SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 16, 1999
CATERPILLAR INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
1-768
(Commission File Number)
37-0602744
(IRS Employer I.D. No.)
100 NE Adams Street, Peoria, Illinois
(Address of principal executive offices)
61629
(Zip Code)
Registrant's telephone number, including area code: (309) 675-1000
Item 5. Other Events
July 16, 1999
CATERPILLAR REPORTS SECOND-QUARTER RESULTS:
REVISES 1999 PROFIT OUTLOOK
PEORIA, Ill. -- Caterpillar Inc. (NYSE: CAT) today reported second-
quarter sales and revenues of $5.10 billion, $503 million lower than
the all-time record established in the second quarter of 1998. The
decrease was primarily due to an 8 percent decrease in physical sales
volume, partially offset by a 13 percent increase in Financial Products
revenues. Profit of $283 million was $163 million less than 1998's
second-quarter record of $446 million. The decrease was due to lower
sales of higher margin large machines and large engines, partially offset
by an increase in lower margin truck engine sales. Profit per share
was 78 cents.
"The second quarter was a challenging one for the company due to weak
demand for our large machines and large engines in key industry segments
of mining and oil and gas. In addition, demand remains weak in several
key geographic regions," said Caterpillar Chairman and CEO Glen Barton.
"We continue to benefit from our growing product, services and geographic
diversity. Truck engine sales are a bright spot -- both sales and our
share of the industry hit all-time highs -- and revenues from Financial
Products are up significantly. But the lower sales volume, coupled with
the unfavorable product mix, more than offset favorable factors and the
aggressive actions taken by our business units in response to changing
economic conditions. While we expect that the second half of the year
will be stronger than the first, it does not appear demand for larger
machines will be as strong as we had earlier anticipated."
Page 1
<PAGE>
HIGHLIGHTS
----------
SECOND-QUARTER 1999 COMPARED WITH SECOND-QUARTER 1998
- -----------------------------------------------------
* Sales and revenues of $5.10 billion were $503 million or 9 percent
lower than the all-time record established in the second quarter of 1998.
* Revenues from Financial Products increased 13 percent.
* Sales inside the United States were 53 percent of worldwide sales
compared with 51 percent a year ago.
* Machinery and Engines selling, general and administrative (SG&A)
expenses were cut 6 percent and research and development (R&D) expenses
were reduced 8 percent from second-quarter 1998.
* Profit of $283 million and profit per share of 78 cents were down
37 percent and 35 percent, respectively, from second-quarter 1998.
Profit per share continues to benefit from the company's share
repurchase programs.
* The company acquired the remaining 51% of F.G. Wilson during the
second quarter of 1999.
* 1.2 million shares were repurchased during the quarter under the
program announced in October 1998 to reduce the number of shares
outstanding to 320 million within the next three to five years.
On June 30, 1999 there were 355.6 million shares outstanding
(361.0 million assuming dilution).
OUTLOOK
- -------
We still expect full-year 1999 sales and revenues to be slightly
below 1998. However, profit per share is now expected to be 20 to
25 percent less than 1998 because of an unfavorable change in mix.
Sales of higher margin large machines and large engines are expected to
be lower than anticipated, while sales of lower margin truck engines
are expected to be higher than anticipated. (Complete outlook begins on
page 9.)
Page 2
<PAGE>
DETAILED ANALYSIS
-----------------
SECOND-QUARTER 1999 COMPARED WITH SECOND-QUARTER 1998
- -----------------------------------------------------
Sales and revenues for the second quarter of 1999 were $5.10 billion,
$503 million lower than the all-time record established in the second
quarter of 1998. The decrease was primarily due to an 8 percent decrease
in physical sales volume, partially offset by a 13 percent increase in
Financial Products revenues. Profit of $283 million was $163 million less
than 1998's second-quarter record of $446 million. The decrease was mostly
due to lower sales of higher margin large machines and large engines,
partially offset by an increase in lower margin truck engines sales.
Lower price realization, primarily in EAME, and the impact of lower
production volumes on manufacturing efficiencies also contributed to the
decrease in profit. Profit per share of 78 cents was down 42 cents from
the 1998 record of $1.20.
MACHINERY AND ENGINES
Sales Table
-----------
(Millions of North Latin Asia/
dollars) Total America EAME** America Pacific
-------- -------- ------- -------- --------
Second-Quarter 1999
Machinery $3,217 $1,953 $766 $203 $295
Engines * 1,604 919 390 128 167
-------- -------- ------- -------- --------
$4,821 $2,872 $1,156 $331 $462
======== ======== ======= ======== ========
Second-Quarter 1998
Machinery $3,670 $2,280 $758 $343 $289
Engines * 1,687 812 576 144 155
-------- -------- ------- -------- --------
$5,357 $3,092 $1,334 $487 $444
======== ======== ======= ======== ========
* Does not include internal engine transfers of $314 million and
$337 million in 1999 and 1998, respectively. Internal engine
transfers are valued at prices comparable to those for unrelated
parties.
** Europe, Africa & Middle East and Commonwealth of Independent States
Machinery sales were $3.22 billion, a decrease of $453 million or
12 percent from second-quarter 1998. The lower sales resulted primarily
from a 10 percent decrease in physical sales volume due to lower sales
to end users and a larger reduction in dealer new machine inventory than
occurred in the second quarter last year. Price realization also declined
as higher prices in North America were more than offset by lower prices
and unfavorable geographic mix in EAME.
Page 3
<PAGE>
Sales rose slightly in the Asia/Pacific region and EAME and declined
elsewhere. In North America, sales fell in both the United States and
Canada. The decline in the United States was primarily due to lower
sales to end users and slower growth in dealer rental operations, both
of which occurred as industry demand fell from year-earlier levels.
Additionally, dealers reduced new machine inventories more during the
second quarter than they did a year ago leading to lower company sales.
In Canada, sales continued to lag 1998 levels due to weak industry demand.
In EAME, higher sales in Europe were partially offset by lower sales in
Africa & Middle East and Commonwealth of Independent States (CIS). Sales
to users remained near 1998 levels for the EAME region. In Latin America,
sales were lower due to declines in both sales to users and dealer
inventories. In the Asia/Pacific region, sales rose in the developing
countries as dealers continued to rebuild new machine inventories rather
than decrease them as they did a year ago. This increase in sales to
developing Asia more than offset lower end-user driven sales in Australia.
Engine sales were $1.60 billion, a decrease of $83 million or 5 percent
from second-quarter 1998, reflecting lower physical sales volume. Price
realization was about the same.
Sales were up in North America and Asia/Pacific but down in EAME and
Latin America. Worldwide, sales into the petroleum sector were lower
reflecting the impact of last year's low oil prices on large engines.
In North America, sales were up in both the United States and Canada due
to the strong on-highway truck market and an increased share of industry
sales, as well as higher demand for power generation applications. Sales
were lower in EAME reflecting weak growth in Africa & Middle East and
lower sales by agricultural equipment manufacturers. Sales were up in
Asia/Pacific as higher sales of reciprocating engines throughout the
region more than offset a decline in turbine engine sales in developing
Asia. In Latin America, sales remained below 1998 levels as a result of
recession or slower growth throughout the region.
Operating Profit Table
----------------------
(Millions of dollars) Second-Quarter 1999 Second-Quarter 1998
------------------- -------------------
Machinery $293 $531
Engines 117 135
---- ----
$410 $666
---- ----
Caterpillar operations are highly integrated; therefore, the company uses
a number of allocations to determine lines of business operating profit.
Machinery operating profit decreased $238 million, or 45 percent from
second-quarter 1998. Margin (sales less cost of goods sold) declined
primarily due to the lower sales volume and price realization, the impact of
lower production volumes on manufacturing efficiencies and an unfavorable
change in product sales mix. SG&A and R&D expenses were lower reflecting
the impact of ongoing cost reduction actions.
Page 4
<PAGE>
Engine operating profit decreased $18 million, or 13 percent from second-
quarter 1998. Margin declined due mostly to the shift in product sales mix
from large to medium and small engines, but was also impacted by overall
lower sales volumes. SG&A and R&D expenses were about the same.
Interest expense was $4 million lower than a year ago due to lower average
interest rates.
Other income/expense reflects a net increase in income of $15 million due
mostly to a favorable change in foreign exchange gains and losses.
FINANCIAL PRODUCTS
- ------------------
Revenues were a second-quarter record $315 million, up $39 million or 14
percent compared with second-quarter 1998. The increase resulted primarily
from continued growth in Cat Financial's portfolio.
Before tax profit decreased $7 million from second-quarter 1998. Higher
profit at Cat Financial from continued portfolio growth was more than offset
by lower profit at Caterpillar Insurance Co. Ltd. (Cat Insurance) due to
less favorable reserve adjustments.
INCOME TAXES
- ------------
Second-quarter 1999 tax expense reflects an effective annual tax rate of
32 percent, compared with a 33 percent rate for the second-quarter 1998.
UNCONSOLIDATED AFFILIATED COMPANIES
- -----------------------------------
The company's share of unconsolidated affiliated companies' results declined
$3 million from a year ago, primarily due to lower profit at F.G. Wilson.
SUPPLEMENTAL INFORMATION
- ------------------------
Dealer Machine Sales to End Users and Deliveries to Dealer Rental Operations
Sales and deliveries in North America were below second-quarter 1998 levels.
Sales were lower in both the United States and Canada reflecting lower industry
demand. Sales to end users were lower in most construction and commodity
sectors. Deliveries to dealer rental operations also were down from second
quarter last year.
Sales and deliveries in the EAME region remained near year-earlier levels as
higher sales in Europe offset lower sales in Africa & Middle East and the CIS.
In Europe, economic growth was sufficient to produce higher sales to users in
the key countries of the United Kingdom, Germany, France, Spain and Italy.
In Africa & Middle East, weak growth, generally low
Page 5
<PAGE>
commodity prices and political uncertainty led to lower sales. In the CIS,
sales were lower primarily due to recession in Russia. For EAME as a whole,
sales to users were lower in most applications, with the exception of
aggregates mining and agriculture where sales were higher. The decrease
in sales to users, though, was offset by higher deliveries to dealer
rental operations.
Sales and deliveries in Latin America fell due to recession and weak
growth through much of the region. Sales in the second quarter were lower
in all key countries. Sales to users were lower in all key applications
except industrial where sales were higher.
Sales and deliveries in Asia/Pacific remained below year-earlier levels as
slightly higher sales in developing countries were more than offset by
lower sales in Australia. Sales were up slightly in Indonesia and Malaysia
as the regional economy began to recover from last year's recessions. Sales
also were up in India and China. Sales for the quarter were lower in
Thailand and Korea, as well as Japan where business conditions remain weak.
For the region as a whole, sales to users were higher in aggregates mining,
housing construction and forestry, and declined in other key sectors.
Deliveries to dealer rental operations were higher.
Dealer Inventories of New Machines
Worldwide dealer new machine inventories at the end of the second quarter were
about the same as a year ago and about normal relative to current selling rates.
Inventories were higher in North America and lower in Asia/Pacific, Latin
America and EAME. At quarter's end, inventories compared with current
selling rates were about normal in Asia/Pacific and Latin America and slightly
below normal in EAME. Inventories in North America, although currently
declining, were slightly above normal compared with current selling rates.
Engine Sales to End Users and OEMs
Sales in North America were up primarily due to continued, very strong
demand for on-highway truck engines due to booming industry demand and our
increased share of industry sales. Sales also were higher in power
generation applications, but lower in the petroleum sector. Sales were
up in both the United States and Canada reflecting higher demand for
reciprocating engines. Demand for turbine engines remained near last
year's level.
Sales in EAME were down with lower sales in both Europe and Africa & Middle
East. Weak growth in Africa & Middle East, last year's low oil prices and
weak OEM demand all contributed to the declines. Sales were lower in most
key applications and for both reciprocating and turbine engines.
Sales in Asia/Pacific were down as lower sales in developing Asia more
than offset higher sales in Australia. Sales of reciprocating engines were
up throughout the region reflecting improved economic conditions, but
turbine engine sales remained below year-earlier levels in developing Asia
as a result of last year's low oil prices. Turbine sales were higher in
Australia. Sales were up in power generation, but down in petroleum and
marine applications.
Sales in Latin America were lower for both reciprocating and turbine engines
reflecting the impact of recession or slower growth through the region.
Higher sales for power generation and marine applications were more than
offset by lower sales in the petroleum and on-highway truck sectors.
Page 6
<PAGE>
CONDENSED CASH FLOW
- -------------------
Net free cash flow (profit after tax adjusted for depreciation, changes
in working capital, capital expenditures, and dividends) for Machinery and
Engines was $276 million for 1999, a decrease of $637 million from 1998.
This decrease was primarily due to lower profit after tax and an unfavorable
change in working capital. The unfavorable change in working capital is
mostly due to an unfavorable change in receivables (1998 benefited from the
initiation of the revolving sale of receivables to Cat Financial) partially
offset by a favorable change in inventory.
For the Six Months Ended CONSOLIDATED
(Millions of dollars) June 30, June 30,
1999 1998
-------- -------
Profit after tax $488 $876
Depreciation and amortization 467 429
Change in working capital -
excluding cash, debt and
dividends payable (955) (1,881)
Capital expenditures excluding
equipment leased to others (263) (307)
Expenditures for equipment
leased to others, net of disposals (97) (107)
Dividends paid (214) (183)
------ ------
Net Free Cash Flow (574) (1,173)
------ ------
Other significant cash flow items:
Treasury shares purchased (149) (200)
Net (increase) decrease in
long-term finance receivables (544) (898)
Net increase (decrease) in debt 1,550 3,683
Investments and acquisitions -
(net of cash acquired) (251) (1,324)
Prefunding of employee benefit
plans - -
Other (67) (159)
------ ------
Change in cash and short-term
Investments $(35) $(71)
====== ======
For the Six Months Ended MACHINERY & ENGINES
(Millions of dollars) June 30, June 30,
1999 1998
-------- -------
Profit after tax $488 $876
Depreciation and amortization 374 351
Change in working capital -
excluding cash, debt and
dividends payable (113) 166
Capital expenditures excluding
equipment leased to others (262) (304)
Expenditures for equipment
leased to others, net of disposals 3 7
Dividends paid (214) (183)
------ ------
Net Free Cash Flow 276 913
------ ------
Other significant cash flow items:
Treasury shares purchased (149) (200)
Net (increase) decrease in
long-term finance receivables - -
Net increase (decrease) in debt 188 832
Investments and acquisitions -
(net of cash acquired) (228) (1,324)
Prefunding of employee benefit
plans - -
Other (148) (294)
------ ------
Change in cash and short-term
Investments $(61) $(73)
====== ======
For the Six Months Ended FINANCIAL PRODUCTS
(Millions of dollars) June 30, June 30,
1999 1998
-------- -------
Profit after tax $ 84 $ 92
Depreciation and amortization 93 78
Change in working capital -
excluding cash, debt and
dividends payable (839) (2,048)
Capital expenditures excluding
equipment leased to others (1) (3)
Expenditures for equipment
leased to others, net of disposals (100) (114)
Dividends paid (36) (35)
------ ------
Net Free Cash Flow (799) (2,030)
------ ------
Other significant cash flow items:
Treasury shares purchased - -
Net (increase) decrease in
long-term finance receivables (544) (898)
Net increase (decrease) in debt 1,362 2,851
Investments and acquisitions -
(net of cash acquired) (23) -
Prefunding of employee benefit
plans - -
Other 30 79
------ ------
Change in cash and short-term
Investments $ 26 $ 2
====== ======
* Represents Caterpillar Inc. and its subsidiaries, except for Financial
Products which is accounted for on the equity basis. Note: Lines titled
"Changes in working capital - excluding cash, debt and dividends payable"
exclude $88 million included in the "Investments and acquisitions - (net of
cash acquired)" line for the six months ended June 30, 1999; Lines titled
"Change in working capital - excluding cash, debt and dividends payable"
and "Capital expenditures excluding equipment leased to others" exclude
$22 million and $354 million, respectively, included in the "Investments
and acquisitions - (net of cash acquired)" line for the six months ended
June 30, 1998.
Page 7
<PAGE>
EMPLOYMENT
- ----------
At the end of the second quarter, Caterpillar's worldwide employment was
66,545 compared with 65,947 one year ago. Acquisitions added approximately
2,700 during this period.
OUTLOOK
- -------
In the aggregate, 1999 company sales and revenues are still expected to
be consistent with our original outlook -- slightly below 1998's record
levels. However, sales of higher margin large machines and large engines
are expected to be lower than anticipated, while sales of lower margin
truck engines are expected to be higher than anticipated. This change in
sales mix is placing additional pressure on profit and requiring factory
schedule adjustments to keep production in line with demand. As a result,
the company is continuing to take cost reduction actions and expects to
offset some of the unfavorable impact of this change in mix and lower
production volumes.
We now expect 1999 profit per share to be 20 to 25 percent less than 1998.
The fourth quarter is expected to be substantially stronger than the third
due to additional factory shutdowns in the third quarter to keep production
in line with demand.
SUPPLEMENTAL OUTLOOK INFORMATION
- --------------------------------
Summary
World economic growth in 1999 is now forecast to slightly exceed last
year's rate as improvement in Asia more than offsets weakness in Latin
America. The United States, Canadian and Australian economies should
register another year of excellent growth while Europe slows slightly from
1998 growth rates. The second half of the year should be much better than
the first half with improvement in Latin America and Europe.
Even with an improvement in these economies in the second half, industry
demand for construction and mining machinery is expected to be slightly lower
in 1999 than last year. Machine demand is forecast to be down slightly in
the United States and just below last year's levels in Australia and Japan.
Higher demand in Europe and developing Asia should offset lower demand in
Latin America and Canada. In contrast to construction and mining equipment,
industry demand for agricultural equipment is forecast to be down sharply due
to depressed commodity prices.
Industry demand for engines is forecast to exceed 1998 levels in North
America due primarily to the continued strong on-highway truck market.
Demand in the rest of the world, however, is likely to be down, primarily
due to lower turbine sales. Sales of both large reciprocating and turbine
engines are forecast to be down in each region due to the impact of last
year's low oil prices.
Page 8
<PAGE>
This environment of generally weaker industry demand combined with a reversal
of last year's increase in North American dealer inventories and continuing
price pressures is expected to result in company sales slightly below 1998
levels. Declines in Latin America and EAME are forecast to more than offset
an increase in Asia/Pacific while sales in North America should remain near
1998 levels as higher engine sales offset lower machine sales.
North America
In the United States, Gross Domestic Product (GDP) growth is forecast to
be about 4 percent, matching last year's rate of 3.9 percent. Despite
this strong rate of growth, industry demand for construction and mining
equipment is now forecast to be slightly below last year's very high
levels. Metal prices, with the possible exception of gold, have likely
bottomed out, but little improvement is expected in the second half
resulting in continued weakness for metal mining. The new six-year highway
bill is still expected to boost construction spending as well as aggregates
production, but the impact on 1999 will likely be less than anticipated due
to bottlenecks in getting projects underway. Even in the very strong
housing sector, growth in industry demand is expected to be limited due
to labor and material shortages. In Canada, GDP growth is forecast to be
3.5 percent, but last year's higher interest rates to defend the Canadian
dollar resulted in much lower sales early in the year and will likely keep
sales for the year below 1998 levels. For both the United States and Canada,
low commodity prices will cause industry demand for agricultural equipment
to be significantly below last year's levels. In total, machine sales are
forecast to decline due to a reversal of last year's increase in dealer
new machine inventories and lower industry demand. Engine sales for North
America, however, should surpass 1998 levels due primarily to continued
strong demand for reciprocating engines in the on-highway truck market.
Overall, sales in North America are expected to remain near last year's
levels.
EAME
In Western Europe, GDP growth is expected to be 2 to 2.5 percent. The
United Kingdom has avoided recession and growth is forecast to improve
in the second half. This spring's cut in European interest rates combined
with a favorable euro exchange rate should result in better growth
throughout the region in the second half. For the year as a whole, demand
for construction and mining machines should increase slightly while demand
for engines, especially from OEMs, is forecast to be down. In Africa &
Middle East, weak growth and low commodity prices should result in lower
demand for both machines and engines. In Russia, continued weakness and
instability will result in lower demand for the year. For the region as
a whole, company sales are forecast to be down in 1999 due to weakness in
Africa & Middle East and lower engine sales.
Page 9
<PAGE>
Latin America
The region is beginning to recover from recessions experienced by many
countries over the last twelve months. Interest rates across the region
are down substantially and higher oil prices will provide a boost to
selected countries, especially Venezuela and Mexico. The situation in
Brazil has improved and moderate growth is forecast for the second half.
Argentina and Chile should also emerge from recession in the second half.
Mexico and Peru only experienced one quarter of negative growth and
should continue to pick up momentum. Problems remain in Colombia and
Ecuador, but the region as a whole should be poised for better growth.
Industry demand for both machines and engines should begin to stabilize
in the second half, but demand will still be down significantly from
1998. Consequently, company sales will be lower in 1999 than last year.
Asia/Pacific
A broad-based recovery is now underway in those developing economies
which experienced recession last year. Strong first-quarter economic
growth has been reported by a number of countries including South Korea,
Indonesia and Thailand. Combined with China, which continues to grow at
about 7 percent, GDP growth for developing Asia is now forecast to increase
from 1 percent in 1998 to 4 percent in 1999. Economic recovery combined
with strong infrastructure spending in China should result in higher
industry demand for machines. Engine demand, however, is likely to be
down as higher demand for reciprocating engines is more than offset by
lower demand for turbines. Business conditions in Japan are expected to
remain relatively weak in 1999 despite a surprisingly strong first quarter
GDP report. Massive public works spending, however, should begin to
stabilize industry demand after the steep decline of the past two years.
In Australia, continued strong economic growth should keep industry
demand just slightly below 1998 levels. For the region as a whole,
company sales are forecast to be up due to slightly higher industry
demand and the expectation that dealers will not decrease new machine
inventories as they did in 1998.
Page 10
<PAGE>
CATERPILLAR INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
(Millions of dollars except per share data)
CONSOLIDATED
June 30, June 30,
1999 1998
-------- -------
Sales and revenues:
Sales of Machinery & Engines $4,821 $5,357
Revenues of Financial Products 280 247
-------- -------
Total sales and revenues 5,101 5,604
-------- -------
Operating costs:
Cost of goods sold 3,743 3,978
Selling, general, and
administrative expenses 632 634
Research and development expenses 152 165
Interest expense of Financial Products 136 121
-------- -------
Total operating costs 4,663 4,898
-------- -------
Operating Profit 438 706
Interest expense excluding
Financial Products 65 69
Other income (expense) 49 29
-------- -------
Consolidated profit before taxes 422 666
Provision for income taxes 136 220
-------- -------
Profit of consolidated companies 286 446
Equity in profit of
unconsolidated affiliates (3) -
Equity in profit of Financial
Products subsidiaries - -
-------- -------
Profit $283 $446
======== =======
EPS of common stock $0.80 $1.22
======== =======
EPS of common stock - assuming dilution $0.78 $1.20
======== =======
Weighted average shares
outstanding (thousands)
Basic 355,943 365,841
Assuming dilution 361,065 371,756
CATERPILLAR INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
(Millions of dollars except per share data)
MACHINERY & ENGINES
June 30, June 30,
1999 1998
-------- -------
Sales and revenues:
Sales of Machinery & Engines $4,821 $5,357
Revenues of Financial Products - -
-------- -------
Total sales and revenues 4,821 5,357
-------- -------
Operating costs:
Cost of goods sold 3,743 3,978
Selling, general, and
administrative expenses 516 548
Research and development expenses 152 165
Interest expense of Financial Products - -
-------- -------
Total operating costs 4,411 4,691
-------- -------
Operating Profit 410 666
Interest expense excluding
Financial Products 65 69
Other income (expense) 15 -
-------- -------
Consolidated profit before taxes 360 597
Provision for income taxes 113 195
-------- -------
Profit of consolidated companies 247 402
Equity in profit of
unconsolidated affiliates (3) -
Equity in profit of Financial
Products subsidiaries 39 44
-------- -------
Profit $283 $446
======== =======
* Represents Caterpillar Inc. and its subsidiaries, except for
Financial Products which is accounted for on the equity basis.
Transactions between Machinery and Engines and Financial Products
have been eliminated to arrive at the Consolidated data..
CATERPILLAR INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
(Millions of dollars except per share data)
FINANCIAL PRODUCTS
June 30, June 30,
1999 1998
-------- -------
Sales and revenues:
Sales of Machinery & Engines $ - $ -
Revenues of Financial Products 315 276
-------- -------
Total sales and revenues 315 276
-------- -------
Operating costs:
Cost of goods sold - -
Selling, general, and
administrative expenses 123 92
Research and development expenses - -
Interest expense of Financial Products 142 124
-------- -------
Total operating costs 265 216
-------- -------
Operating Profit 50 60
Interest expense excluding
Financial Products - -
Other income (expense) 12 9
-------- -------
Consolidated profit before taxes 62 69
Provision for income taxes 23 25
-------- -------
Profit of consolidated companies 39 44
Equity in profit of
unconsolidated affiliates - -
Equity in profit of Financial
Products subsidiaries - -
-------- -------
Profit $ 39 $ 44
======== =======
Page 11
<PAGE>
CATERPILLAR INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED
(Millions of dollars except per share data)
CONSOLIDATED
June 30, June 30,
1999 1998
-------- -------
Sales and revenues:
Sales of Machinery & Engines $9,419 $9,930
Revenues of Financial Products 549 468
-------- -------
Total sales and revenues 9,968 10,398
-------- -------
Operating costs:
Cost of goods sold 7,321 7,312
Selling, general, and
administrative expenses 1,285 1,221
Research and development expenses 307 320
Interest expense of Financial Products 265 222
-------- -------
Total operating costs 9,178 9,075
-------- -------
Operating Profit 790 1,323
Interest expense excluding
Financial Products 132 130
Other income (expense) 65 102
-------- -------
Consolidated profit before taxes 723 1,295
Provision for income taxes 232 427
-------- -------
Profit of consolidated companies 491 868
Equity in profit of
unconsolidated affiliates (3) 8
Equity in profit of Financial
Products subsidiaries - -
-------- -------
Profit $488 $876
======== =======
EPS of common stock $1.37 $2.39
======== =======
EPS of common stock - assuming dilution $1.35 $2.36
======== =======
Weighted average shares
outstanding (thousands)
Basic 356,159 366,424
Assuming dilution 360,180 372,008
CATERPILLAR INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED
(Millions of dollars except per share data)
MACHINERY & ENGINES
June 30, June 30,
1999 1998
-------- -------
Sales and revenues:
Sales of Machinery & Engines $9,419 $9,930
Revenues of Financial Products - -
-------- -------
Total sales and revenues 9,419 9,930
-------- -------
Operating costs:
Cost of goods sold 7,321 7,312
Selling, general, and
administrative expenses 1,067 1,060
Research and development expenses 307 320
Interest expense of Financial Products - -
-------- -------
Total operating costs 8,695 8,692
-------- -------
Operating Profit 724 1,238
Interest expense excluding
Financial Products 132 130
Other income (expense) (2) 42
-------- -------
Consolidated profit before taxes 590 1,150
Provision for income taxes 183 374
-------- -------
Profit of consolidated companies 407 776
Equity in profit of
unconsolidated affiliates (3) 8
Equity in profit of Financial
Products subsidiaries 84 92
-------- -------
Profit $488 $876
======== =======
* Represents Caterpillar Inc. and its subsidiaries, except for
Financial Products which is accounted for on the equity basis.
Transactions between Machinery and Engines and Financial Products
have been eliminated to arrive at the Consolidated data.
CATERPILLAR INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED
(Millions of dollars except per share data)
FINANCIAL PRODUCTS
June 30, June 30,
1999 1998
-------- -------
Sales and revenues:
Sales of Machinery & Engines $ - $ -
Revenues of Financial Products 618 516
-------- -------
Total sales and revenues 618 516
-------- -------
Operating costs:
Cost of goods sold - -
Selling, general, and
administrative expenses 232 173
Research and development expenses - -
Interest expense of Financial Products 276 229
-------- -------
Total operating costs 508 402
-------- -------
Operating Profit 110 114
Interest expense excluding
Financial Products - -
Other income (expense) 23 31
-------- -------
Consolidated profit before taxes 133 145
Provision for income taxes 49 53
-------- -------
Profit of consolidated companies 84 92
Equity in profit of
unconsolidated affiliates - -
Equity in profit of Financial
Products subsidiaries - -
-------- -------
Profit $ 84 $ 92
======== =======
Page 12
<PAGE>
CATERPILLAR INC.
CONDENSED FINANCIAL POSITION
(Millions of dollars)
Consolidated
(Caterpillar Inc. and Subsidiaries)
June 30, Dec. 31, June 30,
1999 1998 1998
-------- -------- --------
Assets
Current assets:
Cash and short-term investments $325 $360 $221
Receivables - trade and other 3,880 3,660 3,760
Receivables - finance 4,065 3,516 3,563
Deferred income taxes 534 474 471
Prepaid expenses 676 607 539
Inventories 2,772 2,842 3,132
-------- -------- --------
Total current assets 12,252 11,459 11,686
Property, plant, and
equipment - net 4,913 4,866 4,444
Long-term receivables
- trade and other 86 85 132
Long-term receivables
- finance 5,602 5,058 4,779
Investments in unconsolidated
affiliated companies 602 773 805
Deferred income taxes 1,045 955 988
Intangible assets 1,578 1,241 1,253
Other assets 677 691 1,019
-------- -------- --------
Total Assets $26,755 $25,128 $25,106
======== ======== ========
Liabilities
Current liabilities:
Short-term borrowings:
-- Machinery & Engines $245 $49 $587
-- Financial Products 960 760 607
Accounts payable 2,060 2,250 2,460
Accrued expenses 1,037 928 1,127
Accrued wages, salaries, and
employee benefits 1,059 1,217 1,043
Dividends payable 116 107 109
Deferred and current
income taxes payable 39 15 153
Long-term debt due within one year:
-- Machinery & Engines 37 60 33
-- Financial Products 2,654 2,179 1,560
-------- -------- --------
Total current liabilities 8,207 7,565 7,679
Long-term debt due after one year:
-- Machinery & Engines 3,008 2,993 2,686
-- Financial Products 7,098 6,411 6,778
Liability for postemployment
benefits 2,666 2,590 2,707
Deferred income taxes
and other liabilities 530 438 123
-------- -------- --------
Total Liabilities 21,509 19,997 19,973
-------- -------- --------
Stockholders' Equity
Common stock 1,046 1,063 1,066
Profit employed in the business 6,389 6,123 5,701
Accumulated other comprehensive
income (17) 1 62
Treasury stock (2,172) (2,056) (1,696)
-------- -------- --------
Total Stockholders' Equity 5,246 5,131 5,133
-------- -------- --------
Total Liabilities and
Stockholders' Equity $26,755 $25,128 $25,106
======== ======== ========
Certain amounts for 1998 have been reclassified to conform with the
1999 financial statement presentation.
Page 13
<PAGE>
SAFE HARBOR STATEMENT UNDER THE SECURITIES LITIGATION
REFORM ACT OF 1995
- ------------------------------------------------------
Certain statements contained in our Second Quarter 1999 Financial
Release are forward looking and involve uncertainties that could
significantly impact expected results. The words "believes," "expects,"
"estimates," "anticipates," "will be" and similar words or expressions
identify forward-looking statements made on behalf of Caterpillar.
Uncertainties include factors that affect all international businesses,
as well as matters specific to the Company and the markets it serves.
Current Outlook
- ---------------
Our current outlook calls for recovery to begin in Latin America and
to continue in developing Asia in the second half. If, for any reason,
these recoveries falter, sales would likely be lower than anticipated
in the affected region. Renewed currency speculation, a significant
decline in the stock market (in the region or in the U.S.), or much higher
interest rates (in the region or in the U.S.) could result in weaker
than anticipated economic growth and sales. Economic recovery could
also be delayed or weakened by growing budget or current account
deficits or inappropriate government policies.
In particular, our outlook assumes that the Japanese government remains
committed to stimulating the economy and that the Brazilian government
follows through with promised reforms. A reversal by either government
could result in renewed recession. Our outlook also assumes that currency
and stock markets remain relatively stable. If currency or stock markets
were to decline significantly, uncertainty would increase and interest
rates could move higher, both of which would probably result in slower
economic growth and lower sales.
The outlook for our sales also depends on commodity prices which are
expected to remain near current levels, on average, for the remainder
of the year. Oil prices have moved up considerably since the start of
the year and are likely to come down some from current levels. Gold
prices have recently moved lower on announcements of government plans
to sell gold, but we assume gold prices do not move much lower.
Agricultural prices are likely to remain weak in the second half while
most metals prices should be relatively flat to up slightly. Based on
this forecast, equipment sales into sectors that are sensitive to
commodity prices are likely to remain relatively weak for the second half.
Stronger than anticipated world growth, particularly in Europe, could
lead to a noticeable recovery in commodity prices before year end which
could result in greater than expected sales. Conversely, weaker than
anticipated world economic growth could lead to a drop in commodity
prices and lower than expected sales. Europe plays a key role in this
forecast and our current outlook is for improvement in the third and
fourth quarters leading to annual average GDP growth of 2.0% or better.
If Europe fails to improve, then commodity prices could be weaker.
Russia remains in severe recession. Political and economic instability
are very high and a further deterioration could impact worldwide stock
or currency markets, which in turn could weaken Company sales.
Page 14
<PAGE>
Monetary and Fiscal Policies
- ----------------------------
For most companies operating in a global economy, monetary and fiscal
policies implemented in the U.S. and abroad could have a significant
impact on economic growth, and, accordingly, demand for a product.
For example, if the Federal Reserve raises rates significantly, the
U.S. economy could slow abruptly leading to an unanticipated decline in
sales. The current outlook is for a further 50 basis point increase over
the next nine months, which will begin to slow GDP growth. Or, the
Federal Reserve could fail to cut interest rates quickly enough in
response to a significant decline in world stock markets, which also
would slow the U.S. economy and negatively impact demand for the
Company's products.
In general, high interest rates, reductions in government spending,
higher taxes, significant currency devaluations, and uncertainty over
key policies are some factors likely to lead to slower economic growth
and lower industry demand. The current outlook is for slightly slower
U.S. growth in the second half of 1999 and not recession. If, for
whatever reason, the U.S. were to enter a recession then demand for
Company products would fall in the U.S. and Canada and would also be
lower throughout the rest of the world.
Political Factors
- -----------------
Political factors in the U.S. and abroad also have a major impact on
global companies. The Company is one of the largest U.S. exporters as
a percentage of sales. International trade and fiscal policies implemented
in the U.S. this year could impact the Company's ability to expand its
business abroad. U.S. foreign relations with certain countries and any
related restrictions imposed could also have a significant impact on
foreign sales.
Currency Fluctuations
- ---------------------
Currency fluctuations are also a significant unknown for global companies.
If the U.S. dollar strengthens against foreign currencies, the Company's
ability to realize price increases on sales could be negatively impacted.
Most of the Company's key competitors have their principal manufacturing
operations based in Japan or European countries. The majority of our
manufacturing assets are in the United States. Consequently, should
an overvalued dollar persist, our costs compared with these competitors
would be relatively higher. As a major net exporter from the United
States, the persistence of an overvalued dollar, over time, could have
an unfavorable impact on our global competitive position.
Dealer Practices
- ----------------
In addition to these factors, there are uncertainties related to the
Company's industry and specific operations. A major factor contributing
to the Company's success is its dealer distribution network. Dealer
practices, such as changes in inventory levels for both new and rental
equipment, are not within the Company's control (primarily because these
practices depend upon the dealer's assessment of anticipated sales) and
may have a significant positive or negative impact on our results.
Page 15
<PAGE>
Other Factors
- -------------
The rate of infrastructure spending, housing starts, commercial
construction and mining also play a significant role in the Company's
results. Our products are an integral component of these activities
and as these activities increase or decrease in the U.S. or abroad,
demand for our products may be significantly impacted.
Another factor which can impact company sales and profit is mix. Our
outlook assumes a certain geographic mix of sales as well as a product
mix of sales (machines vs. engines, small vs. large, high margin vs. low
margin). Results may be impacted positively or negatively by changes in
the mix.
The Company operates in a highly competitive environment and our outlook
depends on a forecast of the Company's percentage of industry sales. A
reduction in that percentage could result from pricing or product
strategies pursued by competitors, unanticipated product or manufacturing
difficulties, a failure to price the product competitively, or an
unexpected buildup in competitors' new machine or dealer owned rental
fleets.
The outlook also depends on our ability to realize price increases.
The environment remains very competitive and a repeat of the price
discounting that occurred in 1998 would result in lower than anticipated
price realization.
This discussion of uncertainties is by no means exhaustive but is
designed to highlight important factors that may impact our outlook.
Obvious factors such as general economic conditions throughout the
world do not warrant further discussion but are noted to further
emphasize the myriad of contingencies that may cause the Company's
actual results to differ from those currently anticipated.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CATERPILLAR INC.
By: /s/ R. Rennie Atterbury III
R. Rennie Atterbury III
Vice President
Date: April 16, 1999
