SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 18, 2000
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
<PAGE>
Item 5. Other Events.
April 18, 2000
CATERPILLAR SALES, REVENUES AND PROFIT INCREASE IN
FIRST-QUARTER 2000; OUTLOOK REMAINS LARGELY UNCHANGED
- -----------------------------------------------------
PEORIA, Ill. -- Caterpillar Inc. (NYSE: CAT) today reported
first-quarter sales and revenues of $4.92 billion, $52 million
higher than first-quarter 1999. The increase was primarily due
to higher physical volume. Financial Products revenues increased
$25 million from first-quarter 1999.
Profit of $258 million or 73 cents per share was $53 million
higher than first-quarter 1999. The increase was due primarily to
improved manufacturing efficiencies, slightly lower selling, general
and administrative (SG&A) costs and the higher physical volume.
"Customer demand for Cat products and services in the first
quarter was in line with our expectations, and our product, market
and geographic diversification aided our results," said Caterpillar
Chairman and CEO Glen Barton. "Our solid first-quarter financial
performance puts us in position to achieve our full-year 2000 outlook,
which remains largely unchanged."
"We're focused on cost management, accelerating the financial
benefits from our acquisitions, reaching new breakthroughs in product
quality and becoming even more responsive. All of these help customers
obtain even greater value from Cat products and services and drive
increased shareholder value," Barton said.
HIGHLIGHTS
----------
FIRST-QUARTER 2000 COMPARED WITH FIRST-QUARTER 1999
- ---------------------------------------------------
* Sales and revenues of $4.92 billion were $52 million higher.
Revenues from Financial Products increased 9 percent.
* Sales inside the United States were 52 percent of worldwide
sales compared with 57 percent a year ago.
* Five-fold increase in Engine segment operating profit.
* Profit of $258 million was $53 million above first-quarter 1999.
* Profit per share of 73 cents was up 28 percent.
* 5.34 million shares were repurchased during the quarter under
the program announced in October 1998 to reduce the number of
shares outstanding to 320 million over a three to five year period.
On March 31, 2000, there were 348.6 million shares outstanding.
OUTLOOK
- -------
We expect full-year 2000 sales and revenues to be slightly higher
than 1999 and profit to increase moderately. (Complete outlook
begins on page 7.)
- -1-
<PAGE>
DETAILED ANALYSIS
-----------------
FIRST-QUARTER 2000 COMPARED WITH FIRST-QUARTER 1999
- ---------------------------------------------------
Sales and revenues for the first-quarter 2000 were $4.92 billion,
1 percent higher than first-quarter 1999. A 2 percent increase
in physical sales volume and a 9 percent increase in Financial
Products revenue were partially offset by the unfavorable impact of
the stronger U.S. dollar on sales denominated in currencies other
than U.S. dollars (primarily the Euro). Profit of $258 million or
73 cents per share was $53 million higher than first-quarter 1999.
The increase was due primarily to improved manufacturing efficiencies,
slightly lower selling, general and administrative (SG&A) costs and
the higher physical volume. The negative impact of the U.S. dollar on
sales was offset by the U.S. dollar's positive impact on costs.
MACHINERY AND ENGINES
- ---------------------
Sales Table
-----------
(Millions of North Latin Asia/
dollars) Total America EAME* America Pacific
-------- -------- ------- -------- --------
First-Quarter 2000
- ------------------
Machinery $ 2,966 $1,753 $ 742 $172 $ 299
Engines ** 1,659 974 427 112 146
-------- -------- ------- -------- --------
$ 4,625 $ 2,727 $1,169 $ 284 $ 445
======== ======== ======= ======== ========
First-Quarter 1999
- ------------------
Machinery $ 3,290 $2,139 $ 718 $ 202 $231
Engines ** 1,308 770 340 85 113
-------- -------- ------- -------- --------
$ 4,598 $ 2,909 $1,058 $ 287 $ 344
======== ======== ======= ======== ========
* Europe, Africa & Middle East and Commonwealth of Independent States
** Does not include internal engine transfers of $349 million and
$316 million in first-quarter 2000 and first-quarter 1999,
respectively. Internal engine transfers are valued at prices
comparable to those for unrelated parties.
Machinery sales were $2.97 billion, a decrease of $324 million or
10 percent from first-quarter 1999. The lower sales resulted primarily
from a 7 percent decrease in physical sales volume. Price
realization also declined due to the continued effect of the stronger
U.S. dollar on sales denominated in currencies other than U.S. dollars
(primarily the Euro) and geographic mix.
- -2-
<PAGE>
Most of the decline in sales occurred in North America. Dealers
built inventory at a slower pace than a year ago and sales to end users
declined due to weaker industry demand and lower share of industry
sales. Sales in Latin America also fell due to the lingering effects
of recessions in a number of economies, which depressed industry sales.
In EAME, sales improved due to higher new machine inventories and
increased sales to end users in Europe. Sales were also higher in the
Asia/Pacific region as sales to end users improved in developing Asia,
partially offset by dealers building inventory at a slower pace than a
year ago.
Engine sales were $1.66 billion, an increase of $351 million or
27 percent from first-quarter 1999. Sales were higher due to
23 percent higher physical sales volume. Price realization also
improved primarily due to favorable geographic mix and lower sales
discounts.
Sales were up in all regions of the world, led by significant
increases in the power generation segment. In North America, sales
increased in both the United States and Canada primarily due to robust
demand for power generation and continued strong demand for on-highway
truck engines. In EAME, sales were higher in Europe and Africa &
Middle East. In the Asia/Pacific region, sales increased due to higher
sales in developing Asia. Worldwide sales, especially in EAME,
benefited from the conversion of F.G. Wilson from an affiliated company
to a consolidated subsidiary in July 1999.
Operating Profit Table
----------------------
(Millions of dollars) First-Quarter First-Quarter
2000 1999
------------- -------------
Machinery $ 236 $ 283
Engines 153 31
------ ------
$ 389 $ 314
====== ======
Caterpillar operations are highly integrated; therefore, the company
uses a number of allocations to determine lines of business operating
profit.
Machinery operating profit decreased $47 million, or 17 percent
from first-quarter 1999. Margin (sales less cost of goods sold)
declined primarily due to lower price realization (geographic mix)
and lower sales volume, partially offset by improved manufacturing
efficiencies. SG&A and research and development (R&D) expenses were
lower.
Engine operating profit increased $122 million from first-quarter
1999 due to higher sales volume, better price realization and improved
manufacturing efficiencies. These were partially offset by higher SG&A
and R&D expenses.
- -3-
<PAGE>
Interest expense was $4 million higher than a year ago.
Other income/expense reflects a net increase in income of
$25 million primarily due to a favorable change in foreign exchange
gains and losses.
FINANCIAL PRODUCTS
- ------------------
Revenues for first-quarter 2000 were $330 million, up $27 million
or 9 percent compared with first-quarter 1999. The increase
resulted primarily from continued growth in Cat Financial's portfolio.
Before tax profit was $60 million, down $11 million or 15 percent
from first-quarter 1999. The decrease resulted primarily from less
favorable reserve adjustments and lower underwriting income at
Caterpillar Insurance Company Ltd.
INCOME TAXES
- ------------
First-quarter tax expense reflects an estimated annual tax rate of
32 percent for both 2000 and 1999.
UNCONSOLIDATED AFFILIATED COMPANIES
- -----------------------------------
The company's share of unconsolidated affiliated companies'
results declined $5 million from first quarter a year ago, primarily
due to weaker results at Shin Caterpillar Mitsubishi Ltd. and the
conversion of F.G. Wilson from an affiliated company to a consolidated
subsidiary in July 1999.
SUPPLEMENTAL INFORMATION
- ------------------------
Dealer Machine Sales to End Users and Deliveries to
Dealer Rental Operations
- ----------------------------------------------------
Sales (including both sales to end users and deliveries to rental
operations) in North America were lower compared to first-quarter 1999
due to weaker industry demand in the United States and a lower share of
industry sales in the United States and Canada. These factors more
than offset stronger industry demand in Canada. Sales were lower in
the general construction segment, led by declines in commercial and
residential building. Quarry & aggregate, industrial and waste
segments declined as well. Sales were also lower in the mining segment
due to reduced purchases by coal mines which more than offset improved
sales to metal mines. Sales improved in the heavy construction segment
even though sales to highway construction were flat. Sales to the
agriculture and forestry segments were higher.
Sales increased in EAME as a result of growing industry demand in
Europe. Higher sales in France, Italy and Germany more than offset
weaker sales in the United Kingdom. Sales in Africa & Middle East were
down compared to a year earlier. Higher sales in Turkey were more than
offset by sales declines in United Arab Emirates and Egypt. Sales in
South Africa remained near year-earlier levels. For the region, sales
were higher to industrial, quarry & aggregate, mining, forestry,
agriculture and general construction segments. Sales to heavy
construction and waste segments declined.
- -4-
<PAGE>
Sales were significantly higher in the Asia/Pacific region due
to gains in developing Asia. Sales in Australia were flat. For the
region, sales increased to mining, heavy construction, general
construction, industrial and forestry segments. Sales to quarry &
aggregate and agriculture segments were lower.
Sales were down significantly in Latin America. Strong gains in
Mexico were more than offset by sharp declines in Peru, Brazil and
Chile. For the region, sales fell in mining, heavy construction and
industrial segments which more than offset increases in general
construction and quarry & aggregate segments.
Dealer Inventories of New Machines
- ----------------------------------
Worldwide dealer new machine inventories at the end of the first
quarter were significantly lower than a year ago. Declines in North
America and Latin America were partially offset by higher inventories
in EAME. Inventories in Asia/Pacific were near year-earlier levels.
Inventories compared with current selling rates were lower than
year earlier in North America, EAME and Asia/Pacific and near year-
earlier levels in Latin America.
Engine Sales to End Users and OEMs
- ----------------------------------
Sales in North America were higher due to improved demand in both
the United States and Canada in almost all segments, especially power
generation where sales increased significantly from a year earlier.
Sales of on-highway truck engines were up due to an improved share of
industry sales and continued high levels of industry demand. Sales
were also higher in the industrial and marine segments. Sales to the
petroleum segment were lower.
Sales in EAME increased due to a higher demand from power
generation and industrial segments. Sales were lower to the marine
and petroleum segments. Sales were higher in Europe as well as Africa
& Middle East.
In Asia/Pacific, higher sales to the power generation segment more
than offset declines in the marine, petroleum and industrial segments.
Sales in Latin America rose due to increases in the power
generation, marine and petroleum segments. Sales in other segments
remained near year-earlier levels.
While petroleum sales were down worldwide, increased activity due
to higher oil prices is beginning to translate into higher order rates
for engines.
Worldwide sales, especially in EAME, benefited from the conversion
of F.G. Wilson from an affiliated company to a consolidated subsidiary
in July 1999.
- -5-
<PAGE>
CONDENSED CASH FLOW
-------------------
Net free cash flow (profit after tax adjusted for depreciation,
changes in working capital, capital expenditures, and dividends) for
Machinery and Engines was $127 million for 2000, an increase of
$298 million from 1999. This increase was primarily due to a favorable
change in working capital and higher profit after tax. The change in
working capital reflects a favorable change in accounts payable and
receivables.
For the Three Months Ended CONSOLIDATED
(Millions of dollars) Mar 31, Mar 31,
2000 1999
-------- -------
Profit after tax $258 $205
Depreciation and amortization 257 232
Change in working capital -
excluding cash, debt and
dividends payable (80) (620)
Capital expenditures excluding
equipment leased to others (108) (111)
Expenditures for equipment
leased to others, net of disposals (61) (51)
Dividends paid (115) (107)
------ ------
Net Free Cash Flow 151 (452)
------ ------
Other significant cash flow items:
Treasury shares purchased (210) (78)
Net (increase) decrease in
long-term finance receivables (114) (86)
Net increase (decrease) in debt 121 477
Investments and acquisitions -
(net of cash acquired) (4) (33)
Other (56) 56
------ ------
Change in cash and short-term
Investments $(112) $(116)
====== ======
************************************************
For the Three Months Ended MACHINERY & ENGINES*
(Millions of dollars) Mar 31, Mar 31,
2000 1999
-------- -------
Profit after tax $258 $205
Depreciation and amortization 201 186
Change in working capital -
excluding cash, debt and
dividends payable (113) (344)
Capital expenditures excluding
equipment leased to others (106) (110)
Expenditures for equipment
leased to others, net of disposals 2 (1)
Dividends paid (115) (107)
------ ------
Net Free Cash Flow 127 (171)
------ ------
Other significant cash flow items:
Treasury shares purchased (210) (78)
Net (increase) decrease in
long-term finance receivables - -
Net increase (decrease) in debt 19 175
Investments and acquisitions -
(net of cash acquired) (2) (33)
Other (13) 4
------ ------
Change in cash and short-term
Investments $(79) $(103)
====== ======
* Represents Caterpillar Inc. and its subsidiaries, except for
Financial Products which is accounted for on the equity basis.
************************************************
For the Three Months Ended FINANCIAL PRODUCTS
(Millions of dollars) Mar 31, Mar 31,
2000 1999
-------- -------
Profit after tax $39 $45
Depreciation and amortization 56 46
Change in working capital -
excluding cash, debt and
dividends payable 64 (235)
Capital expenditures excluding
equipment leased to others (2) (1)
Expenditures for equipment
leased to others, net of disposals (63) (50)
Dividends paid (29) (36)
------ ------
Net Free Cash Flow 65 (231)
------ ------
Other significant cash flow items:
Treasury shares purchased - -
Net (increase) decrease in
long-term finance receivables (114) (86)
Net increase (decrease) in debt 99 298
Investments and acquisitions -
(net of cash acquired) (2) -
Other (81) 6
------ ------
Change in cash and short-term
Investments $(33) $(13)
====== ======
- -6-
<PAGE>
EMPLOYMENT
- ----------
At the end of first-quarter 2000, Caterpillar's worldwide
employment was 66,555 compared with 65,377 one year ago. Acquisitions
have added 2,353 since first-quarter 1999.
OUTLOOK
- -------
Summary
- -------
World economic growth in 2000 is forecast to improve primarily due
to stronger growth in EAME and Latin America. Gross Domestic Product
(GDP) growth in North America is no longer forecast to slow and may
even exceed last year's strong growth rate. Better world growth should
lead to higher prices for most commodities although agricultural prices
are expected to remain weak and oil prices are likely to remain in the
$20 - $30 per barrel range.
Company sales and revenues are forecast to increase in 2000 with
higher sales expected in each region of the world except North America.
In the United States, we expect industry demand for machines to
decline, but company sales are expected to be about flat as machine
shipments come back into line with retail demand. Engine sales in the
United States are expected to remain near 1999 levels as a higher share
of industry sales for heavy-duty and mid-range truck engines combined
with increased commercial engine sales offsets lower industry demand
for on-highway truck engines. Elsewhere, stronger economic growth and
higher commodity prices should lead to higher retail demand and higher
company sales for machines and engines.
In summary, company sales and revenues are forecast to improve
slightly in 2000 due to better worldwide growth, higher commodity
prices and less dealer inventory reduction. Profit is expected to
increase moderately.
North America
- -------------
In the United States, GDP growth is now forecast to remain very
strong at 4 to 4.5 percent in 2000 despite recent interest rate
increases by the Federal Reserve. However, construction equipment
industry sales should decline about 10 percent from 1999 levels as
higher interest rates and fewer housing starts are expected to result
in lower sales in the general construction segment. The heavy
construction segment should provide a partial offset since sales into
the highway sector are forecast to increase as states accelerate
contracts for highway construction. Machine sales into the commodity
segments should begin to stabilize with the exception of agriculture
where sales are forecast to decline for another year. Overall, retail
industry demand for machines is expected to decline because of the drop
in general construction, continued weakness in agriculture and a drop
in replacement buying due to the age of the current expansion. Company
machine sales are expected to be about flat as shipments come back into
line with retail demand.
- -7-
<PAGE>
Higher interest rates, higher diesel fuel prices, a shortage of
drivers and an increased supply of used heavy-duty trucks are expected
to impact North American industry demand for on-highway truck engines.
However, a higher share of industry sales for heavy and medium-duty
truck engines combined with increased demand for other engines,
especially power generation, should offset the drop in industry demand.
Overall, company engine sales are forecast to remain near 1999 levels.
In Canada, good economic growth should lead to higher sales for
both machines and engines.
For the North American region as a whole, company sales of
machines and engines are forecast to remain near last year's level.
EAME
- ----
In Western Europe, GDP growth is expected to accelerate from
2.2 percent in 1999 to 3.1 percent in 2000 leading to stronger demand
for both machines and engines. Growth is also expected to improve in
Africa & Middle East. Higher commodity prices, particularly oil and
natural gas, should lead to higher demand for both machines and
engines. Sales in Russia and elsewhere in the Commonwealth of
Independent States, however, are likely to remain depressed. For the
EAME region as a whole, better growth and improved business confidence
should lead to higher company sales.
Asia/Pacific
- ------------
In developing Asia, economic recovery is forecast to continue with
GDP growth remaining at 6 percent which should lead to better sales of
both machines and engines. Good economic growth is also expected to
continue in Australia resulting in sales near or slightly above 1999
levels. For the region as a whole, company sales should be higher.
Latin America
- -------------
GDP growth is forecast to improve from flat in 1999 to 3 to 4
percent in 2000 as the region recovers from last year's recession.
Combined with higher commodity prices, this improved growth should
result in higher machine sales, more than offsetting lower engine
sales.
- -8-
<PAGE>
CATERPILLAR INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
(Millions of dollars except per share data)
CONSOLIDATED
Mar 31, Mar 31,
2000 1999
-------- -------
Sales and revenues:
Sales of Machinery & Engines $4,625 $4,598
Revenues of Financial Products 294 269
-------- -------
Total sales and revenues 4,919 4,867
-------- -------
Operating costs:
Cost of goods sold 3,558 3,578
Selling, general, and
administrative expenses 637 653
Research and development expenses 155 155
Interest expense of Financial Products 153 129
-------- -------
Total operating costs 4,503 4,515
-------- -------
Operating Profit 416 352
Interest expense excluding
Financial Products 71 67
Other income (expense) 41 16
-------- -------
Consolidated profit before taxes 386 301
Provision for income taxes 123 96
-------- -------
Profit of consolidated companies 263 205
Equity in profit of
unconsolidated affiliates (5) -
Equity in profit of Financial
Products subsidiaries - -
-------- -------
Profit $258 $205
======== =======
EPS of common stock $0.73 $0.58
======== =======
EPS of common stock - assuming dilution $0.73 $0.57
======== =======
Weighted average shares
outstanding (thousands)
Basic 351,576 356,291
Assuming dilution 354,210 360,497
************************************************
CATERPILLAR INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
(Millions of dollars except per share data)
MACHINERY & ENGINES*
Mar. 31, Mar. 31,
2000 1999
-------- -------
Sales and revenues:
Sales of Machinery & Engines $4,625 $4,598
Revenues of Financial Products - -
-------- -------
Total sales and revenues 4,625 5,598
-------- -------
Operating costs:
Cost of goods sold 3,558 3,578
Selling, general, and
administrative expenses 523 551
Research and development expenses 155 155
Interest expense of Financial Products - -
-------- -------
Total operating costs 4,236 4,284
-------- -------
Operating Profit 389 314
Interest expense excluding
Financial Products 71 67
Other income (expense) 8 (17)
-------- -------
Consolidated profit before taxes 326 230
Provision for income taxes 101 70
-------- -------
Profit of consolidated companies 225 160
Equity in profit of
unconsolidated affiliates (6) -
Equity in profit of Financial
Products subsidiaries 39 45
-------- -------
Profit $258 $205
======== =======
* Represents Caterpillar Inc. and its subsidiaries, except for
Financial Products which is accounted for on the equity basis.
Transactions between Machinery and Engines and Financial Products
have been eliminated to arrive at the Consolidated data.
************************************************
CATERPILLAR INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
(Millions of dollars except per share data)
FINANCIAL PRODUCTS
Mar. 31, Mar. 31,
2000 1999
-------- -------
Sales and revenues:
Sales of Machinery & Engines $ - $ -
Revenues of Financial Products 330 303
-------- -------
Total sales and revenues 330 303
-------- -------
Operating costs:
Cost of goods sold - -
Selling, general, and
administrative expenses 122 109
Research and development expenses - -
Interest expense of Financial Products 163 134
-------- -------
Total operating costs 285 243
-------- -------
Operating Profit 45 60
Interest expense excluding
Financial Products - -
Other income (expense) 15 11
-------- -------
Consolidated profit before taxes 60 71
Provision for income taxes 22 26
-------- -------
Profit of consolidated companies 38 45
Equity in profit of
unconsolidated affiliates 1 -
Equity in profit of Financial
Products subsidiaries - -
-------- -------
Profit $ 39 $ 45
======== =======
- -9-
<PAGE>
CATERPILLAR INC.
CONDENSED FINANCIAL POSITION
(Millions of dollars)
Consolidated
(Caterpillar Inc. and Subsidiaries)
-----------------------------------
Mar. 31, Dec. 31, Mar. 31,
2000 1999 1999
--------- --------- ---------
Assets
Current assets:
Cash and short-term investments $436 $548 $244
Receivables - trade and other 2,580 3,233 4,183
Receivables - finance 5,109 4,206 3,448
Deferred income taxes 416 405 516
Prepaid expenses 770 748 620
Inventories 2,659 2,594 2,892
------- -------- --------
Total current assets 11,970 11,734 11,903
Property, plant, and
equipment - net 5,181 5,201 4,852
Long-term receivables
- trade and other 79 95 92
Long-term receivables
- finance 5,702 5,588 5,144
Investments in unconsolidated
affiliated companies 553 553 835
Deferred income taxes 940 954 977
Intangible assets 1,519 1,543 1,235
Other assets 1,019 967 681
-------- -------- --------
Total Assets $26,963 $26,635 $25,719
======== ======== ========
Liabilities
Current liabilities:
Short-term borrowings:
-- Machinery & Engines $66 $51 $236
-- Financial Products 674 719 697
Accounts payable 2,192 2,003 2,123
Accrued expenses 1,079 1,048 990
Accrued wages, salaries, and
employee benefits 1,062 1,115 1,090
Dividends payable - 115 -
Deferred and current
income taxes payable 124 23 147
Long-term debt due within one year:
-- Machinery & Engines 167 167 48
-- Financial Products 2,798 2,937 2,439
-------- -------- --------
Total current liabilities 8,162 8,178 7,770
Long-term debt due after one year:
-- Machinery & Engines 3,103 3,099 2,993
-- Financial Products 7,115 6,829 6,516
Liability for post-employment
benefits 2,543 2,536 2,698
Deferred income taxes
and other liabilities 544 528 429
-------- -------- --------
Total Liabilities 21,467 21,170 20,406
-------- -------- --------
Stockholders' Equity
Common stock 1,049 1,045 1,062
Profit employed in the business 6,875 6,617 6,328
Accumulated other comprehensive
income 52 78 50
Treasury stock (2,480) (2,275) (2,127)
-------- -------- --------
Total Stockholders' Equity 5,496 5,465 5,313
-------- -------- --------
Total Liabilities and
Stockholders' Equity $26,963 $26,635 $25,719
======== ======== ========
Certain amounts for prior periods have been reclassified to conform
with current financial statement presentation.
- -10-
<PAGE>
SAFE HARBOR STATEMENT UNDER THE SECURITIES LITIGATION
REFORM ACT OF 1995
- -----------------------------------------------------
Certain statements contained in our First Quarter 2000 Financial
Release are forward looking and involve uncertainties that could
significantly impact expected results. The words "believes,"
"expects," "estimates," "anticipates," "will be," "should" 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 continue throughout Asia and
Latin America. Africa/Middle East also should register improved growth
in 2000. 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.), political disruption 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, most of
which are expected to trend slightly higher through 2000 but remain
considerably below 1997 levels. Oil prices have moved up considerably
since the start of last year and are expected to remain in the
$20 - $30 per barrel range for the rest of the year. Gold prices moved
higher last year on announcements of government plans to refrain from
selling gold, and we assume gold prices average about $300 per ounce in
2000. Agricultural prices are likely to remain weak while most metals
prices should be up slightly. Based on this forecast of only modest
improvement in most commodity prices, equipment sales into sectors that
are sensitive to commodity prices are likely to remain relatively weak
for 2000.
Stronger than anticipated world growth could lead to noticeable
improvement in commodity prices which could result in greater than
expected sales this year. 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 leading to annual average GDP growth
of about 3%. If Europe falters, then commodity prices could be weaker.
The Russian economy appears to be improving but political and economic
instability remain very high. A crisis or sudden deterioration could
impact worldwide stock or currency markets, which in turn could weaken
Company sales.
- -11-
<PAGE>
Monetary and Fiscal Policies
- ----------------------------
For most companies operating in a global economy, monetary and fiscal
policies implemented in the U.S. and abroad could have a significant
impact on economic growth, and, accordingly, demand for a product. For
example, if the Federal Reserve raises rates significantly, the U.S.
economy could slow abruptly leading to an unanticipated decline in
sales. The United States, in particular, is vulnerable to higher
interest rates as it enters the tenth year of expansion - which is the
longest in U.S. history. Our outlook assumes the Federal Reserve will
raise interest rates another 25 to 50 basis points this year which will
contribute to lower industry demand. If the Federal Reserve raises
rates more that 50 basis points then industry demand will likely be
even lower resulting in lower company sales.
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 continued,
strong U.S. growth in 2000 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. There are also a number of
presidential elections scheduled to take place in 2000 which could
affect economic policy, particularly in Latin America.
Currency Fluctuations
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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, an overvalued dollar makes our costs relatively
higher compared with these competitors. As a major net exporter from
the United States, an overvalued dollar, over time, could have an
unfavorable impact on our global competitive position.
Dealer Practices
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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 the appropriate level of inventory)
and may have a significant positive or negative impact on our results.
In particular, the outlook assumes that inventory sales ratios will be
somewhat lower at the end of 2000 than at the end of 1999. Key factors
here are the dealers assessment of industry demand for 2001 and the
likely interest rate environment at the end of 2000 and throughout
2001. If dealers reduce inventory levels more than anticipated,
company sales will be adversely impacted.
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Other Factors
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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. In 1999, the
six-year Federal highway bill did not boost U.S. sales as much as
anticipated due to delays in getting major capital projects underway.
If, unexpectedly, these delays continued in the Year 2000, sales could
be negatively impacted.
Another factor which can impact company sales and profit is mix. Our
outlook assumes a certain geographic mix of sales (higher priced areas
vs. lower priced areas) 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,
marketing, 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 and 1999 would result in lower than
anticipated price realization.
This discussion of uncertainties is by no means exhaustive but is
designed to highlight important factors that may impact our outlook.
Obvious factors such as general economic conditions throughout the
world do not warrant further discussion but are noted to further
emphasize the myriad of contingencies that may cause the Company's
actual results to differ from those currently anticipated.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CATERPILLAR INC.
By: /s/ R. Rennie Atterbury III
----------------------------
R. Rennie Atterbury III
Vice President
Date: April 18, 2000
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