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CATERPILLAR INC
10-Q, 1999-11-01
CONSTRUCTION MACHINERY & EQUIP

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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________
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
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __.
At September 30, 1999, 354,567,683 shares of common stock of the Registrant were outstanding.

This summary page highlights selected information and may not contain all of the information that is important to you. For a detailed analysis of the company's results for the third quarter, you should read the entire document.

SUMMARY OF RESULTS

On October 15, 1999, Caterpillar Inc. reported third-quarter sales and revenues of $4.72 billion, $458 million lower than third quarter 1998. The decrease was primarily due to an 8 percent decline in physical sales volume, partially offset by a 10 percent increase in Financial Products revenues. Profit of $219 million or 61 cents per share, was $117 million less than 1998's third quarter of $336 million. The decrease was due primarily to lower sales volume, lower price realization and an unfavorable change in product sales mix. Lower selling, general and administrative (SG&A) and research and development (R&D) costs partially offset these unfavorable items. "Lower retail sales in several key geographic and industry segments caused a decline in company sales this quarter," said Caterpillar Chairman and CEO Glen Barton. "While sales of large machines remained weak, truck engine sales continued at historic high levels and demand for large reciprocating engines is picking up. The diversity of our business continues to provide positive contributions to results and the organization has demonstrated its ability to effectively manage costs during a period of lower volume." "We expect company sales and revenues to decline about 5 percent in 1999 from the record level set in 1998. In 2000, better worldwide growth, higher commodity prices and less dealer inventory reduction should generate higher sales for both machines and engines."

HIGHLIGHTS - THIRD-QUARTER 1999 COMPARED WITH THIRD-QUARTER 1998

· Sales and revenues of $4.72 billion were $458 million or 9 percent lower than the third-quarter 1998. · Revenues from Financial Products increased 10 percent. · Sales inside the United States were 47 percent of worldwide sales compared with 51 percent a year ago. · Machinery and Engines SG&A and R&D expenses were reduced 8 percent and 7 percent, respectively, from third-quarter 1998. · Profit of $219 million and profit per share of 61 cents were down 35 percent and 34 percent, respectively, from third-quarter 1998. Profit per share continues to benefit from the company's share repurchase programs. · 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 September 30, 1999 there were 354.6 million shares outstanding (359.2 million assuming dilution).

OUTLOOK

We expect full-year 1999 sales and revenues to be lower than previously anticipated, about 5 percent below 1998, and profit per share to be about $3.00. Based on our preliminary outlook, increases in both sales and profits are expected in 2000. (Complete outlook begins on page 14.)

Part I. FINANCIAL INFORMATION

Caterpillar Inc.
Statement of Results of Operations
(Unaudited)
(Millions of dollars except per share data)
		Consolidated							Machinery & Engines (1)						Financial Products
		Three Months Ended September 30,							Three Months Ended September 30,						Three Months Ended September 30,
		1999				1998			1999			1998			1999			1998
Sales and revenues:
	Sales of Machinery and Engines	$	4,422			$	4,906		$	4,422		$	4,906		$	-		$	-
	Revenues of Financial Products		293				267			-			-			326			296
	Total sales and revenue		4,715				5,173			4,422			4,906			326			296
Operating costs:
	Cost of goods sold		3,470				3,748			3,470			3,748			-			-
	Selling, general, and administrative expenses		616				631			500			545			124			94
	Research and development expenses		151				163			151			163			-			-
	Interest expense of Financial Products		142				135			-			-			149			136
	Total operating costs		4,379				4,677			4,121			4,456			273			230
Operating profit			336				496			301			450			53			66
	Interest expense excluding Financial Products		71				68			71			68			-			-
	Other income		62				43			33			10			11			13
Consolidated profit before tax			327				471			263			392			64			79
	Provision for income tax		104				138			81			108			23			30
	Profit of consolidated companies		223				333			182			284			41			49
	Equity in profit (loss) of unconsolidated Affiliated companies (Note 4)		(4)				3			(4)			3			-			-
	Equity in profit of Financial Products' Subsidiaries		-				-			41			49			-			-
Profit		$	219			$	336		$	219		$	336		$	41		$	49
Profit per share of common stock (Note 6)		$	0.62			$	0.93
Profit per share of common stock - assuming dilution (Note 6)		$	0.61			$	0.92
Cash dividends paid per share of common stock		$	0.33			$	0.30
(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. Transactions between Machinery & Engines and Financial Products have been eliminated to arrive at the consolidated data.
See accompanying notes to Consolidated Financial Statements

 

Caterpillar Inc.
Statement of Results of Operations
(Unaudited)
(Millions of dollars except per share data)
		Consolidated Nine Months Ended September 30,							Machinery & Engines (1) Nine Months Ended September 30,						Financial Products Nine Months Ended September 30,
		1999				1998			1999			1998			1999			1998
Sales and revenues:
	Sales of Machinery and Engines	$	13,841			$	14,836		$	13,841		$	14,836		$	-		$	-
	Revenues of Financial Products		842				735			-			-			944			812
	Total sales and revenue		14,683			15,571				13,841			14,836			944			812
Operating costs:
	Cost of goods sold		10,791				11,060			10,791			11,060			-			-
	Selling, general, and administrative expenses		1,901				1,852			1,567			1,605			356			267
	Research and development expenses		458				483			458			483			-			-
	Interest expense of Financial Products		407				357			-			-			425			365
	Total operating costs		13,557				13,572			12,816			13,148			781			632
Operating profit			1,126				1,819			1,025			1,688			163			180
	Interest expense excluding Financial Products		203				198			203			198			-			-
	Other income		127				145			31			52			34			44
Consolidated profit before tax			1,050				1,766			853			1,542			197			224
	Provision for income tax		336				565			264			482			72			83
	Profit of consolidated companies		714				1,201			589			1,060			125			141
	Equity in profit (loss) of unconsolidated Affiliated companies (Note 4)		(7)				11			(7)			11			-			-
	Equity in profit of Financial Products' Subsidiaries		-				-			125			141			-			-
Profit		$	707			$	1,212		$	707		$	1,212		$	125		$	141
Profit per share of common stock (Note 6)		$	1.99			$	3.32
Profit per share of common stock - assuming dilution (Note 6)		$	1.97			$	3.28
Cash dividends paid per share of common stock		$	0.93			$	0.80
(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. Transactions between Machinery & Engines and Financial Products have been eliminated to arrive at the consolidated data.
See accompanying notes to Consolidated Financial Statements

Caterpillar Inc.
Statement of Changes in Stockholders' Equity
For the Nine Months Ended
(Unaudited)
(Dollars in millions)
				Consolidated
			September 30, 1999							September 30, 1998
Common Stock:
	Balance at beginning of period		$		(993)					$	(442)
	Common shares issued, including treasury shares reissued: September 30, 1999 - 1,477,728; September 30, 1998 - 661,149				20						14
	Treasury shares purchased: September 30, 1999 - 4,108,400; September 30, 1998 - 9,983,300				(218)						(491)
	Balance at end of period				(1,191)						(919)
Profit employed in the business:
	Balance at beginning of period				6,123						5,026
	Profit				707		$	707			1,212		$	1,212
	Dividends declared				(222)						(201)
	Balance at end of period				6,608						6,037
Accumulated other comprehensive income:
	Foreign currency translation adjustment: (1)
		Balance at beginning of period			65						95
		Aggregate adjustment for period			20			20			(43)			(43)
		Balance at end of period			85						52
	Minimum Pension Liability Adjustment: (1)
		Balance at beginning of period			(64)						-
		Aggregate adjustment for period			(40)			(40)			-			-
		Balance at end of period			(104)						-
	Comprehensive income						$	687					$	1,169
Stockholders' equity at end of period			$		5,398					$	5,170
(1) No reclassification adjustments to report.
See accompanying notes to Consolidated Financial Statements

Caterpillar Inc.
Statement of Financial Position *
(Dollars in millions)
			Consolidated								Machinery & Engines (1)							Financial Products
Assets			Sept. 30, 1999				Dec. 31, 1998				Sept. 30, 1999				Dec. 31, 1998			Sept. 30, 1999				Dec. 31, 1998
	Current assets:
		Cash and short-term investments	$	283			$	360			$		221		$	303		$	62				$	57
		Receivables - trade and other	3,399					3,660					2,360			2,604			1,673					1,875
		Receivables - finance		4,289				3,516					-			-			4,289					3,516
		Deferred income taxes		563				474					549			465			14					9
		Prepaid expenses		724				607					719			616			4					9
		Inventories (Note 5)		2,719				2,842					2,719			2,842			-					-
		Total current assets		11,977				11,459					6,568			6,830			6,042					5,466
	Property, plant and equipment - net			4,936				4,866					4,121			4,125			815					741
	Long-term receivables - trade and other			97				85					95			85			2					-
	Long-term receivables - finance			5,446				5,058					-			-			5,446					5,058
	Investments in unconsolidated affiliated companies (Note 4)			518				773					492			773			26					-
	Investments in Financial Products' subsidiaries			-				-					1,460			1,269			-					-
	Deferred income taxes			925				955					933			980			9					8
	Intangible assets			1,563				1,241					1,561			1,241			2					-
	Other assets			997				691					639			316			358					375
Total assets			$	26,459			$	25,128			$		15,869		$	15,619		$	12,700				$	11,648
Liabilities
	Current liabilities:
		Short-term borrowings	$	211			$	809			$		60		$	49		$	151				$	760
		Accounts payable		2,102				2,250					2,181			2,401			378					521
		Accrued expenses		1,094				928					760			659			329					290
		Accrued wages, salaries, and employee benefits		1,089				1,217					1,080			1,208			9					9
		Dividends payable		-				107					-			107			-					-
		Deferred and current income taxes payable		67				15					16			(19)			51					34
		Deferred liability		-				-					-			-			181					143
		Long-term debt due within one year		3,037				2,239					152			60			2,885					2,179
	Total current liabilities			7,600				7,565					4,249			4,465			3,984					3,936
	Long-term debt due after one year			10,347				9,404					3,125			2,993			7,222					6,411
	Liability for postemployment benefits			2,620				2,590					2,620			2,590			-					-
	Deferred income taxes and other liabilities			494				438					477			440			34					32
Total Liabilities				21,061				19,997					10,471			10,488			11,240					10,379
Stockholders' Equity
	Common Stock of $1.00 par Authorized shares: 900,000,000 Issued shares: (9/30/99 - 407,447,312; 12/31/98 - 407,447,312) at paid in amount			1,044				1,063					1,044			1,063			757					683
	Profit employed in the business			6,608				6,123					6,608			6,123			740					615
	Accumulated other comprehensive income			(19)				1					(19)			1			(37)					(29)
	Treasury stock (9/30/99 - 52,879,629; 12/31/98 - 50,248,957) at cost			(2,235)				(2,056)					(2,235)			(2,056)			-					-
Total Stockholders' Equity				5,398				5,131					5,398			5,131			1,460					1,269
Total Liabilities and Stockholders' Equity			$	26,459			$	25,128			$		15,869		$	15,619		$	12,700				$	11,648
(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. Transactions between Machinery & Engines and Financial Products have been eliminated to arrive at the consolidated data.
See accompanying notes to Consolidated Financial Statements
* Unaudited except for Consolidated December 31, 1998 amounts.

Caterpillar Inc.
Statement of Cash Flow for the Nine Months Ended
(Unaudited)
(Dollars in millions)
				Consolidated September 30,						Machinery & Engines (1) September 30,						Financial Products September 30,
				1999			1998			1999			1998			1999					1998
Cash Flow from Operating Activities:
	Profit			$	707		$	1,212		$	707		$	1,212		$	125			$		141
	Adjustments for non-cash items:
		Depreciation and amortization			702			652			559			532			143					120
		Profit of Financial Products			-			-			(125)			(141)			-					-
		Other			(6)			44			(64)			70			57					(24)
	Changes in assets and liabilities:
		Receivables - trade and other			275			(53)			278			958			200					(1,086)
		Inventories			187			(378)			187			(378)			-					-
		Accounts payable and accrued expenses			39			(32)			(103)			(145)			(42)					183
		Other - net			(158)			(101)			(156)			3			16					(52)
Net cash provided by (used for) operating activities					1,746			1,344			1,283			2,111			499					(718)
Cash Flow from Investing Activities:
	Capital expenditures - excluding equipment leased to others				(438)			(520)			(435)			(516)			(3)					(4)
	Expenditures for equipment leased to others				(306)			(239)			(11)			(7)			(295)					(232)
	Proceeds from disposals of property, plant and equipment				156			89			23			13			133					76
	Additions to finance receivables				(6,438)			(6,348)			-			-			(6,438)					(6,348)
	Collection of finance receivables				4,235			2,848			-			-			4,235					2,848
	Proceeds from the sale of finance receivables				921			1,332			-			-			921					1,332
	Net intercompany borrowings				-			-			-			195			21					-
	Investments and acquisitions (net of cash acquired)				(282)			(1,326)			(258)			(1,326)			(24)					-
	Other - net				(159)			(35)			(251)			(269)			18					4
Net cash used for investing activities					(2,311)			(4,199)			(932)			(1,910)			(1,432)					(2,324)
Cash Flow from Financing Activities:
	Dividends paid				(330)			(293)			(330)			(293)			(36)					(49)
	Common stock issued, including treasury shares reissued				10			5			10			5			74					230
	Treasury shares purchased				(218)			(491)			(218)			(491)			-					-
	Net intercompany borrowings				-			-			(21)			-			-					(195)
	Proceeds from long-term debt issued				3,782			4,181			306			580			3,476					3,601
	Payments on long-term debt				(1,651)			(835)			(107)			(46)			(1,544)					(789)
	Short-term borrowings - net				(1,097)			247			(62)			(25)			(1,035)					272
Net cash provided by (used for) financing activities					496			2,814			(422)			(270)			935					3,070
Effect of exchange rate on cash					(8)			(16)			(11)			(10)			3					(6)
(Decrease) Increase in cash and short-term investments					(77)			(57)			(82)			(79)			5					22
Cash and short-term investments at the beginning of the period					360			292			303			241			57					51
Cash and short-term investments at the end of the period				$	283		$	235		$	221		$	162		$	62			$		73
(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. Transactions between Machinery & Engines and Financial Products have been eliminated to arrive at the consolidated data.
See accompanying notes to Consolidated Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions except per share data)

1. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of (a) the consolidated results of operations for the three- and nine-month periods ended September 30, 1999 and 1998, (b) the changes in stockholders' equity for the nine-month periods ended September 30, 1999 and 1998, (c) the consolidated financial position at September 30, 1999 and December 31, 1998, and (d) the consolidated statement of cash flow for the nine-month periods ended September 30, 1999 and 1998, have been made. Certain amounts for prior periods have been reclassified to conform with the current period financial statement presentation.
   
2. The results for the three- and nine-month periods ended September 30, 1999 are not necessarily indicative of the results for the entire year 1999.
   
3. The company has reviewed the status of its environmental and legal contingencies and believes there are no material changes from that disclosed in Form 10-K for the year ended December 31, 1998.
   
4. Unconsolidated Affiliated Companies
   

Combined financial information of the unconsolidated affiliated companies was as follows:

	Three Months Ended		Nine Months Ended
Results of Operations (unaudited)	June 30, 1999	June 30, 1998	June 30, 1999	June 30, 1998
Sales	$599	$704	$2,249	$2,264
Cost of sales	462	542	1,782	1,748
Gross profit	$137	$162	$467	$516
Profit (Loss)	$(7)	$5	$(10)	$21

Financial Position (unaudited)	June 30, 1999	Sept. 30, 1998
Assets:
Current assets	$1,523	$1,569
Property, plant and equipment - net	855	788
Other	311	351
	2,689	2,708
Liabilities:
Current liabilities	1,304	1,259
Long-term debt due after one year	416	274
Other liabilities	163	94
	1,883	1,627
Ownership	$806	$1,081

 

5.	Inventories (principally "last-in, first-out" method) comprised the following:
			Sept. 30, 1999				December 31, 1998
			(unaudited)
Raw materials and work-in-process			$	1,061			$	1,041
Finished goods				1,452				1,605
Supplies				206				196
			$	2,719			$	2,842

6.	Following is a computation of profit per share:
			Three Months Ended								Nine Months Ended
			Sept. 30, 1999			Sept. 30, 1998					Sept. 30, 1999					Sept. 30, 1998
			(unaudited)								(unaudited)
I.		Profit - Consolidated (A)	$	219				$	336			$	707				$	1,212
II.		Determination of shares (millions):
		Weighted average common shares outstanding (B)		355.0					361.9				355.8					364.8
		Assumed conversion of stock options		4.9					4.9				4.1					5.2
		Weighted average common shares outstanding - assuming dilution (C)	$	359.9				$	366.8			$	359.9				$	370.0
III.		Profit per share of common stock (A/B)	$	0.62				$	0.93			$	1.99				$	3.32
		Profit per share of common stock - assuming dilution (A/C)	$	0.61				$	0.92			$	1.97				$	3.28

7.	The reserve for plant closing and consolidation costs includes the following:
				September 30, 1999					December 31, 1998
				(unaudited)
Write down of property, plant, and equipment				$	70				$		78
Employee severance benefits					18						37
Rearrangement, start-up costs, and other					5						5
				$	93				$		120
Total reserve

	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 September 30, 1999 and December 31, 1998, the above reserve includes $24 and $49, respectively, of costs associated with the closure of the Component Products Division's Precision Barstock Products (PBP) operation located in York, Pennsylvania. The probable closing of the PBP manufacturing operation was announced in December 1991. In March 1996, it was announced that the facility would be closed. All operations at the York facility have been discontinued.
8.	In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities. " SFAS 133 requires that an entity record all derivatives in the statement of financial position at their fair value. It also requires changes in 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. As amended by SFAS 137, which defers the implementation of SFAS 133, we are required to adopt this new accounting standard for the fiscal year beginning January 1, 2001. We are currently analyzing the impact of SFAS 133. Due to the inherent complexities of this standard and the significant changes from current accounting practices, 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.
9.	Segment Information Caterpillar 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 center and service center divisions. We have developed an internal measurement system, which is not based on generally accepted accounting principles (GAAP), that is intended to motivate desired behavior and drive performance rather than measure a division's contribution to enterprise results. It is the comparison of actual results to budgeted results that makes our internal reporting valuable to management. Consequently, we believe that segment disclosure based on Statement of Financial Accounting Standards No. 131 (SFAS 131) "Disclosures about Segments of an Enterprise and Related Information" has limited value to our external readers. As a result, in addition to the required SFAS 131 compliant segment information presented below, 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 11.

	Business Segments
Three months ended Sept. 30,
1999	Asia Pacific Marketing			Construction & Mining Products			EAME Marketing						Financial & Insurance Services						Latin America Marketing						Power Products							North America Marketing						All Other						Total
External sales and revenues		$	385		$	59				$		776			$		360				$		307				$		1,431					$		1,195				$		238				$	4,751
Intersegment sales and revenues			1			1,529						140					1						28						1,173							39						409					3,320
Total sales and revenues		$	386		$	1,588				$		916			$		361				$		335				$		2,604					$		1,234				$		647				$	8,071
Accountable Profit		$	20		$	91				$		30			$		56				$		14				$		93					$		(15)				$		37				$	326
Accountable assets at September 30, 1999		$	340		$	2,321				$		877			$		12,446				$		591				$		3,880					$		1,108				$		2,073				$	23,636
1998	Asia Pacific Marketing			Construction & Mining Products			EAME Marketing						Financial & Insurance Services						Latin America Marketing						Power Products							North America Marketing						All Other						Total
External sales and revenues		$	255		$	50				$		872			$		345				$		381				$		1,362					$		1,675				$		261				$	5,201
Intersegment sales and revenues			-			1,992						206					2						41						978							56						452					3,727
Total sales and revenues		$	255		$	2,042				$		1,078			$		347				$		422				$		2,340					$		1,731				$		713					8,928
Accountable Profit		$	(4)		$	207				$		54			$		56				$		24				$		81					$		3				$		54					475
Accountable assets at December 31, 1998		$	299		$	2,293				$		924			$		11,048				$		750				$		3,491					$		1,424				$		1,985				$	22,214
	Business Segments
Nine months ended Sept. 30,
1999	Asia Pacific Marketing			Construction & Mining Products				EAME Marketing					Financial & Insurance Services					Latin America Marketing						Power Products							North America Marketing						All Other						Total
External sales and revenues		$	1,002		$	150			$		2,292			$		1,043				$		873				$		3,857					$		4,855				$		722				$			14,794
Intersegment sales and revenues			3			5,628					560					6						80						3,216							143						1,305							10,941
Total sales and revenues		$	1,005		$	5,778			$		2,852			$		1,049				$		953				$		7,073					$		4,998				$		2,027				$			25,735
Accountable Profit		$	41		$	515			$		116			$		169				$		25				$		142					$		43				$		155				$			1,206
1998	Asia Pacific Marketing			Construction & Mining Products				EAME Marketing					Financial & Insurance Services					Latin America Marketing						Power Products						North America Marketing							All Other						Total
External sales and revenues		$	798		$	144			$		2,514			$		953				$		1,265				$		3,575					$		5,598				$		737				$			15,584
Intersegment sales and revenues			1			6,703					708					2						115						3,090							151						1,419							12,189
Total sales and revenues		$	799		$	6,847			$		3,222			$		955				$		1,380				$		6,665					$		5,749				$		2,156				$			27,773
Accountable Profit		$	(20)		$	906			$		181			$		147				$		67				$		227					$		135				$		169				$			1,812

		Three months ended								Nine months ended
Reconciliation of Profit Before Tax:		Sept. 30,			Sept. 30,					Sept. 30,			Sept. 30,
		1999				1998				1999			1998
		(unaudited)								(unaudited)
Total accountable profit from business segments		$	326				$	475		$	1,206			$	1,812
Methodology differences			30					41			(19)				90
Corporate costs			(45)					(53)			(177)				(204)
Other			16					8			40				68
Total consolidated profit before tax		$	327				$	471		$	1,050			$	1,766

Item 2. Management's Discussion and Analysis of Results of Operations and Liquidity and Capital Resources

A. Consolidated Results of Operations

THIRD-QUARTER 1999 COMPARED WITH THIRD-QUARTER 1998

Sales and revenues for third-quarter 1999 were $4.72 billion, $458 million lower than third-quarter 1998. The decrease was primarily due to an 8 percent decrease in physical sales volume, partially offset by a 10 percent increase in Financial Products revenues. Profit of $219 million was $117 million less than third-quarter 1998. The decrease was due primarily to lower sales volume, lower price realization (primarily geographic mix) and an unfavorable change in product sales mix. Lower selling, general and administrative (SG&A) and research and development (R&D) costs, as well as higher other income (primarily foreign exchange) partially offset these unfavorable items. Profit per share of 61 cents was down 31 cents from third-quarter 1998.

MACHINERY AND ENGINES
Sales Table
(Millions of dollars)	Total			North America			EAME **			Latin America			Asia/ Pacific
Three Months Ended Sept. 30, 1999
Machinery	$	2,661		$	1,373		$	737		$	205		$	346
Engines *		1,761			925			493			173			170
	$	4,422		$	2,298		$	1,230		$	378		$	516
Three Months Ended Sept. 30, 1998
Machinery	$	3,229		$	1,963		$	733		$	299		$	234
Engines *		1,677			795			589			150			143
	$	4,906		$	2,758		$	1,322		$	449		$	377
* Does not include internal engine transfers of $281 and $319 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 Refer to table on page 19 for reconciliation of Machinery and Engine Sales by Geographic Region to External Sales by Marketing Segment.

Machinery sales were $2.66 billion, a decrease of $568 million or 18 percent from third-quarter 1998. The lower sales resulted primarily from a 14 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 third quarter last year. Price realization also declined primarily due to unfavorable geographic mix. Sales rose in the Asia/Pacific region, remained near year-earlier levels in EAME and declined elsewhere. In North America, sales fell due to lower retail industry demand and the reduction of dealer new machine inventories. In EAME, higher retail demand led to higher sales in Europe while the opposite occurred in Africa & Middle East and Commonwealth of Independent States (CIS). In the Asia/Pacific region, sales were higher due to a reversal of last year's reduction in dealer new machine inventories and improved retail demand. In Latin America, sales were lower due to the decline in retail industry demand.

Engine sales were $1.76 billion, an increase of $84 million from third-quarter 1998, reflecting a 4 percent increase in physical sales volume and slightly better price realization (primarily geographic mix). Sales were up in North America, Asia/Pacific and Latin America reflecting higher sales in on-highway truck and power generation applications. Sales of large engines into the petroleum sector were lower due to the impact of last year's drop in oil prices. In North America, sales were up in both the United States and Canada due to the very 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 the impact of weak growth in Africa & Middle East, low oil prices, and continued weakness in the agricultural equipment sector. Sales were up in Asia/Pacific as higher sales of reciprocating engines more than offset a decline in turbine engines. In Latin America, sales began to improve from last year's levels as economic growth picked up.

Operating Profit Table
	Three Months Ended
(Millions of dollars)	Sept. 30, 1999			Sept. 30, 1998
Machinery	$	160		$	344
Engines		141			106
	$	301		$	450
Caterpillar operations are highly integrated; therefore, the company uses a number of allocations to determine lines of business operating profit.

Machinery operating profit decreased $184 million, or 53 percent from third-quarter 1998. Margin (sales less cost of goods sold) declined primarily due to the lower sales volume and price realization, as well as the impact of lower production volumes on manufacturing efficiencies. SG&A and R&D expenses were lower reflecting the impact of ongoing cost reduction actions.

Engine operating profit increased $35 million, or 33 percent from third quarter 1998 due to the higher sales volume and slightly better price realization. SG&A and R&D expenses were about the same.

Interest expense was $3 million higher than a year ago.

Other income/expense reflects a net increase in income of $23 million due mostly to a favorable change in foreign exchange gains and losses.

FINANCIAL PRODUCTS Revenues for the third quarter were $326 million, up $30 million or 10 percent compared with third-quarter 1998. The increase resulted primarily from continued growth in Cat Financial's portfolio. Before tax profit decreased $15 million or 19 percent from third-quarter 1998. Less favorable reserve adjustments at Caterpillar Insurance Co. Ltd. (Cat Insurance) were the principal cause of the lower profit.

INCOME TAXES Third-quarter 1999 tax expense reflects an effective annual tax rate of 32 percent. Third-quarter 1998 tax expense reflected a 32 percent rate and a favorable adjustment of $13 million to recognize the impact of a tax rate change from 33 percent to 32 percent for the first six months of 1998.

UNCONSOLIDATED AFFILIATED COMPANIES The company's share of unconsolidated affiliated companies' results declined $7 million from a year ago, primarily due to weaker results at Shin Caterpillar Mitsubishi Ltd. and the conversion of F.G. Wilson from an affiliated company to a consolidated subsidiary.

SUPPLEMENTAL INFORMATION

Dealer Machine Sales to End Users and Deliveries to Dealer Rental Operations Sales and deliveries in North America were below third-quarter 1998 levels. Sales were lower in both the United States and Canada reflecting lower industry demand. Sales were lower in all sectors except metals mining. Slower growth in dealer rental operations also contributed to lower deliveries. Sales and deliveries in the EAME region declined slightly as lower sales in Africa & Middle East and CIS more than offset higher sales in Europe. Germany, France, Italy, Spain and the United Kingdom all posted higher sales while South Africa, Turkey and Russia posted lower sales. For EAME as a whole, sales were lower in most applications, with the exception of highway construction and forestry where sales were higher. The decrease in sales was partially offset by higher deliveries to dealer rental operations. Sales and deliveries in Latin America fell due to recession and weak growth throughout much of the region over the past year. Sales in the third quarter were lower in all key countries, except Peru, where sales improved. Sales were lower in most major applications. Sales and deliveries in Asia/Pacific exceeded year-earlier levels as higher sales in developing countries and Japan more than offset lower sales in Australia. Sales were higher in India, Indonesia, China, Korea, Malaysia and Thailand. For the region as a whole, sales were higher in key applications except metals mining, industrial and petroleum.

Dealer Inventories of New Machines Worldwide dealer new machine inventories at the end of the third quarter were lower than a year ago and about normal relative to current selling rates. Inventories were lower in Latin America, EAME and Asia/Pacific, and virtually unchanged in North America. At quarter's end, inventories compared with current selling rates were slightly below normal in Asia/Pacific, moderately below normal in EAME, and moderately above normal in Latin America. Inventories in North America, although still declining, were slightly above normal compared with current selling rates.

Engine Sales to End Users and OEMs Sales in North America were up as higher demand for on-highway truck engine and power generation applications more than offset lower demand in the petroleum and marine sectors. Sales of on-highway truck engines continued to be very strong due to record industry demand and our increased share of industry sales. Consequently, reciprocating engine sales were up in both the United States and Canada. Turbine engine demand, however, was lower due principally to the impact of low oil prices late last year and early this year on sales into the petroleum sector. Sales in EAME were down due to lower sales in both Europe and Africa & Middle East. Weak growth in Africa & Middle East and last year's low oil prices contributed to a decline in turbine engine sales to the petroleum sector. Sales in Latin America were lower due to a decline in turbine engine demand reflecting the impact of low oil prices. Sales of reciprocating engines remained near last year's level. Higher sales into the on-highway truck engine sector were more than offset by lower sales into the petroleum and power generation sectors. Sales in Asia/Pacific also declined due to the impact of low oil prices as a decrease in petroleum sector sales more than offset an increase in sales to the power generation and marine markets.

EMPLOYMENT At the end of the third quarter, Caterpillar's worldwide employment was 67,302 compared with 66,223 one year ago. Acquisitions added 2,517 during this period.

SUPPLEMENTAL OUTLOOK INFORMATION

Summary Company sales and revenues for 1999 are forecast to be lower than previously anticipated, about 5 percent below 1998 levels as lower machine sales will more than offset higher engine sales. The decline in machine sales reflects significant dealer inventory reduction and weaker retail demand in North America, recession in Latin America, pronounced weakness in Africa & Middle East and the impact of low commodity prices on worldwide sales into the mining, oil, agricultural and forestry sectors. Engine sales are up in North America (particularly for on-highway trucks) and in Asia/Pacific, but the increase will not be sufficient to offset the decline in worldwide machine sales. In total, company sales are expected to exceed last year's level in Asia/Pacific, decline slightly in North America and EAME, and decline significantly in Latin America. Given this sales forecast, profit per share is expected to be about $3.00.

North America In North America, engine sales are forecast to register another year of outstanding growth, primarily due to continued very strong demand for on-highway truck engines. Engine sales are also forecast to be higher for power generation applications. Machine sales, however, will be lower due to a significant reduction in dealer new machine inventory and to a decline in retail industry demand. For construction and mining equipment, industry sales are expected to be down about 10 percent reflecting the impact of low worldwide commodity prices as well as lower demand in most construction sectors. Sales into the agricultural sector will be down more sharply due to continued depressed commodity prices. In addition, the six-year Federal highway bill has not boosted United States sales this year as much as anticipated due to delays in getting major capital projects underway, although the benefit is still expected in 2000 and 2001. Machine sales in Canada this year will also be down, reflecting the impact of high interest rates late last year and lower commodity prices. In total, company sales for North America will be down this year, as lower machine sales will more than offset higher engine sales.

EAME In Western Europe, economic growth has picked up in the second half, particularly in the United Kingdom and Germany. For the year as a whole, machine sales are forecast to be higher due primarily to an increased share of industry sales although unit industry demand will also be up. Engine sales, however, are still expected to be down reflecting weakness in OEM markets, especially for agricultural equipment. In Africa & Middle East, weak growth and low commodity prices will result in lower sales for both machines and engines. Current oil prices should boost sales next year. Sales also will be lower in Russia. For the region as a whole, company sales are forecast to be down primarily due to weakness in Africa & Middle East.

Latin America The region is slowly recovering from recessions experienced by many countries over the last fifteen months. Higher oil prices will help a number of countries and interest rates have come down substantially. Mexico is registering solid growth and the Brazilian economy is recovering faster than expected. Venezuela, Chile and Peru are emerging from recession and Argentina has stopped contracting. Colombia and Ecuador have not improved. Demand has recently begun to pick up for the region as a whole, but company sales will still be considerably lower for the year due to the significant decline year-to-date for both machines and engines.

Asia/Pacific Recovery has been stronger than expected for both developing Asia and Japan this year. Gross Domestic Product (GDP) for developing Asia is now forecast to grow 5 percent this year and even Japan is now expected to register some growth. In developing Asia, this strong growth combined with infrastructure spending in China should lead to higher sales of both machines and reciprocating engines. Turbine demand, however, is significantly lower due to project delays. In Japan, business conditions are expected to remain relatively weak despite some growth in the economy, keeping industry demand for machines near 1998 levels. In Australia, continued good economic growth should keep sales near last year's level. For the region as a whole, company sales are forecast to be up due to higher industry demand and the expectation that dealers will end the year with more inventory than a year ago.

Preliminary 2000 Outlook In North America, United States GDP growth of 3 percent should lead to another year of very strong engine sales, particularly for on-highway trucks. Industry demand for machines is expected to increase moderately in Canada and decline slightly in the United States, but company machine sales are forecast to increase as shipments come back into line with retail demand. In EAME, sales should increase as the Africa & Middle East region begins to recover and as demand continues to grow in Europe where GDP growth is forecast to approach 3 percent. In Latin America, economic recovery should boost GDP growth to 3 to 4 percent, leading to higher sales throughout most of the region. In Asia/Pacific, higher sales are forecast for developing Asia as recovery continues and GDP growth remains near 5 percent. Sales in Australia are projected to decline slightly from 1999 levels as economic growth moderates, while demand in Japan should improve from very depressed levels. In summary, company sales are forecast to improve in 2000 due to better worldwide growth, higher commodity prices and less dealer inventory reduction. Higher sales are expected in all regions for both machines and engines. Considering this sales forecast, profit is expected to improve from 1999 levels.

NINE MONTHS ENDED SEPTEMBER 30, 1999 VS. NINE MONTHS ENDED SEPTEMBER 30, 1998

Sales and revenues for the nine months ended September 30, 1999 were $14.68 billion, $888 million lower than the first nine months of 1998. The decrease was primarily due to a 6 percent decrease in physical sales volume, partially offset by a 15 percent increase in Financial Products revenues. Profit of $707 million was $505 million lower. The decrease in profit was mostly due to the lower sales volume and weaker mix of product sold (fewer large machines and engines). Lower price realization, primarily geographic mix, and the impact of lower production volumes on manufacturing efficiencies also contributed to the decrease in profit. Lower selling, general and administrative (SG &A) and research and development (R&D) spending partially offset the decrease in profit. Profit per share of $1.97 was down $1.31.

MACHINERY AND ENGINES
Sales Table
(Millions of dollars)		Total			North America			EAME **			Latin America			Asia/ Pacific
Nine Months Ended Sept. 30, 1999
Machinery		$	9,168		$	5,465		$	2,221		$	610		$	872
Engines *			4,673			2,614			1,223			386			450
		$	13,841		$	8,079		$	3,444		$	996		$	1,322
Nine Months Ended Sept. 30, 1998
Machinery		$	10,337		$	6,410		$	2,197		$	985		$	745
Engines *			4,499			2,239			1,472			404			384
		$	14,836		$	8,649		$	3,669		$	1,389		$	1,129
* Does not include internal engine transfers of $911 and $964 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 Refer to table on page 19 for reconciliation of Machinery and Engine Sales by Geographic Region to External Sales by Marketing Segment.

Machinery sales were $9.17 billion, a decrease of $1.17 billion or 11 percent from the first nine months of 1998. The lower sales resulted primarily from a 9 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 same period last year. Price realization also declined, primarily due to unfavorable geographic mix. Sales rose 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 ended the period with lower new machine inventories in contrast to the same period last year when dealers increased inventories slightly. This reversal of last years' dealer inventory increase also contributed to lower sales. In Canada, sales continued to lag 1998 levels due primarily to weak industry demand. In EAME, higher sales in Europe were nearly offset by lower sales in Africa & Middle East and Commonwealth of Independent States (CIS). In Latin America, sales were lower due primarily to a decline in sales to users. In the Asia/Pacific region, sales rose as dealers continued to rebuild new machine inventories rather than decrease them as they did during the same period a year ago.

Engine sales were $4.67 billion, an increase of $174 million from the first nine months of 1998, reflecting a 3 percent increase in physical sales volume and slightly better price realization. Sales were up in North America and Asia/Pacific and declined elsewhere. Worldwide, sales into the petroleum sector were significantly 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 into power generation and marine applications more than offset a decline in the petroleum sector. In Latin America, sales remained below 1998 levels as a result of recession or slower growth throughout the region.

Operating Profit Table
	Nine Months Ended
(Millions of dollars)	Sept. 30, 1999			Sept. 30, 1998
Machinery	$	736		$	1,349
Engines		289			339
	$	1,025		$	1,688
Caterpillar operations are highly integrated; therefore, the company uses a number of allocations to determine lines of business operating profit.

Machinery operating profit decreased $613 million, or 45 percent from the first nine months of 1998. Margin (sales less cost of goods sold) declined primarily due to the lower sales volume, an unfavorable change in product sales mix, the impact of lower production volumes on manufacturing efficiencies and the lower price realization. These unfavorable items were partially offset by lower SG&A and R&D expenses.

Engine operating profit decreased $50 million, or 15 percent from the first nine months of 1998. Margin declined due to the shift in product sales mix from large to medium and small engines, partially offset by the impact of higher sales volumes. SG&A and R&D expenses were slightly lower.

Interest expense was $5 million higher than a year ago due to higher average debt levels, partially offset by lower average interest rates.

Other income/expense reflects a net decrease in income of $21 million, due mostly to lower interest income and higher discounts taken on sales of trade receivables to Cat Financial, partially offset by a favorable change in foreign exchange gains and losses. Discounts taken on the revolving sale of receivables to Cat Financial are reflected in Machinery and Engines as other expense. Revenues offsetting these discounts as well as related borrowing costs are reflected in Financial Products.

FINANCIAL PRODUCTS Revenues were $944 million, up $132 million or 16 percent compared with the first nine months of 1998. The increase resulted primarily from continued growth in Cat Financial's portfolio. Before tax profit decreased $27 million or 12 percent from the first nine months of 1998. Less favorable reserve adjustments and lower investment income at Caterpillar Insurance Co. Ltd. (Cat Insurance) more than offset higher profit at Cat Financial from continued portfolio growth .

INCOME TAXES Tax expense reflects an effective annual tax rate of 32 percent in both periods.

UNCONSOLIDATED AFFILIATED COMPANIES The company's share of unconsolidated affiliated companies' results declined $18 million from a year ago, primarily due to weaker results at Shin Caterpillar Mitsubishi Ltd. and the conversion of F.G. Wilson from an affiliated company to a consolidated subsidiary.

B. Liquidity & Capital Resources Consolidated operating cash flow was $1.75 billion through the first nine months of 1999, compared with $1.34 billion for the same period a year ago. The increase was largely due to a reduction in inventories and trade receivables, partially offset by lower profit. Total debt as of September 30, 1999 was $13.60 billion, an increase of $1.14 billion from year-end 1998. During the first nine months of 1999, debt related to Machinery and Engines increased $235 million, to $3.34 billion, while debt related to Financial Products increased $908 million to $10.26 billion. In 1998, the board of directors authorized a share repurchase program to reduce the number of outstanding shares to 320 million within the next three to five years. Under this program, during the first nine months of 1999, 4.1 million shares were repurchased. The number of shares outstanding at September 30, 1999, was 354.6 million.

Machinery and Engines Operating cash flow was $1.28 billion through the first nine months of 1999, compared with $2.11 billion for the same period a year ago. The decrease was primarily due to lower profit after tax and an unfavorable change in working capital. The unfavorable change in working capital reflects the positive impact of a reduction in inventory which was more than offset by lower benefits from the revolving sale of receivables to Cat Financial. Capital expenditures, excluding equipment leased to others, for the first nine months of 1999 were $435 million compared with $516 million for the same period a year ago. During the quarter, $300 million of ten-year debentures were sold during the quarter. These bonds are due September 15, 2009 and were priced to yield 7.277% semi-annually. The company intends to utilize these funds for general corporate purposes. The debt to debt equity ratio as of September 30, 1999 was 38%, unchanged from December 31, 1998.

Financial Products Operating cash flow was $499 million for the first nine months of 1999, compared with a negative $718 million for the same period a year ago. The increase was primarily the result of lower net purchases of receivables under the revolving program from Machinery and Engines. Cash used to purchase equipment leased to others was $295 million for the first nine months of 1999. Net cash used for finance receivables was $1.28 billion compared with $2.17 billion for the first nine months of 1998. Financial Products' debt was $10.26 billion at September 30, 1999, an increase of $908 million from December 31, 1998, and primarily comprised $8.13 billion of medium term notes, $98 million of notes payable to banks and $1.90 billion of commercial paper. At the end of September 30, 1999, finance receivables past due over 30 days were 2.5%, compared with 1.3% at the end of the same period one year ago. The ratio of debt to equity of Cat Financial was 7.67:1 at September 30, 1999, Compared with 8.0:1 at December 31, 1998. Financial Products had outstanding credit lines totaling $4.05 billion at September 30, 1999, which included $2.60 billion of shared revolving credit agreements with Machinery and Engines. These credit lines are with a number of banks and are considered support for the company's outstanding commercial paper, commercial paper guarantees, the discounting of bank and trade bills and bank borrowings.

Reconciliation of Machinery and Engine Sales by Geographic Region to External Sales by Marketing Segment
	Three-months ended						Nine-months ended
(Millions of dollars)	Sept. 30, 1999			Sept. 30, 1998			Sept. 30, 1999			Sept. 30, 1998
North American Geographic Region	$	2,298		$	2,758		$	8,079		$	8,649
Engine sales included in the Power Products segment		(925)			(795)			(2,614)			(2,239)
Company owned dealer sales included in the All Other segment		(93)			(108)			(283)			(282)
Certain governmental sales included in the All Other segment		(30)			(40)			(80)			(102)
Other*		(55)			(140)			(247)			(428)
North American Marketing external sales	$	1,195		$	1,675		$	4,855		$	5,598
EAME Geographic Region	$	1,230		$	1,322		$	3,444		$	3,669
Power Products sales not included in the EAME Marketing segment		(344)			(383)			(869)			(933)
Other		(110)			(67)			(283)			(222)
EAME Marketing external sales	$	776		$	872		$	2,292		$	2,514
Latin America Geographic Region	$	378		$	449		$	996		$	1,389
Power Products sales not included in the Latin America Marketing segment		(89)			(99)			(185)			(192)
Other		18			31			62			68
Latin America Marketing external sales	$	307		$	381		$	873		$	1,265
Asia Pacific Geographic Region	$	516		$	377		$	1,322		$	1,129
Power Products sales not included in the Asia/Pacific Marketing segment		(73)			(85)			(189)			(211)
Other *		(58)			(37)			(131)			(120)
Asia Pacific Marketing external sales	$	385		$	255		$	1,002		$	798
*Represents primarily external sales of the Construction & Mining Products and the All Other segments.

C. 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.

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 September 30, 1999, 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, over 99% have been remediated and validated. For over 99% of all critical systems within our control, Year 2000 fixes have been implemented. All of our business units report that mission critical and significant priority systems within their control will be fixed, tested and in production and contingency plans completed by December 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.

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 over 99% of critical and significant dependencies (including suppliers, utilities, and transportation services) outside the control of our business units. For over 97% 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 independent Caterpillar 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. Dealer implementations of Year 2000-compliant versions of Caterpillar-supplied software will continue throughout 1999. Based on our experience to date, we expect to complete these installations on time.

Costs The following cost estimates, which are as of September 30, 1999, would not have a material impact on Caterpillar's results, financial position, or cash flow. As necessary, we will refine these estimates. We anticipate costs related to the year 2000 issue to total between $120-130 million, the majority of which has already been incurred. 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 may 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. Based on our internal analysis, we believe even if our "most reasonably likely worst case scenario" were to occur it would not have a material impact on our results, financial position, or cash flow. 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 operation of machine tools, manual collection and reporting of data, adjustment of production material inventory levels, and alternative sources of supply. Over 97% of contingency planning has been completed for critical and significant items.

PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES

Non-U.S. Employee Stock Purchase Plans We have twenty employee stock purchase plans administered outside the United States for our non-U.S. employees. As of September 30, 1999, those plans had approximately 4,843 participants in the aggregate. During the third quarter of 1999, a total of 27,737 shares of Caterpillar common stock or foreign denominated equivalents were distributed under the plans.

Put Options In conjunction with its stock repurchase program, Caterpillar sells put options to independent third parties on a private basis. These put options entitle the holder to sell shares of Caterpillar common stock to the Company on a certain date at a specified exercise price. On September 30, 1999, 75,000 put options were outstanding. The outstanding put options at September 30, 1999, expire November 3, 1999, are exercisable only at maturity, and have an exercise price of $54.80. During the quarter, Caterpillar received $.2 million in proceeds from the sale of put options.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
	(a)	Exhibits
		Exhibit No.	Description
		27	Financial Data Schedule
	(b)	One report on Form 8-K, dated September 14, 1999 was filed during the quarter ending September 30, 1999, pursuant to Item 5 of that form. An additional Form 8-K was filed on October 15, 1999 pursuant to Item 5. No financial statements were filed as part of those reports.

 

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.
November 1, 1999	/s/ F. Lynn McPheeters	Vice President and Chief Financial Officer
	(F. Lynn McPheeters)
November 1, 1999	/s/ R. Rennie Atterbury III	Secretary
	(R. Rennie Atterbury III)

EXHIBIT INDEX

Exhibit Number		Description
27		Financial Data Schedule

 

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