2nd Quarter & Interim Results

Caterpillar Inc 20 July 2000 CATERPILLAR SALES, REVENUES AND PROFIT INCREASE IN SECOND-QUARTER 2000; OUTLOOK REMAINS UNCHANGED PEORIA, Ill. -- Caterpillar Inc. (NYSE: CAT) today reported second-quarter sales and revenues of $5.36 billion, $262 million or 5 percent higher than second-quarter 1999. The increase was primarily due to higher physical volume. Financial Products revenues increased $27 million or 10 percent from second-quarter 1999. Profit of $315 million was $32 million or 11 percent higher than second-quarter 1999. The increase was due primarily to improved manufacturing efficiencies and the higher physical volume. These favorable changes were partially offset by unfavorable other income, mostly due to discounts on the securitization of receivables and foreign exchange losses. Profit per share was 90 cents, up 15 percent. 'Through the first half of 2000, customer demand for Cat products in total remained solid, though in the U.S., higher interest rates and other factors have softened the market for construction equipment and truck engines,' said Chairman and CEO Glen Barton. 'Our global diversification, broad product line and the variety of businesses in which we compete continue to create a broad base of opportunities. Sales increased in all regions of the world. Strong demand for quality power in telecommunications, process manufacturing and internet service operations in North America and Europe is driving a dramatic increase in Caterpillar's electric power business. Although there have been 7changes in components of our outlook and we are concerned about the interest rate environment for the rest of the year, the overall outlook for 2000 remains unchanged - sales are expected to be up slightly and profit to be up moderately.' 2 HIGHLIGHTS SECOND-QUARTER 2000 COMPARED WITH SECOND-QUARTER 1999 * Sales and revenues of $5.36 billion were $262 million or 5 percent higher. Revenues from Financial Products increased 10 percent. * Sales inside the United States were 52 percent of worldwide sales compared with 53 percent a year ago. * Profit of $315 million was $32 million or 11 percent above second-quarter 1999. * Profit per share of 90 cents was up 15 percent. * 3.06 million shares were repurchased during the quarter under the program announced in October 1998 to reduce the number of shares outstanding to 320 million over a three to five year period. On June 30, 2000 there were 345.7 million shares outstanding. * As previously announced, dividends were increased by 5 percent in June, bringing the quarterly payout to 34 cents per share. This is the seventh consecutive year dividends have been increased. OUTLOOK We continue to expect full-year 2000 sales and revenues to be slightly higher than 1999 and profit to increase moderately. (Complete outlook begins on page 9.) 3 DETAILED ANALYSIS SECOND-QUARTER 2000 COMPARED WITH SECOND-QUARTER 1999 Sales and revenues for the second-quarter 2000 were $5.36 billion, 5 percent higher than second-quarter 1999. A 7 percent increase in physical sales volume and a 10 percent increase in Financial Products revenue were partially offset by the unfavorable impact of the stronger U.S. dollar on sales denominated in currencies other than U.S. dollars (primarily the euro). Profit of $315 million or 90 cents per share was $32 million or 11 percent higher than second-quarter 1999. The increase was due primarily to improved manufacturing efficiencies and higher physical volume. These favorable changes were partially offset by unfavorable other income, mostly due to discounts on the securitization of receivables and foreign exchange losses. The negative impact of the U.S. dollar on sales was mostly offset by the U.S. dollar's positive impact on costs. MACHINERY AND ENGINES Sales North Latin Asia/ (Millions of dollars) Total America EAME* America Pacific Second-Quarter 2000 Machinery $3,320 $1,941 $833 $241 $305 Engines** 1,736 1,003 441 103 189 $5,056 $2,944 $1,274 $344 $494 Second-Quarter 1999 Machinery $3,217 $1,953 $766 $203 $295 Engines** 1,604 919 390 128 167 $4,821 $2,872 $1,156 $331 $462 * Europe, Africa & Middle East and Commonwealth of Independent States ** Does not include internal engine transfers of $353 million in second-quarter 2000 and $314 million in second-quarter 1999. Internal engine transfers are valued at prices comparable to those for unrelated parties. 4 Machinery sales were $3.32 billion, an increase of $103 million or 3 percent from second-quarter 1999. The higher sales resulted from a 7 percent increase in physical sales volume. Price realization was lower, primarily due to the unfavorable impact of the stronger U.S. dollar on sales denominated in currencies other than U.S. dollars (primarily the euro). Sales in North America remained near year-earlier levels as lower dealer sales to end users were offset by a slower pace of dealer inventory reduction. The lower dealer sales to end users reflected both a drop in industry demand and a lower share of industry sales. Sales in EAME were higher due to improved dealer sales to end users and an increase in dealer inventories. Sales in Latin America increased as dealer sales to end users stabilized and dealers held inventories steady through the quarter compared to reducing them a year ago. Sales in the Asia/Pacific region were up slightly from second-quarter 1999 as higher dealer sales to end users more than offset dealer inventory reduction. Engine sales were $1.74 billion, an increase of $132 million or 8 percent from second-quarter 1999. The higher sales resulted from a 6 percent increase in physical sales volume. Price realization was also higher. The majority of the quarterly sales gain came from stronger sales into power generation as demand for electric power products increased in most areas of the world. It has been particularly strong in North America and Europe where Caterpillar's power solutions help meet peak power needs and provide premium quality power for telecommunications, process manufacturing and internet service operations. Sales of electric power products also benefited from the addition of revenues from F.G. Wilson, converted from an affiliated company to a consolidated subsidiary in July 1999. 5 Operating Profit (Millions of dollars) Second-Quarter Second-Quarter 2000 1999 Machinery $374 $293 Engines 171 117 $545 $410 Caterpillar operations are highly integrated; therefore, the company uses a number of allocations to determine lines of business operating profit. Machinery operating profit increased $81 million, or 28 percent from second-quarter 1999. Margin (sales less cost of goods sold) improved primarily due to the higher sales volume and improved manufacturing efficiencies, partially offset by the slightly negative impact of currency. Selling, general & administrative (SG&A) expenses were lower. Engine operating profit increased $54 million, or 46 percent, from second-quarter 1999 due to better price realization (primarily geographic mix), improved manufacturing efficiencies and higher sales volume. These were partially offset by higher SG&A. Interest expense was $9 million higher than a year ago. Other income/expense was expense of $50 million compared with income of $15 million last year. The adverse change was mostly due to discounts taken on the sale of trade receivables and unfavorable foreign exchange gains and losses. FINANCIAL PRODUCTS Revenues for the second quarter were $359 million, up $44 million or 14 percent compared with second-quarter 1999 (excluding revenue transactions with Machinery and Engines, revenues increased $27 million or 10 percent). The increase resulted primarily from continued growth in Cat Financial's portfolio. 6 Before tax profit decreased $9 million or 15 percent from second-quarter 1999. The decrease resulted primarily from a reduction in favorable reserve adjustments at Caterpillar Insurance Company Ltd. INCOME TAXES Second-quarter tax expense reflects an estimated annual tax rate of 32 percent for both 2000 and 1999. UNCONSOLIDATED AFFILIATED COMPANIES The company's share of unconsolidated affiliated companies' results declined $5 million from second quarter a year ago, primarily due to weaker results at Shin Caterpillar Mitsubishi Ltd. and the conversion of F.G. Wilson from an affiliated company to a consolidated subsidiary in July 1999. SUPPLEMENTAL INFORMATION Dealer Machine Sales to End Users Sales (including both sales to end users and deliveries to dealer rental operations) in North America were lower compared to second-quarter 1999. This was due to weaker sales in the United States resulting from a decline in industry demand and lower share of industry sales. Sales in Canada were higher. For the region, sales into general construction, industrial, quarry & aggregates, waste and agriculture were lower. Sales rose in mining and forestry. Sales in heavy construction were down slightly compared to second-quarter 1999 as sales to pipeline construction declined, while highway construction remained near year-earlier levels. Sales increased in EAME as a result of growing demand throughout the region. In Europe, economic growth supported higher sales in France and Spain. Reconstruction efforts boosted sales in Central Europe. Sales in the United Kingdom and Italy remained near year-earlier levels while sales in Germany declined. In Africa & Middle East, sales were higher in Turkey and Saudi Arabia, which more than offset declines in United Arab Emirates, Egypt and South Africa. Sales in the Commonwealth of Independent States (CIS) increased. For the EAME region, sales were higher to heavy construction, mining, 7 industrial, quarry & aggregates and forestry. Sales into general construction, agriculture and waste were lower. In Latin America, sales declined from year-earlier levels. Sales were lower in Colombia, Mexico and Argentina, more than offsetting gains in Brazil and Peru. For the region, sales were lower in industrial, general construction and mining sectors. Sales increased into heavy construction and forestry. In Asia/Pacific, sales increased due to growth in China, Australia, Korea, Malaysia and Indonesia. Sales in India and the Philippines were lower. For the region, sales increased into heavy construction, mining, general construction and forestry. Sales into the quarry & aggregates sector were lower. Dealer Inventories of New Machines Worldwide dealer new machine inventories at the end of the second quarter were lower than a year ago. Declines in North America and Asia/Pacific more than offset increases in EAME and Latin America. Inventories compared to current selling rates were lower than a year earlier in all regions. Engine Sales to End Users and OEMs Higher sales in North America resulted from surging demand for electric power products to help meet electric utilities' peak power requirements and increased customer needs for high quality power. Demand for larger engine product to support network operation centers (sometimes referred to as internet service providers) was particularly robust. Sales were also higher in the petroleum sector due to the impact of higher crude oil and natural gas prices. Sales of on-highway truck engines declined as expected due to weakening industry demand, however Caterpillar's market leadership position in this industry continued to grow. Sales into marine and industrial were also lower. Sales in the rest of the world were lower as sales declined in all sectors except power generation which benefited from the acquisition of F.G. Wilson. 8 CONDENSED CASH FLOW Net free cash flow (profit after tax adjusted for depreciation, changes in working capital, capital expenditures, and dividends) for Machinery and Engines was $436 million for 2000, an increase of $160 million from 1999. This increase was primarily due to higher profit after tax and a favorable change due to a smaller increase in working capital. For the Six Months Ended (Millions of dollars) Machinery & Consolidated Engines * Financial Products June 30, June 30, June 30, June 30, June 30, June 30, 2000 1999 2000 1999 2000 1999 Profit after tax $573 $488 $573 $488 $75 $84 Depreciation and amortization 514 467 399 374 115 93 Change in working capital - excluding cash, debt and dividends payable (398) (955) (69) (113) (484) (798) Capital expenditures excluding equipment leased to others (252) (263) (246) (262) (6) (1) Expenditures for equipment leased to others, net of disposals (204) (97) 7 3 (211) (100) Dividends paid (228) (214) (228) (214) (29) (36) Net Free Cash Flow 5 (574) 436 276 (540) (758) Other significant cash flow items: Treasury shares purchased (326) (149) (326) (149) - - Net (increase) decrease in long-term finance receivables (504) (544) - - (504) (544) Net increase (decrease) in debt 934 1,550 (40) 188 1,165 1,357 Investments and acquisitions - (net of cash acquired) (78) (251) (70) (228) (8) (23) Other (110) (67) (66) (148) (126) (6) Change in cash and short-term Investments $(79) $(35) $(66) $(61) $(13) $26 * Represents Caterpillar Inc. and its subsidiaries, except for Financial Products which is accounted for on the equity basis. Note: Lines titled 'Change in working capital - excluding cash, debt, and dividends payable' and 'Capital expenditures excluding equipment leased to others' exclude $88 million and $91 million, respectively, included in the 'Investments and acquisitions' and 'Other' lines for the six months ended June 30, 1999. 9 EMPLOYMENT At the end of second-quarter 2000, Caterpillar's worldwide employment was 66,836 compared with 66,545 one year ago. Employment outside the United States grew by approximately 1,300 as we expanded operations to meet increased demand. OUTLOOK Summary Company sales and revenues are forecast to increase slightly in 2000 as higher sales in EAME and Asia/Pacific more than offset lower sales in North America. Company sales will benefit from better worldwide economic growth and higher prices for most commodities. Oil prices in particular are forecast to remain high, averaging $25 - $30 per barrel for the year, while agricultural prices are expected to remain under pressure due to crop surpluses in the United States. Company sales also will benefit from less dealer inventory reduction. The competitive environment, however, remains particularly challenging with pressure on both share of industry sales and price realization. Further, we continue to be concerned about the interest rate environment for the rest of the year. In North America, machine sales are expected to decline due to a drop in industry demand and a slightly lower share of industry sales. Engine sales are expected to exceed 1999 levels as robust power generation sales and higher petroleum sales more than offset lower industry demand for on-highway truck engines. In EAME and Asia/Pacific, good economic growth and higher commodity prices should lead to higher retail demand and higher company sales for machines and engines. In Latin America, company sales are forecast to be flat as higher machine sales are offset by lower engine sales. In summary, company sales and revenues are forecast to increase slightly in 2000 due to higher engine sales and increased financial revenues. Machinery sales are forecast to remain near 1999 levels as lower sales in the United States are offset by higher sales elsewhere. Profit is forecast to increase moderately. 10 North America In the United States, retail industry demand for construction equipment is forecast to decline 10 percent to 15 percent despite Gross Domestic Product (GDP) growth of about 4.5 percent. While such strong economic growth would usually lead to increased demand, higher interest rates, lower housing starts and a drop in replacement buying are causing industry demand to continue to fall from the 1998 peak. Heavy construction could provide a partial offset to the drop in general construction, but recent highway spending increases have continued to favor bridge repair and resurfacing which are not as heavy equipment intensive. Sales into most other sectors are likely to be down for the year including mining, quarry & aggregates, industrial, forestry and waste. Sales of agricultural equipment also are unlikely to exceed 1999 levels due to a drop in industry demand. Company machine sales are still forecast to benefit from higher sales of compact equipment and less dealer inventory reduction, but this will not be enough to offset lower industry demand and a slightly lower share of industry sales. Company engine sales in the United States are forecast to exceed 1999 levels as strong demand for power generation, higher sales into petroleum and higher share of industry sales for heavy and medium-duty truck engines should more than offset lower industry demand for on-highway truck engines. In Canada, good economic growth should lead to higher sales for both machines and engines. For the North American region as a whole, company sales are forecast to be slightly below last year's level as lower machine sales more than offset higher engine sales. EAME In Western Europe, GDP growth is expected to accelerate from 2.3 percent in 1999 to 3.3 percent in 2000 leading to a 5 percent to 10 percent increase in machine industry demand as well as stronger engine sales. Growth is also expected to improve in Africa & Middle East with double-digit gains in machine industry demand. Higher commodity prices, particularly oil and natural gas, are driving increased demand for both machines and engines. Sales in Russia and elsewhere in the CIS, however, are likely to 11 remain depressed. For the EAME region as a whole, better growth and improved business confidence should lead to higher company sales, despite the weak euro's unfavorable impact on the translation of European sales from euros to dollars. Asia/Pacific In developing Asia, economic recovery is forecast to continue with GDP growth of about 6 percent. This growth should result in considerably higher engine sales than last year, particularly for power generation. Even though the construction sector remains very weak, machine sales are forecast to increase somewhat from last year's depressed level as higher dealer sales to end users, especially in China, more than offset a reduction in dealer inventories. In Australia, good economic growth should continue although there is also some uncertainty about the impact on the economy of the implementation of the new goods and services tax on July 1. Machine sales volume is forecast to be higher for the year, but lower engine sales and a weak Australian dollar are likely to result in lower overall US dollar sales for Australia. For the Asia/Pacific region in total, company sales of both engines and machines should exceed 1999 levels. Latin America GDP growth is forecast to improve from 0.4 percent in 1999 to 4 percent in 2000 as most of the region recovers from last year's recession. Combined with higher commodity prices, this improved growth should result in higher machine and reciprocating engine sales. Sales of turbine engines, however, are likely to be lower, resulting in company sales remaining near 1999 levels. 12 The information included in the Outlook section is forward looking and involves risks and uncertainties that could significantly affect expected results. A discussion of these risks and uncertainties is contained in Form 8-K filed with the Securities & Exchange Commission (SEC) on July 20, 2000. That filing is available from the SEC web site at http://www.sec.gov/cgi-bin/srch-edgar?0000018230 Caterpillar's latest financial results, current outlook and quarterly conference call are also available via: Telephone: (800) 228-7717 (Inside the United States and Canada) (760) 704-4377 (Outside the United States and Canada) Internet: http://www.CAT.com/investor http://www.CAT.com/irwebcast (live broadcast/replays of quarterly conference call) Caterpillar contact: Marsha Hausser Corporate Public Affairs (309) 675-1307 E-mail: hausser_marsha_m@cat.com Note: Information contained on our website is not incorporated by reference into this release. Financial Pages Follow 13 CATERPILLAR INC. CONDENSED CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED (Millions of dollars except per share data) Consolidated Machinery & Engines * Financial Products June 30, June 30, June 30, June 30, June 30, June 30, 2000 1999 2000 1999 2000 1999 Sales and revenues: Sales of Machinery & Engines $5,056 $4,821 $5,056 $4,821 $ - $ - Revenues of Financial Products 307 280 - - 359 315 Total sales and revenues 5,363 5,101 5,056 4,821 359 315 Operating costs: Cost of goods sold 3,840 3,743 3,840 3,743 - - Selling, general, and Administrative expenses 647 632 514 516 143 123 Research and development Expenses 157 152 157 152 - - Interest expense of Financial Products 170 136 - - 181 142 Total operating costs 4,814 4,663 4,511 4,411 324 265 Operating Profit 549 438 545 410 35 50 Interest expense excluding Financial Products 74 65 74 65 - - Other income (expense) (1) 49 (50) 15 18 12 Consolidated profit before taxes 474 422 421 360 53 62 Provision for income taxes 151 136 134 113 17 23 Profit of consolidated companies 323 286 287 247 36 39 Equity in profit of Unconsolidated affiliates (8) (3) (8) (3) - - Equity in profit of Financial Products subsidiaries - - 36 39 - - Profit $315 $283 $315 $283 $36 $39 EPS of common stock $0.91 $0.80 EPS of common stock - assuming dilution $0.90 $0.78 Weighted average shares outstanding (thousands) Basic 347,066 355,943 Assuming dilution 349,378 361,065 * Represents Caterpillar Inc. and its subsidiaries, except for Financial Products which is accounted for on the equity basis. Transactions between Machinery and Engines and Financial Products have been eliminated to arrive at the Consolidated data. 14 CATERPILLAR INC. CONDENSED CONSOLIDATED RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED (Millions of dollars except per share data) Consolidated Machinery & Engines * Financial Products June 30, June 30, June 30, June 30, June 30, June 30, 2000 1999 2000 1999 2000 1999 Sales and revenues: Sales of Machinery & Engines $9,681 $9,419 $9,681 $9,419 $ - $ - Revenues of Financial Products 601 549 - - 689 618 Total sales and revenues 10,282 9,968 9,681 9,419 689 618 Operating costs: Cost of goods sold 7,398 7,321 7,398 7,321 - - Selling, general, and Administrative expenses 1,284 1,285 1,037 1,067 265 232 Research and development Expenses 312 307 312 307 - - Interest expense of Financial Products 323 265 - - 344 276 Total operating costs 9,317 9,178 8,747 8,695 609 508 Operating Profit 965 790 934 724 80 110 Interest expense excluding Financial Products 145 132 145 132 - - Other income (expense) 40 65 (42) (2) 33 23 Consolidated profit before taxes 860 723 747 590 113 133 Provision for income taxes 274 232 235 183 39 49 Profit of consolidated companies 586 491 512 407 74 84 Equity in profit of Unconsolidated affiliates (13) (3) (14) (3) 1 - Equity in profit of Financial Products subsidiaries - - 75 84 - - Profit $573 $488 $573 $488 $75 $84 EPS of common stock $1.64 $1.37 EPS of common stock - assuming dilution $1.63 $1.35 Weighted average shares outstanding (thousands) Basic 349,425 356,159 Assuming dilution 352,126 360,180 * Represents Caterpillar Inc. and its subsidiaries, except for Financial Products which is accounted for on the equity basis. Transactions between Machinery and Engines and Financial Products have been eliminated to arrive at the Consolidated data. 15 CATERPILLAR INC. CONDENSED FINANCIAL POSITION (Millions of dollars) Consolidated (Caterpillar Inc. and Subsidiaries) June 30, Dec. 31, June 30, 2000 1999 1999 Assets Current assets: Cash and short-term investments $469 $548 $325 Receivables - trade and other 2,517 3,233 3,880 Receivables - finance 5,554 4,206 4,065 Deferred income taxes 445 405 534 Prepaid expenses 818 748 676 Inventories 2,555 2,594 2,772 Total current assets 12,358 11,734 12,252 Property, plant, and equipment - net 5,253 5,201 4,913 Long-term receivables - trade and other 76 95 86 Long-term receivables - finance 6,092 5,588 5,602 Investments in unconsolidated affiliated companies 559 553 602 Deferred income taxes 917 954 1,045 Intangible assets 1,508 1,543 1,578 Other assets 1,121 967 677 Total Assets $27,884 $26,635 $26,755 Liabilities Current liabilities: Short-term borrowings: -- Machinery & Engines $75 $51 $245 -- Financial Products 852 719 960 Accounts payable 2,266 2,003 2,060 Accrued expenses 1,102 1,048 1,037 Accrued wages, salaries, and employee benefits 1,041 1,115 1,059 Dividends payable 118 115 116 Deferred and current income taxes payable 85 23 39 Long-term debt due within one year: -- Machinery & Engines 155 167 37 -- Financial Products 2,801 2,937 2,654 Total current liabilities 8,495 8,178 8,207 Long-term debt due after one year: -- Machinery & Engines 3,047 3,099 3,008 -- Financial Products 7,806 6,829 7,098 Liability for post-employment benefits 2,534 2,536 2,666 Deferred income taxes and other liabilities 544 528 530 Total Liabilities 22,426 21,170 21,509 Stockholders' Equity Common stock 1,049 1,045 1,046 Profit employed in the business 6,959 6,617 6,389 Accumulated other comprehensive income 42 78 (17) Treasury stock (2,592) (2,275) (2,172) Total Stockholders' Equity 5,458 5,465 5,246 Total Liabilities and Stockholders' Equity $27,884 $26,635 $26,755 Certain amounts for prior periods have been reclassified to conform with current financial statement presentation.

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