2nd Quarter Results

Caterpillar Inc (IRS) 18 July 2001 DOCUMENT DATED: 17 JULY 2001 CATERPILLAR REPORTS SECOND-QUARTER RESULTS: REAFFIRMS OUTLOOK PEORIA, Ill, - Caterpillar Inc. (NYSE: CAT) today reported second-quarter sales and revenues of $5.49 billion and profit of $271 million or 78 cents per share. 'Continued strength in electric power and heavy construction and improved demand in coal mining and oil and gas sectors helped fuel second-quarter sales,' said Caterpillar Chairman Glen Barton. Sales and revenues were $125 million or 2 percent higher than second-quarter 2000. A 2 percent increase in physical sales volume and a 16 percent increase in Financial Products revenues were partially offset by the unfavorable impact of the stronger U.S. dollar on sales denominated in currencies other than U.S. dollars. Company profit was $44 million or 14 percent lower than second-quarter 2000, due primarily to the unfavorable impact of cost inefficiencies caused by significant volume shifts at some manufacturing facilities, and higher selling, general and administrative (SG&A) expenses. These unfavorable items were partially offset by the slightly higher sales volume and favorable other income and expense. 'Our performance through the first half of the year was in line with our expectations. The diversification of our business has allowed us to achieve solid financial results despite a collapse in North American truck engine demand and prolonged weakness in general construction. For the full year, we expect to achieve our 2001 sales and revenue and profit outlook. We remain steadfastly focused on achieving our long-term growth and cost reduction goals and delivering improved shareholder value,' Barton stated. HIGHLIGHTS SECOND QUARTER 2001 - Sales and revenues of $5.49 billion were $125 million or 2 percent higher compared to second-quarter 2000. Financial Products revenues increased 16 percent. - Sales inside the United States were 51 percent of worldwide sales compared with 52 percent one year ago. - Profit was $271 million or 78 cents per share. - 264,000 shares were repurchased during the quarter. On June 30, 2001 there were 343.4 million shares outstanding. - As previously announced, the dividend was increased 3 percent in June, the eighth consecutive year dividends have been increased. The current quarterly payout is 35 cents per share. OUTLOOK We expect full-year 2001 sales and revenues to be about flat with 2000, Full-year profit is projected to be down about 5 to 10 percent. This sales and profit projection is unchanged from our outlook in January, even though the forecast for worldwide economic growth is lower than anticipated at the beginning of the year (complete outlook begins on page 8). DETAILED ANALYSIS SECOND-QUARTER 2001 COMPARED WITH SECOND-QUARTER 2000 Sales and revenues for the second-quarter 2001 were $5.49 billion, 2 percent higher than second-quarter 2000, A 2 percent increase in physical sales volume and a 16 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. Profit of $271 million or 78 cents per share was $44 million lower than second-quarter 2000. The decrease was due primarily to the unfavorable impact of cost inefficiencies caused by significant volume shifts at some manufacturing facilities and higher SG&A costs, partially offset by the slightly higher sales volume and favorable other income and expense. The negative impact of currency on sales was more than offset by a positive impact on costs. Profit per share of 78 cents was down 12 cents, or 13 percent, from second-quarter 2000. MACHINERY AND ENGINES Sales (Millions of dollars) Total North America EAME* Latin Asia/ America Pacific Second-Quarter 2001 Machinery $3,419 $2,026 $805 $260 $328 Engines ** 1,713 922 494 110 187 $5,132 $2,948 $1,299 $370 $515 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 * Europe, Africa & Middle East and Commonwealth of Independent States ** Does not include internal engine transfers of $322 million and $353 million in second-quarter 2001 and second-quarter 2000, respectively. Internal engine transfers are valued at prices comparable to those for unrelated parties. Machinery sales were $3.42 billion; an increase of $99 million or 3 percent from second quarter 2000. The higher sales resulted from a 3 percent increase in volume. Sales in North America increased due to continuing strong demand in heavy construction, increased demand in the energy-related coal mining industry and growth in the Cat Rental Store network as well as less inventory reduction by dealers compared to one year ago. These positive items more than offset overall lower industry demand in North America. Sales in EAME declined as inventory cutbacks by dealers more than offset higher retail sales. Sales in Latin America improved as dealers brought inventories more in line with sales. Sales in Asia/Pacific gained due to energy-related coal mining activity. Engine sales were $1.71 billion, a decrease of $23 million or 1 percent from second-quarter 2000. A 2 percent increase in physical sales volume was more than offset by unfavorable price realization. The increase in physical sales volume due to continued gains in sales of electric power solutions, particularly in North America, strengthening demand worldwide in oil and gas industries and higher sales to commercial marine applications more than offset a collapse in engine sales to North American truck OEMS. Operating Profit (Millions of dollars) Second-Quarter Second-Quarter 2001 2000 Machinery $324 $374 Engines 113 171 $437 $545 Caterpillar operations are highly integrated; therefore, the company uses a number of allocations to determine lines of business operating profit. Machinery operating profit decreased $50 million, or 13 percent from second-quarter 2000. The slight benefit from higher physical volume was more than offset by higher costs, including employment related cost increases, higher energy costs, the impact of acquisitions and 6 Sigma implementation. Engine operating profit decreased $58 million from second-quarter 2000. Manufacturing inefficiencies related to significant swings in production levels were partially offset by the favorable impact of slightly higher physical volume. Interest expense was $1 million higher than one year ago. Other income/expense reflects a net decrease in expense of $22 million due to a favorable change in foreign exchange gains and losses. FINANCIAL PRODUCTS Revenues for the second quarter were $408 million, up $49 million or 14 percent compared with second-quarter 2000 (excluding revenue transactions with Machinery and Engines, revenues increased $49 million or 16 percent). The increase resulted primarily from a larger receivables portfolio at Caterpillar Financial Services Corporation (Cat Financial). Before tax profit increased $15 million or 28 percent from second-quarter 2000. The increase resulted primarily from improved interest spreads and the larger receivables portfolio at Cat Financial, partially offset by a higher provision for credit losses reflecting the larger portfolio. INCOME TAXES Second-quarter tax expense reflects an estimated annual tax rate of 32 percent for both 2001 and 2000. UNCONSOLIDATED AFFILIATED COMPANIES The company's share of unconsolidated affiliated companies' results increased $5 million from second quarter one year ago, primarily due to stronger results at Shin Caterpillar Mitsubishi Ltd. SUPPLEMENTAL INFORMATION Dealer Machine Sales to End Users and Deliveries to Dealer Rental Operations Sales (including both sales to end users and deliveries to dealer rental operations) in North America were lower compared to second-quarter 2000 due to lower industry sales. Sales to the general construction, quarry and aggregates, and forestry sectors declined. Sales were up sharply in mining, led by strong gains in coal. Sales also increased to the waste sector. Sales to agriculture were higher due to improvement in industry demand compared to one year ago, but overall industry conditions remained depressed. Sales to the heavy construction and industrial sectors remained near year-earlier levels. Sales increased in EAME as a result of higher demand in both Europe and Africa & Middle East. For the region, sales were higher to the general construction, agriculture, waste and industrial sectors. Sales declined to the heavy construction, mining, quarry and aggregates and forestry sectors. In Latin America, sales remained near year-earlier levels. Sales increased to the mining and general construction sectors. Sales were lower to the heavy construction, forestry and agriculture sectors. In Asia/Pacific, sales were up as increases to the mining and heavy construction sectors offset declines in general construction, agriculture and forestry. Dealer Inventories of New Machines Worldwide dealer new machine inventories at the end of the second quarter were lower than one year ago as we continue to work with dealers to streamline the flow of products to the end user. Inventory declines in North America, Asia/Pacific and Latin America more than offset increases in EAME. Inventories compared to current selling rates were lower than one year earlier in all regions. Engine Sales to End Users and OEMS Sales were lower in North America due to further sharp declines in industry demand for truck engines resulting from weak economic growth and declining industrial production. This sales weakness more than offset higher sales of engines to oil and gas industries and continued growth in sales of power generation products. Sales to industrial and marine applications remained near year-earlier levels. In EAME, robust sales gains to oil and gas industries plus continuing gains to electric power and marine applications more than offset pronounced weakness in European sales of small industrial engine products. Sales were lower in Asia/Pacific due primarily to reduced sales of large engine products to oil and gas industries, which more than offset higher sales to marine applications. In Latin America, sales declined due to reduced sales of electric power solutions. 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 $9 million through the second quarter of 2001, a decrease of $370 million from 2000. This decrease was primarily due to lower profit after tax and an increase in working capital. For the Six Months Ended (Millions of dollars) Consolidated Machinery & Financial Engines* Products June 30, June 30, June 30, June 30, June 30, June 30, 2001 2000 2001 2000 2001 2000 Profit after tax $433 $573 $433 $573 $99 $75 Depreciation and amortization 582 533 430 415 152 118 Change in working capital-excluding cash, debt and dividends payable (1,190) (398) (251) (69) (815) (484) Capital expenditures excluding equipment leased to others (381) (333) (369) (319) (12) (14) Expenditures for equipment leased to others, net of disposals (243) (204) - 7 (243) (211) Dividends paid (234) (228) (234) (228) (5) (29) Net Free Cash Flow (1,033) (57) 9 379 (824) (545) Other significant cash flow items: Treasury shares purchased (33) (326) (33) (326) - - Net (increase) in long-term finance receivables (5) (504) - - (5) (504) Net increase (decrease) in debt 1,687 934 302 (40) 1,294 1,165 Investments and acquisitions - (net of cash acquired) (395) (78) (108) (70) (287) (8) Other (283) (48) (189) (9) (221) (121) Change in cash and short-term Investments $ (62) $ (79) $(19) $(66) $(43) $(13) * Represents Caterpillar Inc. and its subsidiaries, except for Financial Products which is accounted for on the equity basis. Note: Due to the acquisition of the remaining interests in companies previously accounted for on an equity basis, and the subsequent consolidation of these companies, certain amounts have been removed from 'Change in working capital - excluding cash, debt, and dividends payable' and 'Capital Expenditures excluding equipment leased to others' and included in 'Investments and acquisitions' or 'Other'. EMPLOYMENT At the end of second-quarter 2001, Caterpillar's worldwide employment was 71,558 compared with 66,836 one year ago. The majority of the increase was outside of the U.S., including acquisitions which added 2,478 employees. OUTLOOK Summary As expected, world economic growth and the growth of industrial production slowed sharply in the first half of 2001. This reduction in the rate of expansion of the world economy is expected to continue through the third quarter, World GDP growth is forecast to decline from 4 percent in 2000 to about 2 to 2.5 percent in 2001, and industrial production is projected to decelerate from about 8 percent in 2000 to 3 percent in 2001. This sharp reduction in the pace of economic activity in the major industrialized countries commenced at the close of 2000 in the United States, and expanded to Japan and Europe in the first half of 2001. The expected slowdown is negatively impacting capital equipment spending mainly in the general construction sector. However, demand for energy commodities (crude oil, natural gas, electric power generation and coal), remained strong in the first half of 2001. While seasonal demand for natural gas declined late in the second quarter, gas markets are expected to remain relatively tight as demand is projected to recover in the fourth quarter. Capital equipment spending in these energy areas is increasing significantly in 2001. In light of this mixed external environment, company sales and revenues are expected to be about flat in 2001. Profit is expected to be down about 5 to 10 percent from 2000. North America In North America, U.S. GDP growth is projected to slow from 5 percent in 2000 to about 2 percent in 2001. The pace of economic growth was very weak in the first half of 2001, as spending slowed and inventories were cut back sharply. We expect spending and production rates to improve modestly in the second half of 2001, boosted by much lower borrowing rates, federal tax cuts, a recovery in consumer confidence and a lower rate of inventory reduction, In the first half of 2001, the manufacturing sector experienced steep reductions in production rates typical of a recession in this sector, as there were sharp reductions in capital equipment spending and inventories. By contrast, both housing and construction activity remained solid. Housing was boosted by lower mortgage rates, while construction activity overall was supported by increases in public spending on highways and airports. The pace of housing activity is expected to moderate in the second half of 2001, but infrastructure construction activity is expected to remain strong as construction contract volumes for highways, airports, and utilities remained buoyant through the first half of 2001. As a result of sharp reductions in capital equipment spending across the economy in 2001, North American industry demand for construction machines is expected to decline about 15 percent for the year as a whole. A major reason for the projected decline in construction equipment spending is due to significant anticipated reductions in capital spending in the rental services area, Lower demand for general construction machines will be partially offset by higher sales to the heavy construction, coal mining and oil and gas industries. With year-end declines in dealer machine inventories anticipated, company machine sales are projected to be flat to down slightly. In Canada, industry demand for machines is expected to decline, as moderate reductions in general construction machine sales will be partially offset by higher demand in heavy construction and petroleum. Engine sales are projected to be flat, as higher sales to oil and gas and electric power sectors are forecast to offset a projected significant decline in truck engines. In summary, company sales of machines and engines for North America are expected to be about flat. EAME In EAME, sales of machines and engines are expected to be flat to up slightly. High oil prices and refusal on the part of the European Central Bank to lower interest rates in response to the significant weakening in external demand in the first half of 2001 led to continued declines in business confidence in Europe and further downward pressure on the euro. Sales should benefit from this continued, albeit slower economic growth. Sales to oil-exporting countries in Africa &, Middle East should continue to benefit from strong cash flows related to high oil production volumes. Sales elsewhere in Africa & Middle East are expected to decline. In the CIS, sales should increase as the Russian recovery continues, and the oil exporting nations of the region continue to experience stronger economic growth. Asia/Pacific In the Asia/Pacific region, sales of machines and engines are expected to be about flat in 2001, China should continue to register solid sales growth. Sales in Australia are expected to be up slightly, driven mainly by strong demand in the coal mining sector. However, weak growth in Japan combined with continued instability in Indonesia, the Philippines and Thailand are projected to lead to flat sales in southeast Asian developing countries. Latin America In Latin America, continued economic growth in Brazil, Chile and Venezuela is expected to lead to higher machine sales. Growth projections for Brazil have been reduced due to the severe electricity shortage, but construction activity in Brazil is still expected to be solid. Mexico slowed sharply in the first half of 2001 in response to the U.S. economic slowdown, but is expected to experience a recovery by the fourth quarter. Economic and political turbulence in Argentina and Peru triggered capital flight from the region and associated speculative pressure on currencies. As a result, regional borrowing rates moved up in the first half of 2001. Moreover, the unstable currency situation in Argentina remains extremely fragile. For the purposes of this outlook, we are assuming that political and economic conditions improve later in the third quarter of 2001. Company sales of machines and engines are expected to be flat to up slightly in the region. 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 17, 2001. 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 hausser_marsha_m@CAT.com Note: Information contained on our Web site is not incorporated by reference into this release. Financial Pages Follow CONDENSED CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED (Millions of dollars except per share data) Consolidated Machinery & Financial Engines* Products June 30, June 30, June 30, June 30, June 30, June 30, 2001 2000 2001 2000 2001 2000 Sales and revenues: Sales of Machinery & Engines $5,132 $5,056 $5,132 $5,056 $ - $ - Revenues of Financial Products 356 307 - - 408 359 Total sales and revenues 5,488 5,363 5,132 5,056 408 359 Operating costs: Cost of goods sold 3,955 3,840 3,955 3,840 - - Selling, general, and administrative expenses 655 589 568 514 98 85 Research and development expenses 172 157 172 157 - - Interest expense of Financial Products 175 170 - - 182 181 Other operating expenses 73 58 - - 73 58 Total operating costs 5,030 4,814 4,695 4,511 353 324 Operating Profit 458 549 437 545 55 35 Interest expense excluding Financial Products 75 74 75 74 - - Other income (expense) 19 (1) (28) (50) 13 18 Consolidated profit before taxes 402 474 334 421 68 53 Provision for income taxes 128 151 103 134 25 17 Profit of consolidated companies 274 323 231 287 43 36 Equity in profit of unconsolidated affiliates (3) (8) (5) (8) 2 - Equity in profit of Financial Products subsidiaries - - 45 36 - - Profit $271 $315 $271 $315 $45 $36 EPS of common stock $0.79 $0.91 EPS of common stock - assuming dilution $0.78 $0.90 Weighted average shares Outstanding (thousands) Basic 343,340 347,066 Assuming dilution 347,779 349,378 * 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. CONDENSED CONSOLIDATED RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED (Millions of dollars except per share data) Consolidated Machinery & Financial Engines* Products June 30, June 30, June 30, June 30, June 30, June 30, 2001 2000 2001 2000 2001 2000 Sales and revenues: Sales of Machinery $9,593 $9,681 $9,593 $9,681 $ - $ - & Engines Revenues of Financial Products 705 601 - - 813 689 Total sales and revenues 10,298 10,282 9,593 9,681 813 689 Operating costs: Cost of goods sold 7,417 7,398 7,417 7,398 - - Selling, general, and administrative expenses 1,276 1,172 1,122 1,037 175 153 Research and development expenses 339 312 339 312 - - Interest expense of Financial Products 357 323 - - 375 344 Other operating expenses 142 112 - - 142 112 Total operating costs 9,531 9,317 8,878 8,747 692 609 Operating Profit 767 965 715 934 121 80 Interest expense excluding Financial Products 153 145 153 145 - - Other income (expense) 23 40 (76) (42) 30 33 Consolidated profit before taxes 637 860 486 747 151 113 Provision for income taxes 203 274 148 235 55 39 Profit of consolidated companies 434 586 338 512 96 74 Equity in profit of unconsolidated affiliates (1) (13) (4) (14) 3 1 Equity in profit of Financial Products subsidiaries - - 99 75 - - Profit $ 433 $ 573 $ 433 $ 573 $ 99 $ 75 EPS of common stock $1.26 $1.64 EPS of common stock - assuming dilution $1.25 $1.63 Weighted average shares Outstanding (thousands) Basic 343,338 349,425 Assuming dilution 347,105 352,126 * 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. CONDENSED FINANCIAL POSITION (Millions of dollars) Consolidated (Caterpillar Inc. and Subsidiaries) June 30, Dec. 31, June 30, 2001 2000 2000 Assets Current assets: Cash and short-term investments $ 272 $ 334 $ 469 Receivables - trade and other 2,880 2,608 2,517 Receivables - finance 6,306 5,471 5,554 Deferred income taxes 279 397 445 Prepaid expenses 1,161 1,019 818 Inventories 2,846 2,692 2,555 Total current assets 13,744 12,521 12,358 Property, plant, and equipment - net 6,158 5,951 5,487 Long-term receivables - trade and other 61 76 76 Long-term receivables - finance 6,100 6,095 6,092 Investments in unconsolidated affiliated companies 837 551 559 Deferred income taxes 955 907 917 Intangible assets 1,502 1,507 1,508 Other assets 920 856 887 Total Assets $30,277 $28,464 $27,884 Liabilities Current liabilities: Short-term borrowings: - Machinery & Engines $ 191 $ 369 $ 75 - Financial Products 1,503 602 852 Accounts payable 2,329 2,339 2,266 Accrued expenses 1,120 1,048 1,102 Accrued wages, salaries, and employee benefits 1,311 1,274 1,041 Dividends payable 120 117 118 Deferred and current income taxes payable 29 57 85 Long-term debt due within one year: - Machinery & Engines 245 204 155 - Financial Products 2,783 2,558 2,801 Total current liabilities 9,631 8,568 8,495 Long-term debt due after one year; - Machinery & Engines 3,293 2,854 3,047 - Financial Products 8,739 8,480 7,806 Liability for post-employment benefits 2,481 2,514 2,534 Deferred income taxes and other liabilities 474 448 544 Total Liabilities 24,618 22,864 22,426 Stockholders' Equity Common stock 1,045 1,048 1,049 Profit employed in the business 7,402 7,205 6,959 Accumulated other comprehensive income (loss) (97) 23 42 Treasury stock (2,691) (2,676) (2,592) Total Stockholders' Equity 5,659 5,600 5,458 Total Liabilities and Stockholders' Equity $30,277 $28,464 $27,884 Certain amounts for prior periods have been reclassified to conform with current financial statement presentation.

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