3rd Quarter & 9 Mths Results

Caterpillar Inc 17 October 2000 CATERPILLAR REPORTS THIRD-QUARTER PROFIT PER SHARE OF 62 CENTS; OUTLOOK FOR THE FULL YEAR 2000 UNCHANGED PEORIA, Ill. -- Caterpillar Inc. (NYSE: CAT) today reported third-quarter sales and revenues of $4.78 billion, $64 million or 1 percent higher than third-quarter 1999. The increase was primarily due to higher physical volume. Financial Products revenues increased $34 million or 12 percent from third-quarter 1999. Profit per share was 62 cents, up 2 percent, on profit of $216 million, which was $3 million or 1 percent lower than third-quarter 1999. The decrease was mainly due to unfavorable currency effects and higher selling, general and administrative (SG&A), and research and development (R&D) costs. The favorable impacts of a tax adjustment, improved price realization (excluding currency) and higher sales volume largely offset the unfavorable items. 'The third quarter was a challenging one, especially considering the continued strength of the dollar and softness in key markets,' said Chairman and CEO Glen Barton. In response to these conditions, we have redoubled efforts to reduce costs to ensure we deliver acceptable results for the full year. Further, our geographic and product diversity is a major strength, and we continue to benefit from the unprecedented demand for electric power and energy development applications.' HIGHLIGHTS THIRD-QUARTER 2000 COMPARED WITH THIRD-QUARTER 1999 - Sales and revenues of $4.78 billion were $64 million or 1 percent higher. Revenues from Financial Products increased 12 percent. - Sales inside the United States were 49 percent of worldwide sales compared with 47 percent a year ago. - Profit of $216 million was $3 million or 1 percent below third-quarter 1999. - Profit per share of 62 cents was up 2 percent. - Two million shares were repurchased during the quarter (10.4 million during 2000) under the program announced in October 1998 to reduce the number of shares outstanding to 320 million. On September 30, 2000 there were 343.8 million shares outstanding. OUTLOOK We continue to expect full-year 2000 sales and revenues to be slightly higher than 1999 and profit to increase moderately. Based on our preliminary outlook, a slight increase in sales and revenues is expected in 2001. DETAILED ANALYSIS THIRD-QUARTER 2000 COMPARED WITH THIRD-QUARTER 1999 Sales and revenues for the third-quarter 2000 were $4.78 billion, 1 percent higher than third-quarter 1999. A 2 percent increase in physical sales volume and a 12 percent increase in Financial Products revenues were mostly 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 $216 million was $3 million or 1 percent lower than third quarter 1999. The decrease was due primarily to higher SG&A and R&D costs. Other income was also unfavorable, mostly due to foreign exchange losses and discounts on the securitization of receivables. The favorable impact of price realization (excluding currency) and higher physical volume, combined with a favorable adjustment to the provision for income taxes mostly offset these unfavorable items. 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 EAME* Latin Asia/ (Millions of dollars) Total America America Pacific Third Quarter 2000 Machinery $2,776 $1,511 $ 753 $ 210 $ 302 Engines ** 1,676 892 470 138 176 $4,452 $2,403 $1,223 $ 348 $ 478 Third Quarter 1999 Machinery $2,661 $1,373 $ 737 $ 205 $ 346 Engines ** 1,761 925 493 173 170 $4,422 $2,298 $1,230 $ 378 $ 516 *Europe, Africa & Middle East and Commonwealth of Independent States ** Does not include internal engine transfers of $331 million in third-quarter 2000 and $281 million in third-quarter 1999. Internal engine transfers are valued at prices comparable to those for unrelated parties. Machinery sales were $2.78 billion, an increase of $115 million or 4 percent from third-quarter 1999. Physical sales volume increased 6 percent from a year ago reflecting a significantly slower rate of dealer inventory reduction, which more than offset lower retail demand. Price realization declined, 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 improved in North America, Latin America and EAME, which more than offset lower sales in Asia/Pacific. In North America, the positive impact of a slower rate of dealer inventory reduction more than offset weaker retail demand. In Latin America, sales increased due to higher retail demand. In EAME, sales were up because of increased dealer inventory during the quarter and improved retail demand, especially in Africa & Middle East, which more than offset the impact of the weak euro on translation of higher European sales into U.S. dollars. Sales in Asia/Pacific declined due to lower retail sales. Engine sales were $1.68 billion, down $85 million or 5 percent from a year ago. Physical sales volume declined 5 percent. The majority of the quarterly sales decline resulted from sharply lower industry sales of engines to North American truck manufacturers. Global demand for electric power products continued to grow strongly, particularly in North America, and sales to petroleum industries strengthened. Operating Profit (Millions of dollars) Third-Quarter Third-Quarter 2000 1999 Machinery $143 $160 Engines 151 141 $294 $301 Caterpillar operations are highly integrated; therefore, the company uses a number of allocations to determine lines of business operating profit. Machinery operating profit decreased $17 million, or 11 percent from third quarter 1999. Unfavorable product mix and higher SG&A expenses were partially offset by margin (sales less cost of goods sold) improvement primarily due to the higher sales volume and improved price realization (excluding currency). Engine operating profit increased $10 million, or 7 percent, from third-quarter 1999. The increase was primarily due to improved manufacturing efficiencies and better product mix related to increased demand for electric power. These positive factors were partially offset by lower sales volume of truck engines and higher SG&A and R&D costs. Interest expense was unchanged from a year ago. Other income/expense was expense of $32 million compared with income of $33 million last year. The adverse change was mostly due to unfavorable foreign exchange results and discounts taken on the sale of trade receivables. FINANCIAL PRODUCTS Revenues for the third quarter were $386 million, up $60 million or 18 percent compared with third-quarter 1999 (excluding revenue transactions with Machinery and Engines, revenues increased $34 million or 12 percent). The increase resulted primarily from continued growth in Cat Financial's portfolio. Before tax profit increased $10 million or 16 percent from third-quarter 1999. The increase resulted primarily from an increased portfolio. INCOME TAXES Third-quarter tax expense reflects an estimated annual tax rate of 32 percent for both 2000 and 1999. Additionally, third-quarter 2000 income tax expense was favorably affected by the reversal of a valuation allowance of $39 million at Caterpillar Brasil Ltda. UNCONSOLIDATED AFFILIATED COMPANIES The company's share of unconsolidated affiliated companies' results was unchanged from third quarter a year ago. 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 than third-quarter 1999 as lower industry demand in both the United States and Canada more than offset a higher share of industry sales. For the region, sales into general construction, mining, forestry and industrial sectors declined. Sales into heavy construction were up compared to year earlier due to increases in highway construction. Sales were also higher into waste, agriculture and quarry & aggregates. Sales increased in EAME. In Europe, sales were flat as gains in Spain and France were offset by declines in Germany, the United Kingdom and Italy. Sales were up in Africa & Middle East primarily due to increases in Turkey, which more than offset lower sales in Egypt and South Africa. For the EAME region, sales increased into heavy construction and industrial sectors. Sales into general construction, agriculture and waste declined. Sales into mining, quarry & aggregates and forestry remained near year-earlier levels. In Latin America, sales were higher reflecting improved economic conditions. Sales increased in most countries including Brazil and Mexico, more than offsetting lower sales in Argentina. For the region, sales were higher in most sectors, especially heavy construction and mining. In Asia/Pacific, sales were lower due to declines in India, Australia and Indonesia, which more than offset gains in China. For the region, sales were lower in all sectors, especially mining, heavy construction and forestry. Dealer Inventories of New Machines Worldwide dealer new machine inventories at the end of the third 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 ago in North America, Latin America and Asia/Pacific and near year-earlier levels in EAME. Engine Sales to End Users and OEMs Sales were lower in North America due to sharp reductions in sales of on-highway truck engines. North American truck manufacturers cut production rates as their customers reacted to high fuel prices, driver shortages and declining values for used trucks. Caterpillar continued to extend its market leadership in the on-highway truck engine industry. Surging demand for distributed power solutions for telecommunication industries and internet service providers resulted in robust sales of electric power products. Sales in EAME improved due primarily to higher demand from the petroleum sector. In Latin America, sales were lower primarily due to declines in sales of truck engines. In Asia/Pacific, sales were higher primarily due to increases in the petroleum sector. 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 $681 million for 2000, an increase of $112 million from 1999. This increase was primarily due to higher profit after tax and lower capital expenditures, partially offset by a smaller decrease in working capital. For the Nine Months Ended Consolidated Machinery & Financial Products Engines * Sept 30 Sept 30 Sept 30 Sept 30 Sept 30 Sept 30 2000 1999 2000 1999 2000 1999 Profit after tax $789 $707 $789 $707 $124 $125 Depreciation and amortization 769 702 591 559 178 143 Change in working capital - excluding cash, debt and dividends payable (449) (565) 17 56 (375) (586) Capital expenditures excluding equipment leased to others (396) (438) (386) (435) (10) (3) Expenditures for equipment leased to others, net of disposals (311) (150) 15 12 (326) (162) Dividends paid (345) (330) (345) (330) (29) (36) Net Free Cash Flow 57 (74) 681 569 (438) (519) Other significant cash flow items: Treasury shares purchased (397) (218) (397) (218) - - Net (increase) decrease in long-term finance receivables (396) (388) - - (396) (388) Net increase (decrease) in debt 858 1,143 (106) 235 959 910 Investments and acquisitions - (net of cash acquired)(86) (282) (77) (258) (9) (24) Other (186) (258) (222) (410) (145) 26 Change in cash and short-term investments $(150) $(77) $(121) $(82) $(29) $5 * 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' (2000 and 1999) and 'Capital expenditures excluding equipment leased to others' (1999) and included in 'Investments and acquisitions' or 'Other'. EMPLOYMENT At the end of third-quarter 2000, Caterpillar's worldwide employment was 67,510 compared with 67,302 one year ago. Employment outside the United States grew by approximately 1,390 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. Machine sales are expected to be about flat as a decline in North America is offset by an increase in the rest of the world. Engine sales are forecast to be up in North America, EAME and Asia/Pacific, primarily reflecting strong demand in electric power and petroleum markets. Engine sales in Latin America are expected to be about flat. In total, company sales and revenues are expected to increase slightly in 2000 due to higher engine sales and increased financial revenues. Profit is forecast to increase moderately. North America In North America, engine sales are forecast to be up slightly in 2000, mainly due to robust demand in electric power and petroleum markets, Truck engine sales will decline in 2000 despite further gains in Cat's leadership position in the market. Although compact and agriculture machine sales are forecast to be up, total machine sales are forecast to decline slightly due to lower U.S. private construction activity and lower deliveries to dealer rental fleets. Retail industry demand for construction equipment (excluding compact machines) is expected to decline by 10 to 12 percent in 2000. Highway construction contracts finally started to accelerate in the summer, which should lead to higher sales of highway construction equipment. Company machine sales in North America are still forecast to benefit from less dealer inventory reduction, but this will not be enough to offset lower industry demand in the United States. In total, company sales in North America for this year are projected to be down slightly, as higher engine sales are more than offset by lower machine sales. EAME In Western Europe, GDP growth is expected to accelerate from 2.3 percent in 1999 to 3.2 percent this year, leading to higher machine and engine sales. In Africa & Middle East, better economic growth combined with higher oil and gas prices is also generating gains in machine and engine sales. Sales in Russia and elsewhere in the Commonwealth of Independent States (CIS), while beginning to improve, remain at relatively low levels. For the region as a whole, company sales are expected to be up in 2000, despite the weak euro's unfavorable impact on the translation of European sales into dollars. Asia/Pacific The economic recovery in developing Asia, which commenced in 1999, has continued in 2000 with GDP growth expected to be 6.5 percent this year. China, in particular, is expected to have GDP growth accelerate from 6.5 percent in 1999 to 7.5 percent in 2000. Machine sales in developing Asia are expected to be down slightly, as higher sales to users are more than offset by a reduction in dealer inventories. Engine sales in developing Asia are forecast to be up, mainly due to gains in petroleum and electric power. In Australia, good economic growth should load to higher machine sales volume, but lower engine sales and a weak Australian dollar are likely to result in lower overall U.S. dollar sales for Australia, Growth in Japan is expected to be weak and machine sales are expected to be flat. For the region as a whole, company sales are expected to be up. Latin America The region has experienced a strong recovery and GDP growth is expected to accelerate from flat in 1999 to a 4 percent increase in 2000. Combined with higher base metals and oil prices, this improved growth should lead to higher machine and reciprocating engine sales. Sales of turbine engines, however, are likely to be lower. Company sales for the region as a whole are expected to be flat. Preliminary 2001 Outlook In North America, engine sales are expected to be about flat, as higher sales to petroleum and electric power markets are forecast to offset a projected further decline in truck engines. In the United States, industry demand for machines is expected to decline as economic growth slows from 5 percent in 2000 to 3.5 percent in 2001. In Canada, however, industry demand for machines is expected to increase due to continued strong demand in heavy construction, oil sands and petroleum. Machine sales for North America as a whole are forecast to decline slightly. Overall, sales of machines and engines in North America are expected to be flat to down slightly in 2001. In EAME, sales of machines and engines are expected to be up. In Europe, sales should benefit from continued economic growth, although recent interest rate increases and higher oil prices could undermine business confidence. Sales in Africa & Middle East should benefit from favorable commodity prices, particularly oil. In CIS, sales also should increase as the Russian recovery continues and the oil exporting nations of the region experience stronger economic growth. In Asia/Pacific, good economic growth is expected to continue in developing Asia. For the Asia/Pacific region as a whole, sales of machines and engines are expected to be up in 2001. However, continued political instability in Indonesia remains a concern. In Latin America, continued economic growth combined with higher oil and other commodity prices is forecast to lead to higher machine and engine sales. In summary, company sales and revenues are forecast to increase slightly in 2001 due to higher sales in EAME, Asia/Pacific and Latin America. Sales in North America are forecast to be flat to down slightly. 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 October 17, 2000. That filing is available from the SEC web site at http://www.sec.gov/egi-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: Jeff Hawkinson Corporate Public Affairs (309) 675-4715 E-mail: hawkinson_jeffrey_s@cat.com Note: Information contained on our website is not incorporated by reference into this release. Financial Pages Follow CATERPILLAR INC. CONDENSED CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED (Millions of dollars except per share data) Consolidated Machinery & Financial Products Engines * Sept 30 Sept 30 Sept 30 Sept 30 Sept 30 Sept 30 2000 1999 2000 1999 2000 1999 Sales and revenues: Sales of Machinery & Engines $4,452 $4,422 $4,452 $4,422 $- $- Revenues of Financial Products 327 293 - - 386 326 Total sales and revenues 4,779 4,715 4,452 4,422 386 326 Operating costs: Cost of goods sold 3,471 3,470 3,471 3,470 - - Selling, general, and administrative expenses 650 616 526 500 134 124 Research and development expenses 161 151 161 151 - - Interest expense of Financial Products 186 142 - - 202 149 Total operating costs 4,468 4,379 4,158 4,121 336 273 Operating Profit 311 336 294 301 50 53 Interest expense excluding Financial Products 71 71 71 71 - - Other income (expense) 25 62 (32) 33 24 11 Consolidated profit before taxes 265 327 191 263 74 64 Provision for income taxes 45 104 19 81 26 23 Profit of consolidated companies 220 223 172 182 48 41 Equity in profit of unconsolidated affiliates (4) (4) (5) (4) 1 - Equity in profit of Financial Products subsidiaries - - 49 41 - - Profit $216 $219 $216 $219 $49 $41 EPS of common stock $0.63 $0.62 EPS of common stock - assuming dilution $0.62 $0.61 Weighted average shares Outstanding (thousands) Basic 344,506 355,042 Assuming dilution 346,298 359,876 *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. CATERPILLAR INC. CONDENSED CONSOLIDATED RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED (Millions of dollars except per share data) Consolidated Machinery & Financial Products Engines * Sept 30 Sept 30 Sept 30 Sept 30 Sept 30 Sept 30 2000 1999 2000 1999 2000 1999 Sales and revenues: Sales of Machinery & Engines $14,133 $13,841 $14,133 $13,841 $ - $ - Revenues of Financial Products 928 842 - - 1,075 944 Total sales and revenues 15,061 14,683 14,133 13,841 1,075 944 Operating costs: Cost of goods sold 10,869 10,791 10,869 10,791 - - Selling, general, and administrative expenses 1,934 1,901 1,563 1,567 399 356 Research and development expenses 473 458 473 458 - - Interest expense of Financial Products 509 407 - - 546 425 Total operating costs 13,785 13,557 12,905 12,816 945 781 Operating Profit 1,276 1,126 1,228 1,025 130 163 Interest expense excluding Financial Products 216 203 216 203 - - Other income (expense) 65 127 (74) 31 57 34 Consolidated profit before taxes 1,125 1,050 938 853 187 197 Provision for income taxes 319 336 254 264 65 72 Profit of consolidated companies 806 714 684 589 122 125 Equity in profit of unconsolidated affiliates (17) (7) (19) (7) 2 - Equity in profit of Financial Products subsidiaries - - 124 125 - - Profit $789 $707 $789 $707 $124 $125 EPS of common stock $2.27 $1.99 EPS of common stock - assuming dilution $2.25 $1.97 Weighted average shares Outstanding (thousands) Basic 347,829 355,772 Assuming dilution 350,071 359,397 *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. CATERPILLAR INC. CONDENSED FINANCIAL POSITION (Millions of dollars) Consolidated (Caterpillar Inc. and Subsidiaries) Sept 30 Dec 31 Sept 30 2000 1999 1999 Assets Current assets: Cash and short-term investments $ 398 $ 548 $ 283 Receivables - trade and other 2,471 3,233 3,399 Receivables - finance 5,620 4,206 4,289 Deferred income taxes 436 405 563 Prepaid expenses 871 748 724 Inventories 2,644 2,594 2,719 Total current assets 12,440 11,734 11,977 Property, plant, and equipment - net 5,273 5,201 4,936 Long-term receivables - trade and other 71 95 97 Long-term receivables - finance 5,984 5,588 5,446 Investments in unconsolidated affiliated companies 518 553 518 Deferred income taxes 908 954 925 Intangible assets 1,488 1,543 1,563 Other assets 1,158 967 997 Total Assets $27,840 $26,635 $26,459 Liabilities Current liabilities: Short-term borrowings: Machinery & Engines $ 168 $ 51 $ 60 Financial Products 442 719 151 Accounts payable 2,263 2,003 2,102 Accrued expenses 1,105 1,048 1,094 Accrued wages, salaries, & employee benefits 1,124 1,115 1,089 Dividends payable - 115 - Deferred and current income. taxes payable 99 23 67 Long-term debt due within one year: Machinery & Engines 204 167 152 Financial Products 2,702 2,937 2,885 Total current liabilities 8,107 8,178 7,600 Long-term debt due after one year: Machinery & Engines 2,839 3,099 3,125 Financial Products 8,305 6,829 7,222 Liability for post-employment benefits 2,537 2,536 2,620 Deferred income taxes and other liabilities 507 528 494 Total Liabilities 22,295 21,170 21,061 Stockholders' Equity Common stock 1,049 1,045 1,044 Profit employed in the business 7,175 6,617 6,608 Accumulated other comprehensive income (16) 78 (19) Treasury stock (2,663) (2,275) (2,235) Total Stockholders' Equity 5,545 5,465 5,398 Total Liabilities and Stockholders' Equity $27,840 $26,635 $26,459

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