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Caterpillar Second-Quarter Profit up 91 Percent, Sales and Revenues Increase 31%
Written by Caterpillar
Thursday, 22 July 2010
PEORIA, Ill., July 22 /PRNewswire-FirstCall/ -- Caterpillar Inc. (NYSE: CAT) today reported a second-quarter profit of $1.09 per share, an increase of $0.49 per share from a profit of $0.60 per share in the second quarter of 2009. Profit of $707 million was 91 percent higher than second-quarter 2009 profit of $371 million. Sales and revenues of $10.409 billion were up 31 percent from $7.975 billion in the second quarter of 2009.
"We've been highly focused on three things this year--significantly increasing production in response to higher demand from our customers, particularly in developing economies, aggressively managing costs and driving better cash flow," said Caterpillar CEO Doug Oberhelman. "You can see the results in our second quarter--sales and revenues increased substantially, operating profit as a percent of sales more than doubled, and Machinery and Engines operating cash flow and our debt-to-capital ratio strengthened. Our employees, dealers and suppliers are doing a great job ramping up to support customers. The increase in our sales from first to second quarter 2010 was one of the most significant quarter-to-quarter increases in our history," Oberhelman added.
Sales and revenues were up $2.434 billion from the second quarter of 2009. Sales volume improved $2.259 billion, price realization was favorable $187 million, and the impact of currency added $23 million. Financial Products revenues were down $35 million. Profit was up $336 million from the second quarter of 2009. The increase was primarily the result of higher sales volume, improved operating efficiencies and favorable price realization, partially offset by higher taxes, provisions for incentive compensation and the absence of $110 million of LIFO inventory decrement benefits from the second quarter of 2009.
Outlook
The company is improving its outlook for 2010 by raising the sales and revenues range and increasing profit expectations. Sales and revenues are now expected to be in a range of $39 to $42 billion, with a midpoint of $40.5 billion. The increased 2010 profit outlook is a range of $3.15 to $3.85 per share, with a midpoint of $3.50 per share. The previous sales and revenues outlook was a range of $38 to $42 billion, and the previous profit outlook range was $2.50 to $3.25 per share.
"We're very pleased to increase our outlook for 2010. It reflects an increase in sales and revenues and a more significant increase in profit--a result of our continuing focus on cost management and profit improvement," Oberhelman said. "While there are significant economic concerns around the world that we are watching closely, orders have continued to outpace our shipments, and we expect to increase production in the second half of the year," Oberhelman added.
"We continue to be very positive about the longer-term prospects for many of the industries we serve--like mining, energy, infrastructure, electric power and rail. This year we have made several announcements related to increasing capacity and expanding our line-up of products and services," Oberhelman said.
The strategic initiatives announced include:
-- A new excavator facility to increase production capacity in the United
States.
-- An agreement to acquire Electro-Motive Diesel (EMD), which has the
largest installed base of diesel-electric locomotives in the world,
for $820 million.
-- A multi-year investment of nearly $700 million supporting mining
customers, including a full line of mining shovels and capacity
expansion for mining trucks made in the United States and India.
-- A 400-percent increase in excavator production capacity over the next
several years in Xuzhou, China.
-- A new facility for small wheel loader and backhoe loader manufacturing
in Brazil.
"We expect these investments will position the company for continued global leadership and growth," added Oberhelman.
Notes:
-- Glossary of terms is included on pages 21- 22; first occurrence of
terms shown in bold italics.
-- Information on non-GAAP financial measures, including the treatment of
redundancy costs, is included on page 23.
For more than 85 years, Caterpillar Inc. has been making progress possible and driving positive and sustainable change on every continent. With 2009 sales and revenues of $32.396 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/.
FORWARD-LOOKING STATEMENTS
Certain statements in this release relate to future events and expectations and, as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to 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. Words such as "believe," "estimate," "will be," "will," "would," "expect," "anticipate," "plan," "project," "intend," "could," "should" or other similar words or expressions often identify forward-looking statements. All statements other than statements of historical fact are forward-looking statements, including, without limitation, statements regarding our outlook, projections, forecasts or trend descriptions. These statements do not guarantee future performance, and Caterpillar does not undertake to update its forward-looking statements.
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, including, but not limited to: (i) economic volatility in the global economy generally and in capital and credit markets; (ii) Caterpillar's ability to generate cash from operations, secure external funding for operations and manage liquidity needs; (iii) adverse changes in the economic conditions of the industries or markets Caterpillar serves; (iv) government regulations or policies, including those affecting interest rates, liquidity, access to capital and government spending on infrastructure development; (v) commodity price increases and/or limited availability of raw materials and component products, including steel; (vi) compliance costs associated with environmental laws and regulations; (vii) Caterpillar's and Cat Financial's ability to maintain their respective credit ratings, material increases in either company's cost of borrowing or an inability of either company to access capital markets; (viii) financial condition and credit worthiness of Cat Financial's customers; (ix) material adverse changes in our customers' access to liquidity and capital; (x) market acceptance of Caterpillar's products and services; (xi) effects of changes in the competitive environment, which may include decreased market share, lack of acceptance of price increases, and/or negative changes to our geographic and product mix of sales; (xii) Caterpillar's ability to successfully implement Caterpillar Production System or other productivity initiatives; (xiii) international trade and investment policies, such as import quotas, capital controls or tariffs; (xiv) failure of Caterpillar or Cat Financial to comply with financial covenants in their respective credit facilities; (xv) adverse changes in sourcing practices for our dealers or original equipment manufacturers; (xvi) additional tax expense or exposure; (xvii) political and economic risks associated with our global operations, including changes in laws, regulations or government policies, currency restrictions, restrictions on repatriation of earnings, burdensome tariffs or quotas, national and international conflict, including terrorist acts and political and economic instability or civil unrest in the countries in which Caterpillar operates; (xviii) currency fluctuations, particularly increases and decreases in the U.S. dollar against other currencies; (xix) increased payment obligations under our pension plans; (xx) inability to successfully integrate and realize expected benefits from acquisitions; (xxi) significant legal proceedings, claims, lawsuits or investigations; (xxii) imposition of significant costs or restrictions due to the enactment and implementation of health care reform legislation and proposed financial regulation legislation; (xxiii) changes in accounting standards or adoption of new accounting standards; (xxiv) adverse effects of natural disasters; and (xxv) other factors described in more detail under "Item 1A. Risk Factors" in Part I of our Form 10-K filed with the SEC on February 19, 2010 for the year ended December 31, 2009 and in Part II of our Form 10-Q filed with the SEC on May 3, 2010 for the quarter ended March 31, 2010. These filings are available on our website at www.cat.com/sec_filings.
Key Points
----------
Second Quarter 2010
-------------------
(Dollars in millions except per share data)
Second Quarter Second Quarter
2010 2009 $ Change % Change
-------------- -------------- -------- --------
Machinery
and
Engines
Sales $9,723 $7,254 $2,469 34%
Financial
Products
Revenues 686 721 (35) (5)%
--- --- ---
Total Sales
and Revenues $10,409 $7,975 $2,434 31%
======= ====== ======
Profit $707 $371 $336 91%
Profit per
common share
-diluted $1.09 $0.60* $0.49 82%
* Profit per share excluding redundancy costs was $0.72 per share in
the second quarter of 2009.
-- Second-quarter sales and revenues of $10.409 billion were 31 percent
higher than the second quarter of 2009, led by strong growth in
developing economies.
-- Machinery sales increased 55 percent due to absence of dealer
inventory reductions that occurred in the second quarter of 2009,
higher end-user demand and better price realization.
-- Engines sales increased 3 percent, and Financial Products revenues
declined 5 percent from the second quarter of 2009.
-- Manufacturing costs improved $316 million. Excluding LIFO inventory
decrement benefits of $110 million in the second quarter of 2009,
manufacturing costs improved $426 million.
-- Machinery and Engines operating cash flow was $2.357 billion through
the first half of 2010, compared with $583 million through the first
half of 2009.
-- Machinery and Engines debt-to-capital ratio was 41.9 percent at the
end of the second quarter of 2010, compared to 53.1 percent at the end
of the second quarter of 2009 and 47.2 percent at year-end 2009.
2010 Outlook
-- Caterpillar is raising its 2010 outlook for both sales and revenues
and profit.
-- 2010 sales and revenues are now expected to be in the range of $39 to
$42 billion, with a midpoint of $40.5 billion. The previous range was
$38 to $42 billion, with a midpoint of $40 billion. The increase in
the sales and revenues outlook is a result of continuing improvement
in end-user demand partially offset by the unfavorable impact of
currency.
-- The revised 2010 profit outlook is a range of $3.15 to $3.85 per
share, with a midpoint of $3.50 per share--an increase of 22 percent
from the midpoint of the previous outlook. The previous range was
$2.50 to $3.25 per share, with a midpoint of $2.88 per share.
DETAILED ANALYSIS
Consolidated Sales and Revenues Comparison
Second Quarter 2010 vs. Second Quarter 2009
To access this chart, go to http://www.cat.com/ for the downloadable version of Caterpillar 2Q2010 earnings.
The chart above graphically illustrates reasons for the change in Consolidated Sales and Revenues between second quarter 2009 (at left) and second quarter 2010 (at right). Items favorably impacting sales and revenues appear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting sales and revenues appear as downward stair steps with dollar amounts reflected in parentheses above each bar. Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees.
Sales and Revenues
Sales and revenues for the second quarter of 2010 were $10.409 billion, up $2.434 billion, or 31 percent, from the second quarter of 2009. Machinery sales volume was up $2.232 billion due to the absence of dealer inventory reductions that occurred in the second quarter of 2009 and higher end-user demand. Engines volume increased $27 million. Price realization improved $187 million, and currency had a positive impact on sales of $23 million. Financial Products revenues decreased $35 million.
Our integrated service businesses tend to be more stable through the business cycle than new machines and engines. Second-quarter sales and revenues for these businesses were higher compared to the second quarter of 2009. However, with the increase in sales of new machines this quarter, integrated service businesses represented a lower percent of total company sales and revenues than the prior period. These businesses represented about 40 percent of total company sales and revenues in the second quarter of 2010, down from about 46 percent in the second quarter of 2009.
(1) Does not include internal engines transfers of $602 million and $319
million in second quarter 2010 and second quarter 2009, 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 $67 million and $93 million in second quarter 2010 and second
quarter 2009, respectively.
Machinery Sales
Sales were $6.733 billion, an increase of $2.395 billion, or 55 percent, from the second quarter of 2009.
-- Sales volume increased $2.232 billion.
-- Price realization increased $131 million.
-- Currency increased sales by $32 million.
-- Geographic mix between regions (included in price realization) was $4
million unfavorable.
-- Dealer-reported inventories were about flat during the quarter
compared with a reduction of almost $1.2 billion in the second quarter
of 2009. Absence of the 2009 inventory change was a contributor to
higher sales volume. Dealer inventory levels were well below the
second quarter of 2009, and months of supply were the lowest in at
least 10 years.
-- For the first time since the second quarter of 2008, dealers reported
increased deliveries to end users. Factors underlying this change
included low interest rates, continued economic recoveries in most
countries, increased construction in some countries and higher metals
and energy prices.
-- Reported deliveries in the developed economies showed an increasing
trend during the quarter, even though most economic recoveries were
modest. We believe this improvement reflects a willingness by end
users to resume fleet replacements after significantly lowering
purchases over the last two years.
-- Overall sales volume grew in all regions and most countries within
those regions.
North America - Sales increased $748 million, or 43 percent.
-- Sales volume increased $683 million.
-- Price realization increased $64 million.
-- Currency increased sales by $1 million.
-- Dealers reduced reported inventories during the second quarter of
2010, but at a lower rate than in the second quarter of 2009. This
change contributed to higher sales volume. Dealer inventories were
about half the second quarter 2009 levels, and months of supply were
the lowest in at least 10 years.
-- An increase in deliveries to end users, as reported by dealers, was
the most significant contributor to the growth in sales volume.
Economic recoveries in both the United States and Canada led to
increased output in some key industries, which we believe encouraged
buying.
-- Increases in dealer deliveries were greater than the modest increases
in economic activity might suggest. We believe that low interest
rates and increased confidence encouraged users to moderate the
shrinking and aging of fleets that started in early 2006.
-- Housing starts in the United States were 12 percent higher than last
year and new single-family units available for sale were the lowest
since 1970. Canadian housing starts were up 54 percent. Increased
housing construction and some signs that home prices are stabilizing
contributed to increased sales of smaller machines.
-- U.S. nonresidential building contracting, which tends to lag economic
recoveries, fell 27 percent from the second quarter of 2009. Lower
commercial property prices and low industrial capacity utilization
were contributing factors. Nonresidential construction in Canada
declined 3 percent.
-- Spending for highway construction increased slightly in the second
quarter compared to the second quarter of 2009. Funding provided by
the U.S. government's recovery program helped offset pressure on state
and local government budgets.
-- U.S. nonmetals mining and quarry production increased 6 percent, and
Canadian producers increased quarry output 2 percent. Modest
production gains benefited sales of quarry products.
-- Metals prices were 50 percent higher than last year, causing U.S.
metals mines to increase production 8 percent. These factors helped
increase sales of mining equipment.
-- Central Appalachian coal prices averaged almost $63 per ton during the
quarter and were 27 percent higher than the second quarter of 2009.
U.S. coal production increased 3 percent during the quarter, and
Canadian production has risen significantly so far this year. An
improved coal sector further increased mining sales.
-- Lumber prices rose 56 percent, encouraging a 20-percent increase in
U.S. production and a 29-percent gain in Canadian production. Sales
of forestry products increased to support this demand.
Latin America - Sales increased $621 million, or 116 percent.
-- Sales volume increased $547 million.
-- Price realization increased $38 million.
-- Currency increased sales by $36 million.
-- Dealers reported increases in their inventories during the quarter
compared with a drawdown in the second quarter of 2009. This change,
taken to prepare for a better economic environment, accounted for most
of the growth in sales volume.
-- Dealer inventories were about the same as a year earlier. Inventories
in months of supply were the lowest in at least 10 years.
-- Dealers also reported higher deliveries to end users, a result of
continuing economic recoveries and higher commodity prices.
Industrial production increased in most countries, mining output rose
and oil production was up 2 percent.
-- Brazil had the largest increase in sales volume in Latin America.
Interest rates averaged lower than last year, a major factor in the
16-percent increase in industrial production. Mining output increased
17 percent, driven by a 44-percent gain in iron ore.
-- Sales volume increased significantly in Chile, despite the recent
earthquake's unfavorable impact on some sectors of the economy.
Interest rates were lower than last year, and significantly higher
copper prices contributed to higher copper export revenues.
EAME - Sales increased $364 million, or 36 percent.
-- Sales volume increased $402 million.
-- Price realization decreased $13 million.
-- Currency decreased sales by $25 million.
-- Dealer-reported inventories were about flat during the quarter
compared with a reduction in the second quarter of 2009. This change
accounted for most of the sales volume growth.
-- Both inventories and months of supply were well below last year.
Months of supply was also slightly below the historical average.
-- European economies reflected some strengthening, as indicated by
faster growth in industrial production and favorable surveys of
business expectations. Housing starts also improved in several
countries.
-- Dealers in Europe reported an increase in deliveries in the second
quarter of 2010 compared to the second quarter of 2009.
-- The economic environment was favorable in Africa/Middle East.
Recoveries were underway in the large economies of Turkey and South
Africa, favorable metals prices benefited mining production and
regional oil revenues increased in response to higher oil prices and
production.
-- Economic activity in the Commonwealth of Independent States (CIS) is
improving. Positive factors included increased government spending,
higher mining output and 3-percent growth in crude oil production.
Asia/Pacific - Sales increased $662 million, or 62 percent.
-- Sales volume increased $596 million.
-- Price realization increased $46 million.
-- Currency increased sales by $20 million.
-- Dealer-reported inventories were about flat during the quarter
compared to a reduction in the second quarter of 2009. This change
positively benefited sales volume. Inventories were below last year
in both dollars and months of supply; months of supply was also below
the historical average.
-- Most of the increase in sales volume resulted from dealers reporting
higher deliveries to end users. Asian economies were recovering,
which benefited construction, and higher metals prices encouraged
investment in the mining industry.
-- China had a large increase in sales volume, and deliveries remained
near record highs. Although the government acted to control the
recovery, lending increased 21 percent, and industrial production was
up 16 percent. Both construction spending and coal production
increased more than 20 percent.
-- Lower interest rates in Indonesia contributed to economic growth.
Construction spending increased, leading to a gain in sales volume.
-- Australian coal prices rose 50 percent, prompting mines to expand
production. In response to economic growth, housing permits increased
31 percent. These factors contributed to the growth in sales volume.
-- In Japan, industrial production was 23 percent higher than last year,
and orders for new housing rose 5 percent.
Engines Sales
Sales were $2.990 billion, an increase of $74 million, or 3 percent, from the second quarter of 2009.
-- Sales volume increased $27 million.
-- Price realization increased $56 million.
-- Currency decreased sales by $9 million.
-- Geographic mix between regions (included in price realization) was $7
million favorable.
-- Dealer inventories and months of supply were down from the second
quarter of 2009.
North America - Sales increased $39 million, or 4 percent.
-- Sales volume increased $54 million.
-- Price realization decreased $15 million.
-- Sales volume in North America was relatively flat. Engine sales for
industrial applications were the most significant positive
contributor, coming off depressed levels in the second quarter of
2009.
Latin America - Sales increased $106 million, or 42 percent.
-- Sales volume increased $95 million.
-- Price realization increased $7 million.
-- Currency increased sales by $4 million.
-- Sales for petroleum applications increased 16 percent due to higher
turbine sales.
-- Sales of electric power applications increased 109 percent due to
higher turbine sales and modest improvements in industry demand.
EAME - Sales decreased $166 million, or 15 percent.
-- Sales volume decreased $189 million.
-- Price realization increased $32 million.
-- Currency decreased sales by $9 million.
-- Sales for electric power applications increased 11 percent primarily
due to increased turbine sales.
-- Sales for petroleum applications decreased 44 percent primarily due to
lower turbine sales and a slowdown in demand for engines used in
production applications and land-based drilling.
-- Sales for marine applications decreased 36 percent due to weak
industry demand and a declining order backlog.
-- Sales for industrial applications increased 8 percent due to higher
demand in construction and agricultural applications.
Asia/Pacific - Sales increased $95 million, or 17 percent.
-- Sales volume increased $74 million.
-- Price realization increased $25 million.
-- Currency decreased sales by $4 million.
-- Sales for petroleum applications increased 16 percent primarily due to
higher turbine sales.
-- Sales for electric power applications increased 64 percent primarily
due to higher turbine sales and increased demand throughout the
region.
-- Sales for marine applications decreased 15 percent due to weak
industry demand, partially offset by higher sales for workboat and
general cargo vessels.
Financial Products Revenues
Revenues were $686 million, a decrease of $35 million, or 5 percent, from the second quarter of 2009.
-- Revenues decreased $59 million due to a decrease in average earning
assets, partially offset by an increase of $14 million due to the
favorable impact of higher interest rates on new and existing finance
receivables.
-- Other revenues at Cat Financial increased $8 million. The increase
was due to a $12 million favorable impact from returned and
repossessed equipment and the absence of a $9 million write-down on
retained interests related to the securitized asset portfolio in the
second quarter of 2009, partially offset by the unfavorable impact
from various other revenue items.
Consolidated Operating Profit Comparison
Second Quarter 2010 vs. Second Quarter 2009
To access this chart, go to http://www.cat.com/ for the downloadable version of Caterpillar 2Q2010 earnings.
The chart above graphically illustrates reasons for the change in Consolidated Operating Profit between second quarter 2009 (at left) and second quarter 2010 (at right). Items favorably impacting operating profit appear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting operating profit appear as downward stair steps with dollar amounts reflected in parentheses above each bar. Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees. The bar entitled Other/M&E Redundancy includes the operating profit impact of consolidating adjustments and Machinery and Engines other operating (income) expenses, which include Machinery and Engines redundancy costs.
Operating Profit
Operating profit in the second quarter of 2010 was $977 million compared to $347 million in the second quarter of 2009. The improvement was primarily the result of higher sales volume, which includes the impact of an unfavorable mix of products, lower manufacturing costs and better price realization. The improvements were partially offset by higher selling, general and administrative (SG&A) and research and development (R&D) expenses and an unfavorable impact of currency.
Manufacturing costs improved $316 million primarily due to variable labor and burden efficiencies and lower warranty and material costs, partially offset by the absence of $110 million of LIFO inventory decrement benefits.
SG&A and R&D expenses increased by $217 million primarily due to provisions related to incentive pay and increased expense to support product development programs related to EPA Tier 4 emissions requirements.
Currency had a $77 million negative impact on operating profit as the negative impact on costs more than offset the benefit to sales.
Redundancy costs were $85 million in the second quarter of 2009.
Operating Profit (Loss) by Principal Line of Business
(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 profit was $477 million compared to an operating
loss of $252 million in the second quarter of 2009. Positive factors
included higher sales volume, which includes the impact of an
unfavorable mix of products, lower manufacturing costs (despite the
absence of LIFO decrement benefits) and improved price realization.
These improvements were partially offset by higher SG&A and R&D
expenses.
-- Engines operating profit of $462 million was down $93 million from the
second quarter of 2009. Higher SG&A and R&D expenses and lower sales
volume, which includes the impact of an unfavorable mix of products,
were partially offset by lower manufacturing costs and improved price
realization.
-- Financial Products operating profit of $92 million was down $35
million, or 28 percent, from the second quarter of 2009. The decrease
was primarily attributable to a $26 million unfavorable impact from
lower average earning assets and a $12 million increase in SG&A
expenses (excluding the provision for credit losses).
Other Profit/Loss Items
-----------------------
-- Interest expense excluding Financial Products decreased $28 million
from the second quarter of 2009.
-- Other income/expense was income of $50 million compared with income
of $163 million in the second quarter of 2009. The decrease was
primarily driven by an unfavorable impact from currency exchange
gains and losses.
-- The provision for income taxes in the second quarter reflects an
estimated annual effective tax rate of 29 percent, excluding the items
discussed below, compared to an actual tax rate of 10 percent for the
second quarter of 2009. The 2010 estimated annual tax rate is
expected to be less than the U.S. tax rate of 35 percent primarily
due to profits in tax jurisdictions with rates lower than the U.S.
rate. The 2010 estimated annual tax rate is based on current tax law
and therefore does not include the U.S. research and development tax
credit and other benefits that have not been extended past 2009.
The provision for income taxes in the second quarter of 2010 also
includes benefits of $65 million due to refund claims for prior tax
years, the release of a valuation allowance against the deferred tax
assets of certain non-U.S. entities and a decrease in the 2010
estimated annual tax rate from 30 to 29 percent.
-- Profit/loss attributable to noncontrolling interests negatively
impacted profit by $37 million from the second quarter of 2009,
primarily due to improved financial performance of Caterpillar Japan
Ltd. (Cat Japan). We own two-thirds of Cat Japan, meaning one-third
of its profits or losses are attributable to our partner, Mitsubishi
Heavy Industries.
Employment
Caterpillar's worldwide employment was 97,487 at the end of the second quarter of 2010. Year to date in 2010 we have added about 3,650 employees, primarily due to increases in production. About 1,250 of the additional employees were in the United States, and about 2,400 were outside the United States.
2010 Outlook
Economic Outlook
The worldwide economic recovery continued with strong growth in developing economies. We expect recovery to continue with worldwide economic growth of about 3.5 percent for 2010.
-- Economic news in Europe and the United States has been less favorable
recently, and concerns about a "double-dip" recession increased.
However, this type of recession typically results from significant
policy tightening very early in a recovery. We do not believe such a
policy shift has occurred.
-- Increased concern about the economic recovery should encourage central
bankers to become even more cautious about tightening economic
policies. As a result, we no longer expect central bankers to
increase interest rates this year in the United States or the
Euro-zone.
-- Credit spreads have widened but remain well below averages sustained
during the credit crisis. Spreads are generally consistent with
continued economic recovery.
-- We expect that developing economies will continue to drive the
recovery and are forecasting economic growth in those regions of
almost 7 percent in 2010. We also expect that developed economies
will continue to lag and are forecasting economic growth of less than
2.5 percent in 2010.
Commodities
-- Metals demand is increasingly concentrated in the developing
economies, and their strong growth should keep prices favorable for
increased production and investment. Our forecast is that copper
prices will average more than $3.00 per pound this year.
-- Increases in oil prices have resulted in about 3 percent higher world
oil production and a significant increase in active drill rigs. We
project the West Texas Intermediate crude oil price will average about
$80 per barrel.
-- The vigorous economic recovery in Asia, particularly China, has
increased coal demand and supported a 40-percent increase in
Australian coal prices compared to the first half of 2009. We
forecast Australian thermal coal prices will average more than $95 per
metric ton, and Central Appalachian coal prices will average more than
$60 per ton. Coal prices at those levels should be high enough to
encourage further increases in production.
Developing Economies
-- Over the past several years, many developing countries have managed
their economies well, achieving rapid economic growth without creating
significant inflation problems. Most resumed economic growth in the
second quarter of 2009, and we expect these countries to maintain
continued growth through the end of the year.
-- Asia/Pacific economies should continue to grow at the fastest pace,
with growth of about 8.5 percent expected this year. Our forecast
assumes China will grow 10.5 percent, India 8.5 percent and the
remaining economies will average more than 6-percent growth.
-- In response to concerns about slowing economic growth, China recently
announced a program of more than $100 billion of infrastructure
development. We also expect China's central bank will hold interest
rates steady this year.
-- Consumer price inflation has increased in India, and India's central
bank has raised interest rates three times so far this year. We
expect two more rate increases in 2010, but expect only a moderate
slowing in economic growth and construction spending.
-- We forecast the Africa/Middle East economies will grow 4.5 percent in
2010. Positives include favorable metals and energy prices, low
interest rates and strengthening recoveries in both South Africa and
Turkey.
-- The CIS economy should grow 4.5 percent this year. Interest rates
have dropped sharply over the past year, helping the recovery to
strengthen. The region should also benefit from higher commodity
prices.
-- Recovery in Latin American economies continued to strengthen through
the first half of 2010, and we expect the regional economy will grow
4.5 percent this year. Both construction and mining should continue
to expand.
Developed Economies
-- Very low inflation, weak credit demand, high unemployment and low
capacity utilization indicate a low risk of growing inflation or asset
price bubbles. As a result, we expect that central banks in the
United States, the Euro-zone, the United Kingdom and Japan will hold
interest rates steady for the remainder of the year.
-- Our forecast of U.S. economic growth is 3 percent, and our estimate of
housing starts is 675,000 units. Starts of that amount would be the
second lowest since 1945. Nonresidential construction, which
typically lags the economy, is expected to decline for the third
consecutive year. Mining, largely benefiting from global commodity
demand, should increase.
-- We expect the Euro-zone will continue to lag behind other economies,
with growth of more than 1 percent this year. While the government
debt crisis has led to widening credit spreads, the European Central
Bank appears to be providing enough liquidity to avoid a downturn.
Construction, which peaked in late 2006, likely will be down for the
year.
-- The Bank of Japan continued to increase liquidity in the banking
system, and the economy has grown 4.2 percent since the recession
ended in the first quarter of 2009. That growth rate was the highest
in nearly 20 years. We expect the central bank will increase
liquidity further, fostering economic growth of more than 3 percent in
2010.
2010 Sales and Revenues Outlook
The outlook for sales and revenues is a range of $39 to $42 billion, up from the previous forecast of $38 to $42 billion. The increase in the sales outlook is a result of continuing improvement in end-user demand partially offset by the unfavorable impact of currency. Key elements of the 2010 sales and revenues outlook compared with 2009 include:
-- At the midpoint of the revised 2010 sales and revenues range, we
expect little change in dealer inventories. In 2009, dealers reduced
inventories of new Caterpillar machines and engines by nearly $4
billion. The absence of this reduction will result in higher sales
for Caterpillar in 2010.
-- Economic improvement in the developing economies of Asia/Pacific and
Latin America is improving construction spending and increasing
end-user demand for Machinery.
-- Growth in the world economy is driving improved demand for
commodities. Higher demand coupled with favorable commodity prices
should be positive for mining-related sales in 2010. Mining-related
order activity has remained robust, and we expect to increase
production and sales as the year progresses.
-- We expect that price realization will be positive by more than 1
percent in 2010.
-- While Machinery sales are expected to increase in 2010, at the
midpoint of the outlook range, Engines sales are expected to be about
flat. Turbine sales in 2010 are expected to be near the record levels
of 2009.
2010 Profit Outlook
Profit is expected to be in a range of $3.15 to $3.85 per share. The previous outlook expected profit in a range of $2.50 to $3.25 per share.
Key positive elements of the profit outlook for 2010 compared to 2009 include:
-- Higher sales volume.
-- In 2009, employee redundancy costs were $706 million, or $0.75 per
share. We do not anticipate significant redundancy costs in 2010.
-- We expect that price realization will be positive by more than 1
percent in 2010.
-- Improved operating efficiency--resulting from higher production volume
and continuing improvement from the Caterpillar Production System with
6 Sigma.
-- Material costs are expected to be favorable in 2010.
-- Financial Products' profit before tax is expected to be up slightly
from 2009.
The key positive elements of the 2010 profit outlook are expected to be partially offset by:
-- Product mix is expected to be unfavorable.
-- Higher income taxes. We are forecasting income taxes to be an expense
of about 29 percent of profit before tax plus the $90 million charge
in the first quarter related to signing of the U.S. health care
legislation and discrete benefits of about $60 million in the second
quarter.
-- Higher costs of about $600 million related to incentive compensation
due to improving financial performance.
-- R&D expense is expected to increase primarily to support product
development programs related to EPA Tier 4 emissions requirements.
-- We are not forecasting LIFO inventory decrement benefits for 2010.
LIFO decrement benefits in 2009 were $300 million.
-- We do not expect the favorable impact of currency that was in 2009's
other income/expense to recur in 2010.
-- Pension expense is expected to be higher in 2010.
-- Depreciation expense is expected to increase. Machinery and Engines
capital expenditures are expected to be about $1.8 billion in 2010, up
from $1.3 billion in 2009.
-- Diluted shares outstanding are expected to be higher than the 2009
full-year average. This is a result of stock contributed to our
employee benefit plans, as well as increased dilution related to the
increase in the share price.
During the second quarter of 2010, we signed a definitive agreement to acquire Electro-Motive Diesel (EMD) for $820 million. As this acquisition has not yet closed, our 2010 outlook does not include any sales and revenues or profit impact related to EMD.
QUESTIONS AND ANSWERS
---------------------
Q1: You continue to be optimistic about growth in the emerging
market countries of Asia and Latin America. With reports of
slowing economic growth in China, have you seen a weakening
of your business in China?
A: Our dealers reported some flattening in their dealer
deliveries in the second quarter, but at a rate well above
the 2008 peak. On a volume basis, their deliveries were
about 50 percent higher than in the second quarter of 2009.
The government expressed some concern about the world economy
and announced it would maintain a moderately easy monetary
policy. As a result, we removed interest rate increases from
our 2010 forecast. The government also announced the Great
Western Development Program, which will provide about $100
billion for infrastructure development in western China.
These developments highlight the emphasis the Chinese government
places on economic growth and its willingness to alter economic
policies quickly to support growth. This stance has resulted in
China becoming the country that presents the largest single
opportunity for construction machinery in the world, a position
we think it will continue to maintain.
Q2: Economic growth in Europe has also been a concern as a result
of sovereign debt issues and the potential for tighter fiscal
policy in some European countries. Have you seen
deterioration in your sales in Europe over the past quarter?
A: We expect continued weak growth for the Euro-zone economy.
Since the formation of the euro in 1999, economic growth has
averaged 1.5 percent yearly, and unemployment is currently
about 10 percent. Our forecast for economic growth of more
than 1 percent for 2010 reflects continued weakness.
However, our machine sales in Europe improved significantly in the
second quarter from very depressed levels a year ago. Sales in
Europe, while above the low levels of 2009, are still well below
the levels of 2007 and 2008.
Q3: What does your revised 2010 outlook assume for U.S. housing
starts?
A: Repeated downward revisions to first-quarter Gross Domestic
Product (GDP) caused us to lower our 2010 forecast. We now
expect 2010 housing starts of about 675,000 units. Starts
averaged a 610,000 annual rate in the first 6 months of this
year so that forecast implies a small improvement in the
second half of the year. Our assumptions underlying this
recovery include continued low mortgage interest rates
(recently at a 40-year low), a need to rebuild the stock of
unsold new homes from a 40-year low and expected gains in
employment.
This forecast implies that 2010 housing starts will be the second
worst year since 1945, with only 2009 being lower. In fact,
housing starts for 2009 and 2010 combined would fall short of
annual starts in 42 of the prior 50 years.
Q4: Given the extent of inventory declines in 2009 and your
outlook for higher sales in 2010, how is the supply base
responding? Do you expect problems in 2010 keeping up with
demand?
A: Our production of new equipment increased significantly from
the first to the second quarter of 2010. In general, our
suppliers have done a good job supporting the ramp up in
production. While we expect further increases in production
levels in the second half of the year, the rate of increase
should be less dramatic than between the first and second
quarters, and we expect that suppliers will be able to
support production levels reflected in our outlook.
Q5: Can you comment specifically on the status of your 2010
production ramp up for mining products? Were you able to
raise production in the second quarter, and do you expect
production in the second half of the year to continue to
increase?
A: Factory production of our mining and related support equipment
increased substantially from the first quarter of 2010 to the
second quarter, and we expect to continue to increase
production during the second half of 2010.
Q6: You've mentioned before that sales of aftermarket service
parts can be a leading indicator of improving demand. What's
the current trend?
A: Sales of aftermarket service parts, which are reported in both
the Machinery and Engines lines of business, bottomed in the
second quarter of 2009. While all regions have improved,
recovery has been the most robust in Asia/Pacific and Latin
America. Full-year expectations have improved since the end
of the first quarter, and higher parts sales are an element
of the improvement in the full-year 2010 outlook for sales
and revenues.
Q7: Inventory changes related to new machines and engines had a
significant negative impact on your sales in 2009. What
happened to dealer inventories in the second quarter, and
what are your expectations for the full year of 2010?
A: Dealer machine inventories have remained about flat throughout
2010. Inventories at the end of the second quarter were
about the same as year-end 2009 and at the end of the first
quarter of 2010. In contrast, dealers reduced new machine
inventories $1.2 billion during the second quarter of 2009.
At the midpoint of our 2010 outlook for sales and revenues we are
not expecting significant changes to dealer inventories.
However, the higher sales are in the outlook range, the more
likely it is that dealers may want to increase inventory levels.
Q8: What drove the improvement in manufacturing costs during the
second quarter?
A: Manufacturing costs were favorable $316 million in the second
quarter of 2010 compared with the second quarter of 2009.
Excluding LIFO inventory decrement benefits from the second
quarter of 2009, the improvement was $426 million. The
improvement was driven by the Caterpillar Production System,
including a well-executed ramp up in production by our
suppliers and our factories, favorable warranty and lower
material costs.
Q9: Can you discuss tax expense in the second quarter?
A: The 2010 estimated annual tax rate of 29 percent is expected
to be less than the U.S. tax rate of 35 percent primarily due
to profits in tax jurisdictions with rates lower than the
U.S. rate. The estimated annual tax rate is based on current
tax law and therefore does not include the U.S. research and
development tax credit and other benefits that have not been
extended past 2009. The second-quarter tax provision
includes benefits of $65 million due to refund claims for
prior tax years, the release of a valuation allowance against
the deferred tax assets of certain non-U.S. entities and a
decrease in the 2010 estimated annual tax rate from 30 to 29
percent.
Q10: As your outlook improves, will that result in higher expense
related to incentive compensation?
A: Yes, short-term incentive compensation expense will increase
as our financial performance improves. As a result of
aggressive financial performance targets in 2009 and the
impact of the global recession, short-term incentive
compensation plans that were tied to corporate results did
not meet the earnings threshold, and no expense was incurred.
The midpoint of the current profit outlook would result in
about $600 million of short-term incentive compensation in
2010. That's an increase from the previous estimate of about
$350 million. Half of the $600 million was recorded in the
first half of 2010 - about $90 million in the first quarter
and about $210 million the second quarter.
Q11: Have you increased employment levels as a result of improving
business conditions? Do you plan to increase employment in
2010?
A: Employment needs are linked to business conditions and
production volume. We have raised production schedules in
most facilities, and we would expect to selectively increase
employment in 2010 as a result. Year to date in 2010 we
added about 3,650 employees. The strength of recovery will
vary significantly among product type, industry served and
geography. Currently we are seeing faster recovery in Asia
and Latin America. So, prospects for employment increases in
2010 are best for facilities in those regions. In addition,
we expect to add employees at several facilities in the
United States where a substantial portion of their production
is exported.
Q12: Can you comment on your financial position at the end of the
second quarter?
A: Caterpillar's financial position continued to strengthen
during the second quarter. The M&E debt-to-capital ratio
was 41.9 percent at the end of the second quarter, compared
to 53.1 percent at the end of the second quarter of 2009, and
45.2 percent at the end of the first quarter of 2010. On a
consolidated basis, we ended the quarter with $3.6 billion of
cash, very similar to our position at the end of March. This
strengthening financial position was a significant factor in
the recent decision to increase our dividend by 5 percent.
In addition, our solid financial position and good cash flow
are important elements in funding growth initiatives like the
recently announced agreement to acquire EMD.
Q13: Give us an update on the quality of Cat Financial's asset
portfolio. How are past dues, credit losses and allowances?
A: During the second quarter, overall portfolio quality began to
show signs of improvement, as economic conditions around the
world continued to improve.
At the end of the second quarter of 2010, past dues were 5.33
percent, down from 6.06 percent at the end of the first quarter
and 5.54 percent at the end of 2009. At the end of the second
quarter of 2009, past dues were 5.53 percent. The reduction in
past dues from year end is primarily due to the general
improvement in global economic conditions. We expect gradual
improvement in past dues during the remainder of 2010.
Bad debt write-offs, net of recoveries, were $52 million for the
second quarter of 2010, down $3 million from the second quarter
of 2009. Second-quarter 2010 annualized losses were 0.91
percent of the average retail portfolio, compared to 0.89 percent
for the second quarter of 2009, and 1.03 percent for the full-
year 2009.
At the end of the second quarter of 2010, Cat Financial's
allowance for credit losses was 1.70 percent of net finance
receivables, increasing from 1.64 percent on December 31, 2009,
and 1.55 percent at the end of the second quarter of 2009. As a
result of new accounting guidance implemented during the first
quarter, Cat Financial began consolidating securitized assets
which had previously been off balance sheet. On January 1, 2010,
the consolidation of these assets had the impact of increasing
the allowance for credit losses by $18 million and the total
allowance as a percent of net finance receivables by 6 basis
points. At the end of the second quarter of 2010, the allowance
for credit losses totaled $383 million, compared with $377
million on December 31, 2009, and $378 million at the end of the
second quarter of 2009. The increase of $5 million in allowance
for credit losses year-over-year reflected a $34 million
increase associated with the higher allowance rate, partially
offset by a $29 million decrease due to a reduction in the
overall net finance receivable portfolio.
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. We began
consolidating Cat Japan in the fourth quarter of 2008.
2. Caterpillar Production System - 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 impact 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. Debt-to-Capital Ratio - A key measure of financial strength used by
both management and our credit rating agencies. The metric is a ratio
of Machinery and Engines debt (short-term borrowings plus long-term
debt) and redeemable noncontrolling interest to the sum of Machinery
and Engines debt, redeemable noncontrolling interest and stockholders'
equity.
6. EAME - Geographic region including Europe, Africa, the Middle East and
the Commonwealth of Independent States (CIS).
7. Earning Assets - Assets consisting primarily of total finance
receivables net of unearned income, plus equipment on operating leases,
less accumulated depreciation at Cat Financial.
8. Engines - A principal line of business including the design,
manufacture, marketing and sales of engines for Caterpillar machinery;
electric power generation systems; 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 21,800 horsepower (8 to more than
16 000 kilowatts). Turbines range from 1,600 to 30,000 horsepower (1
200 to 22 000 kilowatts).
9. Financial Products - A principal line of business consisting primarily
of Caterpillar Financial Services Corporation (Cat Financial),
Caterpillar Insurance Holdings, Inc. (Cat Insurance) 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.
10. 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.
11. Latin America - Geographic region including Central and South American
countries and Mexico.
12. 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.
13. 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.
14. 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.
15. Machinery and Engines Other Operating (Income) Expenses - Comprised
primarily of gains/losses on disposal of long-lived assets, long-lived
asset impairment charges and employee redundancy costs.
16. 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.
17. 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.
18. Redundancy Costs - Costs related to employment reduction including
employee severance charges, pension and other postretirement benefit
plan curtailments and settlements and health care and supplemental
unemployment benefits.
19. 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.
20. 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. Full-year 2009 redundancy costs were $706 million before tax. We believe it is important to separately quantify the profit-per-share impact of redundancy costs in order for our 2009 results 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 Quarter Full Year
2009 2009
---- ----
Profit per share $0.60 $1.43
Per share redundancy costs $0.12 $0.75
Profit per share excluding
redundancy costs $0.72 $2.18
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 28-33 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)
Caterpillar Inc.
Condensed Consolidated Statement of Results of Operations
(Unaudited)
(Dollars in millions except per share data)
Three Months Ended
June 30,
2010 2009
---- ----
Sales and revenues:
Sales of Machinery and Engines $9,723 $7,254
Revenues of Financial Products 686 721
--- ---
Total sales and revenues 10,409 7,975
Operating costs:
Cost of goods sold 7,372 5,752
Selling, general and administrative
expenses 1,059 914
Research and development expenses 450 351
Interest expense of Financial
Products 234 272
Other operating (income) expenses 317 339
--- ---
Total operating costs 9,432 7,628
----- -----
Operating profit 977 347
Interest expense excluding Financial
Products 81 109
Other income (expense) 50 163
--- ---
Consolidated profit before taxes 946 401
Provision (benefit) for income taxes 209 40
--- ---
Profit of consolidated companies 737 361
Equity in profit (loss) of
unconsolidated affiliated companies (4) (1)
--- ---
Profit of consolidated and affiliated
companies 733 360
Weighted average common shares
outstanding (millions)
- Basic 629.8 611.8
- Diluted (2) 647.0 619.8
Cash dividends declared per common
share $0.86 $0.84
Six Months Ended
June 30,
2010 2009
---- ----
Sales and revenues:
Sales of Machinery and Engines $17,274 $15,764
Revenues of Financial Products 1,373 1,436
----- -----
Total sales and revenues 18,647 17,200
Operating costs:
Cost of goods sold 13,266 12,779
Selling, general and administrative
expenses 1,991 1,796
Research and development expenses 852 739
Interest expense of Financial
Products 467 551
Other operating (income) expenses 586 1,163
--- -----
Total operating costs 17,162 17,028
------ ------
Operating profit 1,485 172
Interest expense excluding Financial
Products 183 210
Other income (expense) 113 227
--- ---
Consolidated profit before taxes 1,415 189
Provision (benefit) for income taxes 440 (40)
--- ---
Profit of consolidated companies 975 229
Equity in profit (loss) of
unconsolidated affiliated companies (6) -
--- ---
Profit of consolidated and
affiliated companies 969 229
Weighted average common shares
outstanding (millions)
- Basic 628.1 607.6
- Diluted (2) 645.2 614.0
Cash dividends declared per common
share $0.86 $0.84
(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,
2010 2009
---- ----
Assets
Current assets:
Cash and short-term investments $3,597 $4,867
Receivables - trade and other 6,348 5,611
Receivables - finance 8,086 8,301
Deferred and refundable income taxes 1,041 1,216
Prepaid expenses and other current
assets 965 862
Inventories 7,339 6,360
----- -----
Total current assets 27,376 27,217
Property, plant and equipment - net 11,763 12,386
Long-term receivables - trade and
other 1,150 971
Long-term receivables - finance 11,585 12,279
Investments in unconsolidated
affiliated companies 154 105
Noncurrent deferred and refundable
income taxes 2,464 2,714
Intangible assets 485 465
Goodwill 2,292 2,269
Other assets 1,524 1,632
----- -----
Total assets $58,793 $60,038
======= =======
Liabilities
Current liabilities:
Short-term borrowings:
-- Machinery and Engines $217 $433
-- Financial Products 3,430 3,650
Accounts payable 3,975 2,993
Accrued expenses 3,083 3,351
Accrued wages, salaries and employee
benefits 1,182 797
Customer advances 1,404 1,217
Dividends payable 277 262
Other current liabilities 936 888
Long-term debt due within one year:
-- Machinery and Engines 434 302
-- Financial Products 4,846 5,399
----- -----
Total current liabilities 19,784 19,292
Long-term debt due after one year:
-- Machinery and Engines 4,828 5,652
-- Financial Products 15,398 16,195
Liability for postemployment benefits 6,977 7,420
Other liabilities 2,102 2,179
----- -----
Total liabilities 49,089 50,738
------ ------
Redeemable noncontrolling interest 432 477
Stockholders' equity
Common stock 3,636 3,439
Treasury stock (10,539) (10,646)
Profit employed in the business 20,133 19,711
Accumulated other comprehensive
income (loss) (4,045) (3,764)
Noncontrolling interests 87 83
--- ---
Total stockholders' equity 9,272 8,823
----- -----
Total liabilities, redeemable
noncontrolling interest and
stockholders' equity $58,793 $60,038
======= =======
Caterpillar Inc.
Condensed Consolidated Statement of Cash Flow
(Unaudited)
(Millions of dollars)
Six Months Ended
June 30,
2010 2009
---- ----
Cash flow from operating
activities:
Profit of consolidated and
affiliated companies $969 $229
Adjustments for non-cash items:
Depreciation and amortization 1,116 1,072
Other 176 59
Changes in assets and liabilities:
Receivables - trade and other (1,096) 3,133
Inventories (1,020) 1,631
Accounts payable 1,151 (2,181)
Accrued expenses (91) (536)
Customer advances 171 (338)
Other assets - net 288 168
Other liabilities - net 79 (434)
--- ----
Net cash provided by (used for)
operating activities 1,743 2,803
----- -----
Cash flow from investing
activities:
Capital expenditures - excluding
equipment leased to others (484) (443)
Expenditures for equipment leased
to others (372) (441)
Proceeds from disposals of
property, plant and equipment 755 454
Additions to finance receivables (4,017) (3,800)
Collections of finance receivables 4,161 5,119
Proceeds from sale of finance
receivables 5 93
Investments and acquisitions (net
of cash acquired) (170) -
Proceeds from sale of available-
for-sale securities 90 170
Investments in available-for-
sale securities (81) (251)
Other - net 6 (53)
--- ---
Net cash provided by (used for)
investing activities (107) 848
---- ---
Cash flow from financing
activities:
Dividends paid (527) (505)
Common stock issued, including
treasury shares reissued 84 31
Excess tax benefit from stock-
based compensation 39 2
Acquisitions of noncontrolling
interests (26) (6)
Proceeds from debt issued
(original maturities greater than
three months) 4,251 9,029
Payments on debt (original
maturities greater than three
months) (6,471) (7,570)
Short-term borrowings - net
(original maturities three months
or less) (136) (3,365)
---- ------
Net cash provided by (used for)
financing activities (2,786) (2,384)
------ ------
Effect of exchange rate changes on
cash (120) (12)
---- ---
Increase (decrease) in cash and
short-term investments (1,270) 1,255
Cash and short-term investments
at beginning of period 4,867 2,736
----- -----
Cash and short-term investments
at end of period $3,597 $3,991
====== ======
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, 2010
(Unaudited)
(Millions of dollars)
Supplemental Consolidating Data
----------------------------------
Machinery
and Financial Consolidating
Consolidated Engines(1) Products Adjustments
------------ ---------- -------- -----------
Sales and revenues:
Sales of Machinery
and Engines $9,723 $9,723 $- $-
Revenues of
Financial Products 686 - 753 (67)(2)
--- --- --- ---
Total sales and
revenues 10,409 9,723 753 (67)
Operating costs:
Cost of goods sold 7,372 7,372 - -
Selling, general and
administrative
expenses 1,059 918 145 (4)(3)
Research and
development
expenses 450 450 - -
Interest expense of
Financial Products 234 - 234 - (4)
Other operating
(income) expenses 317 44 282 (9)(3)
--- --- --- ---
Total operating
costs 9,432 8,784 661 (13)
----- ----- --- ---
(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, 2009
(Unaudited)
(Millions of dollars)
Supplemental Consolidating Data
----------------------------------
Machinery
and Financial Consolidating
Consolidated Engines(1) Products Adjustments
------------ ---------- -------- -----------
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)
----- ----- --- ---
(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, 2010
(Unaudited)
(Millions of dollars)
Supplemental Consolidating Data
----------------------------------
Machinery
and Financial Consolidating
Consolidated Engines(1) Products Adjustments
------------ ---------- -------- -----------
Sales and revenues:
Sales of Machinery and
Engines $17,274 $17,274 $- $-
Revenues of Financial
Products 1,373 - 1,499 (126)(2)
----- --- ----- ----
Total sales and revenues 18,647 17,274 1,499 (126)
Operating costs:
Cost of goods sold 13,266 13,266 - -
Selling, general and
administrative expenses 1,991 1,716 289 (14)(3)
Research and development
expenses 852 852 - -
Interest expense of
Financial Products 467 - 468 (1)(4)
Other operating (income)
expenses 586 43 553 (10)(3)
--- --- --- ---
Total operating costs 17,162 15,877 1,310 (25)
------ ------ ----- ---
(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
and Financial Consolidating
Consolidated Engines(1) Products Adjustments
------------ ---------- -------- -----------
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)
------ ------ ----- ---
(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, 2010
(Unaudited)
(Millions of dollars)
Supplemental Consolidating Data
----------------------------------
Machinery
and Financial Consolidating
Consolidated Engines(1) Products Adjustments
------------ ---------- -------- -----------
Cash flow from
operating activities:
Profit of consolidated
and affiliated
companies $969 $964 $174 $(169)(2)
Adjustments for non-
cash items:
Depreciation and
amortization 1,116 750 366 -
Other 176 201 (95) 70 (4)
Financial Products'
dividend in excess of
profit - 431 - (431)(3)
Changes in assets and
liabilities:
Receivables - trade
and other (1,096) (701) 64 (459)(4,5)
Inventories (1,020) (1,018) - (2)(4)
Accounts payable 1,151 1,153 (9) 7 (4)
Accrued expenses (91) (12) (93) 14 (4)
Customer advances 171 171 - -
Other assets - net 288 142 8 138 (4)
Other liabilities -
net 79 276 (45) (152)(4)
--- --- --- ----
Net cash provided by
(used for) operating
activities 1,743 2,357 370 (984)
----- ----- --- ----
Cash flow from
investing activities:
Capital expenditures -
excluding equipment
leased to others (484) (492) (1) 9 (4)
Expenditures for
equipment leased to
others (372) - (397) 25 (4)
Proceeds from
disposals of
property, plant and
equipment 755 47 724 (16)(4)
Additions to finance
receivables (4,017) - (11,689) 7,672 (5)
Collections of finance
receivables 4,161 - 11,467 (7,306)(5)
Proceeds from sale of
finance receivables 5 - 5 -
Net intercompany
borrowings - (574) 286 288 (6)
Investments and
acquisitions (net of
cash acquired) (170) (138) (32) -
Proceeds from sale of
available-for-sale
securities 90 3 87 -
Investments in
available-for-sale
securities (81) (1) (80) -
Other - net 6 2 (16) 20 (7)
--- --- --- ---
Net cash provided by
(used for) investing
activities (107) (1,153) 354 692
---- ------ --- ---
Cash flow from
financing activities:
Dividends paid (527) (527) (600) 600 (8)
Common stock issued,
including treasury
shares reissued 84 84 20 (20)(7)
Excess tax benefit
from stock-based
compensation 39 39 - -
Acquisitions of
noncontrolling
interests (26) (26) - -
Net intercompany
borrowings - (286) 574 (288)(6)
Proceeds from debt
issued (original
maturities greater
than three months) 4,251 126 4,125 -
Payments on debt
(original maturities
greater than three
months) (6,471) (889) (5,582) -
Short-term borrowings
- net (original
maturities three
months or less) (136) (30) (106) -
---- --- ---- ---
Net cash provided by
(used for) financing
activities (2,786) (1,509) (1,569) 292
------ ------ ------ ---
Effect of exchange
rate changes on cash (120) (34) (86) -
---- --- --- ---
Increase (decrease) in
cash and short-term
investments (1,270) (339) (931) -
Cash and short-term
investments at
beginning of period 4,867 2,239 2,628 -
----- ----- ----- ---
Cash and short-term
investments at end of
period $3,597 $1,900 $1,697 $-
====== ====== ====== ====
(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) Elimination of Financial Products' dividend to Machinery and Engines
in excess of Financial Products' profit.
(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) Elimination of net proceeds and payments to/from Machinery and
Engines and Financial Products.
(7) Elimination of change in investment and common stock related to
Financial Products.
(8) Elimination of dividend from Financial Products to Machinery and
Engines.
Caterpillar Inc.
Supplemental Data for Cash Flow
For The Six Months Ended June 30, 2009
(Unaudited)
(Millions of dollars)
Supplemental Consolidating Data
----------------------------------
Machinery
and Financial Consolidating
Consolidated Engines(1) Products Adjustments
------------ ---------- -------- -----------
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 (2,181) (2,151) (74) 44 (4)
Accrued expenses (536) (512) (33) 9 (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)
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
- net (original
maturities three
months or less) (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) Elimination of 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) Elimination of net proceeds and payments to/from Machinery and Engines
and Financial Products.
(7) Elimination of change in investment and common stock related to
Financial Products.
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