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Focus on cost and inventory reduction positions Caterpillar for sustained industry leadership
PEORIA, Ill., July 21 /PRNewswire-FirstCall/ -- Caterpillar Inc. (NYSE: CAT) today reported a second-quarter profit of $0.60 per share, down $1.14 per share from the second quarter of 2008. Excluding redundancy costs, profit was $0.72 per share. Redundancy costs related to reducing employment were $85 million before tax or $0.12 per share in the quarter. Sales and revenues of $7.975 billion were down 41 percent from $13.624 billion in the second quarter 2008.
"Our profit this quarter, despite the sharp decline in sales, is a tribute to Team Caterpillar's response to this severe global recession and the continued deployment of our economic trough strategy," said Chairman and Chief Executive Officer Jim Owens. "There is still a great deal of economic uncertainty in the world, but we are seeing signs of stabilization that we hope will set the foundation for an eventual recovery. Credit markets have improved significantly. Fiscal policy and monetary stimulus have been introduced around the world, and we are seeing signs, particularly in China, that they are beginning to work. In addition, we've seen many key commodity prices increase from their lows in the first quarter, and they are holding in a range that is usually positive for investment," said Owens.
"With our dedicated employees, strong dealer network and supply base, great lineup of products and the increasing impact of integrated service businesses, I am more confident than ever that we will strengthen our industry leadership as we work through this recession," Owens added.
The second-quarter profit of $371 million was down $735 million from $1.106 billion in the second quarter of 2008. The decline was largely a result of lower sales volume and $85 million of redundancy costs. These negative impacts were partially offset by lower Selling, General and Administrative (SG&A) and Research and Development (R&D) expenses, favorable price realization, LIFO inventory decrement benefits and a lower tax rate.
In addition to profit, Caterpillar is highly focused on delivering positive cash flow in 2009 and is committed to its $3 billion inventory reduction goal for the year. Utilizing the Caterpillar Production System (CPS) with 6 Sigma, the company reduced inventory in the second quarter by more than $800 million, and through the first half of the year inventory has declined by more than $1.6 billion.
"In addition to our ability to generate solid profits in this economic climate, I'm pleased with our work to generate positive cash flow and maintain considerable financial strength during this challenging period," Owens said.
Outlook
The company is updating its outlook for 2009 by tightening the sales and revenues range and improving profit expectations. For sales and revenues, the range has been tightened to $32 billion to $36 billion. The 2009 profit outlook is a range of $0.40 to $1.50 per share including redundancy costs of about $0.75 per share. Excluding redundancy costs, profit is forecast to be between $1.15 and $2.25 per share.
"Team Caterpillar is now halfway through one of the most challenging years in the company's history," Owens said. "Our 2009 sales have been hurt by weak end-user demand and significant reductions in dealer inventory. In fact, dealers have reduced their machine inventories by about $1.5 billion through the first half of the year and could reach close to $3 billion by year-end. As tough as this year has been, the improved profit outlook is a tangible sign of what happens when the entire team is pulling in the same direction and deploying the trough strategy we put in place over the past four years. We are very pleased with the way our people have stepped up and responded to this extraordinary period of economic turmoil," Owens said.
Notes:
-- Information on non-GAAP financial measures, including the treatment of
redundancy costs in the second quarter and in the outlook, is included
on page 25.
-- Glossary of terms is included on pages 23-24; first occurrence of
terms shown in bold italics.
For more than 80 years, Caterpillar Inc. has been making progress possible and driving positive and sustainable change on every continent. With 2008 sales and revenues of $51.324 billion, Caterpillar is the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. The company also is a leading services provider through Caterpillar Financial Services, Caterpillar Remanufacturing Services, Caterpillar Logistics Services and Progress Rail Services. More information is available at: http://www.cat.com/.
SAFE HARBOR
Certain statements in this release relate to future events and expectations and as such constitute forward-looking statements involving known and unknown factors that may cause actual results of Caterpillar Inc. to be different from those expressed or implied in the forward-looking statements. In this context, words such as "will," "would," "expect," "anticipate," "should" or other similar words and phrases often identify forward-looking statements made on behalf of Caterpillar. It is important to note that actual results of the company may differ materially from those described or implied in such forward-looking statements based on a number of factors and uncertainties, including, but not limited to, (i) adverse change in general economic conditions; (ii) adverse change in the industries Caterpillar serves including construction, infrastructure, mining, energy, marine and electric power generation; (iii) Caterpillar's ability to manage material, including steel, and freight costs; (iv) Caterpillar's ability to generate cash from operations, secure external funding for its operations and manage its liquidity needs; (v) material adverse change in customers' access to liquidity and capital; (vi) currency exchange or interest rates changes; (vii) political stability; (viii) market acceptance of the company's products and services; (ix) significant changes in the competitive environment; (x) epidemic diseases; (xi) severe change in weather conditions negatively impacting operations; (xii) changes in law, regulations and tax rates; and (xiii) other general economic, business and financing conditions and factors described in more detail in the company's Form 10-K filed with the Securities and Exchange Commission on February 20, 2009. This filing is available on our website at http://www.cat.com/sec_filings. We do not undertake to update our forward-looking statements.
Key Points
Second Quarter 2009
(Dollars in millions except per share data)
Second Second
Quarter Quarter
2009 2008 $ Change % Change
---- ---- -------- --------
Machinery and Engines Sales $7,254 $12,797 $(5,543) (43)%
Financial Products Revenues 721 827 (106) (13)%
--- --- -----
Total Sales and Revenues $7,975 $13,624 $(5,649) (41)%
====== ======= ========
$371 $1,106 $(735) (66)%
Profit
Profit per common share -
diluted $0.60 $1.74 $(1.14) (66)%
Excluding Redundancy
--------------------
Profit $443 $1,106 $(663) (60)%
Profit per common share -
diluted $0.72 $1.74 $(1.02) (59)%
-- Second-quarter sales and revenues of $7.975 billion were 41 percent
lower than the second quarter of 2008.
-- As a result of recessionary conditions throughout much of the world,
Machinery and Engines (M&E) sales decreased $5.543 billion.
-- Machinery sales decreased 49 percent, Engines sales were down 32
percent and Financial Products revenues declined 13 percent from a
year ago.
-- Inventory has been reduced by $1.621 billion from December 2008. The
significant inventory reduction has resulted in pre-tax LIFO inventory
decrement benefits of $110 million or $0.14 per share in the quarter.
-- Redundancy costs were $85 million before tax or $0.12 per share in the
quarter.
2009 Outlook
-- The company is updating its outlook for 2009 by improving profit
expectations and tightening the sales and revenues range.
-- With half a year of actual results behind us we have tightened the
full-year outlook for sales and revenues to a range of $32 billion to
$36 billion.
-- We expect 2009 profit in a range of $0.40 to $1.50 per share including
redundancy costs of about $700 million, or $0.75 per share. Excluding
redundancy costs, we expect profit to be between $1.15 and $2.25 per
share.
-- We expect strong cash flow for the year and to improve our balance
sheet.
A question and answer section has been included in this release
starting on page 18.
DETAILED ANALYSIS
Consolidated Sales and Revenues Comparison
Second Quarter 2009 vs. Second Quarter 2008
To access this chart, go to http://www.cat.com/ for the
downloadable version of Caterpillar 2Q2009 earnings.
Sales and Revenues
Sales and revenues for second quarter 2009 were $7.975 billion, down $5.649 billion, or 41 percent, from second quarter 2008. Machinery sales volume was down $4.183 billion, and Engines sales volume declined $1.394 billion. Price realization improved $259 million, and currency had a negative impact on sales of $225 million, primarily due to a weaker euro and British pound. In addition, Financial Products revenues decreased $106 million.
Sales and Revenues by Geographic Region
(Millions of dollars)
% North %
Total Change America Change EAME
----- ------ ------- ------ ----
Second Quarter 2009
-------------------
Machinery $4,338 (49)% $1,730 (51)% $1,010
Engines (1) 2,916 (32)% 1,020 (30)% 1,090
Financial Products (2) 721 (13)% 431 (15)% 124
--- --- ---
$7,975 (41)% $3,181 (42)% $2,224
====== ====== ======
% Asia/ % Latin %
Change Pacific Change America Change
------ ------- ------ ------- ------
Second Quarter 2009
-------------------
Machinery (61)% $1,061 (25)% $537 (47)%
Engines (1) (36)% 551 (26)% 255 (31)%
Financial Products (2) (21)% 91 11 % 75 (9)%
--- ---
(50)% $1,703 (24)% $867 (41)%
====== ====
% North %
Total Change America Change EAME
----- ------ ------- ------ ----
Second Quarter 2008
-------------------
Machinery $8,530 $3,511 $2,593
Engines (1) 4,267 1,458 1,693
Financial Products (2) 827 506 157
--- --- ---
$13,624 $5,475 $4,443
======= ====== ======
% Asia/ % Latin %
Change Pacific Change America Change
------ ------- ------ ------- ------
Second Quarter 2008
-------------------
Machinery $1,414 $1,012
Engines (1) 745 371
Financial Products (2) 82 82
--- ---
$2,241 $1,465
====== ======
(1) Does not include internal engines transfers of $319 million and $748
million in 2009 and 2008, respectively. Internal engines transfers
are valued at prices comparable to those for unrelated parties.
(2) Does not include internal revenues earned from Machinery and Engines
of $93 million and $83 million in 2009 and 2008, respectively.
Machinery Sales
Sales of $4.338 billion decreased $4.192 billion, or 49 percent, from second quarter 2008.
-- Excluding the consolidation of Cat Japan, sales volume decreased
$4.473 billion.
-- Price realization increased $100 million.
-- Currency decreased sales by $109 million.
-- Geographic mix between regions (included in price realization) was $28
million unfavorable.
-- The consolidation of Cat Japan added $290 million to sales.
-- Over the past three quarters, dealers reported declines in deliveries
to end users at rates unprecedented in the more than 30 years of
available data. Nearly all countries and all industries were
impacted.
-- Some signs of moderation appeared late in the quarter, especially in
the developing economies. However, the multi-quarter declines in
activity mean that year-over-year comparisons show large percentage
decreases in all regions.
-- Dealers responded to steep declines in their business by sharply
reducing inventories. They reported reductions in the quarter of
almost $1.2 billion, which also contributed to lower sales volume.
However, inventories in months of supply were higher than a year ago
in all regions.
-- Home prices declined in North America and Europe, and banks generally
tightened qualifications for home mortgages. As a result, housing
construction declined. Nonresidential construction also declined in
both regions.
-- Sales volume decreased in the developing regions of Africa/Middle
East, the Commonwealth of Independent States (CIS), Asia/Pacific and
Latin America, although the percentage declines were usually not as
severe as in the developed economies.
North America - Sales decreased $1.781 billion, or 51 percent.
-- Sales volume decreased $1.821 billion.
-- Price realization increased $41 million.
-- Currency decreased sales by $1 million.
-- Severe recessions in both the United States and Canada caused most
industries that use our equipment to reduce purchases drastically.
Dealers also reported lower inventories, which contributed to the
volume decline.
-- U.S. housing starts were 47 percent lower than a year earlier.
Factors depressing construction included high inventories of unsold
homes, lower selling prices and continued stringent standards for
mortgage qualification.
-- Orders for nonresidential building construction were down almost 40
percent. Problems were rising vacancy rates, tight lending standards
and lower commercial property prices.
-- Contracts for infrastructure-related construction dropped 15 percent.
Highway construction contracts were about even with a year earlier,
reflecting improvement late in the quarter.
-- Sharp declines in construction caused nonmetals mining and quarry
production to drop 20 percent. The industry continued to reduce
capacity during the quarter, and the usage of remaining capacity
dropped to a record-low rate.
-- Metals prices were 44 percent lower than second quarter 2008, and
metals mining production dropped 14 percent.
-- Coal production declined 8 percent, and prices were much lower.
Electric utilities cut production, and exports were down more than 50
percent.
-- Crude oil prices fell 52 percent, prompting oil companies in Canada to
reduce nonconventional oil extraction development, which includes tar
sands, by 31 percent.
EAME - Sales decreased $1.583 billion, or 61 percent.
-- Sales volume decreased $1.531 billion.
-- Price realization increased $27 million.
-- Currency decreased sales by $79 million.
-- The steep drop in sales volume resulted from the deep recession in
Europe, collapses in most CIS economies, and a less favorable
environment for energy and mining industries in Africa/Middle East.
Dealers reported much lower deliveries in most countries and across
most industries.
-- Dealers responded to reduced deliveries by cutting inventories well
below a year earlier; however, months of supply increased.
-- The housing industry remained depressed in most European countries.
Permits for new construction in the early months of this year declined
7 percent in Germany, 15 percent in France and 64 percent in Spain.
U.K. housing orders were down 38 percent in the second quarter. Home
prices declined in many European countries, and euro-zone banks
continued to tighten lending standards for home purchases.
-- Nonresidential building construction also contracted. Negative
factors included stringent standards for new loans, reduced bank
lending and a sharp drop in capacity utilization. Infrastructure
construction increased slightly.
-- In Africa/Middle East, dealer efforts to reduce inventories were the
most important reason for lower sales volume. Other contributors were
a 10-percent decrease in oil production, a 14-percent drop in South
African construction permits and a severe decline in Turkish
industrial production from a year earlier.
-- Sales volume in the CIS dropped more than 80 percent due to sharp
reductions in economic activity. Russian interest rates were higher
than a year earlier, and the money supply declined. As a result,
industrial production was down 15 percent, and construction was down
20 percent. Ukrainian industrial production declined more than 30
percent.
Asia/Pacific - Sales decreased $353 million, or 25 percent.
-- Excluding the consolidation of Cat Japan, sales volume decreased $676
million.
-- Price realization increased $41 million.
-- Currency decreased sales by $8 million.
-- The consolidation of Cat Japan added $290 million to sales.
-- Economies throughout the region were weaker than a year earlier,
causing dealers to report lower deliveries to end users. In response,
dealers aggressively drew down their inventories, which was the most
significant cause of lower sales volume. Reported dealer inventories
increased in months of supply.
-- In China, growth in industrial production slowed from 16 percent last
year to 8 percent this year, and exports dropped 25 percent. Building
starts declined 10 percent. Although comparisons against a year
earlier are negative, economic activity improved during the quarter.
-- The Australian economy slowed in response to a long period of high
interest rates. Approvals for housing construction declined 23
percent, and those for nonresidential construction fell 50 percent.
-- The Reserve Bank of India maintained tight economic policies through
most of last year, causing industrial production growth to slow.
-- The Japanese economy suffered from a 41-percent decline in exports and
a sharp reduction in business investment. Housing orders dropped 53
percent, and commercial building starts fell 41 percent.
Latin America - Sales decreased $475 million, or 47 percent.
-- Sales volume decreased $473 million.
-- Price realization increased $19 million.
-- Currency decreased sales by $21 million.
-- Dealers reported reductions in inventories, accounting for much of the
decline in sales volume. However, inventory in months of supply
increased from a low year-earlier level.
-- Economies in the region weakened due to declining exports and tight
economic policies through much of last year. Industrial production
declined 9 percent in Mexico, 13 percent in Brazil and 15 percent in
both Chile and Colombia.
-- Construction sectors deteriorated in most countries, and lower
commodity prices and sharp declines in industrial production
throughout the world hurt the important mining industry. Mining
output declined 13 percent in Brazil and nearly 2 percent in Chile,
depressing our sales of machines used in mining.
Engines Sales
Sales of $2.916 billion decreased $1.351 billion, or 32 percent, from second quarter 2008.
-- Sales volume decreased $1.394 billion.
-- Price realization increased $159 million.
-- Currency decreased sales by $116 million.
-- Geographic mix between regions (included in price realization) was $10
million unfavorable.
-- Dealer-reported inventories were up, and months of supply increased,
as dealer deliveries decreased.
North America - Sales decreased $438 million, or 30 percent.
-- Sales volume decreased $526 million.
-- Price realization increased $89 million.
-- Currency decreased sales by $1 million.
-- Sales for petroleum applications decreased 18 percent primarily due to
a decrease in turbine sales, partially offset by slightly increased
sales into petroleum engine applications for gas compression and
drilling.
-- Sales for industrial applications decreased 54 percent based on
substantially lower demand in construction and agricultural
applications due to economic uncertainty and tight credit conditions.
-- Sales for electric power applications were about the same as the
second quarter of 2008.
EAME - Sales decreased $603 million, or 36 percent.
-- Sales volume decreased $547 million.
-- Price realization increased $42 million.
-- Currency decreased sales by $98 million.
-- Sales for electric power applications decreased 47 percent due to weak
economic conditions and reduced availability of credit combined with
dealers beginning to work down inventory to align with the reduced
demand.
-- Sales for industrial applications decreased 48 percent based on
significantly lower demand in construction and agricultural
applications due to weak economic conditions and reduced availability
of credit.
-- Sales for petroleum applications decreased 14 percent primarily due to
a slowdown in engines and turbines used in offshore drill rigs and
production applications.
-- Sales for marine applications decreased 25 percent due to weak
economic conditions, partially offset by increased demand for engines
used in general cargo, container and offshore applications due to
increased availability.
Asia/Pacific - Sales decreased $194 million, or 26 percent.
-- Sales volume decreased $206 million.
-- Price realization increased $27 million.
-- Currency decreased sales by $15 million.
-- Sales for petroleum applications decreased 38 percent primarily due to
a slowdown in Chinese land-based drill activity. Deliveries to Asian
shipyards for deep offshore drilling rigs remained strong, about the
same as the second quarter of 2008.
-- Sales of electric power engines decreased 26 percent due to cancelled
and delayed projects in China and India.
-- Sales for industrial applications decreased 41 percent, due to
significantly lower demand in construction and mining support
applications.
-- Sales for marine applications increased 23 percent, with strong demand
for workboat and general cargo vessels.
Latin America - Sales decreased $116 million, or 31 percent.
-- Sales volume decreased $125 million.
-- Price realization increased $11 million.
-- Currency decreased sales by $2 million.
-- Sales for on-highway truck applications decreased 84 percent as a
result of the decision to exit the on-highway truck business.
-- Sales for petroleum applications decreased 22 percent due to a
slowdown in land-based drill rig and production applications.
-- Sales of electric power engines decreased 36 percent due to worsening
economic conditions and reduced availability of credit.
Financial Products Revenues
Revenues of $721 million decreased $106 million, or 13 percent, from second quarter 2008.
-- A decrease of $55 million was due to a $39 million impact of lower
interest rates on new and existing finance receivables and a decrease
in average earning assets of $16 million.
-- Other revenues at Cat Financial decreased $33 million. The decrease
was primarily due to a $17 million impact from returned or repossessed
equipment and the absence of a $12 million gain related to the sale of
receivables in the second quarter of 2008.
Consolidated Operating Profit Comparison
Second Quarter 2009 vs. Second Quarter 2008
To access this chart, go to http://www.cat.com/ for the
downloadable version of Caterpillar 2Q2009 earnings.
Operating Profit
The second-quarter operating profit was $347 million compared to an operating profit of $1.525 billion in the second quarter of 2008. Lower sales volume was the primary reason for the decline.
Manufacturing costs decreased $85 million. Significant inventory reduction has resulted in $110 million ($0.14 per share) of LIFO inventory decrement benefits. Excluding decrement benefits, manufacturing costs increased $25 million.
SG&A and R&D expenses declined $291 million as a result of significant cost-cutting measures.
Currency had an $89 million favorable impact on operating profit as the benefit to costs more than offset the negative impact on sales.
Redundancy costs were $85 million, and the consolidation of Cat Japan unfavorably impacted operating profit by approximately $80 million.
Operating Profit (Loss) by Principal Line of Business
Second Second
Quarter Quarter $ %
2009 2008 Change Change
(Millions of dollars) ---- ---- ------ ------
Machinery (1) $(252) $719 $(971) (135)%
Engines (1) 555 711 (156) (22)%
Financial Products 127 166 (39) (23)%
Consolidating Adjustments (83) (71) (12)
--- --- ---
Consolidated Operating Profit $347 $1,525 $(1,178) (77)%
==== ====== =======
(1) Caterpillar operations are highly integrated; therefore, the company
uses a number of allocations to determine lines of business operating
profit for Machinery and Engines.
Operating Profit/Loss by Principal Line of Business
-- Machinery operating loss was $252 million compared to an operating
profit of $719 million in the second quarter of 2008. Sharply lower
sales volume, losses at Cat Japan and $74 million of redundancy costs
were partially offset by lower SG&A and R&D expenses, improved price
realization and LIFO inventory decrement benefits.
-- Engines operating profit of $555 million was down $156 million, or 22
percent, from the second quarter 2008. Significantly lower sales
volume and $11 million of redundancy costs were partially offset by
improved price realization and lower SG&A expenses.
-- Financial Products operating profit of $127 million was down $39
million, or 23 percent, from the second quarter 2008. The decrease
was primarily attributable to a $28 million impact from decreased net
yield on average earning assets, a $17 million unfavorable impact from
returned or repossessed equipment, the absence of a $12 million gain
related to the sale of receivables in the second quarter of 2008 and a
$7 million unfavorable impact from lower average earning assets,
partially offset by a $27 million decrease in SG&A expenses.
Other Profit/Loss Items
-- Interest expense excluding Financial Products increased $39 million as
a result of higher debt. We have intentionally held more cash than
usual as a result of capital market volatility.
-- Other income/expense was income of $163 million compared with income
of $83 million in second quarter 2008. The improvement was primarily
related to a favorable currency impact of $93 million.
-- The provision for income taxes in the second quarter reflects an
actual (discrete period) effective tax rate of 10 percent compared to
an estimated annual tax rate of 31.3 percent for second quarter 2008
excluding discrete benefits of $47 million in the second quarter 2008.
The decrease is primarily attributable to a more favorable geographic
mix of profits and losses from a tax perspective along with a larger
percentage benefit from U.S. permanent differences and credits
including the research and development tax credit. We are currently
unable to reliably estimate the 2009 annual effective tax rate and are
recording taxes on an actual basis. This approach results in more
volatility in the quarterly effective tax rate, particularly with the
reduced overall profit levels.
-- Equity in profit/loss of unconsolidated affiliated companies was a
loss of $1 million compared with income of $10 million in the second
quarter 2008. The decrease is primarily related to the absence of
equity profit after the consolidation of Cat Japan.
-- Profit/loss attributable to noncontrolling interests (formerly
minority interest) favorably impacted earnings $19 million from second
quarter 2008, primarily due to adding back 33 percent of Cat Japan's
losses attributable to Mitsubishi Heavy Industries.
Employment
Worldwide employment was 95,761 at the end of second quarter 2009. Excluding the impact of consolidating Cat Japan, employment declined by approximately 15,000 from second quarter 2008. Cat Japan added about 5,500.
Since late 2008, we have taken a variety of steps to bring our workforce in line with demand. This includes full-time Caterpillar employees who have been laid off or separated and those who have taken advantage of incentive-based voluntary plans offered by the company. Since the end of 2008, full-time employment has declined by about 17,100. In addition, we have long utilized a flexible workforce made up of part-time/temporary, contract and agency workers to better respond to shifts in demand. These workers are not included in our full-time employment. Since late 2008, we have reduced this flexible workforce by more than 17,000. Depending on business conditions, more layoffs and reductions may be required. In addition, we expect to maintain volume flexibility with cost-effective rolling layoffs.
2009 OUTLOOK
Economic Outlook
We expect the world economy to decline more than 2 percent this year, the worst year for growth in the postwar period. Some economic indicators improved in the second quarter, suggesting the rapid decline in the world economy is moderating. However, we expect output will fall further in the third quarter before recovering slightly in the fourth quarter.
-- Short-term interest rates in developed economies are at record lows,
often near zero. Since last September, most developing countries have
cut their interest rates to or near record lows.
-- Major central banks significantly expanded balance sheets to provide
more liquidity to their banking systems. Since the Lehman Brothers'
bankruptcy, the Fed and the Bank of England more than doubled their
assets, and the European Central Bank increased assets by more than a
third.
-- Many governments introduced large, multi-year stimulus programs. We
estimate these total more than $3.5 trillion, with $1.7 trillion for
infrastructure development.
-- Collectively these actions are unprecedented, but they are in response
to the worst economic environment since the Great Depression. We
expect that these policy changes will be sufficient to start a
recovery, but we have continuing concerns. Several credit spreads
remain higher than normal, banks in some countries continue to tighten
lending standards and major central banks have let their balance
sheets shrink from peaks last December.
-- Prospects for recovery look firmest in Asia/Pacific. China quickly
reversed its tight monetary policy and launched a massive stimulus
program. Both money and credit growth reached record highs, and
growth in industrial production has already improved. Commercial and
residential building sales, which declined last year, have turned up
sharply, and selling prices have increased. Economic growth rebounded
in the second quarter and should average near 8 percent for the year.
-- Sharp interest rate cuts in India started a recovery in industrial
production, and mining output appears to have turned up. Industrial
production is again increasing in Indonesia, Malaysia, Thailand,
Singapore and Taiwan. Lower interest rates and some recovery in
exports are helping these countries.
-- Latin American economies also seem to be mending. Brazil, the
region's largest economy, cut interest rates, and industrial
production started to improve in the second quarter. Both Chile and
Colombia took large interest rate cuts over the past few months, and
we expect their economies will improve before year end. Regional
output should decline about 1 percent this year, largely due to a
severe recession in Mexico.
-- Economic output in Africa/Middle East should be about even with last
year due to some expected improvement in the second half of 2009.
Credit spreads have declined, and the recovery in metals prices from
first-quarter lows encouraged some increase in mining production.
While commodity prices have eased recently we do not expect a return
to first-quarter lows. Additionally, Turkey cut interest rates 850
basis points over the last nine months, and industrial production
rebounded from the first-quarter low.
-- Among developing regions, the CIS has the weakest prospect for
recovery this year. Interest rates remain high, and severe recessions
likely persisted through the second quarter. We expect economies in
the CIS will decline more than 3 percent this year.
-- Signs of recovery in the developed economies are more tenuous. Recent
optimism resulted mostly from surveys of business and consumer
confidence or data showing slower rates of decline. Evidence of
actual recovery was scarce.
-- The Japanese economy is suffering from severe declines in exports and
business investment. Leading indicators are declining, and we do not
expect a recovery this year. The economy should decline more than 6
percent.
-- We estimate the U.S. economy was in recession through the end of the
second quarter and expect another decline in the third quarter.
Modest growth should occur in the fourth quarter. Output should
decline more than 3 percent this year, the worst peacetime performance
since 1938.
-- Factors that could threaten a U.S. recovery include declines in home
and commercial property prices, tight lending standards, limited
growth in bank lending and a drop in commercial paper outstanding to
the lowest level since June 1998.
-- U.S. housing starts bottomed at under a 500,000 unit annual rate in
April and improved to a 582,000 unit annual rate in June. We expect
further improvements in the second half, and starts for the year
should average about 600,000 units. Starts would still be the lowest
since 1945.
-- We expect orders for nonresidential building construction will fall
almost 40 percent in 2009 due to weak business profits, rising vacancy
rates and declining commercial property prices.
Infrastructure-related construction orders were down 17 percent year
to date, but stimulus funding in the second half should reduce the
full-year decline to about 10 percent.
-- Europe should have a growth pattern similar to the United States, with
the economy declining 2.5 percent this year. Both business and
consumer surveys improved, and these frequently signal recovery. The
United Kingdom should be quicker to recover than the euro-zone due to
more aggressive policy actions.
-- In 2009, we expect crude oil prices will average $55 per barrel,
copper prices $2 per pound and Central Appalachian coal $51 per ton.
Crude oil and copper prices should average higher in the second half
than in the first half; coal prices should be down slightly. All
prices would be favorable for increased production although producers
likely will remain cautious.
2009 Sales and Revenues Outlook
We are encouraged by signs of stabilization in credit markets, the more than $3.5 trillion in fiscal stimulus worldwide, record low interest rates and by a return to more favorable commodity prices. These factors are necessary building blocks for recovery.
While these building blocks for future growth are emerging, the short-term outlook remains very depressed. Our dealers reported very substantial declines in demand during the first half of 2009, and they responded by drawing down inventories. The impact of very weak demand coupled with sharp declines in dealer machine inventories has had a significant negative impact on Caterpillar sales.
During the second quarter, we saw some signs that demand by end users was beginning to stabilize, particularly for machines. End-user demand was in a very tight band from January to May, but showed some improvement in June. Prospects for improvement are strongest in the developing countries, with tentative indications that recovery is underway in Asia.
With half a year of actual results behind us we have tightened the full-year outlook for sales and revenues to a range of $32 billion to $36 billion. However, the high degree of uncertainty in the global economy makes it very difficult to forecast sales and revenues, and as a result, the outlook range is still relatively wide.
We expect that dealers will continue to reduce machine inventories during the second half, with a total-year reduction that could reach $3 billion. It is likely that much of the additional reduction will occur in the third quarter and as a result, we have more plant shutdowns planned. The third quarter will likely be the weakest quarter for sales in 2009.
2009 Profit Outlook
We have implemented a wide variety of actions to weather this very severe recession, and as a result, we expect to be profitable in 2009. We expect 2009 profit in a range of $0.40 to $1.50 per share including redundancy costs of about $700 million, or $0.75 per share. Excluding redundancy costs, we expect profit to be between $1.15 and $2.25 per share.
This is an improvement in the 2009 profit outlook since the end of the first quarter. At that time we expected profit at the mid-point of the range to be $0.50 per share, or $1.25 excluding redundancy costs.
Due to the extremely difficult economic climate, we have been very focused on deploying the trough actions that have been a key element to our overall strategy since 2005. While these actions are painful, they are important steps to keep the company strong and positioned for economic growth, when it comes. We are taking significant actions to:
-- Lower production to levels below expected end-user demand to help
dealers lower their inventories.
-- Reduce cost levels and improve cash flow.
-- Strengthen our financial position, significantly reduce inventory and
improve liquidity.
-- Continue to invest for the future in research and development and
select new facilities.
Elements of the Outlook include:
-- We are committed to our 2009 inventory reduction goal of about $3
billion and have reduced inventory by more than $1.6 billion through
the end of the second quarter. Inventory management is a key element
of the Caterpillar Production System, and we are pleased with the
traction we are gaining.
-- We expect dealers to reduce their new machine inventory by close to $3
billion. Dealers have reduced their new machine inventories by about
$1.5 billion through the first half--about $300 million during the
first quarter and about $1.2 billion in the second quarter.
-- Significant reduction in capital expenditures for 2009.
-- Suspension of Caterpillar stock repurchases.
-- Maintenance of a high level of cash as a result of volatile credit
markets.
-- We are forecasting improved price realization for 2009 and realized
$225 million in the first quarter and $259 million in the second
quarter.
-- Overall material costs for 2009 are expected to be about the same as
2008.
-- Sharp declines in overtime work. Factory overtime is a key element of
volume flexibility, and many facilities were working high levels of
overtime throughout most of 2008.
-- Thousands of employees at facilities around the world have been
affected by temporary layoffs and full- and partial-plant shutdowns.
-- Suspension of salary increases for nearly all support and management
employees.
-- Elimination of short-term incentive compensation based on the current
profit outlook range.
-- Significant reductions in total compensation for executives/senior
managers.
-- Excluding Cat Japan, Machinery and Engines SG&A expenses are expected
to decline about 25 percent. R&D expenses are forecasted to decline
more than 15 percent with spending in 2009 primarily focused on new
products to meet Tier 4 regulatory emissions requirements and other
key product development programs.
-- Financial Products profit before tax is expected to decline by about
30 percent in 2009. The profit outlook for Financial Products
improved in the second quarter.
QUESTIONS AND ANSWERS
Q1: It appears that many commodity prices are remaining at relatively high levels given current commodity demand. Do you expect commodity prices to remain at current levels over the next six months?
A: We are forecasting that second-half prices for most key commodities that impact our business will be below second-quarter peaks, but higher than first-half averages. U.S. coal prices are the exception, with our projection of Central Appalachian coal at $49 per ton in the second half. We would consider that price high enough to encourage increased coal production. Commodity prices have held up better than we expected given steep declines in industrial production throughout the world. We believe that's a result of producers quickly reducing production and China rebuilding inventories.
Q2: Are higher commodity prices having any positive impact on your mining business? Can you describe recent trends . . . has interest, quoting, or order activity shown any signs of life?
A: Gold miners appear to be cautiously optimistic, and we are starting to see some increased quoting activity. Although copper prices remain well above investment threshold levels, there is significant caution among miners, and we are not seeing increased activity around copper. We have seen increased quoting activity in the oil sands, but not many new orders as of yet.
Q3: Are you more positive or more negative on the near-term prospects for mining than you were at the end of the first quarter?
A: We remain essentially neutral to last quarter. We have seen some increased quoting activity in certain areas, but that hasn't yet resulted in much of a change in order activity. Many of our customers have indicated that a stable copper price, above $2 per pound, for a more extended period, roughly six months, will likely be needed to gain enough confidence to generate increased order activity.
Q4: Over the past quarter you've talked about signs of economic improvement and improvement in your sales in China. Can you summarize what happened in the second quarter in China and your expectations for the remainder of the year?
A: Economic data for China show definite signs of improvement. Money growth accelerated sharply, and growth in industrial production and building sales improved. Building starts, which lag, just turned up. Fixed asset investment in May was 38 percent above a year earlier. Our dealers reported significantly higher deliveries of machines in June of this year than a year ago.
We expect the Chinese economy will strengthen throughout the rest of the year and that dealer deliveries of machines will continue to improve in the second half.
Q5: Are you starting to see any sales improvement linked to the U.S. stimulus package? Do you expect to . . . and when?
A: Our expectation has always been that the package would have a fairly limited impact on 2009, with most of it occurring in the second half. Most funds have been allocated, with highway paving a major beneficiary. However, actual expenditures, which occur as work is finished, have been fairly small. Highway contracting has improved in recent months, and we project that infrastructure construction will improve in the second half.
Q6: Can you be more specific about what's happened with dealer inventories so far this year? What are your expectations for all of 2009?
A: During the first half of 2009, dealers reduced their machine inventories about $1.5 billion. During the first half of 2008, they increased machine inventories almost $900 million. As a result of changes to dealer inventories in both years, we've seen a negative impact on first half 2009 machine sales compared with first half 2008 of about $2.4 billion.
We expect that dealers will continue to lower their machine inventories in 2009. We expect that the $1.5 billion reduction through the first half could grow to nearly $3 billion by year end--with most of the additional reduction likely coming in the third quarter.
Q7: We think of your turbines business as "late cycle" and understand that 2009 will be a very good year for sales. However, prospects for next year may be more difficult. Realizing that you've not provided a sales or profit outlook for 2010, can you provide some color on activity around new orders?
A: Based on order activity, sales will likely be down from peak highs in 2008 and 2009, but still at healthy levels from a historical perspective. In addition to new equipment, turbine sales include related services which continue to grow with expanded offerings to our customers and ongoing support of our large field population.
Q8: How are your Integrated Service Businesses performing given the economic downturn?
A: As these businesses provide services or contain an important service component, they tend to be more stable through the business cycle than new machines and engines. Although volume declined for these businesses during the second quarter, it was much less than the decline in sales and revenues for the company in total. Integrated service businesses represented more than 45 percent of total company sales and revenues in the second quarter and are expected to remain at similar levels in the second half of the year.
Q9: There was $558 million of redundancy cost in the first quarter and $85 million in the second quarter. How much more do you expect for the full year 2009?
A: We expect about $700 million, or $0.75 per share, of redundancy costs for the full year 2009.
Q10: Can you comment on your consolidated liquidity position?
A: Caterpillar's liquidity position continues to improve. Cat Financial has issued both fixed rate and floating rate notes in euros and a medium-term note in Canadian dollars. These represent our first euro issuances in more than a year and our first Canadian dollar issuance in more than two years. Both suggest continued improvement in global credit markets. Of note, the coupon on the euro fixed rate note was 5.125 percent, which was lower than the issuance a year earlier. Despite improvements in global credit markets we continue to hold approximately $3 billion in excess cash reserves as a buffer. We plan to gradually reduce some of this excess over the remainder of the year.
Q11: Inventory dropped $832 million during the second quarter and is down $1.621 billion since the end of 2008. Do you expect further reductions this year?
A: We expect further reductions throughout the year as we improve internal efficiencies and also downsize our inventories to match production levels. We are committed to meeting our goal of about $3 billion full-year reduction.
Q12: Can you summarize your 2009 expectations related to capital expenditures, stock repurchase and dividends?
A: Capital expenditures are expected to be about $1.5 billion. Stock repurchase spending is expected to be zero as the stock repurchase program is likely to remain suspended throughout 2009.
For dividends, each quarter the Board of Directors reviews the company's dividend and determines whether to increase, maintain or decrease the dividend for the applicable quarter. On a quarterly basis, the Board will evaluate the financial condition of the company and consider the economic outlook, corporate cash flow, the company's liquidity needs, and the health and stability of global credit markets to determine whether to maintain or change the quarterly dividend. Decreasing or suspending the quarterly dividend are potential actions which could be triggered to improve liquidity and will be reviewed and analyzed as the company focuses on trough management to weather the global economic recession.
Q13: During the second quarter you issued stock to fund U.S. pension plans. Can you discuss pension funding in total--how much cash is expected to be contributed in 2009, how much stock was issued and the impact on total shares outstanding?
A: To proactively address funding obligations, we expect to contribute approximately $1 billion to pension plans in 2009. During the first half of 2009, $953 million was contributed. To provide the company with greater financial flexibility, we funded a portion of the contribution with company stock. In May, 18.2 million shares of company stock were contributed to U.S. pension plans. This equated to a contribution of approximately $650 million. In addition, beginning in June, the company began funding the 401(k) match with company stock. This is equivalent to approximately $10 million per month. As of June 30, 2009, the company had 621 million shares outstanding.
Q14: What long-term debt issuances are anticipated for the remainder of the year?
A: Additional long-term debt issuances are not anticipated for either Caterpillar Inc. or Cat Financial for the remainder of 2009. The Caterpillar Inc. issuance in December 2008 and Cat Financial's first quarter 2009 issuances effectively more than funded our total expected 2009 needs. During the second quarter, Cat Financial also completed euro and Canadian dollar issuances to take advantage of funding opportunities as these markets opened up.
Q15: Your financial release focuses on the second quarter of 2009 versus 2008. However, Financial Products results improved in the second quarter from first quarter levels. What caused the improvement?
A: First-quarter profit was depressed by significant currency losses, losses related to Cat Insurance's investment portfolio, write-downs on retained interests related to the securitized asset portfolio and redundancy costs related to employment reductions. For the most part these items had little impact on the second quarter. In addition, Financial Products' margins improved in the second quarter.
Q16: Give us an update on the quality of Cat Financial's asset portfolio. How are past dues, credit losses and allowances?
A: Overall portfolio quality was not significantly different than at the end of the first quarter. At the end of the second quarter 2009, past dues were 5.53 percent compared with 5.44 percent at the end of the first quarter. At the end of the second quarter 2008, past dues were 3.35 percent. We expect there will be continued pressure on past dues during the remainder of 2009.
Bad debt write-offs, net of recoveries, were $55 million for the second quarter of 2009, up from $47 million in the first quarter of 2009 and up more significantly from $19 million for the second quarter of 2008. The $36 million year-over-year increase was driven by adverse economic conditions primarily in North America and, to a lesser extent, in Europe.
Year-to-date annualized losses are 0.82 percent of year-to-date average retail portfolio compared to 0.74 percent for the first quarter. The rate of write-offs, at 0.82 percent, is higher in comparison to the most recent periods of economic weakness in 2001 and 2002, which were 0.65 percent and 0.69 percent, respectively.
At the end of the second quarter 2009, Cat Financial's allowance for credit losses totaled $378 million, a decrease of $13 million compared to the $391 million allowance for credit losses in the second quarter of 2008. The decrease in allowance for credit losses resulted from a $47 million decrease due to a reduction in the overall net finance receivable portfolio, partially offset by a $34 million increase in the allowance rate.
Q17: How do these asset quality metrics compare with prior recessions (early 2000s and early 1990s)? Do you believe that your loss reserves are in line with past dues and expected credit losses?
A: As historical comparisons, total Cat Financial past dues during the last U.S. recessions were 4.51 percent at the end of the second quarter of 2002 and 4.30 percent in June of 1991. Total write-offs, net of recoveries, for the full-year of 2002 were 0.69 percent of our average retail portfolio compared with the annualized first half 2009 rate of 0.82 percent. Cat Financial's allowance for credit losses, totaling $378 million at the end of the second quarter of 2009, is appropriate for the current and expected global economic environment. The second quarter 2009 allowance for credit losses was 1.55 percent of net finance receivables compared with 1.41 percent in the second quarter of 2008.
Q18: Do you believe that past dues have peaked for this business cycle or are close to the peak?
A: As past dues tend to follow economic conditions, our expectation is that past dues should peak during the second half of 2009 at levels not far from our recent experience and gradually improve as global economic recovery begins. In the meantime, customers continue to report challenging conditions, and a significant amount of uncertainty remains.
Q19: How much commercial paper do you have, and are you backing up your commercial paper with bank lines?
A: Cat Financial has maintained good access to commercial paper (CP) markets throughout the second quarter of 2009. A total of $2.4 billion in Cat Financial global CP was outstanding at quarter-end, compared with $2.9 billion at the end of the first quarter of 2009. Of our CP outstanding at quarter-end, 48 percent had remaining maturities of one month or greater. While Cat Financial operated with lower average CP balances in the second quarter of 2009 due to historically high cash balances, market access remained good in the United States, Canada and Europe with attractive pricing levels. For example, during the second quarter Cat Financial issued 90-day CP in the United States at an average rate of 0.34 percent APR, in Canada at an average rate of 0.79 percent APR and in Europe at an average rate of 1.32 percent APR. Commercial paper in Japan experienced improvement from an access and rate level during the second quarter, while broader CP market conditions in Australia remained less favorable.
A revolving credit facility totaling $6.85 billion is shared jointly with Caterpillar Inc. and serves to back up 100 percent of Cat Financial's CP issuance. A total of $5.85 billion of this facility is allocated to Cat Financial. In addition, an incremental 364-day revolving credit facility totaling $1.375 billion is shared jointly with Caterpillar Inc. Of this $1.375 billion, $1.3 billion was put in place during the first quarter of 2009, and an incremental $75 million was added early in the second quarter.
Q20: Has Cat Financial maintained funding access to cover maturing debt? Can you comment on your liquidity position in general? Will you need new long-term debt over the next year?
A: Cat Financial has continued to maintain access to ample funding to cover debt maturities through a broad and diverse funding program. At year-end 2008, $5.0 billion in long-term debt was scheduled to mature in 2009. During the first half of 2009 Cat Financial issued $3.0 billion in U.S. medium-term notes, $690 million in U.S. retail notes, EUR650 million in medium-term notes and C$500 million in medium-term notes. These issuances, coupled with year-to-date and projected cash receipts, have covered more than our 2009 debt maturities. Cat Financial will remain selective and opportunistic in issuing debt.
Outside of the unsecured markets, we continue to possess the ability to access the U.S. Asset Backed Securitization (ABS) markets. Cat Financial remains eligible to issue under the Term Asset-Backed Securities Loan Facility (TALF) program, but has not accessed the program to date.
Q21: What's the status of the debt covenants related to the revolving credit facilities that back up commercial paper?
A: Cat Financial was compliant with all revolving credit facility covenants in the second quarter of 2009. The quarterly interest coverage ratio achieved was 1.44 to 1 compared to a minimum covenant requirement of 1.15 to 1. The leverage ratio at quarter end was 7.21 to 1 compared to the maximum allowable covenant leverage level of 10 to 1. We expect to be compliant on all revolver covenants for the remainder of 2009.
GLOSSARY OF TERMS
1. Caterpillar Japan Ltd. (Cat Japan) - A Caterpillar subsidiary formerly
known as Shin Caterpillar Mitsubishi Ltd. (SCM). SCM was a 50/50 joint
venture between Caterpillar and Mitsubishi Heavy Industries Ltd. (MHI)
until SCM redeemed one half of MHI's shares on August 1, 2008.
Caterpillar now owns 67 percent of the renamed entity.
2. Caterpillar Production System (CPS) - The Caterpillar Production System
is the common Order-to-Delivery process being implemented
enterprise-wide to achieve our safety, quality, velocity, earnings and
growth goals for 2010 and beyond.
3. Consolidating Adjustments - Eliminations of transactions between
Machinery and Engines and Financial Products.
4. Currency - With respect to sales and revenues, currency represents the
translation impact on sales resulting from changes in foreign currency
exchange rates versus the U.S. dollar. With respect to operating
profit, currency represents the net translation impact on sales and
operating costs resulting from changes in foreign currency exchange
rates versus the U.S. dollar. Currency includes the impacts on sales
and operating profit for the Machinery and Engines lines of business
only; currency impacts on Financial Products revenues and operating
profit are included in the Financial Products portions of the
respective analyses. With respect to other income/expense, currency
represents the effects of forward and option contracts entered into by
the company to reduce the risk of fluctuations in exchange rates and
the net effect of changes in foreign currency exchange rates on our
foreign currency assets and liabilities for consolidated results.
5. EAME - Geographic region including Europe, Africa, the Middle East and
the Commonwealth of Independent States (CIS).
6. Earning Assets - Assets consisting primarily of total finance
receivables net of unearned income, plus equipment on operating leases,
less accumulated depreciation at Cat Financial.
7. Engines - A principal line of business including the design,
manufacture, marketing and sales of engines for Caterpillar machinery;
electric power generation systems; on-highway vehicles and locomotives;
marine, petroleum, construction, industrial, agricultural and other
applications and related parts. Also includes remanufacturing of
Caterpillar engines and a variety of Caterpillar machinery and engine
components and remanufacturing services for other companies.
Reciprocating engines meet power needs ranging from 10 to 21,700
horsepower (8 to more than 16 000 kilowatts). Turbines range from
1,600 to 30,000 horsepower (1 200 to 22 000 kilowatts).
8. Financial Products - A principal line of business consisting primarily
of Caterpillar Financial Services Corporation (Cat Financial),
Caterpillar Insurance Holdings, Inc. (Cat Insurance), Caterpillar Power
Ventures Corporation (Cat Power Ventures) and their respective
subsidiaries. Cat Financial provides a wide range of financing
alternatives to customers and dealers for Caterpillar machinery and
engines, Solar gas turbines as well as other equipment and marine
vessels. Cat Financial also extends loans to customers and dealers.
Cat Insurance provides various forms of insurance to customers and
dealers to help support the purchase and lease of our equipment. Cat
Power Ventures is an investor in independent power projects using
Caterpillar power generation equipment and services.
9. Integrated Service Businesses - A service business or a business
containing an important service component. These businesses include,
but are not limited to, aftermarket parts, Cat Financial, Cat
Insurance, Cat Logistics, Cat Reman, Progress Rail, OEM Solutions and
Solar Turbine Customer Services.
10. Latin America - Geographic region including Central and South American
countries and Mexico.
11. LIFO Inventory Decrement Benefits - A significant portion of
Caterpillar's inventory is valued using the last-in, first-out (LIFO)
method. With this method, the cost of inventory is comprised of
"layers" at cost levels for years when inventory increases occurred.
A LIFO decrement occurs when inventory decreases, depleting layers
added in earlier, generally lower cost, years. A LIFO decrement
benefit represents the impact on profit of charging cost of goods sold
with prior year cost levels rather than current period costs.
12. Machinery - A principal line of business which includes the design,
manufacture, marketing and sales of construction, mining and forestry
machinery--track and wheel tractors, track and wheel loaders,
pipelayers, motor graders, wheel tractor-scrapers, track and wheel
excavators, backhoe loaders, log skidders, log loaders, off-highway
trucks, articulated trucks, paving products, skid steer loaders,
underground mining equipment, tunnel boring equipment and related
parts. Also includes logistics services for other companies and the
design, manufacture, remanufacture, maintenance and services of
rail-related products.
13. Machinery and Engines (M&E) - Due to the highly integrated nature of
operations, it represents the aggregate total of the Machinery and
Engines lines of business and includes primarily our manufacturing,
marketing and parts distribution operations.
14. Manufacturing Costs - Manufacturing costs exclude the impacts of
currency and represent the volume-adjusted change for variable costs
and the absolute dollar change for period manufacturing costs.
Variable manufacturing costs are defined as having a direct
relationship with the volume of production. This includes material
costs, direct labor and other costs that vary directly with production
volume such as freight, power to operate machines and supplies that
are consumed in the manufacturing process. Period manufacturing costs
support production but are defined as generally not having a direct
relationship to short-term changes in volume. Examples include
machinery and equipment repair, depreciation on manufacturing assets,
facility support, procurement, factory scheduling, manufacturing
planning and operations management.
15. Machinery and Engines Other Operating Expenses - Comprised primarily
of gains (losses) on disposal of long-lived assets, long-lived asset
impairment charges and employee redundancy costs.
16. Price Realization - The impact of net price changes excluding currency
and new product introductions. Consolidated price realization
includes the impact of changes in the relative weighting of sales
between geographic regions.
17. Redundancy Costs - Costs related to employment reduction including
employee severance charges, pension and other postretirement benefit
plan curtailments and settlements and healthcare and supplemental
unemployment benefits.
18. Sales Volume - With respect to sales and revenues, sales volume
represents the impact of changes in the quantities sold for machinery
and engines as well as the incremental revenue impact of new product
introductions. With respect to operating profit, sales volume
represents the impact of changes in the quantities sold for machinery
and engines combined with product mix--the net operating profit impact
of changes in the relative weighting of machinery and engines sales
with respect to total sales.
19. 6 Sigma - On a technical level, 6 Sigma represents a measure of
variation that achieves 3.4 defects per million opportunities. At
Caterpillar, 6 Sigma represents a much broader cultural philosophy to
drive continuous improvement throughout the value chain. It is a
fact-based, data-driven methodology that we are using to improve
processes, enhance quality, cut costs, grow our business and deliver
greater value to our customers through Black Belt-led project teams.
At Caterpillar, 6 Sigma goes beyond mere process improvement--it has
become the way we work as teams to process business information, solve
problems and manage our business successfully.
NON-GAAP FINANCIAL MEASURES
The following definitions are provided for "non-GAAP financial measures" in connection with Regulation G issued by the Securities and Exchange Commission. These non-GAAP financial measures have no standardized meaning prescribed by U.S. GAAP and therefore are unlikely to be comparable to the calculation of similar measures for other companies. Management does not intend these items to be considered in isolation or substitutes for the related GAAP measures.
Profit Per Share Excluding Redundancy Costs
During the second quarter of 2009, we incurred redundancy costs of $85 million before tax related to employment reductions in response to the global recession. We believe it is important to separately quantify the profit per share impact of redundancy costs in order for our 2009 actual results and outlook to be meaningful to our readers. Reconciliation of profit per share excluding redundancy costs to the most directly comparable GAAP measure, profit per share is as follows:
Second 2009
Quarter Outlook
2009 Midpoint*
---- --------
Profit per share $0.60 $0.95
Per share redundancy costs $0.12 $0.75
Profit per share excluding redundancy costs $0.72 $1.70
* 2009 Sales and Revenues of $34 billion.
Machinery and Engines
Caterpillar defines Machinery and Engines as it is presented in the supplemental data as Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis. Machinery and Engines information relates to the design, manufacture and marketing of our products. Financial Products information relates to the financing to customers and dealers for the purchase and lease of Caterpillar and other equipment. The nature of these businesses is different, especially with regard to the financial position and cash flow items. Caterpillar management utilizes this presentation internally to highlight these differences. We also believe this presentation will assist readers in understanding our business. Pages 29-34 reconcile Machinery and Engines with Financial Products on the equity basis to Caterpillar Inc. Consolidated financial information.
Caterpillar's latest financial results and current outlook are also available via:
Telephone:
(800) 228-7717 (Inside the United States and Canada)
(858) 244-2080 (Outside the United States and Canada)
Internet:
http://www.cat.com/investorhttp://www.cat.com/irwebcast (live broadcast/replays of quarterly
conference call)
Caterpillar Inc.
Condensed Consolidated Statement of Results of Operations
(Unaudited)
(Dollars in millions except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2009 2008 2009 2008
---- ---- ---- ----
Sales and revenues:
Sales of Machinery and Engines $7,254 $12,797 $15,764 $23,776
Revenues of Financial Products 721 827 1,436 1,644
--- --- ----- -----
Total sales and revenues 7,975 13,624 17,200 25,420
Operating costs:
Cost of goods sold 5,752 10,036 12,779 18,645
Selling, general and
administrative expenses 914 1,074 1,796 2,033
Research and development expenses 351 415 739 784
Interest expense of Financial
Products 272 279 551 563
Other operating (income) expenses 339 295 1,163 577
--- --- ----- ---
Total operating costs 7,628 12,099 17,028 22,602
----- ------ ------ ------
Operating profit 347 1,525 172 2,818
Interest expense excluding
Financial Products 109 70 210 144
Other income (expense) 163 83 227 205
--- --- --- ---
Consolidated profit before taxes 401 1,538 189 2,879
Provision (benefit) for income
taxes 40 434 (40) 854
--- --- --- ---
Profit of consolidated companies 361 1,104 229 2,025
Equity in profit (loss) of
unconsolidated affiliated
companies (1) 10 - 21
--- --- --- ---
Profit of consolidated and affiliated
companies 360 1,114 229 2,046
Less: Profit (loss) attributable to
noncontrolling interests (11) 8 (30) 18
--- --- --- ---
Profit (1) $371 $1,106 $259 $2,028
==== ====== ==== ======
Profit per common share $0.61 $1.80 $0.43 $3.29
Profit per common share - diluted (2) $0.60 $1.74 $0.42 $3.18
Weighted average common shares
outstanding (millions)
- Basic 611.8 614.3 607.6 616.0
- Diluted (2) 619.8 635.5 614.0 637.0
Cash dividends declared per common
share $0.84 $0.78 $0.84 $0.78
(1) Profit attributable to common stockholders.
(2) Diluted by assumed exercise of stock-based compensation awards using
the treasury stock method.
Caterpillar Inc.
Condensed Consolidated Statement of Financial Position
(Unaudited)
(Millions of dollars)
June 30, December 31,
2009 2008
---- ----
Assets
Current assets:
Cash and short-term investments $3,991 $2,736
Receivables - trade and other 6,534 9,397
Receivables - finance 8,110 8,731
Deferred and refundable income taxes 1,147 1,223
Prepaid expenses and other current assets 441 765
Inventories 7,160 8,781
----- -----
Total current assets 27,383 31,633
Property, plant and equipment - net 12,226 12,524
Long-term receivables - trade and other 817 1,479
Long-term receivables - finance 13,488 14,264
Investments in unconsolidated affiliated companies 92 94
Noncurrent deferred and refundable income taxes 3,270 3,311
Intangible assets 485 511
Goodwill 2,264 2,261
Other assets 2,067 1,705
----- -----
Total assets $62,092 $67,782
======= =======
Liabilities
Current liabilities:
Short-term borrowings:
-- Machinery and Engines $702 $1,632
-- Financial Products 4,470 5,577
Accounts payable 2,682 4,827
Accrued expenses 3,611 4,121
Accrued wages, salaries and employee benefits 795 1,242
Customer advances 1,546 1,898
Dividends payable 261 253
Other current liabilities 857 1,027
Long-term debt due within one year:
-- Machinery and Engines 472 456
-- Financial Products 4,094 5,036
----- -----
Total current liabilities 19,490 26,069
Long-term debt due after one year:
-- Machinery and Engines 5,677 5,736
-- Financial Products 17,881 17,098
Liability for postemployment benefits 8,920 9,975
Other liabilities 2,268 2,190
----- -----
Total liabilities 54,236 61,068
------ ------
Redeemable noncontrolling interest 481 524
Stockholders' equity
Common stock 3,347 3,057
Treasury stock (10,745) (11,217)
Profit employed in the business 19,579 19,826
Accumulated other comprehensive income (loss) (4,906) (5,579)
Noncontrolling interests 100 103
--- ---
Total stockholders' equity 7,375 6,190
----- -----
Total liabilities, redeemable noncontrolling interest
and stockholders' equity $62,092 $67,782
======= =======
Caterpillar Inc.
Condensed Consolidated Statement of Cash Flow
(Unaudited)
(Millions of dollars)
Six Months Ended
June 30,
2009 2008
---- ----
Cash flow from operating activities:
Profit of consolidated and affiliated companies $229 $2,046
Adjustments for non-cash items:
Depreciation and amortization 1,072 952
Other 59 184
Changes in assets and liabilities:
Receivables - trade and other 3,133 (1,137)
Inventories 1,631 (1,009)
Accounts payable and accrued expenses (2,717) 1,023
Customer advances (338) 210
Other assets - net 168 (93)
Other liabilities - net (434) (271)
---- ----
Net cash provided by (used for) operating activities 2,803 1,905
----- -----
Cash flow from investing activities:
Capital expenditures - excluding equipment leased
to others (443) (814)
Expenditures for equipment leased to others (441) (699)
Proceeds from disposals of property, plant and
equipment 454 449
Additions to finance receivables (3,800) (7,099)
Collections of finance receivables 5,119 4,748
Proceeds from sale of finance receivables 93 696
Investments and acquisitions (net of cash acquired) - (111)
Proceeds from sale of available-for-sale
securities 170 173
Investments in available-for-sale securities (251) (230)
Other - net (53) 56
--- ---
Net cash provided by (used for) investing activities 848 (2,831)
--- ------
Cash flow from financing activities:
Dividends paid (505) (444)
Common stock issued, including treasury shares
reissued 31 116
Payment for stock repurchase derivative contracts - (38)
Treasury shares purchased - (1,362)
Excess tax benefit from stock-based compensation 2 53
Acquisitions of noncontrolling interests (6) -
Proceeds from debt issued (original maturities
greater than three months) 9,029 9,158
Payments on debt (original maturities greater than
three months) (7,570) (6,530)
Short-term borrowings (original maturities three
months or less)-net (3,365) (393)
------ ----
Net cash provided by (used for) financing activities (2,384) 560
------ ---
Effect of exchange rate changes on cash (12) 26
--- ---
Increase (decrease) in cash and short-term investments 1,255 (340)
Cash and short-term investments at beginning of period 2,736 1,122
----- -----
Cash and short-term investments at end of period $3,991 $782
====== ====
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.
Caterpillar Inc.
Supplemental Data for Results of Operations
For The Three Months Ended June 30, 2009
(Unaudited)
(Millions of dollars)
Supplemental Consolidating Data
-------------------------------
Machinery Consoli-
and dating
Consoli- Engines Financial Adjust-
dated (1) Products ments
----- -------------------------------
Sales and revenues:
Sales of Machinery and Engines $7,254 $7,254 $- $-
Revenues of Financial Products 721 - 814 (93) (2)
--- --- --- ---
Total sales and revenues 7,975 7,254 814 (93)
Operating costs:
Cost of goods sold 5,752 5,752 - -
Selling, general and
administrative expenses 914 789 129 (4) (3)
Research and development
expenses 351 351 - -
Interest expense of Financial
Products 272 - 272 - (4)
Other operating (income)
expenses 339 59 286 (6) (3)
--- --- --- ---
Total operating costs 7,628 6,951 687 (10)
----- ----- --- ---
Operating profit 347 303 127 (83)
Interest expense excluding
Financial Products 109 139 - (30) (4)
Other income (expense) 163 97 13 53 (5)
--- --- --- ---
Consolidated profit before taxes 401 261 140 -
Provision (benefit) for income
taxes 40 6 34 -
--- --- --- ---
Profit of consolidated
companies 361 255 106 -
Equity in profit (loss) of
unconsolidated affiliated
companies (1) (1) - -
Equity in profit of Financial
Products' subsidiaries - 102 - (102) (6)
--- --- --- ----
Profit of consolidated and
affiliated companies 360 356 106 (102)
Less: Profit (loss) attributable
to noncontrolling interests (11) (15) 4 -
--- --- --- ---
Profit (7) $371 $371 $102 $(102)
==== ==== ==== =====
(1) Represents Caterpillar Inc. and its subsidiaries with Financial
Products accounted for on the equity basis.
(2) Elimination of Financial Products' revenues earned from Machinery
and Engines.
(3) Elimination of net expenses recorded by Machinery and Engines paid to
Financial Products.
(4) Elimination of interest expense recorded between Financial Products
and Machinery and Engines.
(5) Elimination of discount recorded by Machinery and Engines on
receivables sold to Financial Products and of interest earned between
Machinery and Engines and Financial Products.
(6) Elimination of Financial Products' profit due to equity method of
accounting.
(7) Profit attributable to common stockholders.
Caterpillar Inc.
Supplemental Data for Results of Operations
For The Three Months Ended June 30, 2008
(Unaudited)
(Millions of dollars)
Supplemental Consolidating Data
-------------------------------
Machinery Consoli-
and dating
Consoli- Engines Financial Adjust-
dated (1) Products ments
----- -------------------------------
Sales and revenues:
Sales of Machinery and Engines $12,797 $12,797 $- $-
Revenues of Financial Products 827 - 910 (83) (2)
--- --- --- ---
Total sales and revenues 13,624 12,797 910 (83)
Operating costs:
Cost of goods sold 10,036 10,036 - -
Selling, general and
administrative expenses 1,074 925 154 (5) (3)
Research and development
expenses 415 415 - -
Interest expense of Financial
Products 279 - 279 - (4)
Other operating (income)
expenses 295 (9) 311 (7) (3)
--- --- --- ---
Total operating costs 12,099 11,367 744 (12)
------ ------ --- ---
Operating profit 1,525 1,430 166 (71)
Interest expense excluding
Financial Products 70 70 - - (4)
Other income (expense) 83 (13) 25 71 (5)
--- --- --- ---
Consolidated profit before taxes 1,538 1,347 191 -
Provision (benefit) for income
taxes 434 386 48 -
--- --- --- ---
Profit of consolidated
companies 1,104 961 143 -
Equity in profit (loss) of
unconsolidated affiliated
companies 10 10 - -
Equity in profit of Financial
Products' subsidiaries - 140 - (140) (6)
--- --- --- ----
Profit of consolidated and
affiliated companies 1,114 1,111 143 (140)
Less: Profit (loss) attributable
to noncontrolling interests 8 5 3 -
--- --- --- ---
Profit (7) $1,106 $1,106 $140 $(140)
====== ====== ==== =====
(1) Represents Caterpillar Inc. and its subsidiaries with Financial
Products accounted for on the equity basis.
(2) Elimination of Financial Products' revenues earned from Machinery
and Engines.
(3) Elimination of net expenses recorded by Machinery and Engines paid to
Financial Products.
(4) Elimination of interest expense recorded between Financial Products
and Machinery and Engines.
(5) Elimination of discount recorded by Machinery and Engines on
receivables sold to Financial Products and of interest earned between
Machinery and Engines and Financial Products.
(6) Elimination of Financial Products' profit due to equity method of
accounting.
(7) Profit attributable to common stockholders.
Caterpillar Inc.
Supplemental Data for Results of Operations
For The Six Months Ended June 30, 2009
(Unaudited)
(Millions of dollars)
Supplemental Consolidating Data
-------------------------------
Machinery Consoli-
and dating
Consoli- Engines Financial Adjust-
dated (1) Products ments
----- -------------------------------
Sales and revenues:
Sales of Machinery and
Engines $15,764 $15,764 $- $-
Revenues of Financial
Products 1,436 - 1,610 (174) (2)
----- --- ----- ----
Total sales and revenues 17,200 15,764 1,610 (174)
Operating costs:
Cost of goods sold 12,779 12,779 - -
Selling, general and
administrative expenses 1,796 1,549 254 (7) (3)
Research and development
expenses 739 739 - -
Interest expense of
Financial Products 551 - 554 (3) (4)
Other operating (income)
expenses 1,163 605 576 (18) (3)
----- --- --- ---
Total operating costs 17,028 15,672 1,384 (28)
------ ------ ----- ---
Operating profit 172 92 226 (146)
Interest expense
excluding Financial
Products 210 253 - (43) (4)
Other income (expense) 227 131 (7) 103 (5)
--- --- --- ---
Consolidated profit before
taxes 189 (30) 219 -
Provision (benefit) for
income taxes (40) (93) 53 -
--- --- --- ---
Profit of consolidated
companies 229 63 166 -
Equity in profit (loss)
of unconsolidated
affiliated companies - - - -
Equity in profit of
Financial Products'
subsidiaries - 158 - (158) (6)
--- --- --- ----
Profit of consolidated and
affiliated companies 229 221 166 (158)
Less: Profit (loss) attributable
to noncontrolling interests (30) (38) 8 -
--- --- --- ---
Profit (7) $259 $259 $158 $(158)
==== ==== ==== =====
(1) Represents Caterpillar Inc. and its subsidiaries with Financial
Products accounted for on the equity basis.
(2) Elimination of Financial Products' revenues earned from Machinery
and Engines.
(3) Elimination of net expenses recorded by Machinery and Engines paid to
Financial Products.
(4) Elimination of interest expense recorded between Financial Products
and Machinery and Engines.
(5) Elimination of discount recorded by Machinery and Engines on
receivables sold to Financial Products and of interest earned between
Machinery and Engines and Financial Products.
(6) Elimination of Financial Products' profit due to equity method of
accounting.
(7) Profit attributable to common stockholders.
Caterpillar Inc.
Supplemental Data for Results of Operations
For The Six Months Ended June 30, 2008
(Unaudited)
(Millions of dollars)
Supplemental Consolidating Data
-------------------------------
Machinery Consoli-
and dating
Consoli- Engines Financial Adjust-
dated (1) Products ments
----- -------------------------------
Sales and revenues:
Sales of Machinery and
Engines $23,776 $23,776 $- $-
Revenues of Financial
Products 1,644 - 1,822 (178) (2)
----- --- ----- ----
Total sales and revenues 25,420 23,776 1,822 (178)
Operating costs:
Cost of goods sold 18,645 18,645 - -
Selling, general and
administrative expenses 2,033 1,757 288 (12) (3)
Research and development
expenses 784 784 - -
Interest expense of Financial
Products 563 - 565 (2) (4)
Other operating (income)
expenses 577 (20) 608 (11) (3)
--- --- --- ---
Total operating costs 22,602 21,166 1,461 (25)
------ ------ ----- ---
Operating profit 2,818 2,610 361 (153)
Interest expense excluding
Financial Products 144 144 - - (4)
Other income (expense) 205 8 44 153 (5)
--- --- --- ---
Consolidated profit before
taxes 2,879 2,474 405 -
Provision (benefit) for
income taxes 854 736 118 -
--- --- --- ---
Profit of consolidated
companies 2,025 1,738 287 -
Equity in profit (loss) of
unconsolidated affiliated
companies 21 21 - -
Equity in profit of Financial
Products' subsidiaries - 279 - (279) (6)
--- --- --- ----
Profit of consolidated and
affiliated companies 2,046 2,038 287 (279)
Less: Profit (loss) attributable
to noncontrolling interests 18 10 8 -
--- --- --- ---
Profit (7) $2,028 $2,028 $279 $(279)
====== ====== ==== =====
(1) Represents Caterpillar Inc. and its subsidiaries with Financial
Products accounted for on the equity basis.
(2) Elimination of Financial Products' revenues earned from Machinery
and Engines.
(3) Elimination of net expenses recorded by Machinery and Engines paid
to Financial Products.
(4) Elimination of interest expense recorded between Financial Products
and Machinery and Engines.
(5) Elimination of discount recorded by Machinery and Engines on
receivables sold to Financial Products and of interest earned between
Machinery and Engines and Financial Products.
(6) Elimination of Financial Products' profit due to equity method of
accounting.
(7) Profit attributable to common stockholders.
Caterpillar Inc.
Supplemental Data for Cash Flow
For The Six Months Ended June 30, 2009
(Unaudited)
(Millions of dollars)
Supplemental Consolidating Data
-------------------------------
Machinery Consoli-
and dating
Consoli- Engines Financial Adjust-
dated (1) Products ments
----- -------------------------------
Cash flow from operating
activities:
Profit of consolidated
and affiliated
companies $229 $221 $166 $(158) (2)
Adjustments for
non-cash items:
Depreciation and
amortization 1,072 710 362 -
Undistributed profit
of Financial
Products - (158) - 158 (3)
Other 59 258 (270) 71 (4)
Changes in assets and
liabilities:
Receivables - trade
and other 3,133 1,446 102 1,585 (4,5)
Inventories 1,631 1,631 - -
Accounts payable and
accrued expenses (2,717) (2,663) (107) 53 (4)
Customer advances (338) (338) - -
Other assets - net 168 (50) 241 (23) (4)
Other liabilities -
net (434) (474) 24 16 (4)
---- ---- --- ---
Net cash provided by
(used for) operating
activities 2,803 583 518 1,702
----- --- --- -----
Cash flow from investing
activities:
Capital expenditures -
excluding equipment
leased to others (443) (442) (1) -
Expenditures for
equipment leased to
others (441) - (442) 1 (4)
Proceeds from disposals
of property, plant and
equipment 454 41 413 -
Additions to finance
receivables (3,800) - (10,939) 7,139 (5)
Collections of finance
receivables 5,119 - 13,170 (8,051) (5)
Proceeds from sale of
finance receivables 93 - 884 (791) (5)
Net intercompany
borrowings - 430 (1,016) 586 (6)
Investments and
acquisitions (net of
cash acquired) - - - -
Proceeds from sale of
available-for-sale
securities 170 3 167 -
Investments in
available-for-sale
securities (251) (4) (247) -
Other - net (53) (63) (10) 20 (7)
--- --- --- ---
Net cash provided by
(used for) investing
activities 848 (35) 1,979 (1,096)
--- --- ----- ------
Cash flow from financing
activities:
Dividends paid (505) (505) - -
Common stock issued,
including treasury
shares reissued 31 31 20 (20) (7)
Payment for stock
repurchase derivative
contracts - - - -
Treasury shares
purchased - - - -
Excess tax benefit
From stock-based
compensation 2 2 - -
Acquisitions of
noncontrolling
interests (6) (6) - -
Net intercompany
borrowings - 1,016 (430) (586) (6)
Proceeds from debt
issued (original
maturities greater
than three months) 9,029 872 8,157 -
Payments on debt
(original maturities
greater than three
months) (7,570) (915) (6,655) -
Short-term borrowings
(original maturities
three months or
less)-net (3,365) (873) (2,492) -
------ ---- ------ ---
Net cash provided by
(used for) financing
activities (2,384) (378) (1,400) (606)
------ ---- ------ ----
Effect of exchange rate
changes on cash (12) (12) - -
--- --- --- ---
Increase (decrease) in
cash and short-term
investments 1,255 158 1,097 -
Cash and short-term
investments at beginning
of period 2,736 1,517 1,219 -
----- ----- ----- ---
Cash and short-term
investments at end of
period $3,991 $1,675 $2,316 $-
====== ====== ====== ===
(1) Represents Caterpillar Inc. and its subsidiaries with Financial
Products accounted for on the equity basis.
(2) Elimination of Financial Products' profit after tax due to equity
method of accounting.
(3) Non-cash adjustment for the undistributed earnings from Financial
Products.
(4) Elimination of non-cash adjustments and changes in assets and
liabilities related to consolidated reporting.
(5) Reclassification of Cat Financial's cash flow activity from investing
to operating for receivables that arose from the sale of inventory.
(6) Net proceeds and payments to/from Machinery and Engines and Financial
Products.
(7) Change in investment and common stock related to Financial Products.
Caterpillar Inc.
Supplemental Data for Cash Flow
For The Six Months Ended June 30, 2008
(Unaudited)
(Millions of dollars)
Supplemental Consolidating Data
-------------------------------
Machinery Consoli-
and dating
Consoli- Engines Financial Adjust-
dated (1) Products ments
----- -------------------------------
Cash flow from operating
activities:
Profit of consolidated
and affiliated
companies $2,046 $2,038 $287 $(279) (2)
Adjustments for
non-cash items:
Depreciation and
amortization 952 573 379 -
Undistributed profit
of Financial
Products - (279) - 279 (3)
Other 184 182 (154) 156 (4)
Changes in assets and
liabilities:
Receivables - trade
and other (1,137) (657) (20) (460) (4,5)
Inventories (1,009) (1,009) - -
Accounts payable and
accrued expenses 1,023 748 159 116 (4)
Customer advances 210 210 - -
Other assets - net (93) (48) (19) (26) (4)
Other liabilities -
net (271) (278) (4) 11 (4)
---- ---- --- ---
Net cash provided by
(used for) operating
activities 1,905 1,480 628 (203)
----- ----- --- ----
Cash flow from investing
activities:
Capital expenditures -
excluding equipment
leased to others (814) (804) (10) -
Expenditures for
equipment leased to
others (699) - (710) 11 (4)
Proceeds from
disposals of
property, plant and
equipment 449 18 431 -
Additions to finance
receivables (7,099) - (19,164) 12,065 (5)
Collections of finance
receivables 4,748 - 15,846 (11,098) (5)
Proceeds from sale of
finance receivables 696 - 1,471 (775) (5)
Net intercompany
borrowings - 220 (433) 213 (6)
Investments and
acquisitions (net of
cash acquired) (111) (111) - -
Proceeds from sale of
available-for-sale
securities 173 12 161 -
Investments in
available-for-sale
securities (230) (11) (219) -
Other - net 56 116 (60) - (7)
--- --- --- ---
Net cash provided by
(used for) investing
activities (2,831) (560) (2,687) 416
------ ---- ------ ---
Cash flow from financing
activities:
Dividends paid (444) (444) - -
Common stock issued,
including treasury
shares reissued 116 116 - - (7)
Payment for stock
repurchase derivative
contracts (38) (38) - -
Treasury shares
purchased (1,362) (1,362) - -
Excess tax benefit
from stock-based
compensation 53 53 - -
Acquisitions of
noncontrolling
interests - - - -
Net intercompany
borrowings - 433 (220) (213) (6)
Proceeds from debt
issued (original
maturities greater
than three months) 9,158 110 9,048 -
Payments on debt
(original maturities
greater than three
months) (6,530) (133) (6,397) -
Short-term borrowings
(original maturities
three months or
less)-net (393) (62) (331) -
---- --- ---- ---
Net cash provided by
(used for) financing
activities 560 (1,327) 2,100 (213)
--- ------ ----- ----
Effect of exchange rate
changes on cash 26 23 3 -
--- --- --- ---
Increase (decrease) in
cash and short-term
investments (340) (384) 44 -
Cash and short-term
investments at
beginning of period 1,122 862 260 -
----- --- --- ---
Cash and short-term
investments at end of
period $782 $478 $304 $-
==== ==== ==== ===
(1) Represents Caterpillar Inc. and its subsidiaries with Financial
Products accounted for on the equity basis.
(2) Elimination of Financial Products' profit after tax due to equity
method of accounting.
(3) Non-cash adjustment for the undistributed earnings from Financial
Products.
(4) Elimination of non-cash adjustments and changes in assets and
liabilities related to consolidated reporting.
(5) Reclassification of Cat Financial's cash flow activity from investing
to operating for receivables that arose from the sale of inventory.
(6) Net proceeds and payments to/from Machinery and Engines and Financial
Products.
(7) Change in investment and common stock related to Financial Products.
DATASOURCE: Caterpillar Inc.
CONTACT: Jim Dugan, Corporate Public Affairs of Caterpillar Inc.,
+1-309-494-4100 (Office), or +1-309-360-7311 (Mobile),
Web Site: http://www.cat.com/