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| Expires: | January 31, 2002 |
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
| [_] | Preliminary Proxy Statement | [_] | CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY RULE 14A-6(E)(2)) |
| [X] | Definitive Proxy Statement |
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| [_] | Definitive Additional Materials |
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| [_] | Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 |
(Name of Registrant as Specified In Its Charter)
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| [X] | No fee required. |
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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Notes:
[LOGO OF CATERPILLAR]
100 NE Adams Street
Peoria, Illinois 61629
Annual Meeting of
Stockholders
Wednesday, April 12, 2000
1:30 p.m. — Central Daylight Time
Bank One Auditorium
1 Bank One Plaza
Chicago, Illinois 60670
March 3, 2000
Fellow stockholder:
On behalf of the Board of Directors, you are cordially invited to attend the 2000 Caterpillar Inc. Annual Meeting of Stockholders to:
| |
elect directors; |
| |
approve an amendment to the
1996 Stock Option Plan to increase the
number of shares authorized for issuance; |
| |
approve appointment of independent auditors for 2000; |
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act on stockholder proposals presented; and |
| |
conduct other business properly brought before the meeting. |
Attendance and voting is limited to stockholders of
record at the close of business on
February 15, 2000.
Sincerely yours,
/s/ Glen A. Barton
Glen A. Barton
Chairman
| Table of
Contents
|
|
| Annual Meeting Details |
Cover
|
| Voting Matters |
1
|
| The Caterpillar Board of Directors |
2
|
| [X] Proposal 1 — Election of Directors | 2 |
| Caterpillar Inc. Guidelines on Corporate Governance Issues |
6
|
| Caterpillar Stock Owned by Officers and Directors |
11
|
| Persons Owning More than Five Percent of Caterpillar Stock |
12
|
| Performance Graph |
12
|
| Compensation Committee
Report on Executive Officer
|
13
|
| Executive Compensation Tables |
19
|
| [X] Proposal 2 — Amendment to 1996 Stock Option Plan |
22
|
| [X] Proposal 3 — Appointment of Auditors |
24
|
| [X] Proposal 4 — Stockholder Proposal re: Rights Plan |
25
|
| Caterpillar Response | 27
|
| [X] Proposal 5 — Stockholder Proposal re: Global Standards |
28
|
| Caterpillar Response | 29
|
| Other Matters |
31
|
| Exhibit A — Caterpillar Inc. 1996 Stock Option and Long-Term Incentive Plan |
32
|
| Appendix — General and Financial Information — 1999 |
A-1
|
Voting Matters
Record Date Information
Each share of Caterpillar stock you own as of February 15, 2000 entitles you to one vote. On February 15, 2000, there were 351,249,448 shares of Caterpillar common stock outstanding.
Voting by Telephone or Internet
Caterpillar is again offering shareholders the opportunity to vote by phone or via the internet. Instructions for shareholders interested in using either of these methods to vote are set forth on the enclosed proxy card or voting instruction form.
If you vote by phone or via the internet, please have your social security number and proxy or voting instruction card available. The sequence of numbers appearing on your card and your social security number are necessary to verify your vote. A phone or Internet vote authorizes the named proxies in the same manner as if you marked, signed and returned the card by mail. In the opinion of counsel, voting by phone and via the Internet are valid proxy voting methods under Delaware law and Caterpillar bylaws.
Giving your Proxy to Someone Other than Individuals Designated on the Card
If you want to give your written proxy to someone other than individuals named on the proxy card:
Quorum
A quorum of stockholders is necessary to hold a valid meeting. If at least one-third of Caterpillar stockholders are present in person or by proxy, a quorum will exist. Abstentions and broker non-votes are counted as present for establishing a quorum. A broker non-vote occurs when a broker votes on some matters on the proxy card but not on others, because he or she does not have the authority to do so.
Vote Necessary for Action
Directors are elected by a plurality vote of shares present at the meeting, meaning that the director nominee with the most affirmative votes for a particular slot is elected for that slot. In an uncontested election for directors, the plurality requirement is not a factor.
Page 1
Other action is by an affirmative vote of the majority of shares present at the meeting. Abstentions and broker non-votes have the effect of a no vote on matters other than director elections.
Votes submitted by mail, telephone, or internet will be voted by the individuals named on the card in the manner you indicate. If you do not specify how you want your shares voted, they will be voted in accordance with management's recommendations. You may change your vote by voting in person at the Annual Meeting or by submitting another proxy that is dated later.
The Caterpillar Board of Directors
Structure
Our Board of Directors is divided into three classes for purposes of election. One class is elected at each annual meeting of stockholders to serve for a three-year term.
Directors elected at the 2000 Annual Meeting of Stockholders will hold office for a three-year term expiring in 2003. Other directors are not up for election this year and will continue in office for the remainder of their terms.
If a nominee is unavailable for election, proxy holders will vote for another nominee proposed by the Board or, as an alternative, the Board may reduce the number of directors to be elected at the meeting.
Caterpillar corporate governance guidelines (see p. 6) were changed in 1999 to require Caterpillar employees, including CEOs, to resign from the Board of Directors upon their resignation or retirement from the company. As a result, Mr. George A. Schaefer is retiring from the Board effective April 12, 2000, and Mr. Donald V. Fites is not standing for re-election.
PROPOSAL 1 - Election of Directors
Directors Up For Election This Year for Terms Expiring in 2003
Page 2
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR " THE NOMINEES PRESENTED IN PROPOSAL 1.
Directors Remaining in Office Until 2001
Directors Remaining in office until 2002
Page 3
Board Meetings and Committees
In 1999, our full Board met seven times. In addition to those meetings, directors attended meetings of individual Board committees, and non-employee directors met twice in executive session. For our incumbent Board as a whole, attendance in 1999 at full Board and committee meetings was 95.4%.
Our Board has four standing committees.
The Audit Committee, made up of only independent directors as defined by New York Stock Exchange rules, reviews management's independent auditor selection and makes recommendations to the Board based on that review. The Committee also questions management, including Caterpillar's internal audit staff, and independent auditors on the application of accounting and reporting standards to Caterpillar. The Committee also reviews major litigation involving Caterpillar. During 1999, the Committee held three meetings.
The Compensation Committee reviews Caterpillar's compensation practices and approves its compensation programs and plans. The Committee also reviews CEO performance and makes recommendations regarding CEO compensation. During 1999, the Committee held four meetings.
The Nominating and Governance Committee recommends candidates to fill Board vacancies and for the slate to be proposed by the Board at the Annual Meeting of Stockholders. The Nominating Committee also advises the Board on nominees for Chairman of the Board, Chief Executive Officer, and other executive officer positions at Caterpillar. The Committee considers director nominees from stockholders for election at the annual stockholders' meeting if a written nomination is received by Caterpillar's Corporate Secretary not later than ninety days in advance of the meeting (nomination procedures are discussed in greater detail in our bylaws which will be provided upon written request). In addition to these duties, the committee monitors Caterpillar's corporate governance practices and suggests applicable revisions. During 1999, the Committee held two meetings.
The Public Policy Committee makes recommendations to the Board on public and social policy issues impacting Caterpillar. The Committee also oversees Caterpillar's compliance programs and reviews legislation and stockholder matters not within the responsibilities of another Board committee. During 1999, the Committee held three meetings.
Page 4
| Committee Membership |
||||
|
|
Audit
|
Compensation
|
Nominating &
|
Public
Policy |
| Lilyan H. Affinito |
x
|
x
|
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| Glen A. Barton** |
||||
| W. Frank Blount | x
|
x
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| John R. Brazil |
x
|
x
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| John T. Dillon |
x
|
x
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| Juan Gallardo |
x
|
x
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| David R. Goode | x*
|
x
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| James P. Gorter |
x
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x*
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| Peter A. Magowan |
x
|
x
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| Gordon R. Parker |
x
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x
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| Joshua I. Smith |
x*
|
x
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| Clayton K. Yeutter | x
|
x*
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| * Chairman of Committee |
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| ** Mr. Barton, Chairman of the Board, does not serve on any Board committees. |
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Director Compensation
Of our current Board members, only Mr. Barton is a salaried employee of Caterpillar. Board members that are not salaried employees of Caterpillar receive separate compensation for Board service. That compensation includes:
| Annual Retainer: |
$30,000 |
| Attendance Fees: |
$1,000 for each Board meeting
$1,000 for each Board Committee meeting Expenses related to attendance |
| Committee Chairman Stipend: | $5,000 annually |
| Stock Options: |
4,000 shares annually |
| Restricted Stock: |
750 shares annually (400 shares have a restricted period of three years, while 350 shares are restricted until the director terminates service) |
Under Caterpillar's Directors' Deferred Compensation Plan, directors may defer fifty percent or more of their annual compensation in an interest bearing account or an account representing shares of Caterpillar stock. Under the 1996 Stock Option and Long-Term Incentive Plan, non-employee directors may also elect to receive all or a portion of their annual retainer fees, attendance fees, or stipends in shares of Caterpillar stock.
Our directors also participate in a Charitable Award Program. Beginning in the year of a director's death, an amount is paid proportionately in ten annual installments to charities selected by the director and to the Caterpillar Foundation. The maximum amount payable under the program is $1 million on behalf of each eligible director and is based on the director's length of service.
Page 5
The program is financed through the purchase of life insurance policies, and directors derive no financial benefit from the program.
Legal Proceedings
Joshua I. Smith is Chairman and Chief Executive Officer of The MAXIMA Corporation. On June 26, 1998, that corporation filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the United States District Court for the Southern District of Maryland.
Caterpillar Inc. Guidelines on Corporate Governance Issues
In 1999, the Board adopted the following corporate governance guidelines specifically tailored to the needs of Caterpillar. These guidelines, replacing those previously adopted in 1994, reflect the Board's commitment to monitor the effectiveness of policy and decision-making both at the Board and management level, with a view to enhancing shareholder value over the long term. The Board believes these guidelines should be an evolving set of corporate governance principles, subject to alteration as circumstances warrant.
I. Selection of Chairman and Chief Executive Officer
The Board believes the positions of Chief Executive Officer and Chairman of the Board should be combined to provide unified leadership and direction. The Board reserves the right to adopt a different policy should circumstances change.
II. Chairman/CEO's Death, Resignation, or Incapacity
In the event of the death, resignation or incapacity of the Chairman of the Board and/or the Chief Executive Officer, the Chairman of the Nominating and Governance Committee will immediately call a meeting of that committee to recommend to the full Board the selection of a temporary or permanent replacement for either or both positions.
III. Board Committees
The Board currently has four standing committees: Audit, Compensation, Nominating and Governance, and Public Policy. There may be occasions when the Board will wish to form a new standing or ad hoc committee, or disband a current committee depending upon the circumstances.
Specific charters will be adopted by the Board for all standing committees.
Page 6
The Board will approve committee assignments, including committee chairmanships. In so doing, the Board will consider the desires of individual directors and the recommendations of the Nominating and Governance Committee in consultation with the Chairman and Chief Executive Officer. The Board will rotate committee membership periodically, at about five year intervals. Such rotation shall not be mandatory, however, since there may be persuasive reasons to maintain an individual director's committee membership for a longer period.
Committee chairmen will determine the frequency of meetings of their respective committees, and, in consultation with management, will set meeting times and develop committee agendas. Each committee will, at the beginning of the year, enumerate the subjects to be discussed within that committee during the year. This enumeration may be altered by the committee chairman, in consultation with management, should circumstances so warrant.
Only independent directors may serve on the Audit, Compensation, and Nominating and Governance Committees. Any director may attend and participate in discussions of any Board committee, although formal committee action will only be through the vote of appointed committee members.
Board committees shall have access to accountants, compensation consultants, investment bankers, or other independent consultants, whose expertise is deemed essential to carrying out the committees' respective missions.
IV. Board Meetings
The Board Chairman will establish the agenda for board meetings. Any Board member may, however, recommend the inclusion of specific agenda items. Such recommendations will be accommodated to the extent practicable.
Materials important to the Board's understanding of agenda items shall be distributed to the Board, in a timely manner, before it meets. These materials shall be informative but concise.
Members of the Executive Office who are not Board members may attend and participate in Board meetings at the invitation of the Chairman. Should the Chairman contemplate inviting any such person to attend and participate on a regular basis, Board concurrence will first be obtained.
V. Board Access to Senior Management and Auditors
Board members shall have complete access to Caterpillar management and independent auditors. Board member contact with such individuals shall be handled in a manner that would not be disruptive to the company's business operations. Any non-routine written communications emanating from such contact should be copied to the Chief Executive Officer.
Page 7
The Board encourages the Chief Executive Officer to bring into Board and committee meetings Caterpillar executives: (a) to provide additional insight on items being discussed because of their personal involvement in such areas; and/or (b) to provide Board exposure to individuals with outstanding management potential.
VI. Compensation For Independent Directors
Compensation of independent directors at Caterpillar shall be comparable to that offered by other companies of similar size and scope. Independent directors shall receive no additional remuneration, in the form of consulting fees or other special benefits, beyond that provided for service on the Board.
Directors who are officers of the company shall receive no additional remuneration for serving as a Caterpillar director.
Caterpillar management will periodically review with the Compensation Committee the status of independent director compensation relative to comparable companies. Any changes to Board compensation shall arise from recommendations of the Compensation Committee, with full discussion and concurrence by the Board.
The Board is committed to fostering compensation programs and policies designed to encourage director and senior management stock ownership over the long-term. Such programs, in the view of the Board, will help align the interests of directors and top management with those of shareholders.
VII. Board Composition
The Board believes that it should generally have no less than 10 and no more than 18 directors. This range permits diversity of experience without hindering effective discussion or diminishing individual accountability. The Board is prepared, however, to increase its membership beyond 18 should that be necessary to accommodate an outstanding candidate.
To ensure Board independence, no more than three non-independent directors shall serve on the Board at any point in time. All other directors shall be independent. A director shall be considered independent if he or she: (1) is not currently employed by Caterpillar; (2) has not been employed by Caterpillar during the last five years; or (3) has not received significant remuneration from Caterpillar in any capacity other than as a director during the last five years. This policy may be modified temporarily if, due to unforeseen circumstances, strict adherence would be detrimental to the Board's performance.
Upon his or her resignation or retirement from the Company, any employee of the Company, including the Chief Executive Officer, then serving on the Board shall resign from the Board. No employee of the Company, including the Chief Executive Officer, shall remain on the Board after his or her resignation or retirement from the Company.
Page 8
VIII. Membership Criteria
The Nominating and Governance Committee shall solicit and receive recommendations, and review qualifications of, potential Caterpillar director candidates. From its assembled list of qualified candidates, the Nominating and Governance Committee shall from time to time recommend to the full Board the election of new directors.
The Chief Executive Officer will periodically review with the Nominating and Governance Committee and, if he or she wishes, with the full Board, the particular attributes that would be most beneficial to the company in future Board nominees. This assessment will include, but not be limited to, issues such as integrity, competence, age and experience, commitment and dedication, collegiality, diversity, technical background, and international skills.
IX. Termination of Board Membership
The Board does not believe term limits are appropriate at Caterpillar. While mandatory turnover would provide fresh viewpoints to the Board, term limits have the compelling disadvantage of losing the contribution of directors who have a unique insight into the business of Caterpillar and its operations. The Board believes it would be unwise to discard such value through the premature termination of a director.
The Board is presently satisfied with the current mandatory retirement age of 72.
Upon termination of his or her primary occupation or other significant change in business/professional circumstances, a Board member shall tender his or her resignation to the Board. The full Board shall decide whether or not to accept the resignation.
X. Evaluation of the Chief Executive Officer
The Chief Executive Officer will be expected to report annually to the Compensation Committee on his or her goals and objectives for the ensuing year, and also to report annually on the level of achievement of the preceding year's goals and objectives. All Board members shall be invited to those particular Compensation Committee meetings, and all shall have the opportunity to participate in any appropriate follow-up meetings or discussions.
The full Board shall participate in the evaluation of the Chief Executive Officer, since this is deemed to be one of the Board's most significant oversight functions. Both objective and subjective criteria will be used, including but not limited to: (a) the company's financial performance; (b) accomplishment of Caterpillar's long term strategic objectives; and (c) the development of the firm's top management team. The Chief Executive Officer shall not attend full Board meetings discussing his or her evaluation.
XI. Board Evaluation
The Board will engage in a self-evaluation annually. This evaluation will be of the Board as a collective body and not of directors on an individual basis. The evaluation process will be administered by the Nominating and Governance Committee and evaluation results shared with the full Board for their discussion and deliberation.
Page 9
XII. Board Member Commitments
Caterpillar recognizes that its Board members benefit from service on the board of other companies. We encourage that service but also believe it is critical that directors have the opportunity to dedicate sufficient time to their service on the Caterpillar Board. To that end, the Caterpillar Chief Executive Officer and any other director who is a Caterpillar employee shall serve on no more than two public company boards in addition to the Caterpillar Board. It is recommended that directors other than the Chief Executive Officer or Caterpillar employees serve on no more than five public company boards in addition to the Caterpillar Board.
XIII. Executive Sessions
The Board may meet periodically in executive session as circumstances warrant. Such executive sessions may be in one of three formats: (1) sessions involving only directors; (2) sessions involving only non-management directors and the Chief Executive Officer; and (3) sessions involving only non-management directors.
XIV. Communications with Shareholders and Other Constituents
The Board believes it would be useful to make its corporate governance guidelines available to stakeholders/constituents and requests that management do so in whatever manner is most feasible.
XV. Executive Succession Planning
The Board deems as one of its most critical functions the selection of a Chief Executive Officer and Executive Office team that fits Caterpillar's current culture, understands its business strategy and inspires others to follow their lead. To that end, the Board has an executive succession plan tailored to reflect Caterpillar's current business strategy and vision. The executive succession plan involves creating profiles of ideal candidates based on the Board's understanding of Caterpillar's strategy and vision, and selecting successors expected to fit the needs of the company over time. In implementing its executive succession plan, the Board believes that, at its core, succession planning: (1) is a board-driven, collaborative process; (2) is a continuous process; (3) should be driven by corporate strategy; and (4) involves building a talent-rich organization by attracting and developing the right people.
XVI. Implementation and Alteration of the Guidelines
Implementation and alteration of these guidelines shall be the responsibility of the Nominating and Governance Committee, working in coordination with the Chairman and Chief Executive Officer.
Page 10
Caterpillar Stock Owned by
Officers and Directors
(As of December 31, 1999)
| Affinito |
46,0341 | Magowan | 30,798 11 |
| Barton |
228,8352 | Owens | 237,20612 |
| Blount | 12,3593 | Parker | 18,10013 |
| Brazil |
9504 | Schaefer | 73,11714 |
| Dillon |
6,5005 | Shaheen | 76,59915 |
| Fites |
1,240,106 6 | Smith | 12,20016 |
| Flaherty | 334,105 7 | Thompson | 115,66117 |
| Gallardo | 14,1368 | Yeutter | 29,56518 |
| Goode | 22,1009 | All directors and executive officers as a group | 4,606,84819 |
| Gorter | 46,25010 |
1 Includes 32,000 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to the Directors' Deferred Compensation Plan representing an equivalent value as if such compensation had been invested on December 31, 1999 in 8,543 shares of Common Stock.
2 Includes 144,658 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to supplemental employees' investment plans representing an equivalent value as if such compensation had been invested on December 31, 1999 in 4,236 shares of Common Stock.
3 Includes 8,000 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to the Directors' Deferred Compensation Plan representing an equivalent value as if such compensation had been invested on December 31, 1999 in 93 shares of Common Stock.
4 In addition to the shares listed above, a portion of compensation has been deferred pursuant to the Directors' Deferred Compensation Plan representing an equivalent value as if such compensation had been invested on December 31, 1999 in 8 shares of Common Stock.
5 Includes 4,000 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to the Directors' Deferred Compensation Plan representing an equivalent value as if such compensation had been invested on December 31, 1999 in 24 shares of Common Stock.
6 Includes 1,005,541 shares subject to stock options exercisable within 60 days and 110,236 shares for which beneficial ownership is disclaimed. In addition to the shares listed above, a portion of compensation has been deferred pursuant to supplemental employees' investment plans representing an equivalent value as if such compensation had been invested on December 31, 1999 in 11,931 shares of Common Stock and pursuant to the Directors' Deferred Compensation Plan representing an equivalent value as if such compensation had been invested on December 31, 1999 in 819 shares of Common Stock.
7 Includes 220,599 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to supplemental employees' investment plans representing an equivalent value as if such compensation had been invested on December 31, 1999 in 6,395 shares of Common Stock.
8 Includes 1,333 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to the Directors' Deferred Compensation Plan representing an equivalent value as if such compensation had been invested on December 31, 1999 in 8 shares of Common Stock.
9 Includes 16,000 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to the Directors' Deferred Compensation Plan representing an equivalent value as if such compensation had been invested on December 31, 1999 in 6,413 shares of Common Stock.
10 Includes 32,000 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to the Directors' Deferred Compensation Plan representing an equivalent value as if such compensation had been invested on December 31, 1999 in 5,837 shares of Common Stock.
11 Includes 16,000 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to the Directors' Deferred Compensation Plan representing an equivalent value as if such compensation had been invested on December 31, 1999 in 99 shares of Common Stock.
12 Includes 173,399 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to supplemental employees' investment plans representing an equivalent value as if such compensation had been invested on December 31, 1999 in 2,758 shares of Common Stock.
13 Includes 12,000 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to the Directors' Deferred Compensation Plan representing an equivalent value as if such compensation had been invested on December 31, 1999 in 112 shares of Common Stock.
14 Includes 16,000 shares subject to stock options exercisable within 60 days.
15 Includes 37,603 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to supplemental employees' investment plans representing an equivalent value as if such compensation had been invested on December 31, 1999 in 563 shares of Common Stock.
16 Includes 8,000 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to the Directors' Deferred Compensation Plan representing an equivalent value as if such compensation had been invested on December 31, 1999 in 106 shares of Common Stock.
17 Includes 49,999 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to supplemental employees' investment plans representing an equivalent value as if such compensation had been invested on December 31, 1999 in 4,300 shares of Common Stock.
18 Includes 20,000 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to the Directors' Deferred Compensation Plan representing an equivalent value as if such compensation had been invested on December 31, 1999 in 4,481 shares of Common Stock.
19 Includes 3,064,875 shares subject to stock options exercisable within 60 days. Also includes 168,638 shares for which voting and investment power is shared and 110,236 shares for which beneficial ownership is disclaimed. All directors and executive officers as a group beneficially own less than one percent of outstanding Common Stock.
Page 11
Persons Owning More than Five Percent of Caterpillar Stock
(As of December 31, 1999)
|
|
Voting
|
Dispositive
|
|
|||
| Name and Address | Sole
|
Shared
|
Sole
|
Shared
|
Total Amount
of Beneficial Ownership |
Percent
of Class |
| Oppenheimer Capital
|
-0-
|
21,672,813
|
-0-
|
21,672,813
|
21,672,813
|
6.1%
|
| Merrill Lynch, Pierce,
Fenner &
|
-0-
|
20,659,727
|
-0-
|
20,659,727
|
20,659,727
|
5.8%
|
Performance Graph
CATERPILLAR INC.
Total Cumulative Shareholder
Return for
Five-Year Period Ending December 31, 1999
[CHART APPEARS HERE]
| December 31, |
1994
|
1995
|
1996
|
1997
|
1998
|
1999
|
| Caterpillar Inc. |
100.00
|
108.75
|
142.24
|
186.80
|
180.96
|
189.52
|
| S&P 500 |
100.00
|
137.55
|
169.11
|
225.52
|
289.96
|
350.96
|
| S&P
Machinery
|
100.00
|
123.41
|
153.80
|
203.45
|
169.32
|
200.18
|
Compensation Committee
Report on Executive Officer
and Chief Executive Officer Compensation
As Caterpillar's Compensation Committee, our primary goal is to establish a compensation program that serves the long-term interests of Caterpillar and its stockholders. Our prime asset is our people. Without a focused, competitive compensation program tailored to meet our long-term goals, that asset is diminished significantly.
We believe that Caterpillar has developed a compensation program that effectively:
Recognition from parties outside Caterpillar the last several years is a testament to the effectiveness of our compensation programs. Some recent examples include the following.
For the fourth consecutive year, Industry Week named us in 1999 as one of the "World's 100 Best Managed Companies. " They described selected companies as demonstrating "superior, consistent financial performance" and noted that they were honored for "investing heavily in such areas as research and development, new markets, employees, and society."
In 1999, Caterpillar Brasil won the 1999 National Prize for Quality Excellence, the Brazilian equivalent of the Malcolm Baldrige National Quality Award. This award recognizes companies that have achieved excellence in quality deployment and strategic planning implementation.
In 1999, Caterpillar Financial Services Corporation won the Tennessee Quality Excellence Award. This award is presented to organizations in Tennessee that have demonstrated management excellence and a readiness to compete in the global arena.
In 1998, Solar Turbines Incorporated, another Caterpillar subsidiary, received the Malcolm Baldrige National Quality Award in the manufacturing category from the United States Department of Commerce and the National Institute of Standards and Technology. This award recognizes U.S. companies for their achievements in quality and business excellence.
Although this report is directed at CEO and executive officer compensation, the Committee emphasizes that without the efforts of all highly motivated, dedicated Caterpillar employees around the globe, this recognition would not be possible.
Page 13
EXECUTIVE OFFICER COMPENSATION
Our executive officer compensation package is a combination of short-term and long-term incentive compensation. Short-term compensation consists of base salary and cash payouts under our Corporate Incentive Compensation Plan. Long-term compensation consists of stock options and payouts under the long-term incentive portion of our stock option plan.
Short-Term Incentive Compensation
Survey Data
In December of 1998, we received survey data from Hewitt, Hay, Towers Perrin, and a group of 10 Comparator Companies, with which we often benchmark. All companies included in these surveys are in the S&P Composite Index and two of them are in the S&P Machinery (Diversified) Index. The data showed that executive officer short-term incentive compensation at Caterpillar was below that of other surveyed companies.
In response, we approved increases to the midpoint of salary ranges for executive officers. With those increases, executive officer short-term incentive compensation for 1999 was anticipated to remain slightly below market average.
Base Salary Increases
In December of 1998, we also discussed with Caterpillar's CEO at that time, Don Fites, and the current CEO, Glen Barton, potential base salary increases for individual executive officers. Based on that discussion, which involved a subjective analysis of individual performance, as well as a review of the officer's current salary and the amount of the last salary increase, base salary increases were established for certain executive officers for 1999. The need to bring salary levels closer to those revealed in survey data was also a factor in these increases.
At our December 1998 meeting, we also established Mr. Barton's salary as incoming CEO. Survey data referenced above was reviewed and a salary range for Mr. Barton was established. It was determined that a salary at the midpoint of that range, coupled with potential payouts under the Corporate Incentive Compensation Plan, would provide Mr. Barton with short-term incentive compensation slightly below market average.
Payouts Under The Corporate Incentive Compensation Plan
Executive Officers, along with other management and salaried employees, also participate in the Corporate Incentive Compensation Plan as part of their short-term compensation package. Payouts under this plan are driven by two factors:
a team award based on Caterpillar's pre-tax return on assets ("ROA") for the year; and an individual award based on individual performance.
Page 14
For 1999, approximately $134 million in short-term incentive compensation was earned by about 52,000 Caterpillar employees.
Team awards under this plan are calculated by multiplying:
annual base salary; a specific percentage of base salary that varies based on position; and a performance factor based upon Caterpillar's achievement of certain ROA levels.
Before any amount could be awarded under the Corporate Incentive Compensation Plan for 1999, Caterpillar had to achieve a minimum ROA level, with larger amounts awarded for achievement of a target or maximum ROA level. For 1999, the minimum ROA level was achieved and all executive officers received a team award.
In addition to a team award, certain executive officers received an individual award for 1999 based on individual performance. In making individual awards, the Chairman is allocated a special recognition award amount each year that equals a percentage of all incentive compensation paid to executive officers that year. If the Chairman decides individual awards are not warranted in a given year, an allocation is not required. Amounts not allocated are not carried forward into the next year.
In addition to the Corporate Incentive Compensation Plan, 340 business units (or divisions within those units) at Caterpillar have their own short-term incentive compensation plan tied to the goals of their particular unit. For 1999, 21 executive officers received short-term incentive payouts based on the performance of their individual business units. Several factors specific to the unit may have impacted that payout, including return on sales, ROA, accountable profit, operating expenses, percentage of industry sales, quality, and customer satisfaction.
Long-Term Incentive Compensation
Stock Options
In 1999, all executive officers and certain other key employees were granted stock options. These stock options permit the holder to buy Caterpillar stock for a price equal to our stock's value when the option was granted. If the price of Caterpillar stock increases from the date of grant, the options have value. Typically, holders have ten years to exercise stock options from the date they were granted, absent events such as death or termination of employment. Executive officers may transfer stock options to family members. We view stock options as critical to linking the interests of our stockholders and employees in realizing a benefit from appreciation in the price of Caterpillar stock.
The number of options an executive officer receives depends upon his or her position in the company. Typically, a baseline number of options is granted for the positions of Vice President, Group President, and Chairman. Adjustments may be made based on a subjective assessment of individual performance.
Page 15
Adjustments to the number of options granted may also be made if the officer does not meet certain stock ownership guidelines. In 1999, the Compensation Committee encouraged officers to own a number of shares at least equal to the average number of shares for which they received options in their last three option grants. For 1999 stock option grants, if one-hundred percent of this guideline was not met, significant progress had not been made to meeting it, or a satisfactory explanation for failure to meet it had not been presented, we would have reduced the number of options to be granted to the particular officer. For 1999, no officer was penalized for low share ownership.
For 2000 option grants, this ownership guideline is being changed to reflect more accurately industry practices. With this change, the required ownership target will be the average of the last five years' option grants, rather than the current three years, a five-year period to reach the required level will be allowed, and 25% of vested unexercised options will apply toward the ownership target.
Long-Term Incentive Feature
Our option plan also includes a long-term incentive feature offered to executive officers and other high level management employees. Under this feature, a three-year company performance cycle is established each year. If the company meets certain threshold, target, or maximum performance goals at the end of the cycle, participants receive a payout that is one-half cash and one-half restricted Caterpillar stock. We have the ability to apply different performance criteria for different cycles, as well as the discretion to adjust performance measures for unusual items such as changes in accounting practices or corporate restructurings.
In 2000, a payout occurred under a long-term incentive cycle established for the years 1997 through 1999. That payout was based on a formula that factored the participant's base salary at the end of the cycle, a predetermined percentage of that salary based on the participant's position in the company, and whether certain after-tax return on asset goals were met by Caterpillar. For the 1997 through 1999 cycle, the threshold after-tax return on asset goal was exceeded, although the target goal was not achieved. The total payout value received by 165 participants in 2000 under this long-term incentive feature was approximately $9.7 million.
MR. BARTON'S INDIVIDUAL GOALS FOR 1999
The Committee reviewed Mr. Barton's individual goals established at the beginning of 1999 and his subsequent performance against those goals. Mr. Barton's 1999 performance was also considered in determining any adjustments to his 2000 salary. We believe, that during his first year as CEO, Mr. Barton has done an excellent job of continuing to position Caterpillar for long-term growth and success.
Financial Results
Mr. Barton set goals for Caterpillar's financial results that were not met in 1999, although the company's engines and financial services businesses performed very well. In responding to a slowdown in machine sales, Mr. Barton took quick, effective action to reduce costs, a testament to his leadership and ability to manage the company in times of slower growth. During the year, the company also made significant strides in managing work-in-process inventories. The Committee notes that for the first time since 1967 Caterpillar was profitable in a year when sales declined from the previous year.
Page 16
Effective Management of Recent Acquisitions
Over the past few years, Caterpillar has acquired several companies in a targeted effort to place the company in a strong long-term position. Major acquisitions include, Perkins, MaK, and F.G. Wilson. In 1999, Mr. Barton set a goal of continuing to foster contributions from these acquisitions to the Caterpillar enterprise.
Mr. Barton achieved this goal in 1999. The company is on-track in realizing synergies forecasted for Perkins and have identified additional synergies. At MaK, significant cost reductions were implemented and management changes effected designed to result in solid future growth. At F.G. Wilson, excellent progress was made in integrating that acquisition into our dealer network and improving production flows.
New Product Development and Growth Initiatives
In 1999, Mr. Barton set a goal of continuing to direct recent growth initiatives and product introductions toward projected targets. Specific initiatives include compact construction products, agricultural tractors, and large mining products. Mr. Barton met this goal as these projects are on track to achieve projected results.
Continued Focus on Quality
In 1999, Mr. Barton set a goal of continuing to focus on the quality of Caterpillar products and undertaking initiatives designed to ensure that the company's excellent reputation for quality is maintained. Mr. Barton met this goal by continuing to emphasize the need for quality in all functions throughout the enterprise and continuing to explore aggressively initiatives directed at product quality.
On-Site Interaction with Caterpillar Employees
For 1999, Mr. Barton set a goal of visiting at least 20 Caterpillar facilities. Mr. Barton exceeded this goal by visiting 26 facilities, holding communicator meetings at many of them involving large groups of employees. Mr. Barton's efforts in this area reflect his commitment to maintaining direct contact with, and receiving direct input from, the Caterpillar workforce world-wide.
Contact with Analysts and Shareholders
For 1999, Mr. Barton set a goal of maintaining contact with financial analysts and shareholders. This goal was met as Mr. Barton made presentations to analysts in March and October and held meetings with several institutional shareholders, providing significant support to our investor relations efforts.
Page 17
Contact with Caterpillar Dealers and Customers
For 1999, Mr. Barton set a goal of maintaining contact with Caterpillar dealers and customers. This goal was met as Mr. Barton visited numerous dealers and large customers around the world, maintaining visibility with them and receiving their input on business trends, product needs, and dealer issues.
Board of Director Contact and Corporate Governance
For 1999, Mr. Barton set a goal of initiating one-on-one contact with outside directors on a regular basis. This goal was met as Mr. Barton held one-on-one meetings with several directors and implemented suggestions resulting from those meetings.
Although not specified as a goal for 1999, Mr. Barton fostered significant strides in corporate governance on behalf of Caterpillar warranting specific recognition. From the outset of his tenure as Chairman, Mr. Barton continued the process of reviewing and updating our corporate governance guidelines. The results of that review are reflected in revised guidelines appearing in this proxy statement (see p. 6). We believe those guidelines reflect a progressive, solid approach to corporate governance and reveal Mr. Barton's commitment to this important aspect of Caterpillar's success.
Participation in Outside Business Organizations and Maintaining Contact with Political Leaders
For 1999, Mr. Barton set a goal of becoming an active participant in business organizations designed to further the interests of Caterpillar and the business community in general. Mr. Barton met that goal by accepting a directorship position in the U.S.-Japan Business Council and by becoming an active participant on the Business Roundtable's trade task force. Mr. Barton also met with several political leaders during the year, maintaining Caterpillar's presence with them and voicing Caterpillar's views on various topics.
Commitment to the Peoria Community
Mr. Barton established a goal in 1999 of continuing his involvement in the growth and development of Caterpillar's hometown, Peoria, Illinois. Mr. Barton met that goal by continuing his participation on the Bradley University Board of Trustees and by becoming Vice Chairman of that Board in December. He is also a member of the presidential search committee for Bradley University. In addition, Mr. Barton and his wife are leading a capital campaign for Peoria's local public broadcasting station.
By the Compensation Committee consisting of:
| James P. Gorter (Chairman)
|
John T. Dillon
|
Peter A. Magowan
|
| Lilyan H. Affinito
|
David R. Goode
|
Clayton K. Yeutter
|
Page 18
Executive Compensation
Tables
| 1999 Summary Compensation Table | ||||||||
| Annual
|
Long-Term
Compensation |
|||||||
| Awards
|
Payouts
|
|||||||
| Name and
|
Year
|
Salary
|
Bonus2
|
Other Annual
Compensation5 |
Securities
|
LTIP Payouts ($) |
All Other Compensation1 |
|
| G. A. Barton
Chairman and CEO |
1999 |
$ 935,000 |
$441,322 |
$1,410 |
150,000 |
$493,7844 |
$44,880
|
|
| 1998
|
562,503
|
409,500
|
1,654
|
50,000
|
492,917
|
26,999
|
||
| 1997
|
500,000
|
384,000
|
-0-
|
50,000
|
375,000
|
24,000
|
||
| G.
S. Flaherty
|
1999 |
645,000
|
228,330
|
1,437
|
50,000
|
316,0504
|
30,960
|
|
| 1998
|
545,004
|
294,300
|
-0-
|
50,000
|
408,750
|
21,363
|
||
| 1997
|
500,000
|
384,000
|
-0-
|
50,000
|
375,000
|
20,700
|
||
| J.
W. Owens
|
1999 |
585,000
|
207,090
|
-0-
|
50,000
|
286,6504
|
23,400
|
|
| 1998
|
485,004
|
261,900
|
-0-
|
50,000
|
363,750
|
17,246
|
||
| 1997
|
430,000
|
330,240
|
-0-
|
50,000
|
322,500
|
12,041
|
||
| G.
L. Shaheen
|
1999 |
480,000
|
169,920
|
1,221
|
50,000
|
206,4534
|
19,470
|
|
| 1998
|
325,830
|
197,722
|
-0-
|
21,000
|
246,375
|
1,350
|
||
| 1997
|
275,004
|
216,985
|
-0-
|
21,000
|
165,000
|
-0-
|
||
| R.
L. Thompson
|
1999 |
585,000
|
207,090
|
2,283
|
50,000
|
286,6504
|
17,550
|
|
| 1998
|
485,004
|
261,900
|
-0-
|
50,000
|
363,750
|
14,549
|
||
| 1997
|
430,000
|
330,240
|
-0-
|
50,000
|
322,500
|
12,900
|
||
| D.
V. Fites
|
1999
|
125,000
|
60,132
|
1,033
|
-0-
|
612,5004
|
26,454
|
|
| 1998
|
1,350,000
|
972,000
|
2,524
|
200,000
|
1,215,000
|
64,799
|
||
| 1997
|
1,250,000
|
1,280,000
|
-0-
|
150,000
|
1,125,000
|
56,700
|
||
| 1
Consists of matching Company contributions, respectively, for the Employees'
Investment Plan and supplemental employees' investment plans of G. A.
Barton ($7,698/$37,182), G. S. Flaherty ($7,871/$23,089), J. W. Owens
($6,700/$16,700), G. L. Shaheen ($6,650/$12,820), R. L. Thompson
($5,050/$12,500), and D. V. Fites ($2,254/$17,868). For Mr. Fites, $6,332
of this amount represented taxable income attributable to the use of
company aircraft after his retirement.
|
||||||||
| Option Grants in 1999 |
||||||
| Individual Grants
|
Potential Realizable Value
at Assumed Annual Rates of Stock Price Appreciation for Option Term1 |
|||||
| Name |
Number of
Securities Underlying Options Granted2 |
% of Total
Options Granted to Employees in Fiscal Year 19993 |
Exercise
Price Per Share |
Expiration
Date |
||
| 5% |
10%
|
|||||
| G. A. Barton |
150,000
|
3.01
|
$62.3438
|
06/08/09
|
$ 5,881,155
|
$ 14,904,000
|
| G. S. Flaherty |
50,000
|
1.00
|
62.3438
|
06/08/09
|
1,960,385
|
4,968,000
|
| J. W. Owens |
50,000
|
1.00
|
62.3438
|
06/08/09
|
1,960,385
|
4,968,000
|
| G. L. Shaheen |
50,000
|
1.00
|
62.3438
|
06/08/09
|
1,960,385
|
4,968,000
|
| R. L. Thompson |
50,000
|
1.00
|
62.3438
|
06/08/09
|
1,960,385
|
4,968,000
|
| D. V. Fites |
-0-
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
| Executive Group |
915,360
|
18.35
|
62.3438
|
06/08/09
|
35,889,160
|
90,950,170
|
| All Stockholders4 |
N/A
|
N/A
|
N/A
|
N/A
|
13,954,231,760
|
35,362,763,121
|
| Executive Group Gain as % of all Stockholder Gain |
N/A
|
N/A
|
N/A
|
N/A
|
.2572%
|
.2572%
|
1 The dollar amounts under these columns reflect the 5% and 10% rates of appreciation prescribed by the Securities and Exchange Commission. The 5% and 10% rates of appreciation would result in per share prices of $101.5515 and $161.7038, respectively.
2 Options are exercisable upon completion of one full year of employment following the grant date (except in the case of death or retirement) and vest at the rate of one-third per year over the three years following the grant. Upon exercise, option holders may surrender shares to pay the option exercise price and satisfy tax withholding requirements. Options granted to the executive group and certain other employees that are not incentive stock options may be transferred to certain family members and descendants.
3 In 1999, options for 4,989,132 shares were granted to employees and directors as follows: Executive Group - 915,360; non-employee directors - 52,000; and all others - 4,021,772.
4 For "All Stockholders" the potential realizable value is calculated from $62.3438, the price of Common Stock on June 8, 1999, based on the outstanding shares of Common Stock on that date.
| Aggregated
Option/SAR Exercises in 1999, and
|
||||||
| Number of Securities
Underlying Unexercised Options/SARs at 1999 Year-End3 |
In-the-Money Options/ SARs at 1999 Year-End2 |
|||||
| Name
|
Shares Acquired
|
Value
|
Exercisable | Unexercisable | Exercisable
|
Unexercisable |
| G. A. Barton |
42,851
|
$ 1,521,017
|
144,658
|
200,000
|
$ 1,421,073
|
$-0-
|
| G. S. Flaherty | 30,600
|
1,401,863
|
220,599
|
100,000
|
3,145,591
|
-0-
|
| J. W. Owens |
9,000
|
397,547
|
173,399
|
100,000
|
1,990,377
|
-0-
|
| G. L. Shaheen |
35,585
|
1,139,171
|
37,603
|
71,000
|
276,202
|
-0-
|
| R. L. Thompson | 16,667
|
465,636
|
49,999
|
100,000
|
-0-
|
-0-
|
| D. V. Fites |
48,459
|
1,764,178
|
1,105,541
|
4,000
|
17,439,419
|
-0-
|
1 Upon exercise, option holders may surrender shares to pay the option exercise price and satisfy tax withholding requirements. The amounts provided are gross amounts absent netting for shares surrendered.
2 Calculated on the basis of the fair market value of the underlying securities at the exercise date or year-end, as the case may be, minus the exercise price.
3 Numbers presented have not been reduced to reflect any transfers of options by the named executives.
Page 20
| Long-Term Incentive Plans/Awards in 1999
|
||||
|
|
Performance or
|
Estimated future payouts under
|
||
| Name | Maturation or Payout |
Threshold |
Target |
Maximum |
| G. A. Barton
|
1999-2001
1998-2000
|
$280,500
267,514
|
$561,000
535,028
|
$841,500
802,542
|
| G.
S. Flaherty
|
1999-2001
1998-2000
|
161,250
161,250
|
322,500
322,500
|
483,750
483,750
|
| J. W. Owens
|
1999-2001
1998-2000
|
146,250
146,250
|
292,500
292,500
|
438,750
438,750
|
| G. L. Shaheen
|
1999-2001
1998-2000
|
120,000
86,667
|
240,000
173,333
|
360,000
260,000
|
| R. L. Thompson
|
1999-2001
1998-2000
|
146,250
146,250
|
292,500
292,500
|
438,750
438,750
|
| D. V.
Fites2
|
1999-2001
1998-2000
|
12,500
162,500
|
25,000
325,000
|
37,500
487,500
|
| 1
Payout is based upon an executive's base salary at the end of the three-year
cycle, a predetermined percentage of that salary, and Caterpillar's
achievement of specified levels of after-tax return on assets ("ROA
") over the three-year period. The target amount will be earned if
100% of targeted ROA is achieved. The threshold amount will be earned if
50% of targeted ROA is achieved, and the maximum award amount will be
earned at 150% of targeted ROA. Base salary levels for 1999 were used to
calculate the estimated dollar value of future payments under both cycles.
2 Estimates for Mr. Fites Long-term Incentive Plan awards have been adjusted to reflect his retirement effective February 1, 1999. |
||||
| Pension Plan Table
|
|||||
| Remuneration |
Years
of Service
|
||||
| 15 |
20
|
25
|
30
|
35
|
|
| $ 100,000 |
$
22,500
|
$
30,000
|
$
37,500
|
$
45,000
|
$
52,500
|
| $ 150,000 |
33,750
|
45,000
|
56,250
|
67,500
|
78,750
|
| $ 200,000 |
45,000
|
60,000
|
75,000
|
90,000
|
105,000
|
| $ 250,000 |
56,250
|
75,000
|
93,750
|
112,500
|
131,250
|
| $ 300,000 |
67,500
|
90,000
|
112,500
|
135,000
|
157,500
|
| $ 350,000 |
78,750
|
105,000
|
131,250
|
157,500
|
183,750
|
| $ 400,000 |
90,000
|
120,000
|
150,000
|
180,000
|
210,000
|
| $ 450,000 |
101,250
|
135,000
|
168,750
|
202,500
|
236,250
|
| $ 500,000 |
112,500
|
150,000
|
187,500
|
225,000
|
262,500
|
| $ 550,000 |
123,750
|
165,000
|
206,250
|
247,500
|
288,750
|
| $ 650,000 |
146,250
|
195,000
|
243,750
|
292,500
|
341,250
|
| $ 750,000 |
168,750
|
225,000
|
281,250
|
337,500
|
393,750
|
| $ 850,000 |
191,250
|
255,000
|
318,750
|
382,500
|
446,250
|
| $ 950,000 |
213,750
|
285,000
|
356,250
|
427,500
|
498,750
|
| $ 1,100,000 |
247,500
|
330,000
|
412,500
|
495,000
|
577,500
|
| $ 1,400,000 |
315,000
|
420,000
|
525,000
|
630,000
|
735,000
|
| $ 1,600,000 |
360,000
|
480,000
|
600,000
|
720,000
|
840,000
|
| $ 1,950,000 |
438,750
|
585,000
|
731,250
|
877,500
|
1,023,750
|
| $ 2,500,000 |
562,500
|
750,000
|
937,500
|
1,125,000
|
1,312,500
|
| $ 3,000,000 |
675,000
|
900,000
|
1,125,000
|
1,350,000
|
1,575,000
|
| $ 3,500,000 |
787,500
|
1,050,000
|
1,312,500
|
1,575,000
|
1,837,500
|
The compensation covered by the pension program is based on an employee's annual salary and bonus. Amounts payable pursuant to a defined benefit supplementary pension plan are included. As of December 31, 1999, the persons named in the Summary Compensation Table had the following estimated credited years of benefit service for purposes of the pension program: G. A. Barton - 35 years*; G. S. Flaherty - 35 years*; J. W. Owens - 27 years; G. L. Shaheen - 32 years, R. L. Thompson - 17 years, and D. V. Fites - 35 years*. The amounts payable under the pension program are computed on the basis of an ordinary life annuity and are not subject to deductions for Social Security benefits or other amounts.
* Although having served more than 35 years with the Company, amounts payable under the plan are based on a maximum of 35 years of service.
POST-RETIREMENT SECURITY ARRANGEMENT
Because of continuing concerns regarding the personal safety of Mr. Fites, we are providing him with certain post-retirement, security-based services in 2000. At a cost of approximately $50,000 to Caterpillar, Mr. Fites will be provided with a home security system and assigned security personnel. Mr. Fites will also have personal use of company aircraft at an estimated cost not anticipated to exceed $75,000, such cost to fluctuate based on actual usage.
PROPOSAL 2 — Approve Amendment to Caterpillar Inc. 1996 Stock Option Plan and Long-Term Incentive Plan
The Caterpillar Board of Directors has adopted and recommends that you approve an amendment to our stock option plan that would increase the number of shares authorized for issuance under the plan. We are currently authorized to issue fourteen million shares under the plan and we are close to using up that amount with anticipated option grants in the Year 2000. We are asking that you approve an additional 10 million shares for issuance.
The full text of the plan with the proposed change highlighted is attached as Exhibit A and we encourage you to reference it for important details on the plan. A Form S-8 registering additional shares under the plan is expected to be filed by May 1, 2000.
How is the Plan Administered?
The plan is administered by the Board's Compensation Committee, which is made up only of independent directors. They have the authority to determine which employees get awards under the plan, as well as the amount and timing of awards. Caterpillar's Board of Directors can terminate the plan at any time and can also amend the plan without shareholder approval, unless that approval is required under applicable law or stock exchange regulations.
Under the plan, awards are made to certain management employees of Caterpillar and non-employee directors in either options to purchase Caterpillar stock, in shares of Caterpillar stock that carry certain restrictions, or in performance awards tied to specific performance measures and targets. The Compensation Committee has no control over the timing and amount of awards to non-employee directors. Approximately 1,900 employees and all non-employee directors participate in various portions of the plan.
Important Facts About Stock Option Awards
No employee can receive stock options representing more than 400,000 shares of Caterpillar stock in a particular year. The price at which stock options can be exercised cannot be less than 100% of the fair market value of the stock on the date the option is granted. Non-employee directors receive stock options for 4,000 shares each year.
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Stock options have a term of ten years and are typically exercisable in
one-third installments. There is also a period of employment required before
options can be exercised and exercise after termination of employment is
limited by certain time periods that vary based on termination
circumstances.
For directors and certain other employees, stock options may be transferred to family members and other entities. For other individuals, options are transferable only by will, the laws of descent and distribution, or under a qualified domestic relations order.
Tax Consequences for Stock Options
Stock options have certain federal tax consequences, based on whether the employee is granted an incentive stock option or non-qualified stock option under the plan. If an incentive stock option is granted, the employee does not have taxable income at the time of grant. If the employee does not sell shares underlying the incentive option within two years from the date of grant or within one year from the date of option exercise, gain or loss on the sale will be treated as long-term capital gain or loss. If these holding periods are not satisfied, the employee will realize ordinary income at the time stock underlying the incentive stock option is sold and Caterpillar will receive a corresponding tax deduction.
If a non-qualified stock option is granted, the employee does not have taxable income at the time of grant. At the time of exercise, the employee will have ordinary income equal to the difference in the price of the stock on the date of exercise and the option's exercise price. Caterpillar receives a tax deduction equal to the employee's ordinary income. When shares underlying non-qualified stock options are sold, the employee realizes a short-term or long-term capital gain on additional stock appreciation from the date of exercise.
Important Facts About Restricted Stock
The Compensation Committee can also award restricted stock under the plan. This stock is restricted for a period of not less than two but not more than ten years. During the restricted period, the holder cannot take delivery of the shares and forfeiture provisions apply if the holder terminates employment for other than retirement or other special circumstances.
Each year, non-employee directors receive 750 restricted shares under the plan. Four hundred of these shares have a restricted period of three years, while 350 shares are restricted until the director terminates service.
Important Facts About Performance Awards
The Compensation Committee can award a combination of cash and restricted stock to employees based on Caterpillar performance over a period of years. Typically, a performance period is established each year that has a duration of three years. Performance factors for that time period may include return on assets, return on equity, return on sales, total shareholder return, cash flow, economic value added, and net earnings.
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Performance measures typically include a threshold, target, and maximum level of performance to be achieved, with varying amounts awarded for each level. No individual may receive a performance award in a particular year exceeding $2.5 million.
Table of Benefits under the Plan Based Upon 1999 Option Grants
The table below describes awards received in 1999 under the plan by our named executive officers individually, all of our officers as a group, all non-officer participants as a group, and all independent directors as a group. The price of Caterpillar stock on December 31, 1999 was $46.5625.
| 1996 Stock
Option and Long-Term Incentive Plan
(Awards in 1999) |
|||
| |
Options
(# of shares) |
Restricted Stock
|
Performance Awards
($ value--excluding restricted stock distributed) |
| G. A. Barton |
150,000
|
5,302
|
$246,909.51
|
| G. S. Flaherty |
50,000
|
3,393
|
158,063.44
|
| J. W. Owens |
50,000
|
3,078
|
143,330.62
|
| G. L. Shaheen |
50,000
|
2,216
|
103,270.83
|
| R. L. Thompson |
50,000
|
3,078
|
143,330.62
|
| D. V. Fites |
-0-
|
6,577
|
306,258.44
|
| Officer Group |
915,360
|
61,890
|
2,902,308.59
|
| Non-officer Group |
4,021,772
|
41,960
|
1,967,196.59
|
| Non-employee Director Group |
52,000
|
8,650
|
N/A
|
Why Your Board Supports Approval of the Plan Amendment
Your Board believes the plan is a critical component to Caterpillar's ability to attract and retain quality employees and directors. Plans such as the one before you for consideration have become commonplace among large companies and are viewed by employees and directors as an important part of their compensation. Failure to offer them would put Caterpillar at an extreme disadvantage in recruiting and retaining employees.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR " PROPOSAL 2.
PROPOSAL 3 — Appointment of Auditors
The Board of Directors seeks from the stockholders an indication of their approval or disapproval of the Board's appointment of PricewaterhouseCoopers LLP ("PricewaterhouseCoopers" ) as independent auditors for 2000.
PricewaterhouseCoopers has been our independent auditor since 1925, and no relationship exists other than the usual relationship between independent auditor and client.
If the appointment of PricewaterhouseCoopers as independent auditors for 2000 is not approved by the stockholders, the adverse vote will be considered a direction to the Board of Directors to consider other auditors for next year. However, because of the difficulty in making any substitution of auditors so long after the beginning of the current year, the appointment for the year 2000 will stand, unless the Board finds other good reason for making a change.
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Representatives of PricewaterhouseCoopers will be available at the annual meeting of stockholders to respond to questions.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR " PROPOSAL 3.
PROPOSAL 4 — Stockholder Proposal Regarding Shareholder Rights Plan and Caterpillar Response
Mr. John Chevedden, 2215 Nelson Avenue, No. 205, Redondo Beach, CA 90278 (owner of 100 shares of Company stock) advises that he intends to present for consideration and action at the annual meeting the following resolution.
Resolution Proposed by Stockholder
RESOLVED:
SHAREHOLDERS TO HAVE THE OPPORTUNITY TO VOTE ON POISON
PILLS
Recommend the company shall not adopt or maintain any poison pill —
euphemistically called a rights plan, share purchase rights plan or similar
agreement — designed to block, the acquisition of stock in excess of a
specified amount:
Unless such plan or agreement has previously been approved by a majority of the outstanding shares of stock at a shareholder meeting.
Shareholders request the board redeem or terminate any such plan or agreement with a simple-majority shareholder vote.
Supporting Statement of Proponent
Why submit Caterpillar's poison pill to a simple - majority shareholder vote?
Nell Minow and Robert Monks in their book
POWER AND ACCOUNTABILTY
Corporate Governance Bulletin, April 1999
Page 25
Subjecting poison pills to shareholder vote is an important step toward making Caterpillar more competitive and accountable at the highest management level - where it will have the greatest opportunity to improve company performance.
The company has following core practices that are not in the best interest of shareholders - according to many institutional shareholders and independent corporate research associations:
The Caterpillar 1999 proxy statement said: "At Caterpillar, we make decisions based on their potential to enhance shareholder value."
Fifty institutional investors, managing a total of $840 million, told McKinsey & Co. they would pay an 11% average premium for the stock of a company with good governance practices.
Why the big jump? Some investors said they believed that good governance would help boost performance over time. Others felt good governance decreases the risk of bad news - and when trouble occurs, they rebound faster.
| Business Week |
Sept. 15, 1997 | |
What issues highlight concern about improving Caterpillar's performance?
| Dow Jones | Oct. 15, 1999 |
| Value Line | August 6, 1999 |
| New York Times | July 17, 1999 |
To increase shareholder value vote yes:
SHAREHOLDERS TO HAVE THE OPPORTUNITY
TO VOTE ON POISON PILLS
YES ON 4
Page 26
Statement in Opposition to Proposal
Rewarding stockholders with increased value unquestionably is a primary function of corporate managers and directors. That is what they are paid to do. But, this does not justify irresponsible, short-term actions to achieve quick results.
Caterpillar believes the correct approach for assuring ongoing stockholder value is a long-term commitment to sustained business competitiveness. It was this commitment that permitted the investment of billions of dollars in renewed factories and a radical restructuring of the company so it could excel in the highly competitive global environment of the twenty-first century. These strategic initiatives would not have been taken under a short-term perspective seeking instantaneous rewards.
But, as a result of these and related initiatives, over the past decade Caterpillar has generated significant consolidated operating cash flow. Much of that cash flow was used to increase our dividend several times and to initiate programs to repurchase a percentage of our outstanding shares. Equally important, we are using that cash flow to fund our business for sustained growth.
That, we believe, is the key to stockholder value; creating a company that can deliver cash flow to both replenish itself and to provide reasonable returns to stockholders over a continuum of time.
Some take a more shortsighted view of "value". They see it as anything that produces a reward - even if it is a one-time event that destroys the company. A leveraged buyout, a takeover, a split-up of the company, it doesn't matter so long as they realize a gain. If the company ceases to exist, no matter. They will move their capital to another investment.
Perhaps we can't blame these individuals for wanting quick gains. But managers and directors are responsible for providing more stockholder wealth on an ongoing basis by managing the company's assets for the highest possible returns over the long term. They also have obligations to provide meaningful jobs for employees, and to the well being of communities in which their facilities are located.
Our Shareholder Rights Plan is designed to protect shareholders against potential abuses during a takeover attempt. In this regard, it is important to remember that hostile acquirers are interested in buying a company as cheaply as they can, and, in attempting to do so, may use coercive tactics such as partial and two-tiered tender offers and creeping stock accumulation programs which do not treat all shareholders fairly and equally. We believe our Rights Plan provides our Board with an additional degree of control in a takeover situation by allowing it to evaluate a takeover proposal in a rational manner and explore alternatives if necessary.
Georgeson & Company Inc.'s Research Group analyzed takeover data between 1992 and 1996 to determine whether shareholder rights plans had any measurable impact on shareholder value. Their findings were as follows:
Page 27
| |
rights plans contributed an additional $13 billion in shareholder value during the last five years and shareholders of acquired companies without rights plans gave up $14.5 billion in potential premiums; |
| |
the presence of a rights plan did not increase the likelihood of withdrawal of a friendly takeover bid nor the defeat of a hostile one; and |
| |
rights plans did not reduce the likelihood of a company becoming a takeover target. |
PROPOSAL 5 — Stockholder Proposal Regarding Global Standards and Caterpillar Response
The Catholic Foreign Mission Society of America (owner of 15,000 shares of Company stock) advises that they intend to present for consideration and action at the annual meeting the following resolution.
Resolution Proposed by Stockholder
WHEREAS, our company, as a global corporation, faces numerous complex problems which also affect out [sp.] interests as shareholders. The international context within which our company operates is becoming increasingly diverse as we enter the millennium.
Companies operating in the global economy are faced with important concerns arising from diverse cultures and political and economic contexts. These concerns require management to address issues beyond the traditional business focus. These include human rights, worker' [sp.] right to organize and bargain collectively, non-discrimination in the workplace and sustainable community development. Companies should find effective ways to eliminate the use of child labor, forced labor, bribery and harmful environment practices.
We believe global companies need to operationalize comprehensive codes of conduct, such as those found in the "Principles for Global Corporate Responsibility: Bench Marks for Measuring Business Performance," developed by an international group of religious investors. Companies need to formulate policies, programs and practices to address the challenges they face in the global marketplace.
A New York Times editorial stated, "[Corporations] should hold themselves to some guidelines. Their own practices should not be abusive, even if local laws allow it. This means giving workers wages they can live on and good working conditions." (Corporations and Conscience," New York Times, 12/6/98).
Page 28
Our company should be in a position to assure shareholders that its employees are treated fairly and paid a sustainable living wage wherever they work in the global economy. One important element of ensuring compliance is the utilization of independent monitors made up of respected local human rights, religious and other non-governmental organizations. A number of global companies are involved in the development of credible code enforcement mechanisms that include independent monitoring.
Improving the quality of life for employees and their communities can lead to productivity and enhance the bottom line for the company.
RESOLVED. The shareholders request the Board of Directors to review or amend, where applicable, its code or standards for its international operations and to report a summary of this review to share holders by October 2000.
Supporting Statement of Proponent
We recommend the review include the following areas:
| 1.
|
A description of
policies which are designed to protect human rights — civil,
political, social, cultural and economic — consistent with respect
for human dignity and international labor rights standards.
|
| 2.
|
A report of efforts to ensure that the company does not employ children under the age of fifteen, or younger than the age of completing compulsory education in the country of manufacture where such age is higher than fifteen. |
| 3.
|
A report of company policies ensuring that there is no use of forced labor, whether in the form of prison labor, indentured labor or bonded labor. |
| 4.
|
Establishment of consistent standards for workers' health and safety, practices for handling hazardous wastes, and protection of the environment, as well as promising a fair and dignified quality of life for workers and their communities. |
We believe a company poised to compete in the 21st Century needs comprehensive global standards to guide them.
Statement in Opposition to Proposal
We could not agree more with the proponents when they state that "a company poised to compete in the 21st Century needs comprehensive global standards to guide them." With that philosophy in mind, we adopted the Caterpillar Code of Worldwide Business Conduct and Operating Principles ("Code of Conduct") in 1974 and have revised it four times since then, the latest revision occurring in 1992. We readily distribute this document to inquiring shareholders and other constituents. As stated in our introduction to the Code of Conduct, we believe "[n]o document issued by Caterpillar is more important than this one. "
As illustrated in the following excerpts, our current Code of Conduct embodies many of the principles contained in the proponent's proposal.
Page 29
Human Relationships
"We aspire to a high standard of excellence in human relationships. Specifically, we intend:
| |
To select and place employees on the basis of qualifications for the work to be performed — without discrimination in terms of race, religion, national origin, color, sex, age, or physical or mental disability ... |
| |
To protect people's health and lives. This includes maintaining a clean work environment as free as practicable from health and safety hazards ... |
| |
To compensate people fairly, according to their contributions to the company, within the framework of national and local practices ... |
| |
To seek to provide stable, secure employment consistent with the long-term success of Caterpillar ... " |
Corporate Facilities
"We desire to provide functional, safe, attractive, efficient facilities that are harmonious with national modes. They are to be compatible with local laws and environmental considerations, complement public planning, and reflect Caterpillar's commitment to conserve energy and other scarce resources."
Protection of the Environment
"Caterpillar's continued competitiveness and leadership in a global marketplace require individual and corporate dedication to a clean and safe environment in which to live and work. "
Public Responsibility
| "... It isn't enough to successfully offer useful products and services. A business should, for example, employ and promote people fairly, see to their job safety and the safety of its products, conserve energy and other valuable resources, and help protect the quality of the environment ... | |
| Each corporate facility is an integral part of the community in which it operates. Like an individual, it benefits from character building, health, welfare, educational, and cultural activities. And like an individual, it also has a citizen's responsibility to support such activities ... | Overall, it's our intention that Caterpillar's business activities make good social sense — and that Caterpillar's social activities make good business sense." |
Conclusion
At Caterpillar, we are dedicated to promoting a healthy, productive and rewarding work environment for our employees worldwide and our Code of Conduct, which is readily available to requesting shareholders, currently reflects that dedication. Accordingly, we see no further purpose served by the proponent's proposal and THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" PROPOSAL 5.
Other Matters
Section 16(a) Beneficial Ownership Reporting Compliance
Based upon a review of our records, all reports required to be filed pursuant to Section 16(a) of the Exchange Act were filed on a timely basis, except one late filing for each of the following: James S. Beard — Form 4 — sale of 1,744 shares and James P. Gorter — Form 5 — 750 shares restricted stock grant and two late filings for Donald V. Fites: Form 4 — sale of 10,000 shares and Form 5 — transfer of 49,355 options.
Stockholder Proposals for the 2000 Annual Meeting
If you want to submit a proposal for possible inclusion in the Company's 2001 Proxy Statement, our Corporate Secretary must receive it on or before November 3, 2000.
Matters Raised at the Meeting not Included in this Statement
We have received notification from Mr. John Chevedden that he intends to discuss at the meeting a comparison of Caterpillar's Corporate Governance Guidelines (as set forth on page 6) with the "Council of Institutional Investors Shareholder Bill of Rights." Mr. Chevedden has also requested that management express its views regarding the comparison. We have received no indication from Mr. Chevedden that he is soliciting a shareholder vote on this matter. If a shareholder vote is solicited, proxy holders will vote on the matter in their discretion.
We do not know of any matters to be acted upon at the meeting other than those discussed in this statement. If any other matter is presented, proxy holders will vote on the matter in their discretion.
Under Caterpillar bylaws, a stockholder may bring a matter before the annual meeting by giving adequate notice to our Corporate Secretary. To be adequate, that notice must contain information specified in our bylaws and be received by us not less than 45 days nor more than 90 days prior to the annual meeting. If, however, less than 60 days notice of the meeting date is given to stockholders, notice of a matter to be brought before the annual meeting may be provided to us up to the 15th day following the date notice of the annual meeting was provided.
Solicitation
Caterpillar is soliciting this proxy on behalf of its Board of Directors. This solicitation is being made by mail but also may be made by telephone or in person. We have hired Innisfree M&A Incorporated for $15,000, plus out-of-pocket expenses, to assist in the solicitation.
Stockholder List
A stockholder list will be available for your examination during normal business hours at One North State Street, 11th Floor, Chicago, Illinois 60602, at least ten days prior to the annual meeting
Page 31
Revocability of Proxy
You may revoke the enclosed proxy by filing a written notice of revocation with us or by providing a later executed proxy.
Exhibit A
CATERPILLAR INC.
1996 STOCK OPTION AND LONG-TERM INCENTIVE PLAN
(Amended and Restated as of 02/09/2000)
(Proposed change is indicated in italics.)
Section 1. Purpose
The Caterpillar Inc. 1996 Stock Option and Long-Term Incentive Plan ("Plan") is designed to attract and retain outstanding individuals as directors, officers and key employees of Caterpillar Inc. and its subsidiaries (collectively, the "Company "), and to furnish incentives to such individuals through awards based upon the performance of the Company and its stock. To this end, the Plan provides for grants of stock options, restricted stock, and performance awards, or combinations thereof, to non-employee directors, officers and other key employees of the Company, on the terms and subject to the conditions set forth in the Plan.
Section 2. Shares Subject to the Plan
2.1 Shares Reserved for Issuance
Twenty-four million shares of Company common stock ("Shares") shall be available for issuance under the Plan either from authorized but unissued Shares or from Shares acquired by the Company, including Shares purchased in the open market. An additional four million Shares authorized but unissued under prior Company stock option plans shall be available for issuance under this Plan.
2.2 Stock Splits/Stock Dividends
In the event of a change in the outstanding Shares of the Company by reason of a stock dividend, recapitalization, merger, consolidation, split-up, combination, exchange of shares, or similar event, the Compensation Committee ("Committee") of the Company's Board of Directors ("Board") shall take any action, which, in its discretion, it deems necessary to preserve benefits under the Plan, including adjustment to the aggregate number of Shares reserved for issuance under the Plan, the number and option price of Shares subject to outstanding options granted under the Plan and the number and price of Shares subject to other awards under the Plan.
2.3 Reacquired Shares
If Shares issued pursuant to the Plan are not acquired by participants because of lapse, expiration or termination of an award, such Shares shall again become available for issuance under the Plan. Shares tendered upon exercise of an option by a Plan participant may be added back and made available solely for future grants under the Plan.
Section 3. Administration
The Committee shall have the authority to grant awards under the Plan to officers and other key employees of the Company. Except as limited by the express provisions of the Plan or by resolutions adopted by the Board, the Committee also shall have the authority and discretion to interpret the Plan, to establish and revise rules and regulations relating to the Plan, and to make any other determinations that it believes necessary or advisable for administration of the Plan.
The Committee shall be composed solely of members of the Board that are outside directors, as that term is defined in Section 162(m) of the Internal Revenue Code. The Committee shall have no authority with respect to non-employee director awards under the Plan.
Section 4. Stock Options
4.1 Company Employees
(a) Eligibility
The Committee shall determine Company officers and employees to whom options shall be granted, the timing of such grants, and the number of shares subject to the option; provided that the maximum number of Shares upon which options may be granted to any employee in any calendar year shall be 400,000.
(b) Option Exercise Price
The exercise price of each option shall not be less than 100% of the fair market value of Shares underlying the option at the time the option is granted. The fair market value for purposes of determining the exercise price shall be the mean between the high and low prices at which Shares are traded on the New York Stock Exchange the day the option is granted. In the event this method for determining fair market value is not practicable, fair market value shall be determined by such other reasonable method as the Committee shall select.
(c) Option Exercise
Options shall be exercisable in such installments and during such periods as may be fixed by the Committee at the time of grant. Options that are not incentive stock options as defined in Section 4.1(f) of the Plan shall not be exercisable after the expiration of ten years from the date of grant.
Page 33
Payment of the exercise price shall be made upon exercise of all or a portion of any option. Such payment shall be in cash or by tendering Shares having a fair market value equal to 100% of the exercise price. The fair market value of Shares for this purpose shall be the mean between the high and low prices at which Shares are traded on the New York Stock Exchange on the date of exercise. Upon exercise of an option, any applicable taxes the Company is required to withhold shall be paid to the Company. Shares to be received upon exercise may be surrendered to satisfy withholding obligations.
(d) Termination of Employment
The Committee may require a period of continued employment before an option can be exercised. That period shall not be less than one year, except that the Committee may permit a shorter period in the event of termination of employment by retirement or death.
Termination of employment with the Company shall terminate remaining rights under options then held; provided, however, that an option grant may provide that if employment terminates after completion of a specific period, the option may be exercised during a period of time after termination. That period may not exceed sixty months where termination of employment is caused by retirement or death or sixty days where termination results from any other cause. If death occurs after termination of employment but during the period of time specified, such period may be extended to not more than sixty-six months after retirement, or thirty-eight months after termination of employment for any other cause. In the event of termination within two years after a Change of Control as defined in Section 7.2 of the Plan, options shall be exercisable for a period of sixty months following the date of termination or for the maximum term of the option, whichever is shorter. Notwithstanding the foregoing, the Committee may change the post-termination period of exercisability of an option provided that change does not extend the original maximum term of the option.
(e) Transferability of Options
(i) Except as otherwise permitted in Section 4.1(e)(ii), options shall not be transferable other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code or the Employee Retirement Income Security Act. Options are exercisable during the holder's lifetime only by the holder, unless the holder becomes incapacitated or disabled, in which case the option may be exercised by the holder's authorized representative. A holder may file with the Company a written designation of beneficiaries with the authority to exercise options in the event of the holder's death.
(ii) Notwithstanding the provisions of Section 4.1(e)(i), and in addition to the permissible transfers under that provision, options granted to persons at the level of Vice President and above, as well as directors of this corporation and persons retired from those positions, may be transferred to any one or more "Permitted Transferees," as long as those options are not incentive stock options as defined below. Options granted to employees below the level of Vice President may be transferred upon prior approval of the Company's Director of Compensation and Benefits pursuant to the terms of this section.
Page 34
(iii) For purposes of Section 4.1(e)(ii), the term "Permitted Transferees" shall mean the individual to whom the option is granted; the lineal descendants of the individual to whom the option is granted; the spouses of the lineal descendants of the individual to whom the option is granted; the estate (and any trust that serves a distributive function of an estate) of the individual to whom the option is granted; and all trusts, corporations, partnerships, limited liability companies and other entities in which, directly or indirectly, but for the exercise of a power of appointment or the death of the survivor of the individuals who are Permitted Transferees, each owner of an equitable interest is an individual who is a Permitted Transferee.
(f) Incentive of Stock Options
Incentive stock options, as defined in Section 422 of the Internal Revenue Code, may be granted under the Plan. The decision to grant incentive stock options to particular persons is within the Committee's discretion. Incentive stock options shall not be exercisable after expiration of ten years from the date of grant. The amount of incentive stock options vesting in a particular year cannot exceed $100,000 per option recipient, based on the fair market value of the options on the date of grant; provided that any portion of an option that cannot be exercised as an incentive stock option because of this limitation may be converted by the Committee to another form of option. The Board may amend the Plan to comply with Section 422 of the Internal Revenue Code or other applicable laws and to permit options previously granted to be converted to incentive stock options.
4.2 Non-Employee Directors
(a) Terms
Options with a term of ten years and one day are granted to each non-employee director for 4,000 Shares, effective as of the close of each annual meeting of stockholders at which an individual is elected a director or following which such individual continues as a director. Options granted to non-employee directors shall become exercisable by one-third at the end of each of the three successive one-year periods since the date of grant. The exercise price of each option shall be 100% of the fair market value of Shares underlying the option on the date of grant.
(b) Termination of Directorship
An option awarded to a non-employee director may be exercised any time within 60 months of the date the director terminates such status. In the event of a director's death, the director's authorized representative may exercise the option within 60 months of the date of death, provided that if the director dies after cessation of director status, the option is exercisable within 66 months of such cessation. In no event shall an option awarded to a non-employee director be exercisable beyond the expiration date of that option.
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Section 5. Restricted Stock
5.1 Company Employees
(a) Eligibility
The Committee may determine whether restricted stock shall be awarded to Company officers and employees, the timing of award, and the conditions and restrictions imposed on the award.
(b) Terms
During the restriction period, the recipient shall have a beneficial interest in the restricted stock and all associated rights and privileges of a stockholder, including the right to vote and receive dividends, subject to any restrictions imposed by the Committee at the time of grant.
The following restrictions will be imposed on Shares of restricted stock until expiration of the restriction period:
(i) The recipient shall not be entitled to delivery of the Shares;
(ii) None of the Shares issued as restricted stock may be transferred other than by will or by the laws of descent and distribution; and
(iii) Shares issued as restricted stock shall be forfeited if the recipient terminates employment with the Company, except for termination due to retirement after a specified age, disability, death or other special circumstances approved by the Committee.
Shares awarded as restricted stock will be issued subject to a restriction period set by the Committee of no less than two nor more than ten years. The Committee, except for restrictions specified in the preceding paragraphs, shall have the discretion to remove any or all of the restrictions on a restricted stock award whenever it determines such action appropriate. Upon expiration of the restriction period, the Shares will be made available to the recipient, subject to satisfaction of applicable tax withholding requirements.
5.2 Non-Employee Directors
(a) On January 1 of each year, 400 Shares of restricted stock shall be granted to each director who is not currently an employee of the Company. The stock will be subject to a restriction period of three years from the date of grant. During the restriction period, the recipient shall have a beneficial interest in the restricted stock and all associated rights and privileges of a stockholder, including the right to vote and receive dividends.
The following restrictions will be imposed on restricted stock until expiration of the restricted period:
(i) The recipient shall not be entitled to delivery of the Shares;
Page 36
(ii) None of the Shares issued as restricted stock may be transferred other than by will or by the laws of descent and distribution; and
(iii) Shares issued as restricted stock shall be forfeited if the recipient ceases to serve as a director of the Company, except for termination due to death, disability, or retirement under the Company's Directors' Retirement Plan.
Upon expiration of the restriction period, the Shares will be made available to the recipient, subject to satisfaction of applicable tax withholding requirements.
(b) Each January 1st, 350 shares of restricted stock, in addition to shares described in Section 5.2(a), shall be awarded to each director who is not currently and has not been an employee of the Company. Shares awarded under this Section 5.2(b) will be held in escrow until the director terminates service with the Company. During the restriction period, the recipient shall have a beneficial interest in the restricted stock and all associated rights and privileges of a stockholder except as discussed below.
The following restrictions will be imposed on restricted stock awarded under this Section 5.2(b) until it is made available to the recipient:
(i) The recipient shall not receive dividends on the shares, but an amount equal to such dividends will be credited to the director's stock equivalent account in the Company's Directors' Deferred Compensation Plan;
(ii) The recipient shall not be entitled to delivery of the shares;
(iii) None of the shares awarded may be transferred other than by will or by the laws of descent and distribution; and
(iv) The right to receive shares shall be subordinate to the claims of general creditors of the Company.
Upon termination of service, restricted shares will be made available to the recipient subject to satisfaction of applicable tax withholding requirements; provided, however, that if the recipient has not served on the Board for at least five years at the time of such termination, all restricted shares awarded under this Section 5.2(b) shall be forfeited.
Pursuant to termination of the Company's Directors' Retirement Plan effective December 31, 1996, each director continuing in office was awarded an amount of restricted stock equal to the accumulated value of past pension accruals as determined by the Company's actuary. Those shares will be subject to the same restrictions as shares awarded annually pursuant to this Section 5.2(b).
Page 37
Section 6. Performance Awards
6.1 Eligibility and Terms
The Committee may grant awards to officers and other key employees ("Performance Awards") based upon Company performance over a period of years ("Performance Period"). The Committee shall have sole discretion to determine persons eligible to participate, the Performance Period, Company performance factors applicable to the award ( "Performance Measures"), and the method of Performance Award calculation.
At the time the Committee establishes a Performance Period for a particular award, it shall also establish Performance Measures and targets to be attained relative to those measures ("Performance Targets"). Performance Measures may be based on any of the following factors, alone or in combination, as the Committee deems appropriate: (i) return on assets; (ii) return on equity; (iii) return on sales; (iv) total shareholder return; (v) cash flow; (vi) economic value added; and (vii) net earnings. Performance Targets may include a minimum, maximum and target level of performance with the size of Performance Awards based on the level attained. Once established, Performance Targets and Performance Measures shall not be changed during the Performance Period; provided, however, that the Committee may eliminate or decrease the amount of a Performance Award otherwise payable to a participant. Upon completion of a Performance Period, the Committee shall determine the Company's performance in relation to the Performance Targets for that period and certify in writing the extent to which Performance Targets were satisfied.
6.2 Payment of Awards
Performance Awards may be paid in cash, Shares of restricted stock (pursuant to terms applicable to restricted stock awarded to Company employees as described in the Plan) or a combination thereof, as determined by the Committee. Performance Awards shall be made not later than 90 days following the end of the relevant Performance Period. The fair market value of a Performance Award payment to any individual employee in any calendar year shall not exceed $2.5 million. The fair market value of Shares to be awarded shall be determined by the average of the high and low price of Shares on the New York Stock Exchange on the last business day of the Performance Period. Federal, state and local taxes will be withheld as appropriate.
6.3 Termination
To receive a Performance Award, the participant must be employed by the Company on the last day of the Performance Period. If a participant terminates employment during the Performance Period by reason of death, disability or retirement, a payout based on the time of employment during the Performance Period shall be distributed. Participants employed on the last day of the Performance Period, but not for the entire Performance Period, shall receive a payout prorated for that part of the Performance Period for which they were participants. If the participant is deceased at the time of Performance Award payment, the payment shall be made to the recipient's designated representative.
Section 7. Election to Receive Non-Employee Director Fees in Shares
Effective April 8, 1998, non-employee directors shall have the option of receiving all or a portion of their annual retainer fees, as well as fees for attendance at meetings of the Board and committees of the Board (including any Committee Chairman stipend), in the form of Shares.
The number of Shares that may be issued pursuant to such election shall be based on the amount of cash compensation subject to the election divided by the fair market value of one Share on the date such cash compensation is payable. The fair market value shall be the mean between the high and low prices at which shares are traded on the New York Stock Exchange on payable date.
Shares provided pursuant to the election shall be held in book-entry form by the Company on behalf of the non-employee director. Upon request, the Company shall deliver Shares so held to the non-employee director. While held in book-entry form, the Shares shall have all associated rights and privileges, including voting rights and the right to receive dividends.
Section 8. Change of Control
8.1 Effect on Grants and Awards
Unless the Committee shall otherwise expressly provide in the agreement relating to a grant or award under the Plan, upon the occurrence of a Change of Control as defined below: (i) all options then outstanding under the Plan shall become fully exercisable as of the date of the Change of Control; (ii) all terms and conditions of restricted stock awards then outstanding shall be deemed satisfied as of the date of the Change of Control; and (iii) all Performance Awards for a Performance Period not completed at the time of the Change of Control shall be payable in an amount equal to the product of the maximum award opportunity for the Performance Award and a fraction, the numerator of which is the number of months that have elapsed since the beginning of the Performance Period through the later of (A) the date of the Change of Control or (B) the date the participant terminates employment, and the denominator of which is the total number of months in the Performance Period; provided, however, that if this Plan shall remain in force after a Change of Control, a Performance Period is completed during that time, and the participant's employment has not terminated, this provision (iii) shall not apply.
8.2 Change of Control Defined
For purposes of the Plan, a "Change of Control " shall be deemed to have occurred if:
(a) Any person becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 15 percent or more of the combined voting power of the Company's then outstanding common stock, unless the Board by resolution negates the effect of this provision in a particular circumstance, deeming that resolution to be in the best interests of Company stockholders;
page 39
(b) During any period of two consecutive years, there shall cease to be a majority of the Board comprised of individuals who at the beginning of such period constituted the Board;
(c) The shareholders of the Company approve a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) less than fifty percent of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or
(d) Company shareholders approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of its assets.
Section 9. Amendment and Termination
The Board may terminate the Plan at any time, except with respect to grants and awards then outstanding. The Board may amend the Plan without shareholder approval, unless such approval is necessary to comply with applicable laws, including provisions of the Exchange Act or Internal Revenue Code.
Section 10. Regulatory Compliance
Notwithstanding any other provision of the Plan, the issuance or delivery of any Shares may be postponed for such period as may be required to comply with any applicable requirements of any national securities exchange or any requirements under any other law or regulation applicable to the issuance or delivery of such Shares. The Company shall not be obligated to issue or deliver any Shares if such issuance or delivery shall constitute a violation of any provision of any law or regulation of any governmental authority or national securities exchange.
Section 11. Effective Date
The Plan shall be effective upon its approval by the Company's stockholders at the 1996 Annual Meeting of Stockholders.
Page 40
APPENDIX
CATERPILLAR INC.
GENERAL AND FINANCIAL INFORMATION
1999
A-1
Report of Management Report of Independent Accountants
Consolidated Financial Statements and Notes
Five-year Financial Summary
Management's Discussion and Analysis (MD&A)
Machinery and Engines Sales Table by Geographic Region
1999 Compared with 1998
Supplemental Information
Fourth-Quarter 1999 Compared with Fourth-Quarter 1998
1998 Compared with 1997
Liquidity & Capital Resources
Employment
Other Matters
Year 2000 Challenge
Outlook
Supplemental Stockholder Information
Directors and Officers
A-2
REPORT OF MANAGEMENT
The management of Caterpillar Inc. has prepared the accompanying consolidated financial statements for the years ended December 31, 1999, 1998, and 1997, and is responsible for their integrity and objectivity. The statements were prepared in conformity with generally accepted accounting principles, applying certain estimates and judgments as required.
Management maintains a system of internal accounting controls which has been designed to provide reasonable assurance that: transactions are executed in accordance with proper authorization, transactions are properly recorded and summarized to produce reliable financial records and reports, assets are safeguarded, and the accountability for assets is maintained.
The system of internal controls includes statements of policies and business practices, widely communicated to employees, which are designed to require them to maintain high ethical standards in their conduct of company affairs. The internal controls are augmented by careful selection and training of supervisory and other management personnel, by organizational arrangements that provide for appropriate delegation of authority and division of responsibility, and by an extensive program of internal audit with management follow-up.
The financial statements have been audited by PricewaterhouseCoopers LLP, independent accountants, in accordance with generally accepted auditing standards. They have made similar annual audits since the initial incorporation of our company. Their role is to render an objective, independent opinion on management's financial statements. Their report appears below.
Through its Audit Committee, the Board of Directors reviews our financial and accounting policies, practices, and reports. The Audit Committee consists exclusively of seven directors who are not salaried employees and who are, in the opinion of the Board of Directors, free from any relationship that would interfere with the exercise of independent judgment as a committee member. The Audit Committee meets several times each year with representatives of management, including the internal auditing department, and the independent accountants to review the activities of each and satisfy itself that each is properly discharging its responsibilities. Both the independent accountants and the internal auditors have free access to the Audit Committee and meet with it periodically, with and without management representatives in attendance, to discuss, among other things, their opinions as to the adequacy of internal controls and to review the quality of financial reporting.
/s/ Glen Barton
Chairman of the Board
/s/ FL McPheeters
Chief Financial Officer
January 21, 2000
REPORT OF INDEPENDENT
ACCOUNTANTS
[LOGO]
TO THE STOCKHOLDERS OF CATERPILLAR INC.:
In our opinion, the accompanying consolidated financial statements, in Statements 1 through 4, present fairly, in all material respects, the financial position of Caterpillar Inc. and its subsidiaries at December 31, 1999, 1998, and 1997, and the consolidated results of their operations and their consolidated cash flow for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Peoria, Illinois
January 21, 2000
A-3
STATEMENT 1
Consolidated Results of Operations for the
Years Ended December 31
(Millions of dollars except per share data)
| Supplemental
consolidating data
|
|||||||||
| |
|||||||||
| Consolidated
|
Machinery and
Engines(1)
|
Financial
Products
|
|||||||
| |
|
|
|||||||
| 1999
|
1998
|
1997
|
1999
|
1998
|
1997
|
1999
|
1998
|
1997
|
|
| |
|
|
|
|
|
|
|
|
|
| Sales and revenues: | |||||||||
| Sales of Machinery and Engines (Note 1C) | $18,559
|
$19,972
|
$18,110
|
$18,559
|
$19,972
|
$18,110
|
$—
|
$—
|
$—
|
| Revenues of Financial Products (Note 1C) | 1,143
|
1,005
|
815
|
—
|
—
|
—
|
1,277
|
1,117
|
839
|
| |
|
|
|
|
|
|
|
|
|
| Total sales and revenues | 19,702
|
20,977
|
18,925
|
18,559
|
19,972
|
18,110
|
1,277
|
1,117
|
839
|
| Operating Costs: | |||||||||
| Cost of goods sold | 14,481
|
15,031
|
13,374
|
14,481
|
15,031
|
13,374
|
—
|
—
|
—
|
| Selling, general, and administrative expenses | 2,541
|
2,561
|
2,232
|
2,079
|
2,210
|
1,932
|
493
|
377
|
324
|
| Research and development expenses | 626
|
643
|
528
|
626
|
643
|
528
|
—
|
—
|
—
|
| Interest expense of Financial Products | 560
|
489
|
361
|
—
|
—
|
—
|
585
|
501
|
373
|
| |
|
|
|
|
|
|
|
|
|
| Total operating costs | 18,208
|
18,724
|
16,495
|
17,186
|
17,884
|
15,834
|
1,078
|
878
|
697
|
| |
|
|
|
|
|
|
|
|
|
| Operating profit | 1,494
|
2,253
|
2,430
|
1,373
|
2,088
|
2,276
|
199
|
239
|
142
|
| Interest expense excluding Financial Products | 269
|
264
|
219
|
269
|
264
|
219
|
—
|
—
|
—
|
| Other income (expense) (Note 3) | 196
|
185
|
202
|
66
|
46
|
153
|
52
|
65
|
61
|
| |
|
|
|
|
|
|
|
|
|
| Consolidated profit before taxes | 1,421
|
2,174
|
2,413
|
1,170
|
1,870
|
2,210
|
251
|
304
|
203
|
| Provision for income taxes (Note 6) | 455
|
665
|
796
|
362
|
554
|
724
|
93
|
111
|
72
|
| |
|
|
|
|
|
|
|
|
|
| Profit of consolidated companies | 966
|
1,509
|
1,617
|
808
|
1,316
|
1,486
|
158
|
193
|
131
|
| Equity in profit of unconsolidated affiliated companies (Note 10) | (20)
|
4
|
48
|
(21)
|
4
|
48
|
1
|
—
|
—
|
| Equity in profit of Financial Products' subsidiaries | —
|
—
|
—
|
159
|
193
|
131
|
—
|
—
|
—
|
| |
|
|
|
|
|
|
|
|
|
| Profit | $
946
|
$1,513
|
$1,665
|
$946
|
$1,513
|
$1,665
|
$159
|
$193
|
$131
|
| |
|
|
|
|
|
|
|
|
|
| Profit per share of common stock (Note 15) | $
2.66
|
$4.17
|
$4.44
|
||||||
| |
|
|
(1) Represents Caterpillar Inc. and its subsidiaries except for Financial Products, which is accounted for on the equity basis. | ||||||
| Profit per share of common stock — assuming dilution (Note 15) | $
2.63
|
$4.11
|
$4.37
|
||||||
| |
|
|
|||||||
| Cash dividends declared per share of common stock | $
1.275
|
$1.15
|
$.95
|
||||||
| |
|
|
|||||||
The supplemental consolidating data is presented for the purpose of additional analysis. See Note 1B on Page A-7 for a definition of the groupings in these statements. Transactions between Machinery and Engines and Financial Products have been eliminated to arrive at consolidated data.
STATEMENT 2
Changes in Consolidated Stockholders' Equity for the Years Ended December
31
(Dollars in millions)
]
| 1999
|
1998
|
1997
|
||||
| |
|
|
||||
| Common stock (Note 14): | ||||||
| Balance at beginning of year | $
(993)
|
$(442)
|
$50
|
|||
| Common shares issued, including treasury shares reissued: | ||||||
| 1999 — 1,535,626; 1998 — 800,315; 1997 — 1,426,532 | 22
|
16
|
26
|
|||
| Treasury shares purchased: | ||||||
| 1999 — 4,956,100; 1998 — 11,612,300; 1997— 14,118,412 | (259)
|
(567)
|
(706)
|
|||
| Issuance of common stock to effect 2-for-1 stock split | —
|
—
|
188
|
|||
| |
|
|
||||
| Balance at year-end | (1,230)
|
(993)
|
(442)
|
|||
| |
|
|
||||
| Profit employed in the business: | ||||||
| Balance at beginning of year | 6,123
|
5,026
|
3,904
|
|||
| Profit | 946
|
946
|
1,513
|
1,513
|
1,665
|
1,665
|
| Dividends declared | (452)
|
(416)
|
(355)
|
|||
| Issuance of common stock to effect 2-for-1 stock split | —
|
—
|
(188)
|
|||
| |
|
|
||||
| Balance at year-end | 6,617
|
6,123
|
5,026
|
|||
| |
|
|
||||
| Accumulated other comprehensive income: | ||||||
| Foreign currency translation adjustment(2) (Note 1F): |
||||||
| Balance at beginning of year |
65
|
95
|
162
|
|||
| Aggregate adjustment for year | 60
|
60
|
(30)
|
(30)
|
(67)
|
(67)
|
| |
|
|
||||
| Balance at year-end | 125
|
65
|
95
|
|||
| |
|
|
||||
| Minimum Pension Liability Adjustment:(2) | ||||||
| Balance at beginning of year | (64)
|
—
|
—
|
|||
| Aggregate adjustment for year | 17
|
17
|
(64)
|
(64)
|
—
|
—
|
| |
|
|
|
|
|
|
| Balance at year-end | (47)
|
(64)
|
—
|
|||
| |
|
|
||||
| Comprehensive income | 1,023
|
1,419
|
1,598
|
|||
| |
|
|
||||
| Stockholders' equity at year-end | $5,465
|
$5,131
|
$4,679
|
|||
| |
|
|
||||
2) No reclassification adjustments to report.
See accompanying Notes to Consolidated
Financial Statements.
A-4
Caterpillar Inc.
Financial Position at December 31
(Dollars in millions)
| Supplemental consolidating data |
|||||||||
| Consolidated |
Machinery and
Engines(1) |
Financial
Products |
|||||||
| 1999 | 1998 | 1997 | 1999 | 1998 | 1997 | 1999 | 1998 | 1997 | |
| |
|
|
|
|
|
|
|
|
|
| Assets | |||||||||
| Current assets: |
|||||||||
| Cash and short-term investments |
$ 548 | $360 | $292 | $440 | $303 | $241 | $108 | $57 | $51 |
| Receivables — trade and other | 3,233 | 3,660 | 3,331 | 2,357 | 2,604 | 3,346 | 1,761 | 1,875 | 285 |
| Receivables — finance (Note 5) | 4,206 | 3,516 | 2,660 | — | — | — | 4,206 | 3,516 | 2,660 |
| Deferred income taxes (Note 6) | 405 | 474 | 428 | 394 | 465 | 425 | 11 | 9 | 3 |
| Prepaid expenses | 748 | 607 | 500 | 765 | 616 | 510 | 3 | 9 | 6 |
| Inventories (Notes 1D and 4) | 2,594 | 2,842 | 2,603 | 2,594 | 2,842 | 2,603 | — | — | — |
| |
|
|
|
|
|
|
|
|
|
| Total current assets | 11,734 | 11,459 | 9,814 | 6,550 | 6,830 | 7,125 | 6,089 | 5,466 | 3,005 |
| Property, plant, and equipment — net (Notes 1E and 9) | 5,201 | 4,866 | 4,058 | 4,287 | 4,125 | 3,483 | 914 | 741 | 575 |
| Long-term receivables — trade and other | 95 | 85 | 134 | 95 | 85 | 134 | — | — | — |
| Long-term receivables — finance (Note 5) | 5,588 | 5,058 | 3,881 | — | — | — | 5,588 | 5,058 | 3,881 |
| Investments in unconsolidated affiliated companies (Notes 1B and 10) |
553 | 773 | 751 | 523 | 773 | 751 | 30 | — | — |
| Investments in Financial Products' subsidiaries | — | — | — | 1,464 | 1,269 | 882 | — | — | — |
| Deferred income taxes (Note 6) | 954 | 955 | 1,040 | 974 | 980 | 1,075 | 9 | 8 | 5 |
| Intangible assets (Note 1E) | 1,543 | 1,241 | 228 | 1,541 | 1,241 | 228 | 2 | — | — |
| Other assets (Note 17) | 967 | 691 | 850 | 648 | 316 | 510 | 319 | 375 | 340 |
| |
|
|
|
|
|
|
|
|
|
| Total assets | $26,635
|
$25,128
|
$20,756
|
$16,082
|
$15,619
|
$14,188
|
$12,951
|
$11,648
|
$7,806
|
| |
|
|
|
|
|
|
|
|
|
| Liabilities |
|||||||||
| Current liabilities: |
|||||||||
| Short-term borrowings (Note 12) | $770 | $809 | $484 | $51 | $49 | $53 | $1,030 | $972 | $675 |
| Accounts payable | 2,003 | 2,250 | 2,218 | 2,317 | 2,401 | 2,136 | 41 | 273 | 133 |
| Accrued expenses | 1,048 | 928 | 828 | 758 | 659 | 572 | 337 | 290 | 277 |
| Accrued wages, salaries, and employee benefits | 1,115 | 1,217 | 1,128 | 1,104 | 1,208 | 1,120 | 11 | 9 | 8 |
| Dividends payable | 115 | 107 | 92 | 115 | 107 | 92 | 29 | 36 | — |
| Deferred and current income taxes payable (Note 6) | 23 | 15 | 175 | (12) | (19) | 46 | 35 | 34 | 129 |
| Other deferred liabilities | — | — | — | — | — | — | 190 | 143 | — |
| Long-term debt due within one year (Note 13) | 3,104 | 2,239 | 1,142 | 167 | 60 | 54 | 2,937 | 2,179 | 1,088 |
| |
|
|
|
|
|
|
|
|
|
| Total current liabilities | 8,178 | 7,565 | 6,067 | 4,500 | 4,465 | 4,073 | 4,610 | 3,936 | 2,310 |
| Long-term debt due after one year (Note 13) | 9,928 | 9,404 | 6,942 | 3,099 | 2,993 | 2,367 | 6,829 | 6,411 | 4,575 |
| Liability for postemployment benefits (Note 8) | 2,536 | 2,590 | 2,698 | 2,536 | 2,590 | 2,698 | — | — | — |
| Deferred income taxes and other liabilities (Note 6) | 528 | 438 | 370 | 482 | 440 | 371 | 48 | 32 | 39 |
| |
|
|
|
|
|
|
|
|
|
| Total liabilities | 21,170 | 19,997 | 16,077 | 10,617 | 10,488 | 9,509 | 11,487 | 10,379 | 6,924 |
| |
|
|
|
|
|
|
|
|
|
| Contingencies (Notes 17 and 18) | |||||||||
| Stockholders' equity (Statement 2) | |||||||||
| Common stock of $1.00 par value (Note 14): | |||||||||
| Authorized
shares: 900,000,000 Issued shares (1999, 1998,
and 1997 — 407,447,312) at paid-in amount |
1,045 | 1,063 | 1,071 | 1,045 | 1,063 | 1,071 | 762 | 683 | 403 |
| Profit employed in the business | 6,617 | 6,123 | 5,026 | 6,617 | 6,123 | 5,026 | 744 | 615 | 506 |
| Accumulated other comprehensive income |
78 | 1 | 95 | 78 | 1 | 95 | (42) | (29) | (27) |
| Treasury stock
(1999 — 53,669,431 shares; 1998 — 50,248,957
shares;and 1997 — 39,436,972 shares) at cost |
(2,275) | (2,056) | (1,513) | (2,275) | (2,056) | (1,513) | — | — | — |
| |
|
|
|
|
|
|
|
|
|
| Total stockholders' equity |
5,465 | 5,131 | 4,679 | 5,465 | 5,131 | 4,679 | 1,464 | 1,269 | 882 |
| |
|
|
|
|
|
|
|
|
|
| Total liabilities and stockholders' equity |
$26,635
|
$25,128
|
$20,756
|
$16,082
|
$15,619
|
$14,188
|
$12,951
|
$11,648
|
$7,806
|
| |
|
|
|
|
|
|
|
|
|
(1) Represents Caterpillar Inc. and its subsidiaries except for Financial Products, which is accounted for on the equity basis.
The supplemental consolidating data is presented for the purpose of additional analysis. See Note 1B on Page A-7 for a definition of the groupings in these statements. Transactions between Machinery and Engines and Financial Products have been eliminated to arrive at consolidated data.
See accompanying Notes to Consolidated Financial Statements.
A-5
STATEMENT 4
Statement of Cash Flow for the Years Ended December 31
(Millions of dollars)
| Supplemental consolidating data
|
|||||||||
| Consolidated
|
Machinery and Engines(1)
|
Financial Products
|
|||||||
| 1999
|
1998
|
1997
|
1999
|
1998
|
1997
|
1999
|
1998
|
1997
|
|
| Cash flow from operating activities: |
|
|
|
||||||
| Profit |
$946
|
$1,513
|
$1,665
|
$946
|
$1,513
|
$1,665
|
$159
|
$193
|
$131
|
| Adjustments for noncash items: |
|
|
|
||||||
| Depreciation and amortization |
945
|
865
|
738
|
745
|
697
|
599
|
200
|
168
|
139
|
| Profit of Financial Products |
—
|
—
|
—
|
(159)
|
(193)
|
(131)
|
—
|
—
|
—
|
| Other |
168
|
(4)
|
23
|
84
|
102
|
(16)
|
84
|
(137)
|
41
|
| Changes in assets and liabilities: |
|
|
|
||||||
| Receivables — trade and other |
494
|
(104)
|
(396)
|
368
|
993
|
(341)
|
294
|
(1,258)
|
(82)
|
| Inventories |
312
|
(104)
|
(375)
|
312
|
(104)
|
(375)
|
—
|
—
|
—
|
| Accounts payable and accrued expenses |
(95)
|
(60)
|
562
|
(45)
|
(182)
|
529
|
(180)
|
284
|
37
|
| Other — net |
(200)
|
(328)
|
(121)
|
(205)
|
(177)
|
(129)
|
3
|
(72)
|
57
|
| |
|
|
|
|
|
|
|
|
|
| Net cash provided by (used for) operating activities |
2,570
|
1,778
|
2,096
|
2,046
|
2,649
|
1,801
|
560
|
(822)
|
323
|
| |
|
|
|
|
|
|
|
|
|
| Cash flow from investing activities: |
|
|
|
||||||
| Capital expenditures — excluding equipment leased to others |
(790)
|
(925)
|
(824)
|
(770)
|
(918)
|
(819)
|
(20)
|
(7)
|
(5)
|
| Expenditures for equipment leased to others |
(490)
|
(344)
|
(282)
|
(21)
|
(9)
|
(5)
|
(469)
|
(335)
|
(277)
|
| Proceeds from disposals of property, plant, and equipment |
215
|
141
|
138
|
30
|
17
|
15
|
185
|
124
|
123
|
| Additions to finance receivables |
(8,526)
|
(8,537)
|
(6,644)
|
—
|
—
|
—
|
(8,526)
|
(8,537)
|
(6,644)
|
| Collections of finance receivables |
5,676
|
4,635
|
3,605
|
—
|
—
|
—
|
5,676
|
4,635
|
3,605
|
| Proceeds from sale of finance receivables |
1,324
|
1,705
|
1,833
|
—
|
—
|
—
|
1,324
|
1,705
|
1,833
|
| Net intercompany borrowings |
—
|
—
|
—
|
(100)
|
29
|
(94)
|
(87)
|
(244)
|
—
|
| Investments and acquisitions |
(302)
|
(1,428)
|
(59)
|
(275)
|
(1,428)
|
(59)
|
(27)
|
—
|
—
|
| Other — net |
(127)
|
173
|
(308)
|
(263)
|
(111)
|
(290)
|
57
|
4
|
(68)
|
| |
|
|
|
|
|
|
|
|
|
| Net cash used for investing activities |
(3,020)
|
(4,580)
|
(2,541)
|
(1,399)
|
(2,420)
|
(1,252)
|
(1,887)
|
(2,655)
|
(1,433)
|
| |
|
|
|
|
|
|
|
|
|
| Cash flow from financing activities: |
|
|
|
||||||
| Dividends paid |
(445)
|
(400)
|
(338)
|
(445)
|
(400)
|
(338)
|
(36)
|
(49)
|
(28)
|
| Common stock issued, including treasury shares reissued |
11
|
6
|
11
|
11
|
6
|
11
|
79
|
280
|
50
|
| Treasury shares purchased |
(260)
|
(567)
|
(706)
|
(260)
|
(567)
|
(706)
|
—
|
—
|
—
|
| Net intercompany borrowings |
—
|
—
|
—
|
87
|
244
|
—
|
100
|
(29)
|
94
|
| Proceeds from long-term debt issued |
3,770
|
4,590
|
2,284
|
306
|
627
|
462
|
3,464
|
3,963
|
1,822
|
| Payments on long-term debt |
(2,288)
|
(1,153)
|
(1,237)
|
(109)
|
(65)
|
(177)
|
(2,179)
|
(1,088)
|
(1,060)
|
| Short-term borrowings — net |
(127)
|
388
|
258
|
(71)
|
(23)
|
17
|
(56)
|
411
|
241
|
| |
|
|
|
|
|
|
|
|
|
| Net cash provided by (used for) financing activities |
661
|
2,864
|
272
|
(481)
|
(178)
|
(731)
|
1,372
|
3,488
|
1,119
|
| |
|
|
|
|
|
|
|
|
|
| Effect of exchange rate changes on cash |
(23)
|
6
|
(22)
|
(29)
|
11
|
(22)
|
6
|
(5)
|
–
|
| |
|
|
|
|
|
|
|
|
|
| Increase (decrease) in cash and short-term investments |
188
|
68
|
(195)
|
137
|
62
|
(204)
|
51
|
6
|
9
|
| Cash and short-term investments at the beginning of the period |
360
|
292
|
487
|
303
|
241
|
445
|
57
|
51
|
42
|
| |
|
|
|
|
|
|
|
|
|
| Cash and short-term investments at the end of the period |
$
548
|
$
360
|
$
292
|
$
440
|
$
303
|
$ 241
|
$ 108
|
$
57
|
$
51
|
| |
|
|
|
|
|
|
|
|
|
(1) Represents Caterpillar Inc. and its subsidiaries except for Financial Products, which is accounted for on the equity basis.
All short-term investments, which consist primarily of highly liquid investments with original maturities of three months or less, are considered to be cash equivalents.
The supplemental consolidating data is presented for the purpose of additional analysis. See Note 1B on Page A-7 for a definition of the groupings in these statements. Transactions between Machinery and Engines and Financial Products have been eliminated to arrive at consolidated data.
See accompanying Notes to Consolidated Financial Statements.
A-6
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Caterpillar Inc.
(Dollars in millions except per share data)
1. Operations and summary of significant accounting policies
We operate in three principal lines of business:
(1) Machinery — design, manufacture, and marketing of construction, mining, agricultural, and forestry machinery — track and wheel tractors, track and wheel loaders, pipelayers, motor graders, wheel tractor-scrapers, track and wheel excavators, backhoe loaders, mining shovels, log skidders, log loaders, off-highway trucks, articulated trucks, paving products, telescopic handlers, skid-steer loaders, and related parts.
(2) Engines — design, manufacture, and marketing of engines for Caterpillar Machinery, on-highway trucks and locomotives; marine, petroleum, construction, industrial, agricultural, and other applications; electric power generation systems; and related parts. Reciprocating engines meet power needs ranging from 5 to over 21,000 horsepower (4 to over 15 660 kilowatts). Turbines range from 1,340 to 18,000 horsepower (1000 to 13 500 kilowatts).
(3) Financial Products — financing to customers and dealers for the purchase and lease of Caterpillar and noncompetitive related equipment, as well as some financing for Caterpillar sales to dealers. Also provides various forms of insurance to customers and dealers to help support the purchase and lease of our equipment. This line of business consists primarily of Caterpillar Financial Services Corporation (Cat Financial) and its subsidiaries and Caterpillar Insurance Services Corporation.
Our products are sold primarily under the marks "Caterpillar," "Cat," "Solar," "Barber-Greene," "MaK," "Perkins," "F.G. Wilson," and "Olympian."
We conduct operations in our Machinery and Engines' lines of business under highly competitive conditions, including intense price competition. We place great emphasis upon the high quality and performance of our products and our dealers' service support. Although no one competitor is believed to produce all of the same types of machines and engines, there are numerous companies, large and small, which compete with us in the sale of each of our products.
Machines are distributed principally through a worldwide organization of dealers, 63 located in the United States and 144 located outside the United States. Worldwide, these dealers have more than 1,800 places of business and serve 172 countries. Reciprocating engines are sold principally through the worldwide dealer organization and to other manufacturers for use in products manufactured by them. Some of the reciprocating engines manufactured by Perkins are also sold through their worldwide distributor network. Our dealers do not deal exclusively with our products; however, in most cases sales and servicing of our products are our dealers' principal business. Turbines and large marine reciprocating engines are sold through sales forces employed by Solar and MaK, respectively. Occasionally, these employees are assisted by independent sales representatives.
Manufacturing activities of the Machinery and Engines' lines of business are conducted in 41 plants in the United States; nine in the United Kingdom; five in Italy and Mexico; four in China; three each in France, Germany, and Northern Ireland; two each in Australia, Canada, India, and Japan; and one each in Belgium, Brazil, Hungary, Indonesia, Netherlands, Poland, Russia, South Africa, and Sweden. Fourteen parts distribution centers are located in the United States and twelve are located outside the United States.
The Financial Products' line of business also conducts operations under highly competitive conditions. Financing for users of Caterpillar products is available through a variety of competitive sources, principally commercial banks and finance and leasing companies. We emphasize prompt and responsive service to meet customer requirements and offer various financing plans designed to increase the opportunity for sales of our products and generate financing income for our company. Financial Products' activity is primarily conducted in the United States, with additional offices in Asia, Australia, Canada, Europe, and Latin America.
B. Basis of consolidation
The financial statements include the accounts of Caterpillar Inc. and its subsidiaries. Investments in companies that are owned 20% to 50% are accounted for by the equity method (see Note 10 on Page A-12).
The accompanying financial statements and supplemental consolidating data, where applicable, have been grouped as follows:
Consolidated — Caterpillar Inc. and its subsidiaries.
Machinery and Engines — primarily our manufacturing, marketing, and parts distribution operations, with the Financial Products' subsidiaries on an equity basis.
Financial Products — our finance and insurance subsidiaries, primarily Cat Financial and Caterpillar Insurance Services Corporation.
Certain amounts for prior years have been reclassified to conform with the current-year financial statement presentation.
C. Sales and revenue recognition
Sales of machines and engines are generally unconditional sales that are recorded when product is shipped and invoiced to independently owned and operated dealers or customers.
Revenues primarily represent finance and lease revenues of Cat Financial, a wholly-owned subsidiary. Finance revenues are recognized over the term of the contract at a constant rate of return on the scheduled uncollected principal balance. Lease revenues are recognized in the period earned. Recognition of income is suspended when collection of future income is not probable. Income recognition is resumed if the receivable becomes contractually current and collection doubts are removed; previously suspended income is recognized at that time.
D. Inventories
Inventories are valued principally by the LIFO (last-in, first-out) method. The value of inventories on the LIFO basis represented approximately 80% of total inventories at December 31, 1999, and 85% at December 31, 1998 and 1997.
If the FIFO (first-in, first-out) method had been in use, inventories would have been $2,000, $1,978, and $2,067 higher than reported at December 31, 1999, 1998, and 1997, respectively.
E. Depreciation and amortization
Depreciation of plant and equipment is computed principally using accelerated methods. Amortization of purchased intangibles is computed using the straight-line method, generally over a period of 20 years or less. Accumulated amortization was $150, $84, and $51, at December 31, 1999, 1998, and 1997, respectively.
The increases in intangible assets in 1999 and 1998 were
primarily related to the acquisitions of F.G. Wilson in 1999 and Perkins in
1998 (see Note 22 on
Page A-19).
A-7
F. Foreign currency translation
The functional currency for most of our Machinery and Engines' consolidated companies is the U.S. dollar. The functional currency for most of our Financial Products' and equity basis companies is the respective local currency. Gains and losses resulting from the translation of foreign currency amounts to the functional currency are included in the results of operations. Gains and losses resulting from translating assets and liabilities from the functional currency to U.S. dollars are included in "Accumulated other comprehensive income," which is part of stockholders' equity.
G. Derivative financial instruments
We use derivative financial instruments (derivatives) to manage foreign currency, interest rate, and commodity price exposures that arise in the normal course of business. Derivatives that we use are primarily foreign currency contracts (forward and option), interest rate swaps, and commodity contracts (swap and option). Derivatives are not used for speculative purposes.
Please refer to Note 2 for more information on derivatives, including the methods used to account for them.
H. Estimates in financial statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts. Examples of the more significant estimates include: accruals and reserves for warranty and product liability losses, postemployment benefits, environmental costs, income taxes, and plant closing costs.
I. Future accounting changes
In June 1998, the Financial Accounting Standards Board (FASB) 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. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137 (SFAS 137), "Accounting for Derivative Instruments and Hedging Activities — Deferral of the Effective Date of SFAS 133." This statement defers the effective date of SFAS 133 to fiscal years beginning after June 15, 2000. We will adopt the new 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 fact that certain issues remain unresolved by the FASB, we have not yet determined the full impact that the adoption of SFAS 133 will have on our financial position, results of operations, or cash flows. However, at this time, we do not believe that the impact will be material.
2. Derivative financial instruments and risk management
Our Machinery and Engines' operations are subject to foreign exchange risk. Currency exchange rates impact the U.S. dollar amount of sales made and costs incurred in foreign currencies. Our Financial Products' operations are subject to foreign exchange risk when the currency of debt obligations does not match the currency of the receivables portfolio.
Forward exchange contracts and certain foreign currency option contracts are used to hedge our foreign exchange risks. Other than the up-front premiums that we pay on foreign currency option contracts, all cash flow related to these contracts occurs when the contracts mature.
Our accounting treatment of foreign currency contracts depends upon the nature of the contracts:
| 1. | Forward contracts designated as hedges of firm future foreign currency commitments and purchased foreign currency option contracts designated as hedges of probable foreign currency transactions: |
| |
No gains or losses are reported until the hedged transaction occurs, even if the contracts are terminated or mature prior to the time of the hedged transaction. |
| |
Gains and losses are recognized and reported on the same financial statement line as the hedged transaction when the hedged transaction occurs. |
| |
Gains and losses are immediately recognized in current income ("Other income (expense)" in Statement 1) in those unusual instances when the hedged transaction is no longer expected to occur, or a foreign currency contract is no longer effective as a hedge. |
| 2. | All other foreign currency contracts (those used to hedge net balance sheet exposures and anticipated net cash flow exposures for the next 12 months): |
| |
All gains or losses are recognized in current income ("Other income (expense)") as currency exchange rates change. |
| |
Net gains are reflected as an asset ( "Receivables — trade and other" in Statement 3) until cash is actually received. Conversely, net losses are shown as a liability ( "Accrued expenses" in Statement 3) until cash is actually paid. |
The notional amounts of outstanding contracts to buy and sell foreign currency were:
| December 31,
|
|||
| 1999
|
1998
|
1997
|
|
| |
|
|
|
| Hedges of firm commitments and/or probable foreign currency transactions | $
250
|
$
222
|
$
166
|
| Hedges of balance sheet exposure and/or anticipated cash flow exposure for the next 12 months | $
2,405
|
$
1,802
|
$
1,294
|
The company also had $90 of written foreign currency options open at December 31, 1999. These written options were originally entered into as a part of a combination option strategy. The related purchased options were either sold or terminated prior to the maturity date. The maturity dates of the outstanding written options are within the first quarter of 2000. The company has applied mark-to-market accounting treatment to these written options.
The maturity dates for our outstanding contracts are primarily less than six months.
Please refer to Note 16 and Table IV on Page A-15 for fair value information on foreign currency contracts.
A-8
B. Interest rate derivative instruments
We primarily use interest rate swap contracts to manage our exposure to interest rate changes and to lower the cost of borrowed funds.
Interest rate swap contracts are linked to debt instruments and, in effect, change the characteristics of the debt (e.g., from fixed rate to floating rate). Interest rate swap contracts are not reflected in the financial statements at fair market value. The notional amounts of outstanding interest rate swap contracts were $4,997, $3,083, and $2,595 at December 31, 1999, 1998, and 1997, respectively.
The difference between the interest payable and the interest receivable on each interest rate swap contract is recorded each reporting period as an adjustment to current income ("Interest expense excluding Financial Products" or "Interest expense of Financial Products" in Statement 1, as applicable). Interest rate swap contracts that are in a payable position are shown as interest payable ("Accrued expenses" in Statement 3); those in a receivable position are shown as an asset ("Receivables—trade and other" in Statement 3). The actual cash settlement on these interest rate swap contracts occurs at times specified in the agreement. If an interest rate swap contract is terminated prior to its maturity, no immediate gain or loss is recognized in the financial statements, except in those cases where the debt instrument to which the contract is linked is also terminated.
Please refer to Note 16 and Table IV on Page A-15 for fair value information of interest rate swap contracts.
C. Commodity related derivative instruments
Our Machinery and Engines' operations are also subject to commodity price risk (i.e., potential price increases of our production material as a result of price increases in raw materials). We make limited use of commodity swap and/or option contracts to manage the risk of unfavorable price movement. The use of these types of derivative financial instruments has not been material.
| 3. | Other income (expense) | ||
| |
|||
| Years ended December 31, |
|||
|
|
1999
|
1998
|
1997
|
| Investment and interest income | $
61
|
$
101
|
$
115
|
| License fees |
14
|
18
|
25
|
| Foreign exchange (losses) gains | (10
)
|
(23
)
|
(10
)
|
| Miscellaneous income |
131
|
89
|
72
|
| |
|
|
|
| $ 196 |
$ 185
|
$ 202
|
|
| |
|
|
|
| 4. |
Inventories | ||
| |
|||
| December 31, |
|||
| 1999
|
1998
|
1997
|
|
| Raw materials and work-in-process | $
969
|
$
1,041
|
$
1,013
|
| Finished goods |
1,430
|
1,605
|
1,404
|
| Supplies | 195
|
196
|
186
|
| |
|
|
|
| $ 2,594
|
$ 2,842
|
$ 2,603
|
|
| |
|
|
|
| 5. |
Finance receivables | ||
| |
|||
Finance receivables are receivables of Cat Financial, which generally can be repaid or refinanced without penalty prior to contractual maturity. Total finance receivables reported in Statement 3 are net of an allowance for credit losses.
Please refer to Table I below for additional finance receivables information and Note 16 and Table IV on Page A-15 for fair value information.
| |
||
| TABLE I
—Finance Receivables Information
|
||
| |
Contractual maturities of outstanding receivables:
| December 31, 1999
|
||||
| Amounts Due In |
Installment
Contracts |
Financing
Leases |
Notes
|
Total
|
| 2000 | $
1,121
|
$
1,295
|
$
1,564
|
$
3,980
|
| 2001 | 794
|
979
|
663
|
2,436
|
| 2002 | 509
|
626
|
468
|
1,603
|
| 2003 | 242
|
329
|
269
|
840
|
| 2004 | 69
|
136
|
194
|
399
|
| Thereafter |
18
|
128
|
325
|
471
|
| |
|
|
|
|
| 2,753
|
3,493
|
3,483
|
9,729
|
|
| Residual value | —
|
979
|
—
|
979
|
| Less: Unearned income | 220
|
544
|
16
|
780
|
| |
|
|
|
|
| Total | $
2,533
|
$
3,928
|
$
3,467
|
$
9,928
|
| |
|
|
|
|
Impaired loans and leases:
| 1999
|
1998
|
1997
|
|
| Average recorded investment | $
106
|
$
74
|
$
47
|
| |
|
|
|
| At December 31: | |||
| Recorded investment |
$
95
|
$
61
|
$
30
|
| Less: Fair value of underlying collateral |
41
|
35
|
18
|
| |
|
|
|
| Potential loss | $
54
|
$
26
|
$
12
|
| |
|
|
Allowance for credit loss activity:
| 1999
|
1998
|
1997
|
|
| Balance at beginning of year |
$
110
|
$ 84
|
$ 74
|
| Provision for credit losses |
60
|
70
|
39
|
| Less: Net credit losses | 31
|
38
|
19
|
| Less: Other—net |
5
|
6
|
10
|
| |
|
|
|
| Balance at end of year |
$ 134
|
$ 110
|
$ 84
|
| |
|
|
Cat Financial's net investment in financing leases:
| December 31,
|
|||
| 1999
|
1998
|
1997
|
|
| Total minimum lease payments receivable |
$
3,493
|
$
3,161
|
$
2,784
|
| Estimated residual value of leased assets: |
|||
| Guaranteed | 261
|
229
|
206
|
| Unguaranteed | 718
|
667
|
519
|
| |
|
|
|
| 4,472
|
4,057
|
3,509
|
|
| Less: Unearned income |
544
|
487
|
478
|
| |
|
|
|
| Net investment in financing leases | $
3,928
|
$
3,570
|
$
3,031
|
| |
|
|
|
| |
A-9
6. Income taxes
The components of profit before taxes were:
| Years ended December 31, | ||||
| 1999
|
1998
|
1997
|
||
| |
|
|
||
| U.S. | $ 1,050 | $ 1,880 | $ 2,071 | |
| Non-U.S. | 371 | 294 | 342 | |
| |
|
|
||
| $ 1,421 | $ 2,174 | $ 2,413 | ||
| |
|
|
||
The components of the provision for income taxes were:
| Years ended December 31, | ||||
| 1999
|
1998
|
1997
|
||
| |
|
|
||
| Current tax provision: | ||||
| U.S. Federal | $ 179 | $ 471 | $ 571 | |
| Non-U.S. | 190 | 102 | 103 | |
| State (U.S.) | 21 | 45 | 54 | |
| |
|
|
||
| $ 390 | $ 618 | $ 728 | ||
| |
|
|
||
| Deferred tax provision (credit): | ||||
| U.S. Federal | 81 | 93 | 60 | |
| Non-U.S. | (25) | (55) | 7 | |
| State (U.S.) | 9 | 9 | 1 | |
| |
|
|
||
| 65 | 47 | 68 | ||
| |
|
|
||
| Total provision | $ 455 | $ 665 | $ 796 | |
| |
|
|
||
Reconciliation of the U.S. federal statutory rate to effective rate:
| Years ended December 31, |
||||
| 1999
|
1998
|
1997
|
||
| |
|
|
||
| U.S. statutory rate | 35.0% | 35.0% | 35.0% | |
| (Decreases) increases in taxes resulting from: | ||||
| Net operating loss carryforwards | (0.4)% | (2.1)% | (1.0)% | |
| Benefit of Foreign Sales Corporation | (4.4)% | (3.2)% | (2.8)% | |
| Non-U.S. subsidiaries
taxed
at other than 35% |
1.9% | (0.5)% | 1.4% | |
| Other-net | (0.1)% | 1.4% | 0.4% | |
| |
|
|
||
| Provision for income taxes | 32.0% | 30.6% | 33.0% | |
| |
|
|
||
We paid income taxes of $306, $714, and $709 in 1999, 1998, and 1997, respectively.
We have recorded income tax expense at U.S. tax rates on all profits, except for undistributed profits of non—U.S. companies which are considered permanently invested. Determination of the amount of unrecognized deferred tax liability related to permanently invested profits is not feasible.
Deferred tax assets and liabilities:
| December 31, | ||||
| 1999
|
1998
|
1997
|
||
| |
|
|
||
| Deferred tax assets: | ||||
|
Postemployment benefits
|
$1,044 | $1,032 | $1,107 | |
| Warranty reserves | 237 | 194 | 159 | |
|
Unrealized profit excluded
from inventories |
167 | 179 | 201 | |
| Net operating loss carryforwards | 170 | 83 | 76 | |
| Inventory valuation method | 93 | 78 | 62 | |
| Other | 205 | 230 | 233 | |
| |
|
|
||
| 1,916 | 1,796 | 1,838 | ||
| Deferred tax liabilities: | |
|
|
|
| Capital assets | (383) | (263) | (177) | |
| Pension | (138) | (83) | (99) | |
| |
|
|
||
| (521) | (346) | (276) | ||
| |
|
|
||
| Valuation allowance for deferred tax assets | (72) | (61) | (129) | |
| |
|
|
||
| Deferred taxes — net | $1,323 | $1,389 | $1,433 | |
| |
|
|
||
A valuation allowance has been recorded at certain non-U.S. subsidiaries that have not yet demonstrated consistent and/or sustainable profitability to support the recognition of net deferred tax assets. Circumstances could change in the future which would allow us to reduce the remaining valuation allowance and recognize additional net deferred tax assets.
In 1998, circumstances changed at certain of our European subsidiaries which allowed us to reduce the valuation allowance and recognize additional net deferred tax assets.
As of December 31, 1999, amounts and expiration dates of net operating loss carryforwards in various non-U.S. taxing jurisdictions were:
| 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | Unlimited | Total |
| |
||||||||
| $1 |
$4 | $8 | $18 | $15 | $45 | $45 | $482 | $618 |
7. Operating leases
| |
We lease certain computer and communications equipment, transportation equipment, and other property through operating leases. Total rental expense for operating leases was $246, $224, and $176 for 1999, 1998, and 1997, respectively.
Minimum payments for operating leases having initial or remaining non-cancelable terms in excess of one year are:
| Years ended December 31, | ||||||
| 2000 |
2001 | 2002 | 2003 | 2004 | After
2004 |
Total |
| |
||||||
| $155 | $106 | $73 | $57 | $49 | $187 | $627 |
8. Postemployment benefit plans
| |
A. Pension plans
We have both U.S. and non-U.S. pension plans covering substantially all of our employees. The defined benefit plans provide a benefit based on years of service and/or the employee's average earnings near retirement.
Please refer to Table II on Page A-11 for additional financial information.
B. Other postretirement benefit plans
We have defined-benefit retirement health care and life insurance plans for substantially all of our U.S. employees.
Please refer to Table II on Page A-11 for additional financial information.
C. Other postemployment benefit plans
We offer long-term disability benefits, continued health care for disabled employees, survivor income benefits insurance, and supplemental unemployment benefits to substantially all eligible U.S. employees.
D. Summary of long-term liability:
| December 31, | ||||
| 1999
|
1998
|
1997
|
||
| |
|
|
||
| Pensions | $3 | $66 | $3 | |
| Postretirement benefits other than pensions | 2,465 | 2,457 | 2,628 | |
| Other postemployment benefits | 68 | 67 | 67 | |
| |
|
|
||
| $2,536 | $2,590 | $2,698 | ||
| |
|
|
||
| |
| |
| TABLE II - Financial Information Related to Pension and Other Postretirement Benefit Plans |
| |
| Pension Benefits |
Other Postretirement Benefits | ||||||
| |
|
||||||
| 1999 | 1998 | 1997 | 1999 | 1998 | 1997 | ||
| |
|
|
|
|
|
||
| Change in benefit obligation: | |||||||
| Benefit obligation, January 1 | $8,034 | $6,713 | $6,082 | $4,020 | $3,603 | $3,346 | |
| Service cost | 147 | 148 | 114 | 93 | 82 | 72 | |
| Interest cost | 514 | 484 | 434 | 270 | 256 | 249 | |
| Business combinations | 4 | 504 | — | — | — | — | |
| Plan amendments | 15 | 335 | — | — | 226 | — | |
| Actuarial (gains) losses | (408) | 272 | 439 | (329) | 43 | 117 | |
| Foreign currency exchange rates | (39) | 49 | 71 | — | — | — | |
| Benefits paid | (531) | (471) | (427) | (233) | (190) | (181) | |
| |
|
|
|
|
|
||
| Benefit obligation, December 31 | $7,736 | $8,034 | $6,713 | $3,821 | $4,020 | $3,603 | |
| |
|
|
|
|
|
||
| Change in plan assets: | |||||||
| Fair value of plan assets, January 1 | $8,756 | $7,718 | $6,930 | $1,098 | $804 | $547 | |
| Actual return on plan assets | 1,416 | 983 | 1,188 | 183 | 104 | 76 | |
| Business combinations | 6 | 448 | — | — | — | — | |
| Foreign currency exchange rate changes | (31) | 34 | (24) | — | — | — | |
| Voluntary employer contributions | — | — | — | — | 200 | 200 | |
| Benefits paid | (531) | (471) | (427) | (228) | (185) | (176) | |
| Employer funding of benefits paid | 84 | 44 | 51 | 238 | 175 | 157 | |
| |
|
|
|
|
|
||
| Fair value of plan assets, December 31 | $9,700 | $8,756 | $7,718 | $1,291 | $1,098 | $804 | |
| |
|
|
|
|
|
||
| Over (under) funded, December 31 | $1,964 | $722 | $1,005 | $(2,530) | $(2,922) | $(2,799) | |
| Unrecognized prior service cost | 491 | 577 | 332 | 189 | 208 | (98) | |
| Unrecognized net actuarial (gain) loss | (2,078) | (1,074) | (1,058) | (355) | 51 | 38 | |
| Unrecognized net asset existing at adoption of SFAS 87 | (18) | (42) | (59) | — | — | — | |
| |
|
|
|
|
|
||
| Net amount recognized in financial position | $359 | $183 | $220 | $(2,696) | $(2,663) | $(2,859) | |
| |
|
|
|
|
|
||
| Components of net amount recognized in financial position: | |||||||
| Prepaid benefit costs | $731 | $501 | $404 | $ — | $ — | $ — | |
| Accrued benefit liabilities | (372) | (318) | (184) | (2,696) | (2,663) | (2,859) | |
| Intangible assets | — | 2 | 3 | — | — | — | |
| Adjustment for minimum pension liability | (3) | (66) | (3) | — | — | — | |
| Accumulated other comprehensive income | 3 | 64 | — | — | — | — | |
| |
|
|
|
|
|
||
| Net asset (liability) recognized | $359 | $183 | $220 | $(2,696) | $(2,663) | $(2,859) | |
| |
|
|
|
|
|
||
| Components of net periodic benefit cost: | |||||||
| Service cost |
$147 | $148 | $114 | $93 | $82 | $72 | |
| Interest cost |
514 | 484 | 434 | 270 | 256 | 249 | |
| Expected return on plan assets | (798) | (689) | (580) | (107) | (74) | (47) | |
| Ammortization of: | |||||||
| Net asset existing at adoption of SFAS 87 | (23) | (23) | (23) | — | — | — | |
| Prior service cost(1) | 101 | 88 | 62 | 19 | (80) | (190) | |
| Net actuarial (gain) loss | (26) | (4) | (1) | 1 | — | — | |
| |
|
|
|
|
|
||
| Total benefit cost included in results of operations | $(85) | $4 | $6 | $276 | $184 | $84 | |
| |
|
|
|
|
|
||
| Rate assumptions as of December 31: | |||||||
| Assumed discount rate(2) | 7.4% | 6.6% | 7.0% | 7.8% | 6.8% | 7.0% | |
| Expected rate of compensation increase(2) | 4.0% | 4.0% | 4.0% | 4.0% | 4.0% | 4.0% | |
| Expected long-term rate of return on plan assets(2) | 9.6% | 9.6% | 9.5% | 10.0% | 10.0% | 9.5% | |
For measurement purposes, a 5.8% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2000. This rate was assumed to decrease gradually to 4.5% in 2002.
(1) Prior service costs are amortized using a straight-line method. For our pension plans, the straight-line method is used over the average remaining service period of employees expected to receive benefits from the plan amendment. For our other postretirement benefit plans, the straight-line method is used over the average remaining service period of employees impacted by the plan amendment.
(2) Weighted-average rates.
(continued on next page)
TABLE II Continued — Financial Information Related to Pension and Other Postretirement Benefit Plans
| One-percentage—
point increase |
One-percentage—
point decrease |
|
| Approximate effect on the total of service
and interest cost components of other postretirement benefit cost |
$ 39
|
$ (32)
|
| Approximate effect on accumulated
postretirement benefit obligation |
$320
|
$(216)
|
The
following amounts relate to our pension plans with
accumulated benefit obligations in excess of plan
assets:
| December 31,
1999 |
1998
|
1997
|
|
| Accumulation benefit obligation
|
$(84)
|
$(3,546)
|
$(69)
|
| Projected benefit obligation
|
$(92)
|
$(3,593)
|
$(92)
|
| Fair
value of plan assets
|
$(12)
|
$3,239
|
$41
|
| |
|
|
| December 31,
|
|||
| 1999
|
1998
|
1997
|
|
| Land
— at original cost
|
$141
|
$140 |
$121 |
| Buildings and land improvements |
2,925 |
2,949 |
2,773 |
| Machinery, equipment, and other
|
6,271
|
5,871
|
5,309
|
| Equipment leased to others
|
1,288
|
1,063
|
843
|
| Construction-in-process
|
304
|
372
|
357
|
| |
|
|
|
| 10,929 |
10,395
|
9,403
|
|
| Less: Accumulated depreciation
|
5,728
|
5,529
|
5,345
|
| |
|
|
|
| Property, plant, and equipment — net
|
$5,201
|
$4,866
|
$4,058
|
| |
|
|
|
| December 31,
|
|||||
| 1999
|
1998
|
1997
|
|||
| Gross capital leases(2) |
$688
|
$703
|
$717
|
||
| Less: Accumulated depreciation |
529
|
547
|
561
|
||
| |
|
|
|||
| Net capital leases |
$159
|
$156
|
$156
|
||
|
|
|
|
|
||
| December 31,
|
|||||
| 1999
|
1998
|
1997
|
|||
| Equipment leased to others — at original cost |
$1,288
|
$1,063
|
$843
|
||
| Less: Accumulated depreciation |
408
|
328
|
272
|
||
| |
|
|
|||
| Equipment leased to others — net |
$880
|
$735
|
$571
|
||
| |
|
|
|||
Scheduled minimum rental payments to be received for equipment leased to others:
|
|
December 31,
|
After
|
|||
| 2000
|
2001
|
2002
|
2003
|
2004
|
2004
|
| |
|||||
| $251 |
$194
|
$107
|
$50
|
$15
|
$12
|
| Years ended September 30, |
||||
|
|
1999
|
1998
|
1997
|
|
| Results of Operations | ||||
| Sales |
$2,814
|
$2,909
|
$3,613
|
|
| Cost of Sales |
2,247
|
2,249
|
2,754
|
|
| Gross Margin |
|
|
|
|
| Profit (Loss) |
567
|
660
|
859
|
|
| |
|
|
||
| $(37)
|
$6
|
$104
|
||
| September 30,
|
|||
| 1999
|
1998
|
1997
|
|
| Financial Position |
|||
| Assets: |
|||
| Current assets |
$1,641
|
$1,569
|
$1,949
|
| Property, plant, and equipment — net |
978
|
788
|
792
|
| Other assets |
415
|
351
|
331
|
| |
|
|
|
|
|
3,034
|
2,708
|
3,072
|
| |
|
|
|
| Liabilities: |
|||
| Current liabilities |
1,306
|
1,259
|
1,610
|
| Long-term debt due after one year |
512
|
274
|
203
|
| Other liabilities |
318
|
94
|
129
|
| |
|
|
|
|
|
2,136
|
1,627
|
1,942
|
| |
|
|
|
| Ownership |
$898
|
$
1,081
|
$1,130
|
| |
|
|
|
At December 31, 1999, consolidated "Profit employed in the business" in Statement 2 included $135 representing undistributed profit of the unconsolidated affiliated companies. In 1999, 1998, and 1997, we received $8, $10, and $36, respectively, in dividends from unconsolidated affiliated companies.
In prior years and through June of this year, our investment in F.G. Wilson was accounted for using the equity method and reported as an unconsolidated affiliated company. In June we acquired the remaining interest in F.G. Wilson. Beginning in July, all elements of its financial reporting are included in the appropriate lines of the consolidated financial statements.
11. Credit commitments| December 31, 1999
|
|||
| Consolidated |
Machinery
and Engines |
Financial
Products |
|
| |
|
|
|
| Credit
lines available:
|
|
|
|
| U.S. |
$3,400(1)
|
$3,400(1) |
$2,600(1) |
| Non-US
|
1,642 |
171 |
1,471 |
| Intercompany
|
—
|
673(2)
|
835(2)
|
| |
|
|
|
| Total
credit lines available
|
5,042
|
4,244
|
4,906
|
| Utilized
credit:
|
|||
| Backup for bank borrowings
|
139
|
51
|
88
|
| |
|
|
|
| Unused credit
|
$4,903
|
$4,193
|
$ 4,818
|
| |
|
|
|
| (1) | A US line of credit of $2,900 is available to both Machinery
and Engines and Financial Products (Cat Financial). Cat Financial may use up to 90%
of the available line subject to a maximum debt to equity ratio.
Machinery and Engines may use up to 100% of the available line
subject to a minimum level of net worth. Based on these restrictions,
and the allocating decisions of available credit made by management, the
line of credit available to Cat Financial at December 31, 1999, was
$2,600. An additional line of credit of $500 is available to Machinery and
Engines
|
A-12
(2) Represents variable lending agreements between Caterpillar Inc. and Cat Financial.
Based on long-term credit agreements, $2,244, $2,353, and $2,301 of commercial paper outstanding at December 31, 1999, 1998, and 1997, respectively, were classified as long-term debt due after one year.
12. Short-term borrowings
| December 31, | |||
| 1999 |
1998 |
1997 |
|
| Machinery and Engines: | $51 | $49 | $53 |
| Notes payable to banks | |
|
|
| Financial Products: | |||
| Notes payable to banks | 88 | 189 | 145 |
| Commercial paper | 534 | 497 | 235 |
| Other | 408 | 286 | 295 |
| |
|
|
|
| 1,030 |
972 | 675 | |
| Less: Intercompany borrowings | 311 | 212 | 244 |
| |
|
|
|
| Total short-term borrowings | $770 | $809 | $484 |
| |
|
|
|
The weighted average interest rates on external short-term borrowings outstanding were:
| |
December
31,
|
||
| |
1999
|
1998
|
1997
|
| |
|
|
|
| Notes payable to banks | 5.3% | 4.7% | 4.9% |
| Commercial paper | 5.5% | 5.2% | 5.2% |
| Other | 5.8% | 5.2% | 5.5% |
Please refer to Note 16 and Table IV on Page A-15 for fair value information on short-term borrowings.
13. Long-term debt
| December 31, |
|||
| 1999 |
1998 | 1997 | |
| |
|
|
|
| Machinery and Engines: | |||
| Notes—93/8 % due 2000 |
$ — | $150 | $150 |
| Notes—93/8 % due 2001 |
184 | 184 | 184 |
| Notes—6% due 2003 | 252 | 253 | — |
| Debentures—9% due 2006 | 203 | 202 | 202 |
| Debentures—6% due 2007 | 154 | 147 | 141 |
| Debentures—71/4 % due 2009 | 300 | — | — |
| Debentures—93/8 % due 2011 | 123 | 123 | 123 |
| Debentures —93/4 % due 2000-2019 | 184 | 199 | 199 |
| Debentures —93/8 % due 2021 | 236 | 236 | 236 |
| Debentures—8% due 2023 | 199 | 199 | 199 |
| Debentures —65/8 % due 2028 | 299 | 299 | — |
| Debentures —73/8 % due 2097 | 297 | 297 | 297 |
| Medium-term notes | 96 | 96 | 153 |
| Capital lease obligations | 508 | 510 | 438 |
| Other |
64 | 98 | 45 |
| |
|
|
|
| 3,099 |
2,993 | 2,367 | |
| Financial Products: | |||
| Commercial paper supported by revolving credit agreements (Note 11) | 2,244 | 2,353 | 2,301 |
| Medium-term notes |
4,524 | 4,025 | 2,241 |
| Other |
61 | 33 | 33 |
| |
|
|
|
| Total Financial Products |
6,829 | 6,411 | 4,575 |
| |
|
|
|
| Total long-term debt due after one year | $9,928 | $9,404 | $6,942 |
| |
|
|
|
Other than the debt of the Financial Products' subsidiaries, all outstanding notes and debentures itemized above are unsecured direct obligations of Caterpillar Inc. The capital lease obligations are collateralized by leased manufacturing equipment and/or security deposits.
The 6% notes may be redeemed in whole at their principal amount if we are required to pay additional taxes or duties as a result of a change in tax law and that obligation cannot be reasonably avoided. In addition, if the identity of beneficial owners of the notes must be disclosed in certain circumstances, we would be required either to redeem the notes or satisfy the information disclosure requirement through the payment of certain taxes or charges. We may also purchase the 6% notes at any time in the open market.
The 6% debentures were sold at significant original issue discounts ($144). This issue is carried net of the unamortized portion of its discount, which is amortized as interest expense over the life of the issue. These debentures have a principal at maturity of $250 and an effective annual cost of 13.3%. We may redeem them, at our option, at an amount equal to the respective principal at maturity.
We may redeem annually, at our option, an additional amount for the 9¾% sinking fund debenture issue, without premium, equal to 200% of the amount of the sinking fund requirement. Also, we may redeem additional portions of the sinking fund debentures by the payment of premiums which, starting in 1999, decrease periodically.
We may redeem the 7¼%, 6 5/8%, and the 7 3/8% debentures in whole or in part at our option at any time at a redemption price equal to the greater of 100% of the principal amount of the debentures to be redeemed or the sum of the present value of the remaining scheduled payments.
The terms of other notes and debentures do not specify a redemption option prior to maturity.
The medium-term notes are offered on a continuous basis through agents and are primarily at fixed rates. Machinery and Engines' medium-term notes have maturities from nine months to 30 years. At December 31, 1999, these notes had a weighted average interest rate of 8.1% with two years to four years remaining to maturity. Financial Products' medium-term notes have a weighted average interest rate of 6.1% with remaining maturities up to seven years at December 31, 1999.
The aggregate amounts of maturities and sinking fund requirements of long-term debt during each of the years 2000 through 2004, including that due within one year and classified as current are:
| December 31, |
|||||
| 2000
|
2001
|
2002
|
2003
|
2004
|
|
| |
|
|
|
|
|
| Machinery and Engines | $167 | $208 | $92 | $217 | $43 |
| Financial Products | 2,937 | 2,198 | 1,389 | 383 | 530 |
| |
|
|
|
|
|
| $3,104 | $2,406 | $1,481 | $600 | $573 | |
| |
|
|
|
|
|
Interest paid on short-term and long-term borrowings for 1999, 1998, and 1997 was $796, $669, and $508, respectively.
Please refer to Note 16 and Table IV on Page A-15 for fair value information on long-term debt.
14. Capital stock
A. Stock options
In 1996, stockholders approved a plan providing for the granting of options to purchase common stock to officers and other key employees, as well as non-employee directors. This plan reserves 22,000,000 shares of common stock for issuance. Options vest at the rate of one-third per year over the three year period following the date of grant, and have a maximum term of ten years. Common shares issued under stock options, including treasury shares reissued, totaled 1,449,797; 676,113; and 1,264,539; in 1999, 1998, and 1997, respectively.
A-13
Our plan grants options which have exercise prices equal to the average market price on the date of grant. We account for our stock options in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Therefore, no compensation expense is recognized in association with these options. As required by Statement of Financial Accounting Standard (SFAS) No. 123, "Accounting for Stock-Based Compensation," a summary of the pro forma net income and profit per share amounts are shown in Table III below. Consistent with the requirements of SFAS 123, compensation expense related to grants made prior to 1995 have not been taken into consideration. Therefore, the pro forma amounts for 1997 are not representative of the impact of future disclosures. The fair value of each option grant is estimated at the date of grant using the Black-Scholes option-pricing model.
Please refer to Table III below for additional financial information on our stock options.
TABLE III - Financial Information Related to Capital Stock
Changes in the status of common shares subject to issuance under options:
|
1999 |
1998
|
1997
|
||||
| Shares
|
Weighted-
Average Exercise Price |
Shares
|
Weighted-
Average Exercise Price |
Shares
|
Weighted-
Average Exercise Price |
|
| Fixed Options | ||||||
| Outstanding at beginning of year |
18,439,777
|
$ 38.50
|
15,056,412
|
$
31.89
|
13,874,114
|
$
25.31
|
| Granted to officers and key employees |
4,937,132
|
$ 62.34
|
4,695,495
|
$
55.69
|
3,491,650
|
$
51.66
|
| Granted to outside directors |
52,000
|
$ 57.56
|
44,000
|
$
54.38
|
40,000
|
$
39.19
|
| Exercised |
(2,752,448)
|
$ 25.20
|
(1,237,010)
|
$
23.22
|
(2,274,474)
|
$
22.16
|
| Lapsed |
(272,285)
|
$ 54.39
|
(119,120)
|
$
45.74
|
(74,878)
|
$
32.61
|
| |
|
|
|
|
|
|
| Outstanding at end of year |
20,404,176
|
$ 45.90
|
18,439,777
|
$
38.50
|
15,056,412
|
$
31.89
|
| |
|
|
|
|
|
|
| Options exercisable at year-end |
11,655,668
|
$ 36.12
|
10,443,515
|
$
28.48
|
8,386,814
|
$
23.58
|
| Weighted-average fair value of options granted during the year |
$ 16.45
|
$
13.01
|
$
16.15
|
|||
Stock options outstanding and exercisable:
| Options Outstanding
|
Options Exercisable |
||||
| Exercise
Prices
|
# Outstanding
at 12/31/99 |
Weighted-Average
Remaining Contractual Life (Years) |
Weighted-Average
Exercise Price |
# Outstanding
at 12/31/99 |
Weighted-Average
Exercise Price |
| $11.78 - $16.44 |
1,275,941
|
1.8
|
$14.79
|
1,275,941
|
$14.79
|
| $18.77 - $26.77 |
1,920,120
|
4.1
|
$24.25
|
1,920,120
|
$24.25
|
| $27.91 - $39.19 |
4,454,332
|
6.0
|
$31.75
|
4,441,002
|
$31.73
|
| $51.66 - $62.34 |
12,753,783
|
8.6
|
$57.21
|
4,018,605
|
$53.40
|
| |
|
||||
| 20,404,176 |
7.2
|
$45.90
|
11,655,668
|
$36.12
|
|
| |
|
||||
SFAS 123 pro forma net income and earnings per share:
| Years ended December 31, |
|||
| 1999 |
1998
|
1997
|
|
| Net Income: |
|||
| As reported |
$
946
|
$
1,513
|
$
1,665
|
| Pro forma |
$
910
|
$
1,481
|
$
1,640
|
| Profit per share of common stock: |
|||
| As reported: |
|||
| Basic |
$
2.66
|
$
4.17
|
$
4.44
|
| Assuming dilution |
$
2.63
|
$
4.11
|
$
4.37
|
| Pro forma: |
|||
| Basic |
$
2.56
|
$
4.08
|
$
4.37
|
| Assuming dilution |
$
2.55
|
$
4.04
|
$
4.32
|
Weighted-average assumptions used in determining fair value of option grants:
| Grant Year |
|||
| 1999 |
1998
|
1997
|
|
| Dividend yield |
2.07%
|
1.91%
|
1.94%
|
| Expected volatility |
24.4%
|
19.8%
|
25.5%
|
| Risk-free interest rates |
5.80%
|
5.55%
|
6.42%
|
| Expected lives |
5
years
|
5
years
|
4
years
|
A-14
B. Restricted stockThe 1996 Stock Option and Long-Term Incentive Plan permits the award of restricted stock to officers and other key employees, as well as non-employee directors. During 1999, 76,131 shares of restricted stock were awarded to officers and other key employees as Performance Awards, and 8,650 shares of restricted stock were granted to non-employee directors.
C. Stockholders' rights plan
We are authorized to issue 5,000,000 shares of preferred stock, of which 2,000,000 shares have been designated as Series A Junior Participating Preferred Stock of $1.00 par value. None of the preferred shares have been issued.
Stockholders would receive certain preferred stock purchase rights if someone acquired or announced a tender offer to acquire 15% or more of outstanding Caterpillar stock. In essence, those rights would permit each holder (other than the acquiring person) to purchase one share of Caterpillar stock at a 50% discount for every share owned. The rights, designed to protect the interests of Caterpillar stockholders during a takeover attempt, expire December 11, 2006.
15. Profit per share| Years ended December
31,
|
|||
| 1999
|
1998
|
1997
|
|
| |
|
|
|
| Profit (A)
|
$946
|
$1,513 |
$1,665 |
| |
|
|
|
| Determination of shares: |
|
|
|
| Weighted-average common shares outstanding (B)
|
355,392,423
|
363,189,005
|
375,124,745
|
| Assumed conversion of stock options
|
3,974,862
|
4,941,357
|
5,416,215
|
| |
|
|
|
| Weighted-average common shares outstanding — assuming
dilution (C)
|
359,367,285
|
368,130,362
|
380,540,960
|
| |
|
|
|
| Profit per share of common stock (A÷B) |
$2.66
|
$4.17
|
$4.44
|
| Profit per share of common stock — assuming dilution (A ÷C) | $2.63
|
$4.11
|
$4.37
|
Stock options to purchase 12,953,783; 8,143,885; and 3,521,250 shares of common stock at a weighted-average price of $56.99, $53.98, and $51.66 were outstanding during 1999, 1998, and, 1997 respectively, but were not included in the computation of diluted profit per share, because the options' exercise price was greater than the average market price of the common shares.
16. Fair values of financial instrumentsCash and short-term investments — carrying amount approximated fair value.
Long-term investments (other than investments in unconsolidated affiliated companies) — fair value was estimated based on quoted market prices.
Foreign currency contracts (forwards and options) &151; fair value was estimated based on quoted market prices of comparable instruments.
Finance receivables — fair value was estimated by discounting the future cash flow using current rates, representative of receivables with similar remaining maturities. Historical bad debt experience was also considered.
Short-term borrowings — carrying amount approximated fair value.
| Asset
(liability)
At December 31 |
1999
|
1998
|
1997
|
||||||||||
| Carrying
Amount |
Fair
Value |
Carrying
Amount |
Fair
Value |
Carrying
Amount |
Fair
Value |
Reference #
|
|||||||
| Cash and short-term investments | $548
|
$548
|
$360
|
$360
|
$292
|
$292
|
Statement 3, Note 17 | ||||||
| Long-term investments | 667
|
667
|
450
|
450
|
701
|
701
|
Note 17 | ||||||
| Foreign currency contracts | 69
|
82
|
8
|
9
|
41
|
47
|
Note 2 | ||||||
| Finance
receivables — net
(excluding operating and finance type leases and currency swaps(1) |
8,774
|
8,753
|
7,709
|
7,770
|
5,788
|
5,815
|
Note 5 | ||||||
| Short-term borrowings | (770)
|
(770)
|
(809)
|
(809)
|
(484)
|
(484)
|
Note 12 | ||||||
| Long-term
debt
(including amounts due within one year) Machinery and Engines |
(3,266)
|
(3,285)
|
(3,053)
|
(3,417)
|
(2,421)
|
(2,785)
|
Note 13 | ||||||
| Financial Products | (9,766)
|
(9,688)
|
(8,590)
|
(8,634)
|
(5,663)
|
(5,721)
|
Note 13 | ||||||
| Interest
rate swaps
Machinery and Engines — in a net receivable position |
2
|
1
|
1
|
22
|
1
|
10
|
Note 2 | ||||||
| in a net payable position | (8)
|
(24)
|
(6)
|
—
|
(3)
|
(1)
|
Note 2 | ||||||
| Financial
Products —
in a net receivable position |
22
|
29
|
14
|
19
|
—
|
20
|
Note 2 | ||||||
| in a net payable position | (1)
|
(7)
|
(2)
|
(24)
|
(3)
|
(12)
|
Note 2 | ||||||
(1) Excluded items have a net carrying value at December 31, 1999, 1998, and 1997, of $1,020, $865, and $753, respectively.
A-15
Long-term debt—for Machinery and Engines' notes and debentures, fair value was estimated based on quoted market prices. For Financial Products, fair value was estimated by discounting the future cash flow using our current borrowing rates for similar types and maturities of debt, except for floating rate notes and commercial paper supported by revolving credit agreements for which the carrying amounts were considered a reasonable estimate of fair value.
Interest rate swaps—fair value was estimated based on the amount that we would receive or pay to terminate our agreements as of year end.
Please refer to Table IV on Page A-15 for the fair values of our financial instruments.
17. Concentration of credit risk
| |
Financial instruments with potential credit risk consist primarily of trade and finance receivables and short-term and long-term investments. Additionally, to a lesser extent, we have a potential credit risk associated with counterparties to derivative contracts.
Trade receivables are primarily short-term receivables from independently owned and operated dealers which arise in the normal course of business. We perform regular credit evaluations of our dealers. Collateral is generally not required, and the majority of our trade receivables are unsecured. We do however, when deemed necessary, make use of various devices such as security agreements and letters of credit to protect our interests. No single dealer represents a significant concentration of credit risk.
Finance receivables primarily represent receivables under installment sales contracts, receivables arising from leasing transactions and notes receivable. Receivables from customers in construction-related industries made up approximately one-third of total finance receivables at December 31, 1999, 1998, and 1997, respectively. We generally maintain a secured interest in the equipment financed. No single customer or region represents a significant concentration of credit risk.
Short-term and long-term investments are held with high quality institutions and, by policy, the amount of credit exposure to any one institution is limited. Long-term investments are comprised of investments which collateralize capital lease obligations (see Note 13 on Page A-13) and investments of Caterpillar Insurance Co. Ltd. supporting insurance reserve requirements. Long-term investments are a component of "Other assets" in Statement 3.
At December 31, 1999, 1998, and 1997, Cat Financial was contingently liable under guarantees totaling $390, $254, and $261, respectively, of which $133, $119, and $109, respectively, were outstanding. These guarantees have terms ranging up to two years and are fully secured. No loss has been experienced nor is any anticipated under these agreements.
Outstanding derivative instruments, with notional amounts totaling $7,795, $5,143, and $4,079 and terms generally ranging up to five years, were held at December 31, 1999, 1998, and 1997, respectively. Collateral is not required of the counterparties or of our company. We do not anticipate nonperformance by any of the counterparties. Our exposure to credit loss in the event of nonperformance by the counterparties is limited to only those gains that we have recorded, but have not yet received cash payment. At December 31, 1999, 1998, and 1997, the exposure to credit loss was $75, $22, and $49, respectively.
Please refer to Note 16 and Table IV on Page A-15 for fair value information.
18. Environmental matters
| |
The company is regulated by federal, state, and international environmental laws governing our use of substances and control of emissions. Compliance with these existing laws has not had a material impact on our capital expenditures, earnings, or competitive position.
We are cleaning up hazardous waste at a number of locations, often with other companies, pursuant to federal and state laws. When it is likely we will pay clean-up costs at a site and those costs can be estimated, the costs are charged against our earnings. In doing that estimate, we do not consider amounts expected to be recovered from insurance companies and others.
The amount set aside for environmental clean-up is not material and is included in "Accrued expenses" in Statement 3. If a range of liability estimates is available on a particular site, we accrue the lower end of that range.
We cannot estimate costs on sites in the very early stages of clean-up. Currently, we have five of these sites and there is no more than a remote chance that a material amount for clean-up will be required.
19. Plant closing costs
| |
The reserve for plant closing costs includes the following:
| December 31, | ||||
| 1999 | 1998 | 1997 | ||
| |
|
|
||
| Write-down of property, plant, and equipment | $ 70 | $ 78 | $ 103 | |
| Employee severance benefits | 16 | 37 | 95 | |
| Rearrangement, start-up costs, and other | 3 | 5 | 47 | |
| |
|
|
||
| Total reserve | $ 89 | $ 120 | $ 245 | |
| |
|
|
||
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. The reserve for such benefits is reduced as the benefits are provided.
20. Segment information
| |
A. Basis for segment information
The company is organized based on a decentralized structure that has established accountabilities to continually improve business focus and increase our ability to react quickly to changes in both the global business cycle and competitors' actions. Our current structure uses a product, geographic matrix organization comprised of multiple profit and service center divisions.
Caterpillar is a highly integrated company. The majority of our profit centers are product focused. They are primarily responsible for the design, manufacture, and on-going support of their products; however, some of these product-focused profit centers also have marketing responsibilities. We also have geographically-based profit centers that are primarily focused on marketing; however, most of these profit centers also have some manufacturing responsibilities. One of our profit centers provides various financial services to our customers and dealers. The service center divisions perform corporate functions and provide centralized services.
A-16
We have developed an internal measurement system to evaluate performance and to drive continuous improvement. This measurement system, which is not based on generally accepted accounting principles (GAAP), is intended to motivate desired behavior of employees and drive performance. It is not intended to measure a division's contribution to enterprise results. The sales and cost information used for internal purposes varies significantly from our consolidated, externally-reported information resulting in substantial reconciling items. Each division has specific performance targets and is evaluated and compensated based on achieving those targets. Performance targets differ from division to division; therefore, meaningful comparisons cannot be made among the profit or service center divisions. It is the comparison of actual results to budgeted results that makes our internal reporting valuable to management. Consequently, we feel that the financial information required by Statement of Financial Accounting Standards No. 131 (SFAS 131) "Disclosures about Segments of an Enterprise and Related Information" has limited value for our external readers.
Due to Caterpillar's high level of integration and our concern that segment disclosures based on SFAS 131 requirements have limited value to external readers, we are continuing to disclose GAAP-based financial results for our three lines of business (Machinery, Engines, and Financial Products) in our Management's Discussion and Analysis beginning on Page A-21.
B. Description of segments
The profit center divisions meet the SFAS 131 definition of "operating segments"; however, the service center divisions do not. Several of the profit centers have similar characteristics and have been aggregated. The following is a brief description of our seven reportable segments and the business activities included in the "All other" category.
Asia/Pacific Marketing: Primarily responsible for marketing products through dealers in Australia, Asia (excluding Japan), and the Pacific Rim. Also includes the regional manufacturing of some products which are also produced by Construction & Mining Products.
Construction & Mining Products: Primarily responsible for the design, manufacture, and on-going support of small, medium, and large machinery used in a variety of construction and mining applications. Also includes the design, manufacture, procurement, and marketing of components and control systems that are primarily consumed in the manufacturing of our machinery.
EAME Marketing: Primarily responsible for marketing products through dealers in Europe, Africa, the Middle East, and the Commonwealth of Independent States. Also includes the regional manufacturing of some products which are also produced by Construction & Mining Products and Power Products.
Financing & Insurance Services: Provides financing to customers and dealers for the purchase and lease of Caterpillar and noncompetitive related equipment, as well as some financing for Caterpillar sales to dealers. Also provides various forms of insurance to customers and dealers to help support the purchase and lease of our equipment.
Latin America Marketing: Primarily responsible for marketing products through dealers in Latin America. Also includes the regional manufacturing of some products which are also produced by Construction & Mining Products and Power Products.
Power Products: Primarily responsible for the design, manufacture, marketing, and ongoing support of reciprocating and turbine engines along with related systems. These engines and related systems are used in products manufactured in other segments, on-highway trucks, and locomotives; and in a variety of construction, electric power generation, marine, petroleum, and industrial applications.
North America Marking: Primarily responsible for marketing products (excluding Power Products) through dealers in the United States and Canada.
All other: Primarily includes activities such as: service support and parts distribution to Caterpillar dealers worldwide; the design, manufacture, and ongoing support of agricultural machinery and paving products; logistics services for other companies; service tools for Caterpillar dealers; preventive maintenance products (filters and fluids); and the remanufacturing of Caterpillar engines and components.
C. Segment measurement and reconciliations
Please refer to Table V on Pages A-18 and A-19 for financial information regarding our segments. There are several accounting differences between our segment reporting and our GAAP-based external reporting. Our segments are measured on an accountable basis; therefore, only those items for which divisional management is directly responsible are included in the determination of segment profit/(loss) and assets. The following is a list of the more significant accounting differences:
Generally, liabilities are managed at the corporate level and are not included in segment operations. Segment accountable assets generally include inventories, receivables, property, plant, and equipment.
We account for intersegment transfers using a system of market-based prices. With minor exceptions, each of the profit centers either sells or purchases virtually all of its products to or from other profit centers within the company. Our high level of integration results in our internally-reported sales being approximately double that of our consolidated, externally-reported sales.
Segment inventories and cost of sales are valued using a current cost methodology.
Timing differences occur between our internal reporting and our external reporting such as: postretirement benefit expenses and profit that is recognized on intersegment transfers.
Interest expense is imputed (i.e., charged) to profit centers based on their level of accountable assets. This calculation takes into consideration the corporate debt to debt plus equity ratio and a weighted-average corporate interest rate.
In general, foreign currency fluctuations are neutralized for segment reporting.
Accountable profit is determined on a pre-tax basis.
A-17
Reconciling items are created based on accounting differences between segment reporting and our consolidated, external reporting. Please refer to Table V on Pages A-18 and A-19 for financial information regarding significant reconciling items. Most of our reconciling items are self-explanatory given the above explanations of accounting differences. However, for the reconciliation of profit, we have grouped the reconciling items as follows:
Business Segments:
| Asia/
Pacific Marketing |
Construction
& Mining Products |
EAME
marketing |
Financing
& Insurance Services |
Latin
America Marketing |
Power
Products |
North
America Marketing |
All
Other |
Total
|
|||||||||
| |
|
|
|
|
|
|
|
|
|||||||||
| 1999
|
|||||||||||||||||
| External sales and revenues
|
$1,332
|
206
|
3,095
|
1,413
|
1,229
|
5,653
|
5,941
|
1,003
|
$19,872
|
||||||||
| Intersegment sales and revenues
|
$4
|
7,169
|
701
|
10
|
104
|
4,514
|
179
|
1,710
|
$14,391
|
||||||||
| Total sales and revenues
|
$1,336
|
7,375
|
3,796
|
1,423
|
1,333
|
10,167
|
6,120
|
2,713
|
$34,263
|
||||||||
| Depreciation and amortization
|
$7
|
223
|
60
|
194
|
28
|
327
|
—
|
60
|
$899 (1)
|
||||||||
| Imputed interest expense
|
$15
|
72
|
25
|
569
|
6
|
108
|
39
|
60
|
$894
|
||||||||
| Accountable profit (loss)
|
$47
|
576
|
150
|
207
|
72
|
354
|
31
|
187
|
$1,624
|
||||||||
| Accountable assets at Dec. 31
|
$361
|
2,389
|
856
|
12,776
|
582
|
3,926
|
852
|
2,077
|
$23,819
|
||||||||
| Capital Expenditures
|
$23
|
237
|
76
|
431
|
20
|
316
|
2
|
60
|
$1,165 (1)
|
||||||||
| |
|||||||||||||||||
| 1998
|
|||||||||||||||||
| External sales and revenues
|
$1,093
|
197
|
3,289
|
1,296
|
1,627
|
5,300
|
7,233
|
1,001
|
$21,036
|
||||||||
| Intersegment sales and revenues
|
$2
|
8,678
|
937
|
11
|
145
|
4,122
|
198
|
1,830
|
$15,923
|
||||||||
| Total sales and revenues
|
$1,095
|
8,875
|
4,226
|
1,307
|
1,772
|
9,422
|
7,431
|
2,831
|
$36,959
|
||||||||
| Depreciation and amortization
|
$6
|
224
|
64
|
165
|
28
|
258
|
—
|
54
|
$799 (1)
|
||||||||
| Imputed interest expense
|
$8
|
72
|
25
|
505
|
21
|
118
|
64
|
57
|
$870
|
||||||||
| Accountable profit (loss)
|
$(49)
|
1,090
|
211
|
199
|
73
|
410
|
120
|
203
|
$2,257
|
||||||||
| Accountable assets at Dec. 31
|
$289
|
2,349
|
862
|
11,451
|
717
|
3,479
|
1,475
|
2,054
|
$22,676
|
||||||||
| Capital Expenditures
|
$26
|
292
|
72
|
—
|
19
|
349
|
—
|
88
|
$846 (1)
|
||||||||
| |
|||||||||||||||||
| 1997
|
|||||||||||||||||
| External sales and revenues
|
$1,947
|
294
|
3,022
|
949
|
1,598
|
3,693
|
6,497
|
987
|
$18,987
|
||||||||
| Intersegment sales and revenues
|
$1
|
8,763
|
857
|
—
|
147
|
3,645
|
206
|
1,719
|
$15,338
|
||||||||
| Total sales and revenues
|
$1,948
|
9,057
|
3,879
|
949
|
1,745
|
7,338
|
6,703
|
2,706
|
$34,325
|
||||||||
| Depreciation and amortization
|
$5
|
228
|
67
|
136
|
28
|
165
|
—
|
48
|
$677 (1)
|
||||||||
| Imputed interest expense
|
$13
|
70
|
24
|
381
|
19
|
68
|
57
|
58
|
$690
|
||||||||
| Accountable profit
|
$12
|
1,299
|
121
|
160
|
80
|
442
|
201
|
207
|
$2,522
|
||||||||
| Accountable assets at Dec. 31
|
$402
|
2,238
|
937
|
7,628
|
803
|
2,460
|
1,314
|
1,964
|
$17,746
|
||||||||
| Capital Expenditures
|
$23
|
243
|
67
|
7
|
18
|
287
|
—
|
106
|
$751 (1)
|
||||||||
(1) Amount differs from our consolidated, external reporting amount primarily because of service centers, which are not included in business segments.
Reconciliations:
| 1999
|
1998
|
1997
|
|
| |
|
|
|
| Sales & Revenues | |||
| Total external sales and revenues from business segments | $19,872
|
$21,036
|
$18,987
|
| Methodology differences | (170)
|
(59)
|
(62)
|
| |
|
|
|
| Total consolidated sales and revenues |
$19,702
|
$20,977
|
$18,925
|
| |
|
|
|
| Profit before taxes |
|||
| Total accountable profit from business segments | $1,624
|
$ 2,257
|
$ 2,522
|
| Corporate costs | (218)
|
(316)
|
(317)
|
| Methodology differences | (43)
|
168
|
14
|
| Methodology changes in segment reporting | —
|
—
|
119
|
| Other | 58
|
65
|
75
|
| |
|
|
|
| Total consolidated profit before taxes | $1,421
|
$2,174
|
$2,413
|
| |
|
|
|
| December 31,
|
|||
| 1999
|
1998
|
1997
|
|
| |
|
|
|
| Assets | |||
| Total accountable assets from business segments | $23,819
|
$22,676
|
$17,746
|
| Items not included in segment assets: | |||
| Deferred income taxes & prepaids | 2,107
|
2,036
|
1,968
|
| Intangible assets & other assets |
1,748
|
1,663
|
847
|
| Investments in affiliated companies | 452
|
534
|
539
|
| Cash and short-term investments | 548
|
360
|
292
|
| Service center assets |
442
|
429
|
352
|
| Liabilities included in segment assets | 558
|
596
|
643
|
| Inventory methodology differences | (1,679)
|
(1,769)
|
(1,700)
|
| Intercompany trade receivables double counted in segment assets | (958)
|
(1,217)
|
—
|
| Other |
(402)
|
(180)
|
69
|
| |
|
|
|
| Total consolidated assets | $26,635
|
$25,128
|
$20,756
|
| |
|
|
|
A-18
TABLE V Continued — Segment Information
(unaudited)
| 1999
|
1998
|
1997
|
|
| |
|
|
|
| Machinery
|
$11,705
|
$13,448
|
$13,350
|
| Engines
|
6,854
|
6,524
|
4,760
|
| Financial Products
|
1,143
|
1,005
|
815
|
| |
|
|
|
| Total consolidated
|
$19,702
|
$20,977
|
$18,925
|
| |
|
|
Information about Geographic Areas:
| Sales & Revenues (1)
|
Net property, plant, and equipment
|
||||||||||
| |
|
||||||||||
| December 31,
|
|||||||||||
| 1999
|
1998
|
1997
|
1999
|
1998
|
1997
|
||||||
| |
|
|
|
|
|
||||||
| Inside United States | $10,171
|
$10,870
|
$
9,492
|
$3,223
|
$3,038
|
$2,830
|
|||||
| Outside United States | 9,531
|
10,107
|
9,433
|
1,978(2)
|
1,828(2)
|
1,228(2)
|
|||||
| |
|
|
|
|
|
||||||
| Total | $19,702
|
$20,977
|
$18,925
|
$5,201
|
$4,866
|
$4,058
|
|||||
| |
|
|
|
|
|
||||||
(1) Sales of machinery and engines are based on dealer location. Revenues from services provided are based on where service is rendered.
(2) Amount includes $614, $531, and $189 of net property, plant, and equipment located in the United Kingdom as of December 31, 1999, 1998, and 1997, respectively.
| 1999
Quarter
|
||||
| |
||||
| 1st
|
2nd
|
3rd
|
4th
|
|
| |
|
|
|
|
| Sales
and revenues
|
$4,867
|
$5,101
|
$4,715
|
$5,019
|
| Less:
Revenues
|
269
|
280
|
293
|
301
|
| |
|
|
|
|
| Sales
|
4,598
|
4,821
|
4,422
|
4,718
|
| Cost of
goods sold
|
3,578
|
3,743
|
3,470
|
3,690
|
| |
|
|
|
|
| Gross
margin
|
1,020
|
1,078
|
952
|
1,028
|
| Profit
|
205
|
283
|
219
|
239
|
| Profit
per share of common stock
|
$.58
|
$.80
|
$.62
|
$.67
|
| Profit
per share of common stock — assuming dilution
|
$.57
|
$.78
|
$.61
|
$.67
|
| 1998 Quarter
|
||||
| |
||||
| 1st
|
2nd
|
3rd
|
4th
|
|
| |
|
|
|
|
| Sales
and revenues
|
$4,794
|
$5,604
|
$5,173
|
$5,406
|
| Less:
Revenues
|
221
|
247
|
267
|
270
|
| |
|
|
|
|
| Sales
|
4,573
|
5,357
|
4,906
|
5,136
|
| Cost of
goods sold
|
3,334
|
3,978
|
3,748
|
3,971
|
| |
|
|
|
|
| Gross
margin
|
1,239
|
1,379
|
1,158
|
1,165
|
| Profit
|
430
|
446
|
336
|
301
|
| Profit
per share of common stock
|
$1.17
|
$1.22
|
$.93
|
$.84
|
| Profit per share of common stock — assuming
dilution
|
$1.15
|
$1.20
|
$.92
|
$.83
|
22. Acquisitions
During the second quarter of 1999 we acquired the remaining 51% interest in F.G. Wilson. F.G. Wilson is a leading packager of diesel-powered generator sets. During the first quarter of 1998 we acquired the net assets of Perkins Ltd. and the stock of several related subsidiaries for $1,328. Perkins is a leading manufacturer of small- to medium-sized diesel engines. Both acquisitions were accounted for using the purchase method of accounting.
A-19
(Dollars in millions except per share data)
| Years ended December 31, |
1999
|
1998
|
1997
|
1996
|
1995
|
| Sales and revenues |
$19,702
|
20,977
|
18,925
|
16,522
|
16,072
|
| Sales |
$18,559
|
19,972
|
18,110
|
15,814
|
15,451
|
| Percent inside the United States |
50%
|
51%
|
49%
|
49%
|
48%
|
| Percent outside the United States |
50%
|
49%
|
51%
|
51%
|
52%
|
| Revenues |
$1,143
|
1,005
|
815
|
708
|
621
|
| Profit |
$946
|
1,513
|
1,665
|
1,361
|
1,136
|
| Profit per share of common stock(1) |
$2.66
|
4.17
|
4.44
|
3.54
|
2.86
|
| Profit per share of
common stock —
|
$2.63
|
4.11
|
4.37
|
3.50
|
2.84
|
| Dividends declared per share of common stock |
$1.275
|
1.15
|
.95
|
.775
|
.65
|
| Return on average common stock equity |
17.9%
|
30.9%
|
37.9%
|
36.3%
|
36.1%
|
| Capital
expenditures:
|
$790
|
925
|
824
|
506
|
464
|
| Equipment leased to others |
$490
|
344
|
282
|
265
|
215
|
| Depreciation and amortization |
$945
|
865
|
738
|
696
|
682
|
| Research and engineering expenses |
$814
|
838
|
700
|
570
|
532
|
| As a percent of sales and revenues |
4.1%
|
4.0%
|
3.7%
|
3.4%
|
3.3%
|
| Wages, salaries, and employee benefits |
$4,044
|
4,146
|
3,773
|
3,437
|
2,919
|
| Average number of employees |
66,225
|
64,441
|
58,366
|
54,968
|
54,263
|
| December 31,
|
|||||
| Consolidated |
$26,635
|
25,128
|
20,756
|
18,728
|
16,830
|
| Machinery and Engines(2) |
$16,082
|
15,619
|
14,188
|
13,066
|
12,375
|
| Financial Products |
$12,951
|
11,648
|
7,806
|
6,681
|
5,712
|
| Long-term debt due after
one year:
|
$9,928
|
9,404
|
6,942
|
5,087
|
3,964
|
| Machinery and Engines(2) |
$3,099
|
2,993
|
2,367
|
2,018
|
2,049
|
| Financial Products |
$6,829
|
6,411
|
4,575
|
3,069
|
1,915
|
| Total debt:
|
$13,802
|
12,452
|
8,568
|
7,459
|
6,400
|
| Machinery and Engines(2) |
$3,317
|
3,102
|
2,474
|
2,176
|
2,219
|
| Financial Products |
$10,796
|
9,562
|
6,338
|
5,433
|
4,657
|
| Percent of total debt to
total debt and stockholders' equity
|
37.8%
|
37.7%
|
34.6%
|
34.6%
|
39.6%
|
(1)
Computed on weighted-average number of shares outstanding.
(2)
Represents Caterpillar Inc. and its subsidiaries except for Financial
Products, which is accounted for on the equity basis.
Transactions between Machinery and Engines and Financial Products have been eliminated to arrive at the consolidated data.
A-20
MANAGEMENT'S DISCUSSION AND ANALYSIS
It is our objective to provide the most meaningful disclosures in our Management's Discussion and Analysis in order to explain significant changes in our company's results of operations and liquidity and capital resources. As discussed in Note 20A, "Basis for segment information" on Page A-16, our segment financial information is not based on generally accepted accounting principles and it is not intended to measure contributions to enterprise results. Therefore, it is impractical for us to try to discuss our company's results of operations and liquidity and capital resources solely based on segment information. Where practical, we have linked our discussions to segment information provided in Table V on Pages A-18 and A-19 (see Reconciliation of Machinery and Engine Sales by Geographic Region to External Sales by Marketing Segment on Page A-22). Our discussions will focus on consolidated results and our three principal lines of business as described below:
Consolidated—represents the consolidated data of Caterpillar Inc. and all its subsidiaries (affiliated companies that are more than 50% owned).
Machinery—design, manufacture, and marketing of construction, mining, agricultural, and forestry machinery —track and wheel tractors, track and wheel loaders, pipelayers, motor graders, wheel tractor-scrapers, track and wheel excavators, backhoe loaders, mining shovels, log skidders, log loaders, off-highway trucks, articulated trucks, paving products, telescopic handlers, skid-steer loaders, and related parts.
Engines—design, manufacture, and marketing of engines for Caterpillar Machinery, on-highway trucks and locomotives; marine, petroleum, construction, industrial, agricultural, and other applications; electric power generation systems; and related parts. Reciprocating engines meet power needs ranging from 5 to over 21,000 horsepower (4 to over 15 660 kilowatts). Turbines range from 1,340 to 18,000 horsepower (1000 to 13 500 kilowatts).
Financial Products—financing to customers and dealers for the purchase and lease of Caterpillar and noncompetitive related equipment, as well as some financing for Caterpillar sales to dealers. Also provides various forms of insurance to customers and dealers to help support the purchase and lease of our equipment. This line of business consists primarily of Caterpillar Financial Services Corporation (Cat Financial) and its subsidiaries and Caterpillar Insurance Services Corporation.
Machinery and Engines Sales Table by Geographic Region
| (Millions of dollars) |
Total |
North
America
|
EAME*
|
Latin America
|
Asia/Pacific
|
| |
|||||
| 1999 |
|||||
| Machinery |
$11,705
|
$6,725
|
$2,955
|
$851
|
$1,174
|
| Engines** |
6,854
|
3,690
|
1,899
|
621
|
644
|
| |
|
|
|
|
|
| $18,559
|
$10,415
|
$4,854
|
$1,472
|
$1,818
|
|
| |
|
|
|
|
|
| 1998 |
|||||
| Machinery |
$ 13,448
|
$ 8,352
|
$ 2,871
|
$ 1,252
|
$ 973
|
| Engines** |
6,524
|
3,097
|
2,134
|
666
|
627
|
| |
|
|
|
|
|
| $19,972 |
$11,449
|
$5,005
|
$1,918
|
$1,600
|
|
| |
|
|
|
|
|
| 1997 |
|||||
| Machinery |
$13,350
|
$7,606
|
$2,714
|
$1,252
|
$1,778
|
| Engines** |
4,760
|
2,526
|
1,088
|
450
|
696
|
| |
|
|
|
|
|
| $18,110 |
$10,132
|
$3,802
|
$1,702
|
$2,474
|
|
| |
|
|
|
|
|
*Europe, Africa & Middle East, and Commonwealth of Independent States.
**Does not include internal engine transfers of $1,234 million, $1,268 million, and $1,162 million in 1999, 1998, and 1997, respectively. Internal engine transfers are valued at prices comparable to those for unrelated parties.
A-21
Reconciliation of Machinery and Engine Sales by Geographic Region to External Sales by Marketing Segment
| (Millions of dollars) |
1999
|
1998
|
1997
|
| North America Geographic Region |
$10,415
|
$11,449
|
$10,132
|
| Engine sales included in the Power Products segment |
(3,690)
|
(3,097)
|
(2,526)
|
| Company owned dealer sales included in the All Other segment |
(389)
|
(389)
|
(411)
|
| North America Geographic Region
sales which are included
|
(133)
|
(135)
|
(132)
|
| Other* |
(262)
|
(595)
|
(566)
|
| |
|
|
|
| North America Marketing external sales |
$5,941
|
$7,233
|
$6,497
|
| |
|
|
|
| EAME |
$4,854
|
$5,005
|
$3,802
|
| Power Products sales not included in the EAME Marketing segment |
(1,352)
|
(1,448)
|
(587)
|
| Other* |
(407)
|
(268)
|
(193)
|
| |
|
|
|
| EAME Marketing external sales |
$3,095
|
$3,289
|
$3,022
|
| |
|
|
|
| Latin America Geographic Region |
$1,472
|
$1,918
|
$1,702
|
| Power Products sales not included in the Latin America Marketing segment |
(328)
|
(385)
|
(237)
|
| Other |
85
|
94
|
133
|
| |
|
|
|
| Latin America Marketing external sales |
$1,229
|
$1,627
|
$1,598
|
| |
|
|
|
| Asia/Pacific Geographic Region |
$1,818
|
$1,600
|
$2,474
|
| Power Products sales not included in the Asia/Pacific Marketing segment |
(283)
|
(370)
|
(343)
|
| Other |
(203)
|
(137)
|
(184)
|
| |
|
|
|
| Asia/Pacific Marketing external sales |
$1,332
|
$1,093
|
$1,947
|
| |
|
|
*Mostly represents external sales of the Construction & Mining Products and the All Other segments.
1999 COMPARED WITH 1998
Sales and revenues for 1999 were $19.70 billion, $1.28 billion lower than 1998. The decrease was primarily due to a 6 percent decrease in physical sales volume, partially offset by a 14 percent increase in Financial Products revenues. Profit of $946 million was $567 million less than 1998. The decrease was due primarily to lower sales volume, an unfavorable change in product sales mix and slightly lower price realization (primarily geographic mix and the impact of the stronger U.S. dollar on sales denominated in currencies other than U.S. dollars). Lower selling, general and administrative (SG&A) and research and development (R&D) costs partially offset these unfavorable items. Profit per share of $2.63 was down $1.48 from 1998.
MACHINERY AND ENGINES
Machinery sales were $11.71 billion, a decrease of $1.74 billion or 13 percent from 1998. The lower sales resulted primarily from an 11 percent decrease in physical sales volume. Price realization also declined primarily due to unfavorable geographic mix and the continued effect of the stronger U.S. dollar on sales denominated in currencies other than U.S. dollars.
Sales were lower in North America and Latin America, which more than offset higher sales in Asia/Pacific and EAME. Sales in North America were lower reflecting reductions in dealer inventory, especially in the last half of the year, and declines in industry demand. Sales were down in both the United States and Canada. In EAME, sales were higher in Europe due to improved industry demand. This was partially offset by significantly lower sales in Africa & Middle East, where industry demand declined due to weak commodity prices. Sales in Asia/Pacific improved because of higher sales to developing Asia as dealers began rebuilding inventories in response to improved retail demand. This improvement in developing Asia more than offset lower sales in Australia. Latin American sales fell sharply in 1999 due to recessions in a number of countries and low commodity prices.
Engine sales were $6.85 billion, an increase of $330 million or 5 percent from 1998. This increase was primarily due to 4 percent higher physical sales volume resulting from improved end user and Original Equipment Manufacturer (OEM) demand. Price realization also improved slightly in 1999.
A-22
Sales increased in North America and Asia/Pacific, which more than offset declines in EAME and Latin America. Sales in the power generation segment were up in every region of the world, while sales in the petroleum segment declined in every region. Sales in North America also benefited from extremely strong sales in the truck segment.
Operating Profit Table
| (Millions of dollars) |
1999
|
1998
|
1997
|
| |
|||
| Machinery |
$867
|
$1,584
|
$1,808
|
| Engine |
506
|
504
|
468
|
| |
|
|
|
| $1,373 |
$2,088
|
$2,276
|
|
| |
|
|
|
Caterpillar operations are highly integrated; therefore, we use a number of allocations to determine lines of business operating profit.
Machinery operating profit decreased $717 million, or 45 percent from 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 lower price realization. SG&A and R&D expenses were lower reflecting the impact of ongoing cost reduction actions.
Total pension and other postretirement benefit costs were about the same in 1999 as in 1998. However, SG&A and R&D expenses were favorably impacted by approximately $60 million due to favorable returns on plan assets, and cost of sales was unfavorably impacted by a like amount due to plan amendments.
Engine operating profit increased $2 million from 1998 due to the higher sales volume and slightly better price realization, partially offset by an unfavorable sales mix. Sales into the petroleum segment declined 35 percent, while sales into the lower margin truck engine market increased 40 percent. SG&A and R&D expenses were slightly higher.
Interest expense was $5 million higher than a year ago.
Other income/expense reflects a net increase in income of $20 million primarily related to currency exchange.
Table of Supplemental Information
| (Millions of dollars) |
1999
|
1998
|
1997
|
| |
|||
| Identifiable Assets |
|||
| Machinery |
$ 9,112
|
$ 9,199
|
$ 9,463
|
| Engines |
6,970
|
6,420
|
4,725
|
| |
|
|
|
| Total |
$ 16,082
|
$ 15,619
|
$ 14,188
|
| |
|
|
|
| Capital Expenditures |
|||
| Machinery |
$ 415
|
$ 511
|
$ 481
|
| Engines |
375
|
416
|
343
|
| |
|
|
|
| Total |
$ 790
|
$ 927
|
$ 824
|
| |
|
|
|
| Depreciation and Amortization |
|||
| Machinery |
$ 386
|
$ 414
|
$ 392
|
| Engines |
359
|
283
|
207
|
| |
|
|
|
| Total |
$ 745
|
$ 697
|
$ 599
|
| |
|
|
|
Caterpillar operations are highly integrated; therefore, we use a number of allocations to determine lines of business financial data.
FINANCIAL PRODUCTS
Revenues for 1999 were a record $1.28 billion, up $160 million or 14 percent compared with 1998. The increase resulted primarily from continued growth in Cat Financial's portfolio.
Before tax profit decreased $53 million or 17 percent from 1998. Profit at Caterpillar Insurance Co. Ltd. (Cat Insurance) was lower due to less favorable reserve adjustments. This was partially offset by record profits at Cat Financial as a result of portfolio growth.
INCOME TAXES
1999 tax expense reflects an effective tax rate of 32 percent. The 1998 effective tax rate was 31 percent and included a favorable adjustment to recognize deferred tax assets at certain European subsidiaries.
UNCONSOLIDATED AFFILIATED COMPANIES
The company's share of unconsolidated affiliated companies' results declined $24 million from a year ago, primarily due to weaker results at Shin Caterpillar Mitsubishi Ltd. and the conversion of F.G. Wilson from an affiliated company to a consolidated subsidiary effective June 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 down in 1999 due to weaker industry demand in both the United States and Canada. Sales fell in all eight key market segments. Sales in mining, forestry and agriculture were depressed by low commodity prices. Sales of paving related equipment were up considerably, but total machine sales in the heavy construction segment (primarily highways and pipelines) were lower because of delays in getting major highway capital projects underway. Sales also were lower in the other segments including general construction (residential, commercial and public), quarry & aggregates, waste and industrial.
Sales in the EAME region remained near 1998 levels as higher sales in Europe were offset by lower sales to Africa & Middle East and the Commonwealth of Independent States (CIS). Stronger industry demand in Europe resulted in higher sales to most European countries, with significant increases in the United Kingdom, Germany, France and Italy. In Africa & Middle East, low commodity prices reduced industry demand and sales in 1999. Sales to users were lower in most countries with significant sales declines in Turkey, Saudi Arabia and South Africa. In the CIS, sales were sharply lower due to the continued weakness in Russia. For the EAME region as a whole, sales were higher in heavy construction, general construction and quarry & aggregates, which offset lower sales in mining, agriculture and industrial segments.
Sales in Asia/Pacific were down slightly in 1999 as higher sales in developing Asia and Japan were offset by declines in Australia. For the region, sales increased in the forestry and quarry & aggregates segments, and declined in mining, heavy construction and industrial segments.
A-23
Sales in Latin America were significantly lower in 1999 due to recessions in a number of countries and low commodity prices. Sales were down in most major countries with sharp declines in Brazil, Argentina and Chile. For the region, sales were down in all segments, particularly heavy construction, general construction and industrial.
Dealer Inventories of New Machines
Worldwide dealer new machine inventories at year end were down compared to year-end 1998 and at normal levels relative to current selling rates. Higher inventories in Asia/Pacific were more than offset by declines in North America, Latin America and EAME.
At year end, North American dealer inventories were normal compared to current selling rates. EAME dealer inventories were slightly below normal and Asia/Pacific dealer inventories were moderately below normal when compared to current selling rates. Dealer inventories in Latin America ended the year significantly above levels needed to support current selling rates.
Engine Sales to End Users and OEMs
Sales in North America were up primarily due to very strong demand for on-highway truck engines and higher share of industry sales, which strengthened Caterpillar's position as the industry leader for combined medium and heavy-duty truck engine sales. Sales were also significantly higher in the power generation segment. These offset significantly lower sales in the petroleum segment and lower sales in the marine segment. Sales in the industrial segment were flat with 1998. Sales were up in Canada as well as the United States.
Sales in EAME were lower as weaker sales in petroleum and industrial segments more than offset higher sales in power generation and marine segments.
Sales in Latin America were down primarily due to weaker petroleum and truck segment sales, which more than offset gains in power generation sales.
Sales in Asia/Pacific were down as sales gains in marine and power generation segments were more than offset by declines in the petroleum segment.
Machinery and Engines Sales Table
| (Millions of dollars) |
Total
|
North America
|
EAME
|
Latin America
|
Asia/Pacific
|
| Fourth-Quarter 1999 |
|||||
| Machinery |
$2,537
|
$1,260
|
$734
|
$241
|
$302
|
| Engines*** |
2,181
|
1,076
|
676
|
235
|
194
|
| |
|
|
|
|
|
| $4,718 |
$2,336
|
$1,410
|
$476
|
$496
|
|
| |
|
|
|
|
|
| Fourth-Quarter 1998 | |||||
| Machinery |
$3,111
|
$1,942
|
$674
|
$267
|
$228
|
| Engines*** |
2,025
|
858
|
662
|
262
|
243
|
| |
|
|
|
|
|
| $5,136 |
$2,800
|
$1,336
|
$529
|
$471
|
|
| |
|
|
|
|
***Does not include internal engine transfers of $323 million and $304 million in 1999 and 1998, respectively. Internal engine transfers are valued at prices comparable to those for unrelated parties.
A-24
FOURTH-QUARTER 1999
COMPARED WITH FOURTH-QUARTER 1998
Sales and revenues for fourth-quarter 1999 were $5.02 billion, $387 million lower than fourth-quarter 1998. The decrease was primarily due to a 7 percent decrease in physical sales volume, partially offset by an 11 percent increase in Financial Products revenues. Profit of $239 million was $62 million less than fourth-quarter 1998. The decrease was due primarily to lower sales volume, lower price realization (primarily geographic mix and the impact of the stronger U.S. dollar on sales denominated in currencies other than U.S. dollars) and an unfavorable change in product sales mix. Lower SG&A costs, as well as higher other income, partially offset these unfavorable items. Profit per share of 67 cents was down 16 cents from fourth-quarter 1998.
MACHINERY AND ENGINES
Machinery sales were $2.54 billion, a decrease of $574 million or 18 percent from fourth-quarter 1998. The lower sales resulted primarily from a 15 percent decrease in physical sales volume reflecting lower demand in North America and Latin America. Price realization was lower as price increases taken over the past year were more than offset by higher discounts.
Sales were down significantly in North America due primarily to sharp reductions in dealer inventories and lower industry demand. In EAME, sales increased as higher sales in Europe more than offset significantly lower sales to Africa & Middle East. Sales in Asia/Pacific were higher as dealers in developing Asia rebuilt inventories and sales to end users improved, more than offsetting sales declines in Australia. In Latin America, sales were lower reflecting weak industry demand and reductions in dealer inventories.
Engine sales were $2.18 billion, an increase of $156 million above fourth-quarter 1998, reflecting a 5 percent increase in physical sales volume resulting from improved end user and OEM demand and slightly better price realization (primarily geographic mix).
Sales were up in North America due primarily to significantly higher sales in the power generation and truck segments. Sales in EAME were higher due primarily to growth in power generation and marine segments. Latin American sales declined primarily because of sharp declines in the petroleum segment. Asia/Pacific sales declined primarily because of declines in petroleum, power generation and marine segments.
Operating Profit Table
| Fourth-Quarter |
||
| (Millions of dollars) |
1999
|
1998
|
| Machinery |
$131
|
$235
|
| Engine | 217
|
165
|
| |
|
|
| $348 |
$400
|
|
| |
|
|
Caterpillar operations are highly integrated; therefore, we use a number of allocations to determine lines of business operating profit.
Machinery operating profit decreased $104 million, or 44 percent from fourth-quarter 1998. Margin (sales less cost of goods sold) declined primarily due to the lower sales volume and price realization, as well as the impact of lower production volumes on manufacturing efficiencies. SG &A expenses were lower reflecting the impact of ongoing cost reduction actions.
Engine operating profit increased $52 million, or 32 percent from fourth-quarter 1998 due to the higher sales volume and slightly better price realization. SG&A and R&D expenses were about the same.
Interest expense was the same as a year ago.
Other income/expense reflects a net increase in income of $41 million due mostly to the absence of the charge related to the agreement reached with the EPA in fourth-quarter 1998, a gain on sale of fixed assets, and a favorable change in foreign exchange gains and losses.
FINANCIAL PRODUCTS
Revenues for the fourth quarter were $333 million, up $28 million or 9 percent compared with fourth-quarter 1998. The increase resulted primarily from continued growth in Cat Financial's portfolio.
Before tax profit decreased $26 million or 33 percent from fourth-quarter 1998 primarily due to less favorable reserve adjustments at Caterpillar Insurance.
INCOME TAXES
Fourth-quarter 1999 tax expense reflects an effective annual tax rate of 32 percent. The fourth-quarter 1998 effective tax rate was 24 percent and included a favorable adjustment to recognize deferred tax assets at certain European subsidiaries.
UNCONSOLIDATED AFFILIATED COMPANIES
The company's share of unconsolidated affiliated companies' results declined $6 million from a year ago, primarily due to weaker results at Shin Caterpillar Mitsubishi Ltd. and the conversion of F.G. Wilson from an affiliated company to a consolidated subsidiary effective June 1999.
1998 COMPARED WITH 1997
Sales and revenues of $20.98 billion rose $2.05 billion (approximately $850 million from Perkins), 11% over 1997's record of $18.93 billion. Profit of $1.51 billion was $152 million, 9% less than 1997's record of $1.67 billion. Continued spending for growth initiatives, including the impact of Perkins, more than offset the additional profit associated with higher sales and revenues. Profit per share of $4.11 was down 6% from the 1997 record of $4.37, and continues to benefit from the company's share repurchase programs.
MACHINERY AND ENGINES
Machinery sales were $13.45 billion, an increase of $98 million from 1997. The improvement resulted from an increase in physical volume as higher sales to end users and dealer rental fleets more than offset a slowdown in dealer inventory accumulation. Price realization was lower as price increases taken over the past year were more than offset by higher discounting and the effect of the stronger dollar on sales denominated in currencies other than U.S. dollars.
Sales were higher in all regions of the world except Asia/Pacific where severe recessions resulted in lower industry demand and a large reduction in dealer inventories. Sales in North America were particularly strong reflecting good economic and industry growth as well as an increase in dealer inventory levels. Sales were up in both the United States and Canada. Sales were higher in Europe due to improved industry demand. In contrast, low commodity prices and sluggish economic growth kept sales in Africa & Middle East at 1997 levels. Latin America began the year with considerable momentum. However, a sharp economic downturn brought on by higher interest rates and government spending cuts kept sales at last year's levels.
A-25
Engine sales were $6.52 billion, an increase of $1.76 billion or 37%. Excluding Perkins, sales were up $910 million or 19%. The increase was due primarily to higher physical volume resulting from improved end-user and Original Equipment Manufacturer (OEM) demand. Price realization was about the same.
Sales excluding Perkins were up in all regions except Asia/Pacific, although turbine sales in developing Asia were higher despite the severe downturn. Sales in North America were up reflecting the strong on-highway truck market as well as increased demand for other applications. Sales also were higher in Latin America with increases in petroleum, power generation, and marine applications. Sales in Europe, Africa & Middle East, and Commonwealth of Independent States (EAME) were up due primarily to higher demand for petroleum and power generation applications.
Machinery operating profit decreased $224 million, or 12% from 1997. Margin (sales less cost of goods sold) was about the same, as the benefit from higher sales was mostly offset by higher fixed manufacturing costs and an unfavorable change in product sales mix. The unfavorable impact of the stronger dollar on sales was mostly offset by a favorable impact on costs. Selling, general, and administrative and research and development expenses were higher in support of major growth initiatives.
Engine operating profit increased $36 million, or 8% from 1997. Margin (sales less cost of goods sold) increased due to the higher sales volume but was unfavorably impacted by higher fixed manufacturing costs (primarily due to Perkins) and an unfavorable change in product sales mix. Selling, general, and administrative and research and development expenses were higher in support of major growth initiatives, including Perkins.
Interest expense was $45 million higher than a year ago due to higher average debt levels to support the Perkins acquisition and increased working capital needs.
Other income/expense was income of $46 million compared with income of $153 million last year. The decrease was mostly due to the discounts taken on the sales of trade receivables to Caterpillar Financial Services Corporation (Cat Financial). Discounts taken on this revolving sale of receivables to Cat Financial are reflected in Machinery and Engines as other expense. Revenues offsetting these discounts as well as the related borrowing costs are reflected in Financial Products.
FINANCIAL PRODUCTS
Revenues were a record $1.12 billion, up $278 million or 33% compared with 1997. The increase was primarily due to Cat Financial's portfolio growth, resulting from record new retail business and the purchase of trade receivables from Caterpillar Inc.
Selling, general, and administrative expenses were up $53 million, principally the result of record new business levels which increased provision for credit losses and depreciation on leased equipment. Other increases due to growth were partially offset by favorable reserve adjustments at Caterpillar Insurance Co. Ltd. (Cat Insurance).
Interest expense was $128 million higher because of increased borrowings to support the larger portfolio.
INCOME TAXES
1998 tax expense reflects an effective tax rate of 31% and includes a favorable adjustment to recognize deferred tax assets at certain European subsidiaries. The 1997 effective tax rate was 33%.
UNCONSOLIDATED AFFILIATED COMPANIES
The company's share of unconsolidated affiliated companies' profit was $4 million, down $44 million from a year ago. The major factor for the decrease was less favorable results at Shin Caterpillar Mitsubishi Ltd.
LIQUIDITY & CAPITAL RESOURCES
Consolidated operating cash flow was $2.57 billion for 1999, compared with $1.78 billion for the same period a year ago. The increase was largely due to a reduction in inventories and trade receivables. Total debt at year end was $13.80 billion, an increase of $1.35 billion from year-end 1998. Over this period, debt related to Machinery and Engines increased $215 million, to $3.32 billion, while debt related to Financial Products increased $1.23 billion to $10.80 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. In total, 5 million shares were repurchased during the year. The number of shares outstanding at December 31, 1999, was 353.8 million.
Machinery and Engines
Operating cash flow was $2.05 billion for 1999, compared with $2.65 billion for 1998. The decrease was primarily due to lower profit after tax and an unfavorable change in working capital. The unfavorable change in working capital reflects the positive impact of a reduction in inventory which was more than offset by lower benefits from the revolving sale of receivables to Cat Financial. Capital expenditures, excluding equipment leased to others, totaled $770 million compared with $918 million for 1998. As part of the company's long term plans, $300 million of ten-year debentures were sold during the third quarter. These bonds are due September 15, 2009 and were priced to yield 7.277% semi-annually. The company intends to utilize these funds for general corporate purposes. Our debt to debt equity ratio as of December 31, 1999 was 38%.
Financial Products
Operating cash flow was $560 million for 1999, compared with a negative $822 million for the same period a year ago. The increase was primarily the result of lower net purchases of receivables under the revolving program from Machinery and Engines. Cash used to purchase equipment leased to others was $469 million for 1999. Net cash used for finance receivables was $1.53 billion for 1999 compared with $2.20 billion for 1998.
A-26
Financial Products' debt was $10.80 billion at December 31, 1999, an increase of $1.23 billion from December 31, 1998, and is primarily comprised of $7.46 billion of medium term notes, $88 million of notes payable to banks and $2.78 billion of commercial paper. At the end of December 31, 1999, finance receivables past due over 30 days were 2.8%, compared with 1.5% at the end of the same period one year ago. The ratio of debt to equity of Cat Financial was 7.8:1 at December 31, 1999, compared with 8.0:1 at December 31, 1998.
Financial Products had outstanding credit lines totaling $4.91 billion at December 31, 1999, which included $2.60 billion of shared revolving credit agreements with Machinery and Engines. These credit lines are with a number of banks and are considered support for the company's outstanding commercial paper, commercial paper guarantees, the discounting of bank and trade bills and bank borrowings. Also included are variable amount lending agreements with Caterpillar. Under these agreements, Financial Products (Cat Financial) may borrow up to $835 million from Machinery and Engines (Caterpillar Inc.).
Dividends paid per share of common stock
| Quarter |
1999
|
1998
|
1997
|
| |
|||
| First |
$
.300
|
$
.25
|
$
.20
|
| Second |
.300
|
.25
|
.20
|
| Third |
.325
|
.30
|
.25
|
| Fourth |
.325
|
.30
|
.25
|
| |
|
|
|
|
|
$1.250
|
$1.10
|
$
.90
|
| |
|
|
|
| |
|||
EMPLOYMENT
At the end of 1999, Caterpillar's worldwide employment was 66,896 compared with 65,824 one year ago. Acquisitions added 2,517 during this period.
Full-Time Employees at Year End
| 1999 |
1998
|
1997
|
|
| |
|||
| Inside U.S. |
38,379
|
40,261
|
39,722
|
| Outside U.S. |
28,517
|
25,563
|
20,141
|
| Total |
66,896
|
65,824
|
59,863
|
| By Region: |
|||
| North America |
38,560
|
40,485
|
39,941
|
| EAME |
20,404
|
18,117
|
12,739
|
| Latin America |
5,493
|
5,302
|
5,340
|
| Asia/Pacific |
2,439
|
1,920
|
1,843
|
| Total |
66,896
|
65,824
|
59,863
|
| |
|||
OTHER MATTERS
ENVIRONMENTAL MATTERS
The company is regulated by federal, state, and international environmental laws governing our use of substances and control of emissions. Compliance with these existing laws has not had a material impact on our capital expenditures, earnings, or competitive position.
We are cleaning up hazardous waste at a number of locations, often with other companies, pursuant to federal and state laws. When it is likely we will pay clean-up costs at a site and those costs can be estimated, the costs are charged against our earnings. In doing that estimate, we do not consider amounts expected to be recovered from insurance companies and others.
The amount set aside for environmental clean-up is not material and is included in "Accrued expenses" in Statement 3. If a range of liability estimates is available on a particular site, we accrue the lower end of that range.
We cannot estimate costs on sites in the very early stages of clean-up. Currently, we have five of these sites and there is no more than a remote chance that a material amount for clean-up will be required.
DERIVATIVE FINANCIAL INSTRUMENTS
I. Market Risk and Risk
Management Policies
Our earnings and cash flow are subject to
fluctuations due to changes in foreign currency exchange rates, interest
rates, and commodity prices. Our risk management policy includes the use of
derivative financial instruments to manage foreign currency exchange rate,
interest rate, and commodity price exposures.
Foreign Currency Exchange Rate
Foreign currency exchange rate movements create
a degree of risk to our operations by affecting:
Foreign currency exchange rate movements also affect our competitive position, as exchange rate changes may affect business practices and/or pricing strategies of non-U.S. based competitors.
Our general policy is to use foreign currency derivative instruments as needed to operate our business and protect our interests. We enter into foreign currency derivative instruments only to manage risk — not as speculative instruments. We buy and sell currencies only to cover business needs and to protect our financial and competitive position. Our general approach is to manage future foreign currency cash flow for Machinery and Engines' operations and net foreign currency balance sheet exposures for Financial Products' operations.
Our Machinery and Engines' operations manufacture products in, and purchase raw materials from, many locations around the world. Consequently, our cost base is well diversified over a number of European, Asia/Pacific, and Latin American currencies, as well as the U.S. dollar. This diversified cost base serves to counterbalance the cash flow and earnings impact of non-U.S. dollar revenues and, therefore, minimizes the effect of exchange rate movements on consolidated earnings. We use derivative financial instruments to manage the currency exchange risk that results when the cash inflows and outflows by currency are not completely matched.
In managing foreign currency for Machinery and Engines' operations, our objective is to maximize consolidated after-tax U.S. dollar cash flow. To this end, our policy allows for actively managing:
A-27
We limit the types of derivative instruments we use to forward exchange contracts and foreign currency option contracts (net purchased option contracts). When using forward exchange contracts, we are protected from unfavorable exchange rate movements, but have given up any potential benefit from favorable changes in exchange rates. Purchased option contracts, on the other hand, protect us from unfavorable rate movements while permitting us to benefit from the effect of favorable exchange rate fluctuations. We do not use historic rate rollovers or leveraged options, nor do we sell or write foreign currency options, except in the case of combination option contracts that limit the unfavorable effect of exchange rate movements, while allowing a limited potential benefit from favorable exchange rate movements. The forward exchange or foreign currency option contracts that we use are not exchange traded.
Each month, our financial officers approve the company's outlook for expected currency exchange rate movements, as well as the policy on desired future foreign currency cash flow positions (long, short, balanced) for those currencies in which we have significant activity. Financial officers receive a daily report on currency exchange rates, cash flow exposure, and open foreign currency hedges. Expected future cash flow positions and strategies are continuously monitored. Foreign exchange management practices, including the use of derivative financial instruments, are presented to the Audit Committee of our Board of Directors at least annually.
In managing foreign currency risk for our Financial Products' operations, our objective is to minimize earnings volatility resulting from the translation of net foreign currency balance sheet positions. We use forward exchange contracts to offset the risk when the currency of our receivable portfolio does not match the currency of our debt portfolio.
Interest Rate
We use various interest rate derivative instruments, including interest rate swap agreements, interest rate cap (option) agreements, and forward rate agreements to manage exposure to interest rate changes and lower the cost of borrowed funds. All interest rate derivative instruments are linked to debt instruments upon entry. We enter into such agreements only with those financial institutions with strong bond ratings which, in the opinion of management, virtually negates exposure to credit loss.
Our Financial Products' operations have a "match funding" objective whereby the interest rate profile (fixed rate or floating rate) of their debt portfolio must match the interest rate profile of their receivable, or asset portfolio within specified boundaries. In connection with that objective, we use interest rate derivative instruments to modify the debt structure to match the receivable portfolio. This "match funding" reduces the risk of deteriorating margins between interest-bearing assets and interest-bearing liabilities, regardless of which direction interest rates move. We also use these instruments to gain an economic and/or competitive advantage through lower cost of borrowed funds. This is accomplished by changing the characteristics of existing debt instruments or entering into new agreements in combination with the issuance of new debt.
Commodity Prices
Our Machinery and Engines' operations are subject to commodity price risk, as the price we must pay for raw materials changes with movements in underlying commodity prices. We use commodity swap and option agreements to reduce this risk. However, our use of these types of derivative financial instruments is not material.
II. Sensitivity
Exchange Rate Sensitivity
Based on the anticipated and firmly committed cash inflows and outflows for our Machinery and Engines' operations for the next 12 months and the foreign currency derivative instruments in place at year end, a hypothetical 10% weakening of the U.S. dollar relative to all other currencies would adversely affect our expected 2000 cash flows for our Machinery and Engines' operations by $80 million. This is not materially different than the potential $116 million adverse impact on expected 1999 cash flows for our Machinery and Engines' operations that we reported last year based on similar assumptions and calculations.
Since our policy for Financial Products' operations is to hedge the foreign exchange risk when the currency of our debt portfolio does not match the currency of our receivable portfolio, a 10% change in the value of the U.S. dollar relative to all other currencies would not have a material effect on our consolidated financial position, results of operations, or cash flow. Neither our policy nor the effect of a 10% change in the value of the U.S. dollar has changed from that reported at the end of last year.
The effect of the hypothetical change in exchange rates ignores the affect this movement may have on other variables including competitive risk. If it were possible to quantify this competitive impact, the results could well be different than the sensitivity effects shown above. In addition, it is unlikely that all currencies would uniformly strengthen or weaken relative to the U.S. dollar. In reality, some currencies may weaken while others may strengthen.
Interest Rate Sensitivity
For our Machinery and Engines' operations, we currently use interest rate swaps to lower the cost of borrowed funds by attaching fixed-to-floating interest rate swaps to fixed rate debt. A hypothetical 100 basis point adverse move (increase) in interest rates along the entire interest rate yield curve would adversely affect 2000 pretax earnings of Machinery and Engines by $22 million. Last year, similar assumptions and calculations yielded a potential $8 million adverse impact on 1999 pretax earnings.
For our Financial Products' operations, we use interest rate derivative instruments primarily to meet our "match funding" objectives and strategies. A hypothetical 100 basis point adverse move (increase) in interest rates along the entire interest rate yield curve would adversely affect the 2000 pretax earnings of Financial Products by $18 million. This impact is not materially different from the potential $14 million adverse 1999 pretax earnings impact of a similar interest rate movement as reported last year.
The effect of the hypothetical change in interest rates ignores the affect this movement may have on other variables including changes in actual sales volumes that could be indirectly attributed to changes in interest rates. The actions that management would take in response to such a change are also ignored. If it were possible to quantify this impact, the results could well be different than the sensitivity effects shown above.
A-28
YEAR 2000 CHALLENGE
As reported throughout 1999, Caterpillar tackled the Year 2000 computer challenge with a comprehensive effort involving all of our business units worldwide. From our Board of Directors through our Year 2000 Steering Committee, Enterprise Year 2000 Coordinator, and individual business unit Year 2000 coordinators, this challenge was made a top Caterpillar priority.
At this time, we are happy to report that it is business as usual with no significant Year 2000 computer issues reported to us by our business units, dealers, suppliers, or customers. We spent approximately $115 million addressing the challenge, an amount below our previously reported estimates of between $120 -$130 million.
We recognize that we must continue to monitor the Year 2000 issue and will report any significant deviations from our current status. Absent those deviations, we anticipate this will be our final disclosure on this topic.
We would like to take this opportunity to thank the many Caterpillar employees involved in this effort and believe the results are a testament to the dedication and teamwork that characterize our people worldwide.
OUTLOOK
Summary
World economic growth in 2000 is forecast to improve as stronger growth in Europe, Africa & Middle East and Latin America more than offsets slightly slower growth in North America. Better world growth should lead to higher prices for most commodities although agricultural prices are expected to remain weak and oil prices are expected to retreat slightly from recent very high levels.
In this environment, 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 North America also are expected to remain near 1999 levels as higher commercial engine sales offset 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.
We estimate the growth initiatives discussed in previous public statements unfavorably impacted 1999 profit by about 20 percent. Benefits from these initiatives have been delayed due largely to slower than expected sales growth. These growth initiatives are expected to unfavorably impact profit in 2000 by approximately 10 percent. For Machinery and Engines, SG&A and R&D are expected to remain in the same range as 1999 as a percentage of sales. In addition, capital expenditures are expected to be up about $100 million in 2000.
In summary, company sales 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 in line with sales.
North America
In the United States, Gross Domestic Product (GDP) growth is forecast to slow from 4 percent in 1999 to 3 to 3.5 percent in 2000 as the Federal Reserve raises interest rates. Higher rates, slower economic growth and fewer housing starts are expected to result in lower sales into the general construction sector. The heavy construction segment, however, should provide a partial offset since sales into the highway sector are forecast to increase as states accelerate contracts for highway construction. 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, however, are expected to be about flat as shipments come back into line with retail demand.
Higher interest rates, slower growth and less replacement buying also are expected to impact the engine business resulting in lower industry demand for on-highway truck engines. Demand for other engines, though, should continue to grow. 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 percent in 1999 to 3 percent in 2000 leading to stronger demand for both machines and engines. Growth is also expected to improve in Africa & Middle East, which combined with higher oil prices, should lead to better demand for both machines and engines. Sales in Russia and elsewhere in the CIS, however, are likely to remain depressed. For the 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 in the 5 to 6 percent range 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. In Japan, demand should continue to improve from very depressed levels. For the region as a whole, company sales should be higher.
Latin America
GDP growth for the region is forecast to improve from flat in 1999 to 3 to 4 percent in 2000 as countries begin to recover from last year's recessions. While this improvement should result in higher machine and reciprocating engine sales, consolidation by large oil companies is expected to result in much lower turbine engine sales. In total, company sales for the region are forecast to be up as higher machine sales more than offset lower engine sales.
The information included in the Outlook section is forward looking and involves risks and uncertainties that could significantly affect expected results. A discussion of these risks and uncertainties is contained in Form 8-K filed with the Securities & Exchange Commission (SEC) on January 21, 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS []
A-29
SUPPLEMENTAL STOCKHOLDER INFORMATION
Shareholder Services:
Stock Transfer Agent
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, NJ 07303-2500
phone: (800) 446-2617 (U.S. or Canada)
(201)
324-0498 (Outside U.S. or Canada)
(201)
222-4955 (Hearing impaired)
Internet home page: equiserve.com
Caterpillar Assistant Secretary:
Laurie J. Huxtable
Assistant Secretary
Caterpillar Inc.
100 N.E. Adams Street
Peoria, IL 61629-7310
phone: (309) 675-4619
fax: (309) 675-6620
e-mail: [email protected]
Stock Purchase Plan:
Current shareholders and other interested investors may purchase Caterpillar
Inc. common stock directly through the DirectSERVICETM
Investment Program sponsored and administered by our Transfer
Agent.
Current shareholders can get more information on the program from our Transfer Agent using the contact information provided above. Non-shareholders can request program materials by calling: 800-955-4749 (U.S. and Canada) or 201-324-0498 (outside the U.S. and Canada). The DirectSERVICE Investment Program may also be accessed from our Investor Relations web site or First Chicago's home page.
Investor Relations:
Institutional analysts, portfolio managers, and representatives of financial
institutions seeking additional information about the Company should
contact:
Director of Investor Relations
James W. Anderson
Caterpillar Inc.
100 N.E. Adams Street, Peoria, IL 61629-5310
phone: (309) 675-4549
fax: (309) 675-4457
e-mail: [email protected]
Internet web site:.CAT.com/investor
Common Stock (NYSE: CAT)
Listing Information: Caterpillar
common stock is listed on the New York, Pacific and Chicago stock exchanges
in the United States, and on stock exchanges in Belgium, France, Germany,
Great Britain, and Switzerland.
Price Ranges: Quarterly price ranges of Caterpillar common stock on the New York Stock Exchange, the principal market in which the stock is traded, were:
| 1999 |
1998 |
|||
| Quarter
|
High
|
Low
|
High
|
Low
|
| First |
52 15/16
|
42
|
59 1/4
|
44 1/2
|
| Second |
66 7/16
|
46 5/16
|
60 3/4
|
51 1/16
|
| Third |
63 7/8
|
52 9/16
|
56 5/16
|
39 1/16
|
| Fourth |
58 7/8
|
43 3/16
|
52 3/16
|
41 1/8
|
Number of Stockholders: Stockholders of record at year end totaled 36,048, compared with 34,527 at the end of 1998. Approximately 69% of our issued shares are held by institutions and banks, 24% by individuals, and 7% by Caterpillar benefit plans.
Employees' investment and profit-sharing plans acquired 2,655,218 shares of Caterpillar stock in 1999. Investment plans, for which membership is voluntary, held 26,258,659 shares for employee accounts at 1999 year end. Profit-sharing plans, in which membership is automatic for most U.S. and Canadian employees in eligible categories, held 462,493 shares at 1999 year end.
Company Publications:To hear a summary of Caterpillar's latest financial results and current outlook or to request a copy of results by fax or mail, call our Information Hotline.
Annual Meeting:
On Wednesday, April 12, 2000, at 1:30 p.m., Central Time, the annual meeting
of stockholders will be held at the Bank One Auditorium, Chicago, Illinois.
Requests for proxies are being sent to stockholders with this report mailed
on or about March 3, 2000.
Internet:
Visit us on the Internet at CAT.com.
Information contained on our website is not incorporated by reference into this document.
A-30
DIRECTORS AND OFFICERS
DIRECTORS
| Lilyan H. Affinito2,4 |
Former Vice Chairman, Maxxam Group Inc. |
| Glen A. Barton |
Chairman and Chief Executive Officer, Caterpillar Inc. |
| W. Frank Blount1,3 |
Former Director and Chief Executive Officer, Telstra Corporation Limited |
| John R. Brazil1,3 |
President, Trinity University |
| John T. Dillon2,4 |
Chairman and Chief Executive Officer, International Paper |
| Donald V. Fites4,5 |
Former Chairman and Chief Executive Officer, Caterpillar Inc. |
| Juan Gallardo1,3 |
Chairman and Chief Executive Officer, Grupo Embotelladoras Unidas S.A. de C.V. |
| David R. Goode1,2 |
Chairman, President, and Chief Executive Officer, Norfolk Southern Corporation |
| James P. Gorter1,2 |
Chairman, Baker, Fentress & Company |
| Peter A. Magowan2,4 |
Former Chairman, Safeway Inc.; President and Managing General Partner, San Francisco Giants |
| Gordon R. Parker1,3 |
Former Chairman, Newmont Mining Corporation |
| George A. Schaefer1,3,5 |
Former Chairman and Chief Executive Officer, Caterpillar Inc. |
| Joshua I. Smith3,4 |
Chairman and Chief Executive Officer, The MAXIMA Corporation |
| Clayton K. Yeutter2,4 |
Of Counsel to Hogan & Hartson, Washington, D.C. |
1 Member of Audit Committee (David R. Goode, chairman)
2 Member of Compensation Committee (James P. Gorter, chairman)
3 Member of Nominating & Governance Committee (Joshua I. Smith, chairman)
4 Member of Public Policy Committee (Clayton K. Yeutter, chairman)
OFFICERS
| Glen A. Barton |
Chairman and Chief Executive Officer |
| Gerald S. Flaherty |
Group President |
| James W. Owens |
Group President |
| Gerald L. Shaheen |
Group President |
| Richard L. Thompson |
Group President |
| R. Rennie Atterbury III |
Vice President, General Counsel and Secretary |
| James W. Baldwin5 |
Vice President |
| Sidney C. Banwart |
Vice President |
| Vito H. Baumgartner |
Vice President |
| Michael J. Baunton |
Vice President |
| James S. Beard |
Vice President |
| Richard A. Benson |
Vice President |
| James E. Despain |
Vice President |
| Michael A. Flexsenhar |
Vice President |
| Thomas A. Gales6 | Vice President |
| Donald M. Ings |
Vice President |
| Stuart L. Levenick7 |
Vice President |
| Duane H. Livingston |
Vice President |
| Robert R. Macier |
Vice President |
| David A. McKie |
Vice President |
| F. Lynn McPheeters |
Vice President |
| Daniel M. Murphy |
Vice President |
| Douglas R. Oberhelman |
Vice President |
| Gerald Palmer |
Vice President |
| Robert C. Petterson |
Vice President |
| John E. Pfeffer |
Vice President |
| Siegfried R. Ramseyer |
Vice President |
| Alan J. Rassi |
Vice President |
| Gary A. Stroup |
Vice President |
| Sherril K. West |
Vice President |
| Donald G. Western |
Vice President |
| Steven H. Wunning |
Vice President |
| Robert R. Gallagher |
Controller |
| Kenneth J. Zika |
Treasurer |
| Robin D. Beran |
Assistant Treasurer |
| Tinkie E. Demmin |
Assistant Secretary |
| Laurie J. Huxtable |
Assistant Secretary |
__________
Note: All director/officer information is as of December 31, 1999, except as noted.
5
Will retire effective April, 2000.
6
Effective April 1, 2000.
7
Effective January 1, 2000.
A-31
NOTES
NOTES
[LOGO OF CATERPILLAR]
PROXY
[LOGO OF CATERPILLAR]
ANNUAL MEETING OF STOCKHOLDERS —APRIL 12, 2000
This Proxy is solicited on behalf of the Board of Directors
At the Annual Meeting of Stockholders of the Company on April 12, 2000, or at any adjournments thereof, the undersigned hereby appoints J.R. BRAZIL and C.K. YEUTTER, and each of them, proxies with power of substitution to vote the stock of the undersigned on the following matters, and, in their discretion, on any other matters that may come before the meeting.
Election of Directors. Nominees: L.H. Affinito, G.A. Barton, D.R. Goode, J.I. Smith
You are encouraged to specify your choices by marking the appropriate boxes, SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance with the Board of Director's recommendations. Please mark, sign, date and return this Proxy promptly using the enclosed envelope.
SEE REVERSE SIDE
FOLD AND DETACH HERE
INTERNET ACCOUNT ACCESS
Registered shareholders can now access account information on the Internet at http://gateway.equiserve.com.
Through this site, you can view your current share balance, access your account history, sell or request a certificate for shares, and obtain current and historical stock prices.
You must have the following to use this service:
ELECTRONIC DELIVERY OF PROXY MATERIALS
Sign up to receive next year's annual report and proxy materials via the Internet. Next year when the materials are available, we will send you an e-mail with instructions which will enable you to review these materials on-line. To sign up for this optional service, visit http://www.econsent.com/cat.
| X | Please mark your
|
1433
|
This Proxy, when properly executed, will be voted in the manner you have directed. If no direction is given, this Proxy will be voted FOR the election of directors, FOR proposals 2 and 3 and AGAINST proposals 4 and 5.
| Directors recommend a vote "FOR" | ||||||
| FOR WITHHELD | ||||||
| 1. Election of Directors [_] [_] | Nominees:
01. Lilyan H. Affinito,
02. Glen A. Barton, 03. David R. Goode, 04. Joshua I. Smith |
|||||
| For,
except vote withheld from the following
nominee(s): |
||||||
| FOR
|
AGAINST
|
ABSTAIN
|
||||
| 2. Appointment of Independent Auditors | [_]
|
[_]
|
[_]
|
|||
| 3. Amend Stock Option Plan | [_]
|
[_]
|
[_]
|
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| Directors recommend a vote "AGAINST" | ||||||
| FOR
|
AGAINST
|
ABSTAIN
|
||||
| 4. Shareholder Proposal — Rights Plan | [_]
|
[_]
|
[_]
|
|||
| 5. Shareholder Proposal — Global Standards | [_]
|
[_]
|
[_]
|
|||
| NOTE:Please sign exactly as name appears hereon. If more than one owner, each must sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. | ||||||
| |
||||||
| SIGNATURE(S) DATE | ||||||
FOLD AND DETACH HERE
NEW VOTING OPTIONS AVAILABLE!
| VOTE BY MAIL Complete, date, sign and mail your proxy card (above) in the enclosed envelope to: Caterpillar Inc.
|
|
| VOTE BY PHONE Call 1-877-PRX-VOTE (1-877-779-8683) toll free from U.S. & Canada |
|
| VOTE BY INTERNET Access http://www.eproxyvote.com/cat for on-line voting. |
|
|
|
|
|
|
PROXY AND VOTING INSTRUCTION
[LOGO OF CATERPILLAR]
ANNUAL MEETING OF STOCKHOLDERS —APRIL 12, 2000
This Proxy is solicited on behalf of the Board of Directors
At the Annual Meeting of Stockholders of the Company on April 12, 2000, or at any adjournments thereof, the undersigned hereby appoints J.R. BRAZIL and C.K. YEUTTER, and each of them, proxies with power of substitution to vote the common stock of the undersigned and (ii) THE NORTHERN TRUST COMPANY, as Trustee, to appoint J.R. BRAZIL and C.K. YEUTTER, and each or either of them, with power of substitution, proxies to vote all shares of the Company's stock credited to the accounts of the undersigned under the Employees' Investment Plan Trust and/or the Caterpillar Inc. Investment Trust at the close of business on February 15, 2000, as directed hereon on the following matters, and, in their discretion, on any other matters that may come before the meeting.
Election of Directors. Nominees: L.H. Affinito, G.A. Barton, D.R. Goode, J.I. Smith
You are encouraged to specify your choices by marking the appropriate boxes, SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance with the Board of Director's recommendations. THIS CARD ALSO CONSTITUTES VOTING INSTRUCTIONS FOR ANY SHARES HELD BY THE UNDERSIGNED IN ANY COMPANY EMPLOYEE INVESTMENT PLANS.
[SEE REVERSE SIDE]
FOLD AND DETACH HERE
INTERNET ACCOUNT ACCESS
Registered shareholders can now access account information on the Internet at http://gateway.equiserve.com.
Through this site, you can view your current share balance, access your account history, sell or request a certificate for shares, and obtain current and historical stock prices.
You must have the following to use this service:
ELECTRONIC DELIVERY OF PROXY MATERIALS
Sign up to receive next year's annual report and proxy materials via the Internet. Next year when the materials are available, we will send you an e-mail with instructions which will enable you to review these materials on-line. To sign up for this optional service, visit http://www.econsent.com/cat.
| X | Please mark your
|
This Proxy, when properly executed, will be voted in the manner you have directed. If no direction is given, this Proxy will be voted FOR the election of directors, FOR proposals 2 and 3 and AGAINST proposals 4 and 5.
| Directors recommend a vote "FOR" | ||||||
| FOR WITHHELD | ||||||
| 1. Election of Directors [_] [_] | Nominees:
01. Lilyan H. Affinito,
02. Glen A. Barton, 03. David R. Goode, 04. Joshua I. Smith |
|||||
| For,
except vote withheld from the following
nominee(s): |
||||||
| FOR
|
AGAINST
|
ABSTAIN
|
||||
| 2. Appointment of Independent Auditors | [_]
|
[_]
|
[_]
|
|||
| 3. Amend Stock Option Plan | [_]
|
[_]
|
[_]
|
|||
| Directors recommend a vote "AGAINST" | ||||||
| FOR
|
AGAINST
|
ABSTAIN
|
||||
| 4. Shareholder Proposal — Rights Plan | [_]
|
[_]
|
[_]
|
|||
| 5. Shareholder Proposal — Global Standards | [_]
|
[_]
|
[_]
|
|||
| NOTE:Please sign exactly as name appears hereon. If more than one owner, each must sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. | ||||||
| |
||||||
| SIGNATURE(S) DATE | ||||||
FOLD AND DETACH HERE
NEW VOTING OPTIONS AVAILABLE!
| VOTE BY MAIL Complete, date, sign and mail your proxy card (above) in the enclosed envelope to: Caterpillar Inc.
|
|
| VOTE BY PHONE Call 1-877-PRX-VOTE (1-877-779-8683) toll free from U.S. & Canada |
|
| VOTE BY INTERNET Access http://www.eproxyvote.com/cat for on-line voting. |
|
|
|
|
|
|
VOTING INSTRUCTION
[LOGO OF CATERPILLAR]
ANNUAL MEETING OF STOCKHOLDERS — APRIL 12, 2000
This voting instruction solicited on behalf of the Board of Directors
At the Annual Meeting of Stockholders of the Company on April 12, 2000, or at any adjournments thereof, the undersigned hereby authorizes THE NORTHERN TRUST COMPANY, as Trustee, to appoint J.R. BRAZIL and C.K. YEUTTER, and each or either of them, with power of substitution, proxies to vote all shares of the Company's stock credited to the accounts of the undersigned under the Employees' Investment Plan Trust at the close of business on February 15, 2000, as directed hereon on the following matters, and, in their discretion, on any other matters that may come before the meeting.
Election of Directors. Nominees: L.H. Affinito, G.A. Barton, D.R. Goode, J.I. Smith
SEE REVERSE SIDE
FOLD AND DETACH HERE
ELECTRONIC DELIVERY OF PROXY MATERIALS
Sign up to receive next year's annual report and proxy materials via the Internet. Next year when the materials are available, we will send you an e-mail with instructions which will enable you to review these materials on-line. To sign up for this optional service, visit http://www.econsent.com/cat.
| X | Please mark your
|
This Proxy, when properly executed, will be voted in the manner you have directed. If no direction is given, this Proxy will be voted FOR the election of directors, FOR proposals 2 and 3 and AGAINST proposals 4 and 5.
| Directors recommend a vote "FOR" | ||||||
| FOR WITHHELD | ||||||
| 1. Election of Directors [_] [_] | Nominees: 01.
Lilyan H. Affinito,
02. Glen A. Barton, 03. David R. Goode, 04. Joshua I. Smith |
|||||
| For,
except vote withheld from the following
nominee(s): |
||||||
| FOR
|
AGAINST
|
ABSTAIN
|
||||
| 2. Appointment of Independent Auditors | [_]
|
[_]
|
[_]
|
|||
| 3. Amend Stock Option Plan | [_]
|
[_]
|
[_]
|
|||
| Directors recommend a vote "AGAINST" | ||||||
| FOR
|
AGAINST
|
ABSTAIN
|
||||
| 4. Shareholder Proposal — Rights Plan | [_]
|
[_]
|
[_]
|
|||
| 5. Shareholder Proposal — Global Standards | [_]
|
[_]
|
[_]
|
|||
| NOTE:Please sign exactly as name appears hereon. If more than one owner, each must sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. | ||||||
| |
||||||
| SIGNATURE(S) DATE | ||||||
FOLD AND DETACH HERE
NEW VOTING OPTIONS AVAILABLE!
| VOTE BY MAIL Complete, date, sign and mail your proxy card (above) in the enclosed envelope to: Caterpillar Inc.
|
|
| VOTE BY PHONE Call 1-877-PRX-VOTE (1-877-779-8683) toll free from U.S. & Canada |
|
| VOTE BY INTERNET Access http://www.eproxyvote.com/cat for on-line voting. |
|
|
|
|
|
|
VOTING INSTRUCTION
[LOGO OF CATERPILLAR]
ANNUAL MEETING OF STOCKHOLDERS — APRIL 12, 2000
This voting instruction is solicited on behalf of the Board of Directors
At the Annual Meeting of Stockholders of the Company on April 12, 2000, or at any adjournments thereof, the undersigned hereby authorizes CIBC MELLON TRUST COMPANY, as Trustee, to appoint J.R. BRAZIL and C.K. YEUTTER, and each or either of them, with power of substitution, proxies to vote all shares of the Company's stock credited to the accounts of the undersigned under the Employees' Investment Plan Trust at the close of business on February 15, 2000, as directed hereon on the following matters, and, in their discretion, on any other matters that may come before the meeting.
Election of Directors. Nominees: L.H. Affinito, G.A. Barton, D.R. Goode, J.I. Smith
SEE REVERSE SIDE
FOLD AND DETACH HERE
ELECTRONIC DELIVERY OF PROXY MATERIALS
Sign up to receive next year's annual report and proxy materials via the Internet. Next year when the materials are available, we will send you an e-mail with instructions which will enable you to review these materials on-line. To sign up for this optional service, visit http://www.econsent.com/cat.
| X | Please mark your
|
9050
|
This Proxy, when properly executed, will be voted in the manner you have directed. If no direction is given, this Proxy will be voted FOR the election of directors, FOR proposals 2 and 3 and AGAINST proposals 4 and 5.
| Directors recommend a vote "FOR" | ||||||
| FOR WITHHELD | ||||||
| 1. Election of Directors [_] [_] | Nominees:
01. Lilyan H. Affinito,
02. Glen A. Barton, 03. David R. Goode, 04. Joshua I. Smith |
|||||
| For,
except vote withheld from the following
nominee(s): |
||||||
| FOR
|
AGAINST
|
ABSTAIN
|
||||
| 2. Appointment of Independent Auditors | [_]
|
[_]
|
[_]
|
|||
| 3. Amend Stock Option Plan | [_]
|
[_]
|
[_]
|
|||
| Directors recommend a vote "AGAINST" | ||||||
| FOR
|
AGAINST
|
ABSTAIN
|
||||
| 4. Shareholder Proposal — Rights Plan | [_]
|
[_]
|
[_]
|
|||
| 5. Shareholder Proposal — Global Standards | [_]
|
[_]
|
[_]
|
|||
| NOTE:Please sign exactly as name appears hereon. If more than one owner, each must sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. | ||||||
| |
||||||
| SIGNATURE(S) DATE | ||||||
FOLD AND DETACH HERE
NEW VOTING OPTIONS AVAILABLE!
| VOTE BY MAIL Complete, date, sign and mail your proxy card (above) in the enclosed envelope to: Caterpillar Inc.
|
|
| VOTE BY PHONE Call 1-877-PRX-VOTE (1-877-779-8683) toll free from U.S. & Canada |
|
| VOTE BY INTERNET Access http://www.eproxyvote.com/cat for on-line voting. |
|
|
|
|
|
|
February 7, 2000
Dear Employee Shareholder:
I am pleased to announce that shareholders will be able to view materials for the 2000 Annual Meeting of Stockholders on-line, as an alternative to receiving paper copies by mail.
In addition to the annual report and proxy statement, your proxy ballot will also be made available on-line. We believe that these options will make it more convenient for shareholders to cast their votes on issues that affect the Company. And just like votes cast using paper proxy cards, votes cast over the Internet or telephone are tabulated by an outside vendor to ensure confidentiality. The company does not have access to individual votes.
This improvement is consistent with the Company's desire to increase shareholder value and eliminate unnecessary costs. We expect to save a significant amount of money as more and more shareholders take advantage of electronic delivery and voting methods.
In order to maximize cost savings associated with this initiative for the 2000 annual meeting, the company is requesting that employee shareholders with Company provided or personal Internet access go to http://www.econsent.com/cat and register to receive proxy materials on-line and vote electronically on or before February 15, 2000.
Employee shareholders that have registered to receive materials electronically by February 15th will receive an email from the transfer agent in early March describing how to access the 1999 annual report, 2000 proxy statement, and proxy ballot on-line.
Shareholders that do not register to receive materials electronically by February 15th will continue to receive proxy materials by mail.
Whatever your choice, your vote is important.
| Sincerely, | |
R. R. Atterbury III
Vice President, General Counsel & Secretary
|
|