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 Dealer New Machines Inventories Outside the United States
 Dealer new machine inventories outside the United States rose moderately from second-quarter levels. In spite of an increase in the last two quarters, inventory levels are still down significantly from last year and are slightly below normal relative to current selling rates.
 Engine Sales Outside the United States
 Outside the United States, sales of diesel engines rose moderately from third quarter 1991 levels. Sales of truck engines to OEMs and sales to petroleum applications both increased significantly. Sales for electric power generation and materials handling applications also rose, more than offsetting a decline in marine sales. Sales of turbine engines also were up significantly over year-earlier levels.
 Liquidity and Capital Resources
 Consolidated operating cash flow totaled $152 million in the third quarter 1992, compared with $169 million in the third quarter 1991. Total debt at the end of the quarter was $5.56 billion, an increase of $141 million from June 30 of this year. Of the increase, $57 million related to Machinery and Engines and $84 million related to Financial Products.
 Machinery & Engines
 Cash used for operating working capital totaled $88 million in the third quarter 1992, primarily for trade receivables caused by the sales increase, in contrast to $24 million of cash provided in the third quarter 1991.
 Capital expenditures totaled $99 million in the third quarter of this year, compared with $145 million a year ago. Thus far, capital expenditures in 1992 have totaled $310 million, with full-year capital expenditures now expected to be about $525 million.
 In the third quarter of 1992, debt increased $57 million, to $3.26 billion. The percentage of debt to debt and stockholders' equity was 46 percent at the end of the third quarter, unchanged from June 30.
 A revolving credit agreement with a group of commercial banks provided the basis to classify $425 million of commercial paper and other bank borrowings as long-term debt at Sept. 30, compared with $344 million at June 30.
 The company issued $152 million of medium-term notes in the third quarter with maturities ranging from 2 to 7 years. The company expects it will issue additional medium to long-term debt during the year to finance a portion of capital expenditures and other working capital requirements. On Aug. 11, $300 million of Zero Coupon Guaranteed Notes with an effective interest rate of 13.4 percent were retired.
 Financial Products
 Operating cash flow totaled $68 million in the third quarter 1992, compared with $40 million a year ago.
 Cash used for expenditures for equipment leased to others totaled $39 million in the third quarter of this year. In addition, third- quarter 1992 net finance receivables increased $128 million from June 30. At the end of the third quarter, finance receivables past due over 30 days were 3.2 percent, compared with 4.0 percent at the end of the third quarter 1991.
 Based on a three-year revolving credit agreement with a group of commercial banks, $340 million of commercial paper borrowings were classified as long-term debt at Sept. 30, unchanged from June 30. Debt increased $84 million, to $2.30 billion in the third quarter 1992. During the third quarter of this year, $135 million of medium-term notes were issued. The ratio of debt to equity of Cat Financial was 6.8:1, unchanged from June 30.
 At the end of the third quarter, Caterpillar's worldwide employment was 51,725 -- a decline of 3,306 from one year ago. For comparison purposes, 1991 employment statistics have been restated to reflect the employment of certain small subsidiaries now included in Caterpillar's worldwide employment but not included in 1991. Hourly employment decreased 2,110 from restated third-quarter 1991 levels while salaried and management decreased 1,196.
 First Nine Months
 A loss of $162 million or $1.60 per share of common stock was incurred in the first nine months of the year. The loss was $76 million greater than the $86 million or 85 cents per share loss through the third quarter of 1991.
 Consolidated sales and revenues were $7.46 billion, a decrease of $264 million, or 3 percent from the first three quarters of 1991.
 Machinery and Engines
 The before-tax loss related to Machinery and Engines was $244 million, compared with a loss of $188 million in the first three quarters of 1991. Sales of $7.20 billion were down $269 million.
 The most significant factor producing the greater loss was an 8 percent reduction in physical sales volume. This was primarily the result of a substantial decrease in market demand for machines outside the United States.
 The decline in sales volume was partially offset by a 4 percent improvement in price realization. The improvement primarily was due to price increases taken since the third quarter of 1991; a more favorable geographic sales mix; and the weaker dollar as sales in European currencies translated into more U.S. dollars. The benefit of the weaker dollar on price realization was reduced by hedges the company has in place as mentioned earlier.
 In addition, there were several other factors adversely affecting year-to-date results, including:
 -- a change in sales mix as relatively more lower margin machines and engines were sold;
 -- the effect of the weaker dollar which resulted in higher costs as cost incurred in European currencies translated into more U.S. dollars;
 -- increased depreciation;
 -- higher interest expense due to a change in mix of consolidated debt with a higher percentage of long-term debt and increased local borrowings in Brazil;
 -- the effects of inflation, particularly for employee wages and benefits, which were largely offset by lower employment on all payrolls;
 -- the establishment as mentioned earlier of a reserve in the third quarter for environmental clean-up at Solar Turbines.
 These were partially offset by:
 -- the absence of nonrecurring charges recorded in the first three quarters of 1991 related to the consolidation of North American operations of the company's Building Construction Products Division, the write-off of surplus assets, and employment redundancies outside the United States;
 -- cost of goods sold included a $30 million favorable adjustment to inventory as a result of a periodic reconciliation of inventory stock records in the accounting records. In addition, LIFO inventory decrement benefits were $10 million, compared with $5 million benefit in the first three quarters of 1991.
 While the company's Brazilian operations remained unprofitable because of continuing poor economic conditions in Brazil, results improved modestly from the same period last year. However, they continue to have a material adverse effect on consolidated results.
 Financial Products
 Revenues were $264 million, $5 million above the first three quarters of 1991. Before-tax profit related to Financial Products was $43 million, compared with a profit of $39 million in the first three quarters of 1991. The increase in revenues resulted primarily from a larger receivables portfolio.
 Caterpillar Financial Services Corp. financed new business of $1.10 billion, a $176 million or 19 percent increase, compared with the first three quarters of 1991.
 Affiliated Companies
 The company's share of affiliated companies' earnings was a $10 million loss, compared with a $16 million profit in the first three quarters of 1991. The decline in profitability was principally at the company's 50-percent-owned affiliate, Shin Caterpillar Mitsubishi Ltd. The drop in profit was primarily due to lower sales in all categories and less gains on the sale of surplus assets in Japan.
 Income Taxes
 As a result of the consolidated loss, a $49 million tax credit was recorded in the first three quarters of 1992, compared with a credit of $47 million in the first three quarters of 1991.
 Accounting Standards
 Caterpillar plans to adopt Statements of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and No. 109, "Accounting for Income Taxes," in the fourth quarter of 1992 effective Jan. 1, 1992.
 SFAS 106 requires recognition of the cost of providing post retirement health care and life insurance benefits over the employee service period. Caterpillar, like most U.S. companies, currently charges the cost of providing these benefits against operations as claims are incurred. This standard does not affect cash flows, but merely accelerates recognition of costs. The company previously has disclosed the estimated range of the liability for past service as of Jan. 1, 1993, to be $1.7 to $2.4 billion after tax. The company currently expects that the liability as of Jan. 1, 1992, will be at the high end of the range. It is anticipated that this liability will be recognized as a one-time charge. The previously disclosed estimate of the incremental expense resulting from adoption of the standard was $100 to $300 million after tax. The estimated incremental expense for 1992 is currently expected to be near the low end of this range. It is also expected that the full-year impact of previously announced benefit charges made in 1992 as well as other anticipated changes will result in the incremental charge for 1993 being substantially less than the 1992 amount.
 SFAS 109 requires changing the method of accounting for income taxes from the deferred method to the asset and liability method. Other than an approximately $25-$50 million unfavorable transition adjustment and allowing the recognition of a tax benefit on the SFAS 106 obligation, its adoption is not expected to have a material effect on 1992 results of operations or financial position.
 The economies of the United States and Canada appear to have lost momentum in the third quarter and no significant improvement is forecast for the fourth quarter. Better growth is forecast in 1993, although it will be mild for a recovery by historical standards. Consequently, industry sales are expected to show only modest improvement in 1993, after declining in 1992.
 The outlook for Europe continues to call for recession and near- recessionary conditions for the remainder of this year and at least the first half of 1993. Japan remains in a serious economic slowdown although recent actions could result in better growth for 1993.
 The economic outlook for developing countries continues to be mixed for the remainder of this year. Stronger growth is likely next year in most regions. In Brazil, economic and political uncertainty are likely to continue, resulting in another year of weak growth.
 Worldwide construction industry demand for machines now is expected to decline in 1992 as compared with 1991, although company dollar sales are expected to remain at about last year's levels due principally to better price realization. Given current economic conditions and continuing uncertainties about the timing and strength of recoveries, it appears that machine industry demand in 1993 could be essentially flat, although some upside potential is possible from a faster recovery in Europe and stronger recovery in North America. In addition, company sales will benefit from improved price realization, more stable dealer inventory levels and improved engine sales.
 As disclosed previously, the company has hedged a portion of its revenues on U.S. manufactured product sold in Europe to protect margins against potential strengthening of the U.S. dollar. As a result, price realization on these sales will not improve due to a weaker dollar.
 -0- 10/22/92
 (CAT) CO: Caterpillar Inc. ST: Illinois IN: MAC SU: ERN

TS -- NY047B -- 3718 10/22/92 14:29 EDT
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Date:Oct 22, 1992

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