owens (52) Group President (1995) . Vice President (1990-1995)
. Chief Financial Officer (1993-1995)
- --------------------------------------------------------------------------------------------------------
Gerald L. Shaheen (54) Group President (1998) . Vice President (1995-1998)
. Managing Director, Caterpillar Overseas
S.A.(1993-1995)
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Richard L. Thompson (59) Group President (1995) . Vice President (1989-1995)
- --------------------------------------------------------------------------------------------------------
R. Rennie Atterbury III (61) Vice President, General Counsel
and Secretary (1991)
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James W. Baldwin (61) Vice President (1991)
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Sidney C. Banwart (53) Vice President (1998) . Product Manager, Motor Graders, Decatur
(1993-1995)
. General Manager, Lafayette (1995-1997)
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Vito H. Baumgartner (58) Vice President (1990) . Chairman, Caterpillar Overseas S.A.
(1990-present)
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Michael J. Baunton (47) Vice President (1998) . President, Walker Manufacturing
(1993-1995)
. Group Chief Executive, Perkins Group
Ltd. (1995-1996)
. Divisional Managing Director, Varity
Perkins (1996-1998)
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James S. Beard (57) Vice President (1990) . President, Caterpillar Financial
Services Corporation (1987-present)
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Richard A. Benson (55) Vice President (1989) . President, Caterpillar Industrial Inc.
(1989-present)
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Ronald P. Bonati (59) Vice President (1990)
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James E. Despain (61) Vice President (1990)
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Roger E. Fischbach (57) Vice President (1989)
(will retire effective
4/1/99)
- -----------------------------------------------------------------------------------------------------------
Michael A. Flexsenhar (59) Vice President (1995) . General Manager, Large Engines,
Lafayette Plant (1991-1995)
- -----------------------------------------------------------------------------------------------------------
Donald M. Ings (50) Vice President (1993) . President, Solar Turbines Incorporated
(1993-1998)
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Duane H. Livingston (57) Vice President (1995) . Director of Corporate Auditing,
Corporate Services Division (1991-1995)
- -----------------------------------------------------------------------------------------------------------
Robert R. Macier (50) Vice President (1998) . Vice President, Engineering, Solar
Turbines (1990-1994)
. Business Unit Manager, Joliet (1994-1998)
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David A. McKie (54) Vice President (1998) . General Manager, Small Engines,
Mossville Plant (1991-1995)
. Managing Director, Caterpillar Belgium
S.A. (1995-1998)
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F. Lynn McPheeters (56) Vice President and Chief . Treasurer (1996-1998)
Financial Officer (1998) . Executive Vice President, Caterpillar
Financial Services Corporation (1990-1996)
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Daniel M. Murphy (51) Vice President (1996) . Product Manager, Excavators, Aurora
Plant (1990-1996)
. General Manager, Mossville Engine Center
(1996)
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Douglas R. Oberhelman (45) Vice President (1995) . Managing Director and Vice General
Manager, Strategic Planning, Shin
Caterpillar Mitsubishi Ltd. (1991-1995)
. Chief Financial Officer (1995-1998)
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Gerald Palmer (53) Vice President (1992)
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Robert C. Petterson (60) Vice President (1991) . Managing Director, Caterpillar Brasil
S.A. (1992-1995)
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John E. Pfeffer (56) Vice President (1995) . Business Unit Manager, York Plant
(1993-1995)
. Chairman, Shin Caterpillar Mitsubishi
Ltd. (1995-present)
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Siegfried R. Ramseyer (61) Vice President (1992)
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Alan J. Rassi (58) Vice President (1992)
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</TABLE>
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<TABLE>
<CAPTION>
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Present Caterpillar Inc. Principal positions held during the
Name and Age position and date of past five years other than
initial election Caterpillar Inc. position currently held
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Gary A. Stroup (49) Vice President (1992) . General Manager, Hauling Units and Motor
Graders Business Unit (1992-1995)
. President, Solar Turbines Incorporated
(1998-present)
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Sherril K. West (51) Vice President (1995) . Marketing Support Services Manager,
Corporate Services Division (1991-1995)
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Donald G. Western (50) Vice President (1995) . Managing Director, Caterpillar Belgium
S.A. (1990-1995)
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Steven H. Wunning (47) Vice President (1998) . Vice President, Caterpillar Logistics
Services, Morton Distribution Center
(1990-1994)
. President, Caterpillar Logistics,
Logistics & Product Services Division
(1994-1998)
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Robert R. Gallagher (58) Controller (1990)
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Kenneth J. Zika (51) Treasurer (1998) . Business Resource Manager, Track-Type
Tractors Division, East Peoria Plant
(1994-1997)
. Cost Management & Business Services
Manager, Corporate Services Division
(1997-1998)
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</TABLE>
Item 2. Properties.
General Information
- -------------------
Caterpillar's operations are highly integrated. Although the majority of our
plants are involved primarily in the production of either machines or engines,
several plants are involved in the manufacture of both. In addition, several
plants are involved in the manufacture of components which are used in the
assembly of both machines and engines. Caterpillar's parts distribution centers
are involved in the storage and distribution of parts for machines and engines.
Also, the research and development activities carried on at the Technical Center
involve both machines and engines.
Properties we own are believed to be generally well maintained and adequate for
present use. Through planned capital expenditures, we expect these properties to
remain adequate for future needs. Properties we lease are covered by leases
expiring over terms of generally 1 to 10 years. We anticipate no difficulty in
retaining occupancy of any leased facilities, either by renewing leases prior to
expiration or by replacing them with equivalent leased facilities.
Consolidations, Closures, and Sales
- -----------------------------------
Over the last five years, we have consolidated operations and/or closed
facilities in the ordinary course of business. In March 1996, we announced that
the Precision Barstock Products operation located in York, Pennsylvania would be
closed. We are in the final stages of closing the unit. Additional information
regarding plant closing and consolidation costs is incorporated by reference
from Note 19 of the Notes to Consolidated Financial Statements on page A-16 of
the Appendix.
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Headquarters
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Our corporate headquarters are in Peoria, Illinois. Additional marketing
headquarters are located both inside and outside the United States. The
Financial Products Division is headquartered in leased offices located in
Nashville, Tennessee.
Distribution
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Distribution of our products is conducted from parts distribution centers inside
and outside the United States. Caterpillar Logistics Services, Inc. distributes
other companies' products utilizing certain of our distribution facilities as
well as other non-Caterpillar facilities located both inside and outside the
United States. We also own or lease other storage facilities which support
distribution activities.
Technical Center, Training Centers, Demonstration Areas, and Proving Grounds
- ----------------------------------------------------------------------------
We own a Technical Center located in Mossville, Illinois and various other
training centers, demonstration areas, and proving grounds located both inside
and outside the United States.
Changes in Fixed Assets
- -----------------------
During the five years ended December 31, 1998, changes in our investment in
property, plant and equipment were as follows (stated in millions of dollars):
<TABLE>
<CAPTION>
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Expenditures Acquisitions/1/ Disposals and Net Increase
Year ------------------------------------------------ Provisions for Other (Decrease)
U.S. Outside U.S. U.S. Outside U.S. Depreciation Adjustments During Period
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 $508 $186 $ 0 $ 0 $(680) $ (65) $ (51)
- ----------------------------------------------------------------------------------------------------------------
1995 $506 $173 $ 0 $ 0 $(679) $(132) $(132)
- ----------------------------------------------------------------------------------------------------------------
1996 $513 $258 $ 0 $136 $(690) $ (94) $ 123
- ----------------------------------------------------------------------------------------------------------------
1997 $726 $380 $ 0 $ 2 $(710) $(107) $ 291
- ----------------------------------------------------------------------------------------------------------------
1998 $880 $389 $21 $347 $(790) $ (39) $ 808
- ----------------------------------------------------------------------------------------------------------------
/1/Prior to 1996, Acquisition amounts, if any, are included with Expenditures.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1998, the net book value of properties located outside the
United States represented 32.7% of the net properties on the consolidated
financial position. Additional information about our investment in plant,
property and equipment is incorporated by reference from Note 1E on page A-7 and
Note 9 on page A-12 of the Notes to Consolidated Financial Statements of the
Appendix.
Manufacturing, Remanufacturing, and Overhaul
- --------------------------------------------
Manufacturing, remanufacturing, and overhaul of our products are conducted at
the following locations. These facilities are believed to be suitable for their
intended purposes with adequate capacities for current and projected needs for
existing products.
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- --------------------------------------------------------------------------------
Manufacturing - Inside the U.S.
Michigan
California . Menominee
. Gardena Minnesota
. San Diego . Mankato
Florida . Minneapolis
. Jacksonville . New Ulm
Georgia Mississippi
. Jefferson . Oxford
. LaGrange Missouri
. Thomasville . Boonville
Illinois . West Plains
. Aurora Nebraska
. Champaign/1/ . Omaha
. Decatur North Carolina
. DeKalb . Clayton
. Dixon . Franklin
. East Peoria . Leland
. Joliet . Morganton
. Mapleton . Sanford
. Mossville Ohio
. Peoria . Marion
. Pontiac Oregon
. Sterling . Dallas
Indiana South Carolina
. Lafayette . Greenville
Kansas . Sumter
. Wamego Tennessee
Kentucky . Dyersburg
. Danville . Rockwood
Texas
. Houston
- --------------------------------------------------------------------------------
Manufacturing - Outside the U.S.
Australia India
. Burnie/1/ . Bangalore/1/
. Melbourne . Mumbai/1/
. Perth Indonesia
Belgium . Jakarta/2/
. Gosselies Italy
Brazil . Bazzano
. Piracicaba . Jesi
Canada . Milan/1/
. Montreal Japan
England . Akashi/1/
. Leicester . Sagamihara/1/
. Peterborough Mexico
. Peterlee . Monterrey
. Shrewsbury . Tijuana
. Skinningrove The Netherlands
. Slough/2/ . Hertogenbosch
. Stafford Northern Ireland
. Stockton . Belfast/1/
. Wolverhampton . Larne/1/
France People's Republic
. Arras of China
. Grenoble . Erliban/1/
. Rantigny . Shunde/1/
Germany . Tianjin/2/
. Kiel . Xuzhou/2/
. Wackersdorf Poland
. Zweibrucken . Janow Lubelski/2/
Hungary Russia
. Godollo/2/ . St. Petersburg
South Africa
. Johannesburg
Sweden
. Soderhamn
/1/ Facility of affiliated company (50% or less owned)
/2/ Facility of partially owned subsidiary (more than 50%, less than 100%)
- --------------------------------------------------------------------------------
Remanufacturing and Overhaul - Inside the U.S.
Mississippi
. Corinth
. Prentiss County
Texas
. De Soto
. Mabank
- --------------------------------------------------------------------------------
Remanufacturing and Overhaul - Outside the U.S.
Australia Ireland
. Melbourne . Dublin
Belgium Malaysia
. Gosselies . Kuala Lumpur
Canada Mexico
. Edmonton . Nuevo Laredo
Indonesia . Tijuana
. Bandung . Veracruz
Nigeria
. Port Harcourt
- --------------------------------------------------------------------------------
Page 7
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Information required by Item 5 is incorporated by reference from "Price Ranges"
and "Number of Stockholders" on page A-32 and from "Dividends paid per share of
common stock" on page A-27 of the Appendix.
We have fifteen 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, 1998,
those plans had approximately 4,697 participants in the aggregate. During the
fourth quarter of 1998, a total of 14,593 shares of Caterpillar common stock or
foreign denominated equivalents were distributed under the plans.
Item 6. Selected Financial Data.
Information required by Item 6 is incorporated by reference from the "Five-year
Financial Summary" on page A-20 of the Appendix.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Information required by Item 7 is incorporated by reference from "Management's
Discussion and Analysis" on pages A-21 through A-31 of the Appendix. The
following information updates Appendix disclosure on our approach to the Year
2000 challenge.
YEAR 2000 CHALLENGE
- -------------------
Our Approach
Caterpillar has a comprehensive plan to address the Year 2000 challenge. A Year
2000 Steering Committee, chaired by a member of our Executive Office, is charged
with monitoring Year 2000 efforts of our business units and reporting status to
our Executive Office and Board of Directors. Although this team has monitoring
responsibility, vice presidents in charge of each business unit are responsible
for identifying, evaluating, and implementing changes necessary to achieve
readiness within their units.
Page 8
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Remediation History and Status
Caterpillar began addressing the Year 2000 challenge as part of plant
modernization and corporate restructuring initiatives in the late 1980s and
early 1990s. New systems incorporated Year 2000 compliance by design. In 1994,
Caterpillar's corporate information systems division initiated projects to
address the Year 2000 issue. Today, all Caterpillar business units are engaged
in a comprehensive effort to meet the Year 2000 challenge as it impacts their
internal and external customers.
We have established five Year 2000 phases under which units measure their
progress:
. Inventory -- identifying key business areas and related products and
services (both internal and external) potentially impacted by the Year 2000
issue;
. Analysis -- determining how a product or service is impacted and preparing
a plan to address the issue;
. Remediation -- making the necessary changes to bring the product or service
into compliance;
. Validation -- testing the product or service to ensure it is Year 2000
compliant; and
. Implementation -- installing necessary changes in production.
Internal Systems
As of March 1, 1999, substantially all Caterpillar business units have completed
an inventory of internal systems having potential Year 2000 issues. By internal
systems, we mean both information technology and non-information technology
systems. Analysis to address Year 2000 issues has been completed on all critical
systems within the control of our units. Of those critical systems, about 94%
have been remediated and 91% validated. For about 86% of all critical systems
within our control, Year 2000 fixes have been implemented.
About 81% of our business units report that mission-critical systems within
their control will be fixed, tested, and in production by June 1, 1999. All
units report that mission-critical and significant priority systems will attain
that status by October 1, 1999.
Caterpillar Products
For some time, we have been assessing the potential impact of the Year 2000
challenge on the operation of machines and engines sold by Caterpillar. Our
Electrical and Electronics business unit has substantially completed its review,
evaluation, and testing of electronic components and service tools used on
Caterpillar machines and engines for Year 2000 related problems. This review
included all electronic control modules, display and monitoring systems,
generator set control systems, and electronic service tools under the design
control of that business unit.
As a result of this assessment and others completed by Caterpillar, it is our
position at this time that the Year 2000 challenge should not have any
significant impact on the performance of previous, present, or future
Caterpillar machines and engines. We note that our assessment of the Year 2000
impact across our product line is an ongoing process and subject to further
review. We are committed to delivering the highest quality products and services
to our customers currently and beyond the Year 2000.
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Suppliers and Caterpillar Dealers
We are actively assessing the Year 2000 readiness of our significant third-party
suppliers. Those efforts include survey mailings, presentations, review of
supplier Year 2000 statements, and follow-up activities with suppliers that have
not responded to requests for information. For suppliers that have not
responded, we are following up to achieve ultimately an acceptable comfort level
with our supply chain. For suppliers posing a significant risk, contingency
plans are being developed.
Analysis to address Year 2000 issues has been completed on about 95% of critical
dependencies (including suppliers, utilities, and transportation services)
outside the control of our business units. For 71% of these critical
dependencies, we have implemented Year 2000-ready solutions or confirmed that
the business partner or dependency was already Year 2000 compliant. Dependencies
reported as outside the control of our units may include those supplied by other
units within Caterpillar as well as those supplied by outside companies.
We are also assessing the readiness of our dealers. Efforts in the U.S. and
outside the U.S. include mailings requesting information on remediation plans
and status, periodic regional meetings with dealers and their information
systems managers, and on-site assessments by Caterpillar managers responsible
for specific dealer regions. Based on these communications, we expect that by
the end of 1999 our dealers will be in a position to service customers without
any significant business disruption related to the Year 2000 issue. We will
continually monitor dealer progress against this time frame.
Costs
The following cost estimates, which are as of March 1, 1999, would not have a
material impact on Caterpillar's results, financial position, or cash flow. As
of March 1, 1999, we have incurred about two-thirds of these estimated total
costs. As necessary, we will refine these estimates.
We anticipate incurring $130-150 million in Year 2000-related costs. Of these
costs, capital costs for the replacement of systems, hardware, or equipment are
currently estimated to be $20-30 million.
These budgeted costs may not include all of the cost of implementing contingency
plans, which are in the process of being developed. These estimates also do not
include litigation or warranty costs related to the Year 2000 issue, which at
this time cannot be reasonably estimated.
Risks
Our estimates on cost, remediation time frame, and potential financial impact
are based on information we have currently. There can be no assurance these
estimates will prove accurate and actual results could differ materially from
those currently anticipated.
Page 10
<PAGE>
Factors that could cause actual results to differ include unanticipated supplier
or dealer failures; utilities, transportation, or telecommunications breakdowns;
U.S. or non-U.S. government failures; and unanticipated failures on our part to
address Year 2000-related issues.
The most reasonably likely worst case scenario in light of these risks would
involve a potential loss in sales resulting from production and shipping delays
caused by Year 2000-related disruptions. Under this scenario, manual procedures
would be required for order processing, invoicing, supplier management
processing, warranty claim processing, and for certain factory machine tool
operations. The degree of sales loss impact would depend on the severity of the
disruption, the time required to correct it, whether the sales loss was
temporary or permanent, and the degree to which our primary competitors were
also impacted by the disruption.
To minimize the potential impact of the most reasonably likely worst case
scenario, each Caterpillar business unit is developing contingency plans.
Finalized contingency plans may involve manual procedures for machine operation,
manual procedures for collecting and reporting data, inventory adjustments for
major components, and considering alternative sources of supply. Contingency
plans, where deemed necessary, will be finalized by the end of 1999.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk.
Information required by Item 7a is incorporated by reference from the following
Notes to Consolidated Financial Statements - Notes 1G and 2 on page A-8 and A-9
of the Appendix and Notes 16 and 17 on page A-15 through A-16 of the Appendix
and from "Derivative Financial Instruments" on pages A-27 through A-29 of the
Appendix.
Item 8. Financial Statements and Supplementary Data.
Information required by Item 8 is incorporated by reference from the Report of
Independent Accountants on page A-3, and the Financial Statements and Notes to
Consolidated Financial Statements on pages A-4 through A-19 of the Appendix.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information required by Item 10 relating to identification of directors is
incorporated by reference from "Directors Up For Election This Year for Terms
Expiring in 2002," "Directors Remaining in Office Until 2001," and "Directors
Remaining in Office Until 2000" on pages 3 and 4 of the Proxy Statement.
Identification of executive officers appears in Item 1a of this Form 10-K. There
are no family relationships between the officers and directors of the Company.
All officers serve at the pleasure of the Board of Directors and are regularly
elected at a meeting of the Board of Directors in April of each year.
Page 11
<PAGE>
Item 11. Executive Compensation.
Information required by Item 11 is incorporated by reference from "Director
Compensation" on page 6, "Performance Graph" on page 8, "Report of the
Compensation Committee on Executive Compensation" on pages 9 through 15, and
"Executive Compensation Tables" on pages 16 through 18 of the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information required by Item 12 is incorporated by reference from "Caterpillar
Stock Beneficially Owned by Officers and Directors (as of December 31, 1998)" on
page 7 of the Proxy Statement and from "Persons Owning More than Five Percent of
Caterpillar Stock (as of December 31, 1998)" on page 8 of the Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements (Incorporated by reference from the Appendix):
. Report of Independent Accountants (p. A-3)
. Statement 1 - Consolidated Results of Operations (p. A-4)
. Statement 2 - Changes in Consolidated Stockholders' Equity (p. A-4)
. Statement 3 - Financial Position (p. A-5)
. Statement 4 - Statement of Cash Flow (p. A-6)
. Notes to Consolidated Financial Statements (pp. A-7 through A-19)
2. Financial Statement Schedule:
. All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or the
notes thereto incorporated by reference.
(b) There were four reports, one dated October 15, two dated October 16,
and one dated December 16 filed on Form 8-K pursuant to Item 5 during
the last quarter of 1998 and additional reports filed on Form 8-K on
January 14, January 20, February 4, and March 12, 1999. No financial
statements were filed as part of those reports.
(c) Exhibits:
3.1 Restated Certificate of Incorporation (incorporated by
reference from Exhibit 3(i) to the Form 10-Q filed for the
first quarter of 1998).
3.2 Certificate of Designation, Preferences and Rights of the Terms
of the Series A Junior Participating Preferred Stock
(incorporated by reference from Exhibit 2 to Form 8-A filed
December 11, 1996).
Page 12
<PAGE>
3.3 Bylaws, amended and restated.
4 Rights Agreement dated as of December 11, 1996, between
Caterpillar Inc. and First Chicago Trust Company of New York
(incorporated by reference from Exhibit 1 to Form 8-A filed
December 11, 1996).
10.1 Caterpillar Inc. 1996 Stock Option and Long-Term Incentive
Plan, amended and restated as of June 9, 1998 (incorporated by
reference from Exhibit 10 to the Form 10-Q filed for the second
quarter of 1998).**
10.2 Caterpillar Inc. 1987 Stock Option Plan, as amended and
restated and Long Term Incentive Supplement (incorporated by
reference from Exhibit 4.2 to Form S-3 (Reg. No. 333-43133)
filed December 23, 1997).**
10.3 Supplemental Pension Benefit Plan, as amended and restated
(incorporated by reference from Exhibit 10(c) to the 1993 Form
10-K).**
10.4 Supplemental Employees' Investment Plan, as amended and
restated (incorporated by reference from Exhibit 10(d) to the
1996 Form 10-K).**
10.5 Caterpillar Inc. 1998 Corporate Incentive Compensation Plan
Management and Salaried Employees, as amended and restated.**
10.6 Directors' Deferred Compensation Plan, as amended and restated
(incorporated by reference from Exhibit 10(f) to the 1996 Form
10-K).**
10.7 Directors' Charitable Award Program (incorporated by reference
from Exhibit 10(h) to the 1993 Form 10-K).**
10.8 Deferred Employees' Investment Plan, as amended and restated.**
11 Statement re: Computation of per Share Earnings (incorporated
by reference from Note 15 of the Notes to Consolidated
Financial Statements appearing on page A-15 of the Appendix).
12 Statement Setting Forth Computation of Ratios of Profit to
Fixed Charges.
13 Annual Report to Security Holders attached as an Appendix to
the Company's 1999 Annual Meeting Proxy Statement.
21 Subsidiaries and Affiliates of the Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
99.1 Form 11-K for Caterpillar Foreign Service Employees' Stock
Purchase Plan.
** Compensatory plan or arrangement required to be filed as an exhibit pursuant
to Item 14(c) of this Form 10-K.
Page 13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CATERPILLAR INC.
(Registrant)
By: /s/ R. R. ATTERBURY III
--------------------------
Date: March 26, 1999 R. R. Atterbury III, Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Chairman of the Board, Director and
March 26, 1999 /s/GLEN A. BARTON Chief Executive Officer
--------------------------------
(Glen A. Barton)
March 26, 1999 /s/GERALD S. FLAHERTY Group President
--------------------------------
(Gerald S. Flaherty)
March 26, 1999 /s/JAMES W. OWENS Group President
--------------------------------
(James W. Owens)
March 26, 1999 /s/GERALD L. SHAHEEN Group President
--------------------------------
(Gerald L. Shaheen)
March 26, 1999 /s/RICHARD L. THOMPSON Group President
--------------------------------
(Richard L. Thompson)
Vice President and
March 26, 1999 /s/F. LYNN MCPHEETERS Chief Financial Officer
--------------------------------
(F. Lynn McPheeters)
Controller and
March 26, 1999 /s/ROBERT R. GALLAGHER Chief Accounting Officer
--------------------------------
(Robert R. Gallagher)
</TABLE>
Page 14
<PAGE>
<TABLE>
<S> <C> <C>
March 26, 1999 /s/LILYAN H. AFFINITO Director
--------------------------------
(Lilyan H. Affinito)
March 26, 1999 /s/W. FRANK BLOUNT Director
--------------------------------
(W. Frank Blount)
March 26, 1999 /s/JOHN R. BRAZIL Director
--------------------------------
(John R. Brazil)
March 26, 1999 /s/JOHN T. DILLON Director
--------------------------------
(John T. Dillon)
March 26, 1999 /s/DONALD V. FITES Director
--------------------------------
(Donald V. Fites)
March 26, 1999 /s/JUAN GALLARDO Director
--------------------------------
(Juan Gallardo)
March 26, 1999 /s/DAVID R. GOODE Director
--------------------------------
(David R. Goode)
March 26, 1999 /s/JAMES P. GORTER Director
--------------------------------
(James P. Gorter)
March 26, 1999 /s/PETER A. MAGOWAN Director
--------------------------------
(Peter A. Magowan)
March 26, 1999 /s/GORDON R. PARKER Director
--------------------------------
(Gordon R. Parker)
March 26, 1999 /s/GEORGE A. SCHAEFER Director
--------------------------------
(George A. Schaefer)
March 26, 1999 /s/JOSHUA I. SMITH Director
--------------------------------
(Joshua I. Smith)
March 26, 1999 /s/CLAYTON K. YEUTTER Director
--------------------------------
(Clayton K. Yeutter)
</TABLE>
Page 15
<PAGE>
EXHIBIT 3.3
CATERPILLAR INC.
BYLAWS
(as amended and restated February 10, 1999)
Article I
Offices
Section 1. Registered Office.
The registered office of the corporation in the State of Delaware shall be
in the City of Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices.
The corporation may also have offices at such other places both within and
without the State of Delaware as the board of directors may from time to time
determine or the business of the corporation may require.
Article II
Stockholders
Section 1. Stockholder Meetings.
(a) Place of Meetings. Meetings of stockholders shall be held at such
places, within or without the State of Delaware, as may from time to time be
designated by the board of directors.
(b) Annual Meeting.
(i) The annual meeting of stockholders shall be held on the second
Wednesday in April in each year at a time designated by the board of directors,
or at such a time and date as may be designated by the board.
Exhibit 3.3 Page 1 of 9
<PAGE>
(ii) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the board of directors, (b) otherwise properly brought before the meeting by or
at the direction of the board of directors, or (c) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation, not less than 45 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 60 days' notice of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the fifteenth (15th) day following the date
on which such notice of the date of the annual meeting was mailed. A
stockholder's notice to the secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the annual meeting, (b) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business, (c) the class and number of shares of the corporation
which are beneficially owned by the stockholder and (d) any material interest of
the stockholder in such business. Notwithstanding anything in the bylaws to the
contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 1(b)(ii). The presiding
officer of an annual meeting shall, if the facts warrant, determine and declare
to the meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section 1, and if he should so determine,
he shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted.
(c) Special Meetings. Special meetings of the stockholders of this
corporation for any purpose or purposes may be called at any time by the
chairman of the board or the vice chairman, or by the board of directors
pursuant to a resolution approved by a majority of the entire board of
directors, but such special meetings may not be called by any other person or
persons.
(d) Notice of Meetings. Notice of every meeting of the stockholders shall
be given in the manner prescribed by law.
(e) Quorum. Except as otherwise required by law, the certificate of
incorporation and these bylaws, the holders of not less than one-third of the
shares entitled to vote at any meeting of the stockholders, present in person or
by proxy, shall constitute a quorum and the act of the majority of such quorum
shall be deemed the act of the stockholders. If a quorum shall fail to attend
any meeting, the chairman of the meeting may adjourn the meeting to another
place, date or time. If a notice of any adjourned special meeting of
stockholders is sent to all stockholders entitled to vote thereat, stating that
it will be held with those present constituting a quorum, then, except as
otherwise required by law, those present at such adjourned meeting shall
constitute a quorum and all matters shall be determined by a majority of votes
cast at such meeting.
Exhibit 3.3 Page 2 of 9
<PAGE>
Section 2. Determination of Stockholders Entitled to Vote.
To determine the stockholders entitled to notice of any meeting or to vote,
the board of directors may fix in advance a record date as provided in Article
VI, Section 1 hereof, or if no record date is fixed by the board a record date
shall be determined as provided by law.
Section 3. Voting.
(a) Subject to the provisions of applicable law, and except as otherwise
provided in the certificate of incorporation, each stockholder present in person
or by proxy shall be entitled to one vote for each full share of stock
registered in the name of such stockholder at the time fixed by the board of
directors or by law as the record date of the determination of stockholders
entitled to vote at a meeting.
(b) Every stockholder entitled to vote may do so in person or by one or
more agents authorized by proxy. Such authorization may be in writing or by
transmission of an electronic communication, as permitted by law and in
accordance with procedures established for the meeting.
(c) Voting may be by voice or by ballot as the chairman of the meeting
shall determine.
(d) In advance of any meeting of stockholders the board of directors may
appoint one or more persons (who shall not be candidates for office) as
inspectors of election to act at the meeting. If inspectors are not so
appointed, or if an appointed inspector fails to appear or fails or refuses to
act at a meeting, the chairman of any meeting of stockholders may, and on the
request of any stockholder or his proxy shall, appoint inspectors of election at
the meeting.
(e) Any action required or permitted to be taken by the stockholders of
the corporation must be effected at a duly called annual or special meeting of
such holders and may not be effected by any consent in writing by such holders.
Article III
Board of Directors
Section 1. Election of Directors.
(a) Number. The authorized number of directors of the corporation shall be
fixed from time to time by the board of directors but shall not be less than
three (3). The exact number of directors shall be determined from time to time
either by a resolution or bylaw duly adopted by the board of directors.
Exhibit 3.3 Page 3 of 9
<PAGE>
(b) Classes of Directors. The board of directors shall be and is divided
into three classes: Class I, Class II and Class III, which shall be as nearly
equal in number as possible. Each director shall serve for a term ending on the
date of the third annual meeting of stockholders following the annual meeting at
which the director was elected; provided, however, that each initial director in
Class I shall hold office until the annual meeting of stockholders in 1987; each
initial director in Class II shall hold office until the annual meeting of
stockholders in 1988; and each initial director in Class III shall hold office
until the annual meeting of stockholders in 1989. Notwithstanding the foregoing
provisions of this subsection (b), each director shall serve until his successor
is duly elected and qualified or until his death, resignation or removal.
(c) Newly Created Directorships and Vacancies. In the event of any
increase or decrease in the authorized number of directors, the newly created or
eliminated directorships resulting from such increase or decrease shall be
apportioned by the board of directors among the three classes of directors so as
to maintain such classes as nearly equal in number as possible. No decrease in
the number of directors constituting the board of directors shall shorten the
term of any incumbent director. Newly created directorships resulting from any
increase in the number of directors and any vacancies on the board of directors
resulting from death, resignation, disqualification, removal or other cause
shall be filled by the affirmative vote of a majority of the remaining directors
then in office (and not by stockholders), even though less than a quorum of the
board of directors. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the class of
directors in which the new directorship was created or the vacancy occurred and
until such director's successor shall have been elected and qualified.
(d) Nomination of Directors. Candidates for director shall be nominated
either
(i) by the board of directors or a committee appointed by the
board of directors or
(ii) by nomination at any such stockholders' meeting by or on
behalf of any stockholder entitled to vote at such meeting provided that written
notice of such stockholder's intent to make such nomination or nominations has
been given, either by personal delivery or by United States mail, postage
prepaid, to the secretary of the corporation not later than (1) with respect to
an election to be held at an annual meeting of stockholders, ninety (90) days in
advance of such meeting, and (2) with respect to an election to be held at a
special meeting of stockholders for the election of directors, the close of
business on the tenth (10th) day following the date on which notice of such
meeting is first given to stockholders. Each such notice shall set forth: (a)
the name and address of the stockholder who intends to make the nomination and
of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement
Exhibit 3.3 Page 4 of 9
<PAGE>
filed pursuant to the proxy rules of the Securities and Exchange Commission, had
the nominee been nominated, or intended to be nominated, by the board of
directors; and (e) the consent of each nominee to serve as a director of the
corporation if so elected. The presiding officer of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedure.
(e) Removal. Any director may be removed from office without cause but
only by the affirmative vote of the holders of not less than seventy-five
percent (75%) of the outstanding stock of the corporation entitled to vote
generally in the election of directors, voting together as a single class.
(f) Preferred Stock Provisions. Notwithstanding the foregoing, whenever
the holders of any one or more classes or series of stock issued by this
corporation having a preference over the common stock as to dividends or upon
liquidation, shall have the right, voting separately by class or series, to
elect directors at an annual or special meeting of stockholders, the election,
term of office, filling of vacancies, nominations, terms of removal and other
features of such directorships shall be governed by the terms of Article FOURTH
of the certificate of incorporation and the resolution or resolutions
establishing such class or series adopted pursuant thereto and such directors so
elected shall not be divided into classes pursuant to Article SIXTH of the
certificate of incorporation unless expressly provided by such terms.
Section 2. Meetings of the Board of Directors.
(a) Regular Meetings. Regular meetings of the board of directors shall be
held without call at the following times:
(i) 8:30 a.m. on the second Wednesday in February, April, June,
August, October and December;
(ii) one-half hour prior to any special meeting of the
stockholders, and immediately following the adjournment of any annual or special
meeting of the stockholders.
Notice of all such regular meetings is hereby dispensed with.
(b) Special Meetings. Special meetings of the board of directors may be
called by the chairman of the board, any two (2) directors or by any officer
authorized by the board. Notice of the time and place of special meetings shall
be given by the secretary or an assistant secretary, or by any other officer
authorized by the board. Such notice shall be given to each director personally
or by mail, messenger, telephone or telegraph at his business or residence
address. Notice by mail shall be deposited in the United States mail, postage
prepaid, not later than the third (3rd) day prior to the date fixed for the
meeting. Notice by telephone or telegraph shall be sent, and notice given
personally or by messenger shall be delivered, at least twenty-four (24) hours
prior to the time set for the meeting. Notice of a special meeting need not
contain a statement of the purpose of the meeting.
Exhibit 3.3 Page 5 of 9
<PAGE>
(c) Adjourned Meetings. A majority of directors present at any regular or
special meeting of the board of directors, whether or not constituting a quorum,
may adjourn from time to time until the time fixed for the next regular meeting.
Notice of the time and place of holding an adjourned meeting shall not be
required if the time and place are fixed at the meeting adjourned.
(d) Place of Meetings. Unless a resolution of the board of directors, or
the written consent of all directors given either before or after the meeting
and filed with the secretary, designates a different place within or without the
State of Delaware, meetings of the board of directors, both regular and special,
shall be held at the corporation's offices at 100 N.E. Adams Street, Peoria,
Illinois.
(e) Participation by Telephone. Members of the board may participate in a
meeting through use of conference telephone or similar communications equipment,
so long as all members participating in such meeting can hear one another, and
such participation shall constitute presence in person at such meeting.
(f) Quorum. At all meetings of the board one-third of the total number of
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. A
meeting at which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action is approved by at
least a majority of the required quorum for such meeting. Less than a quorum may
adjourn any meeting of the board from time to time without notice.
Section 3. Action Without Meeting.
Any action required or permitted to be taken by the board of directors may
be taken without a meeting if all members of the board consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the board.
Section 4. Compensation of Directors.
The directors may be paid such compensation for their services as the board
shall from time to time determine. Directors who receive salaries as officers or
employees of the corporation shall not receive additional compensation for their
services as directors.
Exhibit 3.3 Page 6 of 9
<PAGE>
Section 5. Committees of the Board.
There shall be such committees of the board of directors each consisting of
two or more directors with such authority, subject to applicable law, as a
majority of the board shall by resolution determine. Committees of the board
shall meet subject to the call of the chairman of each committee and shall
prepare and file with the secretary minutes of their meetings. Unless a
committee shall by resolution establish a different procedure, notice of the
time and place of committee meetings shall be given by the chairman of the
committee, or at his request by the chairman of the board or by the secretary or
an assistant secretary. Such notice shall be given to each committee member
personally or by mail, messenger, telephone or telegraph at his business or
residence address at the times provided in subsection (b) of Section 2 of this
Article for notice of special meetings of the board of directors. One-third of a
committee but not less than two members shall constitute a quorum for the
transaction of business. Except as a committee by resolution may determine
otherwise, the provisions of Section 3 and of subsections (c), (d) and (e) of
Section 2 of this Article shall apply, mutatis mutandis, to meetings of board
committees.
Article IV
Officers
Section 1. Officers.
The officers of the corporation shall be a chairman of the board, who shall
be the chief executive officer, one or more group presidents, one or more vice
presidents (one of whom shall be designated the chief financial officer), a
secretary and a treasurer, together with such other officers as the board of
directors shall determine. Any two or more offices may be held by the same
person.
Section 2. Election and Tenure of Officers.
Officers shall be elected by the board of directors, shall hold office at
the pleasure of the board, and shall be subject to removal at any time by the
board. Vacancies in office may be filled by the board.
Section 3. Powers and Duties of Officers.
Each officer shall have such powers and duties as may be prescribed by the
board of directors or by an officer authorized so to do by the board.
Section 4. Compensation of Officers.
The compensation of officers shall be determined by the board of directors;
provided that the board may delegate authority to determine the compensation of
any assistant secretary or assistant treasurer, with power to redelegate.
Exhibit 3.3 Page 7 of 9
<PAGE>
Article V
Indemnification
The corporation shall indemnify to the full extent permitted by, and in the
manner permissible under, the laws of the State of Delaware any person made, or
threatened to be made, a party to an action or proceeding, whether criminal,
civil, administrative or investigative, by reason of the fact that he, his
testator or intestate is or was a director or officer of the corporation or any
predecessor of the corporation, or served any other enterprise as a director or
officer at the request of the corporation or any predecessor of the corporation.
The foregoing provisions of this Article V shall be deemed to be a contract
between the corporation and each director and officer who serves in such
capacity at any time while this bylaw is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any action,
suit or proceeding theretofore or thereafter brought based in whole or in part
upon any such state of facts.
The foregoing rights of indemnification shall not be deemed exclusive of
any other rights to which any director or officer may be entitled apart from the
provisions of this Article.
The board of directors in its discretion shall have power on behalf of the
corporation to indemnify any person, other than a director or officer, made a
party to any action, suit or proceeding by reason of the fact that he, his
testator or intestate, is or was an employee of the corporation.
Article VI
Miscellaneous
Section 1. Record Date.
(a) In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to receive payment of any dividend or other distribution or
allotment of any rights or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board may fix, in advance, a record date, which shall not be more
than sixty (60) nor less than ten (10) days prior to the date of such meeting
nor more than sixty (60) days prior to any other action. If not fixed by the
board, the record date shall be determined as provided by law.
(b) A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting
unless the board fixes a new record date for the adjourned meeting.
Exhibit 3.3 Page 8 of 9
<PAGE>
(c) Stockholders on the record date are entitled to notice and to vote or to
receive the dividend, distribution or allotment of rights or to exercise the
rights, as the case may be, notwithstanding any transfer of any shares on the
books of the corporation after the record date, except as otherwise provided by
agreement or by applicable law.
Section 2. Stock Certificates.
(a) Every holder of shares in the corporation shall be entitled to have a
certificate signed in the name of the corporation by the chairman of the board
or the vice chairman or a vice president and by the treasurer or an assistant
treasurer, or the secretary or an assistant secretary, certifying the number of
shares and the class or series of shares owned by the stockholder. Any or all of
the signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue.
(b) The corporation may issue a new share certificate or a new certificate
for any other security in the place of any certificate theretofore issued by it,
alleged to have been lost, stolen or destroyed, and the corporation may require
the owner of the lost, stolen or destroyed certificate or the owner's legal
representative to give the corporation a bond (or other adequate security)
sufficient to indemnify it against any claim that may be made against it
(including any expense or liability) on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
Section 3. Corporate Seal.
The corporation shall have a corporate seal in such form as shall be
prescribed and adopted by the board of directors.
Section 4. Construction and Definitions.
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws.
Section 5. Amendments.
Subject to the provisions of the certificate of incorporation, these bylaws
may be altered, amended or repealed at any regular meeting of the stockholders
(or at any special meeting thereof duly called for that purpose) by a majority
vote of the shares represented and entitled to vote at the meeting; provided
that in the notice of such special meeting notice of such purpose shall be
given. Subject to the laws of the State of Delaware, the certificate of
incorporation and these bylaws, the board of directors may by majority vote of
those present at any meeting at which a quorum is present amend these bylaws, or
enact such other bylaws as in their judgment may be advisable for the regulation
of the conduct of the affairs of the corporation.
Exhibit 3.3 Page 9 of 9
<PAGE>
Exhibit 10.5
CATERPILLAR INC.
CORPORATE INCENTIVE COMPENSATION PLAN
MANAGEMENT AND SALARIED EMPLOYEES
(AMENDED AND RESTATED THROUGH DECEMBER 31, 1998)
Section 1. Type of Plan and Purpose
1.1 Type of Plan and Purpose. This Plan is an incentive compensation plan. The
purpose of the Plan is to provide contingent benefits to Employees to
reflect their efforts in contribution to the profitability of the Company;
and to serve as an incentive for Employees further to contribute to the
continued and future financial success of the Company and to its ability to
provide continued employment opportunities to its Employees.
This Plan has been adopted in accordance with rules and guidelines
established by the Stock Option and Officers' Compensation Committee of the
Board of Directors of the company. Those guidelines permit business and
service units of Caterpillar Inc. or its subsidiaries to adopt separate
incentive compensation plans within parameters established by that
Committee based upon measurements approved by the company's internal
Incentive Compensation Review Committee. Those guidelines (a) generally
require that a portion of the award under any such unit plan be based upon
the corporate return on assets measurement established under this Plan, and
(b) permit such unit plan to adopt a shorter eligibility period. Those unit
incentive compensation plans with such a corporate measurement form a part
of the Plan.
It is understood that the duty of the Employers, their Boards of Directors,
and the management they select is to provide the Employers' shareholders
protection of, and a maximum return on, their investment, consistent with
retention in the business of such profits as the Board of Directors of the
Company deems prudent, and with fair and competitive prices, wages,
benefits and other terms of employment; no provision of this Plan or any
unit incentive compensation plan shall be construed as altering that
objective or in any way limiting management of such Board of Directors in
the performance of their duties.
1.2 Supplements. The succeeding provisions of this Plan will be expanded and/or
modified by Supplements. Such Supplements will set forth the particulars
wherein the provisions of this Plan, as applied to any group of Employees
are expanded and/or differ from those set forth in the succeeding
provisions of this Plan exclusive of such Supplements. All provisions of
this Plan are subject to any express provisions to the contrary contained
in any such Supplements.
Exhibit 10.5 Page 1 of 8
<PAGE>
Section 2. Definitions
2.1 Annual Salary Rate for any year means (i) in the case of a Participant who
is a management employee, his monthly salary rate as of December 31 of that
year (or his last day on the management payroll during that year if
earlier) multiplied by 12; or (ii) in the case of a Participant who is a
salaried employee, his weekly salary rate as of December 31 of that year
(or his last day on the salaried payroll during that year if earlier)
multiplied by 52.
The Annual Salary Rate shall include any salary amount deferred under Part
2 of the Employees' Investment Plan and contributed as a basic Employer
contribution thereunder, and any salary amount deferred under the Flexible
Spending Account, but excludes any (a) bonuses or special cash awards, (b)
commissions, (c) international service allowances, (d) extra shift or
overtime payments, (e) night shift premiums, (f) pay for vacation time not
used and (g) payments under this plan or other payments or contributions
(other than EIP 2 contributions) under any employee benefit plan.
2.2 Company means Caterpillar Inc. or any successor to it by merger,
consolidation, reorganization or otherwise.
2.3 Company Service means all periods of full-time employment with the Company
and its subsidiaries, including all periods of leave of absence and all
periods of layoff.
2.4 Effective Date of this Plan means January 1, 1993.
2.5 Employee means, subject to Subsection 3.1, any son who is a resident or
citizen of the United States of America or Canada and who on or after the
Effective Date is in the regular full-time employ of an Employer (or a
part-time or temporary employee included in a group for whom approval to
include in the Plan has been obtained from the Incentive Compensation
Review Committee) on its salaried or management payrolls and is employed
for work on the prevailing schedules of the department to which he is
assigned, and who is included in a group to whom the Plan has been made
available by extension by an Employer and includes any such person while
absent from work under circumstances which do not break continuity of
service.
2.6 Employer means the Company or any subsidiary of the Company that has
adopted or adopts the Plan with the Company's written consent.
2.7 Officer means those Employees who fill the following positions: Vice
President, Group President, and Chairman/Vice Chairman. For purposes of
this Plan, the Controller and Treasurer are not included in the definition
of Officer.
Exhibit 10.5 Page 2 of 8
<PAGE>
2.8 Participant means any Employee who is eligible to be covered by the Plan
pursuant to Subsection 3.1.
2.9 The first Plan Year will begin on the effective date and will end on the
first December 31 thereafter. Each subsequent Plan Year will end on the
next following December 31.
Section 3. Eligibility and Participation
3.1 Eligibility and Participation. Each Employee of the Employers shall be
eligible to be covered by the Plan and become a Participant as of the
latest to occur of (i) the Effective Date; (ii) the date he has completed
90 days of Company Service (does not include any time with ATS); and (iii)
the date he is included in a group to which the Plan has been and continues
to be extended by an Employer. Notwithstanding anything contained herein to
the contrary, for all purposes of the Plan, any U.S. International Service
Employee who is not an Employee of the Company or any of the other
Employers shall be considered to be an eligible Employee if he then meets
the requirements of Subparagraph (ii) above. As used herein, the term "U.S.
International Service Employee" means an Employee who (i) on the direction
or with the permission of an Employer is transferred to employment outside
of the United States of America with a subsidiary (whether or not organized
or incorporated within the United States of America) which has not adopted
the Plan; and (ii) meets the definition of a U.S. International Service
Employee contained in the Company's U.S. International Service Practices;
and the term Employee shall also include such other persons as shall be
designated by the Committee. A Participant in the Plan shall continue as
such so long as he meets the definition of an Employee contained in
Subsection 2.5 or considered to be an Employee pursuant to this Subsection
3.1.
Notwithstanding the above, payment amounts shall not be duplicated under
this Plan by amounts paid for the same period of service or corporate
performance measurement under any other profit sharing plan, incentive
compensation plan, gainsharing-type plan, or similar plan sponsored by
Caterpillar Inc. or any of its subsidiaries, or would be paid except for
any applicable waiting period expressed in such plan or except where
specifically provided for in approved plan documentation. However, an
Officer who is eligible to participate in an incentive compensation plan
for a business or service unit under his control may participate in this
Plan for that portion of his Annual Salary Rate not included in the
calculation of his business or service unit incentive compensation payment.
3.2 Employment Requirements. Any Participant shall be eligible for an incentive
compensation benefit under the Plan for any year, provided that he is
actively employed by the Company and any of its subsidiaries on December 31
of that year or is on leave of absence or layoff from the Company or any of
its subsidiaries on such December 31; except that any otherwise eligible
Employee who died, retired, or received a separation payment in lieu of
layoff during such year shall also be covered as if he were an active
Employee on December 31 of that year.
Exhibit 10.5 Page 3 of 8
<PAGE>
Section 4. Amount of Benefit
4.1 Salary Grade 23 and Below. The amount payable to a Participant at Salary
Grade 23 and below (as of December 31 of that year) shall be determined by
multiplying the Participant's Annual Salary Rate times the following
applicable rate of percentage for that salary grade times the applicable
Corporate Performance Factor:
Salary Grade Percentage
------------ ----------
21 and below 7%
22 8%
23 9%
4.2 Salary Grade 24 and Above. The amount payable to a Participant at Salary
Grade 24 and above (as of December 31 of that year) shall be determined by
multiplying his Annual Salary Rate times the Team Award percentage
(determined from Exhibit 1 for non-Officer Participants in Salary Grades 24
and above, and from Exhibit 2 for Officers), for his salary grade as of
December 31, times the applicable Corporate Performance Factor, plus the
amount of his Individual Award, if any. Designated Officers may participate
in their units' incentive compensation plan and may be eligible for Team
Awards based on their division results and the corporate performance of
Caterpillar Inc. (each award to be prorated according to the approved
weighting between the division results and corporate performance).
Individual Awards may be made only from a discretionary pool. A separate
Employee Discretionary Pool will be established for Participants (excluding
Officers) for each Vice Presidential administrative area or for each group
of Participants subject to a business or service unit incentive
compensation plan. A separate discretionary pool will be established for
Officers.
The Individual Award, if any, for which only Participants in Salary Grades
24 and above are eligible, shall be determined solely at the discretion of
the Participant's Unit Manager (or by the Compensation Committee of the
Board of Directors for Officers) and shall not exceed the amount of the
Employee's Team Award. In addition, the sum of the Individual Awards
payable to all Participants in Salary Grade 24 and above shall not exceed
the Employee Discretionary Pool Amount. The Employee Discretionary Pool
Amount shall be 25% of the total amount of the Team Awards paid to
Participants at Salary Grade 24 and above (excluding Officers).
The sum of the Individual Awards payable to Participants who are Officers
shall not exceed the Officer Discretionary Pool Amount. The Officer
Discretionary Pool Amount shall be the sum of each Officer's percentage of
annual salary rate (See Exhibit 1) adjusted by the Corporate Performance
Factor defined in Section 4.4. The Officer Discretionary Pool will be
calculated as if all officers participated wholly and exclusively in the
Corporate Incentive Compensation Plan.
Exhibit 10.5 Page 4 of 8
<PAGE>
4.3 Individual Performance Level Less Than Five. Notwithstanding the provisions
of Subparagraphs 4.1 or 4.2 to the contrary, Employees or Officers with a
performance rating of Individual Performance Level 5 or those who have
unsatisfactory/ unacceptable performance in units not using specific
performance ratings will not be eligible for a Team Award or an Individual
Award, and contributions shall not be made to either the Participant
Discretionary Pool Amount or the Officer Discretionary Pool Amount for such
Employees or Officers.
4.4 Corporate Performance Factor. The Corporate Performance Factor will be
determined each year in relation to minimum, target and maximum corporate
return on asset (ROA) levels determined by the Company (see Exhibit 3). The
actual performance factor will be determined by interpolation based on the
actual ROA achieved at the end of the year compared to these levels, and
the participants team incentive compensation amount, if any, will be
calculated accordingly. The achieved ROA will be determined by dividing
Profit by the Average Gross Assets rounded to the nearest third decimal.
The Company must achieve the minimum ROA percentage specified before any
amount shall be payable.
As used herein, the term "Average Gross Assets" means the total corporate
assets averaged throughout the year. Total corporate assets excludes the
assets of Financial Products but includes the investment in Financial
Products and is reported in the Annual Report and the Quarterly Report to
Stockholders under the column entitled Machinery and Engines as
Supplemental Consolidating Data on the Statement of Financial Position. The
average for the year will be calculated by adding together five points: the
ending balance for the previous year and the ending balance for each of the
four quarters during the year and dividing by five. The term "Profit" means
the amount of profit for the year before income taxes reported in such
Statement 1 (or any equivalent successor statement thereto which provides
such amount of profit) in the subtotal immediately preceding the provision
for income taxes line, but increased by the amount of expense for that year
for incentive compensation amounts payable under the Plan and any other
similar incentive compensation plan or profit sharing plan of the Employers
(excluding any investment plan of the Employers) and any awards granted
under any bonus plan of the Employers. Such Profit before income taxes
would exclude the effect of extraordinary gains or losses, if any, as
defined by generally accepted accounting principles. Profit shall also
exclude income from nonconsolidated operations. Consolidated Financial
Statements which are prepared using generally accepted accounting
principles and as audited by the Company's independent certified public
accountants shall be final and conclusive.
4.5 Percentage Determination. The Employee's Team Award percentage, Individual
Award percentage, Employee Discretionary Pool Amount percentage, Officer
Discretionary Pool Amount percentage, the Corporate Performance Factors,
the Company's ROA target percentage, and the minimum and maximum percentage
will be determined for each year by the Committee on Stock Options and
Officer's Compensation.
Exhibit 10.5 Page 5 of 8
<PAGE>
4.6 RIP, EIP, etc. Credit. 100% of the amount paid under the Plan to an
Employee shall be counted as compensation for the month in which payment is
made for purposes of the Retirement Income Plan or any other pension plan
sponsored by Caterpillar Inc. or its subsidiaries, in which the Employee is
a Participant. No incentive compensation amount shall be taken into account
under the Employee's Investment Plan, the Group Insurance Plan, or any
other employee benefit plan or payroll practice of Caterpillar Inc. or its
subsidiaries.
4.7 Proration of Payment Amount. If an Employee is not a Participant or is not
actively employed by an Employer for the entire year but is eligible for an
incentive compensation amount for the year pursuant to the provisions of
Subsection 3.2, his payment amount will be prorated based upon his days of
active employment in that year on the management or salaried payrolls while
a Participant. Days while on disability leave of absence will be counted as
days of active employment in accordance with uniform rules established by
the Committee with respect to the maximum number of such days to be counted
during any period of disability leave of absence, but in no event shall any
days occurring after the expiration of a continuous period of absence of
six months be counted. No other leaves of absence will be counted for
purposes of calculating the payment amount.
4.8 Participation in Another Incentive Compensation Plan. If an Employee, who
otherwise met the eligibility requirements of Section 3, ceased to be a
Participant during the Plan Year because he became a participant in another
incentive compensation plan sponsored by Caterpillar Inc. or one of its
subsidiaries, he shall be eligible for a Team Award and/or an Individual
Award under this Plan for that period of time that he was a Participant in
this Plan. Twenty five percent (25%) of the prorated Team Award paid under
this Plan shall be included in the Employee Discretionary Pool Amount.
4.9 Transfer from Hourly Payroll. Notwithstanding anything contained herein to
the contrary, if a Participant or former Participant is employed by the
Employers on December 31 of any Plan Year and does not receive a payment
for any period of employment in that Plan Year under either this Plan or
the profit sharing plan or an incentive compensation plan covering
employees on the hourly payroll of the Employers, he shall receive a
payment under this Plan for such period of employment in the same amount
which would otherwise have been payable to him under the terms of this Plan
or under such hourly plan but for his ineligibility thereunder because he
was not participating therein on said December 31.
4.10 Supplemental Employees. Notwithstanding anything contained herein to the
contrary, if (a) a Participant ceases to be a full-time Employee of an
Employer, and (b) on December 31 of the year in which said Participant
ceases to be a full-time Employee, he is and has thereafter been
continuously employed as a supplemental employee on either a part-time or
temporary basis by an Employer, his payment amount shall be prorated based
upon his days of active regular full-time employment in that year on the
salaried or management payroll while a Participant. His Annual Salary Rate
shall be the rate in effect when he ceased full-time employment.
Exhibbit 10.5 Page 6 of 8
<PAGE>
Section 5. Incentive Compensation Payment
5.1 Date and Method of Payment. Any amount which is payable for any year shall
be paid to an eligible Participant not later than 3 months of the year
following the year for which the amount is computed. The amount of such
payment shall be paid by check less required withholding for federal,
state, local and other taxes. Payments will be made in the same currency in
which the Employee receives his base salary.
5.2 Beneficiaries. If a Participant is deceased at the time any payment is
payable to him, the amount of such payment shall be payable to the same
person or persons and in the same proportionate amount as shall be payable
to the beneficiary or beneficiaries of his basic life insurance under the
Group Insurance Plan of his Employer.
5.3 Lost Participants. If any payment becomes distributable pursuant to
Subsection 5.1 and the whereabouts of a Participant (or any beneficiary
pursuant to Subsection 5.2) is then unknown to the Employer and the
Employer shall fail to receive a claim for such payment from the person
entitled thereto (or from any other person validly acting on his behalf),
then such payment shall be disposed of in an equitable manner as permitted
by law under rules adopted by the Plan Administrator.
Section 6. Miscellaneous
6.1 Administration of the Plan. Except as otherwise expressly provided, the
Plan shall be administered by the Incentive Compensation Review Committee
("the Committee"), appointed by the Chairman of the Board, who shall be the
Plan Administrator and shall be authorized to (a) determine all questions
arising in the administration of the Plan, (b) establish rules and
procedures to carry out their duties and responsibilities, (c) delegate
such duties and responsibilities to other employees of the Employers, and
(d) do all other acts which in its judgment are necessary for the proper
administration of this Plan.
6.2 Facility of Payment. If the Committee shall receive evidence satisfactory
to it that any Participant or other person entitled to receive a benefit
under this Plan is physically or mentally incompetent to receive such
payment and to give a valid release therefor, the Committee at its
discretion may make payment in one or more of the following ways: (a)
directly to such Participant or person, (b) to his legal guardian or
conservator, or (c) to his spouse or to any other person to be expended for
his benefit. The decision of the Committee shall be in each case final and
binding on all persons in interest.
6.3 Amendment and Termination of Plan. The Company shall have the power at any
time and from time to time, by action of its Board of Directors, to amend
or terminate this Plan; provided, however, that the Committee may also
amend the Plan so long as such amendment does not change the duties and
responsibilities of the Committee or the Stock Option and Officers'
Compensation Committee of the Company's Board of Directors and so long as
the cost of such amendment to the Employers does not exceed $100,000 per
year.
Exhibit 10.5 Page 7 of 8
<PAGE>
6.4 Employment Rights. Participation in the Plan will not give any Employee or
an Employer any right to be retained in the service of the Company or its
subsidiaries, nor any right or claim to any payment under the Plan unless
such right or claim has specifically accrued under the terms of the Plan.
6.5 Action by Employers. Any action required or permitted to be taken by any
Employer hereunder may, except as otherwise expressly provided, be taken by
the Group President or any Vice President of such Employer or by any other
person designated by the Group President or any Vice President of the
Employer to act for such Employer.
6.6 Gender and Number. Where the context permits, words in the masculine gender
shall include the feminine gender, the plural shall include the singular,
and the singular shall include the plural.
Exhibit 10.5 Page 8 of 8
<PAGE>
Exhibit 10.8
CATERPILLAR INC.
DEFERRED EMPLOYEES'
INVESTMENT PLAN
(restated 10/98)
1. Purpose
-------
The purpose of the Caterpillar Inc. (Company) Deferred Employees'
Investment Plan (DEIP), as set forth in the succeeding sections of this
document, is to provide additional investment opportunities for those employees
whose participation in Part 2 of the Employees' Investment Plan (EIP) is
restricted because of limitations imposed by the Internal Revenue Code of 1986,
as amended. The DEIP shall be effective June 30, 1995.
2. Eligibility
-----------
An employee shall be eligible to participate in the DEIP if he is in salary
grade 30 or higher and currently defers compensation into Part 2 of EIP (to the
maximum allowed by EIP).
3. Participant Deferrals
---------------------
An employee must make a valid election (to become a "Participant") on or
before the last Company business day in November of any year to participate in
the DEIP during the following calendar year. Such election shall defer a
portion of his compensation not to exceed the excess of (a) 6% of his base
salary over (b) the total amount deferred by him into Part 2 of EIP and into the
Supplemental Employees' Investment Plan (SEIP) because of any limitation on the
amount that can be deferred under Part 2 of EIP. Any such election must be made
(on a form provided by the Company) and delivered to the Director, Compensation
and Benefits before the end of normal office hours on such last Company business
day in November and shall remain in effect until it is revised as provided
herein.
Effective January 1, 1996, an employee may also elect to defer all or part
of the incentive compensation payable to him for a calendar year; provided,
however, that such Participant's election must be filed with such Director on or
before the last Company business day in November of the year in which such
compensation shall have been accruing (except that in reference to such
compensation accrued in 1995 such an election must be filed with such Director
before the amount of such compensation is known). A Participant may elect to
defer up to seventy percent (70%) of the base salary payable to him for a
calendar year; provided, however, that such Participant's election must be filed
with such Director on or before the last Company business day in November of the
preceding calendar year.
Exhibit 10.8 Page 1 of 5
<PAGE>
If a Participant wants to change or terminate the amount of compensation
deferred, he shall deliver a revised election form to the Director, Compensation
and Benefits; provided, however, that:
(i) such revised election shall become effective (when and so long as the
Participant is eligible) for each calendar year following the year in
which such form is delivered, and shall remain effective until such
election is further revised as provided herein, and
(ii) any such election must be filed before the end of normal office hours
on the last Company business day in November.
When an employee first becomes eligible to participate in the DEIP
(including those employees who first become eligible on the effective date), he
may elect to defer compensation (or file a revised election) in accordance with
the foregoing, except that any such election with respect to compensation
payable to him during the calendar year in which he becomes eligible for the
DEIP
(i) must be filed within a 30-day period that begins on the date he
becomes eligible, and
(ii) shall be applicable only to compensation paid for months that
commence after the date of such election.
4. Status of Accounts
------------------
All amounts in the DEIP shall be held in the general funds of the Company,
but the Company will establish an individual bookkeeping account for each
Participant. Amounts of compensation deferred by the Participant will be
credited to the individual account of the Participant in accordance with his
election(s).
Each Participant may elect to have all or a specified percentage if his
deferred compensation allocated to:
(a) an interest account;
(b) a stock account and treated as though it were invested in Company
common stock ("Stock Election"); or
(c) a mutual fund account or accounts and treated as though it were
invested in any of the following Preferred Group funds: Asset
Allocation, Growth, International, Small Cap or Value.
Exhibit 10.8 Page 2 of 5
<PAGE>
Amounts allocated to the stock account of a Participant who is an officer
of the Company subject to Section 16 of the Securities Exchange Act of 1934
("Officer") may not be transferred to another of his accounts (nor may amounts
allocated, respectively, to any such other account be transferred to his stock
account) until at least six months after he ceases to be subject to such
Section.
Under such a Stock Election, dividend equivalents will accrue to the
account (when dividends are payable) and will be reinvested and a Participant's
account will in all other respects reflect share ownership for events such as a
stock split but no voting rights will exist. The number of shares of stock
equivalents shall be determined by dividing the amount of deferred compensation
(or dividend equivalents credited) by the closing price of Company common stock
on the New York Stock Exchange on the date of such deferral or dividend credit
(or the next succeeding trading day if there is no trading on that date). Stock
equivalents will be valued based on the closing price of Company common stock on
the New York Stock Exchange as of the effective date of a transfer into or out
of the stock account ("Transfer"), the date on which the Participant terminates
employment, the date of distribution elected by the Participant hereunder or the
date as of which he is considered totally and permanently disabled under EIP,
whichever date applies (or the next succeeding trading day if there is no
trading on that date).
The Company will credit interest accounts on a quarterly basis. The
interest rate will be equal to the base corporate lending rate (sometimes
referred to as the "prime rate") applicable to commercial lending customers of
Citibank, N.A., New York, New York (or any successor thereto) on the last
business day of each calendar quarter. The annual interest rate will be divided
by four and applied effective the last day of each quarter to the average daily
amount in each Participant's account in that quarter. In any calendar quarter
in which a Participant does not have amounts credited to his account for the
entire period of that quarter, interest will be credited pro rata based on the
number of business days that amounts are credited to his account in that quarter
compared to the total number of business days in that quarter.
Participants who are not Officers may Transfer or make changes to the
investment allocation of future deferred compensation which shall be effective
as of the first day of a calendar quarter, provided that such Participant shall
have filed an appropriate form with the Director, Compensation and Benefits, by
the twentieth (20th) day of the preceding month.
All amounts in the DEIP and the establishment of individual bookkeeping
accounts shall not be deemed to have created a trust, and no Participant shall
have any ownership interest in any such account. A Participant's rights to any
amounts credited to his account shall not be transferable or assignable. Each
Participant will receive an annual report showing the status of his account at
the close of each calendar year.
Exhibit 10.8 Page 3 of 5
<PAGE>
5. Disbursement
------------
Following his termination of employment with the Company (or total and
permanent disability), the value of the Participant's DEIP account will be
payable to him as soon as practicable in cash, in a lump sum (including interest
up to the date of payment) unless such Participant has elected a later payment
date in writing that is acceptable to and approved by the Director, Compensation
and Benefits; provided, however, that no such election shall be effective unless
it shall have been filed on or before the last Company business day in November
of the calendar year preceding the calendar year of such termination.
For Participants who are officers of the Company subject to Section 16 of
the Securities Exchange Act of 1934, the payment date under DEIP, with respect
to amounts in the stock account, must be at least six months after the date on
which the Participant's final deferral into DEIP became irrevocable.
A Participant may elect, either before or after termination of employment,
an installment distribution for a period of up to 15 years; provided, however,
that an election of installment distribution shall be effective only if it shall
have been filed with the Director, Compensation and Benefits, before November 30
of the second year that precedes the year in which the distribution would
otherwise occur.
Notwithstanding the foregoing, effective for amounts deferred after
December 31, 1996 (and any earnings thereon):
(a) a Participant may elect one original scheduled withdrawal date as of
which disbursement of elected amounts (and any earnings thereon) shall
occur; provided that (i) such original date shall be the first day of
any calendar quarter that is at least four years later than the year
in which such an amount is deferred, and (ii) the Participant may
change such original date to a later date, provided, however, that
such change shall be effective only if it shall have been filed with
the Director, Compensation and Benefits, before November 30 of the
second year that precedes the year that includes such original date;
(b) a Participant may elect unscheduled withdrawals of between 5% and 100%
of account assets attributable to such amounts deferred after December
31, 1996 (and any earnings thereon); provided that (i) the amount
withdrawn shall be subject to a forfeiture equal to 10%, and the
Participant shall discontinue participation in the plan for the
remainder of the year (in which such withdrawal occurs) and for the
following year and (ii) the minimum withdrawal amount (before
forfeiture) shall be $10,000; and
(c) such withdrawals under (a) or (b) shall be applied against the assets
of the Deferred Employees' Investment Plan as well as this plan, and
shall be subject to such other rules of convenience and administration
as shall be determined by the Director, Compensation and Benefits.
Exhibit 10.8 Page 4 of 5
<PAGE>
6. Death of a Participant
----------------------
Upon the death of a Participant prior to payment of his DEIP account, the
balance in the Participant's account (including interest for the elapsed portion
of the year of death) shall be determined as of the date of death. Such balance
shall be paid as soon as reasonably possible thereafter in a lump sum payment to
(i) the same beneficiary or beneficiaries and in the same proportionate amount
as he shall have designated under the EIP, in the absence of any designation to
the contrary, or (ii) the beneficiary or beneficiaries for purposes of the DEIP
as such Participant shall have designated in writing (in a form acceptable to,
and filed with, the Director, Compensation and Benefits).
7. Amendment or Termination
------------------------
The Compensation Committee of the Board of Directors or the Investment Plan
Committee (for EIP) may at any time amend, merge, consolidate or terminate the
DEIP, but no amendment, merger, consolidation or termination will have the
effect of reducing the amount that any Participant is entitled to receive prior
to such amendment, merger, consolidation or termination nor of changing the time
of payment of any amount credited to a Participant's account.
8. Administration
--------------
Except as otherwise expressly provided herein, the DEIP shall be
administered under the direction of the Director, Compensation and Benefits, of
the Company.
Exhibit 10.8 Page 5 of 5
<PAGE>
EXHIBIT 12
CATERPILLAR INC.,
CONSOLIDATED SUBSIDIARY COMPANIES,
AND 50%-OWNED UNCONSOLIDATED AFFILIATED COMPANIES
STATEMENT SETTING FORTH COMPUTATION
OF RATIOS OF PROFIT TO FIXED CHARGES
(Millions of dollars)
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Profit................................................................ $1,513 $1,665 $1,361
Add:
Provision for income taxes....................................... $ 680 837 653
------ ------ ------
Profit before taxes................................................... $2,193 $2,502 $2,014
Fixed charges:
Interest and other costs related to borrowed funds/(1)/.......... $ 758 $ 586 $ 519
Rentals at computed interest factors/(2)/........................ 76 60 54
------ ------ ------
Total fixed charges................................................... $ 834 $ 646 $ 573
------ ------ ------
Profit before provision for income taxes and fixed charges............ $3,027 $3,148 $2,587
====== ====== ======
Ratio of profit to fixed charges...................................... 3.6 4.9 4.5
====== ====== ======
</TABLE>
- ------------------
/(1)/ Interest expense as reported in the Consolidated Results of Operations
plus the Company's proportionate share of 50 percent-owned unconsolidated
affiliated companies' interest expense.
/(2)/ Amounts represent those portions of rent expense that are reasonable
approximations of interest costs.
Exhibit 12 Page 1 of 1
<PAGE>
Exhibit 13
APPENDIX
CATERPILLAR INC.
GENERAL AND FINANCIAL INFORMATION
1998
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Management................................................ A-3
Report of Independent Accountants................................... A-3
Consolidated Financial Statements and Notes......................... A-4
Five-year Financial Summary......................................... A-20
Management's Discussion and Analysis (MD&A)
Machinery and Engines Sales Table by Geographic Region......... A-21
1998 Compared with 1997........................................ A-22
Supplemental Information....................................... A-23
Fourth-Quarter 1998 Compared with Fourth-Quarter 1997.......... A-25
1997 Compared with 1996........................................ A-25
Liquidity & Capital Resources.................................. A-26
Employment..................................................... A-27
Other Matters.................................................. A-27
Year 2000 Challenge............................................ A-29
Outlook........................................................ A-30
Supplemental Stockholder Information................................ A-32
Directors and Officers.............................................. A-33
</TABLE>
A-2
<PAGE>
REPORT OF MANAGEMENT Caterpillar Inc.
- --------------------------------------------------------------------------------
The management of Caterpillar Inc. has prepared the accompanying consolidated
financial statements for the years ended December 31, 1998, 1997, and 1996, and
is responsible for their integrity and objectivity. The statements were prepared
in conformity with generally accepted accounting principles, applying certain
estimates and judgments as required.
Management maintains a system of internal accounting controls which has been
designed to provide reasonable assurance that: transactions are executed in
accordance with proper authorization, transactions are properly recorded and
summarized to produce reliable financial records and reports, assets are
safeguarded, and the accountability for assets is maintained.
The system of internal controls includes statements of policies and business
practices, widely communicated to employees, which are designed to require them
to maintain high ethical standards in their conduct of company affairs. The
internal controls are augmented by careful selection and training of supervisory
and other management personnel, by organizational arrangements that provide for
appropriate delegation of authority and division of responsibility, and by an
extensive program of internal audit with management follow-up.
The financial statements have been audited by PricewaterhouseCoopers LLP,
independent accountants, in accordance with generally accepted auditing
standards. They have made similar annual audits since the initial incorporation
of our company. Their role is to render an objective, independent opinion on
management's financial statements. Their report appears below.
Through its Audit Committee, the Board of Directors reviews our financial and
accounting policies, practices, and reports. The Audit Committee consists
exclusively of seven directors who are not salaried employees and who are, in
the opinion of the Board of Directors, free from any relationship that would
interfere with the exercise of independent judgment as a committee member. The
Audit Committee meets several times each year with representatives of
management, including the internal auditing department, and the independent
accountants to review the activities of each and satisfy itself that each is
properly discharging its responsibilities. Both the independent accountants and
the internal auditors have free access to the Audit Committee and meet with it
periodically, with and without management representatives in attendance, to
discuss, among other things, their opinions as to the adequacy of internal
controls and to review the quality of financial reporting.
/s/ Donald V. Fites
Chairman of the Board
/s/ F. L. McPheeters
Chief Financial Officer
January 20, 1999
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE STOCKHOLDERS OF CATERPILLAR INC.:
In our opinion, the accompanying consolidated financial statements, in
Statements 1 through 4, present fairly, in all material respects, the financial
position of Caterpillar Inc. and its subsidiaries at December 31, 1998, 1997,
and 1996, and the consolidated results of their operations and their
consolidated cash flow for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Peoria, Illinois
January 20, 1999
A-3
<PAGE>
STATEMENT 1
Consolidated Results of Operations for the Years Ended December 31
(Millions of dollars except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Supplemental consolidating data
------------------------------------------------
Consolidated Machinery and Engines/1/ Financial Products
------------------------- ------------------------- ---------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales and revenues:
Sales of Machinery and Engines (Note 1C).......... $19,972 $18,110 $15,814 $19,972 $18,110 $15,814 $ -- $ -- $ --
Revenues of Financial Products (Note 1C).......... 1,005 815 708 -- -- -- 1,117 839 732
------- ------- ------- ------- ------- ------- ------ ------ -----
Total sales and revenues....................... 20,977 18,925 16,522 19,972 18,110 15,814 1,117 839 732
Operating costs:
Cost of goods sold................................ 15,031 13,374 11,832 15,031 13,374 11,832 -- -- --
Selling, general, and administrative expenses..... 2,561 2,232 1,993 2,210 1,932 1,715 377 324 302
Research and development expenses................. 643 528 410 643 528 410 -- -- --
Interest expense of Financial Products............ 489 361 295 -- -- -- 501 373 316
------- ------- ------- ------- ------- ------- ------ ------ -----
Total operating costs.......................... 18,724 16,495 14,530 17,884 15,834 13,957 878 697 618
------- ------- ------- ------- ------- ------- ------ ------ -----
Operating profit.................................... 2,253 2,430 1,992 2,088 2,276 1,857 239 142 114
Interest expense excluding Financial Products..... 264 219 194 264 219 194 -- -- --
Other income (expense) (Note 3)................... 185 202 143 46 153 127 65 61 37
------- ------- ------- ------- ------- ------- ------ ------ -----
Consolidated profit before taxes.................... 2,174 2,413 1,941 1,870 2,210 1,790 304 203 151
Provision for income taxes (Note 6)............... 665 796 613 554 724 558 111 72 55
------- ------- ------- ------- ------- ------- ------ ------ -----
Profit of consolidated companies.................. 1,509 1,617 1,328 1,316 1,486 1,232 193 131 96
Equity in profit of unconsolidated affiliated
companies (Note 10)............................. 4 48 33 4 48 33 -- -- --
Equity in profit of Financial Products'
subsidiaries.................................... -- -- -- 193 131 96 -- -- --
------- ------- ------- ------- ------- ------- ------ ------ -----
Profit.............................................. $ 1,513 $ 1,665 $ 1,361 $ 1,513 $ 1,665 $ 1,361 $ 193 $ 131 $ 96
======= ======= ======= ======= ======= ======= ====== ====== =====
Profit per share of common stock (Note 15).......... $ 4.17 $ 4.44 $ 3.54
======= ======= =======
Profit per share of common stock -- assuming
dilution (Note 15)................................ $ 4.11 $ 4.37 $ 3.50
======= ======= =======
Dividends declared per share of common stock........ $ 1.15 $ .95 $ .78
======= ======= =======
</TABLE>
/1/ Represents Caterpillar Inc. and its subsidiaries except for Financial
Products, which is accounted for on the equity basis.
The supplemental consolidating data is presented for the purpose of additional
analysis. See Note 1B on Page A-7 for a definition of the groupings in these
statements. Transactions between Machinery and Engines and Financial Products
have been eliminated to arrive at the consolidated data.
STATEMENT 2
Changes in Consolidated Stockholders' Equity for the Years Ended December 31
(Dollars in millions)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Common stock (Note 14):
Balance at beginning of year............................................... $ (442) $ 50 $ 333
Common shares issued, including treasury shares reissued:
1998 -- 800,315; 1997 -- 1,426,532; 1996 -- 1,487,992.................... 16 26 20
Treasury shares purchased:
1998 -- 11,612,300; 1997 -- 14,118,412; 1996 -- 8,816,008................ (567) (706) (303)
Issuance of common stock to effect 2-for-1 stock split..................... -- 188 --
------ ------ ------
Balance at year-end........................................................ (993) (442) 50
------ ------ ------
Profit employed in the business:
Balance at beginning of year............................................... 5,026 3,904 2,840
Profit..................................................................... 1,513 1,513 1,665 1,665 1,361 1,361
Dividends declared......................................................... (416) (355) (297)
Issuance of common stock to effect 2-for-1 stock split..................... -- (188) --
------ ------ ------
Balance at year-end........................................................ 6,123 5,026 3,904
------ ------ ------
Accumulated other comprehensive income:
Foreign currency translation adjustment/2/ (Note 1F):
Balance at beginning of year.............................................. 95 162 215
Aggregate adjustment for year............................................. (30) (30) (67) (67) (53) (53)
------ ------ ------ ------ ------ -----
Balance at year-end....................................................... 65 95 162
------ ------ ------ ------ ------ -----
Minimum Pension Liability Adjustment/2/:
Balance at beginning of year.............................................. -- -- --
Aggregate adjustment for year............................................. (64) (64) -- -- -- --
------ ------ ------ ------ ------- -----
Balance at year-end....................................................... (64) -- --
------ ------ ------
Comprehensive income........................................................ 1,419 1,598 1,308
====== ====== =====
Stockholders' equity at year-end............................................. $5,131 $4,679 $4,116
====== ====== ======
</TABLE>
/2/ No reclassification adjustments to report.
See accompanying Notes to Consolidated Financial Statements.
A-4
<PAGE>
STATEMENT 3 Caterpillar Inc.
Financial Position at December 31
(Dollars in millions)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Supplemental consolidating data
-------------------------------------------------------
Consolidated Machinery and Engines/1/ Financial Products
--------------------------- --------------------------- -------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and short-term investments... $ 360 $ 292 $ 487 $ 303 $ 241 $ 445 $ 57 $ 51 $ 42
Receivables -- trade and other.... 3,660 3,331 2,956 2,604 3,346 2,960 1,875 285 175
Receivables -- finance (Note 5)... 3,516 2,660 2,266 -- -- -- 3,516 2,660 2,266
Deferred income taxes and prepaid
expenses (Note 6)................ 1,081 928 852 1,081 935 876 18 9 15
Inventories (Notes 1D and 4)...... 2,842 2,603 2,222 2,842 2,603 2,222 -- -- --
------- ------- ------- ------- ------- ------- ------- ------ ------
Total current assets................ 11,459 9,814 8,783 6,830 7,125 6,503 5,466 3,005 2,498
Property, plant, and equipment --
net (Notes 1E and 9)............... 4,866 4,058 3,767 4,125 3,483 3,242 741 575 525
Long-term receivables -- trade and
other.............................. 85 134 128 85 134 128 -- -- --
Long-term receivables -- finance
(Note 5)........................... 5,058 3,881 3,380 -- -- -- 5,058 3,881 3,380
Investments in unconsolidated
affiliated companies (Note 10)..... 773 751 701 773 751 701 -- -- --
Investments in Financial Products'
subsidiaries....................... -- -- -- 1,269 882 759 -- -- --
Deferred income taxes (Note 6)...... 955 1,040 1,093 980 1,075 1,132 8 5 3
Intangible assets (Note 1E)......... 1,241 228 233 1,241 228 233 -- -- --
Other assets (Note 17).............. 691 850 643 316 510 368 375 340 275
------- ------- ------- ------- ------- ------- ------- ------ ------
Total assets.......................... $25,128 $20,756 $18,728 $15,619 $14,188 $13,066 $11,648 $7,806 $6,681
======= ======= ======= ======= ======= ======= ======= ====== ======
Liabilities
Current liabilities:
Short-term borrowings (Note 12)... $ 809 $ 484 $ 1,192 $ 49 $ 53 $ 36 $ 760 $ 431 $1,156
Accounts payable and accrued
expenses......................... 3,558 3,358 2,858 3,440 3,020 2,556 811 654 520
Accrued wages, salaries, and
employee benefits................ 1,217 1,128 1,010 1,208 1,120 1,005 9 8 5
Dividends payable................. 107 92 76 107 92 76 -- -- --
Deferred and current income taxes
payable (Note 6)................. 15 175 142 (19) 46 70 34 129 72
Deferred liability................ -- -- -- -- -- -- 143 -- --
Long-term debt due within one
year (Note 13)................... 2,239 1,142 1,180 60 54 122 2,179 1,088 1,058
------- ------- ------- ------- ------- ------- ------- ------ ------
Total current liabilities........... 7,945 6,379 6,458 4,845 4,385 3,865 3,936 2,310 2,811
Long-term debt due after one year
(Note 13).......................... 9,404 6,942 5,087 2,993 2,367 2,018 6,411 4,575 3,069
Liability for postemployment
benefits (Note 7).................. 2,590 2,698 3,019 2,590 2,698 3,019 -- -- --
Deferred income taxes and other
liabilities (Note 6)............... 58 58 48 60 59 48 32 39 42
------- ------- ------- ------- ------- ------- ------- ------ ------
Total liabilities..................... 19,997 16,077 14,612 10,488 9,509 8,950 10,379 6,924 5,922
------- ------- ------- ------- ------- ------- ------- ------ ------
Contingencies (Notes 17 and 18)
Stockholders' equity (Statement 2)
Common stock of $1.00 par value
(Note 14):
Authorized shares: 900,000,000
Issued shares (1998, 1997, and
1996 -- 407,447,312)
at paid-in amount................. 1,063 1,071 881 1,063 1,071 881 683 403 353
Profit employed in the business..... 6,123 5,026 3,904 6,123 5,026 3,904 615 506 404
Accumulated other comprehensive
income............................ 1 95 162 1 95 162 (29) (27) 2
Treasury stock (1998 -- 50,248,957
shares; 1997 -- 39,436,972 shares;
and 1996 -- 26,745,092 shares) at
cost.............................. (2,056) (1,513) (831) (2,056) (1,513) (831) -- -- --
------- ------- ------- ------- ------- ------- ------- ------ ------
Total stockholders' equity............ 5,131 4,679 4,116 5,131 4,679 4,116 1,269 882 759
------- ------- ------- ------- ------- ------- ------- ------ ------
Total liabilities and stockholders'
equity.............................. $25,128 $20,756 $18,728 $15,619 $14,188 $13,066 $11,648 $7,806 $6,681
======= ======= ======= ======= ======= ======= ======= ======= ======
</TABLE>
/1/ Represents Caterpillar Inc. and its subsidiaries except for Financial
Products, which is accounted for on the equity basis.
The supplemental consolidating data is presented for the purpose of additional
analysis. See Note 1B on Page A-7 for a definition of the groupings in these
statements. Transactions between Machinery and Engines and Financial Products
have been eliminated to arrive at the consolidated data.
See accompanying Notes to Consolidated Financial Statements.
A-5
<PAGE>
STATEMENT 4
Statement of Cash Flow for the Years Ended December 31
(Millions of dollars)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Supplemental consolidating data
----------------------------------------------------
Consolidated Machinery and Engines/1/ Financial Products
------------------------- ------------------------- -------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Profit..................................... $ 1,513 $ 1,665 $ 1,361 $ 1,513 $ 1,665 $ 1,361 $ 193 $ 131 $ 96
Adjustments for noncash items:
Depreciation and amortization............. 865 738 696 697 599 575 168 139 121
Profit of Financial Products.............. -- -- -- (193) (131) (96) -- -- --
Other..................................... (72) 23 158 34 (16) 118 (137) 41 43
Changes in assets and liabilities:
Receivables -- trade and other............ (104) (396) (319) 993 (341) (298) (1,258) (82) (14)
Inventories............................... (104) (375) (111) (104) (375) (111) -- -- --
Accounts payable and accrued expenses..... 8 562 134 (114) 529 57 284 37 65
Other -- net.............................. (328) (121) (137) (177) (129) (143) (72) 57 20
------- ------- ------- ------- ------- ------- ------- ------- -------
Net cash provided by (used for) operating
activities................................. 1,778 2,096 1,782 2,649 1,801 1,463 (822) 323 331
------- ------- ------- ------- ------- ------- ------- ------- -------
Cash flow from investing activities:
Capital expenditures -- excluding
equipment leased to others................ (925) (824) (506) (918) (819) (500) (7) (5) (6)
Expenditures for equipment leased to others (344) (282) (265) (9) (5) (8) (335) (277) (257)
Proceeds from disposals of property,
plant, and equipment...................... 141 138 135 17 15 21 124 123 114
Additions to finance receivables........... (8,537) (6,644) (5,802) -- -- -- (8,537) (6,644) (5,802)
Collections of finance receivables......... 4,635 3,605 3,407 -- -- -- 4,635 3,605 3,407
Proceeds from sale of finance receivables.. 1,705 1,833 1,425 -- -- -- 1,705 1,833 1,425
Net intercompany borrowings................ -- -- -- 29 (94) 325 (244) -- --
Investments and acquisitions............... (1,428) (59) (612) (1,428) (59) (612) -- -- --
Other -- net............................... 173 (308) (166) (111) (290) (153) 4 (68) (33)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net cash used for investing activities...... (4,580) (2,541) (2,384) (2,420) (1,252) (927) (2,655) (1,433) (1,152)
------- ------- ------- ------- ------- ------- ------- ------- -------
Cash flow from financing activities:
Dividends paid............................. (400) (338) (289) (400) (338) (289) (49) (28) (12)
Common stock issued, including treasury
shares reissued........................... 6 11 10 6 11 10 280 50 20
Treasury shares purchased.................. (567) (706) (303) (567) (706) (303) -- -- --
Net intercompany borrowings................ -- -- -- 244 -- -- (29) 94 (325)
Proceeds from long-term debt issued........ 4,590 2,284 1,088 627 462 37 3,963 1,822 1,051
Payments on long-term debt................. (1,153) (1,237) (1,335) (65) (177) (166) (1,088) (1,060) (1,169)
Short-term borrowings -- net............... 388 258 1,262 (23) 17 18 411 241 1,244
------- ------- ------- ------- ------- ------- ------- ------- -------
Net cash provided by (used for) financing
activities................................. 2,864 272 433 (178) (731) (693) 3,488 1,119 809
------- ------- ------- ------- ------- ------- ------- ------- -------
Effect of exchange rate changes on cash..... 6 (22) 18 11 (22) 22 (5) -- (4)
------- ------- ------- ------- ------- ------- ------- ------- -------
Increase (decrease) in cash and short-term
investments................................ 68 (195) (151) 62 (204) (135) 6 9 (16)
Cash and short-term investments at the
beginning of the period.................... 292 487 638 241 445 580 51 42 58
------- ------- ------- ------- ------- ------- ------- ------- -------
Cash and short-term investments at the end
of the period.............................. $ 360 $ 292 $ 487 $ 303 $ 241 $ 445 $ 57 $ 51 $ 42
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
/1/ Represents Caterpillar Inc. and its subsidiaries except for Financial
Products, which is accounted for on the equity basis.
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.
The supplemental consolidating data is presented for the purpose of additional
analysis. See Note 1B on Page A-7 for a definition of the groupings in these
statements. Transactions between Machinery and Engines and Financial Products
have been eliminated to arrive at the consolidated data.
See accompanying Notes to Consolidated Financial Statements.
A-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Caterpillar Inc.
(Dollars in millions except per share data)
- --------------------------------------------------------------------------------
1. Operations and summary of
significant accounting policies
================================================================================
A. Nature of operations
We operate in three principal lines of business:
(1) Machinery -- design, manufacture, and marketing of construction,
mining, agricultural, and forestry machinery -- track and wheel tractors, track
and wheel loaders, pipelayers, motor graders, wheel tractor-scrapers, track and
wheel excavators, backhoe loaders, mining shovels, log skidders, log loaders,
off-highway trucks, articulated trucks, paving products, telescopic handlers,
skid-steer loaders, and related parts.
(2) Engines -- design, manufacture, and marketing of engines for
Caterpillar Machinery, on-highway trucks and locomotives; marine, petroleum,
construction, industrial, and other applications; electric power generation
systems; and related parts. Reciprocating engines meet power needs ranging from
5 to over 21,000 horsepower (4 to over 15 660 kilowatts). Turbines range from
1,340 to 18,000 horsepower (1000 to 13 500 kilowatts).
(3) Financial Products -- financing to customers and dealers for the
purchase and lease of Caterpillar and noncompetitive related equipment, as well
as some financing for Caterpillar sales to dealers. Also provides various forms
of insurance to customers and dealers to help support the purchase and lease of
our equipment. This line of business consists primarily of Caterpillar Financial
Services Corporation (Cat Financial) and its subsidiaries and Caterpillar
Insurance Services Corporation.
Our products are sold primarily under the marks "Caterpillar," "Cat,"
"Solar," "Barber-Greene," "MaK," and "Perkins."
We conduct operations in our Machinery and Engines' lines of business under
highly competitive conditions, including intense price competition. We place
great emphasis upon the high quality and performance of our products and our
dealers' service support. Although no one competitor is believed to produce all
of the same types of machines and engines, there are numerous companies, large
and small, which compete with us in the sale of each of our products.
Machines are distributed principally through a worldwide organization of
dealers, 64 located in the United States and 131 located outside the United
States. Worldwide, these dealers have more than 1,400 places of business and
serve 166 countries. Reciprocating engines are sold principally through the
worldwide dealer organization and to other manufacturers for use in products
manufactured by them. Some of the reciprocating engines manufactured by Perkins
are also sold through their worldwide distributor network. Our dealers do not
deal exclusively with our products; however, in most cases sales and servicing
of our products are our dealers' principal business. Turbines and large marine
reciprocating engines are sold through sales forces employed by Solar and MaK,
respectively. Occasionally these employees are assisted by independent sales
representatives.
Manufacturing activities of the Machinery and Engines' lines of business
are conducted in 41 plants in the United States; nine in the United Kingdom;
four in China; three each in Australia, France, Germany, and Italy; two each in
India, Japan, Mexico, and Northern Ireland; and one each in Belgium, Brazil,
Canada, Hungary, Indonesia, Netherlands, Poland, Russia, South Africa, and
Sweden. Thirteen parts distribution centers are located in the United States and
ten are located outside the United States.
The Financial Products' line of business also conducts operations under
highly competitive conditions. Financing for users of Caterpillar products is
available through a variety of competitive sources, principally commercial banks
and finance and leasing companies. We emphasize prompt and responsive service to
meet customer requirements and offer various financing plans designed to
increase the opportunity for sales of our products and generate financing income
for our company. Financial Products' activity is primarily conducted in the
United States, with additional offices in Asia, Australia, Canada, Europe, and
Latin America.
B. Basis of consolidation
The financial statements include the accounts of Caterpillar Inc. and its
subsidiaries. Investments in companies that are owned 20% to 50% are accounted
for by the equity method (see Note 10 on Page A-12).
The accompanying financial statements and supplemental consolidating data,
where applicable, have been grouped as follows:
Consolidated -- Caterpillar Inc. and its subsidiaries.
Machinery and Engines -- primarily our manufacturing, marketing, and parts
distribution operations, with the Financial Products' subsidiaries on an equity
basis.
Financial Products -- our finance and insurance subsidiaries, primarily Cat
Financial and Caterpillar Insurance Services Corporation.
Certain amounts for prior years have been reclassified to conform with the
current-year financial statement presentation.
C. Sales and revenue recognition
Sales of machines and engines are generally unconditional sales that are
recorded when product is shipped and invoiced to independently owned and
operated dealers or customers.
Revenues primarily represent finance and lease revenues of Cat Financial, a
wholly-owned subsidiary. Finance revenues are recognized over the term of the
contract at a constant rate of return on the scheduled uncollected principal
balance. Lease revenues are recognized in the period earned. Recognition of
income is suspended when collection of future income is not probable. Income
recognition is resumed if the receivable becomes contractually current and
collection doubts are removed; previously suspended income is recognized at that
time.
D. Inventories
Inventories are valued principally by the LIFO (last-in, first-out) method. The
value of inventories on the LIFO basis represented approximately 85% of total
inventories at current cost value at December 31, 1998, 1997, and 1996.
If the FIFO (first-in, first-out) method had been in use, inventories would
have been $1,978, $2,067, and $2,123 higher than reported at December 31, 1998,
1997, and 1996, respectively.
E. Depreciation and amortization
Depreciation of plant and equipment is computed principally using accelerated
methods. Amortization of purchased intangibles is computed using the straight-
line method, generally over a period of 20 years or less.
The increase in intangible assets in 1998 was primarily related to the
acquisition of Perkins (see Note 22 on Page A-19).
F. Foreign currency translation
The functional currency for most of our Machinery and Engines' consolidated
companies is the U.S. dollar. The functional currency
A-7
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- --------------------------------------------------------------------------------
for most of our Financial Products' and equity basis companies is the respective
local currency. Gains and losses resulting from the translation of foreign
currency amounts to the functional currency are included in the results of
operations. Gains and losses resulting from translating assets and liabilities
from the functional currency to U.S. dollars are included in "Accumulated other
comprehensive income," which is part of stockholders' equity.
G. Derivative financial instruments
We use derivative financial instruments (derivatives) to manage foreign
currency, interest rate, and commodity price exposures that arise in the normal
course of business. Derivatives that we use are primarily foreign currency
contracts (forward and option), interest rate swaps, and commodity contracts
(swap and option). Derivatives are not used for speculative purposes.
Please refer to Note 2 for more information on derivatives, including the
methods used to account for them.
H. Estimates in financial statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts. Examples of the more significant estimates include:
accruals and reserves for warranty and product liability losses, postemployment
benefits, environmental costs, income taxes, and plant closing and consolidation
costs.
I. Future accounting changes
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." This SOP requires the capitalization of
certain costs associated with internally-developed, internal-use software that
our company has historically expensed as incurred. We are required to adopt SOP
98-1 for the year beginning January 1, 1999. It will not have a material impact
on the company's financial position, results of operations, or cash flows.
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 fair value to be recorded each period in current earnings or
other comprehensive income depending upon the purpose for using the derivative
and/or its qualification, designation, and effectiveness as a hedging
transaction. We are required to adopt this new accounting standard for the year
beginning January 1, 2000. We are currently analyzing the impact of SFAS 133.
Due to the inherent complexities of this standard, we have not yet determined
the full impact that the adoption of SFAS 133 will have on our financial
position, results of operations, or cash flows. However, at this time, we do not
believe that the impact will be material.
2. Derivative financial instruments
and risk management
================================================================================
A. Foreign exchange derivative instruments -- forward exchange and option
contracts
Our Machinery and Engines' operations are subject to foreign exchange risk.
Currency exchange rates impact the U.S. dollar amount of sales made and costs
incurred in foreign currencies. Our Financial Products' operations are subject
to foreign exchange risk when the currency of debt obligations does not match
the currency of the receivables portfolio.
Forward exchange contracts and certain foreign currency option contracts
are used to hedge our foreign exchange risks. Other than the up-front premiums
that we pay on foreign currency option contracts, all cash flow related to these
contracts occurs when the contracts mature.
Our accounting treatment of foreign currency contracts depends upon the
nature of the contracts:
1. Forward contracts designated as hedges of firm future foreign currency
commitments and purchased foreign currency option contracts designated
as hedges of probable foreign currency transactions:
. No gains or losses are reported until the hedged transaction occurs,
even if the contracts are terminated or mature prior to the time of
the hedged transaction.
. Gains and losses are recognized and reported on the same financial
statement line as the hedged transaction when the hedged transaction
occurs.
. Gains and losses are immediately recognized in current income ("Other
income (expense)" in Statement 1) in those unusual instances when the
hedged transaction is no longer expected to occur, or a foreign
currency contract is no longer effective as a hedge.
2. All other foreign currency contracts (those used to hedge net balance
sheet exposures and anticipated net cash flow exposures for the next 12
months):
. All gains or losses are recognized in current income ("Other income
(expense)") as currency exchange rates change.
. Net gains are reflected as an asset ("Receivables -- trade and other"
in Statement 3) until cash is actually received. Conversely, net
losses are shown as a liability ("Accounts payable and accrued
expenses" in Statement 3) until cash is actually paid.
The notional amounts of outstanding contracts to buy and sell foreign
currency were:
<TABLE>
<CAPTION>
December 31,
1998 1997 1996
------ ------ -----
<S> <C> <C> <C>
Hedges of firm commitments and/or
probable foreign currency transactions.. $ 222 $ 166 $ 27
Hedges of balance sheet exposure and/or
anticipated cash flow exposure for the
next 12 months.......................... $1,802 $1,294 $ 911
</TABLE>
In addition, we had outstanding cross-currency (primarily cross-European
currency) contracts totaling $6, $6, and $122 at December 31, 1998, 1997, and
1996, respectively, to hedge various European currencies against the Deutsche
mark (1998 cross-European currency contracts involved currencies of Non-
European Monetary Union (EMU) countries). We use the Deutsche mark to manage
our continental European currency cash flows against the dollar, and then use
cross-European currency contracts to manage the risk of exchange rate
movement between the Deutsche mark and the specific European currency of the
cash flow.
The maturity dates for our outstanding contracts, including the cross-
European contracts, are primarily less than six months.
Please refer to Note 16 and Table IV on Page A-15 for fair value
information on foreign currency contracts.
A-8
<PAGE>
Caterpillar Inc.
- --------------------------------------------------------------------------------
B. Interest rate derivative instruments
We primarily use interest rate swap contracts to manage our exposure to interest
rate changes and to lower the cost of borrowed funds.
Interest rate swap contracts are linked to debt instruments and, in effect,
change the characteristics of the debt (e.g., from fixed rate to floating rate).
Interest rate swap contracts are not reflected in the financial statements at
fair market value. The notional amounts of outstanding interest rate swap
contracts were $3,083, $2,595, and $2,869 at December 31, 1998, 1997, and 1996,
respectively.
The difference between the interest payable and the interest receivable on
each interest rate swap contract is recorded each reporting period as an
adjustment to current income ("Interest expense excluding Financial Products" or
"Interest expense of Financial Products" in Statement 1, as applicable).
Interest rate swap contracts that are in a payable position are shown as
interest payable ("Accounts payable and accrued expenses" in Statement 3); those
in a receivable position are shown as an asset ("Other assets" in Statement 3).
The actual cash settlement on these interest rate swap contracts occurs at times
specified in the agreement. If an interest rate swap contract is terminated
prior to its maturity, no immediate gain or loss is recognized in the financial
statements, except in those cases where the debt instrument to which the
contract is linked is also terminated.
Please refer to Note 16 and Table IV on Page A-15 for fair value information
of interest rate swap contracts.
C. Commodity related derivative instruments
Our Machinery and Engines' operations are also subject to commodity price risk
(i.e., potential price increases of our production material as a result of price
increases in raw material). We make limited use of commodity swap and/or option
contracts to manage the risk of unfavorable price movement. The use of these
types of derivative financial instruments has not been material.
3. Other income (expense)
================================================================================
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Investment and interest income....................... $ 101 $ 115 $ 90
License fees......................................... 18 25 26
Foreign exchange (losses) gains...................... (23) (10) 1
Miscellaneous income................................. 89 72 26
------ ------ ------
$ 185 $ 202 $ 143
====== ====== ======
4. Inventories
================================================================================
December 31,
1998 1997 1996
------ ------ ------
Raw materials and work-in-process.................... $1,041 $1,013 $ 909
Finished goods....................................... 1,605 1,404 1,123
Supplies............................................. 196 186 190
------ ------ ------
$2,842 $2,603 $2,222
====== ====== ======
</TABLE>
5. Finance receivables
================================================================================
Finance receivables are receivables of Cat Financial, which generally can be
repaid or refinanced without penalty prior to contractual maturity. Total
finance receivables reported in Statement 3 are net of an allowance for credit
losses.
Please refer to Table I below for additional finance receivables information
and Note 16 and Table IV on Page A-15 for fair value information.
_______________________________________________________________________________
TABLE I -- Finance Receivables Information
_______________________________________________________________________________
Contractual maturities of outstanding receivables:
<TABLE>
<CAPTION>
December 31, 1998
Installment Financing
Amounts Due In Contracts Leases Notes Total
- -------------- ----------- --------- ------ --------
<S> <C> <C> <C> <C>
1999................................................. $ 917 $1,220 $ 850 $2,987
2000................................................. 645 862 553 2,060
2001................................................. 417 581 436 1,434
2002................................................. 221 288 203 712
2003................................................. 78 115 177 370
Thereafter........................................... 15 95 812 922
------ ------ ------ ------
2,293 3,161 3,031 8,485
Residual value....................................... -- 896 -- 896
Less: Unearned income................................ 197 487 13 697
------ ------ ------ ------
Total................................................ $2,096 $3,570 $3,018 $8,684
====== ====== ====== ======
Impaired loans and leases:
1998 1997 1996
------ ------ ------
Average recorded investment................................... $ 74 $ 47 $ 43
====== ====== ======
At December 31:
Recorded investment.......................................... $ 61 $ 30 $ 33
Less: Fair value of underlying collateral.................... 35 18 21
------ ------ ------
Potential loss................................................ $ 26 $ 12 $ 12
====== ====== ======
Allowance for credit loss activity:
1998 1997 1996
------ ------ ------
Balance at beginning of year.................................. $ 84 $ 74 $ 57
Provision for credit losses................................... 70 39 41
Less: Net credit losses....................................... 38 19 21
Less: Other -- net............................................ 6 10 3
------ ------ ------
Balance at end of year........................................ $ 110 $ 84 $ 74
====== ====== ======
Cat Financial's net investment in financing leases:
December 31,
1998 1997 1996
------ ------ ------
Total minimum lease payments receivable....................... $3,161 $2,784 $2,383
Estimated residual value of leased assets:
Guaranteed................................................... 229 206 162
Unguaranteed................................................. 667 519 402
------ ------ ------
4,057 3,509 2,947
Less: Unearned income......................................... 487 478 430
------ ------ ------
Net investment in financing leases............................ $3,570 $3,031 $2,517
====== ====== ======
</TABLE>
================================================================================
A-9
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- --------------------------------------------------------------------------------
6. Income taxes
================================================================================
The components of profit before taxes were:
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
U.S................................................. $1,880 $2,071 $1,565
Non-U.S............................................. 294 342 376
------ ------ ------
$2,174 $2,413 $1,941
====== ====== ======
The components of the provision for income taxes were:
Years ended December 31,
1998 1997 1996
------ ------ ------
Current tax provision:
U.S. Federal....................................... $ 471 $ 571 $ 399
Non-U.S............................................ 102 103 83
State (U.S.)....................................... 45 54 36
------ ------ ------
$ 618 $ 728 $ 518
------ ------ ------
Deferred tax provision (credit):
U.S. Federal....................................... 93 60 86
Non-U.S............................................ (55) 7 7
State (U.S.)....................................... 9 1 2
------ ------ ------
47 68 95
------ ------ ------
Total provision..................................... $ 665 $ 796 $ 613
====== ====== ======
Reconciliation of the U.S. federal statutory rate to effective rate:
Years ended December 31,
1998 1997 1996
------ ------ ------
U.S. statutory rate................................. 35.0 % 35.0 % 35.0 %
(Decreases) increases in taxes resulting from:
Net operating loss carryforwards................... (2.1)% (1.0)% (0.6)%
Benefit of Foreign Sales Corporation............... (3.2)% (2.8)% (2.5)%
Other--net......................................... 0.9 % 1.8 % (0.3)%
------ ------ ------
Provision for income taxes.......................... 30.6 % 33.0 % 31.6 %
------ ------ ------
</TABLE>
We paid income taxes of $714, $709, and $452 in 1998, 1997, and 1996,
respectively.
During 1996, a settlement was reached with the U.S. Internal Revenue
Service (IRS) covering tax years 1988 through 1991. The settlement had a slight
favorable impact on our 1996 effective tax rate.
We have recorded income tax expense at U.S. tax rates on all profits,
except for undistributed profits of non-U.S. companies which are considered
permanently invested. Determination of the amount of unrecognized deferred tax
liability related to permanently invested profits is not feasible.
Deferred tax assets and liabilities:
<TABLE>
<CAPTION>
December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets:
Postemployment benefits
other than pensions.............................. $ 1,032 $ 1,107 $ 1,212
Warranty reserves................................. 194 159 114
Unrealized profit excluded
from inventories................................. 179 201 176
Net operating loss carryforwards.................. 83 76 105
Inventory valuation method........................ 78 62 63
Other............................................. 198 213 233
------- ------- -------
1,764 1,818 1,903
------- ------- -------
Deferred tax liabilities:
Capital assets.................................... (263) (177) (161)
Pension........................................... (51) (79) (86)
------- ------- -------
(314) (256) (247)
------- ------- -------
Valuation allowance for deferred tax assets......... (61) (129) (153)
------- ------- -------
Deferred taxes--net................................. $ 1,389 $ 1,433 $ 1,503
======= ======= =======
</TABLE>
As of December 31, 1998, amounts and expiration dates of net operating loss
carryforwards in various non-U.S. taxing jurisdictions were:
2000 2001 2002 2003 Unlimited Total
------------------------------------------------------
$ 11 $ 4 $ 17 $ 18 $ 261 $ 311
In 1998, circumstances changed at certain of our European subsidiaries
which allowed us to reduce the valuation allowance and to record additional
deferred tax assets. The remaining valuation allowance primarily relates to one
non-U.S. subsidiary. Circumstances could change in the future which would allow
us to reduce the remaining valuation allowance and to record additional deferred
tax assets.
7. Postemployment benefit plans
================================================================================
A. Pension plans
We have both U.S. and non-U.S. pension plans covering substantially all of our
employees. The defined benefit plans provide a benefit based on years of service
and/or the employee's average earnings near retirement.
Please refer to Table II on Page A-11 for additional financial information.
B. Other postretirement benefit plans
We have defined-benefit retirement health care and life insurance plans for
substantially all of our U.S. employees.
Please refer to Table II on Page A-11 for additional financial information.
C. Other postemployment benefit plans
We offer long-term disability benefits, continued health care for disabled
employees, survivor income benefits insurance, and supplemental unemployment
benefits to substantially all eligible U.S. employees.
D. Summary of long-term liability:
<TABLE>
<CAPTION>
December 31,
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Pensions..................................... $ 66 $ 3 $ 3
Postretirement benefits other than pensions.. 2,457 2,628 2,948
Other postemployment benefits................ 67 67 68
------ ------ ------
$2,590 $2,698 $3,019
====== ====== ======
</TABLE>
8. Operating leases
================================================================================
We lease certain computer and communications equipment, transportation
equipment, and other property through operating leases. Total rental expense for
operating leases was $224, $176, and $151 for 1998, 1997, and 1996,
respectively.
Minimum payments for operating leases having initial or remaining non-
cancelable terms in excess of one year are:
Years ended December 31,
After
1999 2000 2001 2002 2003 2003 Total
------------------------------------------------------------
$136 $ 97 $ 66 $ 45 $ 35 $170 $ 549
A-10
<PAGE>
Caterpillar Inc.
- --------------------------------------------------------------------------------
================================================================================
TABLE II -- Financial Information Related to Pension and Other Postretirement
Benefit Plans
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pension Benefits Other Postretirement Benefits
--------------------------- --------------------------------
1998 1997 1996 1998 1997 1996
-------- -------- ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation, January 1.............................. $ 6,713 $ 6,082 $5,843 $ 3,603 $ 3,346 $ 3,031
Service cost............................................... 148 114 110 82 72 81
Interest cost.............................................. 484 434 417 256 249 226
Business combinations...................................... 504 -- -- -- -- --
Plan amendments............................................ 335 -- -- 226 -- --
Actuarial (gains) losses................................... 272 439 88 43 117 196
Foreign currency exchange rates............................ 49 71 4 -- -- --
Benefits paid.............................................. (471) (427) (380) (190) (181) (188)
------- ------- ------ ------- ------- -------
Benefit obligation, December 31............................ $ 8,034 $ 6,713 $6,082 $ 4,020 $ 3,603 $ 3,346
------- ------- ------ ------- ------- -------
Change in plan assets:
Fair value of plan assets, January 1....................... $ 7,718 $ 6,930 $6,199 $ 804 $ 547 $ 297
Actual return on plan assets............................... 983 1,188 1,023 104 76 74
Business combinations...................................... 448 -- -- -- -- --
Foreign currency exchange rate changes..................... 34 (24) 14 -- -- --
Voluntary employer contributions........................... -- -- -- 200 200 200
Benefits paid.............................................. (471) (427) (380) (185) (176) (186)
Employer funding of benefits paid.......................... 44 51 74 175 157 162
------- ------- ------ ------- ------- -------
Fair value of plan assets, December 31..................... $ 8,756 $ 7,718 $6,930 $ 1,098 $ 804 $ 547
------- ------- ------ ------- ------- -------
Over (under) funded, December 31............................ $ 722 $ 1,005 $ 848 $(2,922) $(2,799) $(2,799)
Unrecognized prior service cost............................ 577 332 319 208 (98) (289)
Unrecognized net actuarial (gain) loss..................... (1,074) (1,058) (894) 51 38 (49)
Unrecognized net asset existing at adoption of SFAS 87..... (42) (59) (77) -- -- --
------- ------- ------ ------- ------- -------
Net amount recognized in financial position................ $ 183 $ 220 $ 196 $(2,663) $(2,859) $(3,137)
------- ------- ------ ------- ------- -------
Components of net amount recognized in financial position:
Prepaid benefit costs...................................... $ 501 $ 404 $ 339 $ -- $ -- $ --
Accrued benefit liabilities................................ (318) (184) (143) (2,663) (2,859) (3,137)
Intangible assets.......................................... 2 3 3 -- -- --
Adjustment for minimum pension liability................... (66) (3) (3) -- -- --
Accumulated other comprehensive income..................... 64 -- -- -- -- --
------- ------- ------ ------- ------- -------
Net asset (liability) recognized........................... $ 183 $ 220 $ 196 $(2,663) $(2,859) $(3,137)
------- ------- ------ ------- ------- -------
Components of net periodic benefit cost:
Service cost............................................... $ 148 $ 114 $ 110 $ 82 $ 72 $ 81
Interest cost.............................................. 484 434 417 256 249 226
Expected return on plan assets............................. (689) (580) (532) (74) (47) (26)
Amortization of:
Net asset existing at adoption of SFAS 87................ (23) (23) (22) -- -- --
Prior service cost/1/.................................... 88 62 63 (80) (190) (190)
Net actuarial (gain) loss................................ (4) (1) (1) -- -- (1)
------- ------- ------ ------- ------- -------
Total benefit cost included in results of operations....... $ 4 $ 6 $ 35 $ 184 $ 84 $ 90
======= ======= ====== ======= ======= =======
Rate assumptions as of December 31:
Assumed discount rate/2/................................... 6.6% 7.0% 7.4% 6.8% 7.0% 7.5%
Expected rate of compensation increase/2/................ 4.0% 4.0% 4.2% 4.0% 4.0% 4.0%
Expected long-term rate of return on plan assets/2/...... 9.6% 9.5% 9.4% 10.0% 9.5% 9.5%
</TABLE>
For measurement purposes, a 6.5% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1999. This rate was assumed to
decrease gradually to 4.5% in 2002.
/1/Prior service costs are amortized using a straight-line method. For our
pension plans, the straight-line method is used over the average remaining
service period of employees expected to receive benefits from the plan
amendment. For our other postretirement benefit plans, the straight-line
method is used over the average remaining service period of employees
impacted by the plan amendment.
/2/Weighted-average rates.
A-11
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE II Continued -- Financial Information Related to Pension and Other
Postretirement Benefit Plans
- --------------------------------------------------------------------------------
Effects of a one-percentage-point change in the assumed health care cost trend
rates for 1998:
<TABLE>
<CAPTION>
One-percentage- One-percentage-
point increase point decrease
--------------- ----------------
<S> <C> <C>
Approximate effect on the total of service
and interest cost components of
other postretirement benefit cost......... $39 $ (32)
Approximate effect on accumulated
postretirement benefit obligation......... $337 $(286)
</TABLE>
The following amounts relate to our pension plans with accumulated benefit
obligations in excess of plan assets:
<TABLE>
<CAPTION>
At December 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Accumulated benefit obligation........ $(3,546) $ (69) $(2,459)
Projected benefit obligation.......... $(3,593) $ (92) $(2,479)
Fair value of plan assets............. $ 3,239 $ 41 $ 2,430
</TABLE>
- --------------------------------------------------------------------------------
9. Property, plant, and equipment
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Land -- at original cost................ $ 140 $ 121 $ 122
Buildings and land improvements......... 2,949 2,773 2,704
Machinery, equipment, and other......... 5,871 5,309 5,047
Equipment leased to others.............. 1,063 843 779
Construction-in-process................. 372 357 165
-------- -------- --------
10,395 9,403 8,817
Less: Accumulated depreciation.......... 5,529 5,345 5,050
-------- -------- --------
Property, plant, and equipment -- net... $ 4,866 $ 4,058 $ 3,767
======== ======== ========
</TABLE>
We had commitments for the purchase or construction of capital assets of
approximately $295 at December 31, 1998.
Assets recorded under capital leases/1/:
<TABLE>
<CAPTION>
December 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Gross capital leases/2/............... $ 703 $ 717 $ 405
Less: Accumulated depreciation.......... 547 561 279
-------- -------- --------
Net capital leases...................... $ 156 $ 156 $ 126
======== ======== ========
</TABLE>
/1/ Included in Property, plant, and equipment table above.
/2/ Consists primarily of machinery and equipment.
Equipment leased to others (primarily by Financial Products):
<TABLE>
<CAPTION>
December 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Equipment leased to others --
at original cost...................... $1,063 $ 843 $ 779
Less: Accumulated depreciation.......... 328 272 251
-------- -------- --------
Equipment leased to others -- net....... $ 735 $ 571 $ 528
======== ======== ========
</TABLE>
Scheduled minimum rental payments to be received for equipment leased to
others:
<TABLE>
<CAPTION>
December 31,
After
1999 2000 2001 2002 2003 2003
- ------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$313 $239 $144 $96 $16 $8
</TABLE>
10. Unconsolidated affiliated companies
- --------------------------------------------------------------------------------
Combined financial information of the unconsolidated affiliated companies,
accounted for by the equity method, was as follows:
<TABLE>
<CAPTION>
Years ended September 30,
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Results of Operations
Sales................................... $2,909 $3,613 $3,729
====== ====== ======
Profit.................................. $ 6 $ 104 $ 75
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
September 30,
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Financial Position
Assets:
Current assets......................... $1,569 $1,949 $1,995
Property, plant, and equipment -- net.. 788 792 733
Other assets........................... 351 331 395
------- ------- -------
2,708 3,072 3,123
------- ------- -------
Liabilities:
Current liabilities.................... 1,259 1,610 1,683
Long-term debt due after one year...... 274 203 133
Other liabilities...................... 94 129 145
------- ------- -------
1,627 1,942 1,961
------- ------- -------
Ownership............................... $1,081 $1,130 $1,162
======= ======= =======
</TABLE>
At December 31, 1998, consolidated "Profit employed in the business" in
Statement 2 included $164 representing undistributed profit of the
unconsolidated affiliated companies. In 1998, 1997, and 1996, we received $10,
$36, and $10, respectively, in dividends from unconsolidated affiliated
companies.
11. Credit commitments
- --------------------------------------------------------------------------------
<TABLE>
December 31, 1998
Machinery Financial
Consolidated and Engines Products
------------ ----------- ---------
<S> <C> <C> <C>
Credit lines available:
U.S........................... $2,900/1/ $2,900/1/ $2,610/1/
Non-U.S....................... 1,781 152 1,629
------ ------ ------
Total credit lines available.. 4,681 3,052 4,239
Utilized credit:
Backup for bank borrowings.... 238 49 189
------ ------ ------
Unused credit................. $4,443 $3,003 $4,050
====== ====== ======
</TABLE>
/1/The total U.S. line of credit of $2,900 is available to both Machinery and
Engines and Financial Products (Cat Financial). Cat Financial may use up to
90% of the available line subject to a maximum debt to equity ratio.
Machinery and Engines may use up to 100% of the available line subject to a
minimum level of net worth. Based on these restrictions, and the allocating
decisions of available credit made by management, the line of credit
available to Cat Financial at December 31, 1998, was $2,610.
Based on long-term credit agreements, $2,353, $2,301, and $1,522 of commercial
paper outstanding at December 31, 1998, 1997, and 1996, respectively, were
classified as long-term debt due after one year.
A-12
<PAGE>
12. Short-term borrowings
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Machinery and Engines:
Notes payable to banks............................... $ 49 $ 53 $ 36
Financial Products:
Notes payable to banks............................... 189 145 257
Commercial paper..................................... 497 235 859
Other................................................ 74 51 40
------ ------ ------
760 431 1,156
------ ------ ------
Total short-term borrowings........................... $ 809 $ 484 $1,192
====== ====== ======
</TABLE>
The weighted average interest rates on short-term borrowings outstanding were:
<TABLE>
<CAPTION>
December 31,
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Notes payable to banks................................ 4.7% 4.9% 3.7%
Commercial paper...................................... 5.2% 5.2% 5.2%
Other................................................. 5.2% 5.5% 5.5%
</TABLE>
Please refer to Note 16 and Table IV on Page A-15 for fair value
information on short-term borrowings.
13. Long-term debt
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Machinery and Engines:
Notes -- 9 3/8% due 2000............................ $ 150 $ 150 $ 149
Notes -- 9 3/8% due 2001............................ 184 184 183
Notes -- 6% due 2003................................ 253 -- --
Debentures -- 9% due 2006........................... 202 202 202
Debentures -- 6% due 2007........................... 147 141 136
Debentures -- 9 3/8% due 2011....................... 123 123 123
Debentures -- 9 3/4% due 2000-2019.................. 199 199 199
Debentures -- 9 3/8% due 2021....................... 236 236 236
Debentures -- 8% due 2023........................... 199 199 199
Debentures -- 6 5/8% due 2028....................... 299 -- --
Debentures -- 7 3/8% due 2097....................... 297 297 --
Medium-term notes................................... 96 153 185
Capital lease obligations........................... 510 438 281
Other............................................... 98 45 125
------ ------ ------
2,993 2,367 2,018
Financial Products:
Commercial paper supported by revolving
credit agreements (Note 11)...................... 2,353 2,301 1,522
Medium-term notes................................... 4,025 2,241 1,505
Other............................................... 33 33 42
------ ------ ------
Total Financial Products.............................. 6,411 4,575 3,069
------ ------ ------
Total long-term debt due after one year............... $9,404 $6,942 $5,087
====== ====== ======
</TABLE>
Other than the debt of the Financial Products' subsidiaries, all
outstanding notes and debentures itemized above are unsecured direct obligations
of Caterpillar Inc. The capital lease obligations are collateralized by leased
manufacturing equipment and/or security deposits.
The 6% notes may be redeemed in whole at their principal amount if we are
required to pay additional taxes or duties as a result of a change in tax law
and that obligation cannot be reasonably avoided. In addition, if the identity
of beneficial owners of the notes must be disclosed in certain circumstances, we
would be required either to redeem the notes or satisfy the information
disclosure requirement through the payment of certain taxes or charges. We may
also purchase the 6% notes at any time in the open market.
The 6% debentures were sold at significant original issue discounts ($144).
This issue is carried net of the unamortized portion of its discount, which is
amortized as interest expense over the life of the issue. These debentures have
a principal at maturity of $250 and an effective annual cost of 13.3%. We may
redeem them, at our option, at an amount equal to the respective principal at
maturity.
We may redeem annually, at our option, an additional amount for the 9 3/4%
sinking fund debenture issue, without premium, equal to 200% of the amount of
the sinking fund requirement. Also, we may redeem additional portions of the
sinking fund debentures by the payment of premiums which, starting in 1999,
decrease periodically. The premium at the first redemption date of June 1, 1999,
is 4.875%.
We may redeem the 6 5/8% and the 7 3/8% debentures in whole or in part at
our option at any time at a redemption price equal to the greater of 100% of the
principal amount of the debentures to be redeemed or the sum of the present
value of the remaining scheduled payments.
The terms of other notes and debentures do not specify a redemption option
prior to maturity.
The medium-term notes are offered on a continuous basis through agents and
are primarily at fixed rates. Machinery and Engines' medium-term notes have
maturities from nine months to 30 years. At December 31, 1998, these notes had a
weighted average interest rate of 7.7% with one month to six years remaining to
maturity. Financial Products' medium-term notes have a weighted average interest
rate of 5.48% with maturities up to 15 years at December 31, 1998.
The aggregate amounts of maturities and sinking fund requirements of long-
term debt during each of the years 1999 through 2003, including that due within
one year and classified as current are:
<TABLE>
<CAPTION>
December 31,
1999 2000 2001 2002 2003
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Machinery and Engines................... $ 60 $ 174 $ 203 $ 137 $ 221
Financial Products...................... 2,179 2,371 960 289 350
------ ------ ------ ------ ------
$2,239 $2,545 $1,163 $ 426 $ 571
====== ====== ====== ====== ======
</TABLE>
Interest paid on short-term and long-term borrowings for 1998, 1997, and
1996 was $669, $508, and $474, respectively.
Please refer to Note 16 and Table IV on Page A-15 for fair value
information on long-term debt.
14. Capital stock
- --------------------------------------------------------------------------------
A. Stock options
In 1996, stockholders approved a plan providing for the granting of options to
purchase common stock to officers and other key employees, as well as non-
employee directors. This plan reserves 22,000,000 shares of common stock for
issuance. Options vest at the rate of one-third per year over the three year
period following the date of grant, and have a maximum term of ten years. Common
shares issued under stock options, including treasury shares reissued, totaled
676,113; 1,264,539; and 1,313,932 in 1998, 1997, and 1996, respectively.
Our plan grants options which have exercise prices equal to the average
market price on the date of grant. We account for our
A-13
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- --------------------------------------------------------------------------------
stock options in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Therefore, no compensation expense
is recognized in association with these options. As required by Statement of
Financial Accounting Standard (SFAS) No. 123, "Accounting for Stock-Based
Compensation," a summary of the pro forma net income and profit per share
amounts are shown in Table III below. Consistent with the requirements of SFAS
123, compensation expense related to grants made prior to 1995 have not been
taken into consideration. Therefore, the pro forma amounts for 1997 and 1996 are
not representative of the impact of future disclosures. The fair value of each
option grant is estimated at the date of grant using the Black-Scholes option-
pricing model.
Please refer to Table III below for additional financial information on our
stock options.
B. Restricted stock
The 1996 Stock Option and Long-Term Incentive Plan permits the award of
restricted stock to officers and other key employees, as well as non-employee
directors. During 1998, 117,052 shares of restricted stock were awarded to
officers and other key employees as Performance Awards, and 7,150 shares of
restricted stock were granted to non-employee directors.
C. Stockholders' rights plan
We are authorized to issue 5,000,000 shares of preferred stock, of which
2,000,000 shares have been designated as Series A
- -------------------------------------------------------------------------------
TABLE III -- Financial Information Related to Capital Stock
SFAS 123 pro forma net income and earnings per share:
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net Income:
As reported............................... $1,513 $1,665 $1,361
Pro forma................................. $1,481 $1,640 $1,352
Profit per share of common stock:
As reported:
Basic.................................... $ 4.17 $ 4.44 $ 3.54
Assuming dilution........................ $ 4.11 $ 4.37 $ 3.50
Pro forma:
Basic.................................... $ 4.08 $ 4.37 $ 3.51
Assuming dilution........................ $ 4.04 $ 4.32 $ 3.48
</TABLE>
Weighted-average assumptions used in determining fair value of option grants:
<TABLE>
<CAPTION>
Grant Year
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Dividend yield............................ 1.91% 1.94% 2.13%
Expected volatility....................... 19.80% 25.51% 24.19%
Risk-free interest rates.................. 5.55% 6.42% 6.59%
Expected lives............................ 5 years 4 years 4 years
</TABLE>
Changes in the status of common shares subject to issuance under options:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------- ----------------------------- -----------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------ ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Fixed Options
Outstanding at beginning
of year................... 15,056,412 $31.89 13,874,114 $25.31 13,267,648 $21.96
Granted to officers and
key employees............. 4,695,495 $55.69 3,491,650 $51.66 3,334,100 $32.91
Granted to outside
directors................. 44,000 $54.38 40,000 $39.19 44,000 $33.47
Exercised.................. (1,237,010) $23.22 (2,274,474) $22.16 (2,627,940) $18.03
Lapsed..................... (119,120) $45.74 (74,878) $32.61 (143,694) $28.23
----------- ---------- ----------
Outstanding at end of year. 18,439,777 $38.50 15,056,412 $31.89 13,874,114 $25.31
=========== ========== ==========
Options exercisable at
year-end.................. 10,443,515 $28.48 8,386,814 $23.58 7,544,270 $20.44
Weighted-average fair value of options granted during the
year...................... $13.01 $16.15 $8.12
</TABLE>
Stock options outstanding and exercisable:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- --------------------------------
Weighted-Average
Remaining
# Outstanding Contractual Life Weighted-Average # Outstanding Weighted-Average
Exercise Prices at 12/31/98 (Years) Exercise Price at 12/31/98 Exercise Price
- --------------- ------------- ------------------ ---------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
$11.78-$18.77 3,020,402 3.2 $16.02 3,020,402 $16.02
$26.77-$39.19 7,275,490 6.6 $30.50 6,221,118 $30.06
$51.66-$55.69 8,143,885 9.0 $53.98 1,201,995 $51.66
------------ ------------
18,439,777 7.1 $38.50 10,443,515 $28.48
============ ============
</TABLE>
- --------------------------------------------------------------------------------
A-14
<PAGE>
Caterpillar Inc.
- --------------------------------------------------------------------------------
Junior Participating Preferred Stock of $1.00 par value. None of the preferred
shares have been issued.
Stockholders would receive certain preferred stock purchase rights if someone
acquired or announced a tender offer to acquire 15% or more of outstanding
Caterpillar stock. In essence, those rights would permit each holder (other than
the acquiring person) to purchase one share of Caterpillar stock at a 50%
discount for every share owned. The rights, designed to protect the interests of
Caterpillar stockholders during a takeover attempt, expire December 11, 2006.
15. Profit per share
- --------------------
<TABLE>
Years ended December 31,
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Profit (A)................... $ 1,513 $ 1,665 $ 1,361
============ ============ ============
Determination of shares:
Weighted-average common
shares outstanding (B)..... 363,189,005 375,124,745 384,960,440
Assumed conversion
of stock options........... 4,941,357 5,416,215 3,724,630
------------ ------------ ------------
Weighted-average common
shares outstanding --
assuming dilution (C)...... 368,130,362 380,540,960 388,685,070
============ ============ ============
Profit per share of
common stock (A/B).......... $ 4.17 $ 4.44 $ 3.54
Profit per share of common
stock -- assuming
dilution (A/C).............. $ 4.11 $ 4.37 $ 3.50
</TABLE>
Stock options to purchase 8,143,885 and 3,521,250 shares of common stock at a
weighted-average price of $53.98 and $51.66 were outstanding during 1998 and
1997 respectively, but were not included in the computation of diluted profit
per share, because the options' exercise price was greater than the average
market price of the common shares. During 1996, there were no stock options
excluded from the computation of diluted profit per share.
16. Fair values of financial instruments
- -----------------------------------------
We used the following methods and assumptions to estimate the fair value of our
financial instruments:
Cash and short-term investments -- carrying amount approximated fair value.
Long-term investments (other than investments in unconsolidated affiliated
companies) -- fair value was estimated based on quoted market prices.
Foreign currency contracts (forwards and options) -- fair value was estimated
based on quoted market prices of comparable instruments.
Finance receivables -- fair value was estimated by discounting the future cash
flow using current rates, representative of receivables with similar remaining
maturities. Historical bad debt experience was also considered.
Short-term borrowings -- carrying amount approximated fair value.
Long-term debt -- for Machinery and Engines' notes and debentures, fair value
was estimated based on quoted market prices. For Financial Products, fair value
was estimated by discounting the future cash flow using our current borrowing
rates for similar types and maturities of debt, except for floating rate notes
for which the carrying amount was considered a reasonable estimate of fair
value.
- --------------------------------------------------------------------------------
TABLE IV -- Fair Values of Financial Instruments
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Asset (Liability) 1998 1997 1996
-------------------------- ------------------- -------------------
At December 31 Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value Reference #
--------------- --------- -------- --------- -------- --------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and short-term investments.......... $ 360 $ 360 $ 292 $ 292 $ 487 $ 487 Statement 3, Note 17
Long-term investments.................... 450 450 701 701 508 508 Note 17
Foreign currency contracts............... 8 9 41 47 (3) (3) Note 2
Finance receivables -- net
(excluding operating and finance type
leases and currency swaps/1/)........... 7,709 7,770 5,788 5,815 4,954 4,980 Note 5
Short-term borrowings.................... (809) (809) (484) (484) (1,192) (1,192) Note 12
Long-term debt
(including amounts due within one year)
Machinery and Engines................. (3,053) (3,465) (2,421) (2,785) (2,140) (2,377) Note 13
Financial Products.................... (8,590) (8,634) (5,663) (5,721) (4,127) (4,176) Note 13
Interest rate swaps
Machinery and Engines --
in a net receivable position........... 1 22 1 10 1 4 Note 2
in a net payable position.............. (6) -- (3) (1) (1) (3) Note 2
Financial Products --
in a net receivable position........... 14 19 -- 20 1 4 Note 2
in a net payable position.............. (2) (24) (3) (12) (4) (16) Note 2
</TABLE>
/1/ Excluded items have a net carrying value at December 31, 1998, 1997, and
1996, of $865, $753, and $692, respectively.
- --------------------------------------------------------------------------------
A-15
<PAGE>
NOTES continued
(Dollars in millions except per share data)
_______________________________________________________________________________
Interest rate swaps -- fair value was estimated based on the amount that we
would receive or pay to terminate our agreements as of year end.
Please refer to Table IV on Page A-15 for the fair values of our financial
instruments.
17. Concentration of credit risk
- ---------------------------------
Financial instruments with potential credit risk consist primarily of trade and
finance receivables and short-term and long-term investments. Additionally, to a
lesser extent, we have a potential credit risk associated with counterparties to
derivative contracts.
Trade receivables are primarily short-term receivables from independently
owned and operated dealers which arise in the normal course of business. We
perform regular credit evaluations of our dealers. Collateral is generally not
required, and the majority of our trade receivables are unsecured. We do
however, when deemed necessary, make use of various devices such as security
agreements and letters of credit to protect our interests. No single dealer
represents a significant concentration of credit risk.
Finance receivables primarily represent receivables under installment sales
contracts, receivables arising from leasing transactions and notes receivable.
Receivables from customers in construction-related industries made up
approximately one-third of total finance receivables at December 31, 1998, 1997,
and 1996, respectively. We generally maintain a secured interest in the
equipment financed. No single customer or region represents a significant
concentration of credit risk.
Short-term and long-term investments are held with high quality institutions
and, by policy, the amount of credit exposure to any one institution is limited.
Long-term investments are comprised of investments which collateralize capital
lease obligations (see Note 13 on Page A-13) and investments of Caterpillar
Insurance Co. Ltd. supporting insurance reserve requirements. Long-term
investments are a component of "Other assets" in Statement 3.
At December 31, 1998, 1997, and 1996, Cat Financial was contingently liable
under guarantees for certain Caterpillar dealers' obligations totaling $254,
$261, and $253, respectively, of which $119, $109, and $159, respectively, were
outstanding. These guarantees have terms ranging up to two years and are fully
secured by dealer assets. No loss has been experienced nor is any anticipated
under these agreements.
Outstanding derivative instruments, with notional amounts totaling $5,143,
$4,079, and $3,957 and terms generally ranging up to five years, were held at
December 31, 1998, 1997, and 1996, respectively. Collateral is not required of
the counterparties or of our company. We do not anticipate nonperformance by any
of the counterparties. Our exposure to credit loss in the event of
nonperformance by the counterparties is limited to only those gains that we have
recorded, but have not yet received cash payment. At December 31, 1998, 1997,
and 1996, the exposure to credit loss was $22, $49, and $14, respectively.
Please refer to Note 16 and Table IV on Page A-15 for fair value information.
18. Environmental matters
- --------------------------
The company is regulated by federal, state, and international environmental laws
governing our use of substances and control of emissions. Compliance with these
existing laws has not had a material impact on our capital expenditures,
earnings, or competitive position.
We are cleaning up hazardous waste at a number of locations, often with other
companies, pursuant to federal and state laws. When it is likely we will pay
clean-up costs at a site and those costs can be estimated, the costs are charged
against our earnings. In doing that estimate, we do not consider amounts
expected to be recovered from insurance companies and others.
The amount set aside for environmental clean-up is not material and is
included in "Accounts payable and accrued expenses" in Statement 3. If a range
of liability estimates is available on a particular site, we accrue the lower
end of that range.
We cannot estimate costs on sites in the very early stages of clean-up.
Currently, we have five of these sites and there is no more than a remote chance
that a material amount for clean-up will be required.
19. Plant closing and consolidation costs
- ------------------------------------------
The reserve for plant closing and consolidation costs includes the following:
<TABLE>
<CAPTION>
December 31,
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Write-down of property, plant, and equipment.. $ 78 $ 103 $ 102
Employee severance benefits................... 37 95 103
Rearrangement, start-up costs, and other...... 5 47 54
----- ----- -----
Total reserve................................. $ 120 $ 245 $ 259
===== ===== =====
</TABLE>
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 December 31, 1998, the above reserve includes $49 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 in the final stages of
closing the unit.
20. Segment information
- ------------------------
A. Basis for segment information
The company is organized based on a decentralized structure that has established
accountabilities to continually improve business focus and increase our ability
to react quickly to changes in both the global business cycle and competitors'
actions. Our current structure uses a product, geographic matrix organization
comprised of multiple profit and service center divisions.
Caterpillar is a highly integrated company. The majority of our profit centers
are product focused. They are primarily responsible for the design, manufacture,
and on-going support of their products; however, some of these product-focused
profit centers also have marketing responsibilities. We also have
geographically-based profit centers that are primarily focused on marketing;
however, most of these profit centers also have some manufacturing
responsibilities. One of our profit centers provides various financial services
to our customers and dealers. The service center divisions perform corporate
functions and provide centralized services.
A-16
<PAGE>
Caterpillar Inc.
We have developed an internal measurement system to evaluate performance and
to drive continuous improvement. This measurement system, which is not based on
generally accepted accounting principles (GAAP), is intended to motivate desired
behavior of employees and drive performance. It is not intended to measure a
division's contribution to enterprise results. The sales and cost information
used for internal purposes varies significantly from our consolidated,
externally-reported information resulting in substantial reconciling items. Each
division has specific performance targets and is evaluated and compensated based
on achieving those targets. Performance targets differ from division to
division; therefore, meaningful comparisons cannot be made among the profit or
service center divisions. It is the comparison of actual results to budgeted
results that makes our internal reporting valuable to management. Consequently,
we feel that the financial information required by Statement of Financial
Accounting Standards No. 131 (SFAS 131) "Disclosures about Segments of an
Enterprise and Related Information" has limited value for our external readers.
Due to Caterpillar's high level of integration and our concern that segment
disclosures based on SFAS 131 requirements have limited value to external
readers, we are continuing to disclose GAAP-based financial results for our
three lines of business (Machinery, Engines, and Financial Products) in our
Management's Discussion and Analysis beginning on page A-21.
B. Description of segments
The profit center divisions meet the SFAS 131 definition of "operating
segments"; however, the service center divisions do not. Several of the profit
centers have similar characteristics and have been aggregated. The following is
a brief description of our seven reportable segments and the business activities
included in the "All other" category.
Asia/Pacific Marketing: Primarily responsible for marketing products through
dealers in Australia, Asia (excluding Japan), and the Pacific Rim. Also includes
the regional manufacturing of some products which are also produced by
Construction & Mining Products.
Construction & Mining Products: Primarily responsible for the design,
manufacture, and on-going support of small, medium, and large machinery used in
a variety of construction and mining applications. Also includes the design,
manufacture, procurement, and marketing of components and control systems that
are primarily consumed in the manufacturing of our machinery.
EAME Marketing: Primarily responsible for marketing products through dealers
in Europe, Africa, the Middle East, and the Commonwealth of Independent States.
Also includes the regional manufacturing of some products which are also
produced by Construction & Mining Products and Power Products.
Financing & Insurance Services: Provides financing to customers and dealers
for the purchase and lease of Caterpillar and noncompetitive related equipment,
as well as some financing for Caterpillar sales to dealers. Also provides
various forms of insurance to customers and dealers to help support the purchase
and lease of our equipment.
Latin America Marketing: Primarily responsible for marketing products through
dealers in Latin America. Also includes the regional manufacturing of some
products which are also produced by Construction & Mining Products and Power
Products.
Power Products: Primarily responsible for the design, manufacture, marketing,
and ongoing support of reciprocating and turbine engines along with related
systems. These engines and related systems are used in products manufactured in
other segments, on-highway trucks, and locomotives; and in a variety of
construction, electric power generation, marine, petroleum, and industrial
applications.
North America Marketing: Primarily responsible for marketing products
(excluding Power Products) through dealers in the United States and Canada.
All other: Primarily includes activities such as: service support and parts
distribution to Caterpillar dealers worldwide; the design, manufacture, and
ongoing support of agricultural machinery and paving products; logistics
services for other companies; service tools for Caterpillar dealers; preventive
maintenance products (filters and fluids); and the remanufacturing of
Caterpillar engines and components.
C. Segment measurement and reconciliations
Please refer to Table V on Pages A-18 and A-19 for financial information
regarding our segments. There are several accounting differences between our
segment reporting and our GAAP-based external reporting. Our segments are
measured on an accountable basis; therefore, only those items for which
divisional management is directly responsible are included in the determination
of segment profit/(loss) and assets. The following is a list of the more
significant accounting differences:
. Generally, liabilities are managed at the corporate level and are not
included in segment operations. Segment accountable assets generally include
inventories, receivables, property, plant, and equipment.
. We account for intersegment transfers using a system of market-based prices.
With minor exceptions, each of the profit centers either sells or purchases
virtually all of its products to or from other profit centers within the
company. Our high level of integration results in our internally-reported
sales being approximately double that of our consolidated, externally-
reported sales.
. Segment inventories and cost of sales are valued using a current cost
methodology.
. Timing differences occur between our internal reporting and our external
reporting such as: postretirement benefit expenses and profit that is
recognized on intersegment transfers.
. Interest expense is imputed (i.e., charged) to profit centers based on their
level of accountable assets. This calculation takes into consideration the
corporate debt to debt plus equity ratio and a weighted-average corporate
interest rate.
. In general, foreign currency fluctuations are neutralized for segment
reporting.
. Accountable profit is determined on a pre-tax basis.
Reconciling items are created based on accounting differences between segment
reporting and our consolidated, external reporting. Please refer to Table V on
Pages A-18 and A-19 for financial information regarding significant reconciling
items. Most of our
A-17
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- --------------------------------------------------------------------------------
reconciling items are self-explanatory given the above explanations of
accounting differences. However, for the reconciliation of profit, we have
grouped the reconciling items as follows:
. Corporate costs: Certain corporate costs are not charged to our segments.
These costs are related to corporate requirements and strategies that are
considered to be for the benefit of the entire organization.
. Methodology differences: See previous discussion of significant
accounting differences between segment reporting and consolidated,
external reporting.
. Methodology changes in segment reporting: Estimated restatements of prior
periods to reflect changes in our internal-reporting methodology.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE V -- Segment Information (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Business Segments:
Asia/ Construction Financing Latin North
Pacific & Mining EAME & Insurance America Power America All
Marketing Products Marketing Services Marketing Products Marketing Other Total
--------- ---------- --------- --------- --------- -------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998
External sales and revenues... $1,093 197 3,289 1,114 1,763 5,300 7,414 866 $21,036
Intersegment sales and
revenues..................... $ 2 8,678 937 -- 145 4,122 209 1,830 $15,923
Total sales and revenues...... $1,095 8,875 4,226 1,114 1,908 9,422 7,623 2,696 $36,959
Depreciation and amortization. $ 6 224 64 165 28 258 -- 54 $ 799/1/
Imputed interest expense...... $ 8 72 25 501 22 118 68 56 $ 870
Accountable profit (loss)..... $ (49) 1,090 211 201 85 410 118 191 $ 2,257
Accountable assets at Dec. 31. $ 289 2,349 862 10,539 741 3,479 1,595 2,030 $21,884
Capital Expenditures.......... $ 26 292 72 -- 19 349 -- 88 $ 846/1/
- ------------------------------------------------------------------------------------------------------------------------------------
1997
External sales and revenues... $1,947 294 3,022 832 1,730 3,693 6,614 855 $18,987
Intersegment sales and
revenues..................... $ 1 8,763 857 -- 147 3,645 207 1,718 $15,338
Total sales and revenues...... $1,948 9,057 3,879 832 1,877 7,338 6,821 2,573 $34,325
Depreciation and amortization. $ 5 228 67 136 27 165 1 48 $ 677/1/
Imputed interest expense...... $ 13 70 24 380 19 68 59 57 $ 690
Accountable profit............ $ 12 1,299 121 162 91 442 199 196 $ 2,522
Accountable assets at Dec. 31. $ 402 2,238 937 7,189 836 2,460 1,396 1,931 $17,389
Capital Expenditures.......... $ 23 243 67 7 18 287 1 105 $ 751/1/
- -----------------------------------------------------------------------------------------------------------------------------------
1996
External sales and revenues... $2,172 314 2,937 715 1,270 2,890 5,632 734 $16,664
Intersegment sales and
revenues..................... $ 2 7,815 633 -- 125 3,110 168 1,554 $13,407
Total sales and revenues...... $2,174 8,129 3,570 715 1,395 6,000 5,800 2,288 $30,071
Depreciation and amortization. $ 3 238 73 119 27 139 -- 45 $ 644/1/
Imputed interest expense...... $ 14 64 34 319 13 50 31 48 $ 573
Accountable profit............ $ 94 1,065 92 137 43 373 195 211 $ 2,210
Accountable assets at Dec. 31. $ 410 2,127 1,000 6,212 729 2,144 1,186 1,796 $15,604
Capital Expenditures.......... $ 20 172 56 -- 12 125 -- 73 $ 458/1/
</TABLE>
/1/Amount differs from our consolidated, external reporting amount primarily
because of service centers, which are not included in business segments.
<TABLE>
<CAPTION>
Reconciliations:
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Sales & Revenues
----------------
Total external sales and revenues
from business segments.................. $21,036 $18,987 $16,664
Other................................... (59) (62) (142)
------- ------- -------
Total consolidated sales and revenues... $20,977 $18,925 $16,522
======= ======= =======
Profit before taxes
-------------------
Total accountable profit from
business segments....................... $ 2,257 $ 2,522 $ 2,210
Corporate costs......................... (316) (317) (290)
Methodology differences................. 168 14 (122)
Methodology changes in
segment reporting...................... -- 119 107
Other................................... 65 75 36
------- ------- -------
Total consolidated profit before taxes.. $ 2,174 $ 2,413 $ 1,941
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31,
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Assets
------
Total accountable assets from
business segments....................... $21,884 $17,389 $15,604
Items not included in segment assets:
Deferred income taxes & prepaids........ 2,036 1,968 1,945
Intangible assets & other assets........ 1,663 847 641
Investments in affiliated companies..... 534 539 536
Cash and short-term investments......... 360 292 487
Service center assets.................. 350 294 281
Liabilities included in segment assets.. 596 643 464
Inventory methodology differences....... (1,769) (1,700) (1,634)
Intercompany trade receivables
double counted in segment assets........ (1,217) -- --
Other................................... 691 484 404
------- ------- -------
Total consolidated assets............... $25,128 $20,756 $18,728
======= ======= =======
</TABLE>
Continued on Page A-19
A-18
<PAGE>
Caterpillar Inc.
_______________________________________________________________________________
TABLE V Continued -- Segment Information (unaudited)
_______________________________________________________________________________
Enterprise-Wide Disclosures:
External sales and revenues from products and services:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
------- ------- -------
Machinery.................. $13,448 $13,350 $11,862
Engines.................... 6,524 4,760 3,952
Financial Products......... 1,005 815 708
------- ------- -------
Total consolidated....... $20,977 $18,925 $16,522
======= ======= =======
</TABLE>
Information about Geographic Areas:
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C> <C>
Sales & Revenues/1/ Net property, plant, and equipment
-------------------------------------- -------------------------------------
December 31,
1998 1997 1996 1998 1997 1996
<S> ---------- ---------- ---------- ---------- ----------- ---------
Inside United States........ $10,870 $ 9,492 $ 8,160 $3,038 $2,830 $2,638
Outside United States....... 10,107 9,433 8,362 1,828/2/ 1,228/2/ 1,129/2/
---------- ---------- ---------- ---------- ----------- ---------
Total..................... $20,977 $18,925 $16,522 $4,866 $4,058 $3,767
========== ========== ========== ========== =========== =========
</TABLE>
/1/ Sales of machinery and engines are based on dealer location. Revenues
from services provided are based on location of customer.
/2/ Amount includes $531, $189, and $139 of net property, plant, and
equipment located in the United Kingdom as of December 31, 1998, 1997, and
1996, respectively.
________________________________________________________________________________
21. Selected quarterly financial results (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<C> <C> <C> <C>
1998 Quarter
---------------------------------------------
1st 2nd 3rd 4th
<S> ------- ------- ------- -------
Sales and revenues........... $4,794 $5,604 $5,173 $5,406
Less: Revenues............... 221 247 267 270
------- ------- ------- -------
Sales........................ 4,573 5,357 4,906 5,136
Cost of goods sold........... 3,334 3,978 3,748 3,971
------- ------- ------- -------
Gross margin................. 1,239 1,379 1,158 1,165
Profit....................... 430 446 336 301
Profit per share of common
stock....................... $ 1.17 $ 1.22 $ .93 $ .84
Profit per share of common
stock -- assuming dilution.. $ 1.15 $ 1.20 $ .92 $ .83
1997 Quarter
--------------------------------------------
1st 2nd 3rd 4th
------- ------- ------- -------
Sales and revenues........... $4,262 $4,870 $4,600 $5,193
Less: Revenues............... 190 194 215 216
------- ------- ------- -------
Sales........................ 4,072 4,676 4,385 4,977
Cost of goods sold........... 2,981 3,450 3,278 3,665
------- ------- ------- -------
Gross margin................. 1,091 1,226 1,107 1,312
Profit....................... 394 435 385 451
Profit per share of common
stock....................... $ 1.04 $ 1.15 $ 1.03 $ 1.22
Profit per share of common
stock -- assuming dilution.. $ 1.03 $ 1.13 $ 1.01 $ 1.20
</TABLE>
22. Acquisition of Perkins
- ----------------------------------------------------------------------------
During the first quarter of 1998, we acquired the net assets of Perkins Ltd. and
the stock of several related subsidiaries for $1,328. We paid for this
acquisition using a combination of existing cash and new debt. Perkins is a
leading manufacturer of small to medium-sized diesel engines. The acquisition
was accounted for using the purchase method of accounting. When we acquired
Perkins we preliminarily used a 15-year amortization period for the purchased
intangible assets. Subsequent review, including a more detailed analysis of the
composition and benefit lives of these assets and a study of industry practices,
led us to conclude that a 20-year amortization period was more appropriate.
Therefore, amortization of acquired intangible assets, including goodwill, is
being computed using the straight-line method over a period of 20 years.
A-19
<PAGE>
Five-year Financial Summary Caterpillar Inc.
(Dollars in millions except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<C> <C> <C> <C> <C>
Years ended December 31, 1998 1997 1996 1995 1994
<S> ------- ------ ------ ------ ------
Sales and revenues............................................ $20,977 18,925 16,522 16,072 14,328
Sales........................................................ $19,972 18,110 15,814 15,451 13,863
Percent inside the United States........................... 51% 49% 49% 48% 51%
Percent outside the United States.......................... 49% 51% 51% 52% 49%
Revenues..................................................... $ 1,005 815 708 621 465
Profit........................................................ $ 1,513 1,665 1,361 1,136 955
Profit per share of common stock/1/........................... $ 4.17 4.44 3.54 2.86 2.35
Profit per share of common stock --
assuming dilution/1/......................................... $ 4.11 4.37 3.50 2.84 2.33
Dividends declared per share of common stock.................. $ 1.15 .95 .78 .65 .32
Return on average common stock equity......................... 30.9% 37.9% 36.3% 36.1% 37.4%
Capital expenditures:
Property, plant, and equipment............................... $ 925 824 506 464 501
Equipment leased to others................................... $ 344 282 265 215 193
Depreciation and amortization................................. $ 865 738 696 682 683
Research and engineering expenses............................. $ 838 700 570 532 435
As a percent of sales and revenues........................... 4.0% 3.7% 3.4% 3.3% 3.0%
Wages, salaries, and employee benefits........................ $ 4,146 3,773 3,437 2,919 3,146
Average number of employees................................... 64,441 58,366 54,968 54,263 52,778
December 31,
Total assets:
Consolidated................................................. $25,128 20,756 18,728 16,830 16,250
Machinery and Engines/2/..................................... $15,619 14,188 13,066 12,375 12,142
Financial Products........................................... $11,648 7,806 6,681 5,712 4,737
Long-term debt due after one year:
Consolidated................................................. $ 9,404 6,942 5,087 3,964 4,270
Machinery and Engines/2/..................................... $ 2,993 2,367 2,018 2,049 1,934
Financial Products........................................... $ 6,411 4,575 3,069 1,915 2,336
Total debt:
Consolidated................................................. $12,452 8,568 7,459 6,400 5,903
Machinery and Engines/2/..................................... $ 3,102 2,474 2,176 2,219 2,037
Financial Products........................................... $ 9,350 6,094 5,283 4,181 3,866
Percent of total debt to total debt and stockholders' equity
(Machinery and Engines)...................................... 37.7% 34.6% 34.6% 39.6% 41.2%
</TABLE>
/1/ Computed on weighted-average number of shares outstanding.
/2/ 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.
A-20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
It is our objective to provide the most meaningful disclosures in our
Management's Discussion and Analysis in order to explain significant changes in
our company's results of operations and liquidity and capital resources. As
discussed in Note 20A, "Basis for segment information" on Page A-16, our segment
financial information is not based on generally accepted accounting principles
and it is not intended to measure contributions to enterprise results.
Therefore, it is impractical for us to try to discuss our company's results of
operations and liquidity and capital resources solely based on segment
information. Where practical, we have linked our discussions to segment
information provided in Table V on Pages A-18 and A-19 (see Reconciliation of
Machinery and Engine Sales by Geographic Region to External Sales by Marketing
Segment on Page A-22). Our discussions will focus on consolidated results and
our three principal lines of business as described below:
Consolidated -- represents the consolidated data of Caterpillar Inc. and all
its subsidiaries (affiliated companies that are more than 50% owned).
Machinery -- design, manufacture, and marketing of construction, mining,
agricultural, and forestry machinery -- track and wheel tractors, track and
wheel loaders, pipelayers, motor graders, wheel tractor-scrapers, track and
wheel excavators, backhoe loaders, mining shovels, log skidders, log loaders,
off-highway trucks, articulated trucks, paving products, telescopic handlers,
skid-steer loaders, and related parts.
Engines -- design, manufacture, and marketing of engines for Caterpillar
Machinery, on-highway trucks, and locomotives; marine, petroleum, construction,
industrial, and other applications; electric power generation systems; and
related parts. Reciprocating engines meet power needs ranging from 5 to over
21,000 horsepower (4 to over 15 660 kilowatts). Turbines range from 1,340 to
18,000 horsepower (1000 to 13 500 kilowatts).
Financial Products -- financing to customers and dealers for the purchase and
lease of Caterpillar and noncompetitive related equipment, as well as some
financing for Caterpillar sales to dealers. Also provides various forms of
insurance to customers and dealers to help support the purchase and lease of our
equipment. This line of business consists primarily of Caterpillar Financial
Services Corporation (Cat Financial) and its subsidiaries and Caterpillar
Insurance Services Corporation.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Machinery and Engines Sales Table by Geographic Region
(Millions of dollars) Total North America EAME** Latin America Asia/Pacific
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
======= ======= ======= ======= =======
1996
Machinery Sales......................................... $11,862 $ 6,465 $ 2,569 $ 854 $ 1,974
Engine Sales/*/......................................... 3,952 2,034 948 384 586
------- ------- ------- ------- -------
$15,814 $ 8,499 $ 3,517 $ 1,238 $ 2,560
======= ======= ======= ======= =======
</TABLE>
/*/Does not include internal engine sales of $1,268 million, $1,162 million,
and $927 million in 1998, 1997, and 1996, respectively. Internal engine
sales are valued at prices comparable to those for unrelated parties.
/**/Europe, Africa & Middle East, and Commonwealth of Independent States.
- --------------------------------------------------------------------------------
A-21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS continued
________________________________________________________________________________
Reconciliation of Machinery and Engine Sales by Geographic Region to External
Sales by Marketing Segment
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(Millions of dollars) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
North America Geographic Region....................................................................... $11,449 $10,132 $ 8,499
Engine sales included in the Power Products segment................................................... (3,097) (2,526) (2,034)
Company owned dealer sales included in the All Other segment.......................................... (389) (411) (329)
North America Geographic Region sales which are included
in the Latin America Marketing segment............................................................... (135) (132) (87)
Other*................................................................................................ (414) (449) (417)
------- ------- -------
North America Marketing external sales................................................................ $ 7,414 $ 6,614 $ 5,632
======= ======= =======
EAME.................................................................................................. $ 5,005 $ 3,802 $ 3,517
Power Products sales not included in the EAME Marketing segment....................................... (1,448) (587) (457)
Other*................................................................................................ (268) (193) (123)
------- ------- -------
EAME Marketing external sales......................................................................... $ 3,289 $ 3,022 $ 2,937
======= ======= =======
Latin America Geographic Region....................................................................... $ 1,918 $ 1,702 $ 1,238
Sales to the North America Geographic Region which are included in the
Latin America Marketing segment..................................................................... 135 132 87
Power Products sales not included in the Latin America Marketing segment.............................. (385) (237) (193)
Other................................................................................................. 95 133 138
------- ------- -------
Latin America Marketing external sales................................................................ $ 1,763 $ 1,730 $ 1,270
======= ======= =======
Asia/Pacific Geographic Region........................................................................ $ 1,600 $ 2,474 $ 2,560
Power Products sales not included in the Asia/Pacific Marketing segment............................... (370) (343) (206)
Other................................................................................................. (137) (184) (182)
------- ------- -------
Asia/Pacific Marketing external sales................................................................. $ 1,093 $ 1,947 $ 2,172
======= ======= =======
*Mostly represents external sales of the Construction & Mining Products and the All Other segments.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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
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.
A-22
<PAGE>
Caterpillar Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Operating Profit Table
(Millions of dollars) 1998 1997 1996
- -----------------------------------------------------
<S> <C> <C> <C>
Machinery............... $ 1,584 $ 1,808 $ 1,487
Engine.................. 504 468 370
------- ------- -------
$ 2,088 $ 2,276 $ 1,857
======= ======= =======
</TABLE>
Caterpillar operations are highly integrated; therefore, we use 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.
<TABLE>
<CAPTION>
Table of Supplemental Information
(Millions of dollars) 1998 1997
- --------------------------------------------
<S> <C> <C>
Identifiable Assets
Machinery.............. $ 9,199 $ 9,463
Engines................ 6,420 4,725
------- -------
Total................ $15,619 $14,188
======= =======
Capital Expenditures
Machinery.............. $ 511 $ 481
Engines................ 416 343
------- -------
Total................ $ 927 $ 824
======= =======
Depreciation
and Amortization
Machinery.............. $ 414 $ 392
Engines................ 283 207
------- -------
Total................ $ 697 $ 599
======= =======
</TABLE>
Caterpillar operations are highly integrated; therefore, we use a number of
allocations to determine lines of business financial data.
- --------------------------------------------------------------------------------
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.
A-23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS continued
________________________________________________________________________________
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.
<TABLE>
<CAPTION>
Machinery and Engines Sales Table
(Millions of dollars) Total North America EAME** Latin America Asia/Pacific
----- ------------- ------ ------------- ------------
<S> <C> <C> <C> <C> <C>
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
======= ====== ====== ==== ====
</TABLE>
*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.
A-24
<PAGE>
Caterpillar Inc.
- --------------------------------------------------------------------------------
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
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
<TABLE>
<CAPTION>
(Millions of dollars) 1998 1997
- ---------------------------------------
<S> <C> <C>
Machinery............... $235 $418
Engine.................. 165 206
---- ----
$400 $624
==== ====
</TABLE>
Caterpillar operations are highly integrated; therefore, we use 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
Environmental Protection Agency 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.
1997 COMPARED WITH 1996
- -----------------------
(has been changed to conform with 1998 presentation)
Profit for 1997 was up 22% on a 15% increase in sales and revenues. Profit per
share of common stock increased 25%, reflecting the impact of the higher profit
and the ongoing share repurchase program. Profit of $1.67 billion or $4.37 per
share was the best in our history, an improvement of $304 million over the
profit of $1.36 billion or $3.50 per share in 1996. Sales and revenues of $18.93
billion were $2.40 billion higher and also an all-time record. An increase in
physical sales volume of 15% was the most significant factor contributing to the
higher sales and revenues and profit.
MACHINERY AND ENGINES
Machinery sales were $13.35 billion, an increase of $1.49 billion from 1996,
setting another all-time record. Most of the improvement was due to higher sales
volume resulting from higher dealer sales to end users. Sales were higher in
most key applications including construction, sand and quarry operations, and
forestry. Price realization was about the same as price increases taken
over the past year and a favorable change in geographic sales mix were offset by
the effect of the stronger dollar on sales denominated in currencies other than
the U.S. dollar.
A-25
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MANAGEMENT'S DISCUSSION AND ANALYSIS continued
- --------------------------------------------------------------------------------
Sales were higher in all regions of the world except Asia/Pacific. Sales in
North America were particularly strong reflecting good economic and industry
growth as well as strong industry demand for construction and mining equipment.
A healthy farm economy also boosted industry demand for agricultural equipment.
Sales were up in both the United States and Canada. Sales were higher in EAME
primarily due to increased sales in Europe as dealers replenished their new
machine inventory. Sales in Latin America were notably higher with sizable gains
in Brazil, Mexico, Peru, Chile, and Argentina, all of which registered good
economic growth. End-user demand was higher in all key construction sectors as
well as metal and nonmetal mining. Lower demand was registered only in coal
mining and agricultural applications. Sales in Asia/Pacific declined reflecting
the impact of the currency crisis on the region's economy. Industry demand for
machines declined sharply in the second half of the year in a number of
Southeast Asia countries including Thailand, Indonesia, Malaysia, and the
Phillipines. As a result, sales to end users for the entire year slipped below
1996 levels.
Engine sales were $4.76 billion, an increase of $808 million from 1996. The
improvement reflected higher end-user demand for reciprocating gas and diesel
engines, as well as turbines. Company sales were higher in all key applications
including on-highway trucks, power generation, oil and gas, industrial, and
marine. Sales were also higher due to the acquisition of MaK Motoren GmbH & Co.
KG on December 31, 1996. Price realization was about the same as price increases
taken over the past year and a favorable change in geographic sales mix were
offset by the effect of the stronger dollar on sales denominated in currencies
other than the U.S. dollar.
Sales were higher in all regions. Sales in North America were up considerably
reflecting the strong on-highway truck market as well as increased demand for
turbines and other reciprocating engines. Sales were higher in Latin America
reflecting good economic growth of Brazil, Mexico, Peru, Chile, and Argentina.
Sales in EAME were up due primarily to higher industry demand. Sales in
Asia/Pacific increased primarily due to turbine sales in Australia and
developing Asia. Sales of reciprocating engines remained near 1996 levels.
Machinery operating profit increased $321 million, or 22% from 1996. Margin
(sales less cost of goods sold) improved as the benefit from higher sales more
than offset higher fixed manufacturing costs. Selling, general, and
administrative and research and development expenses were higher in support of
major growth initiatives and product line expansions.
Engine operating profit increased $98 million, or 26% from 1996. Margin (sales
less cost of goods sold) improved as the benefit from higher sales more than
offset 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 and product line
expansions.
Interest expense of $219 million was $25 million higher than a year ago, mostly
due to higher average debt levels.
Other income/expense was income of $153 million compared with income of $127
million last year. The increase of $26 million is primarily due to several small
favorable items, partially offset by an unfavorable change in foreign exchange
gains and losses.
FINANCIAL PRODUCTS
Revenues of $839 million were a record, up $107 million or 15% compared with
1996, primarily the result of Cat Financial's larger portfolio.
Selling, general, and administrative expenses were up $22 million, primarily due
to Cat Financial's higher depreciation on leased equipment and other increases
due to growth, partially offset by a favorable reserve adjustment at Cat
Insurance.
Interest expense was up $57 million due to increased borrowings to support the
larger portfolio. Other income/expense was income of $61 million, an increase of
$24 million from a year ago.
The increase in other income was primarily the result of higher gains on sales
of used equipment, exchange gains, increased use of securitization by Cat
Financial, and higher investment income at Cat Insurance.
INCOME TAXES
The provision for income taxes was $796 million compared with $613 million for
1996. The $183 million increase reflects the higher before-tax profit and a
higher effective tax rate of 33% compared with 31.6% for 1996. The higher tax
rate accounted for $34 million of the increase.
LIQUIDITY & CAPITAL RESOURCES
Consolidated operating cash flow totaled $1.78 billion for 1998, compared with
$2.10 billion during 1997. This decrease is largely due to an unfavorable change
in accounts payable and accrued expenses.
Total debt at year-end 1998 was $12.45 billion, an increase of $3.88 billion
from year-end 1997. Over this period, debt related to Machinery and Engines
increased $628 million to $3.10 billion, while debt related to Financial
Products increased $3.26 billion to $9.35 billion.
During 1995, we announced a plan to repurchase up to 10% of our outstanding
common stock over a three to five year period. This share repurchase program was
completed in the third quarter of 1998. In October 1998, the Board of Directors
authorized another share repurchase program to reduce the number of outstanding
shares to 320 million within the next three to five years. In total, 11.6
million shares were repurchased during the year. The number of shares
outstanding at December 31, 1998, was 357.2 million.
Machinery and Engines
Operating cash flow totaled $2.65 billion for 1998, compared with $1.80 billion
for 1997. The increase is primarily the result of a $1.33 billion favorable
change in accounts receivable, largely due to the $1.22 billion sale of
receivables to Cat Financial. Partially offsetting this favorable item was a
$372 million net unfavorable change in accounts payable and accrued expenses and
inventories.
Capital expenditures, excluding equipment leased to others, totaled
$918 million for 1998 compared with $819 million for 1997. Total debt increased
by $628 million. As part of the company's long-term funding strategy, $250
million of Eurobond notes and $300 million of debentures were issued during the
first and third quarter of 1998, respectively. The $250 million of five-year
Eurobonds were issued at a premium. These bonds are due
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Caterpillar Inc.
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February 13, 2003, and were priced to yield 5.914% semi-annually with a
coupon of 6%. The $300 million of 30-year debentures were issued at a discount.
These bonds are due July 15, 2028, and were priced to yield 6.649% semi-annually
with a coupon of 6.625%. These funds were utilized for general corporate
purposes, including the acquisition of Perkins. Our additional debt has
increased the percent of debt to debt plus stockholders' equity from 35% at
December 31, 1997, to 38% at December 31, 1998.
Financial Products
Operating cash flow totaled $(822) million for 1998, compared with $323 million
for 1997. This decrease resulted from the purchase of $1.22 billion of Machinery
and Engines trade receivables. Cash used to purchase equipment leased to others
totaled $335 million in 1998. In addition, net cash used for finance receivables
was $2.20 billion for 1998, compared with $1.21 billion for 1997.
Financial Products' debt was $9.35 billion at December 31, 1998, an increase
of $3.26 billion from December 31, 1997, and is primarily comprised of $6.20
billion of medium-term notes, $189 million of notes payable to banks, and $2.85
billion of commercial paper. At December 31, 1998, finance receivables past due
over 30 days were 1.5%, compared with 1.7% at December 31, 1997. The ratio of
debt to equity of Cat Financial was 8.0:1 at December 31, 1998, compared with
7.8:1 at December 31, 1997.
Financial Products had outstanding credit lines totaling $4.24 billion at
December 31, 1998, which included $2.61 billion of shared revolving credit
agreements with Machinery and Engines. These credit lines are with a number of
banks and are considered support for our outstanding commercial paper,
commercial paper guarantees, the discounting of bank and trade bills, and bank
borrowings.
<TABLE>
<CAPTION>
Dividends paid per share of common stock
Quarter 1998 1997 1996
- ---------------------------------------------------------------
<S> <C> <C> <C>
First..................................... $ .25 $ .20 $ .18
Second.................................... .25 .20 .17
Third..................................... .30 .25 .20
Fourth.................................... .30 .25 .20
----- ----- -----
$1.10 $ .90 $ .75
===== ===== =====
- ---------------------------------------------------------------
</TABLE>
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 were almost
entirely the result of acquisitions.
<TABLE>
<CAPTION>
Full-Time Employees at Year End
1998 1997 1996
- ---------------------------------------------------------
<S> <C> <C> <C>
Inside U.S....................... 40,261 39,722 38,571
Outside U.S...................... 25,563 20,141 18,455
Total........................... 65,824 59,863 57,026
By Region:
North America................... 40,485 39,941 38,698
EAME............................ 18,117 12,739 12,042
Latin America................... 5,302 5,340 4,540
Asia/Pacific.................... 1,920 1,843 1,746
Total......................... 65,824 59,863 57,026
- ---------------------------------------------------------
</TABLE>
OTHER MATTERS
ENVIRONMENTAL MATTERS
The company is regulated by federal, state, and international environmental laws
governing our use of substances and control of emissions. Compliance with these
existing laws has not had a material impact on our capital expenditures,
earnings, or competitive position.
We are cleaning up hazardous waste at a number of locations, often with other
companies, pursuant to federal and state laws. When it is likely we will pay
clean-up costs at a site and those costs can be estimated, the costs are charged
against our earnings. In doing that estimate, we do not consider amounts
expected to be recovered from insurance companies and others.
The amount set aside for environmental clean-up is not material and is
included in "Accounts payable and accrued expenses" in Statement 3. If a range
of liability estimates is available on a particular site, we accrue the lower
end of that range.
We cannot estimate costs on sites in the very early stages of clean-up.
Currently, we have five of these sites and there is no more than a remote chance
that a material amount for clean-up will be required.
DERIVATIVE FINANCIAL INSTRUMENTS
I. Market Risk and Risk Management Policies
Our earnings and cash flow are subject to fluctuations due to changes in foreign
currency exchange rates, interest rates, and commodity prices. Our risk
management policy includes the use of derivative financial instruments to manage
foreign currency exchange rate, interest rate, and commodity price exposures.
Foreign Currency Exchange Rate
Foreign currency exchange rate movements create a degree of risk to our
operations by affecting:
. The U.S. dollar value of sales made in foreign currencies, and
. The U.S. dollar value of costs incurred in foreign currencies.
Foreign currency exchange rate movements also affect our competitive position,
as exchange rate changes may affect business practices and/or pricing strategies
of non-U.S. based competitors.
Our general policy is to use foreign currency derivative instruments as needed
to operate our business and protect our interests. We enter into foreign
currency derivative instruments only to manage risk -- not as speculative
instruments. We buy and sell currencies only to cover business needs and to
protect our financial and competitive position. Our general approach is to
manage future foreign currency cash flow for Machinery and Engines' operations
and net foreign currency balance sheet exposures for Financial Products'
operations.
Our Machinery and Engines' operations manufacture products in, and purchase
raw materials from, many locations around the world. Consequently, our cost base
is well diversified over a number of European, Asia/Pacific, and Latin American
currencies, as well as the U.S. dollar. This diversified cost base serves to
counterbalance the cash flow and earnings impact of non-U.S. dollar revenues
and, therefore, minimizes the effect of exchange rate movements on consolidated
earnings. We use derivative
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MANAGEMENT'S DISCUSSION AND ANALYSIS continued
- --------------------------------------------------------------------------------
financial instruments to manage the currency exchange risk that results when the
cash inflows and outflows by currency are not completely matched.
In managing foreign currency for Machinery and Engines' operations, our
objective is to maximize consolidated after-tax U.S. dollar cash flow. To this
end, our policy allows for actively managing:
. Cash flow related to firmly committed foreign currency transactions;
. Anticipated foreign currency cash flow for the future rolling twelve-
month period; and
. Any hedges (derivative instruments) that are outstanding.
We limit the types of derivative instruments we use to forward exchange
contracts and foreign currency option contracts (net purchased option
contracts). When using forward exchange contracts, we are protected from
unfavorable exchange rate movements, but have given up any potential benefit
from favorable changes in exchange rates. Purchased option contracts, on the
other hand, protect us from unfavorable rate movements while permitting us to
benefit from the effect of favorable exchange rate fluctuations. We do not use
historic rate rollovers or leveraged options, nor do we sell or write foreign
currency options, except in the case of combination option contracts that limit
the unfavorable effect of exchange rate movements, while allowing a limited
potential benefit from favorable exchange rate movements. The forward exchange
or foreign currency option contracts that we use are not exchange traded.
Each month, our financial officers approve the company's outlook for expected
currency exchange rate movements, as well as the policy on desired future
foreign currency cash flow positions (long, short, balanced) for those
currencies in which we have significant activity. Financial officers receive a
daily report on currency exchange rates, cash flow exposure, and open foreign
currency hedges. Expected future cash flow positions and strategies are
continuously monitored. Foreign exchange management practices, including the use
of derivative financial instruments, are presented to the Audit Committee of our
Board of Directors at least annually.
In managing foreign currency risk for our Financial Products' operations, our
objective is to minimize earnings volatility resulting from the translation of
net foreign currency balance sheet positions. We use forward exchange contracts
to offset the risk when the currency of our receivable portfolio does not match
the currency of our debt portfolio.
Interest Rate
We use various interest rate derivative instruments, including interest rate
swap agreements, interest rate cap (option) agreements, and forward rate
agreements to manage exposure to interest rate changes and lower the cost of
borrowed funds. All interest rate derivative instruments are linked to debt
instruments upon entry. We enter into such agreements only with those financial
institutions with strong bond ratings which, in the opinion of management,
virtually negates exposure to credit loss.
Our Financial Products' operations have a "match funding" objective whereby
the interest rate profile (fixed rate or floating rate) of their debt portfolio
must match the interest rate profile of their receivable, or asset portfolio
within specified boundaries. In connection with that objective, we use interest
rate derivative instruments to modify the debt structure to match the receivable
portfolio. This "match funding" reduces the risk of deteriorating margins
between interest-bearing assets and interest-bearing liabilities, regardless of
which direction interest rates move. We also use these instruments to gain an
economic and/or competitive advantage through lower cost of borrowed funds. This
is accomplished by changing the characteristics of existing debt instruments or
entering into new agreements in combination with the issuance of new debt.
Commodity Prices
Our Machinery and Engines' operations are subject to commodity price risk, as
the price we must pay for raw materials changes with movements in underlying
commodity prices. We use commodity swap and option agreements to reduce this
risk. However, our use of these types of derivative financial instruments is not
material.
II. Sensitivity
Exchange Rate Sensitivity
Based on the anticipated and firmly committed cash inflows and outflows for our
Machinery and Engines' operations for the next 12 months and the foreign
currency derivative instruments in place at year end, a hypothetical 10%
weakening of the U.S. dollar relative to all other currencies would adversely
affect our expected 1999 cash flows for our Machinery and Engines' operations by
$116 million. This is not materially different than the potential $92 million
adverse impact on expected 1998 cash flows for our Machinery and Engines'
operations that we reported last year based on similar assumptions and
calculations.
Since our policy for Financial Products' operations is to hedge the foreign
exchange risk when the currency of our debt portfolio does not match the
currency of our receivable portfolio, a 10% change in the value of the U.S.
dollar relative to all other currencies would not have a material effect on our
consolidated financial position, results of operations, or cash flow. Neither
our policy nor the effect of a 10% change in the value of the U.S. dollar has
changed from that reported at the end of last year.
The effect of the hypothetical change in exchange rates ignores the affect
this movement may have on other variables including competitive risk. If it were
possible to quantify this competitive impact, the results could well be
different than the sensitivity effects shown above. In addition, it is unlikely
that all currencies would uniformly strengthen or weaken relative to the U.S.
dollar. In reality, some currencies may weaken while others may strengthen.
Interest Rate Sensitivity
For our Machinery and Engines' operations, we currently use interest rate swaps
to lower the cost of borrowed funds by attaching fixed-to-floating interest rate
swaps to fixed rate debt. A hypothetical 100 basis point adverse move (increase)
in interest rates along the entire interest rate yield curve would adversely
affect 1999 pretax earnings of Machinery and Engines by $8 million. Last year,
similar assumptions and calculations yielded a potential $9 million adverse
impact on 1998 pretax earnings.
A-28
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Caterpillar Inc.
- --------------------------------------------------------------------------------
For our Financial Products' operations, we use interest rate derivative
instruments primarily to meet our "match funding" objectives and strategies. A
hypothetical 100 basis point adverse move (increase) in interest rates along the
entire interest rate yield curve would adversely affect the 1999 pretax earnings
of Financial Products by $14 million. This impact is not materially different
from the potential $10 million adverse 1998 pretax earnings impact of a similar
interest rate movement as reported last year.
The effect of the hypothetical change in interest rates ignores the affect
this movement may have on other variables including changes in actual sales
volumes that could be indirectly attributed to changes in interest rates. The
actions that management would take in response to such a change are also
ignored. If it were possible to quantify this impact, the results could well be
different than the sensitivity effects shown above.
YEAR 2000 CHALLENGE
- -------------------
Our Approach
Caterpillar has a comprehensive plan to address the Year 2000 challenge. A Year
2000 Steering Committee, chaired by a member of our Executive Office, is charged
with monitoring remediation efforts of our business units and reporting
remediation status to our Executive Office and Board of Directors. Although this
team has monitoring responsibility, vice presidents in charge of each business
unit are responsible for identifying, evaluating, and implementing changes
necessary to achieve readiness within their units.
Remediation History and Status
Caterpillar began addressing the Year 2000 challenge as part of plant
modernization and corporate restructuring initiatives in the late 1980s and
early 1990s. New systems incorporated Year 2000 compliance by design. In 1994,
Caterpillar's corporate information systems division initiated projects to
address the Year 2000 issue. Today, all Caterpillar business units are engaged
in a comprehensive effort to meet the Year 2000 challenge as it impacts their
internal and external customers.
We have established five Year 2000 phases under which units measure their
progress:
.Inventory -- identifying key business areas and related products and
services (both internal and external) potentially impacted by the Year
2000 issue;
.Analysis -- determining how a product or service is impacted and
preparing a plan to address the issue;
.Remediation -- making the necessary changes to bring the product or
service into compliance;
.Validation -- testing the product or service to ensure it is Year 2000
compliant; and
.Implementation -- installing necessary changes in production.
Internal Systems
As of December 31, 1998, substantially all Caterpillar business units have
completed an inventory of internal systems having potential Year 2000 issues. By
internal systems, we mean both information technology and non-information
technology systems. Analysis to address Year 2000 issues has been completed on
about 95% of critical systems within the control of our units. Of those critical
systems, about 85% have been remediated and 80% validated. For about 75% of all
critical systems within our control, Year 2000 fixes have been implemented.
About 85% of our business units report that mission-critical systems within
their control will be fixed, tested, and in production by June 1, 1999.
Substantially all units (over 95%) report that mission-critical and significant
priority systems will attain that status by October 1, 1999, with the remaining
few units completed prior to year-end 1999.
Caterpillar Products
For some time, we have been assessing the potential impact of the Year 2000
challenge on the operation of machines and engines sold by Caterpillar. Our
Electrical and Electronics business unit has substantially completed its review,
evaluation, and testing of electronic components and service tools used on
Caterpillar machines and engines for Year 2000 related problems. This review
included all electronic control modules, display and monitoring systems,
generator set control systems, and electronic service tools under the design
control of that business unit.
As a result of this assessment and others completed by Caterpillar, it is our
position at this time that the Year 2000 challenge should not have any
significant impact on the performance of previous, present, or future
Caterpillar machines and engines. We note that our assessment of the Year 2000
impact across our product line is an ongoing process and subject to further
review. We are committed to delivering the highest quality products and services
to our customers currently and beyond the Year 2000.
Suppliers and Caterpillar Dealers
We are actively assessing the Year 2000 readiness of our significant third-party
suppliers. Those efforts include survey mailings, presentations, review of
supplier Year 2000 statements, and follow-up activities with suppliers that have
not responded to requests for information. For suppliers that have not
responded, we are following up to achieve ultimately an acceptable comfort level
with our supply chain. For suppliers posing a significant risk, contingency
plans are being developed.
Analysis to address Year 2000 issues has been completed on about 92% of
critical dependencies (including suppliers, utilities, and transportation
services) outside the control of our business units. For 64% of these critical
dependencies, we have implemented Year 2000-ready solutions or confirmed that
the business partner or dependency was already Year 2000 compliant. Dependencies
reported as outside the control of our units may include those supplied by other
units within Caterpillar as well as those supplied by outside companies.
We are also assessing the readiness of our dealers. Efforts in the U.S. and
outside the U.S., include mailings requesting information on remediation plans
and status, periodic regional meetings with dealers and their information
systems managers, and on-site assessments by Caterpillar managers responsible
for specific dealer regions. Based on these communications, we expect that by
the end of 1999 our dealers will be in a position to service customers without
any significant business disruption related to the Year 2000 issue. We will
continually monitor dealer progress against this time frame.
A-29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS continued
- --------------------------------------------------------------------------------
Costs
The following cost estimates, which are as of December 31, 1998, would not have
a material impact on Caterpillar's results, financial position, or cash flow. As
of December 31, 1998, we have incurred about two-thirds of these estimated total
costs. As necessary, we will refine these estimates.
We anticipate incurring $130-150 million in Year 2000-related costs. Of these
costs, capital costs for the replacement of systems, hardware, or equipment are
currently estimated to be $20-30 million.
These budgeted costs may not include all of the cost of implementing
contingency plans, which are in the process of being developed. These estimates
also do not include litigation or warranty costs related to the Year 2000 issue,
which at this time cannot be reasonably estimated.
Risks
Our estimates on cost, remediation time frame, and potential financial impact
are based on information we have currently. There can be no assurance these
estimates will prove accurate and actual results could differ materially from
those currently anticipated.
Factors that could cause actual results to differ include unanticipated
supplier or dealer failures; utilities, transportation, or telecommunications
breakdowns; U.S. or non-U.S. government failures; and unanticipated failures on
our part to address Year 2000-related issues.
The most reasonably likely worst case scenario in light of these risks would
involve a potential loss in sales resulting from production and shipping delays
caused by Year 2000-related disruptions. Under this scenario, manual procedures
would be required for order processing, invoicing, supplier management
processing, warranty claim processing, and for certain factory machine tool
operations. The degree of sales loss impact would depend on the severity of the
disruption, the time required to correct it, whether the sales loss was
temporary or permanent, and the degree to which our primary competitors were
also impacted by the disruption.
To minimize the potential impact of the most reasonably likely worst case
scenario, each Caterpillar business unit is developing contingency plans.
Finalized contingency plans may involve manual procedures for machine operation,
manual procedures for collecting and reporting data, inventory adjustments for
major components, and considering alternative sources of supply. Contingency
plans, where deemed necessary, will be finalized by the end of 1999.
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
A-30
<PAGE>
Caterpillar Inc.
- -------------------------------------------------------------------------------
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.
The information included in the Outlook section is forward looking and
involves risks and uncertainties that could significantly affect expected
results. A discussion of these risks and uncertainties is contained in Form 8-K
filed with the Securities & Exchange Commission on January 20, 1999.
MANAGEMENT'S DISCUSSION AND ANALYSIS
A-31
<PAGE>
SUPPLEMENTAL STOCKHOLDER INFORMATION
Shareholder Services:
Stock Transfer Agent
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, NJ 07303-2500
phone: (800) 446-2617 (U.S. or Canada)
(201) 324-0498 (Outside U.S. or Canada)
(201) 222-4955 (Hearing impaired)
Internet home page: www.fctc.com
e-mail: [email protected]
Caterpillar Assistant Secretary:
Laurie J. Huxtable
Assistant Secretary
Caterpillar Inc.
100 N.E. Adams Street
Peoria, IL 61629-7310
phone: (309) 675-4619
fax: (309) 675-6620
e-mail: [email protected]
Stock Purchase Plan:
Current shareholders and other interested investors may purchase Caterpillar
Inc. common stock directly through the DirectSERVICE(TM) Investment Program
sponsored and administered by our Transfer Agent.
Current shareholders can get more information on the program from our Transfer
Agent using the contact information provided above. Non-shareholders can request
program materials by calling: 800-955-4749 (U.S. and Canada) or 201-324-0498
(outside the U.S. and Canada). The DirectSERVICE Investment Program may also be
accessed from our Investor Relations web site or First Chicago's home page.
Investor Relations:
Institutional analysts, portfolio managers, and representatives of financial
institutions seeking additional information about the Company should contact:
Director of Investor Relations
James F. Masterson
Caterpillar Inc.
100 N.E. Adams Street, Peoria, IL 61629-5310
phone: (309) 675-4549
fax: (309) 675-4457
e-mail: [email protected]
Internet web site: www.CAT.com/investor
Common Stock (NYSE: CAT)
Listing Information: Caterpillar common stock is listed on the New York, Pacific
and Chicago stock exchanges in the United States, and on stock exchanges in
Belgium, France, Germany, Great Britain, and Switzerland.
Price Ranges: Quarterly price ranges of Caterpillar common stock on the New York
Stock Exchange, the principal market in which the stock is traded, were:
<TABLE>
<CAPTION>
1998 1997
--------------------- ----------------------
Quarter High Low High Low
- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C>
First.... 59 1/4 44 1/2 41 7/8 36 1/4
Second... 60 3/4 51 1/16 54 11/16 38 3/16
Third.... 56 5/16 39 1/16 61 1/2 52 1/4
Fourth... 52 3/16 41 1/8 60 15/16 44
</TABLE>
Number of Stockholders: Stockholders of record at year end totaled 34,527,
compared with 32,409 at the end of 1997. Approximately 68% of our issued shares
are held by institutions and banks, 25% by individuals, and 7% by Caterpillar
benefit plans.
Employees' investment and profit-sharing plans acquired 2,685,138 shares of
Caterpillar stock in 1998. Investment plans, for which membership is voluntary,
held 26,663,273 shares for employee accounts at 1998 year end. Profit-sharing
plans, in which membership is automatic for most U.S. and Canadian employees in
eligible categories, held 480,790 shares at 1998 year end.
Company Publications:
To request any of the following materials, call our Financial Hotline -- (800)
CAT-7717 (U.S. & Canada) or (201) 332-8602 (outside U.S. or Canada); or visit
our Investor Relations web site to download or request materials on-line:
. Annual Report/Proxy Statement (early March)
. Form 10-K (late April)
. Form 10-Q (late May, Aug., and Nov.)
. Financial Results Press Release (late Jan., April, July, and Oct.)
. General Investor Packet
To hear a summary of Caterpillar's latest financial results and current
outlook or to request a copy of results by fax or mail, call our Financial
Hotline.
Annual Meeting:
On Wednesday, April 14, 1999, at 10:30 a.m., Eastern Standard Time, the annual
meeting of stockholders will be held at Graylyn International Conference Center
of Wake Forest University, Winston-Salem, North Carolina. Requests for proxies
are being sent to stockholders with this report mailed on or about February 26,
1999.
Internet:
Visit us on the Internet at www.CAT.com.
A-32
<PAGE>
DIRECTORS AND OFFICERS
DIRECTORS
Lilyan H. Affinito/2,4/ Former Vice Chairman, Maxxam Group Inc.
Glen A. Barton/5/ Chairman and Chief Executive Officer, Caterpillar
Inc.
W. Frank Blount/1,3/ Director and Chief Executive Officer, Telstra
Corporation Limited
John R. Brazil/1,3/ President, Bradley University
John T. Dillon/2,4/ Chairman and Chief Executive Officer,
International Paper
Donald V. Fites/3,4,5/ Former Chairman and Chief Executive Officer,
Caterpillar Inc.
Juan Gallardo/1,3/ Chairman and Chief Executive Officer,
Grupo Embotelladoras Unidas S.A. de C.V.
David R. Goode/1,2/ Chairman, President, and Chief Executive Officer,
Norfolk Southern Corporation
James P. Gorter/1,2/ Chairman, Baker, Fentress & Company
Peter A. Magowan/2,4/ Former Chairman and CEO, Safeway Inc.; President
and Managing General Partner, San Francisco Giants
Gordon R. Parker/1,3/ Former Chairman, Newmont Mining Corporation
George A. Schaefer/1,3/ Former Chairman and Chief Executive Officer,
Caterpillar Inc.
Joshua I. Smith/3,4/ Chairman and Chief Executive Officer, The MAXIMA
Corporation
Clayton K. Yeutter/2,4/ Of Counsel to Hogan & Hartson, Washington, D.C.
/1/ Member of Audit Committee (David R. Goode, chairman)
/2/ Member of Compensation Committee (James P. Gorter, chairman)
/3/ Member of Nominating Committee (Joshua I. Smith, chairman)
/4/ Member of Public Policy Committee (Clayton K. Yeutter, chairman)
OFFICERS
Glen A. Barton/5/ Chairman and Chief Executive Officer
Gerald S. Flaherty Group President
James W. Owens Group President
Gerald L. Shaheen Group President
Richard L. Thompson Group President
R. Rennie Atterbury III Vice President, General Counsel and Secretary
James W. Baldwin Vice President
Sidney C. Banwart Vice President
Vito H. Baumgartner Vice President
Michael J. Baunton Vice President
James S. Beard Vice President
Richard A. Benson Vice President
Ronald P. Bonati Vice President
James E. Despain Vice President
Roger E. Fischbach/6/ Vice President
Michael A. Flexsenhar Vice President
Donald M. Ings Vice President
Duane H. Livingston Vice President
Robert R. Macier Vice President
David A. McKie Vice President
F. Lynn McPheeters Vice President
Daniel M. Murphy Vice President
Douglas R. Oberhelman Vice President
Gerald Palmer Vice President
Robert C. Petterson Vice President
John E. Pfeffer Vice President
Siegfried R. Ramseyer Vice President
Alan J. Rassi Vice President
Gary A. Stroup Vice President
Sherril K. West Vice President
Donald G. Western Vice President
Steven H. Wunning Vice President
Robert R. Gallagher Controller
Kenneth J. Zika Treasurer
Robin D. Beran Assistant Treasurer
Mary J. Callahan Assistant Secretary
Laurie J. Huxtable Assistant Secretary
__________
Note: All director/officer information is as of December 31, 1998, except as
noted.
/5/ Effective February 1, 1999
/6/ Will retire effective April 1, 1999
A-33
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 21
SUBSIDIARIES AND AFFILIATES OF CATERPILLAR INC.
(as of December 31, 1998)
Jurisdiction in
Name of Company which Organized
- ----------------------------------------- ---------------
<S> <C>
Aceros Fundidos Internacionales LLC Delaware
Advanced Filtration Systems Inc. Delaware
Amur Machinery & Services Company Russia
Anchor Coupling Inc. Delaware
Aquila Mining Systems Ltd. Canada
Carter Machinery Company, Incorporated Delaware
Caterpillar Agricultural Products Inc. Delaware
Caterpillar Claas America LLC Delaware
Claas Caterpillar Europe Verwaltungs GmbH Germany
Claas Caterpillar Europe GmbH & Co. KG Germany
Caterpillar Americas Co. Delaware
Caterpillar Americas Funding Inc. Delaware
NOIL Participacoes e Comercio S.A. Brazil
Lion S.A. Brazil
Caterpillar Americas Services, Inc. Delaware
Caterpillar Andes S.A. Chile
Caterpillar Asia Pacific Holding Inc. Delaware
Caterpillar (China) Investment Co., Ltd. China
Asia Forge (Tianjin) Ltd. China
AsiaTrak (Tianjin) Ltd. China
Caterpillar Xuzhou Ltd. China
Caterpillar (HK) Limited Hong Kong
Shanxi International Casting Co. Ltd. China
Caterpillar (Thailand) Limited Thailand
V-Trac Holdings Limited Cook Islands
V-Trac Infrastructure Development Company Vietnam
Caterpillar Asia Pte. Ltd. Singapore
Caterpillar of Australia Ltd. Australia
Caterpillar Brasil Ltda. Brazil
Caterpillar Administracao e Participacoes S/C Ltda. Brazil
Caterpillar of Canada Ltd. Canada
Caterpillar Commercial Holding S.A. Switzerland
Caterpillar Commercial SARL Switzerland
Caterpillar Commercial LLC Delaware
Caterpillar Commercial N.V. Belgium
Caterpillar Group Services N.V. Belgium
Hindustan Powerplus Limited India
Caterpillar Commercial Services Ltd. Canada
Exhibit 21
</TABLE>
Page 1 of 7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Caterpillar Corporativo Mexico, S. de R.L. de C.V. Mexico
Caterpillar Mexico, S.A. de C.V. Mexico
Inmobiliara Conek, S.A. Mexico
Caterpillar Torreon S. de R.L. de C.V. Mexico
Caterpillar Servicios Mexico, S. de R.L. de C.V. Mexico
Caterpillar of Delaware, Inc. Delaware
Caterpillar Industrial Products, Inc. Delaware
Nexus International Inc. Delaware
Nexus International S.r.L. Italy
Caterpillar Elphinstone Pty. Ltd. Australia
Elphinstone Commercial Services Ltd. Canada
Caterpillar Energy Company S.A. Guatemala
Caterpillar Export Limited US Virgin Islands
Caterpillar Financial Services Corporation Delaware
Bio-energy Partners Illinois
Caterpillar Credit Services Asia Pte. Ltd. Singapore
Caterpillar Finance France S.A. France
Caterpillar Financial Australia Limited Australia
Caterpillar Financial Corporacion Financiera S.A., E.F. Spain
Caterpillar Financial Funding Corporation Nevada
Caterpillar Financial Member Company Delaware
Caterpillar Financial Asset Sales Corporation Nevada
Caterpillar Financial Nordic Services A.B. Sweden
Caterpillar Financial Receivables Corporation Nevada
Caterpillar Financial Renting, S.A. Spain
Caterpillar Financial S.A. Arrendamento Mercantil Brazil
Caterpillar Financial S.A. Credito, Financiamento e Investimento Brazil
Caterpillar Financial Services CR, s.r.o. Czechoslovakia
Caterpillar Financial Services Korea, Ltd Korea
Caterpillar Financial Services Limited Canada
Caterpillar Financial Services Malaysia Sdn Bhd Malaysia
Caterpillar Financial Services Philippines Inc. Philippines
Caterpillar Financial Services Poland Sp.z.o.o. Poland
Caterpillar Financial Services (UK) Limited England
Caterpillar Holding Germany GmbH Germany
Caterpillar Financial Services Verwaltungs-GmbH Germany
Caterpillar Financial Services GmbH & Co. KG Germany
Caterpillar Leasing GmbH (Leipzig) Germany
Caterpillar Vibra-Ram Verwaltungs-GmbH Germany
Caterpillar Vibra-Ram GmbH & Co., KG Germany
EDC European Excavator Design Center Verwaltungs-GmbH Germany
EDC European Excavator Design Center GmbH & Co. KG Germany
MaK Motoren Verwaltungs-GmbH Germany
MaK Motoren GmbH & Co. KG Germany
Germanischer Lloyd AG Germany
Guangzhou MaK Diesel Engine Ltd. China
MaK Beteiligungs GmbH Germany
Exhibit 21
</TABLE>
Page 2 of 7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Machinefabriek Bolier B.V. Netherlands
Financieringsmaatschappij Boiler B.V. Netherlands
Diesel Sales and Services Merwedehaven B.V. Netherlands
Laminex V.o.F. Netherlands
MaK Netherlands B.V. Netherlands
MaK Americas (Canada) Inc. Canada
Canadia Diesel Power Inc. Canada
MaK Scandinavia A/S Denmark
MaK Wohnungsbau GmbH & Co. KG Germany
Perkins Motoren GmbH Germany
Caterpillar International Bank Plc Ireland
Caterpillar International Finance plc Ireland
Caterpillar International Services Corporation Nevada
Caterpillar International Services del Peru S.A. Peru
Caterpillar Leasing Chile, S.A. Chile
Caterpillar Leasing (Thailand) Limited Thailand
Grupo Financiero Caterpillar Mexico, S.A. de C.V. Mexico
Caterpillar Arrendadora Financiera, S.A. de C.V. Mexico
Caterpillar Credito, S.A. de C.V. Mexico
Caterpillar Factoraje Financiero, S.A. de C.V. Mexico
GFCM Servicios, S.A. de C.V. Mexico
MICA Energy Systems Michigan
Caterpillar Forest Products Inc. Delaware
Caterpillar Holding (France) S.A.R.L. France
Caterpillar Logistics Services (France) SARL France
MaK Mediterranee S.A.S. France
Caterpillar Transmissions (France) SARL France
Moteurs Perkins S.A. France
Caterpillar Impact Products Limited United Kingdom
Caterpillar Industrial Inc. Ohio
Mitsubishi Caterpillar Forklift America Inc. Delaware
FMS Equipment Rentals Inc. Delaware
Material Handling Associates, Inc. Delaware
Mitsubishi Caterpillar Forklift America de Argentina S.A. Argentina
Rapidparts Inc. Delaware
Mitsubishi Caterpillar Forklift Asia Pte. Ltd. Singapore
Mistubishi Caterpillar Forklift Europe B.V. Netherlands
Caterpillar Insurance Co. Ltd. Bermuda
Caterpillar Assurance Company Limited Grand Cayman Island
Caterpillar Insurance Services Corporation Tennessee
Caterpillar International Leasing L.L.C. Delaware
Caterpillar Investment Management Ltd. Delaware
Caterpillar Securities Inc. Delaware
Caterpillar Logistics Services, Inc. Delaware
Caterpillar Logistics Services International N.V. Belgium
Caterpillar Logistics N.V. Belgium
Caterpillar Logistics Services Spain, S.A. Spain
Exhibit 21
</TABLE>
Page 3 of 7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Caterpillar Overseas Credit Corporation S.A. Switzerland
Caterpillar Overseas S.A. Switzerland
Caterpillar (Africa) (Proprietary) Limited South Africa
Caterpillar Asia Limited Hong Kong
Caterpillar Belgium S. A. Belgium
Caterpillar China Limited Hong Kong
Caterpillar Commercial S.A.R.L. France
Caterpillar Commerciale S.r.L. Italy
Caterpillar France S.A. France
Caterpillar Hungary Ltd. Hungary
Caterpillar Logistics Services Limited England
Caterpillar MHI Marketing Ltd. Japan
Mec-Track S.r.L. Italy
Mec-3 S.r.L. Italy
P.T. Natra Raya Indonesia
Shin Caterpillar Mitsubishi Ltd. Japan
Aishin Co. Japan
Akashi GS Co., Ltd. Japan
Chugoku Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan
Rex World Co., Ltd. Japan
Top Try Co., Ltd. Japan
Yeep Co. Japan
CM Custom Product Co., Ltd. Japan
CM Human Services Co., Ltd. Japan
CM Logistics Services Co., Ltd. Japan
CMEC Co., Ltd. Japan
Diamond Office Management Co., Ltd. Japan
Earthmoving Resources Corporation Japan
East Kanto Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan
Clean World Co. Japan
Takuma Co. Japan
Tone Lease Co. Japan
Hama-rental Co. Japan
Hokkaido Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan
Shin Hokken Ltd. Japan
Hokken Service Co. Japan
Hokuriku Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan
Akira Shoji Co., Ltd. Japan
Dia Rental Hokuriku Co., Ltd. Japan
F. M. K. Co., Ltd. Japan
RYOETSU Co., Ltd. Japan
Itoh Tekkosho Co., Ltd. Japan
Kinki Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan
Rental Sanwa Co., Ltd. Japan
Space Attack Co., Ltd. Japan
K-Lea Co., Ltd. Japan
Kyoei Co. Japan
Exhibit 21
</TABLE>
Page 4 of 7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Machida Kiko Co., Ltd. Japan
Nihon Kenki Lease Co., Ltd. Japan
Rega Kyushu Co., Ltd. Japan
Sagakiko-shokai Co., Ltd. Japan
Sagami GS Co., Ltd. Japan
SCM Operator Training Co., Ltd. Japan
SCM Shoji Co., Ltd. Japan
SCM System Service Co., Ltd. Japan
Sowa System Co. Japan
Tokai Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan
Seiryo Co., Ltd. Japan
Tokuden Co. Japan
Tokyo Rental Co., Ltd. Japan
Osaka Rental Co., Ltd. Japan
Tunnel Rental Co., Ltd. Japan
Unix Inc. Japan
West Kanto Caterpillar Mitsubishi Construction Equipment Sales, Ltd. Japan
Aiwa Co., Ltd. Japan
Nagano Kouki Co., Ltd. Japan
Sanko Rental Co. Japan
Solar Turbines Canada Ltd./Ltee. Canada
Solar Turbines Europe S.A. Belgium
Solar Turbines Overseas Pension Scheme Trustees Limited Guernsey
Solar Turbines Services Nigeria Limited Nigeria
Tractor Engineers Limited India
Caterpillar Paving Products Inc. Oklahoma
Caterpillar Materiels Routiers S.A. France
Caterpillar Poland sp. zo.o. Poland
Caterpillar Power India Private Limited India
Caterpillar Power Systems Inc. Delaware
Caterpillar Power Ventures Corporation Delaware
Caterpillar Power Ventures International, Ltd. Bermuda
Caterpillar Power Ventures International Mauritius Ltd. Mauritius
Caterpillar Redistribution Services Inc. Delaware
DUECOSA Limited Channel Islands
Caterpillar Redistribution Services SARL Switzerland
Caterpillar Rental Services Network Inc. Delaware
Caterpillar Service Center Russia
Caterpillar Services Limited Delaware
Caterpillar Tosno Russia
Caterpillar (U.K.) Limited England
Brown Group Holdings Limited England and Wales
Archer Components Limited England
Artix Aviation Limited England
Automotive Development Centre Limited England
Caterpillar Peterlee Limited England
Caterpillar Stockton Limited England and Wales
Exhibit 21
</TABLE>
Page 5 of 7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
D. J. Industries Limited England
Caterpillar EPG Limited England and Wales
Caterpillar Logistics Services (UK) Limited England and Wales
Caterpillar Skinningrove Limited England and Wales
MaK (London) Limited United Kingdom
Memorygraph Company Limited England
Perkins Engines Company Ltd. England and Wales
Perkins Engines (Australia) Pty. Ltd. Australia
Perkins Engines (Far East) Pty. Ltd. Singapore
Perkins Pension Trust Limited England and Wales
Perkins Executive Pension Trust Limited England and Wales
Systemjoin Limited England and Wales
Turner Powertrain Systems Limited England
Caterpillar Waco Inc. Delaware
Caterpillar World Trading Corporation Delaware
Caterpillar Work Tools Canada Ltd. Canada
Caterpillar Work Tools, Inc. Kansas
Cyclean, Inc. Delaware
Depositary (Bermuda) Limited Bermuda
F.G. Wilson, L.L.C. Delaware
F.G. Wilson (Engineering) Limited Northern Ireland
Everton Engineering (N.I.) Limited Northern Ireland
F.G. Wilson Australia PTY Limited Australia
F.G. Wilson Engineering (Dublin) Limited Ireland
F.G. Wilson (Engineering) HK Limited Hong Kong
F.G. Wilson Engineering Vertriebs-GmbH Germany
F.G. Wilson Incorporated Delaware
F.G. Wilson (Proprietary) Limited South Africa
F.G. Wilson S.A. France
F.G. Wilson Singapore Pte Limited Singapore
F.G. Wilson Technology India Pvt. Ltd. India
Genrent Limited Northern Ireland
F.G. Wilson (USA) LLC Delaware
Heartland Community Development Corporation Not-for-Profit
Hydropro S.r.l. Italy
Kato Engineering Inc. Delaware
Leo, Inc. Washington
Vanguard Hydraulic Pipelayer, Inc. Washington
Lexington Real Estate Holding Corporation Delaware
MaK Americas (USA) Inc. Illinois
Material Handling Crane Systems, Inc. Ohio
Buckeye Iron Works Company Ohio
Mincom Pty Ltd. Australia
Peoria Medical Research Corporation Illinois
Perkins Engines Inc. Maryland
Perkins Engines (Latin America) Inc. Delaware
Perkins Technology Inc. Delaware
Exhibit 21
</TABLE>
Page 6 of 7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Rapisarda Industries SrL Italy
Solar Turbines Incorporated Delaware
OTSG, Inc. Delaware
Solar Turbines International Company Delaware
Energy Services International Group, Ltd. Delaware
ESI do Brasil Ltda. Brazil
Energy Services International Limited Bermuda
P. T. Solar Services Indonesia Indonesia
Servtech Limited Ireland
Turboservices Sdn. Bhd. Malaysia
Solar Turbines Services Company California
Turbinas Solar de Venezuela, C.A. Venezuela
Turbinas Solar S.A. de C.V. Mexico
Turbo Tecnologia de Reparaciones S.A. de C.V. Mexico
STI Capital Company Delaware
Tecnologia Modificada S.A. de C.V. Mexico
UNOC Equipment and Supply, L.L.C. Delaware
UNOC Equipment and Supply Russia
VALA CV Netherlands
VALA Inc. Delaware
VALA (UK) LP United Kingdom
VALA LLC Delaware
Varity International Inc. Delaware
Perkins Holdings Limited Delaware
Perkins Group Limited England and Wales
Dorman Diesels Limited England and Wales
F. Perkins Limited England and Wales
Motores Perkins S.A. Mexico
Motori Perkins S.P.A. Italy
Perkins do Brazil Comercial Ltda. Brazil
Perkins Engines Tianjin Company Limited China
Perkins Engines Eastern (Singapore) Pte. Ltd. Singapore
Perkins Engines Group Limited England and Wales
Perkins Argentina S.A. Argentina
Perkins Engines Leasing Limited England and Wales
Perkins Limited England and Wales
Motores Diesel Andino S.A. Peru
Perkins Power Sales & Service Limited England and Wales
Perkins Shibaura Engines Limited England and Wales
Stylealpha Ltd. United Kingdom
Veratech Holding B.V. Netherlands
Heroco B.V. Netherlands
Metaalwarenfabriek A.P. Verachtert B.V. Netherlands
Verachtert GmbH Germany
Veratech GmbH Germany
Wright Equipment Company (Proprietary) Limited South Africa
Exhibit 21
</TABLE>
Page 7 of 7
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Forms S-8 (No. 2-90123, as amended, 2-97450, as amended, 33-3718,
as amended, 33-8003, 33-14116, 33-37353, 33-39280, 33-40598, 333-03609, 333-
32853, and 333-32851) of Caterpillar Inc. of our report dated January 20, 1999
related to the consolidated financial statements of Caterpillar Inc., appearing
on page A-3 of the Appendix to the Company's 1999 Annual Meeting Proxy Statement
which is incorporated in this Annual Report on Form 10-K.
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Forms S-3 (Nos. 33-46194,
333-22041, 333-43133, and 333-43983) of Caterpillar Inc. of our report dated
January 20, 1999 related to the consolidated financial statements of Caterpillar
Inc., appearing on page A-3 of the Appendix to the Company's 1999 Annual Meeting
Proxy Statement which is incorporated in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Peoria, Illinois
March 26, 1999
Exhibit 23 Page 1 of 1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 120
<SECURITIES> 240
<RECEIVABLES> 3,660<F1>
<ALLOWANCES> 0<F1><F2>
<INVENTORY> 2,842
<CURRENT-ASSETS> 11,459
<PP&E> 10,395
<DEPRECIATION> 5,529
<TOTAL-ASSETS> 25,128
<CURRENT-LIABILITIES> 7,945
<BONDS> 9,404
0<F2>
0<F2>
<COMMON> 407
<OTHER-SE> 4,724
<TOTAL-LIABILITY-AND-EQUITY> 25,128
<SALES> 19,972
<TOTAL-REVENUES> 20,977
<CGS> 15,031
<TOTAL-COSTS> 18,724
<OTHER-EXPENSES> (185)
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 264
<INCOME-PRETAX> 2,174
<INCOME-TAX> 665
<INCOME-CONTINUING> 1,513
<DISCONTINUED> 0<F2>
<EXTRAORDINARY> 0<F2>
<CHANGES> 0<F2>
<NET-INCOME> 1,513
<EPS-PRIMARY> 4.17
<EPS-DILUTED> 4.11
<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.
</FN>
</TABLE>
<PAGE>
Exhibit 99.1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the Fiscal Year Ended December 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from _____ to _____
Commission File Number 1-768
CATERPILLAR FOREIGN SERVICE EMPLOYEES'
STOCK PURCHASE PLAN
(Full title of the Plan)
CATERPILLAR INC.
(Name of issuer of the securities held
pursuant to the Plan)
100 NE ADAMS STREET, PEORIA, ILLINOIS 61629
(Address of principal executive offices)
================================================================================
<PAGE>
REQUIRED INFORMATION
Item 1.
Financial Statements for this Plan are not enclosed since the requirements to
file such financial statements were deemed inapplicable in accordance with the
letter from the Securities and Exchange Commission dated January 26, 1973.
Item 2.
(See response to Item 1).
Item 3.
(See response to Item 1).
Item 4.
Not Applicable
<PAGE>
[LOGO OF CATERPILLAR APPEARS HERE]
