CATERPILLAR INC, 10-Q, 1999-08-13

CATERPILLAR INC
10-Q, 1999-08-13
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 June 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 June 30, 1999, 355,553,048 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 second quarter, you should read the entire document.

SUMMARY OF RESULTS

On July 16, 1999 Caterpillar Inc. 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."

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 by 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 percent 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 15).

Page 1

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

Three Months Ended

Three Months Ended

June 30,

June 30,

June 30,

1999

1998

1999

1998

1999

1998

Sales and revenues:

Sales of Machinery and Engines

$

4,821

$

5,357

$

4,821

$

5,357

$

-

$

-

Revenues of Financial Products

280

247

-

-

315

276

Total sales and revenue

5,101

5,604

4,821

5,357

315

276

Operating costs:

Cost of goods sold

3,743

3,978

3,743

3,978

-

-

Selling, general, and administrative expenses

632

634

516

548

123

92

Research and development expenses

152

165

152

165

-

-

Interest expense of Financial Products

136

121

-

-

142

124

Total operating costs

4,663

4,898

4,411

4,691

265

216

Operating profit

438

706

410

666

50

60

Interest expense excluding Financial Products

65

69

65

69

-

-

Other income

49

29

15

-

12

9

Consolidated profit before tax

422

666

360

597

62

69

Provision for income tax

136

220

113

195

23

25

Profit of consolidated companies

286

446

247

402

39

44

Equity in profit (loss) of
unconsolidated Affiliated companies
(Note 4)

(3)

-

(3)

-

-

-

Equity in profit of Financial Products'
Subsidiaries

-

-

39

44

-

-

Profit

$

283

$

446

$

283

$

446

$

39

$

44

Profit per share of common stock
(Note 6)

$

0.80

$

1.22

Profit per share of common stock -
assuming dilution (Note 6)

$

0.78

$

1.20

Cash dividends paid per share of
common stock

$

0.30

$

0.25

⁽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

Page 2

Caterpillar Inc.

Statement of Results of Operations

(Unaudited)

(Millions of dollars except per share data)

Consolidated

Machinery &
Engines ⁽¹⁾

Financial
Products

Six Months
Ended

Six Months
Ended

Six Months
Ended

June 30,

June 30,

June 30,

1999

1998

1999

1998

1999

1998

Sales and revenues:

Sales of Machinery and Engines

$

9,419

$

9,930

$

9,419

$

9,930

$

-

$

-

Revenues of Financial Products

549

468

-

-

618

516

Total sales and revenue

9,968

10,398

9,419

9,930

618

516

Operating costs:

Cost of goods sold

7,321

7,312

7,321

7,312

-

-

Selling, general, and administrative expenses

1,285

1,221

1,067

1,060

232

173

Research and development
expenses

307

320

307

320

-

-

Interest expense of Financial
Products

265

222

-

-

276

229

Total operating costs

9,178

9,075

8,695

8,692

508

402

Operating profit

790

1,323

724

1,238

110

114

Interest expense excluding Financial
Products

132

130

132

130

-

-

Other income (expense)

65

102

(2)

42

23

31

Consolidated profit before tax

723

1,295

590

1,150

133

145

Provision for income tax

232

427

183

374

49

53

Profit of consolidated companies

491

868

407

776

84

92

Equity in profit (loss) of
unconsolidated Affiliated companies
(Note 4)

(3)

8

(3)

8

-

-

Equity in profit of Financial
Products' Subsidiaries

-

-

84

92

-

-

Profit

$

488

$

876

$

488

$

876

$

84

$

92

Profit per share of common stock (Note 6)

$

1.37

$

2.39

Profit per share of common stock - assuming dilution (Note 6)

$

1.35

$

2.36

Cash dividends paid per share of common stock

$

0.60

$

0.50

⁽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

Page 3

Caterpillar Inc.

Statement of Changes in Stockholders' Equity

For the Six Months Ended

(Unaudited)

(Dollars in millions)

Consolidated

June 30,

June 30,

1999

1998

Common Stock:

Balance at beginning of period

$

(993)

$

(442)

Common shares issued, including treasury shares reissued:
(June 30, 1999 - 1,281,193; June 30, 1998 - 596,323)

16

12

Treasury shares purchased:
June 30, 1999 - 2,926,500; June 30, 1998 - 3,852,600

(149)

(200)

Balance at end of period

(1,126)

(630)

Profit employed in the business:

Balance at beginning of period

6,123

5,026

Profit

488

$

488

876

$

876

Dividends declared

(222)

(201)

Balance at end of period

6,389

5,701

Accumulated other comprehensive income:

Foreign currency translation adjustment: ⁽¹⁾

Balance at beginning of period

65

95

Aggregate adjustment for period

20

20

(33)

(33)

Balance at end of period

85

62

Minimum Pension Liability Adjustment: ⁽¹⁾

Balance at beginning of period

(64)

-

Aggregate adjustment for period

(38)

(38)

-

-

Balance at end of period

(102)

-

Comprehensive income

$

470

$

843

Stockholders' equity at end of period

$

5,246

$

5,133

⁽¹⁾ No reclassification adjustments to report.

See accompanying notes to Consolidated Financial Statements

Page 4

Caterpillar Inc.

Statement of Financial Position ^*

(Dollars in millions)

Consolidated

Machinery & Engines ⁽¹⁾

Financial Products

June 30,

Dec. 31,

June 30,

Dec. 31,

June 30,

Dec. 31,

Assets

1999

1998

1999

1998

1999

1998

Current assets:

Cash and short-term investments

$

325

$

360

$

242

$

303

$

83

$

57

Receivables - trade and other

3,880

3,660

2,467

2,604

2,026

1,875

Receivables - finance

4,065

3,516

-

-

4,065

3,516

Deferred income taxes

534

474

521

465

13

9

Prepaid expenses

676

607

652

616

12

9

Inventories (Note 5)

2,772

2,842

2,772

2,842

-

-

Total current assets

12,252

11,459

6,654

6,830

6,199

5,466

Property, plant and equipment - net

4,913

4,866

4,131

4,125

782

741

Long-term receivables - trade and other

86

85

85

85

1

-

Long-term receivables - finance

5,602

5,058

-

-

5,602

5,058

Investments in unconsolidated affiliated
companies (Note 4)

602

773

578

773

24

-

Investments in Financial Products'
subsidiaries

-

-

1,361

1,269

-

-

Deferred income taxes

1,045

955

1,052

980

10

8

Intangible assets

1,578

1,241

1,577

1,241

1

-

Other assets

677

691

329

316

348

375

Total assets

$

26,755

$

25,128

$

15,767

$

15,619

$

12,967

$

11,648

Liabilities

Current liabilities:

Short-term borrowings

$

1,205

$

809

$

245

$

49

$

960

$

760

Accounts payable

2,060

2,250

2,143

2,401

356

521

Accrued expenses

1,037

928

754

659

273

290

Accrued wages, salaries, and employee
benefits

1,059

1,217

1,051

1,208

8

9

Dividends payable

116

107

116

107

-

-

Deferred and current income taxes payable

39

15

(15)

(19)

54

34

Deferred liability

-

-

-

-

174

143

Long-term debt due within one year

2,691

2,239

37

60

2,654

2,179

Total current liabilities

8,207

7,565

4,331

4,465

4,479

3,936

Long-term debt due after one year

10,106

9,404

3,008

2,993

7,098

6,411

Liability for postemployment benefits

2,666

2,590

2,666

2,590

-

-

Deferred income taxes and other liabilities

530

438

516

440

29

32

Total Liabilities

21,509

19,997

10,521

10,488

11,606

10,379

Stockholders' Equity

Common Stock of $1.00 par Authorized shares
: 900,000,000 Issued shares: (6/30/99 -
407,447,312; 12/31/98 - 407,447,312)
at paid in amount

1,046

1,063

1,046

1,063

704

683

Profit employed in the business

6,389

6,123

6,389

6,123

698

615

Accumulated other comprehensive income

(17)

1

(17)

1

(41)

(29)

Treasury stock (6/30/99 - 51,894,264;
12/31/98 - 50,248,957) at cost

(2,172)

(2,056)

(2,172)

(2,056)

-

-

Total Stockholders' Equity

5,246

5,131

5,246

5,131

1,361

1,269

Total Liabilities and Stockholders' Equity

$

26,755

$

25,128

$

15,767

$

15,619

$

12,967

$

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.

Page 5

Caterpillar Inc.

Statement of Cash Flow for the Six Months Ended

(Unaudited)

(Dollars in millions)

Consolidated

Machinery & Engines ⁽¹⁾

Financial Products

June 30,

June 30,

June 30,

1999

1998

1999

1998

1999

1998

Cash Flow from Operating Activities:

Profit

$

488

$

876

$

488

$

876

$

84

$

92

Adjustments for non-cash items:

Depreciation and amortization

467

429

374

351

93

78

Profit of Financial Products

-

-

(84)

(92)

-

-

Other

(28)

(185)

(109)

15

79

(67)

Changes in assets and liabilities:

Receivables - trade and other

(206)

(95)

170

778

(162)

(968)

Inventories

134

(408)

134

(408)

-

-

Accounts payable and accrued expenses

(56)

(71)

(111)

(124)

(150)

10

Other - net

(180)

(172)

(168)

(139)

17

7

Net cash provided by (used for) operating activities

619

374

694

1,257

(39)

(848)

Cash Flow from Investing Activities:

Capital expenditures - excluding equipment
leased to others

(263)

(307)

(262)

(304)

(1)

(3)

Expenditures for equipment leased to others

(192)

(171)

(8)

(2)

(184)

(169)

Proceeds from disposals of property, plant and
equipment

95

64

11

9

84

55

Additions to finance receivables

(4,345)

(4,497)

-

-

(4,345)

(4,497)

Collection of finance receivables

2,326

2,037

-

-

2,326

2,037

Proceeds from the sale of finance receivables

702

585

-

-

702

585

Net intercompany borrowings

-

-

-

193

23

-

Investments and acquisitions (net of cash
acquired)

(251)

(1,324)

(228)

(1,324)

(23)

-

Other - net

100

(119)

25

(257)

54

(12)

Net cash used for investing activities

(1,828)

(3,732)

(462)

(1,685)

(1,364)

(2,004)

Cash Flow from Financing Activities:

Dividends paid

(214)

(183)

(214)

(183)

(36)

(35)

Common stock issued, including treasury
shares reissued

8

4

8

4

21

150

Treasury shares purchased

(149)

(200)

(149)

(200)

-

-

Net intercompany borrowings

-

-

(23)

-

-

(193)

Proceeds from long-term debt issued

2,238

3,317

18

286

2,220

3,031

Payments on long-term debt

(1,045)

(638)

(23)

(48)

(1,022)

(590)

Short-term borrowings - net

370

1,009

123

521

247

488

Net cash provided by (used for) financing activities

1,208

3,309

(260)

380

1,430

2,851

Effect of exchange rate on cash

(34)

(22)

(33)

(25)

(1)

3

(Decrease) Increase in cash and short-term
investments

(35)

(71)

(61)

(73)

26

2

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

$

325

$

221

$

242

$

168

$

83

$

53

⁽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

Page 6

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

1.

In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of (a) the consolidated results of operations for the three- and six-month periods ended June 30, 1999 and 1998, (b) the changes in stockholders' equity for the six-month periods ended June 30, 1999 and 1998, (c) the consolidated financial position at June 30, 1999 and December 31, 1998, and (d) the consolidated statement of cash flow for the six-month periods ended June 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 six-month periods ended June 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

Six Months Ended

Results of Operations

March 31,

March 31,

March 31,

March 31,

(unaudited)

1999

1998

1999

1998

Sales

$

832

$

776

$

1,650

$

1,560

Cost of sales

671

607

1,320

1,205

Gross profit

$

161

$

169

$

330

$

355

Profit (Loss)

$

(6)

$

-

$

(4)

$

16

Financial Position

March 31,

Sept. 30,

(unaudited)

1999

1998

Assets:

Current assets

$

1,770

$

1,569

Property, plant and equipment - net

954

788

Other

506

351

3,230

2,708

Liabilities:

Current liabilities

1,489

1,259

Long-term debt due after one year

431

274

Other liabilities

160

94

2,080

1,627

Ownership

$

1,150

$

1,081

Page 7

5.

Inventories (principally "last-in, first-out" method) comprised the following:

June 30,

December 31,

1999

1998

(unaudited)

Raw materials and work-in-process

$

1,046

$

1,041

Finished goods

1,521

1,605

Supplies

205

196

$

2,772

$

2,842

6.

Following is a computation of profit per share:

Three Months Ended

Six Months Ended

June 30,

June 30,

June 30,

June 30,

1999

1998

1999

1998

(unaudited)

(unaudited)

I.

Profit - Consolidated (A)

$

283

$

446

$

488

$

876

II.

Determination of shares (millions):

Weighted average common shares outstanding (B)

355.9

365.9

356.2

366.4

Assumed conversion of stock options

5.2

5.9

4.0

5.6

Weighted average common shares outstanding -
assuming dilution (C)

$

361.1

$

371.8

$

360.2

$

372.0

III.

Profit per share of common stock (A/B)

$

0.80

$

1.22

$

1.37

$

2.39

Profit per share of common stock - assuming
dilution (A/C)

$

0.78

$

1.20

$

1.35

$

2.36

7.

The reserve for plant closing and consolidation costs includes the following:

June 30,
1999
(unaudited)

December 31,
1998

Write down of property, plant, and equipment

$

77

$

78

Employee severance benefits

23

37

Rearrangement, start-up costs, and other

2

5

Total reserve

$

102

$

120

Page 8

The write-down of property, plant, and equipment establishes a new cost basis for assets that have been permanently impaired.

Employee severance benefits (e.g., pension, medical, and supplemental unemployment benefits) are provided to employees affected by plant closings and consolidations. The reserve for such benefits is reduced as the benefits are provided.

At June 30, 1999 and December 31, 1998, the above reserve includes $32 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.

Page 9

Three months ended June 30,

Business Segments

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

$

352

$

55

$

790

$

346

$

294

$

1,326

$

1,734

$

250

$

5,147

Intersegment sales and
revenues

1

1,947

169

1

29

1,081

56

427

3,711

Total sales and revenues

$

353

$

2,002

$

959

$

347

$

323

$

2,407

$

1,790

$

677

$

8,858

Accountable Profit

$

15

$

196

$

46

$

51

$

7

$

73

$

18

$

56

$

462

Accountable assets at
June 30, 1999

$

346

$

2,296

$

876

$

11,813

$

654

$

3,835

$

1,665

$

2,076

$

23,561

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

$

304

$

49

$

854

$

325

$

452

$

1,368

$

2,002

$

242

$

5,596

Intersegment sales and
revenues

1

2,333

245

(3)

44

1,088

54

484

4,246

Total sales and revenues

$

305

$

2,382

$

1,099

$

322

$

496

$

2,456

$

2,056

$

726

9,842

Accountable Profit

$

(2)

$

322

$

63

$

44

$

22

$

119

$

56

$

57

681

Accountable assets at
December 31, 1998

$

289

$

2,349

$

862

$

11,451

$

717

$

3,479

$

1,475

$

2,054

22,676

Six months ended
June 30,

Business Segments

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

$

617

$

91

$

1,516

$

683

$

566

$

2,426

$

3,660

$

484

$

10,043

Intersegment sales and
revenues

2

4,099

420

5

52

2,043

104

896

7,621

Total sales and revenues

$

619

$

4,190

$

1,936

$

688

$

618

$

4,469

$

3,764

$

1,380

$

17,664

Accountable Profit

$

21

$

424

$

86

$

113

$

11

$

49

$

58

$

118

$

880

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

$

543

$

94

$

1,642

$

608

$

884

$

2,213

$

3,923

$

476

$

10,383

Intersegment sales and
revenues

1

4,711

502

-

74

2,112

95

967

8,462

Total sales and revenues

$

544

$

4,805

$

2,144

$

608

$

958

$

4,325

$

4,018

$

1,443

$

18,845

Accountable Profit

$

(16)

$

699

$

127

$

91

$

43

$

146

$

132

$

115

$

1,337

Page 10

Three months ended

Six months ended

Reconciliation of Profit Before Tax:

June 30,
1999

June 30,
1998

June 30,
1999

June 30,
1998

(unaudited)

(unaudited)

Total accountable profit from business segments

$

462

$

681

$

880

$

1,337

Methodology differences

3

29

(49)

49

Corporate costs

(50)

(67)

(132)

(151)

Other

7

23

24

60

Total consolidated profit before tax

$

422

$

666

$

723

$

1,295

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

A. Consolidated Results of Operations

THREE MONTHS ENDED JUNE 30, 1999 COMPARED WITH THREE MONTHS ENDED JUNE 30, 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 dollars)

Total

North

America

EAME **

Latin

America

Asia/

Pacific

Three Months Ended
June 30, 1999

Machinery
$

3,217

$

1,953

$

766

$

203

$

295

Engines *

1,604

919

390

128

167

$

4,821

$

2,872

$

1,156

$

331

$

462

Three Months Ended
June 30, 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 and $337 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 21 for reconciliation of Machinery and Engine Sales by Geographic Region to External Sales by Marketing Segment.

Page 11

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.

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
	Three Months Ended
(Millions of dollars)	June 30, 1999		June 30, 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.

Page 12

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.

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 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.

Page 13

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 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 (excluding Perkins)

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 .

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.

Page 14

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.
Although some cost reduction actions could have an impact on our strategic growth initiatives, the company is not compromising its long-term growth plans. Previously, we have provided guidance that the unfavorable impact of the growth initiatives was anticipated to be less than 10% of 1999 profit and that we expected these initiatives to be accretive to profit in 2000. Because of the lowered profit outlook for 1999, as well as reduced sales for some of the initiatives, the percentage impact of the growth initiatives is expected to be higher than 10%, but less of a total dollar impact than in 1998. The increase to profit is still expected to occur in 2000, but be less than anticipated last year.
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. We estimate that about two-thirds of our profit for the second half of the year will come in the fourth quarter.

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.

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

Page 15

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 .

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 16

SAFE HARBOR STATEMENT UNDER THE SECURITIES LITIGATION REFORM ACT OF 1995

Certain statements contained in this Form 10-Q 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.

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.

Page 17

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.

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.

Page 18

SIX MONTHS ENDED JUNE 30, 1999 VS. SIX MONTHS ENDED JUNE 30, 1998

Sales and revenues for the six months ended June 30, 1999 were $9.97 billion, $430 million lower than the first six months of 1998. The decrease was primarily due to a 4 percent decrease in physical sales volume, partially offset by a 17 percent increase in Financial Products revenues. Profit of $488 million was $388 million lower. 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. The impact of lower production volumes on manufacturing efficiencies and lower price realization, primarily in EAME, also contributed to the decrease in profit. Profit per share of $1.35 was down $1.01.

MACHINERY AND ENGINES

Sales Table

(Millions of dollars)

Total

North
America

EAME **

Latin
America

Asia/
Pacific

Six Months Ended June 30, 1999

Machinery

$

6,507

$

4,092

$

1,484

$

405

$

526

Engines *

2,912

1,689

730

213

280

$

9,419

$

5,781

$

2,214

$

618

$

806

Six Months Ended June 30, 1998

Machinery

$

7,108

$

4,447

$

1,464

$

686

$

511

Engines *

2,822

1,444

883

254

241

$

9,930

$

5,891

$

2,347

$

940

$

752

* Does not include internal engine transfers of $630 and $645 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 21 for reconciliation of Machinery and Engine Sales by Geographic Region to External Sales by Marketing Segment.

Machinery sales were $6.51 billion, a decrease of $601 million or 8 percent from the first six months of 1998. The lower sales resulted primarily from a 7 percent decrease in physical sales volume due to lower sales to end users and a smaller increase in dealer new machine inventory than occurred in the same period 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.

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 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. 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). 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.

Page 19

Engine sales were $2.91 billion, an increase of $90 million or 3 percent from the first six months of 1998, reflecting higher physical sales volume. Price realization was about the same.

Sales were up in North America and Asia/Pacific and declined elsewhere. 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 as higher sales into the marine sector were more than offset by lower sales into power generation and petroleum applications. Sales were up in Asia/Pacific as higher sales of reciprocating engines more than offset a decline in turbine engine sales. In Latin America, sales remained below 1998 levels as a result of recession or slower growth throughout the region.


Operating Profit Table
	Six Months Ended
(Millions of dollars)	June 30, 1999		June 30, 1998
Machinery	$	576	$	1,005
Engines		148		233

	$	724	$	1,238


Caterpillar operations are highly integrated; therefore, the company uses a number of allocations to determine lines of business operating profit.

Machinery operating profit decreased $429 million, or 43 percent from the first six 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. SG&A and R&D expenses were about the same.

Engine operating profit decreased $85 million, or 36 percent from the first six 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 about the same.

Interest expense was $2 million higher than a year ago due to higher average debt levels, partially offset by lower average interest rates.

Other income/expense was expense of $2 million compared with income of $42 million the first six months of 1998. The decrease was due to lower interest income, an unfavorable change in foreign exchange gains and losses and discounts taken on the sales of trade receivables to Cat Financial. Discounts taken on this revolving sale of receivables to Cat Financial are reflected in Machinery and Engines as other expense. Revenues offsetting these discounts as well as related borrowing costs are reflected in Financial Products.

Page 20

FINANCIAL PRODUCTS

Revenues were $618 million, up $102 million or 20 percent compared with the first six months of 1998. The increase resulted primarily from continued growth in Cat Financial's portfolio.

Before tax profit decreased $12 million from the first six months of 1998. Higher profit at Cat Financial from continued portfolio growth was more than offset by lower profit at Caterpillar Insurance Co. Ltd. (Cat Insurance). Less favorable reserve adjustments and lower investment income were the reasons for the lower profit at Cat Insurance.

INCOME TAXES

Tax expense for the first six months of 1999 reflects an effective annual tax rate of 32 percent, compared with a 33 percent rate for the first six months of 1998.

UNCONSOLIDATED AFFILIATED COMPANIES

The company's share of unconsolidated affiliated companies' results declined $11 million from a year ago, primarily due to unfavorable changes in results at Shin Caterpillar Mitsubishi Ltd. and F.G. Wilson.

B. Liquidity & Capital Resources

Consolidated operating cash flow was $619 million through the first six months of 1999, compared with $374 million for the same period a year ago. The increase was largely due to a reduction in inventories, partially offset by lower profit. Total debt as of June 30, 1999 was $14.00 billion, an increase of $1.55 billion from year-end 1998. During the first six months of 1999, debt related to Machinery and Engines increased $188 million, to $3.29 billion, while debt related to Financial Products increased $1.36 billion to $10.71 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 six months of 1999, 2.9 million shares were repurchased. The number of shares outstanding at June 30, 1999, was 355.6 million.

Machinery and Engines

Operating cash flow was $694 million through the first six months of 1999, compared with $1.26 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 was mostly due to the absence of the initial benefit from the revolving sale of receivables to Cat Financial in 1998, partially offset by a reduction in inventory.

Capital expenditures, excluding equipment leased to others, for the first six months of 1999 were $262 million compared with $304 million for the same period a year ago. Total debt increased by $188 million due to short-term borrowings. Our debt to debt plus equity ratio as of June 30, 1999 was 39%.

Financial Products

Operating cash flow was a negative $39 million for the first six months of 1999, compared with a negative $848 million for the same period a year ago. The first six months of 1998 was negatively impacted by the purchase of receivables from Machinery and Engines. Cash used to purchase equipment leased to others was $184 million for the first six months of 1999. Net cash used for finance receivables was $1.32 billion compared with $1.88 billion for the first six months of 1998.

Page 21

Financial Products' debt was $10.71 billion at June 30, 1999, an increase of $1.36 billion from December 31, 1998, and primarily comprised $7.40 billion of medium term notes, $111 million of notes payable to banks and $3.07 billion of commercial paper. At the end of June 30, 1999, finance receivables past due over 30 days were 2.2%, compared with 1.2% at the end of the same period one year ago. The ratio of debt to equity of Cat Financial was 8.57:1 at June 30, 1999, compared with 8.0:1 at December 31, 1998.

Financial Products had outstanding credit lines totaling $4.13 billion at June 30, 1999, which included $2.61 billion of shared revolving credit agreements with Machinery and Engines. These credit lines are with a number of banks and are considered support for 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

Six-months ended

(Millions of dollars)

June 30,
1999

June 30,
1998

June 30,
1999

June 30,
1998

North American Geographic Region

$

2,872

$

3,092

$

5,781

$

5,891

Engine sales included in the Power Products segment

(919)

(812)

(1,689)

(1,444)

Company owned dealer sales included in the All Other segment

(103)

(91)

(190)

(174)

Certain governmental sales included in the All Other segment

(26)

(33)

(50)

(62)

Other*

(90)

(154)

(192)

(288)

North American Marketing external sales

$

1,734

$

2,002

$

3,660

$

3,923

EAME Geographic Region

$

1,156

$

1,334

$

2,214

$

2,347

Power Products sales not included in the EAME Marketing segment

(277)

(391)

(525)

(550)

Other

(89)

(89)

(173)

(155)

EAME Marketing external sales

$

790

$

854

$

1,516

$

1,642

Latin America Geographic Region

$

331

$

487

$

618

$

940

Power Products sales not included in the Latin America
Marketing segment

(64)

(64)

(96)

(93)

Other

27

29

44

37

Latin America Marketing external sales

$

294

$

452

$

566

$

884

Asia Pacific Geographic Region

$

462

$

444

$

806

$

752

Power Products sales not included in the Asia/Pacific Marketing segment

(66)

(101)

(116)

(126)

Other *

(44)

(39)

(73)

(83)

Asia Pacific Marketing external sales

$

352

$

304

$

617

$

543

*Represents primarily external sales of the Construction & Mining Products and the All Other segments.

Page 22

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 June 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, about 98% have been remediated and validated. For about 97% 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 by
October 1, 1999.

Caterpillar Products

For some time, we have been assessing the potential impact of the Year 2000 challenge on the operation of machines and engines sold by Caterpillar. Our Electrical and Electronics business unit has substantially completed its review, evaluation, and testing of electronic components and service tools used on Caterpillar machines and engines for Year 2000 related problems. This review included all electronic control modules, display and monitoring systems, generator set control systems, and electronic service tools under the design control of that business unit.

Page 23

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 all critical dependencies (including suppliers, utilities, and transportation services) outside the control of our business units. For 88% 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 June 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 incurring $120-130 million in Year 2000-related costs. Of these costs, capital costs for the replacement of systems, hardware, or equipment are currently estimated to be $20-30 million.

These budgeted costs may not include all of the cost of implementing contingency plans, which are in the process of being developed. These estimates also do not include litigation or warranty costs related to the Year 2000 issue, which at this time cannot be reasonably estimated.

Risks

Our estimates on cost, remediation time frame, and potential financial impact are based on information we have currently. There can be no assurance these estimates will prove accurate and actual results could differ materially from those currently anticipated.

Factors that could cause actual results to differ include unanticipated supplier or dealer failures; utilities, transportation, or telecommunications breakdowns; U.S. or non-U.S. government failures; and unanticipated failures on our part to address Year 2000-related issues.

Page 24

The "most reasonably likely worst case scenario" in light of these risks would involve a potential loss in sales resulting from production and shipping delays caused by Year 2000-related disruptions. Under this scenario, manual procedures would be required for order processing, invoicing, supplier management processing, warranty claim processing, and for certain factory machine tool operations. The degree of sales loss impact would depend on the severity of the disruption, the time required to correct it, whether the sales loss was temporary or permanent, and the degree to which our primary competitors were also impacted by the disruption. 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. Eighty percent of contingency planning has been completed. Contingency plans, where deemed necessary, will be finalized before the end of 1999.

PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES

We have nineteen employee stock purchase plans administered outside the United States for our non-U.S. employees. These plans are not registered with the Securities and Exchange Commission and are exempt from such registration pursuant to Regulation S under the Securities Act. As of June 30, 1999, those plans had approximately 4,827 participants in the aggregate. During the second quarter of 1999, a total of 89,938 shares of Caterpillar common stock or foreign denominated equivalents were distributed under the plans.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits

Exhibit No.
Description

27

Financial Data Schedule

(b)

Reports on Form 8-K, dated April 16, June 9, and June 15, 1999 were filed during the quarter ending June 30, 1999, pursuant to Item 5 of that form. An additional Form 8-K was filed on July 16, 1999 pursuant to Item 5. No financial statements were filed as part of those reports.

Page 25

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.

August 12, 1999

/s/F. LYNN MCPHEETERS

Vice President and Chief Financial Officer

(F. Lynn McPheeters)

August 12, 1999

/s/R. R. ATTERBURY III

Secretary

(R. Rennie Atterbury III)

EXHIBIT INDEX

Exhibit
Number
Description

27

Financial Data Schedule


Caterpillar Inc.
Statement of Results of Operations
(Unaudited)
(Millions of dollars except per share data)

		Consolidated				Machinery & Engines ⁽¹⁾				Financial Products
		Three Months Ended				Three Months Ended				Three Months Ended
		June 30,				June 30,				June 30,
		1999		1998		1999		1998		1999		1998

Sales and revenues:
	Sales of Machinery and Engines	$	4,821	$	5,357	$	4,821	$	5,357	$	-	$	-
	Revenues of Financial Products		280		247		-		-		315		276

	Total sales and revenue		5,101		5,604		4,821		5,357		315		276

Operating costs:
	Cost of goods sold		3,743		3,978		3,743		3,978		-		-
	Selling, general, and administrative expenses		632		634		516		548		123		92
	Research and development expenses		152		165		152		165		-		-
	Interest expense of Financial Products		136		121		-		-		142		124

	Total operating costs		4,663		4,898		4,411		4,691		265		216


Operating profit			438		706		410		666		50		60

	Interest expense excluding Financial Products		65		69		65		69		-		-

	Other income		49		29		15		-		12		9


Consolidated profit before tax			422		666		360		597		62		69

	Provision for income tax		136		220		113		195		23		25

	Profit of consolidated companies		286		446		247		402		39		44

	Equity in profit (loss) of unconsolidated Affiliated companies (Note 4)		(3)		-		(3)		-		-		-
	Equity in profit of Financial Products' Subsidiaries		-		-		39		44		-		-


Profit		$	283	$	446	$	283	$	446	$	39	$	44


Profit per share of common stock (Note 6)		$	0.80	$	1.22


Profit per share of common stock - assuming dilution (Note 6)		$	0.78	$	1.20


Cash dividends paid per share of common stock		$	0.30	$	0.25


⁽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 Six Months Ended
(Unaudited)
(Dollars in millions)

				Consolidated
			June 30,					June 30,
			1999					1998

Common Stock:
	Balance at beginning of period		$		(993)			$	(442)
	Common shares issued, including treasury shares reissued: (June 30, 1999 - 1,281,193; June 30, 1998 - 596,323)				16				12
	Treasury shares purchased: June 30, 1999 - 2,926,500; June 30, 1998 - 3,852,600				(149)				(200)

	Balance at end of period				(1,126)				(630)


Profit employed in the business:
	Balance at beginning of period				6,123				5,026
	Profit				488	$	488		876	$	876
	Dividends declared				(222)				(201)

	Balance at end of period				6,389				5,701


Accumulated other comprehensive income:
	Foreign currency translation adjustment: ⁽¹⁾
		Balance at beginning of period			65				95
		Aggregate adjustment for period			20		20		(33)		(33)

		Balance at end of period			85				62


	Minimum Pension Liability Adjustment: ⁽¹⁾
		Balance at beginning of period			(64)				-
		Aggregate adjustment for period			(38)		(38)		-		-

		Balance at end of period			(102)				-

	Comprehensive income					$	470			$	843


Stockholders' equity at end of period			$		5,246			$	5,133


⁽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
			June 30,		Dec. 31,		June 30,			Dec. 31,		June 30,		Dec. 31,
Assets			1999		1998			1999		1998		1999		1998
	Current assets:
		Cash and short-term investments	$	325	$	360	$		242	$	303	$	83		$	57
		Receivables - trade and other	3,880			3,660			2,467		2,604		2,026			1,875
		Receivables - finance		4,065		3,516			-		-		4,065			3,516
		Deferred income taxes		534		474			521		465		13			9
		Prepaid expenses		676		607			652		616		12			9
		Inventories (Note 5)		2,772		2,842			2,772		2,842		-			-

		Total current assets		12,252		11,459			6,654		6,830		6,199			5,466

	Property, plant and equipment - net			4,913		4,866			4,131		4,125		782			741
	Long-term receivables - trade and other			86		85			85		85		1			-
	Long-term receivables - finance			5,602		5,058			-		-		5,602			5,058
	Investments in unconsolidated affiliated companies (Note 4)			602		773			578		773		24			-
	Investments in Financial Products' subsidiaries			-		-			1,361		1,269		-			-
	Deferred income taxes			1,045		955			1,052		980		10			8
	Intangible assets			1,578		1,241			1,577		1,241		1			-
	Other assets			677		691			329		316		348			375

Total assets			$	26,755	$	25,128	$		15,767	$	15,619	$	12,967		$	11,648


Liabilities
	Current liabilities:
		Short-term borrowings	$	1,205	$	809	$		245	$	49	$	960		$	760
		Accounts payable		2,060		2,250			2,143		2,401		356			521
		Accrued expenses		1,037		928			754		659		273			290
		Accrued wages, salaries, and employee benefits		1,059		1,217			1,051		1,208		8			9
		Dividends payable		116		107			116		107		-			-
		Deferred and current income taxes payable		39		15			(15)		(19)		54			34
		Deferred liability		-		-			-		-		174			143
		Long-term debt due within one year		2,691		2,239			37		60		2,654			2,179

	Total current liabilities			8,207		7,565			4,331		4,465		4,479			3,936

	Long-term debt due after one year			10,106		9,404			3,008		2,993		7,098			6,411
	Liability for postemployment benefits			2,666		2,590			2,666		2,590		-			-
	Deferred income taxes and other liabilities			530		438			516		440		29			32

Total Liabilities				21,509		19,997			10,521		10,488		11,606			10,379


Stockholders' Equity
	Common Stock of $1.00 par Authorized shares : 900,000,000 Issued shares: (6/30/99 - 407,447,312; 12/31/98 - 407,447,312) at paid in amount			1,046		1,063			1,046		1,063		704			683
	Profit employed in the business			6,389		6,123			6,389		6,123		698			615
	Accumulated other comprehensive income			(17)		1			(17)		1		(41)			(29)
	Treasury stock (6/30/99 - 51,894,264; 12/31/98 - 50,248,957) at cost			(2,172)		(2,056)			(2,172)		(2,056)		-			-

Total Stockholders' Equity				5,246		5,131			5,246		5,131		1,361			1,269

Total Liabilities and Stockholders' Equity			$	26,755	$	25,128	$		15,767	$	15,619	$	12,967		$	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 Six Months Ended
(Unaudited)
(Dollars in millions)

			Consolidated				Machinery & Engines ⁽¹⁾				Financial Products
			June 30,				June 30,				June 30,
			1999		1998		1999		1998		1999			1998
Cash Flow from Operating Activities:
	Profit		$	488	$	876	$	488	$	876	$	84	$		92
	Adjustments for non-cash items:
		Depreciation and amortization		467		429		374		351		93			78
		Profit of Financial Products		-		-		(84)		(92)		-			-
		Other		(28)		(185)		(109)		15		79			(67)
	Changes in assets and liabilities:
		Receivables - trade and other		(206)		(95)		170		778		(162)			(968)
		Inventories		134		(408)		134		(408)		-			-
		Accounts payable and accrued expenses		(56)		(71)		(111)		(124)		(150)			10
		Other - net		(180)		(172)		(168)		(139)		17			7

Net cash provided by (used for) operating activities				619		374		694		1,257		(39)			(848)


Cash Flow from Investing Activities:
	Capital expenditures - excluding equipment leased to others			(263)		(307)		(262)		(304)		(1)			(3)
	Expenditures for equipment leased to others			(192)		(171)		(8)		(2)		(184)			(169)
	Proceeds from disposals of property, plant and equipment			95		64		11		9		84			55
	Additions to finance receivables			(4,345)		(4,497)		-		-		(4,345)			(4,497)
	Collection of finance receivables			2,326		2,037		-		-		2,326			2,037
	Proceeds from the sale of finance receivables			702		585		-		-		702			585
	Net intercompany borrowings			-		-		-		193		23			-
	Investments and acquisitions (net of cash acquired)			(251)		(1,324)		(228)		(1,324)		(23)			-
	Other - net			100		(119)		25		(257)		54			(12)

Net cash used for investing activities				(1,828)		(3,732)		(462)		(1,685)		(1,364)			(2,004)


Cash Flow from Financing Activities:
	Dividends paid			(214)		(183)		(214)		(183)		(36)			(35)
	Common stock issued, including treasury shares reissued			8		4		8		4		21			150
	Treasury shares purchased			(149)		(200)		(149)		(200)		-			-
	Net intercompany borrowings			-		-		(23)		-		-			(193)
	Proceeds from long-term debt issued			2,238		3,317		18		286		2,220			3,031
	Payments on long-term debt			(1,045)		(638)		(23)		(48)		(1,022)			(590)
	Short-term borrowings - net			370		1,009		123		521		247			488

Net cash provided by (used for) financing activities				1,208		3,309		(260)		380		1,430			2,851

Effect of exchange rate on cash				(34)		(22)		(33)		(25)		(1)			3

(Decrease) Increase in cash and short-term investments				(35)		(71)		(61)		(73)		26			2

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			$	325	$	221	$	242	$	168	$	83	$		53


⁽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 six-month periods ended June 30, 1999 and 1998, (b) the changes in stockholders' equity for the six-month periods ended June 30, 1999 and 1998, (c) the consolidated financial position at June 30, 1999 and December 31, 1998, and (d) the consolidated statement of cash flow for the six-month periods ended June 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 six-month periods ended June 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				Six Months Ended
Results of Operations			March 31,		March 31,		March 31,						March 31,
(unaudited)			1999		1998		1999						1998
Sales			$	832	$	776	$			1,650	$			1,560
Cost of sales				671		607				1,320				1,205

Gross profit			$	161	$	169	$			330	$			355

Profit (Loss)			$	(6)	$	-	$			(4)	$			16




Financial Position								March 31,				Sept. 30,
(unaudited)								1999				1998

Assets:
		Current assets						$	1,770			$		1,569
		Property, plant and equipment - net							954					788
		Other							506					351

									3,230					2,708
Liabilities:
		Current liabilities							1,489					1,259
		Long-term debt due after one year							431					274
		Other liabilities							160					94

									2,080					1,627

Ownership								$	1,150			$		1,081


5.	Inventories (principally "last-in, first-out" method) comprised the following:
		June 30,		December 31,
		1999		1998
		(unaudited)

Raw materials and work-in-process		$	1,046	$	1,041
Finished goods			1,521		1,605
Supplies			205		196

		$	2,772	$	2,842


6.	Following is a computation of profit per share:

			Three Months Ended						Six Months Ended
			June 30,		June 30,				June 30,				June 30,
			1999			1998			1999			1998
			(unaudited)						(unaudited)

I.		Profit - Consolidated (A)	$	283			$	446		$	488			$	876


II.		Determination of shares (millions):
		Weighted average common shares outstanding (B)		355.9				365.9			356.2				366.4
		Assumed conversion of stock options		5.2				5.9			4.0				5.6

		Weighted average common shares outstanding - assuming dilution (C)	$	361.1			$	371.8		$	360.2			$	372.0


III.		Profit per share of common stock (A/B)	$	0.80			$	1.22		$	1.37			$	2.39
		Profit per share of common stock - assuming dilution (A/C)	$	0.78			$	1.20		$	1.35			$	2.36


7.	The reserve for plant closing and consolidation costs includes the following:

		June 30, 1999 (unaudited)		December 31, 1998

Write down of property, plant, and equipment		$	77	$	78
Employee severance benefits			23		37
Rearrangement, start-up costs, and other			2		5

Total reserve		$	102	$	120

	The write-down of property, plant, and equipment establishes a new cost basis for assets that have been permanently impaired. Employee severance benefits (e.g., pension, medical, and supplemental unemployment benefits) are provided to employees affected by plant closings and consolidations. The reserve for such benefits is reduced as the benefits are provided. At June 30, 1999 and December 31, 1998, the above reserve includes $32 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.



Three months ended June 30,	Business Segments
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		$	352		$	55		$	790		$	346		$	294		$	1,326		$	1,734		$	250		$	5,147
Intersegment sales and revenues			1			1,947			169			1			29			1,081			56			427			3,711

Total sales and revenues		$	353		$	2,002		$	959		$	347		$	323		$	2,407		$	1,790		$	677		$	8,858

Accountable Profit		$	15		$	196		$	46		$	51		$	7		$	73		$	18		$	56		$	462

Accountable assets at June 30, 1999		$	346		$	2,296		$	876		$	11,813		$	654		$	3,835		$	1,665		$	2,076		$	23,561


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		$	304		$	49		$	854		$	325		$	452		$	1,368		$	2,002		$	242		$	5,596
Intersegment sales and revenues			1			2,333			245			(3)			44			1,088			54			484			4,246

Total sales and revenues		$	305		$	2,382		$	1,099		$	322		$	496		$	2,456		$	2,056		$	726			9,842

Accountable Profit		$	(2)		$	322		$	63		$	44		$	22		$	119		$	56		$	57			681

Accountable assets at December 31, 1998		$	289		$	2,349		$	862		$	11,451		$	717		$	3,479		$	1,475		$	2,054			22,676



Six months ended June 30,	Business Segments
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		$	617		$	91		$	1,516		$	683		$	566		$	2,426			$	3,660		$	484		$	10,043
Intersegment sales and revenues			2			4,099			420			5			52			2,043				104			896			7,621

Total sales and revenues		$	619		$	4,190		$	1,936		$	688		$	618		$	4,469			$	3,764		$	1,380		$	17,664

Accountable Profit		$	21		$	424		$	86		$	113		$	11		$	49			$	58		$	118		$	880


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		$	543		$	94		$	1,642		$	608		$	884		$	2,213			$	3,923		$	476		$	10,383
Intersegment sales and revenues			1			4,711			502			-			74			2,112				95			967			8,462

Total sales and revenues		$	544		$	4,805		$	2,144		$	608		$	958		$	4,325			$	4,018		$	1,443		$	18,845

Accountable Profit		$	(16)		$	699		$	127		$	91		$	43		$	146			$	132		$	115		$	1,337


	Three months ended					Six months ended
Reconciliation of Profit Before Tax:	June 30, 1999		June 30, 1998			June 30, 1999		June 30, 1998
	(unaudited)					(unaudited)

Total accountable profit from business segments	$	462		$	681	$	880		$	1,337
Methodology differences		3			29		(49)			49
Corporate costs		(50)			(67)		(132)			(151)
Other		7			23		24			60

Total consolidated profit before tax	$	422		$	666	$	723		$	1,295


MACHINERY AND ENGINES
Sales Table
(Millions of dollars)	Total		North America		EAME **		Latin America		Asia/ Pacific
Three Months Ended June 30, 1999
Machinery	$	3,217	$	1,953	$	766	$	203	$	295
Engines *		1,604		919		390		128		167

	$	4,821	$	2,872	$	1,156	$	331	$	462


Three Months Ended June 30, 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 and $337 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 21 for reconciliation of Machinery and Engine Sales by Geographic Region to External Sales by Marketing Segment.


MACHINERY AND ENGINES
Sales Table
(Millions of dollars)	Total		North America		EAME **		Latin America		Asia/ Pacific
Six Months Ended June 30, 1999
Machinery	$	6,507	$	4,092	$	1,484	$	405	$	526
Engines *		2,912		1,689		730		213		280

	$	9,419	$	5,781	$	2,214	$	618	$	806


Six Months Ended June 30, 1998
Machinery	$	7,108	$	4,447	$	1,464	$	686	$	511
Engines *		2,822		1,444		883		254		241

	$	9,930	$	5,891	$	2,347	$	940	$	752


* Does not include internal engine transfers of $630 and $645 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 21 for reconciliation of Machinery and Engine Sales by Geographic Region to External Sales by Marketing Segment.
Machinery sales were $6.51 billion, a decrease of $601 million or 8 percent from the first six months of 1998. The lower sales resulted primarily from a 7 percent decrease in physical sales volume due to lower sales to end users and a smaller increase in dealer new machine inventory than occurred in the same period 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. 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 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. 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). 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.


Machinery operating profit decreased $429 million, or 43 percent from the first six 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. SG&A and R&D expenses were about the same.
Engine operating profit decreased $85 million, or 36 percent from the first six 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 about the same.
Interest expense was $2 million higher than a year ago due to higher average debt levels, partially offset by lower average interest rates.
Other income/expense was expense of $2 million compared with income of $42 million the first six months of 1998. The decrease was due to lower interest income, an unfavorable change in foreign exchange gains and losses and discounts taken on the sales of trade receivables to Cat Financial. Discounts taken on this revolving sale of receivables to Cat Financial are reflected in Machinery and Engines as other expense. Revenues offsetting these discounts as well as related borrowing costs are reflected in Financial Products.


Reconciliation of Machinery and Engine Sales by Geographic Region to External Sales by Marketing Segment
	Three-months ended				Six-months ended
(Millions of dollars)	June 30, 1999		June 30, 1998		June 30, 1999		June 30, 1998
North American Geographic Region	$	2,872	$	3,092	$	5,781	$	5,891
Engine sales included in the Power Products segment		(919)		(812)		(1,689)		(1,444)
Company owned dealer sales included in the All Other segment		(103)		(91)		(190)		(174)
Certain governmental sales included in the All Other segment		(26)		(33)		(50)		(62)
Other*		(90)		(154)		(192)		(288)

North American Marketing external sales	$	1,734	$	2,002	$	3,660	$	3,923

EAME Geographic Region	$	1,156	$	1,334	$	2,214	$	2,347
Power Products sales not included in the EAME Marketing segment		(277)		(391)		(525)		(550)
Other		(89)		(89)		(173)		(155)

EAME Marketing external sales	$	790	$	854	$	1,516	$	1,642

Latin America Geographic Region	$	331	$	487	$	618	$	940
Power Products sales not included in the Latin America Marketing segment		(64)		(64)		(96)		(93)
Other		27		29		44		37

Latin America Marketing external sales	$	294	$	452	$	566	$	884

Asia Pacific Geographic Region	$	462	$	444	$	806	$	752
Power Products sales not included in the Asia/Pacific Marketing segment		(66)		(101)		(116)		(126)
Other *		(44)		(39)		(73)		(83)

Asia Pacific Marketing external sales	$	352	$	304	$	617	$	543

*Represents primarily external sales of the Construction & Mining Products and the All Other segments.


*ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K*

	(a)	Exhibits

		Exhibit No.	Description
		27	Financial Data Schedule

	(b)	Reports on Form 8-K, dated April 16, June 9, and June 15, 1999 were filed during the quarter ending June 30, 1999, pursuant to Item 5 of that form. An additional Form 8-K was filed on July 16, 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.

August 12, 1999	/s/F. LYNN MCPHEETERS	Vice President and Chief Financial Officer

	(F. Lynn McPheeters)

August 12, 1999	/s/R. R. ATTERBURY III	Secretary

	(R. Rennie Atterbury III)


EXHIBIT INDEX

Exhibit Number		Description
27		Financial Data Schedule