RNS Number:7494U
Caterpillar Inc
28 January 2004
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Caterpillar Inc.
January 27, 2004
FOR IMMEDIATE RELEASE
Caterpillar 2003 full-year sales and revenues up 13 percent; profit up 38
percent;
2004 profit expected to be up about 40 percent
PEORIA, Ill. -- Caterpillar Inc. (NYSE: CAT) today reported 2003 sales and
revenues of $22.76 billion and profit of $1.1 billion or $3.13 per share. For
the fourth quarter, sales and revenues were $6.47 billion and profit was $349
million or $0.97 per share.
Sales and revenues of $22.76 billion were up 13 percent compared to $20.15
billion in 2002. The increase was primarily due to higher Machinery and Engines
volume of $1.29 billion, a favorable Currency impact on sales of $683 million
(due mainly to the stronger euro), favorable Price Realization of $260 million
and higher Financial Products revenues of $211 million. For the fourth quarter,
sales and revenues of $6.47 billion were up 20 percent compared to $5.38 billion
in the fourth quarter 2002.
"Caterpillar had an excellent year," said Chairman and CEO Glen Barton. "We took
full advantage of the recovering capital goods market to make real progress on
our growth objectives while continuing to lower Core Operating Costs. With a 13
percent sales and revenue increase this year, we are well on our way to
achieving our growth target of $30 billion of sales and revenues in this
decade."
Profit of $1.1 billion or $3.13 per share was up 38 percent compared to $798
million or $2.30 per share in 2002. The profit increase was due to improved
price realization of $260 million, lower core operating costs of $231 million
and the favorable impact of higher sales volume (net of unfavorable sales mix)
of $175 million. These positive factors were partially offset by $310 million of
higher Retirement Benefits.
"Our performance this year demonstrated to investors our commitment to deliver
long-term profitable growth," said Barton. "In addition, we made significant
progress on other key strategic initiatives. After an aggressive development
program, we introduced ACERT technology, earning Caterpillar the distinction of
being the only engine manufacturer with a full line of 2004 EPA certified and
compliant clean diesel engines. Also in 2003, we supported our dealers'
continued expansion of Cat Rental stores as they enhanced their position as the
world's leading providers of rental equipment. We strengthened our long-term
relationships in the Asia-Pacific region, expanding operations in China and
India to serve the increasing demand in these important emerging markets. Amid
this growth and change, we continued to embrace the discipline of 6 Sigma, which
allowed Caterpillar people to develop process improvements and discover new ways
to better serve our customers."
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Vice Chairman Jim Owens, who will assume the role of Chairman and CEO February
1, 2004, with Barton's retirement, commented, "As the company grows, we will
continue to rely on the proven processes of 6 Sigma to create value and develop
growth opportunities. Our success in implementing 6 Sigma is certainly one of
the legacies Glen Barton passes on to future generations of Caterpillar leaders
along with a track record of strong financial performance despite turbulence in
the global economy and key markets. As we move into 2004, we will continue our
focus on 6 Sigma and profitable growth, reinforcing the positive changes in our
culture that are making Caterpillar a better company."
2004 Outlook
"We end the year with confidence that the momentum in 2003 will carry into
2004," said Owens. "We now expect sales and revenues to increase about 12
percent in 2004 over 2003. With this growth, we will continue to focus on cost
management and expect 2004 profit to be up about 40 percent compared to 2003.
The year will benefit from higher volume and the favorable impact of our ACERT
technology. We anticipate an increase in retirement benefits of about $250
million which we expect to offset with improved price realization and lower core
operating costs." (Complete outlook begins on page 6.)
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 pages 14-15; first occurrence of terms
shown in bold italics.
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Sales and Revenues
(Millions of dollars) Total North Latin Asia/
America EAME America Pacific
2003
Machinery $ 13,678 $ 7,310 $ 3,596 $ 928 $ 1,844
Engines1 7,370 3,222 2,356 793 999
Financial Products2 1,715 1,231 303 94 87
---- --------- -- --------- -- ----------- --- ----------- --- ---------
$ 22,763 $ 11,763 $ 6,255 $ 1,815 $ 2,930
---- --------- -- --------- -- ----------- --- ----------- --- ---------
2002
Machinery $ 11,975 $ 6,517 $ 3,156 $ 818 $ 1,484
Engines1 6,673 2,963 2,022 780 908
Financial Products2 1,504 1,116 257 55 76
---- --------- -- --------- -- ----------- --- ----------- --- ---------
$ 20,152 $ 10,596 $ 5,435 $ 1,653 $ 2,468
-------------- ------------ -------------- --------------- -------------
1 Does not include internal engine transfers of $1.358 billion and $1.286 billion in 2003 and 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 $180 million and $174 million in 2003 and 2002,
respectively.
Machinery sales were $13.68 billion, an increase of $1.70 billion or 14 percent
from 2002. Sales volume was up about 8 percent, the favorable impact of currency
accounted for about 4 percent and improved price realization added about 2
percent. In North America, machinery sales increased 12 percent due mostly to
higher volume and favorable price realization. Sales volume rose because of an
11 percent increase in dealer deliveries, the result of users (especially rental
fleets) upgrading their fleets and a last half improvement in construction
activity. Dealers also increased inventories to support higher delivery rates.
EAME sales were up 14 percent due to the favorable impact of a stronger euro and
improved price realization partially offset by lower sales volume due to weak
economic conditions in Europe. In Latin America, sales were up 13 percent,
benefiting from increased dealer deliveries into mining and some building of
dealer inventories in anticipation of higher end-user demand. Company sales in
Asia/Pacific surged 24 percent as dealer deliveries increased significantly due
to strong economies in the region.
Engines sales were $7.37 billion, an increase of $697 million or 10 percent from
2002. Sales volume was up about 5 percent, the favorable impact of currency
accounted for about 3 percent and emissions-related price increases added about
2 percent. North American sales rose 9 percent due to improved emissions-related
price increases for truck engines and higher volume in most key engine sectors.
Engine sales in EAME rose 17 percent due to the favorable effects of currency
and higher sales into the Middle East. Sales in Latin America rose 2 percent
with all of the gain coming from higher sales of truck and bus engines. Sales in
Asia/Pacific rose 10 percent due to higher volume in almost all sectors as
economic growth strengthened. Worldwide Caterpillar truck engine sales rose 19
percent with a significant improvement in emissions-related price realization
and higher volume of 4 percent. Worldwide sales of electric power and industrial
engines rose 10 and 8 percent, respectively, benefiting from the favorable
effects of currency and slight industry growth. Worldwide sales into petroleum
rose 4 percent due to higher demand for engines used in gas compression and
higher North American land drilling activity. Sales to the marine sector rose 2
percent, helped by slightly higher industry demand and favorable effects of
currency.
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Financial Products revenues were $1.72 billion, an increase of $211 million or
14 percent from 2002. The increase was due primarily to the favorable impact of
$223 million from continued growth of Earning Assets at Cat Financial and a $63
million increase in earned premiums on extended service contracts at Cat
Insurance. These favorable items were partially offset by the $120 million
impact of lower interest rates on new and existing finance receivables at Cat
Financial.
The favorable profit impact of additional machinery and engine sales volume was
partially offset by unfavorable sales mix resulting in a net positive impact of
$175 million. The unfavorable sales mix was primarily due to lower sales of
higher margin fuel system components to Navistar International Transportation
Corporation ("Navistar") attributable to the imminent expiration of a long-term
purchase contract in 2003 between Caterpillar and Navistar, which expired on
December 31, 2003, as well as higher sales of lower margin small diesel engines
and compact construction equipment. Improved price realization reflected the
favorable impact of modest price increases taken in January 2003 on most
machines and parts. Material cost reductions and quality improvements reflected
in lower warranty costs were partially offset by higher incentive compensation
of about $140 million for a net improvement in core operating costs of $231
million. The higher incentive compensation benefits employees at all levels as
corporate financial performance improves. This reflects the structure of our
compensation plans where employees have a component of their pay tied to the
performance of the company.
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Partially offsetting the favorable items was $310 million of higher retirement
benefits. This increase was primarily due to the impact of previous poor
performance of equity markets on pension plan assets and increased expense
resulting from the introduction of a company match to our 401(k) plan in 2003.
Operating Profit
(Millions of dollars) 2002 2003
Machinery1 $ 947 $ 1,246
Engines1 175 188
Financial Products 284 345
Consolidating Adjustments (82) (91)
----------------------- ----------------------
$ 1,324 $ 1,688
----------------------- ----------------------
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 32 percent, or $299 million, from 2002. The
favorable impact of improved price realization, higher sales volume (net of
unfavorable sales mix) and lower core operating costs more than offset higher
retirement benefits.
Engines operating profit increased 7 percent, or $13 million, from 2002 as lower
core operating costs were almost entirely offset by higher retirement benefits
and the unfavorable impact of Changes in Emissions Standards. The favorable
impact of volume was offset by negative sales mix resulting from lower sales of
higher margin fuel system components as well as higher sales of lower margin
small diesel engines.
Financial Products operating profit increased 21 percent, or $61 million, from
2002. The increase was primarily due to the impact of growth of earning assets
of $59 million, higher fee income of $12 million and higher securitization
income of $8 million at Cat Financial. These favorable items were partially
offset by increased operating costs to support growth at Cat Financial.
OTHER PROFIT/LOSS ITEMS
Interest expense excluding Financial Products was $33 million lower compared to
2002 primarily due to lower average short-term and long-term borrowings.
Other income/expense was income of $35 million down from $69 million in 2002.
The change was primarily due to a $55 million charge for early retirement of the
$250 million 6 percent debentures due in 2007.
The provision for income taxes reflects an estimated annual tax rate of 27
percent for 2003 compared to 28 percent a year ago due to the geographic mix of
profits and changes in the estimated tax benefits from export sales.
The equity in profit/loss of unconsolidated affiliated companies favorably
impacted profit $24 million from 2002, due mostly to improved profitability of
Shin Caterpillar Mitsubishi Ltd. resulting from improved export business into
China and North America.
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CASH FLOW
After contributing $720 million to our pension plans, Machinery and Engines
operating cash flow was $1.43 billion. The strong cash flow allowed funding for
our capital expenditures, increased dividend payments and the share repurchase
program while improving the strength of our financial position. Pursuant to the
share repurchase program authorized by the Board of Directors in October 2003,
$405 million was spent to purchase 5.45 million shares during the fourth
quarter. There were 344 million shares outstanding at the end of 2003. The goal
of the share repurchase program, which expires in October 2008, is to reduce the
company's outstanding shares to 320 million.
EMPLOYMENT
At the end of 2003, Caterpillar's worldwide employment was 69,169 compared with
68,990 in 2002. Excluding the impact of acquiring a controlling interest in
Hindustan Powerplus Ltd. and increases to support our growing Caterpillar
Logistics operations, which combined added approximately 1,100 employees,
employment was down about 900.
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 SG&A 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 SG&A expenses to cost of goods sold were $109
million and $437 million for the three months and twelve months ended December
31, 2002, respectively. These costs were $113 million and $443 million for the
three months and twelve months ended December 31, 2003, respectively. The
reclassification had no impact on operating profit.
OUTLOOK
SALES AND REVENUES OUTLOOK
For the year 2004, we project company sales and revenues will increase about 12
percent compared to 2003. Machinery and Engines volume is expected to increase
about 10 percent with the remainder coming from Financial Products revenues and
improved price realization.
A worldwide economic recovery is now underway and we expect further
strengthening in 2004. Global economic growth should exceed 3.5 percent in 2004,
or about 1 percentage point higher than in 2003.
Record, or near-record, low interest rates initiated economic recoveries in 2003
and we expect interest rates will remain low throughout 2004. Most economies
have considerable excess capacity, and inflation is generally within central
bank targets. We expect that central bankers will be cautious about taking any
actions that could jeopardize recoveries.
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This environment should further benefit our businesses. Low interest rates and
rising profits are expected to continue to encourage users to replace existing
equipment. Low interest rates should also allow another strong year for housing
construction. Nonresidential construction, which tends to parallel overall
economic growth, should continue to improve. Metals mining had only a scattered
recovery in 2003, but we expect that recent increases in metals prices will
cause this industry's recovery to strengthen and broaden in 2004.
North America (United States and Canada)
The U. S. economy ended 2003 on a strong note and the Federal Reserve's stated
plan to keep interest rates low for a considerable period should ensure a very
good year for the economy in 2004. We project U. S. growth of at least 4.5
percent and the Canadian economy should rebound from 2003's slowdown, growing
more than 3 percent in 2004.
We estimate that Machinery and Engines sales will increase about 18 percent in
2004. Continued low interest rates should allow further growth in construction
and higher coal and metals prices should trigger substantial recoveries in
mining. Petroleum and natural gas sales should continue to benefit from
favorable energy prices.
EAME
European economies recovered slowly in the last half of 2003 and current low
interest rates should allow further strengthening. We expect the European
economies to grow 2 percent in 2004, fast enough to allow some improvement in
construction activity. Favorable energy prices, plus much higher commodity
prices, should result in another year of good economic growth in both Africa/
Middle East and the CIS.
We estimate that Machinery and Engines sales in EAME will rise about 6 percent
in 2004. Higher volume should account for about 5 percent of the increase while
the ongoing favorable impact of the strong euro and improved price realization
are expected to contribute the remaining 1 percent increase in sales.
Latin America
We expect economic growth will improve to about 3.5 percent in 2004 compared to
1.5 percent experienced in 2003. The region should benefit from the worldwide
economic recovery and reductions in local interest rates. Foreign direct
investment is also expected to recover in 2004. As a result of stronger
economies, we project that sales of Machinery and Engines will be up about 5
percent in 2004.
Asia/Pacific
This region is expected to again lead the world in economic growth, improving to
over 6 percent in 2004. China's booming economy should slow a bit in response to
modest tightening in economic policies. This is expected to be more than offset
by better growth in most other countries. Despite rising trade frictions
targeted at the region, most countries should be able to increase exports as a
result of faster world economic growth.
We expect sales of Machinery and Engines to increase around 7 percent in 2004.
Strong domestic economies and low local interest rates are expected to boost
construction and the region's sizable mining sector should benefit from higher
commodity prices.
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Financial Products
We expect growth in Financial Products for 2004, with revenues expected to
increase approximately 10 percent versus 2003 primarily due to higher average
earning assets in 2004 (beginning earning assets and new financing activity will
both be higher in 2004 versus 2003). New financing activity growth is primarily
due to expected improvement in Machinery and Engines sales and other growth
initiatives.
PROFIT OUTLOOK
We expect 2004 profit per share to be up about 40 percent compared to 2003. The
year will benefit from higher volume and the favorable impact of our ACERT
technology. We anticipate an increase in retirement benefits of about $250
million, which we expect to offset with improved price realization and lower
core operating costs.
SUPPLEMENTAL INFORMATION (2003 VERSUS 2002)
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 the deliveries to end users we believe this information
will help readers better understand our business and the industries we serve.
All information provided in the supplemental section is in Constant Dollars.
Dealer New Machine Deliveries
Worldwide dealer deliveries of new machines to end users increased 6 percent
from 2002. Asia/Pacific and North America accounted for the gain, mostly in
deliveries into construction. Deliveries into mining declined despite some
late-year recoveries resulting from higher metals prices.
Dealer machine deliveries in North America rose 11 percent in 2003, benefiting
from an exceptionally strong 24 percent gain in the fourth quarter. Throughout
the year, low interest rates and rising corporate profits encouraged users to
upgrade fleets. Then, in the last half, deliveries benefited further from
recoveries in construction and construction-related activities.
Deliveries into North American general construction were up 18 percent from
2002. Continued low mortgage interest rates caused housing starts to surge to a
25-year high and nonresidential building construction, largely retail and hotel,
improved in the second half. Dealers delivered 17 percent more new machines into
heavy construction, where both highway and sewer and water construction
increased. Quarry and aggregate prices were higher than in 2002, driving a 5
percent gain in dealer deliveries into that industry. Lumber prices also
increased, causing deliveries into forestry to increase 24 percent. Mining
remained depressed, with dealer deliveries down 21 percent for the year.
Although metals prices were up significantly and coal prices improved during the
year, mining companies had not yet increased production by the end of the year.
In EAME, dealers delivered 5 percent fewer machines than in 2002. Europe, where
most of the key economies were weak, accounted for most of the decline.
Deliveries into Africa/Middle East also decreased, almost entirely in the United
Arab Emirates. Deliveries in 2002 benefited from a large infrastructure project
that was not repeated in 2003. In the CIS, dealer deliveries nearly doubled as a
result of continued development in energy and mining, which benefited from
higher oil and metals prices.
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Deliveries of new machines into Latin America dropped 11 percent. Most economies
grew slowly, resulting in weak construction activity. As a result, deliveries
into construction industries decreased. In contrast, higher metals prices caused
a significant increase in deliveries to metals mines and dealer inventories
in-transit did increase in anticipation of future deliveries.
Dealer deliveries to end users in Asia/Pacific surged 25 percent. China, where
the economy and construction industry boomed, accounted for over half the
growth. Economic growth was also robust in many other countries, resulting in
double-digit growth in dealer deliveries in Australia, India, Indonesia,
Malaysia, South Korea and Thailand.
Dealer Inventories of New Machines
Worldwide dealer inventories at the end of 2003 were higher than a year earlier
in all regions. Relative to dealer delivery rates, dealer inventories were lower
than a year ago. The inventory to delivery ratio declined in all regions except
Latin America.
Engine Deliveries to End Users and OEMs
Worldwide engine deliveries to end users and OEMs were up 1 percent in 2003.
Stronger economic growth, higher corporate profits and rising business and
investor confidence supported improving investment conditions in all commercial
engine sectors. Truck engine deliveries rose 4 percent with all of the gain
coming from midrange engines. Worldwide deliveries to end users in the petroleum
and electric power sectors rose slightly (1 to 2 percent) with growth due to
stronger industry demand. Global deliveries of industrial engines fell 4 percent
mostly due to weak Western European economic growth and sluggish industry
conditions. Worldwide marine engine deliveries fell 9 percent due to lower
demand for large reciprocating engines used in workboats and ocean-going
vessels.
In North America, engine deliveries to end users and OEMs were up 2 percent from
2002. Higher deliveries into the industrial, petroleum and on-highway truck
sectors more than offset lower deliveries to the electric power and marine
sectors. Engine deliveries to end users and OEMs in the industrial sector
increased 22 percent caused by stronger industry demand as corporate profits and
business investment recovered. Engines delivered to North American truck and bus
manufacturers rose 4 percent with all of the growth caused by a 16 percent gain
in demand for midrange engines. Caterpillar maintained its leadership position
in the North American on-highway truck and bus industry. Deliveries of engines
to the petroleum sector rose 5 percent, positively impacted by rising industry
profits and more favorable investment trends. Deliveries of engines to the
electric power sector declined 4 percent with weaker demand for turbines
compared to last year when deliveries to various colleges and universities to
meet future energy needs were abnormally strong. Deliveries of engines to the
marine sector declined 20 percent due to lower demand for large reciprocating
engines used in workboats.
In EAME, overall deliveries to end users and OEMs rose 2 percent, with higher
deliveries to the electric power and petroleum sectors up 18 and 10 percent,
respectively. EAME deliveries of reciprocating engines gained from particular
industry strength in the Middle East. Deliveries to the Middle East strengthened
due to favorable oil prices and revenues, steadily improving regional
geopolitical confidence and reconstruction efforts. EAME deliveries of engines
to the industrial and marine sectors fell 11 and 17 percent, respectively,
caused by weak economic growth in Western Europe and lower industry demand for
workboats and ocean-going vessels.
Deliveries to end users and OEMs in Latin America fell 17 percent as gains in
deliveries to the on-highway truck, industrial and marine sectors were more than
offset by weaker demand for engines delivered into the electric power and
petroleum sectors. Deliveries of turbines and turbine services to the Latin
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American electric power sector rose sharply but not enough to offset much weaker
deliveries of large reciprocating engines delivered into Brazil. Deliveries of
large reciprocating engines rose sharply in 2002 when Brazil had significant
hydroelectric power shortages but demand fell substantially after these power
shortages disappeared.
Deliveries to end users and OEMs in Asia/Pacific were up 11 percent compared to
last year led by a 31 percent gain in engine deliveries to the electric power
sector. Improving economic growth and rising business investment supported
growth in all sectors except petroleum. Asia/Pacific demand for large engines
used in the petroleum sector weakened from last year's strong levels; last year
key countries in Asia/Pacific made large investments in engines to increase
their oil and gas development and production.
Dealer Inventories of Engines
Worldwide dealer engine inventories at year end were slightly above last year
and slightly above normal compared to selling rates. North American and Latin
American dealers aggressively worked their surplus electric power engine
inventories down to normal levels. EAME dealer inventories rose significantly as
dealers pre-positioned inventory to support expected Middle Eastern
reconstruction efforts. Dealer inventories in Asia/Pacific rose slightly as
delivery trends improved.
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Sales and Revenues
(Millions of dollars) Total North Latin Asia/
America EAME America Pacific
Fourth Quarter 2003
Machinery $ 3,827 $ 2,088 $ 939 $ 291 $ 509
Engines1 2,184 876 703 300 305
Financial Products2 454 325 79 23 27
---- --------- -- --------- --- ----------- ---- ---------- ---- --------
$ 6,465 $ 3,289 $ 1,721 $ 614 $ 841
---- --------- -- --------- --- ----------- ---- ---------- ---- --------
Fourth Quarter 2002
Machinery $ 3,151 $ 1,643 $ 878 $ 186 $ 444
Engines1 1,838 728 589 270 251
Financial Products2 388 280 70 1 37
---- --------- -- --------- --- ----------- ---- ---------- ---- --------
$ 5,377 $ 2,651 $ 1,537 $ 457 $ 732
-------------- ------------ --------------- --------------- -------------
1 Does not include internal engine transfers of $362 million and $316 million in fourth quarter 2003 and fourth 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 $47 million and $43 million in fourth quarter 2003 and
fourth quarter 2002, respectively.
Machinery sales were $3.83 billion, an increase of $676 million or 21 percent
from fourth quarter 2002. Sales volume was up about 14 percent, the favorable
impact of currency accounted for about 4 percent and improved price realization
added about 3 percent. North America had the strongest quarter of the year, with
machinery sales 27 percent higher than fourth quarter 2002 due to higher sales
volume and favorable price realization. Sales volume was up as a result of
continued growth in dealer deliveries into construction, forestry, quarry and
aggregates and a modest rebound in deliveries into coal mining. Sales in EAME
increased 7 percent, the result of the favorable translation impact of a
stronger euro, partially offset by a sales volume decline due to soft economic
conditions in Europe. In Latin America, sales surged 56 percent. This gain
reflects an increase in dealer inventories. Asia/Pacific sales were 15 percent
higher than last year. Dealers added less to inventories than last year,
offsetting some of the large gain in deliveries.
Engines sales were $2.18 billion, an increase of $346 million or 19 percent from
fourth quarter 2002. Sales volume was up about 15 percent, the favorable impact
of currency accounted for about 3 percent and improved emissions-related price
increases (net of unfavorable price realization) added about 1 percent. Sales
rose 20 percent in North America, 19 percent in EAME, 11 percent in Latin
America and 22 percent in Asia/Pacific. The North American sales gain came from
a doubling in quarterly sales of truck engines compared to last year's fourth
quarter which was negatively impacted by truck manufacturers' buying engines
before the October 2002 engine emission regulations became effective. Sales in
EAME rose due to the favorable effects of currency on engines sold into the
electric power and industrial sectors and stronger industry demand for engines
sold into the petroleum sector. In Latin America, higher sales of midrange truck
engines and engines sold to the petroleum sector more than offset a 35 percent
drop in sales to the electric power sector. Last year's fourth-quarter Latin
American sales contained robust sales of large engines sold into Brazil to meet
a hydroelectric power shortage. Stronger economic growth contributed to the
increase in Asia/Pacific, where sales were higher in all major sectors. Sales
into the global on-highway truck and bus engine sector doubled. Global sales of
industrial and marine engines gained 15 and 7 percent, respectively, due to the
favorable effects of currency and slight industry growth. Sales into the
petroleum sector were up 6 percent. Global sales into the electric power sector
were down 2 percent despite favorable effects of currency.
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Financial Products revenues were $454 million, an increase of $66 million or 17
percent from fourth quarter 2002. The favorable impact of $56 million due to
continued growth of earning assets at Cat Financial was partially offset by the
$27 million impact of lower interest rates on new and existing finance
receivables. Also, there was a $17 million increase in earned premiums on
extended service contracts at Cat Insurance.
Higher sales volume positively impacted operating profit but was partially
offset by unfavorable sales mix primarily due to lower sales of higher margin
fuel system components to Navistar attributable to the imminent expiration of a
long-term purchase contract in 2003 between Caterpillar and Navistar as well as
higher sales of lower margin small diesel engines. Improved price realization of
$63 million reflected the favorable impact of modest price increases taken in
January 2003 on most machines and parts. The impact of changes in emission
standards favorably impacted operating profit by $32 million as more ACERT
product was introduced in the marketplace.
Partially offsetting the favorable items were $93 million higher core operating
costs and $79 million of higher retirement benefits. The retirement benefits
cost increase was primarily due to the impact of previous poor performance of
equity markets on pension plan assets and increased expense resulting from the
introduction of a company match to our 401(k) plan in 2003.
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The increase in core operating costs reflects a lower than normal SG&A spending
level in the fourth quarter 2002 due to stringent cost control reflective of
business conditions, higher incentive compensation which benefits employees at
all levels, increased spending on product development programs, spending to
support our volume growth and the unfavorable change of the gain/loss on
disposition of assets. These unfavorable items were partially offset by the
positive impact of continued material cost reductions and lower warranty costs.
Operating Profit
(Millions of dollars) Fourth Quarter Fourth Quarter
2002 2003
Machinery1 $ 366 $ 367
Engines1 26 70
Financial Products 65 87
Consolidating Adjustments (20) (25)
----------------------------------- ----------------------------
$ 437 $ 499
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 was up $1 million compared to the fourth quarter
2002. The favorable impacts of higher volume and improved price realization were
almost completely offset by higher core operating costs and retirement benefits.
The increase in core operating costs was due to a lower than normal SG&A
spending level in the fourth quarter 2002, higher incentive compensation,
increased spending on product development programs, spending to support our
volume growth and the unfavorable change of the gain/loss on disposition of
assets. These unfavorable items were partially offset by the positive impact of
continued material cost reductions and lower warranty costs.
Engines operating profit was up $44 million, or 169 percent, from fourth quarter
2002. The favorable impacts of higher volume (net of unfavorable sales mix) and
meeting engine emissions standards with our ACERT technology were partially
offset by lower price realization and higher retirement benefits.
Financial Products operating profit was up $22 million, or 34 percent, from
fourth quarter 2002. The increase was primarily due to the impact of growth of
earning assets of $11 million, decreased provision for credit losses of $8
million, and the favorable impact of $6 million due to lower interest rates
(interest rates on debt decreased more than on the portfolio).
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OTHER PROFIT/LOSS ITEMS
Interest expense excluding Financial Products was $19 million lower compared to
fourth quarter 2002 primarily due to lower average long-term borrowings.
Other income/expense was income of $20 million compared with income of $51
million in fourth quarter 2002. The change was mostly due to the unfavorable
impact of currency.
The provision for income taxes in the fourth quarter reflects an estimated
annual tax rate of 27 percent for 2003 compared to 28 percent a year ago due to
the geographic mix of profits and changes in the estimated tax benefits from
export sales.
The equity in profit/loss of unconsolidated affiliated companies favorably
impacted profit $3 million from fourth 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.
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. Constant Dollars - The dollar value of machine and engine deliveries adjusted
for changes in price and currency.
4. Core Operating Costs - Machinery and Engines operating cost change adjusted
for volume. It excludes currency, retirement benefits and emissions
production cost increases, ramp-up production costs and non-conformance
penalties.
5. 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.
6. EAME - Geographic region including Europe, Africa, the Middle East and the
Commonwealth of Independent States (CIS).
7. 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.
14
----------------------------------------------------------------------------
8. 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).
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 subsidiaries. Cat
Financial provides a wide range of financing alternatives 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. Latin America - Geographic region including the Central American countries
and Mexico.
11. 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. Also includes logistics services for other companies.
12. 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.
13. Price Realization - The impact of net price changes excluding emissions
price increases and currency.
14. Retirement Benefits - Cost of defined benefit pension plans, defined
contribution plans and retirement healthcare and life insurance.
15. 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.
16. 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.
15
--------------------------------------------------------------------------------
NON-GAAP FINANCIAL MEASURES
The following definition is provided for "non-GAAP financial measures" in
connection with Regulation G issued by the Securities and Exchange Commission.
This non-GAAP financial measure has no standardized meaning prescribed by U.S.
GAAP, and therefore, is unlikely to be comparable to the calculation of similar
measures for other companies. Management does not intend this item to be
considered in isolation or as a substitute for the related GAAP measure.
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 21 - 26 reconciles Machinery and Engines with
Financial Products on the Equity Basis to Caterpillar Inc. Consolidated
financial information.
* * *
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 January 27, 2004. 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
16
--------------------------------------------------------------------------------
Caterpillar Inc.
Condensed Consolidated Statement of Results of Operations
(Unaudited)
(Dollars in millions except per share data)
-----------------------------------------------------------------------------------------------------------------------
Three Months Ended Twelve Months Ended
December 31, December 31,
2003 2002 2003 2002
-------------- ------------- -------------- --------------
Sales and revenues:
Sales of Machinery and Engines $ 6,011 $ 4,989 $ 21,048 $ 18,648
Revenues of Financial Products 454 388 1,715 1,504
-------------- ------------- -------------- --------------
Total sales and revenues 6,465 5,377 22,763 20,152
Operating costs:
Cost of goods sold 4,843 4,067 16,945 15,146
Selling, general and administrative 669 507 2,470 2,094
expenses
Research and development expenses 175 132 669 656
Interest expense of Financial Products 116 128 470 521
Other operating expenses 163 106 521 411
-------------- ------------- -------------- --------------
Total operating costs 5,966 4,940 21,075 18,828
-------------- ------------- -------------- --------------
Operating profit 499 437 1,688 1,324
Interest expense excluding Financial 54 73 246 279
Products
Other income (expense) 20 51 35 69
-------------- ------------- -------------- --------------
Consolidated profit before taxes 465 415 1,477 1,114
Provision for income taxes 125 116 398 312
-------------- ------------- -------------- --------------
Profit of consolidated companies 340 299 1,079 802
Equity in profit (loss) of unconsolidated 9 6 20 (4)
affiliated companies
-------------- ------------- -------------- --------------
Profit $ 349 $ 305 $ 1,099 $ 798
Profit per common share $ 1.01 $ 0.89 $ 3.18 $ 2.32
Profit per common share - assuming dilution 1 $ 0.97 $ 0.88 $ 3.13 $ 2.30
Weighted average common shares outstanding
(thousands)
- Basic 345,923 344,218 345,223 343,980
- Assuming dilution 1 358,651 346,318 351,352 346,946
Cash dividends paid per common share $ 0.37 $ 0.35 $ 1.42 $ 1.40
1 Diluted by assumed exercise of stock options, using the treasury stock method.
Certain amounts from prior periods have been reclassified to conform to current financial statement presentation.
17
--------------------------------------------------------------------------------
Caterpillar Inc.
Condensed Consolidated Statement of Financial Position
(Unaudited)
(Millions of dollars)
-----------------------------------------------------------------------------------------------------------------------
As of December 31,
2003 2002
------------------ ------------------
Assets
Current Assets
Cash and short-term investments $ 342 $ 309
Receivables - trade and other 3,666 2,838
Receivables - finance 7,605 6,748
Deferred and refundable income taxes 348 642
Prepaid expenses 1,962 1,328
Inventories 3,047 2,763
------------------ ------------------
Total current assets 16,970 14,628
Property, plant and equipment - net 7,290 7,046
Long-term receivables - trade and other 82 66
Long-term receivables - finance 7,822 6,714
Investments in unconsolidated affiliated companies 800 747
Deferred income taxes 986 850
Intangible assets 239 281
Goodwill 1,398 1,402
Other assets 1,427 1,117
------------------ ------------------
Total Assets $ 37,014 $ 32,851
Liabilities
Current liabilities:
Short-term borrowings:
-- Machinery and Engines $ 72 $ 64
-- Financial Products 2,385 2,111
Accounts payable 3,100 2,269
Accrued expenses 1,638 1,620
Accrued wages, salaries and employee benefits 1,252 1,178
Dividends payable 127 120
Deferred and current income taxes payable 227 70
Long-term debt due within one year:
-- Machinery and Engines 32 258
-- Financial Products 2,949 3,654
------------------ ------------------
Total current liabilities 11,782 11,344
------------------ ------------------
Long-term debt due after one year:
-- Machinery and Engines 3,367 3,403
-- Financial Products 11,011 8,193
Liability for postemployment benefits 4,260 4,038
Deferred income taxes and other liabilities 516 401
------------------ ------------------
Total Liabilities 30,936 27,379
------------------ ------------------
Stockholders' Equity
Common stock 1,059 1,034
Treasury stock (2,914) (2,669)
Profit employed in the business 8,450 7,849
Accumulated other comprehensive income (517) (742)
------------------ ------------------
Total Stockholders' Equity 6,078 5,472
------------------ ------------------
Total Liabilities and Stockholders' Equity $ 37,014 $ 32,851
18
--------------------------------------------------------------------------------
Caterpillar Inc.
Condensed Consolidated Statement of Cash Flow
(Unaudited)
(Millions of dollars)
----------------------------------------------------------------------------------------------------------------------
Twelve Months Ended
December 31,
2003 2002
----------------- -----------------
Cash flow from operating activities:
Profit $ 1,099 $ 798
Adjustments for non-cash items:
Depreciation and amortization 1,347 1,220
Other (3) 397
Changes in assets and liabilities:
Receivables - trade and other (521) (50)
Inventories (286) 162
Accounts payable and accrued expenses 617 164
Other - net (187) (325)
----------------- -----------------
Net cash provided by operating activities 2,066 2,366
----------------- -----------------
Cash flow from investing activities:
Capital expenditures excluding equipment leased to others (682) (728)
Expenditures for equipment leased to others (1,083) (1,045)
Proceeds from disposals of property, plant and equipment 761 561
Additions to finance receivables (17,146) (15,338)
Collection of finance receivables 13,882 11,866
Proceeds from the sale of finance receivables 1,760 2,310
Investments and acquisitions (net of cash acquired) (36) (294)
Other - net (17) (40)
----------------- -----------------
Net cash used for investing activities (2,561) (2,708)
----------------- -----------------
Cash flow from financing activities:
Dividends paid (491) (481)
Common stock issued, including treasury shares reissued 157 10
Treasury Shares Purchased (405) -
Proceeds from long-term debt issued 5,357 4,137
Payments on long-term debt (4,237) (3,339)
Short-term borrowings - net 132 (102)
----------------- -----------------
Net cash provided by financing activities 513 225
----------------- -----------------
Effect of exchange rate on cash 15 26
----------------- -----------------
Increase (Decrease) in cash and short-term investments 33 (91)
Cash and short-term investments at beginning of period 309 400
----------------- -----------------
Cash and short-term investments at end of period $ 342 $ 309
19
--------------------------------------------------------------------------------
Caterpillar Inc.
Supplemental Data for Results of Operations
For The Year Ended December 31, 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 $ 21,048 $ 21,048 $ - $ -
Revenues of Financial Products 1,715 - 1,895 (180)2
--------------- -------------- ------------ ----------------
Total sales and revenues 22,763 21,048 1,895 (180)
Operating costs:
Cost of goods sold 16,945 16,945 - -
Selling, general and administrative 2,470 2,009 538 (77)3
expenses
Research and development expenses 669 669 - -
Interest expense of Financial Products 470 - 482 (12)4
Other operating expenses 521 (9) 530 -
--------------- -------------- ------------ ----------------
Total operating costs 21,075 19,614 1,550 (89)
--------------- -------------- ------------ ----------------
Operating profit 1,688 1,434 345 (91)
Interest expense excluding Financial 246 259 - (13)4
Products
Other income (expense) 35 (69) 26 78 5
--------------- -------------- ------------ ----------------
Consolidated profit before taxes 1,477 1,106 371 -
Provision for income taxes 398 286 112 -
--------------- -------------- ------------ ----------------
Profit of consolidated companies 1,079 820 259 -
Equity in profit (loss) of unconsolidated 20 16 4 -
affiliated companies
Equity in profit of Financial Products' - 263 - (263)6
subsidiaries
--------------- -------------- ------------ ----------------
Profit $ 1,099 $ 1,099 $ 263 $ (263)
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.
20
--------------------------------------------------------------------------------
Caterpillar Inc.Supplemental Data for Results of Operations
For The Year Ended December 31, 2002
(Unaudited)(Millions of dollars)
-----------------------------------------------------------------------------------------------------------------------
Supplemental Consolidating Data
--------------------------------------
Consolidated Machinery Financial Consolidating
and Products Adjustments
Engines1
------------ ---------- --------- -------------
Sales and revenues:
Sales of Machinery and Engines $ 18,648 $ 18,648 $ - $ -
Revenues of Financial Products 1,504 - 1,678 (174)2
------------ ---------- --------- -------------
Total sales and revenues 20,152 18,648 1,678 (174)
Operating costs:
Cost of goods sold 15,146 15,146 - -
Selling, general and administrative expenses 2,094 1,739 430 (75)3
Research and development expenses 656 656 - -
Interest expense of Financial Products 521 - 538 (17)4
Other operating expenses 411 (15) 426 -
------------ ---------- --------- -------------
Total operating costs 18,828 17,526 1,394 (92)
------------ ---------- --------- -------------
Operating profit 1,324 1,122 284 (82)
Interest expense excluding Financial Products 279 279 - -
Other income (expense) 69 (16) 3 82 5
------------ ---------- --------- -------------
Consolidated profit before taxes 1,114 827 287 -
Provision for income taxes 312 204 108 -
------------ ---------- --------- -------------
Profit of consolidated companies 802 623 179 -
Equity in profit (loss) of unconsolidated affiliated companies (4) (12) 8 -
Equity in profit of Financial Products' subsidiaries - 187 - (187)6
------------ ---------- --------- -------------
Profit $ 798 $ 798 $ 187 $ (187)
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.
21
--------------------------------------------------------------------------------
Caterpillar Inc.
Supplemental Data for Results of Operations
For The Three Months Ended December 31, 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 $ 6,011 $ 6,011 $ - $ -
Revenues of Financial Products 454 - 501 (47)2
--------------- -------------- ------------ ----------------
Total sales and revenues 6,465 6,011 501 (47)
Operating costs:
Cost of goods sold 4,843 4,843 - -
Selling, general and administrative 669 539 151 (21)3
expenses
Research and development expenses 175 175 - -
Interest expense of Financial Products 116 - 117 (1)4
Other operating expenses 163 17 146 -
--------------- -------------- ------------ ----------------
Total operating costs 5,966 5,574 414 (22)
--------------- -------------- ------------ ----------------
Operating profit 499 437 87 (25)
Interest expense excluding Financial 54 58 - (4)4
Products
Other income (expense) 20 (4) 3 21 5
--------------- -------------- ------------ ----------------
Consolidated profit before taxes 465 375 90 -
Provision for income taxes 125 112 13 -
--------------- -------------- ------------ ----------------
Profit of consolidated companies 340 263 77 -
Equity in profit (loss) of unconsolidated 9 9 - -
affiliated companies
Equity in profit of Financial Products' - 77 - (77)6
subsidiaries
--------------- -------------- ------------ ----------------
Profit $ 349 $ 349 $ 77 $ (77)
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.
22
--------------------------------------------------------------------------------
Caterpillar Inc.
Supplemental Data for Results of Operations
For The Three Months Ended December 31, 2002
(Unaudited)
(Millions of dollars)
-----------------------------------------------------------------------------------------------------------------------
Supplemental Consolidating Data
-----------------------------------------
Consolidated Machinery Financial Consolidating
and Engines1 Products Adjustments
------------ ------------ ---------- -------------
Sales and revenues:
Sales of Machinery and Engines $ 4,989 $ 4,989 $ - $ -
Revenues of Financial Products 388 - 431 (43)2
------------ ------------ ---------- -------------
Total sales and revenues 5,377 4,989 431 (43)
Operating costs:
Cost of goods sold 4,067 4,067 - -
Selling, general and administrative expenses 507 413 113 (19)3
Research and development expenses 132 132 - -
Interest expense of Financial Products 128 - 132 (4)4
Other operating expenses 106 (15) 121 -
------------ ------------ ---------- -------------
Total operating costs 4,940 4,597 366 (23)
------------ ------------ ---------- -------------
Operating profit 437 392 65 (20)
Interest expense excluding Financial Products 73 73 - -
Other income (expense) 51 28 3 20 5
------------ ------------ ---------- -------------
Consolidated profit before taxes 415 347 68 -
Provision for income taxes 116 88 28 -
------------ ------------ ---------- -------------
Profit of consolidated companies 299 259 40 -
Equity in profit (loss) of unconsolidated affiliated 6 4 2 -
companies
Equity in profit of Financial Products' subsidiaries - 42 - (42)6
------------ ------------ ---------- -------------
Profit $ 305 $ 305 $ 42 $ (42)
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.
Page 23
--------------------------------------------------------------------------------
Caterpillar Inc.
Supplemental Data for Cash Flow
For The Year Ended December 31, 2003
(Unaudited)
(Millions of dollars)
-----------------------------------------------------------------------------------------------------------------------
Supplemental Consolidating Data
--------------------------------------------
Consolidated Machinery Financial Consolidating
and Engines1 Products Adjustments
------------- -------------- ----------- -------------
Cash flow from operating activities:
Profit $ 1,099 $ 1,099 $ 263 $ (263)2
Adjustments for non-cash items:
Depreciation and amortization 1,347 798 549 -
Profit of Financial Products - (263) - 263 3
Other (3) - 20 (23)4
Changes in assets and liabilities:
Receivables - trade and other (521) (376) (250) 105 4
Inventories (286) (286) - -
Accounts payable and accrued expenses 617 674 (4) (53)4
Other - net (187) (219) 61 (29)4
------------- -------------- ----------- -------------
Net cash provided by operating activities 2,066 1,427 639 -
------------- -------------- ----------- -------------
Cash flow from investing activities:
Capital Expenditures excluding equipment leased to (682) (654) (28) -
others
Expenditures for equipment leased to others (1,083) (10) (1,073) -
Proceeds from disposals of property, plant and equipment 761 133 628 -
Additions to finance receivables (17,146) - (17,146) -
Collection of finance receivables 13,882 - 13,882 -
Proceeds from the sale of finance receivables 1,760 - 1,760 -
Net intercompany borrowings - 376 53 (429)5
Investments and acquisitions (net of cash acquired) (36) (18) (18) -
Other - net (17) (23) (47) 53 6
------------- -------------- ----------- -------------
Net cash provided by (used for) investing activities (2,561) (196) (1,989) (376)
------------- -------------- ----------- -------------
Cash flow from financing activities:
Dividends paid (491) (491) - -
Common stock issued, including treasury shares reissued 157 157 53 (53)6
Treasury Shares purchased (405) (405) - -
Net intercompany borrowings - (53) (376) 429 5
Proceeds from long-term debt issued 5,357 83 5,274 -
Payments on long-term debt (4,237) (463) (3,774) -
Short-term borrowings - net 132 8 124 -
------------- -------------- ----------- -------------
Net cash provided by (used for) financing activities 513 (1,164) 1,301 376
------------- -------------- ----------- -------------
Effect of exchange rate on cash 15 7 8 -
------------- -------------- ----------- -------------
Increase (Decrease) in cash and short-term investments 33 74 (41) -
Cash and short-term investments at beginning of period 309 146 163 -
------------- -------------- ----------- -------------
Cash and short-term investments at end of period $ 342 $ 220 $ 122 $ -
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.
Page 24
--------------------------------------------------------------------------------
Caterpillar Inc.
Supplemental Data for Cash Flow
For The Year Ended December 31, 2002
(Unaudited)
(Millions of dollars)
-----------------------------------------------------------------------------------------------------------------------
Supplemental Consolidating Data
----------------------------------------------------
Consolidated Machinery Financial Consolidating
and Engines 1 Products Adjustments
------------------ -------------- ------------- -------------
Cash flow from operating activities:
Profit $ 798 $ 798 $ 187 $ (187)2
Adjustments for non-cash items:
Depreciation and amortization 1,220 785 435 -
Profit of Financial Products - (187) - 187 3
Other 397 285 98 14 4
Changes in assets and liabilities:
Receivables - trade and other (50) 125 (138) (37)4
Inventories 162 162 - -
Accounts payable and accrued 164 114 25 25 4
expenses
Other - net (325) (386) 42 19 4
------------------ -------------- ------------- -------------
Net cash provided by operating activities 2,366 1,696 649 21
------------------ -------------- ------------- -------------
Cash flow from investing activities:
Capital expenditures - excluding (728) (693) (35) -
equipment leased to others
Expenditures for equipment leased to (1,045) (5) (1,040) -
others
Proceeds from disposals of property, 561 88 473 -
plant and equipment
Additions to finance receivables (15,338) - (15,338) -
Collection of finance receivables 11,866 - 11,866 -
Proceeds from the sale of finance 2,310 - 2,310 -
receivables
Net intercompany borrowings - (571) 14 557 5
Investments and acquisitions (net of (294) (24) (270) -
cash acquired)
Other - net .. (40) (14) (62) 36 6
------------------ -------------- ------------- -------------
Net cash used for investing activities (2,708) (1,219) (2,082) 593
------------------ -------------- ------------- -------------
Cash flow from financing activities:
Dividends paid (481) (481) - -
Common stock issued, including treasury 10 10 36 (36)6
shares reissued
Net intercompany borrowings - (14) 571 (557)5
Proceeds from long-term debt issued 4,137 248 3,889 -
Payments on long-term debt (3,339) (225) (3,114) -
Short-term borrowings - net (102) (155) 53 -
------------------ -------------- ------------- -------------
Net cash provided by (used for) financing 225 (617) 1,435 (593)
activities
------------------ -------------- ------------- -------------
Effect of exchange rate on cash 26 35 12 (21)7
------------------ -------------- ------------- -------------
Increase (Decrease) in cash and short-term (91) (105) 14 -
investments
Cash and short-term investments at 400 251 149 -
beginning of period
------------------ -------------- ------------- -------------
Cash and short-term investments at end of $ 309 $ 146 $ 163 $ -
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.
Page 25
--------------------------------------------------------------------------------
Safe Harbor Statement under the Securities Litigation Reform Act of 1995
Certain statements contained in our fourth-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
A worldwide economic recovery is now underway and further strengthening should
occur this year. Economic growth is expected to exceed 3.5 percent in 2004, or
about 1 percentage point more than in 2003. Low interest rates initiated
economic recoveries and low inflation rates likely will encourage central
bankers to be cautious about implementing any interest rate hikes. If, however,
central bankers decide to raise interest rates significantly, the recovery would
be less robust than assumed, likely weakening machinery and engine sales.
The U.S. economy ended 2003 strong and the Federal Reserve's stated plan to keep
interest rates low for a considerable period should ensure a very good year for
the economy in 2004. We project U.S. growth of at least 4.5 percent and the
Canadian economy should rebound from 2003's slowdown, growing more than 3
percent in 2004. This environment should allow the recovery in Machinery and
Engines sales that developed last year to strengthen further this year. Low
interest rates, the tax cuts and the favorable impact of a weaker dollar have
all helped the economy and our sales. Should any of these factors change
substantially, such as a significant increase in interest rates, both economic
growth and our sales probably would be weaker than assumed.
European economies recovered slowly in the last of 2003 and current low interest
rates should allow further strengthening this year. We expect the European
economies will grow 2 percent in 2004, fast enough to allow some improvement in
construction activity. Favorable energy prices, plus much higher commodity
prices, will promote another year of good economic growth in both Africa/Middle
East and the CIS. As a result, we project some improvement in EAME sales in
2004. However, the European recovery is fragile and developments such as a much
stronger euro or modest interest rate hikes could cause economic growth to
falter. In that case, the modest recovery in sales would be in jeopardy.
The Japanese economy has grown for seven consecutive quarters and 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 strengthen. We project
economic growth of 3 percent in 2004, up more than 1/2 percentage point from
2003 and the best year since 1996. 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.
Our outlook assumes that the Asia/Pacific region will again lead the world in
economic growth, improving to over 6 percent growth in 2004. We expect China's
booming economy will slow a bit in response to modest tightening in economic
policies but better growth in most other countries will more than pick up the
slack. Strong domestic economies and low local interest rates will boost
construction and the region's sizeable mining sector will benefit from higher
prices. The principle risks that could disrupt economic growth and our sales are
significant policy tightening in China and intensified trade frictions that slow
exports from the region.
We expect Latin American economic growth to improve to about 3.5 percent in
2004, much better than the 1.5 percent rate experienced in 2003. The region will
benefit from the worldwide economic recovery, reductions in local interest rates
and a rebound in foreign direct investment inflows. Better economic growth
should boost our sales; however, should the economic recovery not materialize as
expected, our sales could continue to decline.
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Commodity Prices
Commodities represent a significant sales opportunity, with prices and
production as key drivers. Prices have improved sharply over the past year and
our outlook assumes continued growth in the world economy will cause metals
prices to increase further in 2004. Any unexpected weakening in world industrial
production, however, could cause prices to drop sharply to the detriment of our
results.
While coals stocks are high and prices have been soft, our outlook assumes
production and prices will improve in 2004. If coal production and prices do not
improve, our results could be negatively affected.
Oil and natural gas prices have continued fairly high into 2004 due to strong
demand and tight inventories. Our outlook assumes that increased production will
ease shortages in both oil and natural gas, allowing prices to ease some. We do
not yet view higher energy prices as a threat to economies since it is strong
demand that is boosting prices. However, should significant supply cuts occur,
such as from OPEC production cuts or political unrest in a major producing
country, the resulting price spikes likely would slow economies, potentially
with a depressing impact on 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.
While economic data are looking more favorable, central banks in most developed
countries are still holding interest rates steady. Two (Reserve Bank of
Australia and Bank of England) have implemented modest interest rate increases.
Our outlook assumes that central banks will take great care to ensure that
economic recoveries continue and that interest rates will remain low throughout
2004. Should central banks raise interest rates too aggressively, both economic
growth and our sales could suffer.
Budget deficits in many countries have increased, which has 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.
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 2004; more drastic reductions would adversely affect
sales.
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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 provided 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 on-highway engines in October
2002 as a "bridge" until the fully compliant ACERT engines were introduced in
2003. These "bridge" engines required the payment of NCPs. At year-end 2003,
Caterpillar was in production of all models of its medium-duty and heavy-duty
compliant ACERT engines. Therefore, our outlook for 2004 assumes that we will
not pay NCPs beyond 2003. Our outlook is also subject to assumptions regarding
price increases and sales volumes. Our net price increase for heavy-duty
on-highway 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 and implemented a price increase on January 1, 2004 for medium-duty
ACERT engines. These increases are 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 NCPs, 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.
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. Our
match funding policy manages interest rate risk by matching the interest rate
profile (fixed rate or floating rate) of our debt portfolio with the interest
rate profile of our receivables portfolio within certain parameters. To achieve
our match funding objectives, we issue debt with similar interest rate profile
to our receivables and also use interest rate swap agreements to manage our
interest rate risk exposure to interest rate changes and in some cases to lower
our cost of borrowed funds. If interest rates move upward more sharply than
anticipated, our financial results could be negatively impacted. 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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