FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________
Commission File No. 1-768
CATERPILLAR INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
37-0602744
(I.R.S. Employer Identification No.)
100 NE Adams Street, Peoria, Illinois
(Address of principal executive offices)
61629
(Zip Code)
(309) 675-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No __.
At March 31, 1998, 366,607,344 shares of common stock of the
Registrant were outstanding.
SUMMARY
- -------
This summary highlights selected information from this document and
may not contain all of the information that is important to you. For a
detailed analysis of the company's results for the first quarter, you
should read this entire document carefully.
SUMMARY OF RESULTS
- ------------------
On April 17, 1998 Caterpillar Inc. announced its best first quarter
ever. Sales and revenues, profit, and profit per share all set records for
any first quarter. Compared with one year ago, sales and revenues rose
12% to $4.79 billion. Profit was up 9%, totaling $430 million, despite
increased spending for major growth initiatives and product line expansions.
Profit per share grew 12% to $1.17 ($1.15 assuming dilution), as it continued
to benefit from the ongoing share repurchase program.
Caterpillar has now posted record profit in 15 of the last 17 quarters.
Compared with all previous quarters, first-quarter 1998 was the third
best quarter ever for sales and revenues, and profit.
Commenting on the announcement, Caterpillar Chairman and CEO
Donald V. Fites said, "Once again, we are extremely pleased with our
financial performance. The organization continues to deliver record
financial results while also making substantial investments for future
long-term growth throughout the world. Our new line of compact construction
equipment, which we just introduced at a major equipment show in Germany,
is an example of our many outstanding growth opportunities."
"These results are especially gratifying considering the economic
difficulties in the Asia/Pacific region, and reflect our strength and
diversity in the products we offer, in the growing services we provide,
and in the geographic markets we serve."
HIGHLIGHTS - FIRST-QUARTER 1998 COMPARED WITH FIRST-QUARTER 1997
- ----------------------------------------------------------------
* Sales and revenues of $4.79 billion, a first-quarter
record, rose 12%.
* Profit of $430 million, a first-quarter record, was up 9%
over first-quarter 1997.
* Profit per share of $1.17 ($1.15 assuming dilution) was up
12%, a first-quarter record.
* Margin (sales less cost of goods sold) as a percent of
sales was about the same at 27.1% compared with 26.8% a
year ago.
* Operating profit for Machinery and Engines as a percent of
sales was 12.5% compared with 13.5% a year ago. The lower
operating profit rate was due to increased spending for
major growth initiatives and product line expansions that
include electric power generation, agricultural products,
compact machines, and further strengthening of our product
support network to better link customer, dealer, and
company operations.
* Physical sales volume was up 12%.
* The acquisition of Perkins was completed during the
quarter. Caterpillar's first-quarter consolidated results
include one month of Perkins' results.
* Sales inside the United States and outside the United
States both rose 12%.
* Revenues from Financial Products were up 22%.
* Since inception in June 1995 through March 31, 1998, 37.8
million shares have been repurchased under our share
repurchase plan. The number of shares outstanding at
March 31, 1998, was 366.6 million. When the 10% share
repurchase program is completed later this year, we will
have approximately 360 million shares outstanding.
Outlook
- ----------
The company's outlook for 1998 worldwide sales and revenues
remains unchanged from that issued with our third-quarter 1997
results, which called for sales and revenues (excluding Perkins)
to slightly surpass 1997's record levels. The company's outlook
for 1998 profit remains unchanged from that issued with our
fourth-quarter 1997 results, which called for profit to be near
1997's record. (Complete outlook begins on page 20.)
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CATERPILLAR INC.
Statement of Results of Operations
(Unaudited)
(Millions of dollars except per share data)
CONSOLIDATED
Three Months Ended
Mar. 31, Mar. 31,
1998 1997
-------- --------
SALES AND REVENUES:
Sales of Machinery & Engines ........................ $4,573 $4,072
Revenues of Financial Products ...................... 221 190
------ ------
Total sales and revenues ............................ 4,794 4,262
OPERATING COSTS:
Cost of goods sold .................................. 3,334 2,981
Selling, general and administrative expenses ........ 587 498
Research and development expenses ................... 155 117
Interest expense of Financial Products .............. 101 79
------ ------
Total operating costs ............................... 4,177 3,675
------ ------
OPERATING PROFIT ...................................... 617 587
Interest expense excluding Financial Products ........ 61 52
Other income (expense) ............................... 73 42
------ ------
CONSOLIDATED PROFIT BEFORE TAXES ...................... 629 577
Provision for income taxes ........................... 207 196
------ ------
Profit of consolidated companies...................... 422 381
Equity in profit of unconsolidated affiliated
companies (Note 4) ................................. 8 13
Equity in profit of Financial Products subsidiaries .. - -
------ ------
PROFIT ................................................ $ 430 $ 394
====== ======
PROFIT PER SHARE OF COMMON STOCK (NOTE 6) ............. $ 1.17 $ 1.04
====== ======
PROFIT PER SHARE OF COMMON STOCK - ASSUMING DILUTION
(NOTE 6) ........................................... $ 1.15 $ 1.03
====== ======
Cash dividends paid per share of
common stock ........................................ $ .25 $ .20
See accompanying notes to Consolidated Financial Statements.
Page 1
CATERPILLAR INC.
Statement of Results of Operations
(Unaudited)
(Millions of dollars except per share data)
SUPPLEMENTAL CONSOLIDATING DATA
MACHINERY AND ENGINES<F1>
Three Months Ended
Mar. 31, Mar. 31,
1998 1997
-------- --------
SALES AND REVENUES:
Sales of Machinery & Engines ........................ $4,573 $4,072
Revenues of Financial Products ...................... - -
------ ------
Total sales and revenues ............................ 4,573 4,072
OPERATING COSTS:
Cost of goods sold .................................. 3,334 2,981
Selling, general and administrative expenses ........ 512 424
Research and development expenses ................... 155 117
Interest expense of Financial Products .............. - -
------ ------
Total operating costs ............................... 4,001 3,522
------ ------
OPERATING PROFIT ...................................... 572 550
Interest expense excluding Financial Products ........ 61 52
Other income (expense) ............................... 42 36
------ ------
CONSOLIDATED PROFIT BEFORE TAXES ...................... 553 534
Provision for income taxes ........................... 179 181
------ ------
Profit of consolidated companies...................... 374 353
Equity in profit of unconsolidated affiliated
companies (Note 4) ................................. 8 13
Equity in profit of Financial Products subsidiaries .. 48 28
------ ------
PROFIT ................................................ $ 430 $ 394
====== ======
[FN]
<F1>Represents Caterpillar Inc. and its subsidiaries except for Financial
Products, which is accounted for on the equity basis.
</FN>
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide required supplemental disclosure of
information about the Financial Products' subsidiaries. Transactions between
Machinery and Engines and Financial Products have been eliminated to arrive
at the consolidated data.
See accompanying notes to Consolidated Financial Statements.
Page 2
CATERPILLAR INC.
Statement of Results of Operations
(Unaudited)
(Millions of dollars except per share data)
SUPPLEMENTAL CONSOLIDATING DATA
FINANCIAL PRODUCTS
Three Months Ended
Mar. 31, Mar. 31,
1998 1997
-------- --------
SALES AND REVENUES:
Sales of Machinery & Engines ........................ $ - $ -
Revenues of Financial Products ...................... 240 196
------ ------
Total sales and revenues ............................ 240 196
OPERATING COSTS:
Cost of goods sold .................................. - -
Selling, general and administrative expenses ........ 81 80
Research and development expenses ................... - -
Interest expense of Financial Products .............. 105 81
------ ------
Total operating costs ............................... 186 161
------ ------
OPERATING PROFIT ...................................... 54 35
Interest expense excluding Financial Products ........ - -
Other income (expense) ............................... 22 8
------ ------
CONSOLIDATED PROFIT BEFORE TAXES ...................... 76 43
Provision for income taxes ........................... 28 15
------ ------
Profit of consolidated companies...................... 48 28
Equity in profit of unconsolidated affiliated
companies (Note 4) ................................. - -
Equity in profit of Financial Products subsidiaries .. - -
------ ------
PROFIT ................................................ $ 48 $ 28
====== ======
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide required supplemental disclosure
of information about the Financial Products' subsidiaries. Transactions
between Machinery and Engines and Financial Products have been eliminated
to arrive at the consolidated data.
See accompanying notes to Consolidated Financial Statements.
Page 3
CATERPILLAR INC.
Statement of Changes in Stockholders' Equity
For Three Months Ended
(Unaudited)
(Dollars in millions)
CONSOLIDATED
Mar. 31, Mar. 31,
1998 1997
------------ ------------
Common Stock:
Balance at beginning of period ............... $ (442) $ 50
Common Shares issued, including treasury
shares reissued: (March 31, 1998 -- 366,104
shares; March 31, 1997 -- 486,604) .......... 8 10
Treasury shares purchased:
March 31, 1998 -- 1,769,100;
March 31, 1997 -- 3,394,200 ................... (86) (132)
----- -----
Balance at end of period ...................... (520) (72)
----- -----
Profit employed in the business:
Balance at beginning of period ................ 5,026 3,904
Profit ........................................ 430 $430 394 $394
Dividends declared ............................ - -
----- -----
Balance at end of period ...................... 5,456 4,298
----- -----
Accumulated other comprehensive income:
Foreign currency translation adjustment<F1>:
Balance at beginning of period .............. 95 162
Aggregate adjustment for period ............. (22) (22) (22) (22)
----- ----- ----- ----
Balance at end of period .................... 73 140
----- -----
Comprehensive income .......................... $408 $372
==== ====
Stockholders' equity at end of period ........... $5,009 $4,366
====== ======
[FN]
<F1> No reclassification adjustments or tax effects to report.
</FN>
See accompanying notes to Consolidated Financial Statements.
Page 4
CATERPILLAR INC.
Statement of Financial Position *
(Dollars in millions)
CONSOLIDATED
Mar. 31, Dec. 31,
1998 1997
-------- --------
ASSETS
Current assets:
Cash and short-term investments ................. $ 306 $ 292
Receivables -- trade and other .................. 3,794 3,331
Receivables -- finance .......................... 2,738 2,660
Deferred income taxes and prepaid expenses ...... 947 928
Inventories (Note 5) ............................ 3,091 2,603
------- -------
Total current assets .............................. 10,876 9,814
Property, plant, and equipment -- net ............. 4,376 4,058
Long-term receivables -- trade and other .......... 127 134
Long-term receivables -- finance .................. 4,216 3,881
Investments in unconsolidated affiliated
companies (Note 4) ............................. 814 751
Investments in Financial Products' subsidiaries.... - -
Deferred income taxes ............................. 1,018 1,040
Intangible assets ................................. 1,169 228
Other assets ...................................... 981 850
------- -------
TOTAL ASSETS ........................................ $23,577 $20,756
======= =======
LIABILITIES
Current liabilities:
Short-term borrowings ........................... $ 846 $ 484
Accounts payable and accrued expenses ........... 3,790 3,358
Accrued wages, salaries, and employee benefits .. 1,026 1,128
Dividends payable ............................... - 92
Deferred and current income taxes payable ....... 390 175
Deferred liability .............................. - -
Long-term debt due within one year .............. 1,385 1,142
------- -------
Total current liabilities ......................... 7,437 6,379
Long-term debt due after one year ................. 8,316 6,942
Liability for postemployment benefits ............. 2,698 2,698
Deferred income taxes and other liabilities ....... 117 58
------- -------
TOTAL LIABILITIES ................................... 18,568 16,077
------- -------
STOCKHOLDERS' EQUITY
Common stock of $1.00 par value:
Authorized shares: 450,000,000
Issued shares (March 31, 1998 -- 407,447,312;
Dec. 31, 1997 -- 407,447,312) at paid in amount . 1,069 1,071
Profit employed in the business ................... 5,456 5,026
Accumulated other comprehensive income ............ 73 95
Treasury stock (March 31, 1998 -- 40,839,968
shares; Dec. 31, 1997 -- 39,436,972 shares)
at cost.......................................... (1,589) (1,513)
------- -------
TOTAL STOCKHOLDERS' EQUITY .......................... 5,009 4,679
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $23,577 $20,756
======= =======
See accompanying notes to Consolidated Financial Statements.
* Unaudited except for Consolidated December 31, 1997 amounts.
Page 5
CATERPILLAR INC.
Statement of Financial Position *
(Dollars in millions)
SUPPLEMENTAL CONSOLIDATING DATA
MACHINERY AND ENGINES<F1>
Mar. 31, Dec. 31,
1998 1997
-------- --------
ASSETS
Current assets:
Cash and short-term investments ................. $ 272 $ 241
Receivables -- trade and other .................. 2,787 3,346
Receivables -- finance .......................... - -
Deferred income taxes and prepaid expenses ...... 934 935
Inventories (Note 5) ............................ 3,091 2,603
------- -------
Total current assets .............................. 7,084 7,125
Property, plant, and equipment -- net ............. 3,773 3,483
Long-term receivables -- trade and other .......... 127 134
Long-term receivables -- finance .................. - -
Investments in unconsolidated affiliated
companies (Note 4) ............................. 814 751
Investments in Financial Products' subsidiaries ... 1,009 882
Deferred income taxes ............................. 1,045 1,075
Intangible assets ................................. 1,169 228
Other assets ...................................... 605 510
------- -------
TOTAL ASSETS ........................................ $15,626 $14,188
======= =======
LIABILITIES
Current liabilities:
Short-term borrowings ........................... $ 382 $ 53
Accounts payable and accrued expenses ........... 3,390 3,020
Accrued wages, salaries, and employee benefits .. 1,021 1,120
Dividends payable ............................... - 92
Deferred and current income taxes payable ....... 270 46
Deferred liability .............................. - -
Long-term debt due within one year .............. 40 54
------- -------
Total current liabilities ......................... 5,103 4,385
Long-term debt due after one year ................. 2,699 2,367
Liability for postemployment benefits ............. 2,698 2,698
Deferred income taxes and other liabilities ....... 117 59
------- -------
TOTAL LIABILITIES ................................... 10,617 9,509
------- -------
STOCKHOLDERS' EQUITY
Common stock of $1.00 par value:
Authorized shares: 450,000,000
Issued shares (March 31, 1998 -- 407,447,312;
Dec. 31, 1997 -- 407,447,312) at paid in amount . 1,069 1,071
Profit employed in the business ................... 5,456 5,026
Accumulated other comprehensive income ............ 73 95
Treasury stock (March 31, 1998 -- 40,839,968
shares; Dec. 31, 1997 -- 39,436,972 shares)
at cost.......................................... (1,589) (1,513)
------- -------
TOTAL STOCKHOLDERS' EQUITY .......................... 5,009 4,679
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $15,626 $14,188
======= =======
[FN]
<F1> Represents Caterpillar Inc. and its subsidiaries except for Financial
Products, which is accounted for on the equity basis.
</FN>
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide required supplemental disclosure
of information about the Financial Products' subsidiaries. Transactions
between Machinery and Engines and Financial Products have been eliminated to
arrive at the consolidated data.
See accompanying notes to Consolidated Financial Statements.
* Unaudited except for Consolidated December 31, 1997 amounts.
Page 6
CATERPILLAR INC.
Statement of Financial Position *
(Dollars in millions)
SUPPLEMENTAL CONSOLIDATING DATA
FINANCIAL PRODUCTS
Mar. 31, Dec. 31,
1998 1997
-------- --------
ASSETS
Current assets:
Cash and short-term investments ................. $ 34 $ 51
Receivables -- trade and other .................. 1,187 285
Receivables -- finance .......................... 2,738 2,660
Deferred income taxes and prepaid expenses ...... 24 9
Inventories (Note 5) ............................ - -
------- -------
Total current assets .............................. 3,983 3,005
Property, plant, and equipment -- net ............. 603 575
Long-term receivables -- trade and other .......... - -
Long-term receivables -- finance .................. 4,216 3,881
Investments in unconsolidated affiliated
companies (Note 4) ............................. - -
Investments in Financial Products' subsidiaries ... - -
Deferred income taxes ............................. 5 5
Intangible assets ................................. - -
Other assets ...................................... 376 340
------- -------
TOTAL ASSETS ........................................ $ 9,183 $ 7,806
======= =======
LIABILITIES
Current liabilities:
Short-term borrowings ........................... $ 464 $ 431
Accounts payable and accrued expenses ........... 504 654
Accrued wages, salaries, and employee benefits .. 5 8
Dividends payable ............................... - -
Deferred and current income taxes payable ....... 120 129
Deferred liability .............................. 87 -
Long-term debt due within one year .............. 1,345 1,088
------- -------
Total current liabilities ......................... 2,525 2,310
Long-term debt due after one year ................. 5,617 4,575
Liability for postemployment benefits ............. - -
Deferred income taxes and other liabilities ....... 32 39
------- -------
TOTAL LIABILITIES ................................... 8,174 6,924
------- -------
STOCKHOLDERS' EQUITY
Common stock of $1.00 par value:
Authorized shares: 450,000,000
Issued shares (March 31, 1998 -- 407,447,312
Dec. 31, 1997 -- 407,447,312) at paid in amount . 503 403
Profit employed in the business ................... 534 506
Accumulated other comprehensive income ........... (28) (27)
Treasury stock (March 31, 1998 -- 40,839,968
shares; Dec. 31, 1997 -- 39,436,972 shares)
at cost.......................................... - -
------- -------
TOTAL STOCKHOLDERS' EQUITY .......................... 1,009 882
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $ 9,183 $ 7,806
======= =======
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide required supplemental disclosure
of information about the Financial Products' subsidiaries. Transactions
between Machinery and Engines and Financial Products have been eliminated to
arrive at the consolidated data.
See accompanying notes to Consolidated Financial Statements.
* Unaudited except for Consolidated December 31, 1997 amounts.
Page 7
CATERPILLAR INC.
Statement of Cash Flow for Three Months Ended
(Unaudited)
(Millions of dollars)
CONSOLIDATED
Mar. 31, Mar. 31,
1998 1997
-------- --------
CASH FLOW FROM OPERATING ACTIVITIES:
Profit ............................................ $ 430 $ 394
Adjustments for noncash items:
Depreciation and amortization ................... 204 189
Profit of Financial Products .................... - -
Other ........................................... (4) 20
Changes in assets and liabilities:
Receivables -- trade and other .................. (172) (123)
Inventories ..................................... (381) (250)
Accounts payable and accrued expenses ........... 125 78
Other -- net .................................... (94) 32
------- -------
Net cash provided by operating activities ........... 108 340
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures -- excluding equipment
leased to others ................................ (117) (81)
Expenditures for equipment leased to others ....... (88) (72)
Proceeds from disposals of property, plant, and
equipment ....................................... 32 35
Additions to finance receivables .................. (1,731) (1,302)
Collections of finance receivables ................ 965 679
Proceeds from the sale of finance receivables...... 340 326
Net short-term loans to Financial Products......... - -
Investments and acquisitions(net of cash acquired). (1,103) (13)
Other -- net ...................................... (63) (72)
------- -------
Net cash used for investing activities .............. (1,765) (500)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid .................................... (92) (76)
Common stock issued, including treasury
shares reissued ................................. 2 3
Treasury shares purchased ......................... (86) (133)
Net short-term loans from Machinery and Engines ... - -
Proceeds from long-term debt issued ............... 1,745 768
Payments on long-term debt ........................ (306) (222)
Short-term borrowings -- net ...................... 412 (127)
------- -------
Net cash provided by financing activities ........... 1,675 213
------- -------
Effect of exchange rate changes on cash ............. (4) (22)
------- -------
Increase in cash and short-term investments ......... 14 31
Cash and short-term investments at the
beginning of the period ........................... 292 487
------- -------
Cash and short-term investments at the
end of the period ................................. $ 306 $ 518
======= =======
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.
See accompanying notes to Consolidated Financial Statements.
Page 8
CATERPILLAR INC.
Statement of Cash Flow for Three Months Ended
(Unaudited)
(Millions of dollars)
SUPPLEMENTAL CONSOLIDATING DATA
MACHINERY AND ENGINES<F1>
Mar. 31, Mar. 31,
1998 1997
-------- --------
CASH FLOW FROM OPERATING ACTIVITIES:
Profit ............................................ $ 430 $ 394
Adjustments for noncash items:
Depreciation and amortization ................... 166 157
Profit of Financial Products .................... (48) (28)
Other ........................................... 43 8
Changes in assets and liabilities:
Receivables -- trade and other .................. 599 (99)
Inventories ..................................... (381) (250)
Accounts payable and accrued expenses ........... 64 13
Other -- net .................................... (54) 33
------- -------
Net cash provided by operating activities ........... 819 228
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures -- excluding equipment
leased to others ................................ (116) (80)
Expenditures for equipment leased to others ....... - -
Proceeds from disposals of property, plant,
and equipment ................................... - -
Additions to finance receivables .................. - -
Collections of finance receivables ................ - -
Proceeds from sale of finance receivables.......... - -
Net short-term loans to Financial Products......... 179 (158)
Investments and acquisitions(net of cash acquired). (1,103) (13)
Other -- net ...................................... (143) (29)
------- -------
Net cash used for investing activities .............. (1,183) (280)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid .................................... (92) (76)
Common stock issued, including treasury
shares reissued ................................. 2 3
Treasury shares purchased ......................... (86) (133)
Net short-term loans from Machinery and Engines.... - -
Proceeds from long-term debt issued ............... 279 300
Payments on long-term debt ........................ (26) (5)
Short-term borrowings -- net ...................... 318 7
------- -------
Net cash provided by financing activities ........... 395 96
------- -------
Effect of exchange rate changes on cash ............. - (20)
------- -------
Increase in cash and short-term investments ......... 31 24
Cash and short-term investments at the
beginning of the period ........................... 241 445
------- -------
Cash and short-term investments at the
end of the period ................................. $ 272 $ 469
======= =======
[FN]
<F1> Represents Caterpillar Inc. and its subsidiaries except for Financial
Products, which is accounted for on the equity basis.
</FN>
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide required supplemental disclosure of
information about the Financial Products' subsidiaries. Transactions
between Machinery and Engines and Financial Products have been eliminated
to arrive at the consolidated data.
See accompanying notes to Consolidated Financial Statements.
Page 9
CATERPILLAR INC.
Statement of Cash Flow for Three Months Ended
(Unaudited)
(Millions of dollars)
SUPPLEMENTAL CONSOLIDATING DATA
FINANCIAL PRODUCTS
Mar. 31, Mar. 31,
1998 1997
-------- --------
CASH FLOW FROM OPERATING ACTIVITIES:
Profit ............................................ $ 48 $ 28
Adjustments for noncash items:
Depreciation and amortization ................... 38 32
Profit of Financial Products .................... - -
Other ........................................... 40 12
Changes in assets and liabilities:
Receivables -- trade and other .................. (830) (4)
Inventories ..................................... - -
Accounts payable and accrued expenses ........... 28 33
Other -- net .................................... (15) 11
------- -------
Net cash (used for) provided by operating activities. (691) 112
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures -- excluding equipment
leased to others ................................ (1) (1)
Expenditures for equipment leased to others ....... (88) (72)
Proceeds from disposals of property, plant,
and equipment ................................... 32 35
Additions to finance receivables .................. (1,731) (1,302)
Collections of finance receivables ................ 965 679
Proceeds from the sale of finance receivables...... 340 326
Net short-term loans to Financial Products......... - -
Investments and acquisitions(net of cash acquired). - -
Other -- net ...................................... (20) (43)
------- -------
Net cash used for investing activities .............. (503) (378)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid .................................... (20) -
Common stock issued, including treasury
shares reissued ................................. 100 -
Treasury shares purchased ......................... - -
Net short-term loans from Machinery and Engines.... (179) 158
Proceeds from long-term debt issued ............... 1,466 468
Payments on long-term debt ........................ (280) (217)
Short-term borrowings -- net ...................... 94 (134)
------- -------
Net cash provided by financing activities ........... 1,181 275
------- -------
Effect of exchange rate changes on cash ............. (4) (2)
------- -------
(Decrease) increase in cash and
short-term investments ............................ (17) 7
Cash and short-term investments at the
beginning of the period ........................... 51 42
------- -------
Cash and short-term investments at the
end of the period ................................. $ 34 $ 49
======= =======
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide required supplemental disclosure of
information about the Financial Products subsidiaries. Transactions
between Machinery and Engines and Financial Products have been eliminated
to arrive at the consolidated data.
See accompanying notes to Consolidated Financial Statements.
Page 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions except per share data)
1. In the opinion of management, all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of (a) the
consolidated results of operations for the three-month periods
ended March 31, 1998 and 1997, (b) the changes in stockholders' equity
for the three-month periods ended March 31, 1998 and 1997, (c) the
consolidated financial position at March 31, 1998 and December 31,
1997, and (d) the consolidated statement of cash flow for the
three-month periods ended March 31, 1998 and 1997 have been made.
Certain amounts for prior periods have been reclassified to
conform with the current period financial statement presentation.
2. The results for the three-month period ended March 31, 1998 are not
necessarily indicative of the results for the entire year 1998.
3. The company has reviewed the status of its environmental and legal
contingencies and believes there are no material changes from that
disclosed in Form 10-K for the year ended December 31, 1997, except
as provided in Section C of Item 2 of this Form 10-Q.
4. Unconsolidated Affiliated Companies
Combined financial information of the unconsolidated affiliated
companies was as follows:
Three Months Ended
RESULTS OF OPERATIONS Dec. 31, Dec. 31,
(Unaudited) 1997 1996
-------- --------
Sales ..................... $ 784 $ 996
====== ======
Profit .................... $ 16 $ 28
====== ======
Dec. 31, Sept. 30,
1997 1997
FINANCIAL POSITION (Unaudited)
Assets: ----------- --------
Current assets ................................. $1,817 $1,949
Property, plant, and equipment - net ........... 761 792
Other assets ................................... 422 331
------ ------
3,000 3,072
------ ------
Liabilities:
Current liabilities ............................ 1,585 1,610
Long-term debt due after one year .............. 222 203
Other liabilities .............................. 101 129
------ ------
1,908 1,942
------ ------
Ownership ........................................ $1,092 $1,130
====== ======
Page 11
5. Inventories (principally "last- in, first-out" method) comprised the
following
Mar. 31, Dec. 31,
1998 1997
(unaudited)
----------- --------
Raw materials and work-in-process ................ $1,264 $1,033
Finished goods ................................... 1,617 1,364
Supplies ......................................... 210 206
------ ------
$3,091 $2,603
====== ======
6. Following is a computation of profit per share:
Three Months Ended
Mar. 31, Mar. 31,
1998 1997
(Unaudited)
-------- --------
I. Profit - consolidated (A) ....... $ 430 $ 394
====== ======
II. Determination of shares (millions):
Weighted average common
shares outstanding (B) ......... 367.1 379.2
Assumed conversion of stock
options ....................... 5.4 4.6
------ ------
Weighted average common
shares outstanding - assuming
dilution (C) .................. 372.5 383.8
====== ======
III. Profit per share of common
stock (A/B) ..................... $1.17 $1.04
Profit per share of common
stock - assuming dilution (A/C). $1.15 $1.03
Page 12
7. The reserve for plant closing and consolidation costs includes the
following:
Mar. 31, Dec. 31,
1998 1997
(unaudited)
----------- --------
Write down of property, plant, and equipment ..... $ 103 $ 103
Employee severance benefits ...................... 90 95
Rearrangement, start-up costs, and other ......... 39 47
------ ------
Total reserve .................................... $ 232 $ 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 and consolidations. The reserve for such benefits is reduced
as the benefits are provided.
At March 31, 1998 and December 31, 1997, the above reserve includes
$144 and $153 million, respectively, of costs associated with the
closure of the Component Products Division's Precision Barstock Products
(PBP) operation located in York, Pennsylvania. The probable closing of
the PBP manufacturing operation was announced in December 1991. In
March 1996, it was announced that the facility would be closed. We
are currently in the process of closing the unit.
8. Acquisition of Perkins
On February 27, 1998, Caterpillar acquired the net assets of Perkins Ltd.
and the stock of several related subsidiaries for approximately
$1.3 billion, net of cash received. The purchase price is still subject
to post closing adjustments.
Perkins is a leading manufacturer of small to medium diesel engines, and
its 1996 sales were approximately $1.1 billion. The addition of Perkins
to our existing engine business creates a global full-line producer
of reciprocating and turbine engines.
We have accounted for the above acquisitions using the purchase method of
accounting. Caterpillar's first-quarter consolidated results include
one month of Perkins' results.
Amortization of acquired goodwill will be computed using the
straight-line method over a period of 15 years.
Page 13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND LIQUIDITY AND CAPITAL RESOURCES
A. Consolidated Results of Operations
THREE MONTHS ENDED MARCH 31, 1998 VS. THREE MONTHS ENDED MARCH 31, 1997
First-quarter sales and revenues were 12% higher. Profit was up 9% while
profit per share of common stock increased 12%, as it also reflected the
impact of the ongoing share repurchase program. Profit of $430 million or
$1.17 per share ($1.15 assuming dilution) was the best ever for any first
quarter, an improvement of $36 million over profit of $394 million or $1.04
per share ($1.03 assuming dilution) in 1997. Sales and revenues of
$4.79 billion were $532 million higher and also a first-quarter record. An
increase in physical sales volume of 12% (which includes one month of
Perkins' sales) was the most significant factor contributing to the higher
sales and revenues, and profit.
Machinery and Engines
Sales of Machinery and Engines were $4.57 billion, an increase of
$501 million or 12% over first-quarter 1997. The higher sales were due to
the 12% increase in physical sales volume which resulted from higher machine
and engine sales both inside and outside the United States, as well as the
addition of Perkins' sales.
Price realization was about the same as price increases taken over the
past year were offset by the effect of the stronger dollar on sales
denominated in currencies other than U.S. dollars.
Profit before tax was $553 million, $19 million higher than the first
quarter a year ago. The primary reason for the increased profit was the
higher physical sales volume, although the benefit was partially offset by
increased spending for major growth initiatives and product line expansions
that include electric power generation, agricultural products, compact
machines, and further strengthening of our product support network to better
link customer, dealer, and company operations.
Margin (sales less cost of goods sold) of $1.24 billion increased
$148 million or 14% over first-quarter 1997. Margin as a percent of sales
was 27.1%, about the same as a year ago.
The net effect of the dollar on the margin rate was minimal.
Selling, general, and administrative expenses (SG&A) were $512 million
compared with $424 million in first-quarter 1997. The $88 million increase
primarily reflects increased spending levels in support of major growth
initiatives and product line expansions. The effect of inflation on costs
also contributed to the increase. SG&A expenses, as a percent of sales, were
11.2%, up from 10.4% in the first quarter a year ago.
Research and development expenses (R&D) of $155 million were up
$38 million from first-quarter 1997. The increase reflects higher spending
in support of new and improved products. R&D expenses, as a percent of
sales, were 3.4%, up from 2.9% a year ago.
Operating profit of $572 million was $22 million or 4% higher than
first-quarter 1997. Operating profit, as a percent of sales, was 12.5%
compared with 13.5% a year ago.
Interest expense of $61 million was $9 million higher than a year ago,
mostly due to higher average debt levels in support of the acquisition of
Perkins during first-quarter 1998.
Page 14
Other income/expense was income of $42 million, compared with income of
$36 million in first-quarter 1997. The increase is primarily due to a
favorable change in foreign exchange gains and losses.
Financial Products
Financial Products' revenues of $240 million were a first-quarter record,
up $44 million or 22% compared with first-quarter 1997. The increase
resulted primarily from continued growth in Caterpillar Financial Services
Corporation's (Cat Financial's) portfolio.
Before-tax profit was a record $76 million, up $33 million or 77% from the
first quarter a year ago. The increase resulted primarily from favorable
reserve adjustments and higher investment income at Caterpillar Insurance Co.
Ltd. (Cat Insurance).
Selling, general, and administrative expenses were about the same, as
higher depreciation on leased equipment and other increases due to portfolio
growth at Cat Financial were about offset by a favorable reserve adjustment
at Cat Insurance.
Interest expense was up $24 million due to increased borrowings to support
the larger Cat Financial portfolio.
Other income and expense was income of $22 million, an increase of
$14 million from a year ago, mostly due to higher investment income at Cat
Insurance.
Income Taxes
The provision for income taxes was $207 million, compared with
$196 million last year. The $11 million increase reflects tax on the higher
before-tax profit, partially offset by a lower effective tax rate of 33%,
compared with 34% in first-quarter 1997. The lower tax rate accounted for
$5 million in lower taxes.
Unconsolidated Affiliated Companies
Our share of unconsolidated affiliated companies' results was $8 million,
down $5 million from first quarter a year ago. Lower profits at Shin
Caterpillar Mitsubishi Ltd. and start-up costs at Caterpillar Claas America
L.L.C. and Claas Caterpillar Europe GmbH & Co. KG were the primary reasons
for the decrease.
Sales
Following are summaries of first-quarter company sales and dealer
deliveries compared with the same quarter in 1997.
Caterpillar Sales Inside the United States
- ------------------------------------------
Caterpillar sales inside the United States were $2.44 billion, a
$269 million or 12% increase over first quarter last year. This increase was
due primarily to higher industry demand for both machines and engines,
although an increase in dealer new machine inventory also contributed to
higher company sales. Price realization improved slightly. Sales inside the
United States during the first quarter were 53% of sales, the same as a year
ago.
U.S. Dealer Machine Sales to End Users
U.S. dealer machine sales to end users increased as higher industry demand
for construction, mining, and agricultural equipment more than offset some
loss in share of industry sales. A strong economy, very low inflation,
stable interest rates, and a positive outlook all contributed to higher
industry demand.
Page 15
Sales to end users rose in most key construction sectors.
- Highway-related sales rose as a result of much higher levels of
highway-related construction spending.
- Sales into the housing sector were unchanged from strong,
year-earlier levels.
- Sales for commercial, industrial, and government building-related
construction were also higher despite lower construction spending in
these areas for the quarter.
Sales into commodity applications also increased with gains registered in
all sectors except metal mining.
- Sand and quarry mining-related sales increased due to higher
aggregate production.
- Sales to the coal mining sector rose reflecting higher mine
production.
- Agriculture-related sales were higher because of better industry
demand and a healthy farm economy.
- Sales into the forestry sector were up over year earlier reflecting
higher pulp and lumber prices.
- Metal mining-related sales declined in the face of falling metals
prices.
In other applications, sales to industrial users and landfills declined.
Deliveries to U.S. Dealer Dedicated Rental Fleets
Deliveries to U.S. dealer dedicated rental fleets declined from
first-quarter 1997. At the end of the first quarter, U.S. dealer dedicated
rental units were above year-earlier levels, unchanged from fourth quarter.
U.S. Dealer New Machine Inventories
U.S. dealer new machine inventories rose from the end of the fourth
quarter in preparation for the spring selling season. At the end of the
first quarter, dealer inventories were above year-ago levels and about normal
relative to current high selling rates.
Company Engine Sales Inside the United States
Company engine sales inside the United States were above year-earlier
levels reflecting good economic growth and strong industry demand. The
fundamentals, with the possible exception of oil prices, remained excellent:
industrial production up about 5% over year ago, low inflation, moderate
interest rates, strong business confidence, and a good outlook. Sales of
reciprocating engines were higher in all applications, including on-highway
trucks, electric power generation, industrial, marine, and petroleum. Sales
of turbine engines were below year-earlier levels.
Caterpillar Sales Outside the United States
- -------------------------------------------
Caterpillar sales outside the United States were $2.13 billion, a
$232 million or 12% increase over first-quarter 1997. Sales of engines were
higher reflecting increased end-user demand in all applications and the
addition of Perkins' sales. Sales of machines also were up. In total,
higher physical sales volume more than offset a slight decrease in price
realization.
Sales outside the United States represented 47% of worldwide sales, the
same as a year ago.
Dealer Machine Sales to End Users Outside the United States
Dealer machine sales to end users outside the United States were down from
year-earlier levels as a significant decline in Asia more than offset higher
sales in Latin America, Europe, Canada, and Australia.
- Europe: Sales for the region were higher, reflecting continued
improvement in economic activity and business confidence. There
were sizable gains in Germany, Spain, Italy, and France. Sales were
lower in the United Kingdom.
Page 16
- Latin America: Sales rose primarily due to increased demand in
Brazil and Peru. Higher sales also were reported in Chile while
sales declined in Argentina and Mexico.
- Africa/Middle East: Sales declined reflecting continued weakness in
commodity prices. Sales remained near year-earlier levels in Turkey,
but declined in South Africa.
- Canada: Sales increased in response to higher industry demand,
reflecting continued good economic growth, moderate interest rates,
and higher housing starts. Sales were especially strong in the
non-metal mining sector.
- Australia: Sales were higher as better demand in the construction
and non-metal mining sectors more than offset lower demand for
machines used in coal mining.
- Asia (excluding Japan): Sales declined sharply reflecting the severe
economic downturn in Southeast Asia and South Korea. China, Vietnam,
and Taiwan had higher end-user demand.
- Japan: Sales of imported product continued to fall in the first
quarter as the economy remained in recession.
- Commonwealth of Independent States (CIS): Sales showed some
improvement as the Russian economy continues to emerge from a period
of prolonged weakness.
Dealer New Machine Inventories Outside the United States
Dealer new machine inventories outside the United States were up from both
the end of the fourth quarter and year-earlier levels. Increases in Canada,
Europe, and Latin America more than offset declines in Asia and Australia.
At the end of the first quarter, dealer inventories were slightly above
normal relative to current selling rates.
Company Engine Sales Outside the United States
Company engine sales outside the United States exceeded year-earlier
levels with growth in all regions except Asia. Especially strong gains were
registered in Latin America, Canada, Europe, and Africa/Middle East. Sales
of reciprocating engines were higher for all applications, including
on-highway truck, marine, industrial, petroleum, and electric power
generation applications. (Without Perkins, sales still would have been
higher in all regions except Asia.) Sales of turbine engines also increased
with gains in oil and gas applications more than offsetting a decline in
power generation.
THREE MONTHS ENDED MARCH 31, 1998 VS THREE MONTHS ENDED DECEMBER 31, 1997
First-quarter profit of $430 million or $1.17 per share ($1.15 assuming
dilution) was $21 million lower than fourth-quarter profit of $451 million or
$1.22 per share ($1.20 assuming dilution). A 10% decrease in physical sales
volume was the most significant factor contributing to the lower profit.
Machinery and Engines
Profit before tax for Machinery and Engines was $553 million, a
$47 million decrease from the previous quarter. Sales of $4.57 billion
decreased $404 million or 8%, primarily because of the 10% lower physical
sales volume. Price realization was about 2% higher.
The decrease in physical sales volume was primarily the result of lower
machine and engine sales outside the United States partially offset by the
addition of Perkins' sales. Engine sales inside the United States were also
lower while machine sales were higher.
Page 17
Price realization improved due to lower sales discounts and price
increases taken during the first quarter, partially offset by the effect of
the stronger dollar on sales denominated in currencies other than U.S.
dollars.
Margin was $73 million lower than the fourth quarter, primarily the result
of the 10% lower physical sales volume. As a percent of sales, the margin
rate was 27.1% compared with 26.4% last quarter. The higher margin rate was
primarily due to the lower sales discounts and price increases taken during
the first quarter, partially offset by an unfavorable change in product sales
mix and higher fixed manufacturing costs.
The net effect of the dollar on the margin rate was minimal.
Selling, general, and administrative expenses were $512 million, down
$32 million from the fourth quarter. The decrease was somewhat typical, as
the fourth quarter is generally a higher cost quarter for these types of
expenses. As such, the decrease is primarily reflective of the timing of
expenses and is not indicative of a significant decrease in expenses for the
year.
Research and development expenses of $155 million rose $11 million from
the fourth quarter. The increase reflects continued higher spending in
support of new and improved products.
Operating profit of $572 million decreased $52 million. As a percent of
sales, operating profit was 12.5%, the same as the fourth quarter.
Interest expense of $61 million was $5 million higher than the fourth
quarter, mostly due to higher average debt levels in support of the Perkins'
acquisition.
Other income/expense was income of $42 million, compared with $32 million
last quarter. The increase of $10 million is primarily due to a favorable
change in foreign exchange gains and losses.
Financial Products
Financial Products' revenues of $240 million were up $18 million from the
fourth quarter, primarily due to Cat Financial's portfolio growth.
Before-tax profit was $76 million, an increase of $20 million. The
increase in profit primarily resulted from favorable reserve adjustments and
increased investment income at Cat Insurance.
Income Taxes
Income tax expense of $207 million decreased $10 million from the previous
quarter. The decrease reflects the lower profit before tax. The tax rate
was 33% in both quarters.
Unconsolidated Affiliated Companies
Our share of unconsolidated affiliated companies' results was $8 million,
a decrease of $4 million from the previous quarter. Lower profit at Shin
Caterpillar Mitsubishi Ltd. was the primary reason for the decrease.
EMPLOYMENT
At the end of the first quarter, Caterpillar's worldwide employment was
64,681 compared with 57,412 one year ago. Hourly employment increased 3,578
to 36,780; salaried and management employment increased 3,691 to 27,901. The
increases were largely due to acquisitions.
Page 18
ECONOMIC AND INDUSTRY OUTLOOK
In the United States, Gross Domestic Product (GDP) is now expected to grow
3% in 1998, slightly better than anticipated in January. Non-residential
construction spending should continue to grow and housing starts are now
expected to exceed 1997 levels. Coal and aggregate production also should
continue to increase, but metal mine production is forecast to be down due to
falling metals prices. Overall, industry demand for machines is expected to
be slightly higher than 1997 levels and also higher than anticipated in
January. Industry demand for engines should also rise with gains now
forecast in all markets.
In Canada, economic growth is forecast to remain strong leading to an
increase in both machine and engine industry demand.
In Western Europe, economic activity should continue to improve with GDP
accelerating from 2.4% in 1997 to about 3% in 1998. All key economies are
now registering moderate growth, and both consumer and business confidence
are rising. Industry demand is still expected to increase slightly for
machines, reversing several years of decline, while good industry growth is
now forecast for engines.
In Central Europe, good economic growth should continue, resulting in
improved industry demand for both machines and engines.
In the Asia/Pacific region, governments have raised interest rates, cut
spending, and begun restructuring their economies. Such steps will
ultimately strengthen these economies, but the short-term effect is slower
growth in Malaysia and the Philippines and recessions in Thailand, South
Korea, and Indonesia. Slower growth also is forecast for China. GDP for
developing Asia is now forecast to grow about 2.5% and industry demand for
machines is likely to fall significantly. Demand for engines is now forecast
to fall slightly below 1997 levels. Both the machine and engine forecasts
reflect weaker economic activity and industry demand than expected in
January.
Japan slipped back into recession in 1997. Even if a stimulus package is
approved in the next few months, recessionary conditions are likely much of
the year, and industry demand is forecast to decline further.
The Australian economy also will be affected by a drop in exports to Asia
as well as lower metals prices. Consequently, industry machine demand is
forecast to decline despite lower interest rates, moderate economic growth,
and higher housing starts. Industry demand for turbines also is forecast to
decline, but demand for reciprocating engines should be higher.
In Latin America, industry demand for machines and engines should continue
to improve despite a slowdown in GDP growth from 5% in 1997 to 3.5% in 1998.
In Africa/Middle East, industry demand for engines is forecast to rise but
lower commodity prices will likely keep industry demand for machines near
1997 levels.
In CIS, economic recovery should lead to higher industry sales, but
financial instability remains a risk in Russia.
In summary, the economic and industry outlook has improved since January
for North America but continued to deteriorate for Asia. In total, worldwide
economic growth and industry demand for machines are still expected to
decline slightly due to the slowdown in the Asia/Pacific region. Worldwide
industry demand for engines, however, is now expected to exceed 1997 levels
due to continued strength in North America.
Page 19
COMPANY OUTLOOK
Our outlook for 1998 worldwide sales and revenues remains unchanged from
that issued with our third-quarter 1997 results, which called for sales and
revenues (excluding Perkins, which was acquired during the first quarter) to
slightly surpass 1997's record levels.
Investments in major initiatives to enhance long-term growth and
shareholder returns continue in 1998. These initiatives include electric
power generation, agricultural products, compact machines, and further
strengthening of our product support network to better link customer, dealer,
and company operations.
For Machinery and Engines (excluding Perkins), total capital expenditures,
which were $819 million in 1997, are expected to be about the same in 1998.
R&D and SG&A expenditures will increase in 1998 in support of expanded
operations and the major growth initiatives; however, the rate of increase is
expected to be less than in recent years.
Despite these expenditures for major growth initiatives, our outlook for
profit in 1998 remains unchanged from that issued with our fourth-quarter
1997 results and is expected to be near 1997's record. Profit per share will
be favorably impacted by the share buy-back program announced in June 1995,
which we anticipate will be completed during 1998. Cash flow from operations
and our financial position are expected to remain strong.
The information included in this Outlook section is forward looking
and involves risks and uncertainties that could significantly impact
expected results. A discussion of these risks and uncertainties is contained
in Form 8-K filed with the Securities & Exchange Commission on
April 17, 1998.
B. Liquidity & Capital Resources
Consolidated operating cash flow totaled $108 million in the first
quarter of 1998, compared with $340 million in the first quarter of 1997.
Total debt at the end of the quarter was $10.55 billion, an increase of
$1.98 billion from year end 1997. Over this period, debt related to
Machinery and Engines increased $647 million, to $3.12 billion, while debt
related to Financial Products increased $1.33 billion to $7.43 billion.
During 1995, the company announced a plan to repurchase up to 10% of its
outstanding common stock over a three to five year period. From inception
in June 1995 to March 31, 1998, 37.8 million shares have been repurchased
under the plan. When the 10% share repurchase program is completed later this
year, the company will have approximately 360 million shares outstanding.
Machinery and Engines
Operating cash flow totaled $819 million in the first quarter of 1998,
compared with $228 million in the first quarter of 1997. The increase in
operating cash flow primarily results from the $599 million decrease in
accounts receivable as opposed to an increase of $99 million over the same
period a year ago. The $599 million decrease in accounts receivable is
largely attributed to the $874 million sale of receivables to Cat Financial.
Partially offsetting the sale of receivables were stronger first quarter
sales over the same period a year ago.
Page 20
Capital expenditures, excluding equipment leased to others, totaled
$116 million in the first quarter compared with $80 million a year ago. As
part of the company's long-term plans, $250 million of five-year Eurobonds
were issued at a premium during the quarter. These bonds are due
February 13, 2003 and were priced to yield 5.914% semi-annually with a
coupon of 6.0%. The company intends to utilize these funds for general
corporate purposes, including the acquisition of Perkins. Additionally,
short-term borrowings increased by $329 million in order to meet working
capital needs. This additional debt increased the percent of debt to
debt plus stockholders equity from 35% at December 31, 1997, to 38% at
March 31, 1998.
Financial Products
Operating cash flow totaled $(691) million in the first quarter of 1998,
compared with $112 million in the first quarter of 1997. This decrease
resulted from the purchasing of $874 million of Machinery and Engines trade
receivables. Cash used to purchase equipment leased to others totaled
$88 million in the first quarter of 1998. In addition, first-quarter 1998
net cash used for finance receivables was $426 million, compared with
$297 million during the first quarter of 1997.
Financial Products' debt was $7.43 billion at March 31, 1998, an
increase of $1.33 billion from December 31, 1997 and was primarily comprised
of $4.51 billion of medium term notes, $138 million of notes payable to banks
and $2.68 billion of commercial paper. At the end of the first quarter,
finance receivables past due over 30 days were 1.6%, compared with 2.7% at
the end of the same period one year ago. The ratio of debt to equity of Cat
Financial was 8.0:1 at March 31, 1998, compared with 7.8:1 at
December 31, 1997.
Financial Products had outstanding credit lines totaling $3.83 billion
at March 31, 1998, which included $2.25 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.
C. Environmental Matter
Item 7 of our Form 10-K for 1997 filed on March 27, 1998, discussed
an environmental matter that is updated by the following disclosure.
The United States Environmental Protection Agency (EPA) has issued
conditional certificates of conformity with the Clean Air Act for
Caterpillar's 1998 model year heavy-duty diesel engines. The EPA has
issued similar conditional certificates to other heavy-duty diesel
engine manufacturers. The EPA is reviewing the impact of advanced
electronic control technologies on the emissions compliance of heavy-duty
trucks in certain operating conditions and whether the use of such
technologies is consistent with the Clean Air Act's requirements.
Caterpillar and the other manufacturers are responding to the EPA
requests for information and are engaged in discussions with them and
the United States Department of Justice in an effort to resolve this
issue.
Page 21
We believe our electronically controlled engines satisfy all
emissions standards promulgated by the EPA and are fully consistent
with the environmental laws of the United States. For nearly a decade,
Caterpillar has utilized electronic controls to achieve dramatic
reductions in urban emissions, while at the same time meeting the
demands of consumers for high performance, durable, and fuel efficient
engines.
We hope that an amicable solution to this matter can be reached.
If we are unable to reach such an agreement, however, and do not prevail
on legal challenges to the government's position, resolution of this
matter could have a material adverse effect on our financial position
or results of operations.
PART II. OTHER INFORMATION
Item 2. Changes in Securities
We have eleven employee stock purchase plans administered outside the
United States for our foreign employees. These plans are not registered with
the Securities and Exchange Commission and are exempt from such registration
pursuant to Regulation S under the Securities Act. As of December 31, 1997,
those plans had approximately 2,850 participants in the aggregate. During the
First Quarter of 1998, a total of 26,891 shares of Caterpillar common stock
or foreign denominated equivalents were distributed under the plans.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of Caterpillar Inc. was held on
April 8, 1998, for the purpose of electing a board of directors,
approving the appointment of auditors, and voting on the proposal
described below. Proxies for the meeting were solicited pursuant to
Section 14(a) of the Securities Exchange Act of 1934 and there was no
solicitation in opposition to management's solicitations.
All of management's nominees for directors as listed in the proxy
statement were elected with the following vote:
Shares Voted Shares
"FOR" "WITHHELD"
John T. Dillon 319,137,327 5,489,767
Juan Gallardo T. 319,035,678 5,591,416
Gordon R. Parker 319,203,846 5,423,248
George A. Schaefer 319,101,840 5,525,254
Page 22
An amendment to the Articles of Incorporation was approved by the
following vote:
Shares Voted Shares Voted Shares Shares
"FOR" "AGAINST" "ABSTAINING" Not Voted
297,621,828 25,433,965 1,571,301 0
The appointment of Price Waterhouse LLP as independent auditor was
approved by the following vote:
Shares Voted Shares Voted Shares Shares
"FOR" "AGAINST" "ABSTAINING" Not Voted
322,903,815 837,193 886,086 0
The stockholder proposal requesting the Board of Directors to establish
guidelines regarding investments in certain countries was defeated with the
following vote:
Shares Voted Shares Voted Shares Shares
"FOR" "AGAINST" "ABSTAINING" Not Voted
19,886,476 251,338,350 21,049,973 32,352,295
A stockholder proposal requesting the Board of Directors to declassify
the Board for the purpose of director elections was not presented for
shareholder consideration by the proponent at the meeting. Based on proxy
results received, had the proposal been presented for a shareholder vote,
it would have been defeated.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
---------- -----------
3(i) Restated Certificate of Incorporation
10 Business Sale Agreement between Perkins
Limited, LucasVarity plc and
Caterpillar Inc.
27 Financial Data Schedule
(b) One report on Form 8-K, dated January 21, 1998, was filed during
the quarter ending March 31, 1998, pursuant to Item 5 of that form.
An additional Form 8-K was filed on April 17, 1998 pursuant to
Item 5. No financial statements were filed as part of those reports.
Page 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CATERPILLAR INC.
Date: May 13, 1998 By: /s/ D. R. Oberhelman
----------------------
D. R. Oberhelman, Vice President
and Chief Financial Officer
Date: May 13, 1998 By: /s/ R. R. Atterbury III
-------------------------
R. R. Atterbury III, Secretary
Page 24
EXHIBIT INDEX
Exhibit
Number Description
3(i) Restated Certificate of Incorporation
10 Business Sale Agreement between
Perkins Limited, LucasVarity plc and
Caterpillar Inc.
27 Financial Data Schedule