-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IvAgmXZgxb3lpjCaj4H9PFUOfGq7kb/Vhrd/IFKqZRsh4p0rbZ0i2Ik1L6WeVEY3 5QL/Gdggg3GH/IDAyo0tOA== 0000018230-98-000039.txt : 19981118 0000018230-98-000039.hdr.sgml : 19981118 ACCESSION NUMBER: 0000018230-98-000039 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CATERPILLAR INC CENTRAL INDEX KEY: 0000018230 STANDARD INDUSTRIAL CLASSIFICATION: CONSTRUCTION MACHINERY & EQUIP [3531] IRS NUMBER: 370602744 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00768 FILM NUMBER: 98750449 BUSINESS ADDRESS: STREET 1: 100 NE ADAMS ST CITY: PEORIA STATE: IL ZIP: 61629-7310 BUSINESS PHONE: 3096751000 FORMER COMPANY: FORMER CONFORMED NAME: CATERPILLAR TRACTOR CO DATE OF NAME CHANGE: 19860623 10-Q 1 10-Q FOR THIRD QUARTER 1998 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 September 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to _______________ Commission File No. 1-768 CATERPILLAR INC. (Exact name of Registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation or organization) 37-0602744 (I.R.S. Employer Identification No.) 100 NE Adams Street, Peoria, Illinois (Address of principal executive offices) 61629 (Zip Code) (309) 675-1000 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __. At September 30, 1998, 358,688,189 shares of common stock of the Registrant were outstanding. 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 third quarter, you should read this entire document carefully. SUMMARY OF RESULTS - ------------------ On October 16, 1998 Caterpillar Inc. reported its best third quarter ever for sales and revenues. Profit and profit per share were the second highest for a third quarter. Sales and revenues of $5.17 billion, rose 12% (including 5% from Perkins) from third- quarter 1997. Profit of $336 million was down 13% from the third-quarter record set in 1997 as the additional margin from higher sales and revenues was more than offset by continued higher spending for growth initiatives, including the first-quarter acquisition of Perkins. Profit per share of $.92 assuming dilution was down 9% and benefited from the share repurchase program which was completed during the quarter. Additionally, the company announced a new share repurchase program to reduce the number of outstanding shares to 320 million. Commenting on the announcements, Caterpillar Chairman and CEO Donald V. Fites said, "Our organization continues to deliver solid financial results, despite current global economic uncertainties, severe economic conditions in Southeast Asia and Japan, and our ongoing investments for long-term growth. Our strategy is to maintain a balance which will allow us to continue delivering strong financial performance, and at the same time remain focused on achieving our aggressive growth targets. The new stock repurchase initiative sends a strong signal regarding the company's future cash flows and directors' confidence that Caterpillar stock is an excellent long-term investment." HIGHLIGHTS - THIRD-QUARTER 1998 COMPARED WITH THIRD-QUARTER 1997 - ---------------------------------------------------------------- * Sales and revenues of $5.17 billion, the highest ever for a third quarter, rose 12% (5% from Perkins). * Profit of $336 million, the second best ever for a third quarter, was down 13%. * Profit per share of $.92 assuming dilution, also the second best ever for a third quarter, was down 9%. * Physical sales volume rose 13%, with Perkins adding 6%. * Sales, excluding Perkins, were up 19% inside the United States and down 5% outside the United States. * Revenues from Financial Products increased 34%. SHARE REPURCHASES - ----------------- The 10% share repurchase program initiated in 1995 was completed during the quarter. The number of shares outstanding at September 30, 1998, was 358.7 million. The Board of Directors has authorized another share repurchase program to reduce the number of outstanding shares to 320 million within the next three to five years. OUTLOOK - -------- The company's outlook for 1998 worldwide sales and revenues remains unchanged from that issued with our third-quarter 1997 results that called for sales and revenues (excluding Perkins) to slightly surpass 1997's record levels. The company's profit outlook for 1998 remains unchanged from the one issued in January 1998, which called for profit to be near 1997's record. Our preliminary 1999 outlook is for company sales and revenues to be near 1998 record levels. (Complete outlook begins on page 21.) 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 Nine Months Ended Sep. 30, Sep. 30, Sep. 30, Sep. 30, 1998 1997 1998 1997 SALES AND REVENUES: Sales of Machinery and Engines ....... $4,906 $ 4,385 $14,836 $13,133 Revenues of Financial Products ....... 267 215 735 599 ------ ------ ------ ------ Total sales and revenues ............. 5,173 4,600 15,571 13,732 OPERATING COSTS: Cost of goods sold ................... 3,748 3,278 11,060 9,709 Selling, general and administrative expenses ............ 631 561 1,852 1,606 Research and development expenses .... 163 132 483 384 Interest expense of Financial Products ................. 135 96 357 260 ------ ------ ------ ------ Total operating costs ................ 4,677 4,067 13,752 11,959 ------ ------ ------ ------ OPERATING PROFIT ....................... 496 533 1,819 1,773 Interest expense excluding Financial Products ................. 68 53 198 163 Other income (expense) ............... 43 62 145 147 ------ ------ ------ ------ CONSOLIDATED PROFIT BEFORE TAXES 471 542 1,766 1,757 Provision for income taxes ........... 138 166 565 579 ------ ------ ------ ------ Profit of consolidated companies ..... 333 376 1,201 1,178 Equity in profit of unconsolidated affiliated companies (Note 4) ...... 3 9 11 36 Equity in profit of Financial Products subsidiaries .............. - - - - ------ ------ ------ ------ PROFIT ................................. $ 336 $ 385 $1,212 $1,214 ====== ====== ====== ====== PROFIT PER SHARE OF COMMON STOCK (NOTE 6) ............................ $ 0.93 $ 1.03 $ 3.32 $ 3.22 ====== ====== ====== ====== PROFIT PER SHARE OF COMMON STOCK - ASSUMING DILUTION(NOTE 6) ........... $ 0.92 $ 1.01 $ 3.28 $ 3.17 ====== ====== ====== ====== Cash dividends paid per share of common stock ........................ $ .30 $ .25 $ .80 $ .65 See accompanying notes to Consolidated Financial Statements. Page 2 CATERPILLAR INC. Statement of Results of Operations (Unaudited) (Millions of dollars except per share data) SUPPLEMENTAL CONSOLIDATING DATA MACHINERY AND ENGINES (1) Three Months Ended Nine Months Ended Sep. 30, Sep. 30, Sep. 30, Sep. 30, 1998 1997 1998 1997 SALES AND REVENUES: Sales of Machinery and Engines ....... $4,906 $ 4,385 $14,836 $13,133 Revenues of Financial Products ....... - - - - ------ ------ ------ ------ Total sales and revenues ............. 4,906 4,385 14,836 13,133 OPERATING COSTS: Cost of goods sold ................... 3,748 3,278 11,060 9,709 Selling, general and administrative expenses ............ 545 481 1,605 1,388 Research and development expenses .... 163 132 483 384 Interest expense of Financial Products ................. - - - - ------ ------ ------ ------ Total operating costs ................ 4,456 3,891 13,148 11,481 ------ ------ ------ ------ OPERATING PROFIT ....................... 450 494 1,688 1,652 Interest expense excluding Financial Products ................. 68 53 198 163 Other income (expense) ............... 10 51 52 121 ------ ------ ------ ------ CONSOLIDATED PROFIT BEFORE TAXES 392 492 1,542 1,610 Provision for income taxes ........... 108 147 482 524 ------ ------ ------ ------ Profit of consolidated companies ..... 284 345 1,060 1,086 Equity in profit of unconsolidated affiliated companies (Note 4) ...... 3 9 11 36 Equity in profit of Financial Products subsidiaries .............. 49 31 141 92 ------ ------ ------ ------ PROFIT ................................. $ 336 $ 385 $1,212 $1,214 ====== ====== ====== ====== (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 and to provide required supplemental disclosure of information about the Financial Products' subsidiaries. Transactions between Machinery and Engines and Financial Products have been eliminated to arrive at the consolidated data. See accompanying notes to Consolidated Financial Statements. Page 3 CATERPILLAR INC. Statement of Results of Operations (Unaudited) (Millions of dollars except per share data) SUPPLEMENTAL CONSOLIDATING DATA FINANCIAL PRODUCTS Three Months Ended Nine Months Ended Sep. 30, Sep. 30, Sep. 30, Sep. 30, 1998 1997 1998 1997 SALES AND REVENUES: Sales of Machinery and Engines ....... $ - $ - $ - $ - Revenues of Financial Products ....... 296 221 812 617 ------ ------ ------ ------ Total sales and revenues ............. 296 221 812 617 OPERATING COSTS: Cost of goods sold ................... - - - - Selling, general and administrative expenses ............ 94 86 267 236 Research and development expenses .... - - - - Interest expense of Financial Products ................. 136 99 365 269 ------ ------ ------ ------ Total operating costs ................ 230 185 632 505 ------ ------ ------ ------ OPERATING PROFIT ....................... 66 36 180 112 Interest expense excluding Financial Products ................. - - - - Other income (expense) ............... 13 14 44 35 ------ ------ ------ ------ CONSOLIDATED PROFIT BEFORE TAXES 79 50 224 147 Provision for income taxes ........... 30 19 83 55 ------ ------ ------ ------ Profit of consolidated companies ..... 49 31 141 92 Equity in profit of unconsolidated affiliated companies (Note 4) ...... - - - - Equity in profit of Financial Products subsidiaries .............. - - - - ------ ------ ------ ------ PROFIT ................................. $ 49 $ 31 $ 141 $ 92 ====== ====== ====== ====== The supplemental consolidating data is presented for the purpose of additional analysis and to provide required supplemental disclosure of information about the Financial Products' subsidiaries. Transactions between Machinery and Engines and Financial Products have been eliminated to arrive at the consolidated data. See accompanying notes to Consolidated Financial Statements. Page 4 CATERPILLAR INC. Statement of Changes in Stockholders' Equity For Nine Months Ended (Unaudited) (Dollars in millions) CONSOLIDATED Sep. 30, Sep. 30, 1998 1997 ------------ ------------ Common Stock: Balance at beginning of period ............... $ (442) $ 50 Common shares issued, including treasury shares reissued:(Sep. 30, 1998 -- 673,647 shares; Sep. 30, 1997 -- 1,312,389 shares) .. 14 24 Treasury shares purchased: Sep. 30, 1998 -- 9,983,300; Sep. 30, 1997 -- 9,725,712 .................... (491) (470) Issuance of common stock to effect 2-for-1 stock split ................................... - 188 ----- ----- Balance at end of period ...................... (919) (208) ----- ----- Profit employed in the business: Balance at beginning of period ................ 5,026 3,904 Profit ........................................ 1,212 $1,212 1,214 $1,214 Dividends declared ............................ (201) (171) Issuance of common stock to effect 2-for-1 stock split ................................... - (188) ----- ----- Balance at end of period ...................... 6,037 4,759 ----- ----- Accumulated other comprehensive income: Foreign currency translation adjustment (1): Balance at beginning of period .............. 95 162 Aggregate adjustment for period ............. (43) (43) (27) (27) ----- ----- ----- ---- Balance at end of period .................... 52 135 ----- ----- Comprehensive income .......................... $1,169 $1,187 ====== ====== Stockholders' equity at end of period ........... $5,170 $4,686 ====== ====== (1) No reclassification adjustments or tax effects to report. See accompanying notes to Consolidated Financial Statements. Page 5 CATERPILLAR INC. Statement of Financial Position * (Dollars in millions) CONSOLIDATED Sep. 30, Dec. 31, 1998 1997 ASSETS Current assets: Cash and short-term investments ................. $ 235 $ 292 Receivables -- trade and other .................. 3,605 3,331 Receivables -- finance .......................... 3,862 2,660 Deferred income taxes and prepaid expenses ...... 968 928 Inventories (Note 5) ............................ 3,116 2,603 ------- ------- Total current assets .............................. 11,786 9,814 Property, plant, and equipment -- net ............. 4,517 4,058 Long-term receivables -- trade and other .......... 124 134 Long-term receivables -- finance .................. 4,755 3,881 Investments in unconsolidated affiliated companies (Note 4) .................. 769 751 Investments in Financial Products subsidiaries .... - - Deferred income taxes ............................. 1,002 1,040 Intangible assets ................................. 1,236 228 Other assets ...................................... 945 850 ------- ------- TOTAL ASSETS ........................................ $25,134 $20,756 ======= ======= LIABILITIES Current liabilities: Short-term borrowings ........................... $ 583 $ 484 Accounts payable and accrued expenses ........... 3,678 3,358 Accrued wages, salaries, and employee benefits .. 1,125 1,128 Dividends payable ............................... - 92 Deferred and current income taxes payable ....... 97 175 Deferred liability .............................. - - Long-term debt due within one year .............. 1,922 1,142 ------- ------- Total current liabilities ......................... 7,405 6,379 Long-term debt due after one year ................. 9,726 6,942 Liability for postemployment benefits ............. 2,714 2,698 Deferred income taxes and other liabilities ....... 119 58 ------- ------- TOTAL LIABILITIES ................................... 19,964 16,077 ------- ------- STOCKHOLDERS' EQUITY Common stock of $1.00 par value: Authorized shares: 900,000,000 Issued shares (Sep. 30, 1998 -- 407,447,312; Dec. 31, 1997 -- 407,447,312) at paid in amount . 1,066 1,071 Profit employed in the business ................... 6,037 5,026 Accumulated other comprehensive income ............ 52 95 Treasury stock (Sep. 30, 1998 -- 48,759,123 shares; Dec. 31, 1997 -- 39,436,972 shares) at cost.......................................... (1,985) (1,513) ------- ------- TOTAL STOCKHOLDERS' EQUITY .......................... 5,170 4,679 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $25,134 $20,756 ======= ======= See accompanying notes to Consolidated Financial Statements. * Unaudited except for Consolidated December 31, 1997 amounts. Page 6 CATERPILLAR INC. Statement of Financial Position * (Dollars in millions) SUPPLEMENTAL CONSOLIDATING DATA MACHINERY AND ENGINES (1) Sep. 30, Dec. 31, 1998 1997 ASSETS Current assets: Cash and short-term investments ................. $ 162 $ 241 Receivables -- trade and other .................. 2,456 3,346 Receivables -- finance .......................... - - Deferred income taxes and prepaid expenses ...... 952 935 Inventories (Note 5) ............................ 3,116 2,603 ------- ------- Total current assets .............................. 6,686 7,125 Property, plant, and equipment -- net ............. 3,867 3,483 Long-term receivables -- trade and other .......... 124 134 Long-term receivables -- finance .................. - - Investments in unconsolidated affiliated companies (Note 4) .................. 769 751 Investments in Financial Products subsidiaries .... 1,203 882 Deferred income taxes ............................. 1,023 1,075 Intangible assets ................................. 1,236 228 Other assets ...................................... 584 510 ------- ------- TOTAL ASSETS ........................................ $15,492 $14,188 ======= ======= LIABILITIES Current liabilities: Short-term borrowings ........................... $ 47 $ 53 Accounts payable and accrued expenses ........... 3,242 3,020 Accrued wages, salaries, and employee benefits .. 1,117 1,120 Dividends payable ............................... - 92 Deferred and current income taxes payable ....... 47 46 Deferred liability .............................. - - Long-term debt due within one year .............. 69 54 ------- ------- Total current liabilities ......................... 4,522 4,385 Long-term debt due after one year ................. 2,967 2,367 Liability for postemployment benefits ............. 2,714 2,698 Deferred income taxes and other liabilities ....... 119 59 ------- ------- TOTAL LIABILITIES ................................... 10,322 9,509 ------- ------- STOCKHOLDERS' EQUITY Common stock of $1.00 par value: Authorized shares: 900,000,000 Issued shares (Sep. 30, 1998 -- 407,447,312; Dec. 31, 1997 -- 407,447,312) at paid in amount . 1,066 1,071 Profit employed in the business ................... 6,037 5,026 Accumulated other comprehensive income ............ 52 95 Treasury stock (Sep. 30, 1998 -- 48,759,123 shares; Dec. 31, 1997 -- 39,436,972 shares) at cost.......................................... (1,985) (1,513) ------- ------- TOTAL STOCKHOLDERS' EQUITY .......................... 5,170 4,679 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $15,492 $14,188 ======= ======= (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 and to provide required supplemental disclosure of information about the Financial Products' subsidiaries. Transactions between Machinery and Engines and Financial Products have been eliminated to arrive at the consolidated data. See accompanying notes to Consolidated Financial Statements. * Unaudited except for Consolidated December 31, 1997 amounts. Page 7 CATERPILLAR INC. Statement of Financial Position * (Dollars in millions) SUPPLEMENTAL CONSOLIDATING DATA FINANCIAL PRODUCTS Sep. 30, Dec. 31, 1998 1997 ASSETS Current assets: Cash and short-term investments ................. $ 73 $ 51 Receivables -- trade and other .................. 1,471 285 Receivables -- finance .......................... 3,862 2,660 Deferred income taxes and prepaid expenses ...... 27 9 Inventories (Note 5) ............................ - - ------- ------- Total current assets .............................. 5,433 3,005 Property, plant, and equipment -- net ............. 650 575 Long-term receivables -- trade and other .......... - - Long-term receivables -- finance .................. 4,755 3,881 Investments in unconsolidated affiliated companies (Note 4) .................. - - Investments in Financial Products subsidiaries .... - - Deferred income taxes ............................. 6 5 Intangible assets ................................. - - Other assets ...................................... 361 340 ------- ------- TOTAL ASSETS ........................................ $11,205 $ 7,806 ======= ======= LIABILITIES Current liabilities: Short-term borrowings ........................... $ 536 $ 431 Accounts payable and accrued expenses ........... 627 654 Accrued wages, salaries, and employee benefits .. 8 8 Dividends payable ............................... - - Deferred and current income taxes payable ....... 50 129 Deferred liability .............................. 142 - Long-term debt due within one year .............. 1,853 1,088 ------- ------- Total current liabilities ......................... 3,216 2,310 Long-term debt due after one year ................. 6,759 4,575 Liability for postemployment benefits ............. - - Deferred income taxes and other liabilities ....... 27 39 ------- ------- TOTAL LIABILITIES ................................... 10,002 6,924 ------- ------- STOCKHOLDERS' EQUITY Common stock of $1.00 par value: Authorized shares: 900,000,000 Issued shares (Sep. 30, 1998 -- 407,447,312; Dec. 31, 1997 -- 407,447,312) at paid in amount . 633 403 Profit employed in the business ................... 599 506 Accumulated other comprehensive income ............ (29) (27) Treasury stock (Sep. 30, 1998 -- 48,759,123 shares; Dec. 31, 1997 -- 39,436,972 shares) at cost.......................................... - - ------- ------- TOTAL STOCKHOLDERS' EQUITY .......................... 1,203 882 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $11,205 $ 7,806 ======= ======= The supplemental consolidating data is presented for the purpose of additional analysis and to provide required supplemental disclosure of information about the Financial Products' subsidiaries. Transactions between Machinery and Engines and Financial Products have been eliminated to arrive at the consolidated data. See accompanying notes to Consolidated Financial Statements. * Unaudited except for Consolidated December 31, 1997 amounts. Page 8 CATERPILLAR INC. Statement of Cash Flow for Nine Months Ended (Unaudited) (Millions of dollars) CONSOLIDATED Sep. 30, Sep. 30, 1998 1997 CASH FLOW FROM OPERATING ACTIVITIES: Profit ............................................ $ 1,212 $ 1,214 Adjustments for noncash items: Depreciation and amortization ..................... 652 565 Profit of Financial Products ...................... - - Other ............................................. (10) 22 Changes in assets and liabilities: Receivables -- trade and other .................. (53) (43) Inventories ..................................... (378) (393) Accounts payable and accrued expenses ........... 22 396 Other -- net .................................... (101) (99) ------- ------- Net cash provided by operating activities ........... 1,344 1,662 ------- ------- CASH FLOW FROM INVESTING ACTIVITIES: Capital expenditures -- excluding equipment leased to others ................................ (520) (419) Expenditures for equipment leased to others ....... (239) (216) Proceeds from disposals of property, plant, and equipment ................................... 89 100 Additions to finance receivables .................. (6,348) (4,900) Collections of finance receivables ................ 2,848 2,454 Proceeds from sale of finance receivables.......... 1,332 1,119 Net short-term loans to Financial Products......... - - Investments and acquisitions(net of cash acquired). (1,326) (25) Other -- net ...................................... (35) (280) ------- ------- Net cash used for investing activities .............. (4,199) (2,167) ------- ------- CASH FLOW FROM FINANCING ACTIVITIES: Dividends paid .................................... (293) (245) Common stock issued, including treasury shares reissued ................................. 5 10 Treasury shares purchased.......................... (491) (470) Net short-term loans from Machinery and Engines.... - - Proceeds from long-term debt issued ............... 4,181 2,280 Payments on long-term debt ........................ (835) (887) Short-term borrowings -- net ...................... 247 133 ------- ------- Net cash provided by financing activities ........... 2,814 821 ------- ------- Effect of exchange rate changes on cash ............. (16) (16) ------- ------- (Decrease) increase in cash and short-term investments ............................ (57) 300 Cash and short-term investments at the beginning of the period ........................... 292 487 ------- ------- Cash and short-term investments at the end of the period ................................. $ 235 $ 787 ======= ======= 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 Nine Months Ended (Unaudited) (Millions of dollars) SUPPLEMENTAL CONSOLIDATING DATA MACHINERY AND ENGINES (1) Sep. 30, Sep. 30, 1998 1997 CASH FLOW FROM OPERATING ACTIVITIES: Profit ............................................ $ 1,212 $ 1,214 Adjustments for noncash items: Depreciation and amortization ................... 532 462 Profit of Financial Products .................... (141) (92) Other ........................................... 16 27 Changes in assets and liabilities: Receivables -- trade and other .................. 958 (36) Inventories ..................................... (378) (393) Accounts payable and accrued expenses ........... (91) 305 Other -- net .................................... 3 (118) ------- ------- Net cash provided by operating activities ........... 2,111 1,369 ------- ------- CASH FLOW FROM INVESTING ACTIVITIES: Capital expenditures -- excluding equipment leased to others ................................ (516) (416) Expenditures for equipment leased to others ....... (7) (4) Proceeds from disposals of property, plant, and equipment ................................... 13 10 Additions to finance receivables .................. - - Collections of finance receivables ................ - - Proceeds from sale of finance receivables.......... - - Net short-term loans to Financial Products......... 195 (50) Investments and acquisitions(net of cash acquired). (1,326) (25) Other -- net ...................................... (269) (248) ------- ------- Net cash used for investing activities .............. (1,910) (733) ------- ------- CASH FLOW FROM FINANCING ACTIVITIES: Dividends paid .................................... (293) (245) Common stock issued, including treasury shares reissued ................................. 5 10 Treasury shares purchased.......................... (491) (470) Net short-term loans from Machinery and Engines.... - - Proceeds from long-term debt issued ............... 580 461 Payments on long-term debt ........................ (46) (116) Short-term borrowings -- net ...................... (25) 37 ------- ------- Net cash used for financing activities .............. (270) (323) ------- ------- Effect of exchange rate changes on cash ............. (10) (19) ------- ------- (Decrease) increase in cash and short-term investments ............................ (79) 294 Cash and short-term investments at the beginning of the period ........................... 241 445 ------- ------- Cash and short-term investments at the end of the period ................................. $ 162 $ 739 ======= ======= (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 and to provide required supplemental disclosure of information about the Financial Products' subsidiaries. Transactions between Machinery and Engines and Financial Products have been eliminated to arrive at the consolidated data. See accompanying notes to Consolidated Financial Statements. Page 10 CATERPILLAR INC. Statement of Cash Flow for Nine Months Ended (Unaudited) (Millions of dollars) SUPPLEMENTAL CONSOLIDATING DATA FINANCIAL PRODUCTS Sep. 30, Sep. 30, 1998 1997 CASH FLOW FROM OPERATING ACTIVITIES: Profit ............................................ $ 141 $ 92 Adjustments for noncash items: Depreciation and amortization ................... 120 103 Profit of Financial Products .................... - - Other ........................................... (24) (3) Changes in assets and liabilities: Receivables -- trade and other .................. (1,086) 13 Inventories ..................................... - - Accounts payable and accrued expenses ........... 183 46 Other -- net .................................... (52) 42 ------- ------- Net cash (used for) provided by operating activities (718) 293 ------- ------- CASH FLOW FROM INVESTING ACTIVITIES: Capital expenditures -- excluding equipment leased to others ................................ (4) (3) Expenditures for equipment leased to others ....... (232) (212) Proceeds from disposals of property, plant, and equipment ................................... 76 90 Additions to finance receivables .................. (6,348) (4,900) Collections of finance receivables ................ 2,848 2,454 Proceeds from sale of finance receivables.......... 1,332 1,119 Net short-term loans to Financial Products......... - - Investments and acquisitions(net of cash acquired). - - Other -- net ...................................... 4 (62) ------- ------- Net cash used for investing activities .............. (2,324) (1,514) ------- ------- CASH FLOW FROM FINANCING ACTIVITIES: Dividends paid .................................... (49) - Common stock issued, including treasury shares reissued ................................. 230 30 Treasury shares purchased.......................... - - Net short-term loans from Machinery and Engines.... (195) 50 Proceeds from long-term debt issued ............... 3,601 1,819 Payments on long-term debt ........................ (789) (771) Short-term borrowings -- net ...................... 272 96 ------- ------- Net cash provided by financing activities ........... 3,070 1,224 ------- ------- Effect of exchange rate changes on cash ............. (6) 3 ------- ------- Increase in cash and short-term investments ............................ 22 6 Cash and short-term investments at the beginning of the period ........................... 51 42 ------- ------- Cash and short-term investments at the end of the period ................................. $ 73 $ 48 ======= ======= The supplemental consolidating data is presented for the purpose of additional analysis and to provide required supplemental disclosure of information about the Financial Products' subsidiaries. Transactions between Machinery and Engines and Financial Products have been eliminated to arrive at the consolidated data. See accompanying notes to Consolidated Financial Statements. Page 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- and nine-month periods ended September 30, 1998 and 1997, (b) the changes in consolidated stockholders' equity for the nine-month periods ended September 30, 1998 and 1997, (c) the consolidated financial position at September 30, 1998 and December 31, 1997, and (d) the consolidated statement of cash flow for the nine-month periods ended September 30, 1998 and 1997 have been made. Certain amounts for prior periods have been reclassified to conform with the current period financial statement presentation. 2. The results for the three- and nine-month periods ended September 30, 1998 are not necessarily indicative of the results for the entire year 1998. 3. The company has reviewed the status of its environmental and legal contingencies and believes there are no material changes from that disclosed in Form 10-K for the year ended December 31, 1997, except as provided in Part II, Item 1 of this Form 10-Q. 4. Unconsolidated Affiliated Companies Combined financial information of the unconsolidated affiliated companies was as follows: Three Months Ended Nine Months Ended June 30, June 30, June 30, June 30, 1998 1997 1998 1997 RESULTS OF OPERATIONS (Unaudited) Sales ..................... $1,225 $ 835 $2,785 $3,587 ====== ====== ====== ====== Profit .................... $ 5 $ 21 $ 21 $ 80 ====== ====== ====== ====== June 30, Sep. 30, 1998 1997 (Unaudited) FINANCIAL POSITION Assets: Current assets ................................. $1,572 $1,949 Property, plant, and equipment - net............ 750 792 Other assets ................................... 392 331 ------ ------ 2,714 3,072 ------ ------ Liabilities: Current liabilities ............................ 1,345 1,610 Long-term debt due after one year .............. 232 203 Other liabilities .............................. 74 129 ------ ------ 1,651 1,942 ------ ------ Ownership ........................................ $1,063 $1,130 ====== ====== Page 12 5. Inventories (principally "last-in, first-out" method) comprised the following: Sep. 30, Dec. 31, 1998 1997 (Unaudited) Raw materials and work-in-process ................ $1,264 $1,033 Finished goods ................................... 1,648 1,364 Supplies ......................................... 204 206 ------ ------ $3,116 $2,603 ====== ====== 6. Following is a computation of profit per share: Three Months Ended Nine Months Ended Sep. 30, Sep. 30, Sep. 30, Sep. 30, 1998 1997 1998 1997 (Unaudited) I. Profit - consolidated (A) ....... $ 336 $ 385 $ 1,212 $ 1,214 ====== ====== ====== ======= II. Determination of shares (millions): Weighted average common shares outstanding (B) ......... 361.9 374.7 364.8 377.0 Assumed conversion of stock options ........................ 4.9 6.7 5.2 5.3 ------ ------ ------ ------- Weighted average common shares outstanding - assuming dilution (C) ................... 366.8 381.4 370.0 382.3 ====== ====== ====== ======= III. Profit per share of common stock (A/B) ..................... $0.93 $1.03 $3.32 $3.22 Profit per share of common stock - assuming dilution (A/C).. $0.92 $1.01 $3.28 $3.17 Page 13 7. The reserve for plant closing and consolidation costs includes the following: Sep. 30, Dec. 31, 1998 1997 (Unaudited) Write down of property, plant, and equipment ..... $ 103 $ 103 Employee severance benefits ...................... 53 95 Rearrangement, start-up costs, and other ......... 7 47 ------ ------ Total reserve .................................... $ 163 $ 245 ======= ====== The write-down of property, plant, and equipment establishes a new cost basis for assets that have been permanently impaired. Employee severance benefits (e.g., pension, medical, and supplemental unemployment benefits) are provided to employees affected by plant closings and consolidations. The reserve for such benefits is reduced as the benefits are provided. At September. 30, 1998 and December 31, 1997, the above reserve includes $84 and $153 million, respectively, of costs associated with the closure of the Component Products Division's Precision Barstock Products(PBP)operation located in York, Pennsylvania. The probable closing of the PBP manufacturing operation was announced in December 1991. In March 1996, it was announced that the facility would be closed. We are currently in the process of closing the unit. 8. 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. 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, 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. Page 14 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES A. Consolidated Results of Operations THREE MONTHS ENDED SEPTEMBER 30, 1998 VS. THREE MONTHS ENDED SEPTEMBER 30, 1997 Third-quarter sales and revenues of $5.17 billion were a third-quarter record, increasing $573 million or 12% due to higher physical sales volume. Profit of $336 million and profit per share of common stock of $.92 assuming dilution were the second highest ever for a third quarter but declined 13% and 9%, respectively, from the third-quarter record set in 1997. Planned higher spending for growth initiatives and the Perkins acquisition more than offset additional margin from higher sales and revenues. Machinery and Engines Sales of Machinery and Engines were $4.91 billion, an increase of $521 million or 12% from third-quarter 1997. The higher sales were due to a 13% increase (6% from Perkins) in physical sales volume. Price realization was about 1% lower as price increases taken over the past year were more than offset by higher sales discounts and the effect of the stronger dollar on sales denominated in currencies other than U.S. dollars. Profit before tax was $392 million, $100 million lower than the third-quarter record set a year ago. The primary reason for the lower profit was planned higher spending for growth initiatives as higher costs more than offset the additional margin from higher sales. Margin (sales less cost of goods sold) of $1.16 billion increased $51 million or 5% over third-quarter 1997. Margin as a percent of sales was 23.6% (24.1% excluding Perkins), compared with 25.2% a year ago as the favorable impact of price increases and higher manufacturing efficiency were more than offset by higher sales discounts, higher fixed manufacturing costs, and an unfavorable change in product sales mix. Selling, general, and administrative expenses (SG&A) were $545 million, compared with $481 million in third-quarter 1997. The $64 million increase (about one-third from Perkins) primarily reflects increased spending levels in support of major growth initiatives. Cost inflation also contributed to the increase. SG&A expenses as a percent of sales were 11.1%, compared with 11.0% for the third quarter a year ago. Research and development expenses (R&D) of $163 million rose $31 million (about one-third from Perkins) from third-quarter 1997. The increase reflects higher spending in support of new and improved products. R&D expenses as a percent of sales were 3.3%, compared with 3.0% a year ago. Operating profit of $450 million was $44 million or 9% lower than third-quarter 1997. Operating profit as a percent of sales was 9.2%, compared with 11.3% a year ago. Interest expense of $68 million was $15 million higher than a year ago, mostly due to higher average debt levels to finance the Perkins acquisition in the first quarter. Page 15 Other income/expense reflects a net decrease in income of $41 million from third-quarter 1997, primarily due to discounts taken on the sale of trade receivables to Caterpillar Financial Services Corporation (Cat Financial) to partially finance the purchase of Perkins earlier this year, and an unfavorable change in foreign exchange gains and losses. Discounts taken on this revolving sale of receivables to Cat Financial are reflected in Machinery and Engines as other expense. Revenues offsetting these discounts and related borrowing costs are reflected in Financial Products. Financial Products Financial Products' third-quarter revenues were a record $296 million, up $75 million or 34% compared with third-quarter 1997. The increase resulted primarily from continued growth in Cat Financial's portfolio. The portfolio rose $3.0 billion or 41% from the same period last year, the result of new business and the program started in the first quarter this year to purchase trade receivables from Caterpillar Inc. Before-tax profit was $79 million, an increase of $29 million or 58% from third-quarter 1997. The increase resulted primarily from the portfolio growth and gain on sale of receivables at Cat Financial plus favorable insurance reserve adjustments at Caterpillar Insurance Co. Ltd. (Cat Insurance), partially offset by lower investment income at Cat Insurance. Selling, general, and administrative expenses were $94 million, up $8 million from a year ago, principally the result of provisions for credit losses and increased depreciation on leased equipment due to Cat Financial's record new business, as well as other increases related to growth. Interest expense was up $37 million, a result of increased borrowings to support the larger portfolio which includes the trade receivables purchased from Caterpillar Inc. Other income and expense was income of $13 million, a decrease of $1 million from a year ago. Income Taxes The provision for income taxes was $138 million, compared with $166 million last year. Third-quarter 1998 tax expense reflects an effective annual tax rate of 32% and a favorable adjustment of $13 million to recognize the impact of a tax rate change from 33% used for the first six months of the year. Third-quarter 1997 tax expense reflected an effective annual tax rate of 33% and a favorable adjustment of $12 million to recognize the impact of a change from 34% used for the first six months of the year. Unconsolidated Affiliated Companies Our share of unconsolidated affiliated companies' results decreased $6 million from the third quarter a year ago. The major factor was less favorable results at Shin Caterpillar Mitsubishi Ltd. due primarily to lower sales volume resulting from the severe economic conditions in Japan and Southeast Asia. SALES Following are summaries of third-quarter company sales and dealer deliveries, compared with the same quarter in 1997. Page 16 Caterpillar Sales Inside the United States - ------------------------------------------ Caterpillar sales inside the United States were $2.49 billion, a $410 million or 20% increase over third quarter last year. Both machine and engine sales benefited from continued strong industry demand. End-user demand rose in most applications reflecting good economic growth, low inflation, lower interest rates, and high levels of consumer and business confidence. Price realization was unchanged from a year earlier. Sales inside the United States during the third quarter were 51% of worldwide sales compared with 47% a year ago. U.S. Dealer Machine Sales to End Users U.S. dealer machine sales to end users increased due to higher industry demand. Sales into all key construction sectors rose, reflecting the robust construction activity over the past year. Sales also were higher in commodity-related applications with increases in petroleum and coal mining more than offsetting declines in metals mining and forestry. Sales into the non-metals sector were unchanged from a year earlier. Sales to industrial users increased. Deliveries to U.S. Dealer Dedicated Rental Fleets Deliveries to U.S. dealer dedicated rental fleets increased from third-quarter 1997. At the end of third-quarter 1998, U.S. dealer dedicated rental units were higher than year-earlier levels, and up from the end of the second quarter. U.S. Dealer New Machine Inventories U.S. dealer new machine inventories fell from the end of the second quarter. At the end of the third quarter, dealer inventories were above year-ago levels and about normal relative to current selling rates. Company Engine Sales Inside the United States Company engine sales inside the United States were above year-earlier levels reflecting good economic growth and strong industry demand. Sales were higher for on-highway trucks, power generation, petroleum and industrial applications. Caterpillar Sales Outside the United States - ------------------------------------------- Caterpillar sales outside the United States were $2.42 billion, a $111 million or 5% increase over third-quarter 1997. All of the increase was due to the acquisition of Perkins in the first quarter of 1998. Without Perkins, sales would have been $115 million or 5% below year-earlier levels as lower machine sales more than offset higher engine sales. Geographically, lower sales in the Asia/Pacific region and Latin America more than offset higher sales in Europe and Africa/Middle East. Price realization was lower than a year ago. Sales outside the United States represented 49% of worldwide sales, compared with 53% a year ago. Dealer Machine Sales to End-Users Outside the United States Dealer machine sales to end-users outside the United States declined from year-earlier levels as lower sales in Asia and Latin America more than offset gains elsewhere. - Europe: Sales for the region were higher, reflecting continued improvement in economic activity and business confidence. Sales rose in Spain, France, Italy, and Germany but were lower in the United Kingdom. - Africa/Middle East: Sales increased despite low commodity prices. Sales were higher in the United Arab Emirates and Turkey but lower in South Africa. - Latin America: Sales declined due to lower commodity prices and slower growth. Lower sales in Colombia, Peru, Chile, and Argentina more than offset increases in Brazil and Mexico. Page 17 - Canada: Sales were higher reflecting gains in equipment services and non-metal mining applications. - Asia (excluding Japan): Sales declined sharply in response to the severe recession in Southeast Asia and South Korea. In China, economic growth has slowed from a year ago but demand is still rising. - Australia: Sales increased due primarily to higher demand in coal mining. - Japan: Sales of imported product increased slightly despite the ongoing, severe recession. - Commonwealth of Independent States (CIS): Sales also increased in Russia despite the severe recession. Dealer New Machine Inventories Outside the United States Dealer new machine inventories outside the United States were down from the end of the second quarter due almost entirely to a large reduction in Asia. Dealer new machine inventories were about flat with year-earlier levels as increases in Latin America, Canada, Europe, and Africa/Middle East offset the decreases in Asia and Australia. At the end of the third quarter, dealer inventories outside the United States were about normal relative to current selling rates. Company Engine Sales Outside the United States Company engine sales outside the United States exceeded year-earlier levels due to the first quarter acquisition of Perkins and higher turbine engine sales. Without Perkins, sales of reciprocating engines would have been flat as higher demand in Canada and Europe offset lower demand in Asia, Latin America, and Australia. Sales of turbine engines were higher with increases in Latin America, Africa/Middle East, Asia, and Australia more than offsetting a decline in Europe. Higher engine sales for oil and gas applications and on-highway trucks more than offset lower sales for power generation, industrial, and marine. THREE MONTHS ENDED SEPTEMBER 30, 1998 VS. THREE MONTHS ENDED JUNE 30, 1998 Third-quarter profit of $336 million or $.92 per share assuming dilution was $110 million lower than second-quarter profit of $446 million or $1.20 per share assuming dilution. A 7% decrease in physical sales volume and lower price realization were the most significant factors contributing to the lower profit. Machinery and Engines Profit before tax for Machinery and Engines was $392 million, a $205 million decrease from the previous quarter. Sales of $4.91 billion decreased $451 million or 8%, primarily because of the decrease in physical sales volume and lower price realization. Price realization was lower due to higher sales discounts. Margin was $221 million lower than the second quarter, primarily the result of the decrease in physical sales volume. As a percent of sales, the margin rate was 23.6%, compared with 25.7% last quarter. The decrease in margin rate was primarily due to higher sales discounts and lower production volumes, partially offset by improved manufacturing efficiency. Selling, general, and administrative expenses were $545 million, down $3 million from the second quarter. Research and development expenses of $163 million were down $2 million from the second quarter. Page 18 Operating profit of $450 million decreased $216 million. As a percent of sales, operating profit was 9.2%, compared with 12.4% in the second quarter. Interest expense of $68 million was $1 million lower than the second quarter. Other income/expense reflects a net increase in income of $10 million from last quarter. Financial Products Financial Products' revenues of $296 million were up $20 million from the second quarter, primarily due to Cat Financial's portfolio growth. Before-tax profit was $79 million, an increase of $10 million, primarily the result of higher earnings from Cat Financial's larger portfolio and a $7 million gain on sale of receivables. Income Taxes Income tax expense of $138 million decreased $82 million from the previous quarter. The decrease reflects the lower profit before tax, a change in the effective annual tax rate from 33% to 32%, and a favorable adjustment of $13 million to recognize the impact of the tax rate change for the first six months. Unconsolidated Affiliated Companies Our share of unconsolidated affiliated companies' results increased $3 million from the previous quarter, primarily due to improved results at Shin Caterpillar Mitsubishi Ltd. NINE MONTHS ENDED SEPTEMBER 30, 1998 VS. NINE MONTHS ENDED SEPTEMBER 30, 1997 Profit for the nine months ended September 30, 1998 was $1.21 billion or $3.28 per share of common stock assuming dilution, compared to profit of $1.21 billion or $3.17 per share assuming dilution for the first nine months of 1997. Sales and revenues of $15.57 billion were $1.84 billion higher than last year. Machinery and Engines Sales were $14.84 billion, an increase of $1.70 billion (about one-third from Perkins) from the same period last year. Profit before tax was $1.54 billion, a decrease of $68 million. The primary reason for the lower profit was planned higher spending for growth initiatives as higher costs more than offset the additional margin from higher sales. Margin increased $352 million primarily because of higher physical sales volume. Margin as a percent of sales was 25.5% (26.0% excluding Perkins), compared to 26.1% a year ago as the favorable impact of price increases taken over the past year were more than offset by higher fixed manufacturing costs, higher discounts, and an unfavorable change in product sales mix. Selling, general, and administrative expenses were $1.61 billion, compared with $1.39 billion during the first nine months of 1997. The $217 million increase (about one-fourth from Perkins) primarily reflects increased spending levels in support of major growth initiatives. The effects of inflation on costs also contributed to the increase. Page 19 Research and development expenses were $483 million, compared with $384 million during the first nine months of 1997. The $99 million increase (about one-third from Perkins) primarily reflects higher spending in support of new and improved products. Operating profit of $1.69 billion was $36 million higher than the first nine months of 1997. Operating profit as a percent of sales was 11.4%, compared with 12.6% a year ago. Interest expense of $198 million was $35 million higher than a year ago, mostly due to higher average debt levels to finance the acquisition of Perkins. Other income/expense was income of $52 million compared with income of $121 million last year. The decrease of $69 million is mostly due to the discount taken on the sale of trade receivables to 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 and related borrowing costs are reflected in Financial Products. Financial Products Financial Products' revenues for the nine months ended September 30, 1998, were $812 million, up $195 million from the same period a year ago. The increase was primarily due to Cat Financial's portfolio growth, the result of new business and the program started in the first quarter this year to purchase trade receivables from Caterpillar Inc.. Before-tax profit for Financial Products was $224 million, an increase of $77 million from the first nine months of 1997. The increase resulted primarily from more favorable reserve adjustments and higher investment income at Cat Insurance plus higher profit at Cat Financial. Selling, general, and administrative expenses were up $31 million, principally the result of provisions for credit losses and increased depreciation on leased equipment due to Cat Financial's record new business, as well as other increases due to growth, partially offset by more favorable reserve adjustments at Cat Insurance. Interest expense was $96 million higher due to increased borrowings to support the larger portfolio. Income Taxes Tax expense was $565 million, $14 million lower than a year ago. The decrease reflects higher before-tax profit more than offset by the impact of a lower effective tax rate of 32%, compared with 33% a year ago. Unconsolidated Affiliated Companies The company's share of unconsolidated affiliated companies' profit was $11 million, down $25 million from a year ago. The major factor for the decrease was less favorable results at Shin Caterpillar Mitsubishi Ltd. EMPLOYMENT At the end of the third quarter, Caterpillar's worldwide employment was 66,223 compared with 59,246 one year ago. Hourly employment increased 3,351 to 37,349; salaried and management employment increased 3,626 to 28,874. The increases were largely the result of acquisitions. Page 20 ECONOMIC AND INDUSTRY OUTLOOK FOR 1998 World economic growth has slowed in 1998 as severe recessions in Asia, Japan, and Russia more than offset improvement in Europe and continued strength in the United States. Worldwide industry demand for machines will decline slightly as steep declines in Japan and much of Asia will more than offset increases in North America, Europe, and Latin America. Industry demand for agricultural machines also is expected to be lower due to the drop in commodity prices. Industry demand for engines, however, should exceed 1997 levels due to the strength in North America. COMPANY OUTLOOK Our outlook for 1998 worldwide sales and revenues remains unchanged from that issued with our third-quarter 1997 results, which called for sales and revenues (excluding Perkins, which was acquired during the first quarter) to slightly surpass 1997's record levels. Investments to enhance long-term growth and shareholder value continue in 1998. Major initiatives include electric power generation, agricultural products, compact machines, Perkins, and further strengthening of our product support network to better link customer, dealer, and company operations. For Machinery and Engines (excluding Perkins), total capital expenditures, which were $819 million in 1997, are expected to be slightly higher in 1998. R&D and SG&A expenditures will increase in 1998 in support of the growth initiatives; however, the rate of increase is still expected to be less than in recent years. Our current growth initiatives are expected to unfavorably affect profit by about 10% in 1998, about one-fourth of which is due to Perkins. The effect on profit of these current growth initiatives is expected to be less dilutive in 1999, and then accretive in 2000. Perkins, which was earlier expected to have a neutral impact on profit in 1998 and 1999, is now expected to have a negative impact in 1998 and 1999, largely due to softening agricultural demand. Despite the impact of the growth initiatives, our outlook for profit in 1998 remains unchanged from that issued with our fourth-quarter 1997 results, and is expected to be near 1997's record. Profit per share has been and will continue to be favorably affected by share repurchases. Cash flow from operations and our financial position are expected to remain strong. PRELIMINARY ECONOMIC AND SALES OUTLOOK FOR 1999 The current turmoil in worldwide financial markets makes it very difficult to forecast sales for 1999. The U.S. and Europe, which will account for almost 70% of company sales in 1998, should continue to provide solid industry demand. U.S. economic growth is forecast to slow considerably, but further easing by the Federal Reserve and the new highway spending bill should allow industry demand for machines to about match 1998 record levels. In Europe, continued good economic growth should lead to higher industry demand. In Canada, Latin America, and Australia, slower growth is likely to result in lower industry demand while demand in Africa/Middle East should remain near current levels. Little improvement is expected for Japan and most of developing Asia next year, therefore, industry demand is forecast to decline further. In China, a large stimulus program should help the economy and boost our industry while in Russia severe recession is likely to continue resulting in lower demand. Page 21 In total, industry demand for machines and engines is likely to be down slightly due to weakness in Asia/Pacific and Latin American regions, weaker North American demand for on-highway trucks and the worldwide impact of low commodity prices. In this challenging environment, our preliminary 1999 outlook is for company sales and revenues to be near 1998 record levels. 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 on October 16, 1998. B. Liquidity & Capital Resources Consolidated operating cash flow totaled $1.34 billion through the third quarter of 1998, compared with $1.66 billion during the first nine months of 1997. This decrease is largely attributed to a smaller increase in accounts payable and accrued expenses over the same period a year ago. Total debt at the end of the first nine months was $12.23 billion, an increase of $3.66 billion from year-end 1997. Over this period, debt related to Machinery and Engines increased $609 million, to $3.08 billion, while debt related to Financial Products increased $3.05 billion to $9.15 billion. During 1995, the company announced a plan to repurchase up to 10% of its outstanding common stock over a three to five year period. This share repurchase program was completed in the third quarter of 1998. From inception in June 1995 through September 30, 1998, 46.0 million shares have been repurchased under the plan. The number of shares outstanding at September 30, 1998, was 358.7 million. The Board of Directors has authorized another share repurchase program to reduce the number of outstanding shares to 320 million within the next three to five years. Machinery and Engines Operating cash flow totaled $2.11 billion through the third quarter of 1998, compared with $1.37 billion for the same period a year ago. The increase in operating cash flow is primarily a result of a $994 million decrease in accounts receivable compared to the same period a year ago. This decrease is largely attributed to the $1.11 billion sale of receivables to Cat Financial. Partially offsetting this decrease in receivables was a $396 million decrease in accounts payable and accrued expenses compared to the same period a year ago. Capital expenditures, excluding equipment leased to others, totaled $516 million through third-quarter 1998 compared with $416 million for the same period a year ago. Total debt increased by $609 million. As part of the company's long-term funding strategy, $250 million of Eurobond notes and $300 million of debentures were issued during the first and third quarter of 1998, respectively. The $300 million of 30-year debentures were issued at a discount. These bonds are due July 15, 2028 and were priced to yield 6.649% semi-annually with a coupon of 6.625%. The company intends to utilize our additional funds for general corporate purposes, including the acquisition of Perkins. Our additional debt has increased the percent of debt to debt plus stockholders equity from 35% at December 31, 1997, to 37% at September 30, 1998. Page 22 Financial Products Operating cash flow totaled ($718) million through the third quarter of 1998, compared with $293 million for the same period a year ago. This decrease resulted from the purchasing of $1.11 billion of Machinery and Engines trade receivables. Cash used to purchase equipment leased to others totaled $232 million through the first nine months of 1998. In addition, net cash used for finance receivables was $2.17 billion through third quarter 1998, compared with $1.33 billion for the same period a year ago. Financial Products' debt was $9.15 billion at September 30, 1998, an increase of $3.05 billion from December 31, 1997 and was primarily comprised of $6.14 billion of medium term notes, $161 million of notes payable to banks and $2.75 billion of commercial paper. At the end of the third quarter, finance receivables past due over 30 days were 1.3%, compared with 1.6% at the end of the same period one year ago. The ratio of debt to equity of Cat Financial was 8.2:1 at September 30, 1998, compared with 7.8:1 at December 31, 1997. Financial Products had outstanding credit lines totaling $3.80 billion at September 30, 1998, which included $2.25 billion of shared revolving credit agreements with Machinery and Engines. These credit lines are with a number of banks and are considered support for the company's outstanding commercial paper, commercial paper guarantees, the discounting of bank and trade bills, and bank borrowings. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS As previously disclosed in our Form 10-K for 1997 and Form 10Q for the first quarter of 1998, Caterpillar and other diesel engine manufacturers had been in discussions with the United States Environmental Protection Agency ("EPA") and the United States Department of Justice regarding diesel engine emissions and Clean Air Act compliance. The EPA was reviewing the impact of advanced electronic control technologies on the emissions compliance of heavy-duty trucks in certain operating conditions and whether the use of such technologies was consistent with the Clean Air Act's requirements. On October 22, 1998, we entered into a consent decree with the EPA to get this matter behind us and avoid potential significant costs of protracted litigation. Although we strongly disagree with the EPA's conclusion that we violated the Clean Air Act, we have agreed to pay a civil penalty of $25 million and accelerate planned investment of $35 million over the next six years to develop technologies for emissions reductions. These amounts are not material to our financial position or results of operations. We firmly believe our electronically controlled engines have always satisfied EPA emissions standards and are fully consistent with the environmental laws of the United States. In our opinion, the EPA's effort was designed to change emissions standards through coercion rather than through the Clean Air Act's rulemaking requirements and due process of law. Page 23 ITEM 2. CHANGES IN SECURITIES We have twelve employee stock purchase plans administered outside the United States for our foreign employees. These plans are not registered with the Securities and Exchange Commission and are exempt from such registration pursuant to Regulation S under the Securities Act. As of December 31, 1997, those plans had approximately 2,850 participants in the aggregate. During the third quarter of 1998, a total of 23,861 shares of Caterpillar common stock or foreign denominated equivalents were distributed under the plans. ITEM 5. OTHER INFORMATION 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 remediation efforts of our business units and reporting remediation status to our Executive Office and Board of Directors. Although this team has monitoring responsibility, Vice Presidents in charge of each unit are responsible for identifying, evaluating, and implementing changes necessary to achieve readiness within their units. 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 developed to support these initiatives incorporated Year 2000 compliance by design. In 1994, Caterpillar's information systems division initiated a formal plan to address the Year 2000 issue. Today, all Caterpillar business units are engaged in a comprehensive, coordinated effort to meet the Year 2000 challenge as it impacts their internal and external customers. We have established five Year 2000 remediation phases under which units measure their progress: * Inventory - identifying key business areas and related products and services potentially impacted by the Year 2000 issue; * Analysis - determining how a product or service is impacted by the Year 2000 issue 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 prior to implementation to ensure it is Year 2000 compliant; and * Implementation - installing necessary changes in a production environment. Page 24 Internal Systems - ---------------- As of October 31, 1998, substantially all Caterpillar business units have completed an inventory of internal systems, both within and outside their control, 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 about 90% of critical systems within the control of our units. Of those critical systems, about 70% have been remediated and 65% validated. For half of all systems within our control, Year 2000 fixes have been implemented. About three-fourths of our business units report that mission-critical systems within their control will be fixed, tested, and in production by June 1, 1999. Approximately all units (over 95%) report that mission-critical systems will attain that status by October 1, 1999, with the remaining few units completed prior to year-end 1999. Caterpillar Products - -------------------- For some time, we have been assessing the potential impact of the Year 2000 challenge on the operation of products 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 products for Year 2000 related problems. This review included all electronic control modules (ECMs), 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 product. 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. Third-Party 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 audits, 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 ultimately achieve an acceptable comfort level with our supply chain. For suppliers posing a significant risk, contingency plans are being developed. 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 June of 1999 substantially all of 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 timeframe. Page 25 Costs Costs approximating the following estimates, which are as of October 31, 1998, would not have a material impact on Caterpillar's results, financial position, or cash flow. We anticipate incurring about two-thirds of these estimated costs by year-end 1998. As necessary, we will refine these estimates. We anticipate incurring about $100-130 million in Year 2000-related costs. Additional capital costs for the replacement of systems, hardware or equipment are currently estimated to be approximately $20-30 million. These budgeted costs do not include 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 for internal systems and Caterpillar products, 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; foreign or domestic government failures; and unanticipated failures on our part to address Year 2000-related issues. 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. 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. To minimize the potential impact of the most reasonably likely worst case scenario, each Caterpillar business unit is developing contingency plans. Finalized contingency plans could involve manual procedures for machine operation, manual procedures for collecting and reporting data, inventory adjustments for major supplied components, and alternative sources of supply. We estimate that contingency plans will be finalized by mid-1999. Page 26 ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description ---------- ----------- 3.1 Bylaws, as amended and restated 27 Financial Data Schedule for Third Quarter 1998 (b) Four reports on Form 8-K, dated July 15, 1998, were filed pursuant to Item 5 during the quarter ended September 30, 1998. Three additional reports on Form 8-K were filed pursuant to Item 5 on October 15 and October 16, 1998. 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: November 12, 1998 By: /s/ F. L. McPheeters ---------------------- F. L. McPheeters, Vice President and Chief Financial Officer Date: November 12, 1998 By: /s/ R. R. Atterbury III ------------------------- R. R. Atterbury III, Secretary Page 27 EXHIBIT INDEX Exhibit Number Description 3.1 Bylaws, as amended and restated 27 Financial Data Schedule for Third Quarter 1998. EX-3.1 2 BYLAWS, AS AMENDED AND RESTATED CATERPILLAR INC. BYLAWS Article I Offices Section 1. Registered Office. The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. Article II Stockholders Section 1. Stockholder Meetings. (a) Place of Meetings. Meetings of stockholders shall be held at such places, within or without the State of Delaware, as may from time to time be designated by the board of directors. (b) Annual Meeting. (i) The annual meeting of stockholders shall be held on the second Wednesday in April in each year at a time designated by the board of directors, or at such a time and date as may be designated by the board. (ii) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) otherwise properly brought before the meeting by or at the direction of the board of directors, or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation, not less than 45 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 60 days' notice of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the fifteenth (15th) day following the date on which such notice of the date of the annual meeting was mailed. A stockholder's notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting, (b) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the corporation which are beneficially owned by the stockholder and (d) any material interest of the stockholder in such business. Notwithstanding anything in the bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 1(b)(ii). The presiding officer of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 1, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. (c) Special Meetings. Special meetings of the stockholders of this corporation for any purpose or purposes may be called at any time by the chairman of the board or the vice chairman, or by the board of directors pursuant to a resolution approved by a majority of the entire board of directors, but such special meetings may not be called by any other person or persons. (d) Notice of Meetings. Notice of every meeting of the stockholders shall be given in the manner prescribed by law. (e) Quorum. Except as otherwise required by law, the certificate of incorporation and these bylaws, the holders of not less than one-third of the shares entitled to vote at any meeting of the stockholders, present in person or by proxy, shall constitute a quorum and the act of the majority of such quorum shall be deemed the act of the stockholders. If a quorum shall fail to attend any meeting, the chairman of the meeting may adjourn the meeting to another place, date or time. If a notice of any adjourned special meeting of stockholders is sent to all stockholders entitled to vote thereat, stating that it will be held with those present constituting a quorum, then, except as otherwise required by law, those present at such adjourned meeting shall constitute a quorum and all matters shall be determined by a majority of votes cast at such meeting. Section 2. Determination of Stockholders Entitled to Vote. To determine the stockholders entitled to notice of any meeting or to vote, the board of directors may fix in advance a record date as provided in Article VI, Section 1 hereof, or if no record date is fixed by the board a record date shall be determined as provided by law. Section 3. Voting. (a) Subject to the provisions of applicable law, and except as otherwise provided in the certificate of incorporation, each stockholder present in person or by proxy shall be entitled to one vote for each full share of stock registered in the name of such stockholder at the time fixed by the board of directors or by law as the record date of the determination of stockholders entitled to vote at a meeting. (b) Every stockholder entitled to vote may do so either in person or by one or more agents authorized by a written proxy executed by the person or his duly authorized agent whether by manual signature, typewriting, telegraphic transmission or otherwise. (c) Voting may be by voice or by ballot as the chairman of the meeting shall determine. (d) In advance of any meeting of stockholders the board of directors may appoint one or more persons (who shall not be candidates for office) as inspectors of election to act at the meeting. If inspectors are not so appointed, or if an appointed inspector fails to appear or fails or refuses to act at a meeting, the chairman of any meeting of stockholders may, and on the request of any stockholder or his proxy shall, appoint inspectors of election at the meeting. (e) Any action required or permitted to be taken by the stockholders of the corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. Article III Board of Directors Section 1. Election of Directors. (a) Number. The authorized number of directors of the corporation shall be fixed from time to time by the board of directors but shall not be less than three (3). The exact number of directors shall be determined from time to time either by a resolution or bylaw duly adopted by the board of directors. (b) Classes of Directors. The board of directors shall be and is divided into three classes: Class I, Class II and Class III, which shall be as nearly equal in number as possible. Each director shall serve for a term ending on the date of the third annual meeting of stockholders following the annual meeting at which the director was elected; provided, however, that each initial director in Class I shall hold office until the annual meeting of stockholders in 1987; each initial director in Class II shall hold office until the annual meeting of stockholders in 1988; and each initial director in Class III shall hold office until the annual meeting of stockholders in 1989. Notwithstanding the foregoing provisions of this subsection (b), each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. (c) Newly Created Directorships and Vacancies. In the event of any increase or decrease in the authorized number of directors, the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the board of directors among the three classes of directors so as to maintain such classes as nearly equal in number as possible. No decrease in the number of directors constituting the board of directors shall shorten the term of any incumbent director. Newly created directorships resulting from any increase in the number of directors and any vacancies on the board of directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office (and not by stockholders), even though less than a quorum of the board of directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. (d) Nomination of Directors. Candidates for director shall be nominated either (i) by the board of directors or a committee appointed by the board of directors or (ii) by nomination at any such stockholders' meeting by or on behalf of any stockholder entitled to vote at such meeting provided that written notice of such stockholder's intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the secretary of the corporation not later than (1) with respect to an election to be held at an annual meeting of stockholders, ninety (90) days in advance of such meeting, and (2) with respect to an election to be held at a special meeting of stockholders for the election of directors, the close of business on the tenth (10th) day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been nominated, or intended to be nominated, by the board of directors; and (e) the consent of each nominee to serve as a director of the corporation if so elected. The presiding officer of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. (e) Removal. Any director may be removed from office without cause but only by the affirmative vote of the holders of not less than seventy-five percent (75%) of the outstanding stock of the corporation entitled to vote generally in the election of directors, voting together as a single class. (f) Preferred Stock Provisions. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of stock issued by this corporation having a preference over the common stock as to dividends or upon liquidation, shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies, nominations, terms of removal and other features of such directorships shall be governed by the terms of Article FOURTH of the certificate of incorporation and the resolution or resolutions establishing such class or series adopted pursuant thereto and such directors so elected shall not be divided into classes pursuant to Article SIXTH of the certificate of incorporation unless expressly provided by such terms. Section 2. Meetings of the Board of Directors. (a) Regular Meetings. Regular meetings of the board of directors shall be held without call at the following times: (i) 8:30 a.m. on the second Wednesday in February, April, June, August, October and December; (ii) one-half hour prior to any special meeting of the stockholders, and immediately following the adjournment of any annual or special meeting of the stockholders. Notice of all such regular meetings is hereby dispensed with. (b) Special Meetings. Special meetings of the board of directors may be called by the chairman of the board, any two (2) directors or by any officer authorized by the board. Notice of the time and place of special meetings shall be given by the secretary or an assistant secretary, or by any other officer authorized by the board. Such notice shall be given to each director personally or by mail, messenger, telephone or telegraph at his business or residence address. Notice by mail shall be deposited in the United States mail, postage prepaid, not later than the third (3rd) day prior to the date fixed for the meeting. Notice by telephone or telegraph shall be sent, and notice given personally or by messenger shall be delivered, at least twenty-four (24) hours prior to the time set for the meeting. Notice of a special meeting need not contain a statement of the purpose of the meeting. (c) Adjourned Meetings. A majority of directors present at any regular or special meeting of the board of directors, whether or not constituting a quorum, may adjourn from time to time until the time fixed for the next regular meeting. Notice of the time and place of holding an adjourned meeting shall not be required if the time and place are fixed at the meeting adjourned. (d) Place of Meetings. Unless a resolution of the board of directors, or the written consent of all directors given either before or after the meeting and filed with the secretary, designates a different place within or without the State of Delaware, meetings of the board of directors, both regular and special, shall be held at the corporation's offices at 100 N.E. Adams Street, Peoria, Illinois. (e) Participation by Telephone. Members of the board may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another, and such participation shall constitute presence in person at such meeting. (f) Quorum. At all meetings of the board one-third of the total number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action is approved by at least a majority of the required quorum for such meeting. Less than a quorum may adjourn any meeting of the board from time to time without notice. Section 3. Action Without Meeting. Any action required or permitted to be taken by the board of directors may be taken without a meeting if all members of the board consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the board. Section 4. Compensation of Directors. The directors may be paid such compensation for their services as the board shall from time to time determine. Directors who receive salaries as officers or employees of the corporation shall not receive additional compensation for their services as directors. Section 5. Committees of the Board. There shall be such committees of the board of directors each consisting of two or more directors with such authority, subject to applicable law, as a majority of the board shall by resolution determine. Committees of the board shall meet subject to the call of the chairman of each committee and shall prepare and file with the secretary minutes of their meetings. Unless a committee shall by resolution establish a different procedure, notice of the time and place of committee meetings shall be given by the chairman of the committee, or at his request by the chairman of the board or by the secretary or an assistant secretary. Such notice shall be given to each committee member personally or by mail, messenger, telephone or telegraph at his business or residence address at the times provided in subsection (b) of Section 2 of this Article for notice of special meetings of the board of directors. One-third of a committee but not less than two members shall constitute a quorum for the transaction of business. Except as a committee by resolution may determine otherwise, the provisions of Section 3 and of subsections (c), (d) and (e) of Section 2 of this Article shall apply, mutatis mutandis, to meetings of board committees. Article IV Officers Section 1. Officers. The officers of the corporation shall be a chairman of the board, who shall be the chief executive officer, a vice chairman, one or more group presidents, one or more vice presidents (one of whom shall be designated the chief financial officer), a secretary and a treasurer, together with such other officers as the board of directors shall determine. Any two or more offices may be held by the same person. Section 2. Election and Tenure of Officers. Officers shall be elected by the board of directors, shall hold office at the pleasure of the board, and shall be subject to removal at any time by the board. Vacancies in office may be filled by the board. Section 3. Powers and Duties of Officers. Each officer shall have such powers and duties as may be prescribed by the board of directors or by an officer authorized so to do by the board. Section 4. Compensation of Officers. The compensation of officers shall be determined by the board of directors; provided that the board may delegate authority to determine the compensation of any assistant secretary or assistant treasurer, with power to redelegate. Article V Indemnification The corporation shall indemnify to the full extent permitted by, and in the manner permissible under, the laws of the State of Delaware any person made, or threatened to be made, a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director or officer of the corporation or any predecessor of the corporation, or served any other enterprise as a director or officer at the request of the corporation or any predecessor of the corporation. The foregoing provisions of this Article V shall be deemed to be a contract between the corporation and each director and officer who serves in such capacity at any time while this bylaw is in effect, and any repeal or modification thereof shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought based in whole or in part upon any such state of facts. The foregoing rights of indemnification shall not be deemed exclusive of any other rights to which any director or officer may be entitled apart from the provisions of this Article. The board of directors in its discretion shall have power on behalf of the corporation to indemnify any person, other than a director or officer, made a party to any action, suit or proceeding by reason of the fact that he, his testator or intestate, is or was an employee of the corporation. Article VI Miscellaneous Section 1. Record Date. (a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days prior to the date of such meeting nor more than sixty (60) days prior to any other action. If not fixed by the board, the record date shall be determined as provided by law. (b) A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting unless the board fixes a new record date for the adjourned meeting. (c) Stockholders on the record date are entitled to notice and to vote or to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided by agreement or by applicable law. Section 2. Stock Certificates. (a) Every holder of shares in the corporation shall be entitled to have a certificate signed in the name of the corporation by the chairman of the board or the vice chairman or a vice president and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary, certifying the number of shares and the class or series of shares owned by the stockholder. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. (b) The corporation may issue a new share certificate or a new certificate for any other security in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate or the owner's legal representative to give the corporation a bond (or other adequate security) sufficient to indemnify it against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 3. Corporate Seal. The corporation shall have a corporate seal in such form as shall be prescribed and adopted by the board of directors. Section 4. Construction and Definitions. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the General Corporation Law of Delaware shall govern the construction of these bylaws. Section 5. Amendments. Subject to the provisions of the certificate of incorporation, these bylaws may be altered, amended or repealed at any regular meeting of the stockholders (or at any special meeting thereof duly called for that purpose) by a majority vote of the shares represented and entitled to vote at the meeting; provided that in the notice of such special meeting notice of such purpose shall be given. Subject to the laws of the State of Delaware, the certificate of incorporation and these bylaws, the board of directors may by majority vote of those present at any meeting at which a quorum is present amend these bylaws, or enact such other bylaws as in their judgment may be advisable for the regulation of the conduct of the affairs of the corporation. EX-27 3 FINANCIAL DATA SCHEDULE FOR PERIOD ENDED SEPTEMBER 30, 1998
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS FOR NINE-MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000,000 9-MOS DEC-31-1998 SEP-30-1998 128 107 3,605 0 3,116 11,786 12,713 8,196 25,134 7,405 9,726 0 0 407 4,763 25,134 14,836 15,571 11,060 13,752 (145) 0 198 1,766 565 1,212 0 0 0 1,212 $3.32 $3.28 Notes and accounts receivable - trade are reported net of allowances for doubtful accounts in the Statement of Financial Position. Amounts inapplicable or not disclosed as a separate line on the Statement of Financial Position or Results of Operations are reported as 0 herein.
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