RNS Number:0091R
Caterpillar Inc
16 October 2003
Caterpillar Inc.
October 16, 2003
FOR IMMEDIATE RELEASE
Caterpillar third-quarter sales and revenues up 9 percent;
Company raises full-year profit outlook
PEORIA, Ill. -- Caterpillar Inc. (NYSE: CAT) today reported third-quarter 2003
sales and revenues of $5.55 billion and profit of $222 million or $0.62 per
share. Profit excluding a bond retirement charge was up 23 percent compared to
third-quarter 2002 at $262 million* or $0.73* per share. The bond retirement
resulted in a non-recurring charge of $40 million after-tax ($0.11 per share).
Through the third quarter, sales and revenues were $16.3 billion and profit was
$750 million or $2.15 per share.
Sales and revenues of $5.55 billion were up 9 percent compared to $5.08 billion
in the third quarter 2002. The increase was primarily due to higher Machinery
volume of $226 million, a favorable currency impact on sales of $128 million
(due mainly to the stronger euro) and higher Financial Products revenues for the
third quarter of $58 million or about 15 percent compared to third quarter 2002.
"Our sales benefited from key market recoveries, as generally lower interest
rates continued to spark construction spending and replacement buying. We also
benefited from a recognized need for reliable energy which fueled electric power
demand," said Chairman and CEO Glen Barton. "During the quarter we continued to
demonstrate our ability to respond to market fluctuations."
Profit of $222 million or $0.62 per share was slightly above $213 million or
$0.61 per share in the third quarter 2002. Profit excluding a bond retirement
charge was up 23 percent compared to third quarter 2002 at $262 million* or
$0.73* per share. The bond retirement resulted in a non-recurring charge of $40
million after-tax ($0.11 per share). The profit increase was due to lower core
operating costs of $59 million and improved price realization of $34 million.
The favorable impact of higher sales volume/mix was only $15 million as higher
sales volume was partially offset by negative sales mix compared to third
quarter 2002. The positive factors were partially offset by $71 million of
higher retiree pension, healthcare and related benefit costs.
"Overall, this quarter's results, particularly lower core operating costs, show
that 6 Sigma is driving a continuous improvement culture in which employees look
for efficiency gains in all aspects of our business. Through these efforts,
sales and revenues per employee continued to show improvement over last year.
These efforts will multiply as we increase the number of active 6 Sigma Black
Belts and embed veteran Black Belts into other management positions to apply
their experience and improve processes throughout the company," Barton said.
* A complete definition and discussion of Caterpillar's use of non-GAAP
measures, identified by an asterisk (*), is included at the end of the release.
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Outlook
"We still expect 2003 sales and revenues to be up about 10 percent but have
raised our full-year profit to be about $3.00 per share as a result of continued
focus on cost control," Barton said. Based on our preliminary outlook, 2004
company sales and revenues are expected to be up about 10 percent from 2003.
(Complete outlook begins on page 9.)
For more than 75 years, Caterpillar has been building the world's infrastructure
and, in partnership with our independent dealers, is driving positive and
sustainable change on every continent. Caterpillar is a technology leader and
the world's largest maker of construction and mining equipment, diesel and
natural gas engines and industrial gas turbines. More information is available
at http://www.CAT.com/.
Note: Glossary of terms included on page 11; first occurrence of terms shown in
bold italics.
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DETAILED ANALYSIS
THIRD QUARTER 2003 COMPARED WITH THIRD QUARTER 2002
SALES AND REVENUES
Third-quarter 2003 sales and revenues were $5.55 billion compared to $5.08
billion in the third quarter of 2002. The 9 percent increase was primarily due
to higher Machinery volume of $226 million, a favorable currency impact on sales
of $128 million (due mainly to the stronger euro) and higher Financial Products
revenues of $58 million.
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Sales and Revenues
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(Millions of dollars) Total North EAME Latin Asia/
America America Pacific
-------------- ------------ --------------- --------------- -------------
Third Quarter 2003
Machinery $ 3,250 $ 1,760 $ 842 $ 230 $ 418
Engines1 1,862 808 576 232 246
Financial Products2 433 308 78 25 22
-------------- ------------ --------------- --------------- -------------
$ 5,545 $ 2,876 $ 1,496 $ 487 $ 686
-------------- ------------ --------------- --------------- -------------
Third Quarter 2002
Machinery $ 2,905 $ 1,531 $ 802 $ 193 $ 379
Engines1 1,795 873 530 180 212
Financial Products2 375 275 67 19 14
-------------- ------------ --------------- --------------- -------------
$ 5,075 $ 2,679 $ 1,399 $ 392 $ 605
-------------- ------------ --------------- --------------- -------------
1 Does not include internal engine transfers of $341 million and $329 million in
third quarter 2003 and third quarter 2002, respectively. Internal engine
transfers are valued at prices comparable to those for unrelated parties.
2 Does not include revenues earned from Machinery and Engines of $46 million and
$51 million in third quarter 2003 and third quarter 2002, respectively.
Machinery sales were $3.25 billion, an increase of $345 million or about 12
percent from third quarter 2002. Sales volume was up about 8 percent, the
favorable impact of currency accounted for about 3 percent and improved price
realization added about 1 percent. In North America, sales of machinery
increased 15 percent, mostly due to improved price realization and higher
volume. Sales volume rose because of an 11 percent increase in dealer
deliveries, largely into construction, where activity was higher than in third
quarter 2002. In EAME, sales of machinery increased 5 percent due to the
favorable currency impact of a stronger euro. However, sales volume declined
largely as a result of weak economic conditions in Europe. Company sales in
Latin America were up 19 percent from third quarter 2002 due to higher dealer
deliveries into mining. Asia/Pacific sales were up 10 percent from a year
earlier, the result of significant sales volume growth. Low interest rates and
strong economic growth boosted both construction and demand for new machines,
especially in China.
Engines sales were $1.86 billion, an increase of $67 million or about 4 percent
from third quarter 2002. The favorable impact of currency accounted for about 3
percent and improved price realization and emissions related price increases
contributed about 2 percent. These positive factors were partially offset by
lower volume of about 1 percent. Sales increased 29 percent in Latin America, 9
percent in EAME and 16 percent in Asia/Pacific which more than offset 7 percent
lower sales in North America. In North America, despite higher price realization
on heavy-duty on-highway truck and bus engines, sales of on-highway truck and
bus engines fell 16 percent from third quarter last year which was abnormally
bolstered by strong sales to truck manufacturers before the October 2002
emissions standards became effective. Additionally, North American sales of
engines into the petroleum sector were down 26 percent due to lower demand for
turbines and turbine services compared to last year's strong third quarter that
benefited from higher investments by the gas compression industry. Sales in EAME
were higher due to stronger demand for engines sold into the electric power
sector and the favorable effects of currency. The increase in Latin America
resulted from stronger sales of turbines and turbine services into the electric
power and petroleum sectors. Global sales into the electric power sector were up
26 percent while sales into other sectors were down from 2 to 15 percent.
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Financial Products revenues for the third quarter were $433 million, up $58
million or about 15 percent compared with third quarter 2002. The favorable
impact of approximately $50 million due to continued growth of earning assets at
Cat Financial was partially offset by the approximately $32 million impact of
generally lower interest rates on new and existing finance receivables.
Additionally, there was a $20 million increase in earned premiums on extended
service contracts at Cat Insurance.
OPERATING PROFIT
Operating profit was favorably impacted by $59 million lower core operating
costs, improved price realization of $34 million, improvements at Financial
Products of $25 million, the favorable profit impact of additional sales volume
(net of unfavorable sales mix) of $15 million and the net favorable impact of
currency of $9 million. Lower core operating costs were the result of reductions
in material costs and quality improvements reflected in lower warranty costs
partially offset by higher performance related variable pay elements as a result
of our improved financial performance.
Partially offsetting the favorable items was $71 million in higher retiree
pension, healthcare and related benefit costs. In addition, the changes in
emission standards for on-highway truck and bus engines in North America
resulted in a net unfavorable impact of approximately $11 million (no impact in
third quarter 2002).
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Operating Profit
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(Millions of dollars) Third Quarter Third Quarter
2002 2003
------------------------------ -------------------------------
Machinery1 $ 207 $ 239
Engines1 77 80
Financial Products 67 92
Consolidating Adjustments (27) (26)
------------------------------ -------------------------------
$ 324 $ 385
------------------------------ -------------------------------
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.
Machinery operating profit increased 15 percent, or $32 million, from third
quarter 2002. The favorable impact of improved price realization, higher volume,
and lower core operating costs more than offset higher retiree pension,
healthcare and related benefit costs and unfavorable sales mix.
Engine operating profit increased 4 percent, or $3 million, from third quarter
2002 as lower core operating costs were almost entirely offset by higher retiree
pension, healthcare and related benefit costs, unfavorable sales volume/mix and
the unfavorable profit impact of changes in emission standards (no impact in
third quarter 2002).
Financial Products operating profit was $92 million, up $25 million or 37
percent from third quarter 2002. The growth in earning assets contributed $15
million to the increase in operating profit while a favorable change in gain/
loss on the sale of equipment returned from lease added $10 million.
OTHER PROFIT/LOSS ITEMS
Interest expense excluding Financial Products was $5 million lower compared to
third quarter 2002.
Other income/expense was expense of $40 million compared with income of $25
million in third quarter 2002 for an unfavorable impact of $65 million. The
change was primarily due to the $55 million pre-tax charge ($40 million
after-tax) for early retirement of Machinery and Engines $250 million 6%
debentures due in 2007 and $18 million less gain on publicly securitized finance
receivables at Cat Financial. The debentures were issued at a significant
original issue discount and had an effective annual interest rate of 13.3%. This
charge reflects accelerated recognition of the unamortized original issue
discount; however, the early retirement will positively impact future earnings
and cash flow. The decrease in securitized finance receivables gain was related
to the timing of Cat Financial's public securitization, which took place in the
second quarter this year ($22 million in second quarter 2003 versus a similar
gain of $18 million in the third quarter of 2002). These unfavorable items were
partially offset by a favorable impact of commodity hedging of $15 million for
Machinery and Engines.
The provision for income taxes in the third quarter reflects an estimated annual
tax rate of 27 percent for 2003 compared to 28 percent a year ago. Third-quarter
2003 tax expense reflects an adjustment of $7 million resulting from a decrease
in the estimated annual tax rate from 28 to 27 percent for the first six months
of 2003 due to changes in the estimated tax benefits from export sales and the
geographic mix of profits.
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The equity in profit/loss of unconsolidated affiliated companies increased $6
million from third quarter a year ago, due in part to improved profitability of
Shin Caterpillar Mitsubishi Ltd. resulting from improved export business into
China and North America.
EMPLOYMENT
At the end of third quarter 2003, Caterpillar's worldwide employment was 68,006
compared with 70,379 one year ago. Employment was reduced by 2,373 or about 3
percent, year over year. This includes the impact of acquiring a controlling
interest in Hindustan Powerplus Ltd. and increases to support our growing
Caterpillar Logistics operation, which combined added approximately 900
employees.
OTHER SIGNIFICANT EVENTS
On October 8, 2003, Caterpillar Inc. increased its quarterly cash dividend by
two cents to thirty-seven cents ($0.37) per share on its common stock, payable
November 20, 2003, to stockholders of record at the close of business October
20, 2003. The previous rate was thirty-five cents ($0.35) per share. Including
this increase, Caterpillar's quarterly dividend has grown more than eightfold in
the last decade.
Also on October 8, 2003, the Board of Directors approved an extension of the
share repurchase program with the goal of reducing the company's outstanding
shares to 320,000,000. The program authorization now expires in October 2008.
OPERATING COST RECLASSIFICATION
In the second quarter, we revised our policy regarding the classification of
certain costs related to distributing replacement parts. Previously, these costs
were included in selling, general and administrative expenses and now are
included in cost of goods sold. This classification is more consistent with
industry practice. The parts distribution costs include shipping and handling
(including warehousing) along with related support costs such as information
technology, purchasing and inventory management.
The amounts reclassified from selling, general and administrative expenses to
cost of goods sold were $108 million and $328 million for the three months and
nine months ended September 30, 2002, respectively. These costs were $110
million and $329 million for the three months and nine months ended September
30, 2003, respectively. The reclassification had no impact on operating profit.
SUPPLEMENTAL INFORMATION
We are providing supplemental information including deliveries to users and
dealer inventory levels. We sell the majority of our machines and engines to
independently owned and operated dealers and original equipment manufacturers
(OEMs) to meet the demands of their customers, the end users. Due to time lags
between our sales and deliveries to end users we believe this information will
help readers better understand our business and the industries we serve.
Information provided in the supplemental information is in constant dollars.
Dealer New Machine Deliveries
Worldwide dealer deliveries of new machines to end users were up 10 percent from
third quarter 2002. Low interest rates and accelerating economic growth
benefited deliveries into construction in both North America and Asia/Pacific.
Much higher metals prices initiated recoveries in deliveries to mining in most
regions.
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Dealer machine deliveries in North America rose 11 percent from third quarter
2002. The acceleration of the economic recovery in the third quarter began to
favorably impact activity in more of the key industries dealers serve. In
addition, the combination of low interest rates and rising profits encouraged
some users to upgrade fleets. Deliveries to general construction were up 17
percent, due to continued strong housing construction and the start of a
recovery in nonresidential building construction. Dealers delivered 13 percent
more new machines to heavy construction, the result of significantly higher
sewer and water construction and increased petroleum exploration. Prices for
construction materials were higher than last year so deliveries to quarries and
aggregates increased 3 percent. Economic conditions in mining did not improve
sufficiently to encourage users to resume normal buying and dealer deliveries
dropped 17 percent. Metals production continued to decline and coal prices were
lower than a year ago.
Dealer deliveries to end users in EAME were up 6 percent from the same quarter
last year. In Europe, deliveries fell 7 percent from last year since most key
economies were weak. Particularly large declines occurred in France and Italy.
Deliveries in Africa/Middle East increased slightly, with the largest gain in
Turkey where the economy grew rapidly. The CIS, with a ninefold increase in
deliveries, accounted for nearly all the region's growth. Higher metals and oil
prices boosted mining and energy investment.
Dealers delivered 16 percent more new machines in Latin America. The increase in
deliveries was entirely in mining as higher prices prompted iron ore and gold
mines to increase output.
In Asia/Pacific, dealers delivered 14 percent more new machines than in third
quarter 2002. China, which is rapidly developing into a major user of
construction equipment, accounted for the largest part of that increase. India,
Indonesia and Malaysia accounted for most of the rest. Economies in all these
countries grew rapidly and interest rates were quite low; both developments
benefited construction.
Dealer Inventories of New Machines
Worldwide dealer inventories were slightly lower than last year, with a large
decline in EAME more than offsetting increases in the other regions. Relative to
delivery rates, inventories were lower than last year in all regions.
Engine Deliveries to End Users and OEMs
Worldwide Caterpillar and Caterpillar dealer engine deliveries to end users and
OEMs were flat with last year. A 42 percent gain in worldwide deliveries to end
users in the electric power sector, a 6 percent gain in deliveries to the
industrial sector, and a 4 percent gain in deliveries to the marine sector
offset a 7 percent decline in deliveries to the petroleum sector and a 25
percent drop in engine deliveries to the on-highway truck and bus sector. Global
business fundamentals for marine, industrial and electric power sectors in third
quarter 2003 continued to improve compared to last year when economic growth was
sluggish, corporate profits were depressed and businesses and investors were
delaying capital spending decisions. Worldwide petroleum deliveries were 7
percent below last year despite favorable oil and gas prices and revenues and
higher drilling activity.
In North America, Caterpillar engine deliveries to end users and OEMs in third
quarter 2003 fell 16 percent compared to third quarter 2002 despite strong gains
(25+ percent) in deliveries to the electric power and industrial sectors.
Caterpillar engine deliveries to end users and OEMs in electric power and
industrial sectors were positively impacted by stronger economic growth, rising
industry profits and more favorable investment trends. Dealers continued to work
down surplus inventories of electric power products. Deliveries of engines to
the petroleum sector declined 23 percent due to lower demand for turbines and
turbine services compared to last year's abnormally strong deliveries caused by
highly favorable natural gas prices. Caterpillar's third-quarter deliveries of
on-highway truck and bus engines were negatively impacted (down 27 percent) by
lower industry demand for both mid-range and heavy-duty engines compared to last
year's abnormally strong third quarter. In the third quarter of 2002, truck
manufacturers were raising their production schedules in response to higher
dealer and customer orders for pre-October 2002 heavy-duty engines. Caterpillar
continued its leadership position in the NAFTA on-highway truck and bus engine
industry through the third quarter.
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In EAME, overall deliveries to end users and OEMs rose 9 percent, with higher
deliveries in most sectors and strong growth in deliveries to the electric power
sector, up 24 percent. EAME deliveries of reciprocating engines gained from
favorable exchange rate movements and particular strength in the Middle East.
Deliveries in the Middle East strengthened caused by favorable oil prices and
revenues, slowly improving confidence after the end of major military action in
Iraq and continuing reconstruction efforts. However, weak economic trends and
corporate profits in Western Europe continued to restrict growth in demand in
key industries.
Deliveries to end users in Latin America rose 63 percent, with gains in
deliveries to all engine sectors and a doubling of engine deliveries into the
electric power sector. Economic and investment growth has improved compared to
last year's depressed third-quarter levels and engine industry demand and
Caterpillar deliveries are clearly benefiting. Latin American deliveries to end
users in the electric power and petroleum sectors were helped by stronger demand
for turbines and turbine services in key oil-producing countries where increased
infrastructure investment occurred.
Dealer deliveries to end users and OEMs in Asia/Pacific in the third quarter
were up 16 percent compared to last year led by a 74 percent sales gain in
deliveries to the electric power sector. Improving economic growth, rising
business investment, and favorable currency movements again supported sales
growth. Asia/Pacific demand for large engines used in the petroleum sector
weakened from last year's strong third-quarter sales when select countries in
Asia/Pacific increased oil and gas development and production.
Dealer Inventories of Engines
Worldwide dealer engine inventories at the end of the third quarter were lower
than a year ago. Inventories were lower in North America and Latin America but
higher in EAME and Asia/Pacific. Inventories compared to selling rates were
lower than year-earlier levels in North America and Latin America and are close
to normal levels. Dealer inventories compared to selling rates were higher than
year-earlier levels in EAME and Asia/Pacific as in-transit inventories rose
significantly.
OUTLOOK
We still expect 2003 sales and revenues to be up about 10 percent and now expect
full-year profit to be about $3.00 per share as a result of continued focus on
cost control.
SALES AND REVENUES OUTLOOK
The world economy appears to be strengthening in the last half of 2003 and
full-year growth should be about 2.5 percent. More than ten countries cut
short-term interest rates in the third quarter and some developing countries
likely will cut rates in the fourth quarter. Central banks in the developed
countries are expected to keep interest rates steady for the rest of the year.
Recent developments in the world economy resulted in several positives for our
businesses that should persist through year end. Many countries have the lowest
interest rates in decades, which is benefiting construction, especially housing.
Also, many businesses are experiencing better cash flows enabling them to make
needed equipment purchases. In addition, stronger demand for metals has caused
price increases indicating the potential reversal of a long, deep slump in
mining investments.
For the year, we expect company sales and revenues to increase about 10 percent.
Machinery and Engines volume should contribute about 55 percent of the gain,
currency about 25 percent, Financial Products revenues about 10 percent, with
the rest from price realization. We project that North America and Asia/Pacific
will be the major contributors to volume increases.
North America (United States and Canada)
Third-quarter economic data suggest the U.S. economy grew in excess of a 4
percent annual rate, indicating that low interest rates, tax cuts and the weaker
dollar are helping. These factors remain in place and should allow continued
strong economic growth in the fourth quarter.
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Machinery and Engines sales turned in strong year-over-year gains in both the
second and third quarters of this year and we expect this to continue in the
fourth quarter. Low interest rates should further benefit construction and
favorable energy prices should boost sales into petroleum and natural gas. We
forecast that Machinery and Engines sales will increase about 10 percent in
2003.
EAME
While the European economy stagnated in third quarter 2003, signs of recovery
are beginning to emerge. In addition, favorable energy prices and the recovery
in other commodity prices will significantly help many of the developing
economies of Africa/Middle East and the CIS region.
We project that sales in EAME will rise about 10 percent in 2003 almost entirely
due to the ongoing favorable translation impact of the strong euro on sales.
Latin America
Economic conditions are slowly improving in Latin America, the result of higher
commodity prices and some reductions in local interest rates. Sales of Machinery
and Engines in 2003 should be about the same as last year, the result of a last
half recovery in mining.
Asia/Pacific
We project sales of Machinery and Engines will increase between 15 and 20
percent from 2002. Economic growth, already strong in the first half, will get
an additional boost from further reductions in short-term interest rates and
higher commodity prices. Competitive currencies will allow many countries to
continue increasing exports rapidly.
Record direct investment inflows into China should keep capital investment and
purchases of construction equipment strong through year end. The stronger
Australian dollar, while undermining the competitiveness of some commodity
exports, will continue to have a favorable currency impact on sales.
Financial Products
We expect growth in Financial Products for the remainder of 2003, with revenues
expected to increase approximately 10 percent versus 2002.
PROFIT OUTLOOK
We now expect full-year profit to be about $3.00 per share as a result of
continued focus on cost control.
PRELIMINARY 2004 SALES AND REVENUES OUTLOOK
Developments favorable to our businesses are occurring in the last half of 2003,
brightening the prospects for 2004. Many commodity prices continue to increase;
more than 10 countries have cut short-term interest rates since July 1; housing
starts are strong in many countries; and exchange rates remain favorable. We
anticipate interest rates should remain low throughout 2004 in the industrial
countries and several of the developing countries could cut rates further. As a
result, economic growth is expected to improve in all regions, raising world
growth to 3.5 percent in 2004. We expect the world total machine industry to be
up about 7 percent, ranging from no change in Japan to 12 percent growth in both
North America and Latin America. In addition, we expect a 6 percent growth in
world engine industry demand. This global economic recovery will benefit both
Machinery and Engines, as well as provide opportunities for continued growth in
earning assets at Cat Financial. Therefore, the preliminary 2004 forecast
anticipates that company sales and revenues will be about 10 percent higher than
2003.
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GLOSSARY OF TERMS
1. Changes in Emissions Standards (Emissions) - Generally, emissions describes
the financial impacts of industry emission standard changes for on-highway
truck and bus engines in North America. With respect to sales and revenues,
emissions represents the impact of price increases. With respect to
operating profit, emissions represents the net impact of price increases,
production cost increases which include incremental ramp-up production costs
and non-conformance penalties (NCPs).
2. Consolidating Adjustments - Eliminations of transactions between Machinery
and Engines, and Financial Products.
3. Core Operating Costs - Machinery and Engines operating cost change adjusted
for volume. It excludes currency, retiree benefits and emissions production
cost increases, ramp-up production costs and non-conformance penalties.
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 the
Financial Products line of business are included in the Financial Products
portions of the respective analyses.
5. EAME - Geographic region including Europe, Africa, the Middle East and the
Commonwealth of Independent States (CIS).
6. Earning Assets - These assets consist primarily of total net finance
receivables plus equipment on operating leases, less accumulated
depreciation at Cat Financial. Net finance receivables represent the gross
receivables amount less unearned income and the allowance for credit losses.
7. Engines - A principal line of business including the design, manufacture and
marketing 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. Reciprocating engines meet power needs ranging from 5 to over 22,000
horsepower (4 to over 16 200 kilowatts). Turbines range from 1,600 to 19,500
horsepower (1 000 to 14 500 kilowatts).
8. Financial Products - A principal line of business consisting primarily of
Caterpillar Financial Services Corporation (Cat Financial), Caterpillar
Insurance Holdings Inc. (Cat Insurance) and their subsidiaries. Cat
Financial provides a wide range of financing alternatives for Caterpillar
machinery and engines, Solar(R) 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.
9. Latin America - Geographic region including the Central American countries
and Mexico.
10. Machinery - A principal line of business which includes the design,
manufacture and marketing of construction, mining, agricultural and forestry
machinery - track and wheel tractors, track and wheel loaders, pipelayers,
motor graders, wheel tractor-scrapers, track and wheel excavators, backhoe
loaders, mining shovels, log skidders, log loaders, off-highway trucks,
articulated trucks, paving products, telescopic handlers, skid steer loaders
and related parts.
11. Machinery and Engines (M&E) - Due to the highly integrated nature of
operations, represents the aggregate total of the Machinery and Engines
lines of business and includes primarily our manufacturing, marketing and
parts distribution operations.
12. Price Realization - The impact of net price changes excluding emissions
price increases and currency.
13. Sales Volume/Mix - The net operating profit impact of changes in the
quantities sold for machines, engines and parts combined with the net
operating profit impact of changes in the relative weighting of machines,
engines and parts sales with respect to total sales.
14. Securitized Finance Receivables - Cat Financial sells retail installment
sale contracts and finance leases into public asset-backed securitization
facilities. Gains/losses on the securitization of finance receivables
represent the difference between the carrying value and fair value of the
receivables.
15. 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.
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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 with the calculation of
similar measures for other companies. Management does not intend these items to
be considered in isolation or as a substitute for the related GAAP measures.
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 17 - 22 reconciles Machinery and Engines with
Financial Products on the Equity Basis to Caterpillar Inc. Consolidated
financial information.
Profit Excluding a Bond Retirement Charge
Caterpillar reports selected financial data excluding the charge for early
retirement of debt. Management believes excluding this charge provides
comparability to third quarter 2002 data and highlights the impact of this
charge on period-to-period fluctuations.
Profit Excluding a Bond Retirement Charge
Caterpillar defines profit excluding a bond retirement charge as GAAP profit
after tax excluding the charge for early retirement of debt. Page 23
reconciles GAAP profit and profit excluding a bond retirement charge.
Profit Per Share Excluding a Bond Retirement Charge
Caterpillar defines profit per share excluding a bond retirement charge as
GAAP profit per share (PPS) excluding the charge for early retirement of
debt. Page 23 reconciles GAAP PPS and PPS excluding a bond retirement
charge.
Net Free Cash Flow
Caterpillar defines net free cash flow as operating cash flow less capital
expenditures net of disposals and dividends. Management believes net free cash
flow provides investors with an important perspective on cash available for debt
repayment and acquisitions after paying dividends and making the capital
investments required to support ongoing business operations and long term value
creation. Free cash flow does not represent the residual cash flow available for
discretionary expenditures, as it excludes certain mandatory expenditures such
as repayment of maturing debt. Management uses net free cash flow internally to
assess business performance as well as overall Caterpillar liquidity. Page 23
reconciles GAAP operating cash flow and net free cash flow.
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* * *
The information included in the Outlook section is forward-looking and involves
risks and uncertainties that could significantly affect expected results. A
discussion of these risks and uncertainties is contained in Form 8-K filed with
the Securities & Exchange Commission (SEC) on October 16, 2003. This filing is
available on our website at http://www.CAT.com/sec_filings.
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/investor
http://www.CAT.com/irwebcast (live broadcast/replays of quarterly conference
call)
Caterpillar contact:
Kelly Wojda
Corporate Public Affairs
(309) 675-1307
wojda_kelly_g@CAT.com
13
--------------------------------------------------------------------------------
Caterpillar Inc.
Condensed Consolidated Statement of Results of Operations
(Unaudited)
(Dollars in millions except per share data)
--------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
-------------- -------------- -------------- --------------
Sales and revenues:
Sales of Machinery and Engines $ 5,112 $ 4,700 $ 15,037 $ 13,659
Revenues of Financial Products 433 375 1,261 1,116
-------------- -------------- -------------- --------------
Total sales and revenues 5,545 5,075 16,298 14,775
Operating costs:
Cost of goods sold 4,143 3,798 12,102 11,079
Selling, general and administrative expenses 627 538 1,801 1,587
Research and development expenses 173 167 494 524
Interest expense of Financial Products 116 135 354 393
Other operating expenses 101 113 358 305
-------------- -------------- -------------- --------------
Total operating costs 5,160 4,751 15,109 13,888
-------------- -------------- -------------- --------------
Operating profit 385 324 1,189 887
Interest expense excluding Financial 61 66 192 206
Products
Other income (expense) (40) 25 15 18
-------------- -------------- -------------- --------------
Consolidated profit before taxes 284 283 1,012 699
Provision for income taxes 69 71 273 196
-------------- -------------- -------------- --------------
Profit of consolidated companies 215 212 739 503
Equity in profit (loss) of unconsolidated 7 1 11 (10)
affiliated companies
-------------- -------------- -------------- --------------
Profit $ 222 $ 213 $ 750 $ 493
-------------- -------------- -------------- --------------
--------------------------------------------------------------------------------------------------------------------
Profit per common share $ 0.64 $ 0.62 $ 2.17 $ 1.43
Profit per common share - assuming dilution 1 $ 0.62 $ 0.61 $ 2.15 $ 1.42
Weighted average common shares outstanding
(thousands)
- Basic 346,250 344,172 345,144 343,905
- Assuming dilution 1 356,089 346,225 348,998 347,174
Cash dividends paid per common share $ 0.35 $ 0.35 $ 1.05 $ 1.05
--------------------------------------------------------------------------------------------------------------------
1 Diluted by assumed exercise of stock options, using the treasury stock method.
14
----------------------------------------------------------------------------------------------------------------------
Caterpillar Inc.
Condensed Consolidated Statement of Financial Position
(Unaudited)
(Millions of dollars)
-----------------------------------------------------------------------------------------------------------------------
Sept. 30, Dec. 31, Sept. 30,
2003 2002 2002
-------------- --------------- ---------------
Assets
Current Assets
Cash and short-term investments $ 397 $ 309 $ 445
Receivables - trade and other 3,183 2,838 2,868
Receivables - finance 7,158 6,748 6,667
Deferred and refundable income taxes 434 642 441
Prepaid expenses 1,782 1,328 1,280
Inventories 3,057 2,763 3,084
-------------- --------------- ---------------
Total current assets 16,011 14,628 14,785
Property, plant and equipment - net 7,083 7,046 6,810
Long-term receivables - trade and other 79 66 56
Long-term receivables - finance 7,240 6,714 6,320
Investments in unconsolidated affiliated companies 752 747 751
Deferred income taxes 854 850 834
Intangible assets 276 281 304
Goodwill 1,399 1,402 1,402
Other assets 1,373 1,117 1,112
-------------- --------------- ---------------
Total Assets $ 35,067 $ 32,851 $ 32,374
-------------- --------------- ---------------
Liabilities
Current liabilities:
Short-term borrowings:
-- Machinery and Engines $ 62 $ 64 $ 65
-- Financial Products 1,664 2,111 1,956
Accounts payable 2,497 2,269 2,410
Accrued expenses 1,599 1,620 1,521
Accrued wages, salaries and employee benefits 1,229 1,178 1,242
Dividends payable - 120 -
Deferred and current income taxes payable 162 70 7
Long-term debt due within one year:
-- Machinery and Engines 33 258 267
-- Financial Products 3,797 3,654 3,036
-------------- --------------- ---------------
Total current liabilities 11,043 11,344 10,504
Long-term debt due after one year:
-- Machinery and Engines 3,296 3,403 3,410
-- Financial Products 9,875 8,193 9,025
Liability for postemployment benefits 4,023 4,038 3,065
Deferred income taxes and other liabilities 538 401 392
-------------- --------------- ---------------
Total Liabilities 28,775 27,379 26,396
-------------- --------------- ---------------
Stockholders' Equity
Common stock 1,036 1,034 1,035
Treasury stock (2,571) (2,669) (2,672)
Profit employed in the business 8,357 7,849 7,785
Accumulated other comprehensive income (530) (742) (170)
-------------- --------------- ---------------
Total Stockholders' Equity 6,292 5,472 5,978
-------------- --------------- ---------------
Total Liabilities and Stockholders' Equity $ 35,067 $ 32,851 $ 32,374
-------------- --------------- ---------------
15
-----------------------------------------------------------------------------------------------------------------------
Caterpillar Inc.
Condensed Consolidated Statement of Cash Flow
(Unaudited)
(Millions of dollars)
-----------------------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30,
2003 2002
------------- ---------------
Cash flow from operating activities:
Profit $ 750 $ 493
Adjustments for non-cash items:
Depreciation and amortization 1,008 910
Other 101 131
Changes in assets and liabilities:
Receivables - trade and other (220) (147)
Inventories (294) (159)
Accounts payable and accrued expenses 108 322
Other - net (24) (190)
------------- ---------------
Net cash provided by operating activities 1,429 1,360
------------- ---------------
Cash flow from investing activities:
Capital expenditures excluding equipment leased to others (352) (498)
Expenditures for equipment leased to others (781) (762)
Proceeds from disposals of property, plant and equipment 451 360
Additions to finance receivables (12,245) (11,323)
Collection of finance receivables 10,022 8,652
Proceeds from the sale of finance receivables 1,472 1,995
Investments and acquisitions (net of cash acquired) (26) (290)
Other - net (55) (41)
------------- ---------------
Net cash used for investing activities (1,514) (1,907)
------------- ---------------
Cash flow from financing activities:
Dividends paid (361) (361)
Common stock issued, including treasury shares reissued 81 8
Proceeds from long-term debt issued 4,233 3,855
Payments on long-term debt (2,992) (2,772)
Short-term borrowings - net (788) (165)
------------- ---------------
Net cash provided by financing activities 173 565
------------- ---------------
Effect of exchange rate on cash - 27
------------- ---------------
Increase (Decrease) in cash and short-term investments 88 45
Cash and short-term investments at beginning of period 309 400
------------- ---------------
Cash and short-term investments at end of period $ 397 $ 445
------------- ---------------
16
-----------------------------------------------------------------------------------------------------------------------
Caterpillar Inc.
Supplemental Data for Results of Operations
For The Three Months Ended September 30, 2003
(Unaudited)
(Millions of dollars)
-----------------------------------------------------------------------------------------------------------------------
Supplemental Consolidating Data
----------------------------------------------------
Consolidated Machinery Financial Consolidating
and Engines 1 Products Adjustments
--------------- -------------- ------------ ----------------
Sales and revenues:
Sales of Machinery and Engines $ 5,112 $ 5,112 $ - $ -
Revenues of Financial Products 433 - 479 (46)2
--------------- -------------- ------------ ----------------
Total sales and revenues 5,545 5,112 479 (46)
Operating costs:
Cost of goods sold 4,143 4,143 - -
Selling, general and administrative 627 505 139 (17)3
expenses
Research and development expenses 173 173 - -
Interest expense of Financial Products 116 - 119 (3)4
Other operating expenses 101 (28) 129 -
--------------- -------------- ------------ ----------------
Total operating costs 5,160 4,793 387 (20)
--------------- -------------- ------------ ----------------
Operating profit 385 319 92 (26)
Interest expense excluding Financial 61 70 - (9)4
Products
Other income (expense) (40) (68) 11 17 5
--------------- -------------- ------------ ----------------
Consolidated profit before taxes 284 181 103 -
Provision for income taxes 69 33 36 -
--------------- -------------- ------------ ----------------
Profit of consolidated companies 215 148 67 -
Equity in profit (loss) of unconsolidated 7 5 2 -
affiliated companies
Equity in profit of Financial Products' - 69 - (69)6
subsidiaries
--------------- -------------- ------------ ----------------
Profit $ 222 $ 222 $ 69 $ (69)
--------------- -------------- ------------ ----------------
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 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 by Machinery and Engines from
Financial Products.
6 Elimination of Financial Products profit for the period reported on Machinery
and Engines statement on the equity basis.
17
-----------------------------------------------------------------------------------------------------------------------
Caterpillar Inc.
Supplemental Data for Results of Operations
For The Three Months Ended September 30, 2002
(Unaudited)
(Millions of dollars)
-----------------------------------------------------------------------------------------------------------------------
Supplemental Consolidating Data
--------------------------------------------------------
Consolidated Machinery and Financial Consolidating
Engines 1 Products Adjustments
--------------- ---------------- ------------- ----------------
Sales and revenues:
Sales of Machinery and Engines $ 4,700 $ 4,700 $ - $ -
Revenues of Financial Products 375 - 426 (51)2
--------------- ---------------- ------------- ----------------
Total sales and revenues 5,075 4,700 426 (51)
Operating costs:
Cost of goods sold 3,798 3,798 - -
Selling, general and administrative 538 451 106 (19)3
expenses
Research and development expenses 167 167 - -
Interest expense of Financial 135 - 140 (5)4
Products
Other operating expenses 113 - 113 -
--------------- ---------------- ------------- ----------------
Total operating costs 4,751 4,416 359 (24)
--------------- ---------------- ------------- ----------------
Operating profit 324 284 67 (27)
Interest expense excluding Financial 66 66 - -
Products
Other income (expense) 25 (31) 29 27 5
--------------- ---------------- ------------- ----------------
Consolidated profit before taxes 283 187 96 -
Provision for income taxes 71 37 34 -
--------------- ---------------- ------------- ----------------
Profit of consolidated companies 212 150 62 -
Equity in profit (loss) of 1 (1) 2 -
unconsolidated affiliated companies
Equity in profit of Financial - 64 - (64)6
Products' subsidiaries
--------------- ---------------- ------------- ----------------
Profit $ 213 $ 213 $ 64 $ (64)
--------------- ---------------- ------------- ----------------
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 expenses recorded by Machinery and Engines paid to Financial
Products.
4 Elimination of interest expense recorded by Financial Products paid to
Machinery and Engines.
5 Elimination of discount recorded by Machinery and Engines on receivables sold
to Financial Products and of interest earned by Machinery and Engines from
Financial Products.
6 Elimination of Financial Products profit for the period reported on Machinery
and Engines statement on the equity basis.
18
-----------------------------------------------------------------------------------------------------------------------
Caterpillar Inc.
Supplemental Data for Results of Operations
For The Nine Months Ended September 30, 2003
(Unaudited)
(Millions of dollars)
-----------------------------------------------------------------------------------------------------------------------
Supplemental Consolidating Data
----------------------------------------------------
Consolidated Machinery Financial Consolidating
and Engines 1 Products Adjustments
--------------- -------------- ------------ ----------------
Sales and revenues:
Sales of Machinery and Engines $ 15,037 $ 15,037 $ - $ -
Revenues of Financial Products 1,261 - 1,394 (133)2
--------------- -------------- ------------ ----------------
Total sales and revenues 16,298 15,037 1,394 (133)
Operating costs:
Cost of goods sold 12,102 12,102 - -
Selling, general and administrative 1,801 1,470 387 (56)3
expenses
Research and development expenses 494 494 - -
Interest expense of Financial Products 354 - 365 (11)4
Other operating expenses 358 (26) 384 -
--------------- -------------- ------------ ----------------
Total operating costs 15,109 14,040 1,136 (67)
--------------- -------------- ------------ ----------------
Operating profit 1,189 997 258 (66)
Interest expense excluding Financial 192 201 - (9)4
Products
Other income (expense) 15 (65) 23 57 5
--------------- -------------- ------------ ----------------
Consolidated profit before taxes 1,012 731 281 -
Provision for income taxes 273 174 99 -
--------------- -------------- ------------ ----------------
Profit of consolidated companies 739 557 182 -
Equity in profit (loss) of unconsolidated 11 7 4 -
affiliated companies
Equity in profit of Financial Products' - 186 - (186)6
subsidiaries
--------------- -------------- ------------ ----------------
Profit $ 750 $ 750 $ 186 $ (186)
--------------- -------------- ------------ ----------------
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 expenses recorded by Machinery and Engines paid to Financial
Products.
4 Elimination of interest expense recorded by Financial Products paid to
Machinery and Engines.
5 Elimination of discount recorded by Machinery and Engines on receivables sold
to Financial Products and of interest earned by Machinery and Engines from
Financial Products.
6 Elimination of Financial Products profit for the period reported on Machinery
and Engines statement on the equity basis.
19
----------------------------------------------------------------------------------------------------------------------
Caterpillar Inc.
Supplemental Data for Results of Operations
For The Nine Months Ended September 30, 2002
(Unaudited)
(Millions of dollars)
-----------------------------------------------------------------------------------------------------------------------
Supplemental Consolidating Data
-------------------------------------------------------
Consolidated Machinery Financial Consolidating
and Engines 1 Products Adjustments
--------------- --------------- ------------- -----------------
Sales and revenues:
Sales of Machinery and Engines $ 13,659 $ 13,659 $ - $ -
Revenues of Financial Products 1,116 - 1,247 (131)2
--------------- --------------- ------------- -----------------
Total sales and revenues 14,775 13,659 1,247 (131)
Operating costs:
Cost of goods sold 11,079 11,079 - -
Selling, general and administrative 1,587 1,326 317 (56)3
expenses
Research and development expenses 524 524 - -
Interest expense of Financial Products 393 - 406 (13)4
Other operating expenses 305 - 305 -
--------------- --------------- ------------- -----------------
Total operating costs 13,888 12,929 1,028 (69)
--------------- --------------- ------------- -----------------
Operating profit 887 730 219 (62)
Interest expense excluding Financial 206 206 - -
Products
Other income (expense) 18 (44) - 62 5
--------------- --------------- ------------- -----------------
Consolidated profit before taxes 699 480 219 -
Provision for income taxes 196 116 80 -
--------------- --------------- ------------- -----------------
Profit of consolidated companies 503 364 139 -
Equity in profit (loss) of (10) (16) 6 -
unconsolidated affiliated companies
Equity in profit of Financial Products' - 145 - (145)6
subsidiaries
--------------- --------------- ------------- -----------------
Profit $ 493 $ 493 $ 145 $ (145)
--------------- --------------- ------------- -----------------
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 expenses recorded by Machinery and Engines paid to Financial
Products.
4 Elimination of interest expense recorded by Financial Products paid to
Machinery and Engines.
5 Elimination of discount recorded by Machinery and Engines on receivables sold
to Financial Products and of interest earned by Machinery and Engines from
Financial Products.
6 Elimination of Financial Products profit for the period reported on Machinery
and Engines statement on the equity basis.
20
-----------------------------------------------------------------------------------------------------------------------
Caterpillar Inc.
Supplemental Data for Cash Flow
For the Nine Months Ended September 30, 2003
(Unaudited)
Millions of dollars)
-----------------------------------------------------------------------------------------------------------------------
Supplemental Consolidating Data
-------------------------------------------------------
Consolidated Machinery Financial Consolidating
--------------- and Engines 1 Products Adjustments
--------------- -------------- ----------------
Cash flow from operating activities:
Profit $ 750 $ 750 $ 186 $ (186)2
Adjustments for non-cash items:
Depreciation and amortization 1,008 611 397 -
Profit of Financial Products - (186) - 186 3
Other 101 39 34 28 4
Changes in assets and liabilities:
Receivables - trade and other (220) (140) (120) 40 4
Inventories (294) (294) - -
Accounts payable and accrued expenses 108 87 21 -
Other - net (24) (80) 107 (51)4
--------------- --------------- -------------- ----------------
Net cash provided by operating activities 1,429 787 625 17
--------------- --------------- -------------- ----------------
Cash flow from investing activities:
Capital Expenditures excluding equipment (352) (335) (17) -
leased to others
Expenditures for equipment leased to (781) (10) (771) -
others
Proceeds from disposals of property, 451 - 451 -
plant and equipment
Additions to finance receivables (12,245) - (12,245) -
Collection of finance receivables 10,022 - 10,022 -
Proceeds from the sale of finance 1,472 - 1,472 -
receivables
Net intercompany borrowings - 391 2 (393)5
Investments and acquisitions (net of cash (26) (17) (9) -
acquired)
Other - net (55) (6) (82) 33 6
--------------- --------------- -------------- ----------------
Net cash provided by (used for) investing (1,514) 23 (1,177) (360)
activities
--------------- --------------- -------------- ----------------
Cash flow from financing activities:
Dividends paid (361) (361) - -
Common stock issued, including treasury 81 81 33 (33)6
shares reissued
Net intercompany borrowings - - (391) 391 5
Proceeds from long-term debt issued 4,233 83 4,150 -
Payments on long-term debt (2,992) (500) (2,492) -
Short-term borrowings - net (788) (2) (786) -
--------------- --------------- -------------- ----------------
Net cash provided by (used for) financing 173 (699) 514 358
activities
--------------- --------------- -------------- ----------------
Effect of exchange rate on cash - 6 9 (15)7
--------------- --------------- -------------- ----------------
Increase (Decrease) in cash and short-term 88 117 (29) -
investments
Cash and short-term investments at beginning 309 146 163 -
of period
--------------- --------------- -------------- ----------------
Cash and short-term investments at end of $ 397 $ 263 $ 134 $ -
period
--------------- --------------- -------------- ----------------
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
consolidation.
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 Net proceeds and payments to/from Machinery and Engines and Financial
Products.
6 Change in investment and common stock related to Financial Products.
7 Elimination of the effect of exchange on intercompany balances.
21
-----------------------------------------------------------------------------------------------------------------------
Caterpillar Inc.
Supplemental Data for Cash Flow
For the Nine Months Ended September 30, 2002
(Unaudited)
(Millions of dollars)
-----------------------------------------------------------------------------------------------------------------------
Supplemental Consolidating Data
-------------------------------------------------------
Consolidated Machinery and Financial Consolidating
-------------- Engines 1 Products Adjustments
--------------- ------------- ----------------
Cash flow from operating activities:
Profit $ 493 $ 493 $ 145 $ (145)2
Adjustments for non-cash items:
Depreciation and amortization 910 596 314 -
Profit of Financial Products - (145) - 145 3
Other 131 (3) 121 13 4
Changes in assets and liabilities:
Receivables - trade and other (147) 20 (132) (35)4
Inventories (159) (159) - -
Accounts payable and accrued expenses 322 231 46 45 4
Other - net (190) (142) (41) (7)4
-------------- --------------- ------------- -----------------
Net cash provided by operating activities 1,360 891 453 16
-------------- --------------- ------------- -----------------
Cash flow from investing activities:
Capital expenditures - excluding (498) (473) (25) -
equipment leased to others
Expenditures for equipment leased to (762) - (762) -
others
Proceeds from disposals of property, 360 43 317 -
plant and equipment
Additions to finance receivables (11,323) - (11,323) -
Collection of finance receivables 8,652 - 8,652 -
Proceeds from the sale of finance 1,995 - 1,995 -
receivables
Net intercompany borrowings - (5) 26 (21)5
Investments and acquisitions (net of cash (290) (23) (267) -
acquired)
Other - net (41) (19) (56) 34 6
-------------- --------------- ------------- -----------------
Net cash used for investing activities (1,907) (477) (1,443) 13
-------------- --------------- ------------- -----------------
Cash flow from financing activities:
Dividends paid (361) (361) - - 8
Common stock issued, including treasury 8 8 34 (34)6
shares reissued
Net intercompany borrowings - (26) 5 21 5
Proceeds from long-term debt issued 3,855 248 3,607 -
Payments on long-term debt (2,772) (194) (2,578) -
Short-term borrowings - net (165) (154) (11) -
-------------- --------------- ------------- -----------------
Net cash provided by (used for) financing 565 (479) 1,057 (13)
activities
-------------- --------------- ------------- -----------------
Effect of exchange rate on cash 27 39 4 (16)7
-------------- --------------- ------------- -----------------
Increase (Decrease) in cash and short-term 45 (26) 71 -
investments
Cash and short-term investments at beginning 400 251 149 -
of period
-------------- --------------- ------------- -----------------
Cash and short-term investments at end of $ 445 $ 225 $ 220 $ -
period
-------------- --------------- ------------- -----------------
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
consolidation.
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 Net proceeds and payments to/from Machinery and Engines and Financial
Products.
6 Change in investment and common stock related to Financial Products.
7 Elimination of the effect of exchange on intercompany balances.
8 Elimination of dividends paid to/from Machinery and Engines and Financial
Products.
22
-----------------------------------------------------------------------------------------------------------------------
Caterpillar Inc.
Reconciliation of Profit to Profit Excluding a Bond Retirement Charge
(Unaudited)
(Millions of Dollars)
-----------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
-------------- ------------- -------------- --------------
Profit $ 222 $ 213 $ 750 $ 493
Bond retirement charge 40 - 40 -
-------------- ------------- -------------- --------------
Profit excluding a bond retirement charge $ 262 $ 213 $ 790 $ 493
-------------- ------------- -------------- --------------
Caterpillar Inc.
Reconciliation of PPS to PPS Excluding a Bond Retirement Charge
(Unaudited)
(Dollars)
-----------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
------------- ------------- ------------ ---------------
PPS $ 0.62 $ 0.61 $ 2.15 $ 1.42
Bond retirement charge 0.11 - 0.11 -
------------- ------------- ------------ ---------------
PPS excluding a bond retirement charge $ 0.73 $ 0.61 $ 2.26 $ 1.42
------------- ------------- ------------ ---------------
Caterpillar Inc.
Reconciliation of Net Cash Provided by Operating Activities to Net Free Cash Flow
For the Nine Months Ended September 30, 2003*
(Unaudited)
(Millions of dollars)
-----------------------------------------------------------------------------------------------------------------------
Consolidated Machinery and Financial Consolidating
--------------- Engines 1 Products Adjustments
----------------- ------------- -----------------
Net cash provided by operating activities $ 1,429 $ 787 $ 625 $ 17
Capital expenditures
- excluding equipment leased to (352) (335) (17) -
others
- equipment leased to others (781) (10) (771) -
Proceeds from disposals of property, 451 - 451 -
plant and equipment
Dividends paid (361) (361) - -
--------------- ----------------- ------------- -----------------
Net free cash flow $ 386 $ 81 $ 288 $ 17
--------------- ----------------- ------------- -----------------
Caterpillar Inc.
Reconciliation of Net Cash Provided by Operating Activities to Net Free Cash Flow
For the Nine Months Ended September 30, 2002
(Unaudited)
(Millions of dollars)
-----------------------------------------------------------------------------------------------------------------------
Consolidated Machinery and Financial Consolidating
---------------- Engines 1 Products Adjustments
---------------- ------------ -----------------
Net cash provided by operating activities $ 1,360 $ 891 $ 453 $ 16
Capital expenditures
- excluding equipment leased to (498) (473) (25) -
others
- equipment leased to others (762) - (762) -
Proceeds from disposals of property, 360 43 317 -
plant and equipment
Dividends paid (361) (361) - -
---------------- ---------------- ------------ -----------------
Net free cash flow $ 99 $ 100 $ (17) $ 16
---------------- ---------------- ------------ -----------------
1 Represents Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis.
23
--------------------------------------------------------------------------------
Safe Harbor Statement under the Securities Litigation Reform Act of 1995
Certain statements contained in our third-quarter 2003 results release and
prepared statements from the related results webcast are forward-looking and
involve uncertainties that could significantly impact results. The words
"believes," "expects," "estimates," "anticipates," "will be", "should" and
similar words or expressions identify forward-looking statements made on behalf
of Caterpillar. Uncertainties include factors that affect international
businesses, as well as matters specific to the company and the markets it
serves.
World Economic Factors
The world economy appears to be strengthening in last half 2003 and major
central banks are holding interest rates steady. Our outlook assumes that
current economic policies will be sufficient to allow the recovery to strengthen
throughout 2004. If, however, the recovery proves less robust than assumed,
economic growth would likely slow further, weakening machinery and engine sales.
Recent economic data suggests that the U. S. economy grew in excess of a 4
percent annual rate in third quarter 2003. Our outlook assumes that the
combination of the recent tax cut, June's interest rate cut, slightly lower oil
prices, and the favorable impact of a weaker U.S. dollar will allow good growth
to continue into 2004. Faster growth should allow the improvement in machinery
and engine sales that occurred so far this year to continue into 2004. If,
however, the boost provided by monetary and fiscal easing proves transitory, a
return to weak growth could threaten our machinery and engine sales.
Economic growth in the EAME region as a whole was weak in the first three
quarters of the year. Flat growth in Europe was balanced by stronger growth in
Africa/Middle East and in the Commonwealth of Independent States. Recently,
leading indicators and business surveys suggest economic conditions in Europe
are ready to improve and the European Central Bank ("ECB") has indicated it is
not planning on cutting interest rates further. Our outlook assumes the European
economy will improve in the remaining months of 2003 and in 2004. Potential
risks include the ECB quickly raising interest rates or the stronger euro
depressing exports. Should these occur, the resulting weaker economic growth
could weaken machinery and engine sales.
The Japanese economy grew much faster than expected in first half 2003. Our
outlook assumes that measures employed by the Bank of Japan - zero interest
rates, the maintenance of high levels of reserves in the banking system and the
purchase of long-term government bonds - will allow this recovery to continue.
The economy remains vulnerable to any tightening in financial conditions and
should that occur, the recovery could stall. Slower economic growth would
further reduce our sales in that country and could have a negative impact on
other economies, particularly those in the region.
Asia/Pacific economies grew rapidly in the first three quarters and economic
policies in place support a continuation of fast growth. Growth has benefited
from competitive exchange rates and rapid growth in China. Industrial countries
have voiced dissatisfaction with the region's exchange rate practices and the
Chinese economy shows signs of overheating. The potential for trade frictions
could slow exports and regional growth; the Chinese government could tighten
policies too much and sharply slow growth. Our outlook assumes neither risk
occurs. Should that prove incorrect, our results could be negatively impacted.
The Latin American economy has grown slowly and our outlook projects further
improvement throughout the forecast horizon. This improvement assumes a recovery
in foreign direct investment inflows, further reductions in local interest rates
and higher commodity prices. If, for whatever reason, these assumptions prove
untrue, our results could be negatively impacted.
24
--------------------------------------------------------------------------------
Commodity Prices
Commodities represent a significant sales opportunity, with prices and
production as key drivers. Prices and production of metals have improved this
year and our outlook assumes continued growth in the world economy will cause
metals prices to increase further. Any unexpected weakening, however, could
cause prices to drop sharply to the detriment of our results.
While coal stocks are high and prices have been soft, our outlook assumes
production and prices will improve late this year. If coal production and prices
do not improve, our results could be negatively affected.
Oil and natural gas prices have remained fairly high this year due to tight
inventories. Our outlook assumes that increased production will ease shortages
in both oil and natural gas, allowing prices to ease. Should supplies tighten
sharply in response to either OPEC production cuts or a severe winter, the
resulting high prices likely would slow economies, potentially with a depressing
impact upon our sales.
Monetary and Fiscal Policies
For most companies operating in a global economy, monetary and fiscal policies
implemented in the U.S. and abroad could have a significant impact on economic
growth, and accordingly, demand for a product. In general, higher than expected
interest rates, reductions in government spending, higher taxes, significant
currency devaluations, and uncertainty over key policies are some factors likely
to lead to slower economic growth and lower industry demand.
With economic data looking more favorable, major central banks are holding
interest rates steady and a few have even started reviewing when rate hikes
might be necessary.
Our outlook assumes that central banks will take great care to ensure that
economic recoveries continue. Should they be slow to react to worsening
conditions or raise interest rates too aggressively, such actions could cause
recessions and depress our results.
Weak economic growth has increased budget deficits in many countries and limited
the ability of governments to boost economies with tax cuts and more spending.
Our outlook assumes that governments will not aggressively raise taxes and slash
spending to deal with their budget imbalances. Such actions could disrupt growth
and negatively affect sales to public construction.
Political Factors
Political factors in the United States and abroad have a major impact on global
companies.
Our outlook assumes that there will be no significant military conflict in North
Korea or the Middle East in the forecast period. Such a military conflict could
severely disrupt sales into countries affected, as well as nearby countries.
Our outlook also assumes that there will be no major terrorist attacks. If there
is a major terrorist attack, confidence could be undermined, causing a sharp
drop in economic activities and our sales. Attacks in major developed economies
would be the most disruptive.
Our outlook further assumes that efforts by countries to increase their exports
will not result in retaliatory countermeasures by other countries to block such
exports, particularly in the Asia/Pacific region.
Currency Fluctuations
The company has costs and revenues in many currencies and is therefore exposed
to risks arising from currency fluctuations. Many currency positions are fairly
closely balanced, which, along with the diversity of currency positions, helps
diminish exchange rate risks.
The company's largest manufacturing presence is in the United States. So any
unexpected strengthening of the dollar tends to raise the foreign currency value
of costs and reduce our global competitiveness.
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The stronger euro had a favorable impact on translating European sales into U.
S. dollars in the third quarter. The outlook assumes similar benefits in the
future. Should the euro collapse, our results could be negatively impacted.
Dealer Practices
The company sells primarily through an independent dealer network. Dealers carry
inventories of both new and rental equipment and adjust those inventories based
on their assessments of future needs. Such adjustments can impact our results
either positively or negatively. The current outlook assumes dealers will reduce
inventories slightly in 2003; more drastic reductions would adversely affect
sales.
Other Factors
The rate of infrastructure spending, housing starts, commercial construction and
mining play a significant role in the company's results. Our products are an
integral component of these activities and as these activities increase or
decrease in the United States or abroad, demand for our products may be
significantly impacted.
Pursuant to a Consent Decree Caterpillar entered into with the United States
Environmental Protection Agency (EPA), the company was required to meet certain
emission standards by October 2002. The Consent Decree provides for the
possibility that diesel engine manufacturers may not be able to meet these
standards exactly on that date, and allows companies to continue selling
non-compliant engines if they pay non-conformance penalties (NCPs) on those
engines. The company began shipping lower emission engines in October 2002 as a
"bridge" until the fully compliant ACERT(R) engines are introduced in 2003.
These "bridge" engines require the payment of NCPs. We expect emissions standard
changes to negatively impact our financial results in 2003 by $38 million (after
tax) or $21 million (after tax) more adverse than in 2002 due to higher
shipments of bridge engines in 2003. Early in 2003, Caterpillar began ramping up
production of medium-duty and heavy-duty compliant ACERT engines. We do not
anticipate paying NCPs beyond 2003. Our outlook for 2003 is subject to
assumptions regarding projected NCPs, price increases, and volumes. We are able
to make fairly accurate predictions of the NCP levels per engine due to our
engineering knowledge, development process and internal testing during
development. Our net price increase for heavy-duty bridge engines was
successfully implemented on October 1, 2002; this increase was competitive with
price increases implemented by other engine manufacturers on that date. We
implemented an additional price increase in the first quarter 2003 to truck
manufacturers that purchase our heavy-duty ACERT engines. This increase has been
communicated to the truck manufacturers and is based on the additional value
that we expect truck owners to receive from ACERT engines compared to our
competitors as a result of better fuel economy, less maintenance and greater
durability. The ultimate net price increase we are able to achieve for our ACERT
engines is dependent upon marketplace acceptance of these engines versus
competitive alternatives. While we estimate volume to the best of our ability,
industry volume is an issue out of our control. If our assumptions regarding NCP
levels, market acceptance of the price increases and/or engine volume are not
realized, company performance could be negatively impacted.
Projected cost savings or synergies from alliances with new partners could also
be negatively impacted by a variety of factors. These factors could include,
among other things, higher than expected wages, energy and/or material costs,
and/or higher than expected financing costs due to unforeseen changes in tax,
trade, environmental, labor, safety, payroll or pension policies in any of the
jurisdictions where the alliances conduct their operations.
Results may be impacted positively or negatively by changes in the sales mix.
Our outlook assumes a certain geographic mix of sales as well as a product mix
of sales. If actual results vary from this projected geographic and product mix
of sales, our results could be negatively impacted.
The company operates in a highly competitive environment and our outlook depends
on a forecast of the company's share of industry sales. An unexpected reduction
in that share could result from pricing or product strategies pursued by
competitors, unanticipated product or manufacturing difficulties, a failure to
price the product competitively, or an unexpected buildup in competitors' new
machine or dealer owned rental fleets, leading to severe downward pressure on
machine rental rates and/or used equipment prices.
The environment also remains very competitive from a pricing standpoint.
Additional price discounting would result in lower than anticipated realization.
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Inherent in the operation of the Financial Products Division is the credit risk
associated with its customers. The creditworthiness of each customer, and the
rate of delinquencies, repossessions and net losses on customer obligations are
directly impacted by several factors, including, but not limited to, relevant
industry and economic conditions, the availability of capital, the experience
and expertise of the customer's management team, commodity prices, political
events, and the sustained value of the underlying collateral. Additionally,
interest rate movements create a degree of risk to our operations by affecting
the amount of our interest payments and the value of our fixed rate debt. While
our policy is to use interest rate swap agreements to manage our exposure to
interest rate changes and lower the costs of borrowed funds, if interest rates
move upward more sharply than anticipated, it could negatively impact our
results. With respect to our insurance and investment management operations,
changes in the equity and bond markets could cause an impairment of the value of
our investment portfolio, thus requiring a negative adjustment to earnings.
In general, our results are sensitive to changes in economic growth,
particularly those originating in construction, mining and energy. Developments
reducing such activities also tend to lower our sales. In addition to the
factors mentioned above, our results could be negatively impacted by any of the
following:
* Any sudden drop in consumer or business confidence
* Delays in legislation needed to fund public construction
* Regulatory or legislative changes that slow activity in key industries;
and/or
* Unexpected collapses in stock markets.
This discussion of uncertainties is by no means exhaustive but is designed to
highlight important factors that may impact our outlook. Obvious factors such as
general economic conditions throughout the world do not warrant further
discussion, but are noted to further emphasize the myriad of contingencies that
may cause the company's actual results to differ from those currently
anticipated.
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This information is provided by RNS
The company news service from the London Stock Exchange
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