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, 1999
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, 1999, 355,822,636 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 16, 1999 Caterpillar Inc. reported record first-quarter
sales and revenues of $4.87 billion, $73 million higher than first-quarter
1998. A 2% increase in physical sales volume and a 22% increase in
Financial Products revenues were partially offset by lower price
realization. Without Perkins, physical sales volume would have declined
1%. Profit of $205 million was $225 million less than 1998's first-
quarter record of $430 million. Unfavorable product sales mix, the lower
price realization and the impact of lower production volumes on
manufacturing efficiencies were the most significant reasons for the lower
profit. Profit per share was $.57.
First-quarter 1999 sales and profit were somewhat better than
expected at the time of the company's March 12, 1999, news release. Some
shipments anticipated for the second quarter took place at the end of March.
This will have no impact on the year, as the first-quarter benefit will be
offset in the second quarter.
"While first-quarter profit was disappointing compared with a year
ago, our outlook for the full year remains unchanged," said Caterpillar
Chairman and Chief Executive Officer Glen Barton. "The breadth and
diversity of the products we offer, the markets we serve and the
businesses we're in will allow us to continue to achieve solid financial
results even though many markets and regions of the world are in recession
or experiencing slow growth. In addition, our business units are
responding quickly to changes in demand. We expect to benefit from a
number of cost reduction efforts, improved price realization, higher sales
in Asia and continued strong demand in the United States."
FIRST-QUARTER 1999 COMPARED WITH FIRST-QUARTER 1998
- ---------------------------------------------------
* Sales and revenues of $4.87 billion, the highest ever for a first
quarter, were $73 million or 2% higher than first-quarter 1998.
(First-quarter 1998 included only one month of Perkins sales.)
* Revenues from Financial Products increased 22%.
* Sales inside the United States were 57% of worldwide sales compared
with 53% a year ago.
* Profit of $205 million and profit per share of $.57 were down 52% and
50%, respectively, from first-quarter 1998. Profit per share continues
to benefit from the company's share repurchase programs.
* 1.7 million shares were repurchased during the quarter under the
program announced in October 1998 to reduce the number of shares
outstanding to 320 million within the next three to five years. On
March 31, 1999 there were 355.8 million shares outstanding
(360.0 million assuming dilution).
OUTLOOK
- -------
Our outlook is unchanged from the March 12, 1999, news release. We
expect 1999 sales and revenues to be slightly below 1998. Profit per
share for 1999 is expected to be 10%-15% lower. (Complete outlook begins
on page 20.)
PAGE 1
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,
1999 1998
-------- --------
SALES AND REVENUES:
Sales of Machinery & Engines ........................ $4,598 $4,573
Revenues of Financial Products ...................... 269 221
------ ------
Total sales and revenues ............................ 4,867 4,794
OPERATING COSTS:
Cost of goods sold .................................. 3,578 3,334
Selling, general, and administrative expenses ....... 653 587
Research and development expenses ................... 155 155
Interest expense of Financial Products .............. 129 101
------ ------
Total operating costs ............................... 4,515 4,177
------ ------
OPERATING PROFIT ...................................... 352 617
Interest expense excluding Financial Products ........ 67 61
Other income (expense) ............................... 16 73
------ ------
CONSOLIDATED PROFIT BEFORE TAXES ...................... 301 629
Provision for income taxes ........................... 96 207
------ ------
Profit of consolidated companies...................... 205 422
Equity in profit of unconsolidated affiliated
companies (Note 4) ................................. - 8
Equity in profit of Financial Products subsidiaries .. - -
------ ------
PROFIT ................................................ $ 205 $ 430
====== ======
PROFIT PER SHARE OF COMMON STOCK (NOTE 6) ............. $ 0.58 $ 1.17
====== ======
PROFIT PER SHARE OF COMMON STOCK
- ASSUMING DILUTION (NOTE 6) ..................... $ 0.57 $ 1.15
====== ======
Cash dividends paid per share of
common stock ......... $ .30 $ .25
See accompanying notes to Consolidated Financial Statements.
PAGE 2
CATERPILLAR INC.
Statement of Results of Operations
(Unaudited)
(Millions of dollars)
SUPPLEMENTAL CONSOLIDATING DATA
MACHINERY AND ENGINES (1)
Three Months Ended
Mar. 31, Mar. 31,
1999 1998
-------- --------
SALES AND REVENUES:
Sales of Machinery & Engines ........................ $4,598 $4,573
Revenues of Financial Products ...................... - -
------ ------
Total sales and revenues ............................ 4,598 4,573
OPERATING COSTS:
Cost of goods sold .................................. 3,578 3,334
Selling, general, and administrative expenses ....... 551 512
Research and development expenses ................... 155 155
Interest expense of Financial Products .............. - -
------ ------
Total operating costs ............................... 4,284 4,001
====== ======
OPERATING PROFIT ...................................... 314 572
Interest expense excluding Financial Products ........ 67 61
Other income (expense) ............................... (17) 42
------ ------
CONSOLIDATED PROFIT BEFORE TAXES ...................... 230 553
Provision for income taxes ........................... 70 179
------ ------
Profit of consolidated companies...................... 160 374
Equity in profit of unconsolidated affiliated
companies (Note 4) ................................. - 8
Equity in profit of Financial Products subsidiaries .. 45 48
------ ------
PROFIT ................................................ $ 205 $ 430
====== ======
(1) Represents Caterpillar Inc. and its subsidiaries except for Financial
Products, which is accounted for on the equity basis.
The supplemental consolidating data is presented for the purpose of
additional analysis. Transactions between Machinery 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 Results of Operations
(Unaudited)
(Millions of dollars)
SUPPLEMENTAL CONSOLIDATING DATA
FINANCIAL PRODUCTS
Three Months Ended
Mar. 31, Mar. 31,
1999 1998
-------- --------
SALES AND REVENUES:
Sales of Machinery & Engines ........................ $ - $ -
Revenues of Financial Products ...................... 303 240
------ ------
Total sales and revenues ............................ 303 240
OPERATING COSTS:
Cost of goods sold .................................. - -
Selling, general, and administrative expenses ....... 109 81
Research and development expenses ................... - -
Interest expense of Financial Products .............. 134 105
------ ------
Total operating costs ............................... 243 186
------ ------
OPERATING PROFIT ...................................... 60 54
Interest expense excluding Financial Products ........ - -
Other income (expense) ............................... 11 22
------ ------
CONSOLIDATED PROFIT BEFORE TAXES ...................... 71 76
Provision for income taxes ........................... 26 28
------ ------
Profit of consolidated companies...................... 45 48
Equity in profit of unconsolidated affiliated
companies (Note 4) ................................. - -
Equity in profit of Financial Products subsidiaries .. - -
------ ------
PROFIT ................................................ $ 45 $ 48
====== ======
The supplemental consolidating data is presented for the purpose of
additional analysis. 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 4
CATERPILLAR INC.
Statement of Changes in Stockholders' Equity
For Three Months Ended
(Unaudited)
(Dollars in millions)
CONSOLIDATED
Mar. 31, Mar. 31,
1999 1998
--------- ----------
Common Stock:
Balance at beginning of period ............... $ (993) $(442)
Common shares issued, including treasury
shares reissued: (March 31, 1999 - 339,481
shares; March 31, 1998 -- 366,104 shares).... 6 8
Treasury shares purchased:
March 31, 1999 -- 1,715,200;
March 31, 1998 -- 1,769,100 .................. (78) (86)
------ ------
Balance at end of period ......................(1,065) (520)
------ ------
Profit employed in the business:
Balance at beginning of period ................ 6,123 5,026
Profit ........................................ 205 $205 430 $430
Dividends declared ............................ - -
------ ------
Balance at end of period ...................... 6,328 5,456
------ ------
Accumulated other comprehensive income:
Foreign currency translation adjustment:(1)
Balance at beginning of period .............. 65 95
Aggregate adjustment for period ............. 48 48 (22) (22)
------ ------
Balance at end of period .................... 113 73
------ ------
Minimum Pension Liability Adjustment: (1)
Balance at beginning of period .............. (64) -
Aggregate adjustment for period ............. 1 1 - -
====== ==== ====== ====
Balance at end of period .................... (63)
Comprehensive income .......................... $254 $408
==== ====
Stockholders' equity at end of period ........... $5,313 $5,009
====== ======
(1) No reclassification adjustments to report.
See accompanying notes to Consolidated Financial Statements.
PAGE 5
CATERPILLAR INC.
Statement of Financial Position *
(Dollars in millions)
CONSOLIDATED
Mar. 31, Dec. 31,
1999 1998
-------- --------
ASSETS
Current assets:
Cash and short-term investments ................. $ 244 $ 360
Receivables -- trade and other .................. 4,183 3,660
Receivables -- finance .......................... 3,448 3,516
Deferred income taxes ........................... 516 474
Prepaid expenses ................................ 620 607
Inventories (Note 5) ............................ 2,892 2,842
------ ------
Total current assets .............................. 11,903 11,459
Property, plant, and equipment -- net ............. 4,852 4,866
Long-term receivables -- trade and other .......... 92 85
Long-term receivables -- finance .................. 5,144 5,058
Investments in unconsolidated affiliated
companies (Note 4) ............................. 835 773
Investments in Financial Products' subsidiaries.... - -
Deferred income taxes ............................. 977 955
Intangible assets ................................. 1,235 1,241
Other assets ...................................... 681 691
------ ------
TOTAL ASSETS ........................................ $25,719 $25,128
====== ======
LIABILITIES
Current liabilities:
Short-term borrowings ........................... $ 933 $ 809
Accounts payable ................................ 2,123 2,250
Accrued expenses ................................ 990 928
Accrued wages, salaries, and employee benefits .. 1,090 1,217
Dividends payable ............................... - 107
Deferred and current income taxes payable ....... 147 15
Deferred liability .............................. - -
Long-term debt due within one year .............. 2,487 2,239
------ ------
Total current liabilities ......................... 7,770 7,565
Long-term debt due after one year ................. 9,509 9,404
Liability for postemployment benefits ............. 2,698 2,590
Deferred income taxes and other liabilities ....... 429 438
TOTAL LIABILITIES ................................... 20,406 19,997
------ ------
STOCKHOLDERS' EQUITY
Common stock of $1.00 par value:
Authorized shares: 900,000,000
Issued shares (March 31, 1999 -- 407,447,312;
Dec. 31, 1998 -- 407,447,312) at paid in amount . 1,062 1,063
Profit employed in the business ................... 6,328 6,123
Accumulated other comprehensive income ............ 50 1
Treasury stock (March 31, 1999 - 51,624,676 shares;
Dec. 31, 1998 -- 50,248,957 shares) at cost ..... (2,127) (2,056)
------ ------
TOTAL STOCKHOLDERS' EQUITY .......................... 5,313 5,131
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $25,719 $25,128
====== ======
See accompanying notes to Consolidated Financial Statements.
* Unaudited except for Consolidated December 31, 1998 amounts.
PAGE 6
CATERPILLAR INC.
Statement of Financial Position *
(Dollars in millions)
SUPPLEMENTAL CONSOLIDATING DATA
MACHINERY AND ENGINES (1)
Mar. 31, Dec. 31,
1999 1998
------ ------
ASSETS
Current assets:
Cash and short-term investments ................. $ 200 $ 303
Receivables -- trade and other .................. 2,790 2,604
Receivables -- finance .......................... - -
Deferred income taxes............................ 504 465
Prepaid expenses ................................ 626 616
Inventories (Note 5) ............................ 2,892 2,842
------ ------
Total current assets .............................. 7,012 6,830
Property, plant, and equipment -- net ............. 4,096 4,125
Long-term receivables -- trade and other .......... 91 85
Long-term receivables -- finance .................. - -
Investments in unconsolidated affiliated
companies (Note 4) ............................. 835 773
Investments in Financial Products' subsidiaries ... 1,324 1,269
Deferred income taxes ............................. 984 980
Intangible assets ................................. 1,233 1,241
Other assets ...................................... 318 316
------ ------
TOTAL ASSETS ........................................ $15,893 $15,619
====== ======
LIABILITIES
Current liabilities:
Short-term borrowings ........................... $ 236 $ 49
Accounts payable ................................ 2,314 2,401
Accrued expenses ................................ 699 659
Accrued wages, salaries, and employee benefits .. 1,082 1,208
Dividends payable ............................... - 107
Deferred and current income taxes payable ....... 95 (19)
Deferred liability .............................. - -
Long-term debt due within one year .............. 48 60
------ ------
Total current liabilities ......................... 4,474 4,465
Long-term debt due after one year ................. 2,993 2,993
Liability for postemployment benefits ............. 2,698 2,590
Deferred income taxes and other liabilities ....... 415 440
------ ------
TOTAL LIABILITIES ................................... 10,580 10,488
------ ------
STOCKHOLDERS' EQUITY
Common stock of $1.00 par value:
Authorized shares: 900,000,000
Issued shares (March 31, 1999 -- 407,447,312;
Dec. 31, 1998 -- 407,447,312) at paid in amount . 1,062 1,063
Profit employed in the business ................... 6,328 6,123
Accumulated other comprehensive income ............ 50 1
Treasury stock (March 31, 1999 - 51,624,676 shares;
Dec. 31, 1998 -- 50,248,957 shares) at cost...... (2,127) (2,056)
------ ------
TOTAL STOCKHOLDERS' EQUITY .......................... 5,313 5,131
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $15,893 $15,619
====== ======
(1) Represents Caterpillar Inc. and its subsidiaries except for Financial
Products, which is accounted for on the equity basis.
The supplemental consolidating data is presented for the purpose of
additional analysis. Transactions between Machinery 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, 1998 amounts.
PAGE 7
CATERPILLAR INC.
Statement of Financial Position *
(Dollars in millions)
SUPPLEMENTAL CONSOLIDATING DATA
FINANCIAL PRODUCTS
Mar. 31, Dec. 31,
1999 1998
------ ------
ASSETS
Current assets:
Cash and short-term investments ................. $ 44 $ 57
Receivables -- trade and other .................. 2,083 1,875
Receivables -- finance .......................... 3,448 3,516
Deferred income taxes ........................... 12 9
Prepaid expenses ................................ 8 9
Inventories (Note 5) ............................ - -
------ ------
Total current assets .............................. 5,595 5,466
Property, plant, and equipment -- net ............. 756 741
Long-term receivables -- trade and other .......... 1 -
Long-term receivables -- finance .................. 5,144 5,058
Investments in unconsolidated affiliated
companies (Note 4) ............................. - -
Investments in Financial Products' subsidiaries ... - -
Deferred income taxes ............................. 9 8
Intangible assets ................................. 2 -
Other assets ...................................... 363 375
------ ------
TOTAL ASSETS ........................................ $11,870 $11,648
====== ======
LIABILITIES
Current liabilities:
Short-term borrowings ........................... $ 697 $ 760
Accounts payable................................. 356 521
Accrued expenses ................................ 306 290
Accrued wages, salaries, and employee benefits .. 8 9
Dividends payable ............................... - -
Deferred and current income taxes payable ....... 52 34
Deferred liability .............................. 142 143
Long-term debt due within one year .............. 2,439 2,179
------ ------
Total current liabilities ......................... 4,000 3,936
Long-term debt due after one year ................. 6,516 6,411
Liability for postemployment benefits ............. - -
Deferred income taxes and other liabilities ....... 30 32
------ ------
TOTAL LIABILITIES ................................... 10,546 10,379
------ ------
STOCKHOLDERS' EQUITY
Common stock of $1.00 par value:
Issued shares at paid in amount ................. 704 683
Profit employed in the business ................... 659 615
Accumulated other comprehensive income ............ (39) (29)
Treasury stock at cost............................. - -
------ ------
TOTAL STOCKHOLDERS' EQUITY .......................... 1,324 1,269
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $11,870 $11,648
====== ======
The supplemental consolidating data is presented for the purpose of
additional analysis. 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, 1998 amounts.
PAGE 8
CATERPILLAR INC.
Statement of Cash Flow for Three Months Ended
(Unaudited)
(Millions of dollars)
CONSOLIDATED
Mar. 31, Mar. 31,
1999 1998
------ ------
CASH FLOW FROM OPERATING ACTIVITIES:
Profit ............................................ $ 205 $ 430
Adjustments for noncash items:
Depreciation and amortization ................... 232 204
Profit of Financial Products .................... - -
Other ........................................... 60 18
Changes in assets and liabilities:
Receivables -- trade and other .................. (534) (172)
Inventories ..................................... (50) (381)
Accounts payable and accrued expenses ........... 30 103
Other -- net .................................... (4) (94)
------ ------
Net cash (used for) provided by operating activities. (61) 108
------ ------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures -- excluding equipment
leased to others ................................ (111) (117)
Expenditures for equipment leased to others ....... (101) (88)
Proceeds from disposals of property, plant, and
equipment ....................................... 50 32
Additions to finance receivables .................. (1,700) (1,731)
Collections of finance receivables ................ 1,156 965
Proceeds from the sale of finance receivables...... 414 340
Net intercompany borrowings........................ - -
Investments and acquisitions(net of cash acquired). (33) (1,103)
Other -- net ...................................... 10 (63)
------ ------
Net cash used for investing activities .............. (315) (1,765)
------ ------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid .................................... (107) (92)
Common stock issued, including treasury
shares reissued ................................. - 2
Treasury shares purchased ......................... (78) (86)
Net intercompany borrowings........................ - -
Proceeds from long-term debt issued ............... 691 1,745
Payments on long-term debt ........................ (548) (306)
Short-term borrowings -- net ...................... 329 412
------ ------
Net cash provided by financing activities ........... 287 1,675
------ ------
Effect of exchange rate changes on cash ............. (27) (4)
------ ------
(Decrease) increase in cash and short-term
investments ....................................... (116) 14
Cash and short-term investments at the
beginning of the period ........................... 360 292
------ ------
Cash and short-term investments at the
end of the period ................................. $ 244 $ 306
====== ======
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 9
CATERPILLAR INC.
Statement of Cash Flow for Three Months Ended
(Unaudited)
(Millions of dollars)
SUPPLEMENTAL CONSOLIDATING DATA
MACHINERY AND ENGINES (1)
Mar. 31, Mar. 31,
1999 1998
------ ------
CASH FLOW FROM OPERATING ACTIVITIES:
Profit ............................................ $ 205 $ 430
Adjustments for noncash items:
Depreciation and amortization ................... 186 166
Profit of Financial Products .................... (45) (48)
Other ........................................... 48 65
Changes in assets and liabilities:
Receivables -- trade and other .................. (210) 599
Inventories ..................................... (50) (381)
Accounts payable and accrued expenses ........... (61) 42
Other -- net .................................... (16) (54)
------ ------
Net cash provided by operating activities ........... 57 819
------ ------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures -- excluding equipment
leased to others ................................ (110) (116)
Expenditures for equipment leased to others ....... (5) -
Proceeds from disposals of property, plant,
and equipment ................................... 4 -
Additions to finance receivables .................. - -
Collections of finance receivables ................ - -
Proceeds from sale of finance receivables.......... - -
Net intercompany borrowings........................ - 179
Investments and acquisitions(net of cash acquired). (33) (1,103)
Other -- net ...................................... (21) (143)
------ ------
Net cash used for investing activities .............. (165) (1,183)
------ ------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid .................................... (107) (92)
Common stock issued, including treasury
shares reissued ................................. - 2
Treasury shares purchased ......................... (78) (86)
Net intercompany borrowings........................ 38 -
Proceeds from long-term debt issued ............... 6 279
Payments on long-term debt ........................ (12) (26)
Short-term borrowings -- net ...................... 187 318
------ ------
Net cash provided by financing activities ........... 34 395
------ ------
Effect of exchange rate changes on cash ............. (29) -
------ ------
(Decrease) increase in cash and
short-term investments ............................ (103) 31
Cash and short-term investments at the
beginning of the period ........................... 303 241
------ ------
Cash and short-term investments at the
end of the period ................................. $ 200 $ 272
====== ======
(1) Represents Caterpillar Inc. and its subsidiaries except for Financial
Products, which is accounted for on the equity basis.
The supplemental consolidating data is presented for the purpose of
additional analysis. Transactions between Machinery and Engines and
Financial Products have been eliminated to arrive at the consolidated data.
See accompanying notes to Consolidated Financial Statements.
PAGE 10
CATERPILLAR INC.
Statement of Cash Flow for Three Months Ended
(Unaudited)
(Millions of dollars)
SUPPLEMENTAL CONSOLIDATING DATA
FINANCIAL PRODUCTS
Mar. 31, Mar. 31,
1999 1998
------ ------
CASH FLOW FROM OPERATING ACTIVITIES:
Profit ............................................ $ 45 $ 48
Adjustments for noncash items:
Depreciation and amortization ................... 46 38
Profit of Financial Products .................... - -
Other ........................................... 11 40
Changes in assets and liabilities:
Receivables -- trade and other .................. (158) (830)
Inventories ..................................... - -
Accounts payable and accrued expenses ........... (42) 28
Other -- net .................................... 16 (15)
------ ------
Net cash used for operating activities............... (82) (691)
------ ------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures -- excluding equipment
leased to others ................................ (1) (1)
Expenditures for equipment leased to others ....... (96) (88)
Proceeds from disposals of property, plant,
and equipment ................................... 46 32
Additions to finance receivables .................. (1,700) (1,731)
Collections of finance receivables ................ 1,156 965
Proceeds from the sale of finance receivables...... 414 340
Net intercompany borrowings........................ (38) -
Investments and acquisitions(net of cash acquired). - -
Other -- net ...................................... 10 (20)
------ ------
Net cash used for investing activities .............. (209) (503)
------ ------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid .................................... (36) (20)
Common stock issued, including treasury
shares reissued ................................. 21 100
Treasury shares purchased ......................... - -
Net intercompany borrowings........................ - (179)
Proceeds from long-term debt issued ............... 685 1,466
Payments on long-term debt ........................ (536) (280)
Short-term borrowings -- net ...................... 142 94
------ ------
Net cash provided by financing activities ........... 276 1,181
------ ------
Effect of exchange rate changes on cash ............. 2 (4)
------ ------
(Decrease) increase in cash and
short-term investments ............................ (13) (17)
Cash and short-term investments at the
beginning of the period ........................... 57 51
------ ------
Cash and short-term investments at the
end of the period ................................. $ 44 $ 34
====== ======
The supplemental consolidating data is presented for the purpose of
additional analysis. 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 11
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, 1999 and 1998, (b) the changes in stockholders' equity
for the three-month periods ended March 31, 1999 and 1998, (c) the
consolidated financial position at March 31, 1999 and December 31,
1998, and (d) the consolidated statement of cash flow for the
three-month periods ended March 31, 1999 and 1998, have been made.
Certain amounts for prior periods have been reclassified to
conform with the current period financial statement presentation.
2. The results for the three-month period ended March 31, 1999 are not
necessarily indicative of the results for the entire year 1999.
3. The company has reviewed the status of its environmental and legal
contingencies and believes there are no material changes from that
disclosed in Form 10-K for the year ended December 31, 1998.
4. Unconsolidated Affiliated Companies
Combined financial information of the unconsolidated affiliated
companies was as follows:
Three Months Ended
RESULTS OF OPERATIONS Dec. 31, Dec. 31,
(Unaudited) 1998 1997
-------- --------
Sales ..................... $ 817 $ 784
Cost of Sales ............. 649 598
------ ------
Gross Profit .............. 168 186
Profit .................... $ 2 $ 16
====== ======
Dec. 31, Sept. 30,
1998 1998
(Unaudited)
---------- ----------
FINANCIAL POSITION
Assets:
Current assets ................................. $1,682 $1,569
Property, plant, and equipment - net............ 948 788
Other assets ................................... 593 351
------ ------
3,223 2,708
------ ------
Liabilities:
Current liabilities ............................ 1,643 1,259
Long-term debt due after one year .............. 338 274
Other liabilities .............................. 23 94
------ ------
2,004 1,627
------ ------
Ownership ........................................ $1,219 $1,081
====== ======
5. Inventories (principally "last-in, first-out" method) comprised the
following:
Mar. 31, Dec. 31,
1999 1998
(unaudited)
---------- ----------
Raw materials and work-in-process ................ $1,083 $1,041
Finished goods ................................... 1,603 1,605
Supplies ......................................... 206 196
------ ------
$2,892 $2,842
====== ======
PAGE 12
6. Following is a computation of profit per share:
Three Months Ended
Mar. 31, Mar. 31,
1999 1998
(Unaudited)
------- --------
I. Profit - consolidated (A) ....... $ 205 $ 430
====== ======
II. Determination of shares (millions):
Weighted average common
shares outstanding (B) ......... 356.3 367.1
Assumed conversion of stock
options ....................... 4.2 5.4
------ ------
Weighted average common
shares outstanding - assuming
dilution (C) .................. 360.5 372.5
====== ======
III. Profit per share of common
stock (A/B) ..................... $0.58 $1.17
Profit per share of common
stock - assuming dilution (A/C). $0.57 $1.15
7. The reserve for plant closing and consolidation costs includes the
following:
Mar. 31, Dec. 31,
1999 1998
(unaudited)
---------- --------
Write down of property, plant, and equipment ..... $ 77 $ 78
Employee severance benefits ...................... 31 37
Rearrangement, start-up costs, and other ......... 3 5
------ ------
Total reserve .................................... $ 111 $ 120
====== ======
The write-down of property, plant, and equipment establishes a new
cost basis for assets that have been permanently impaired.
Employee severance benefits (e.g., pension, medical, and supplemental
unemployment benefits) are provided to employees affected by plant
closings and consolidations. The reserve for such benefits is reduced
as the benefits are provided.
At March 31, 1999 and December 31, 1998, the above reserve includes
$40 and $49 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 in the final stages of closing the unit.
8. In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 requires that
an entity record all derivatives in the statement of financial position
at their fair value. It also requires changes in fair value to be
recorded each period in current earnings or other comprehensive income
depending upon the purpose for using the derivative and/or its
qualification, designation, and effectiveness as a hedging transaction.
PAGE 13
We are required to adopt this new accounting standard for the fiscal year
beginning January 1, 2000. We are currently analyzing the impact of
SFAS 133. Due to the inherent complexities of this standard and the
significant changes from current accounting practices, we have not yet
determined the full impact that the adoption of SFAS 133 will have on our
financial position, results of operations, or cash flows. However, at
this time, we do not believe that the impact will be material.
9. Segment Information
Caterpillar is organized based on a decentralized structure that has
established accountabilities to continually improve business focus and
increase our ability to react quickly to changes in both the global
business cycle and competitors' actions. Our current structure uses a
product, geographic matrix organization comprised of multiple profit
center and service center divisions.
We have developed an internal measurement system, which is not based on
generally accepted accounting principles (GAAP), that is intended to
motivate desired behavior and drive performance rather than measure a
division's contribution to enterprise results. It is the comparison of
actual results to budgeted results that makes our internal reporting
valuable to management. Consequently, we believe that segment
disclosure based on Statement of Financial Accounting Standards
No. 131 (SFAS 131) "Disclosures about Segments of an Enterprise and
Related Information" has limited value to our external readers.
As a result, in addition to the required SFAS 131 compliant segment
information presented below, we are continuing to disclose GAAP-based
financial results for our three lines of business (Machinery, Engines,
and Financial Products) in our Management's Discussion and Analysis
beginning on page 16.
For the three months ended March 31, 1999 (unaudited):
Asia/ Construction Financial Latin
Business Segments: Pacific & Mining EAME & Insurance America
Marketing Products Marketing Services Marketing
--------- ---------- ---------- ------------ ---------
External sales
and revenues $ 265 $ 36 $ 726 $ 337 $ 272
Intersegment sales
and revenues 1 2,152 251 4 23
----- ------ ----- ----- -----
Total sales
and revenues $ 266 $2,188 $ 977 $ 341 $ 295
Accountable profit $ 6 $ 228 $ 40 $ 62 $ 4
Accountable assets
at March 31, 1999 $ 341 $2,322 $ 895 $11,815 $ 691
North
Business Segments: Power America All
(continued) Products Marketing Other Total
--------- --------- ------ -----
External sales
and revenues $1,100 $1,926 $ 234 $ 4,896
Intersegment sales
and revenues 962 48 469 3,910
$----- $----- $----- $------
Total Sales
and revenues $2,062 $1,974 $ 703 $ 8,806
Accountable profit $ (24) $ 40 $ 62 $ 418
Accountable assets
at March 31, 1999 $3,442 $2,151 $2,070 $23,727
PAGE 14
For the three months ended March 31, 1998 (unaudited):
Asia/ Construction Financial Latin
Business Segments: Pacific & Mining EAME & Insurance America
Marketing Products Marketing Services Marketing
--------- ---------- ---------- ------------ ---------
External sales
and revenues $ 239 $ 45 $ 788 $ 283 $ 432
Intersegment sales
and revenues 0 2,378 257 3 30
$---- $----- $----- $------ $----
Total sales
and revenues $ 239 2,423 $1,045 $ 286 $ 462
Accountable profit $ (14) 377 $ 64 $ 47 $ 21
Accountable assets
at Dec. 31, 1998 $ 289 2,349 $ 862 $11,451 $ 741
North
Business Segments: Power America All
(continued) Products Marketing Other Total
--------- --------- ------ -----
External sales
and revenues $ 845 $1,921 $ 234 $ 4,787
Intersegment sales
and revenues 1,024 41 483 4,216
$----- $----- $----- $------
Total Sales
and revenues $1,869 $1,962 $ 717 $ 9,003
Accountable profit 27 $ 76 $ 58 656
Accountable assets
at Dec. 31, 1998 $3,479 $1,475 $2,030 $22,676
Reconciliation of Profit before tax:
Mar. 31, Mar. 31,
1999 1998
(Unaudited)
-------- --------
Total accountable profit from business segments $ 418 $ 656
Methodology differences (52) 20
Corporate Costs (82) (84)
Other 17 37
----- -----
Total consolidated profit before tax $ 301 $ 629
===== =====
PAGE 15
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, 1999 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1998
Sales and revenues for the first-quarter 1999 were $4.87 billion,
$73 million higher than first-quarter 1998. A 2% increase in physical sales
volume and a 22% increase in Financial Products revenues were partially
offset by lower price realization. Without Perkins, physical sales volume
would have declined 1%. Profit of $205 million was $225 million less than
1998's first-quarter record of $430 million. Unfavorable product sales mix,
the lower price realization and the impact of lower production volumes on
manufacturing efficiencies were the most significant reasons for the lower
profit. Profit per share of $.57 was down $.58 from the 1998 record of $1.15.
MACHINERY AND ENGINES
Sales Table
-----------
North Latin Asia/
(Millions of dollars) Total America EAME** America Pacific
----- ------- ---- ------- -------
First-Quarter 1999
- ------------------
Machinery $3,290 $2,139 $718 $202 $231
Engines * 1,308 770 340 85 113
------ ------ ------ ---- ----
$4,598 $2,909 $1,058 $287 $344
====== ====== ====== ==== ====
First-Quarter 1998
- ------------------
Machinery $3,438 $2,167 $706 $343 $222
Engines * 1,135 632 307 110 86
------ ------ ----- ---- ----
$4,573 $2,799 $1,013 $453 $308
====== ====== ====== ==== ====
* Does not include internal engine transfers of $316 million and $308 million
in 1999 and 1998, respectively. Internal engine transfers are valued at
prices comparable to those for unrelated parties.
** Europe, Africa & Middle East and Commonwealth of Independent States
PAGE 16
Reconciliation of Machinery and Engines Sales by
Geographic Region to External Sales by Marketing Segment
Three Months Ended
(Millions of dollars) March 31, March 31,
1999 1998
-------- --------
North American Geographic Region $ 2,909 $ 2,799
Engine Sales included in the Power
Products segment (770) (632)
Company owned dealer sales included
in the All Other segment (87) (83)
Certain governmental sales included in
the All Other segment (24) (29)
Other* (102) (134)
------- -------
North American Marketing external sales $ 1,926 $ 1,921
======= =======
EAME Geographic Region $ 1,058 $ 1,013
Power Products Sales not included in
the EAME Marketing segment (248) (159)
Other* (84) (66)
------- -------
EAME Marketing external sales $ 726 $ 788
======= =======
Latin America Geographic Region $ 287 $ 453
Power Products Sales not included in
the Latin America Marketing segment (32) (29)
Other 17 8
------- -------
Latin America Marketing external sales $ 272 $ 432
======= =======
Asia/Pacific Geographic Region $ 344 $ 308
Power Products Sales not included in
the Asia/Pacific Marketing segment (50) (25)
Other* (29) (44)
------- -------
Asia/Pacific Marketing external sales $ 265 $ 239
======= =======
*Mostly represents external sales of the Construction & Mining Products
and the All Other segments.
Machinery sales were $3.29 billion, a decrease of $148 million or 4%
from first-quarter 1998. The lower sales resulted primarily from a 3%
decrease in physical sales volume due to lower sales to end users. Price
realization also declined.
Nearly all the decline occurred in Latin America where recession or
slower growth in a number of countries caused drops in both dealer new
machine inventories and sales to users. In North America, sales remained
near first-quarter 1998 levels as an increase in the United States was offset
by a drop in Canada. The increase in the United States resulted from an
increase in dealer new machine inventories and from higher sales to end
users. In Canada, just the opposite occurred as dealers reduced new machine
inventories and sales to users fell. In EAME (Europe, Africa & Middle East
and Commonwealth of Independent States), sales remained near last year's
levels as higher end-user driven sales in Europe offset lower sales in Africa
& Middle East. Sales were slightly higher in the Asia/Pacific region as
dealers in developing Asia began to rebuild new machine inventories rather
than decrease them as they did a year ago.
PAGE 17
Engine sales were $1.31 billion, an increase of $173 million or 15% from
first-quarter 1998. Sales, excluding Perkins, were higher than a year ago as
a 7% increase in physical sales volume more than offset lower price
realization.
Sales excluding Perkins were up in North America and Asia/Pacific and
lower in EAME and Latin America. In North America, sales were up in both the
United States and Canada due to the strong on-highway truck market as well as
increased demand for power generation and marine applications. Sales
excluding Perkins were lower in EAME and Latin America reflecting the impact
of low oil prices, weak growth in Africa & Middle East and recession or
slower growth in most of Latin America. In the Asia/Pacific region, an
increase in Australia more than offset decreases in developing Asia.
Operating Profit Table
----------------------
(Millions of dollars) First-Quarter First-Quarter
1999 1998
------------- -------------
Machinery $283 $474
Engines 31 98
---- ----
$314 $572
==== ====
Caterpillar operations are highly integrated; therefore, the company uses a
number of allocations to determine lines of business operating profit.
Machinery operating profit decreased $191 million, or 40% from first-
quarter 1998. Margin (sales less cost of goods sold) declined primarily due to
the lower sales volume, an unfavorable change in product sales mix, the impact
of lower production volumes on manufacturing efficiencies and the lower price
realization. Selling, general, and administrative as well as research and
development expenses were about the same.
Engine operating profit decreased $67 million, or 68% from first-quarter
1998. Margin declined as the benefit of higher sales volumes was more than
offset by an unfavorable change in product sales mix and the lower price
realization. Selling, general, and administrative expenses were higher due
largely to the Perkins acquisition. (First-quarter 1998 included only one
month of Perkins costs.) Research and development costs were about the same.
Interest expense was $6 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 expense of $17 million compared with income of
$42 million first quarter last year. The decrease was due mostly to an
unfavorable change in foreign exchange gains and losses, lower interest income
and 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.
PAGE 18
FINANCIAL PRODUCTS
Revenues were a first-quarter record $303 million, up $63 million or 26%
compared with first-quarter 1998. The increase resulted primarily from
continued growth in Cat Financial's portfolio.
Before tax profit decreased $5 million or 7% from first-quarter 1998.
Higher profit at Cat Financial from continued portfolio growth was more than
offset by lower profit at Caterpillar Insurance Co. Ltd. (Cat Insurance).
Lower investment income and less favorable reserve adjustments were the
reasons for lower profit at Cat Insurance.
INCOME TAXES
First-quarter 1999 tax expense reflects an effective annual tax rate
of 32%. First-quarter 1998 tax expense reflected an effective annual tax rate
of 33%.
UNCONSOLIDATED AFFILIATED COMPANIES
The company's share of unconsolidated affiliated companies' results
declined $8 million from a year ago. The major factor for the decrease was
less profit at Shin Caterpillar Mitsubishi Ltd.
SUPPLEMENTAL INFORMATION
- ------------------------
Dealer Machine Sales to End Users and Deliveries to Dealer Rental Operations
Sales and deliveries in North America remained near first-quarter 1998
levels. Sales were slightly higher in the United States where the economy has
registered excellent growth and residential construction remains strong. Sales
were lower in Canada, however, reflecting the impact of higher interest rates
last year and continued low commodity prices. For the region as a whole, sales
to end users were higher in all key construction sectors and lower in most
commodity sectors except petroleum. Deliveries to dealer rental operations
continued at last year's pace.
Sales and deliveries in the EAME region also were unchanged from year-ago
levels as higher sales in Europe were offset by lower sales in Africa & Middle
East and the Commonwealth of Independent States. In Europe, continued moderate
economic growth combined with lower interest rates resulted in higher sales to
users in Italy, France and Germany. Sales were also up in the United Kingdom
despite a weak economy. In Africa & Middle East, low commodity prices, weak
growth and spending reductions led to lower sales. Sales were higher in the
United Arab Emirates and Egypt but lower in Turkey and South Africa. In the
Commonwealth of Independent States, sales were lower due to severe recession in
Russia. For EAME as a whole, sales to users were higher for construction and
solid waste applications as well as aggregates mining.
Sales and deliveries in Latin America fell due to widespread recession and
slower growth. Only Mexico and Peru have maintained moderate growth. Sales in
the first quarter were lower in Brazil, Chile, Venezuela, Mexico and Colombia,
but higher in Peru and Argentina. Although sales to users in the metals mining
sector were up, sales to users were lower for construction applications as well
as other commodity applications.
PAGE 19
Sales and deliveries in Asia/Pacific remained below year earlier levels
reflecting the impact of last year's severe recessions in Southeast Asia, Korea
and Japan. Sales were below first-quarter 1998 levels in Indonesia, Thailand
and the Philippines but higher in Japan, Malaysia and Korea. Sales also were
higher in China reflecting the impact of the government's sizable infra-
structure initiative and in India which has continued to register good
economic growth. Sales were lower in Australia. For the region as a whole,
sales to users were lower in all key applications except forestry and
aggregates mining.
Dealer Inventories of Machines
Worldwide dealer new machine inventories at the end of the first quarter
were about the same as year earlier and just slightly above normal relative to
current selling rates. Higher inventories in North America offset declines in
Asia/Pacific and Latin America. At quarter's end, inventories compared with
current selling rates were about normal in Asia/Pacific and moderately below
normal in EAME. Inventories in North America continue to be moderately above
normal compared with current selling rates as dealers took advantage of special
financing and inventory programs late last year to improve product availability
for the 1999 selling season. Inventories in Latin America were significantly
above current selling rates as sales fell sharply due to recession and slower
growth.
Engine Sales to End Users and OEMs (excluding Perkins)
Sales in North America were up primarily due to continued, very strong
demand for on-highway truck engines. Sales also were higher in power
generation and marine applications but lower in the industrial and petroleum
sectors. Sales of both reciprocating and turbine engines were higher. Sales
were up in Canada as well as the United States.
Sales in EAME were down primarily due to a decline in Europe. Sales were
higher in marine applications but lower in power generation, petroleum and
industrial applications. Sales were lower for both reciprocating and turbine
engines.
Sales in Asia/Pacific remained near last year's levels as higher sales in
Australia and Japan offset lower sales in developing Asia, which remained weak
following last year's severe recessions. Sales of turbine engines were above
year earlier levels as higher sales in Australia more than offset lower sales
elsewhere. Sales of reciprocating engines were lower across most of the
region. Sales were higher for petroleum applications and lower for power
generation.
Sales in Latin America also were lower for both reciprocating and turbine
engines as well as for most applications, reflecting the impact of recessions
and slower growth.
EMPLOYMENT
- ----------
At the end of the first quarter, Caterpillar's worldwide employment was
65,377 compared with 64,681 one year ago.
OUTLOOK
- -------
1999 company sales and revenues are expected to be slightly below 1998's
record levels due to weakness in Latin America, a reversal of last year's
increase in North American dealer inventory levels and the impact of low
commodity prices. Sales are forecast to be higher in EAME due to improved
demand for machinery in Europe. Sales also are forecast to be up in
Asia/Pacific where dealers were liquidating new machine inventories in 1998.
PAGE 20
As a result of adverse product sales mix, lower sales and a continuing
competitive pricing environment, the company is implementing actions to reduce
costs. These include selected production schedule cuts, employment reductions
and temporary plant shutdowns at facilities in the United States, Latin America
and Europe. Other actions include reducing inventory and selling, general and
administrative and research and development expenses. As a result of these
actions and anticipated better demand, profit in the second half of 1999 is
expected to be higher than the first half. For the year profit per share is
expected to be 10%-15% less than 1998.
SUPPLEMENTAL OUTLOOK INFORMATION
- --------------------------------
Summary
World economic growth in 1999 is forecast to be similar to 1998 as
improvement in Asia is largely offset by recession in Latin America. The
United States and Australian economies should register another year of
excellent growth while moderate growth is forecast to continue in Europe.
Combined with low prices for metals and uncertainty over oil prices,
this outlook is expected to result in slightly lower industry demand for
construction and mining equipment. Machine demand is forecast to remain
close to 1998 levels in the United States and just below last year's levels
in Australia and Japan. Higher demand in Europe and developing Asia should
offset lower demand in Latin America and Canada. In contrast to construction
and mining equipment, industry demand for agricultural equipment is forecast
to be down sharply due to depressed commodity prices.
Industry demand for engines is now forecast to exceed 1998 levels in North
America due primarily to the continued strong on-highway truck market. Demand
in the rest of the world, however, is likely to be down.
In this environment of generally weaker industry demand, company sales and
revenues are expected to be slightly below 1998 levels. The decline is due
primarily to the sharp drop in demand from Latin America, the impact of low
commodity prices on the mining, oil and agricultural sectors and an inventory
adjustment by North American dealers.
North America
In the United States, Gross Domestic Product (GDP) growth is forecast to
slow from 3.9% in 1998 to 3.0%-3.5% in 1999. Housing starts should remain
strong, and the new six-year highway spending bill will boost highway
construction spending as well as aggregates production. Metals mining and
agriculture, however, are expected to remain weak due to low worldwide prices.
Industry demand for construction and mining machines is expected to be about
flat while demand for agricultural equipment is forecast to fall. In Canada,
slower economic growth and low commodity prices are expected to result in
slightly lower industry demand for machines. For North America, industry
demand for reciprocating engines is forecast to increase due to the continued
strong on-highway truck market, but demand for turbines is forecast to
decline due to low oil prices over the past year. In total, industry demand
for the region should remain near 1998 levels but company sales are forecast
to decline primarily due to a reversal of last year's increase in dealer new
machine inventory levels.
PAGE 21
EAME
In Western Europe, GDP growth is expected to be about 2.5%, resulting in
slightly higher industry demand for construction and mining machines. Demand
in the United Kingdom, however, is anticipated to decline due to weak growth
resulting from high interest rates and a strong currency. European demand for
reciprocating engines, especially from OEMs, is forecast to be down. In Africa
& Middle East, weak growth and low commodity prices should result in lower
industry demand for both machines and engines. In Russia, continued recession
and instability will result in lower industry demand. For the region as a
whole, company sales are forecast to be near 1998 levels as higher machinery
sales are offset by lower engine sales.
Latin America
Recessions in Brazil, Argentina, Venezuela, Colombia and Ecuador are
likely to continue for another three to six months before the region
stabilizes. Consequently, industry demand for machines and engines in these
countries will be much lower than last year. Mexico and Peru are expected to
sustain moderate economic growth, but industry demand for the entire region
is still likely to be down significantly leading to lower company sales.
Asia/Pacific
In the Asia/Pacific region, some of the developing countries which
experienced severe recession in 1998 are beginning to stabilize and growth
should resume later this year. China should continue to grow at about 7%.
As a result, GDP for developing Asia is expected to increase from 1.0% in
1998 to 3.5% in 1999. Industry demand for machines is forecast to be up
slightly with an increase in China due to strong infrastructure spending more
than offsetting continued weakness in Southeast Asia. Industry demand for
engines is expected to be down moderately. Business conditions in Japan are
expected to remain weak in 1999, but massive public works spending should
begin to stabilize industry demand after the steep decline of the past two
years. In Australia, continued good economic growth should keep industry
demand just slightly below 1998 levels. For the region as a whole, industry
demand will be about flat but company sales are forecast to be up slightly
because dealers are not expected to decrease new machine inventories as they
did in 1998.
B. Liquidity & Capital Resources
-----------------------------
Consolidated operating cash flow was a negative $61 million for the first
quarter of 1999, compared with $108 million for the first quarter of 1998.
This decrease is largely due to an unfavorable change in receivables. Total
debt as of March 31, 1999 was $12.93 billion, an increase of $477 million
from year-end 1998. During the first quarter of 1999, debt related to
Machinery and Engines increased $175 million, to $3.28 billion, while debt
related to Financial Products increased $302 million to $9.65 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. For the first quarter of 1999, 1.7 million shares have been
repurchased under the plan. The number of shares outstanding at March 31,
1999, was 355.8 million.
PAGE 22
Machinery and Engines
Operating cash flow was $57 million through the first quarter of 1999,
compared with $819 million for the same period a year ago. This decrease was
primarily due to a seasonal increase in receivables during the first quarter of
1999 compared with a decrease in receivables during the first quarter of 1998.
First quarter 1998 benefited from the initiation of the revolving sale of
receivables to Financial Products.
First quarter 1999 capital expenditures, excluding equipment leased to
others, were $110 million compared with $116 million for the same period a year
ago. Total debt increased by $175 million due to short term borrowings. Our
debt to debt plus equity ratio as of March 31, 1999 was 38%.
Financial Products
Operating cash flow was a negative $82 million for the first quarter 1999,
compared with a negative $691 million for the first quarter of 1998. First
quarter 1998 was negatively impacted by the purchase of receivables from
Machinery and Engines. Cash used to purchase equipment leased to others was
$96 million in 1999. In addition, net cash used for finance receivables was
$130 million for the first quarter of 1999, compared with $426 million for the
first quarter of 1998.
Financial Products' debt was $9.65 billion at March 31, 1999, an increase
of $302 million from December 31, 1998, and primarily comprised $6.35 billion
of medium term notes, $109 million of notes payable to banks and $3.07
billion of commercial paper. At the end of the first quarter of 1999,
finance receivables past due over 30 days were 2.0%, compared with 1.6% at
the end of the same period one year ago. The ratio of debt to equity of Cat
Financial was 7.9:1 at March 31, 1999, compared with 8.0:1 at December 31, 1998.
Financial Products had outstanding credit lines totaling $4.28 billion at
March 31, 1999, which included $2.61 billion of shared revolving credit
agreements with Machinery and Engines. These credit lines are with a number of
banks and are considered support for the company's outstanding commercial
paper, commercial paper guarantees, the discounting of bank and trade bills
and bank borrowings.
C. Year 2000 Challenge
------------------
Our Approach
Caterpillar has a comprehensive plan to address the Year 2000 challenge.
A Year 2000 Steering Committee, chaired by a member of our Executive Office,
is charged with monitoring Year 2000 efforts of our business units and
reporting status to our Executive Office and Board of Directors. Although
this team has monitoring responsibility, vice presidents in charge of each
business unit are responsible for identifying, evaluating, and implementing
changes necessary to achieve readiness within their units.
PAGE 23
Remediation History and Status
Caterpillar began addressing the Year 2000 challenge as part of plant
modernization and corporate restructuring initiatives in the late 1980s
and early 1990s. New systems incorporated Year 2000 compliance by design.
In 1994, Caterpillar's corporate information systems division initiated
projects to address the Year 2000 issue. Today, all Caterpillar business
units are engaged in a comprehensive effort to meet the Year 2000 challenge
as it impacts their internal and external customers.
We have established five Year 2000 phases under which units measure their
progress:
* Inventory -- identifying key business areas and related products and
services (both internal and external) potentially impacted by the
Year 2000 issue;
* Analysis -- determining how a product or service is impacted and
preparing a plan to address the issue;
* Remediation -- making the necessary changes to bring the product
or service into compliance;
* Validation -- testing the product or service to ensure it is
Year 2000 compliant; and
* Implementation -- installing necessary changes in production.
Internal Systems
As of March 31, 1999, all Caterpillar business units have completed an
inventory of internal systems having potential Year 2000 issues. By internal
systems, we mean both information technology and non-information technology
systems. Analysis to address Year 2000 issues has been completed on all
critical systems within the control of our units. Of those critical systems,
about 96% have been remediated and 93% validated. For about 89% of all
critical systems within our control, Year 2000 fixes have been implemented.
About 77% of our business units report that mission-critical systems
within their control will be fixed, tested, and in production by
June 1, 1999. All units report that mission-critical and significant
priority systems will attain that status by October 1, 1999.
Caterpillar Products
For some time, we have been assessing the potential impact of the
Year 2000 challenge on the operation of machines and engines sold
by Caterpillar. Our Electrical and Electronics business unit has
substantially completed its review, evaluation, and testing of
electronic components and service tools used on Caterpillar machines
and engines for Year 2000 related problems. This review included all
electronic control modules, display and monitoring systems, generator
set control systems, and electronic service tools under the design
control of that business unit.
As a result of this assessment and others completed by Caterpillar,
it is our position at this time that the Year 2000 challenge should not
have any significant impact on the performance of previous, present, or
future Caterpillar machines and engines. We note that our assessment of
the Year 2000 impact across our product line is an ongoing process and
subject to further review. We are committed to delivering the highest
quality products and services to our customers currently and beyond the
Year 2000.
PAGE 24
Suppliers and Caterpillar Dealers
We are actively assessing the Year 2000 readiness of our significant
third-party suppliers. Those efforts include survey mailings, presentations,
review of supplier Year 2000 statements, and follow-up activities with
suppliers that have not responded to requests for information. For
suppliers that have not responded, we are following up to achieve
ultimately an acceptable comfort level with our supply chain. For
suppliers posing a significant risk, contingency plans are being developed.
Analysis to address Year 2000 issues has been completed on about 97% of
critical dependencies (including suppliers, utilities, and transportation
services) outside the control of our business units. For 73% of these
critical dependencies, we have implemented Year 2000-ready solutions or
confirmed that the business partner or dependency was already Year 2000
compliant. Dependencies reported as outside the control of our units may
include those supplied by other units within Caterpillar as well as those
supplied by outside companies.
We are also assessing the readiness of our dealers. Efforts in the U.S.
and outside the U.S. include mailings requesting information on remediation
plans and status, periodic regional meetings with dealers and their
information systems managers, and on-site assessments by Caterpillar
managers responsible for specific dealer regions. Based on these
communications, we expect that by the end of 1999 our dealers will be
in a position to service customers without any significant business
disruption related to the Year 2000 issue. We will continually monitor
dealer progress against this time frame.
Costs
The following cost estimates, which are as of March 31, 1999, would not
have a material impact on Caterpillar's results, financial position, or cash
flow. As of March 31, 1999, we have incurred about two-thirds of these
estimated total costs. As necessary, we will refine these estimates.
We anticipate incurring $130-150 million in Year 2000-related costs.
Of these costs, capital costs for the replacement of systems, hardware,
or equipment are currently estimated to be $20-30 million.
These budgeted costs may not include all of the cost of implementing
contingency plans, which are in the process of being developed. These
estimates also do not include litigation or warranty costs related to the
Year 2000 issue, which at this time cannot be reasonably estimated.
Risks
Our estimates on cost, remediation time frame, and potential financial
impact are based on information we have currently. There can be no
assurance these estimates will prove accurate and actual results could
differ materially from those currently anticipated.
Factors that could cause actual results to differ include unanticipated
supplier or dealer failures; utilities, transportation, or telecommunications
breakdowns; U.S. or non-U.S. government failures; and unanticipated failures
on our part to address Year 2000-related issues.
PAGE 25
The "most reasonably likely worst case scenario" in light of these risks
would involve a potential loss in sales resulting from production and
shipping delays caused by Year 2000-related disruptions. Under this
scenario, manual procedures would be required for order processing,
invoicing, supplier management processing, warranty claim processing,
and for certain factory machine tool operations. The degree of sales
loss impact would depend on the severity of the disruption, the time
required to correct it, whether the sales loss was temporary or permanent,
and the degree to which our primary competitors were also impacted by the
disruption. Based on our internal analysis, we believe even if our "most
reasonably likely worst case scenario" were to occur it would not have a
material impact on our results, financial position, or cash flow.
To minimize the potential impact of the "most reasonably likely worst
case scenario," each Caterpillar business unit is developing contingency
plans. Finalized contingency plans may involve manual operation of
machine tools, manual collection and reporting of data, adjustment of
production material inventory levels, and alternative sources of supply.
Contingency plans, where deemed necessary, will be finalized before the
end of 1999.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
We have fifteen employee stock purchase plans administered outside the
United States for our non-U.S. employees. These plans are not registered with
the Securities and Exchange Commission and are exempt from such registration
pursuant to Regulation S under the Securities Act. As of December 31, 1998,
those plans had approximately 4,697 participants in the aggregate. During the
First Quarter of 1999, a total of 79,558 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 14, 1999, for the purpose of electing a board of directors, approving the
appointment of auditors, and voting on the proposals 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.
Proposal 1 - Election of Directors.
All of management's nominees for directors as listed in the proxy statement
were elected with the following vote:
Shares Voted Shares
"FOR" "WITHHELD"
------------ ---------
W. Frank Blount 292,144,792 3,629,424
John R. Brazil 291,957,119 3,817,097
James P. Gorter 292,344,335 3,429,881
Peter A. Magowan 292,437,497 3,336,719
Clayton K. Yeutter 292,243,861 3,530,355
PAGE 26
Proposal 2 - Appointment of Auditors.
The appointment of PricewaterhouseCoopers LLP as independent auditor was
approved by the following vote:
Shares Voted Shares Voted Shares Shares
"FOR" "AGAINST" "ABSTAINING" Not Voted
- ------------ ------------ ------------ ---------
293,575,477 1,077,486 1,121,253 0
Proposal 3 - Stockholder Proposal - Country Selection Guidelines.
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
- ------------ ------------ ------------ ----------
13,361,571 222,787,688 12,708,452 46,916,505
Proposal 4 - Stockholder Proposal - Declassify Board
A stockholder proposal requesting the Board of Directors to declassify the
Board for the purpose of director elections was defeated with the following
vote:
Shares Voted Shares Voted Shares Shares
"FOR" "AGAINST" "ABSTAINING" Not Voted
- ------------ ------------ ------------ ----------
100,618,983 144,770,251 3,458,477 46,926,505
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K, dated January 14, January 20, February 2, and
March 12 were filed during the quarter ending March 31, 1999,
pursuant to Item 5 of that form. An additional Form 8-K was filed
on April 16, 1999 pursuant to Item 5. No financial statements were
filed as part of those reports.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CATERPILLAR INC.
Date: May 5, 1999 By: /s/ F. L. McPheeters
----------------------
F. L. McPheeters, Vice President
and Chief Financial Officer
Date: May 5, 1999 By: /s/ R. R. Atterbury III
-------------------------
R. R. Atterbury III, Secretary
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
27 Financial Data Schedule