EMPLOYMENT
Caterpillar's worldwide employment was 95,290 at the end of the first quarter of 2010. Employment declined by approximately 7,800 from the first quarter of 2009 as we took steps to bring our workforce in line with demand. Since year-end 2009, worldwide employment has increased approximately 1,500, primarily due to increases in production volume. About 600 of the additional employees were in the United States and about 900 were outside the United States.
Employment needs are linked to business conditions and production volume. We have raised production schedules in most facilities, and we expect to increase employment in 2010 as a result. However, significant use of rolling plant shutdowns in 2009 will offset some of the need for additional employees.
The strength of recovery will vary significantly among product type, industry served and geography. Currently, we are seeing faster recovery in Asia/Pacific and Latin America. So, prospects for employment increases in 2010 are best for facilities in those regions. In addition, we expect to add employees at several facilities in the United States where a substantial portion of the production is exported.
OTHER MATTERS
Environmental and Legal Matters
The company is regulated by federal, state and international environmental laws governing our use, transport and disposal of substances and control of emissions. In addition to governing our manufacturing and other operations, these laws often impact the development of our products, including, but not limited to, required compliance with air emissions standards applicable to internal combustion engines. Compliance with these existing laws has not had a material impact on our capital expenditures, earnings or global competitive position.
We are engaged in remedial activities at a number of locations, often with other companies, pursuant to federal and state laws. When it is probable we will pay remedial costs at a site and those costs can be reasonably estimated, the costs are charged against our earnings. In formulating that estimate, we do not consider amounts expected to be recovered from insurance companies or others. The amount recorded for environmental remediation is not material and is included in Accrued expenses in Consolidated Statement of Financial Position.
We cannot reasonably estimate costs at sites in the very early stages of remediation. Currently, we have a few sites in the very early stages of remediation, and there is no more than a remote chance that a material amount for remedial activities at any individual site, or at all sites in the aggregate, will be required.
We have disclosed certain individual legal proceedings in this filing. Additionally, we are involved in other unresolved legal actions that arise in the normal course of business. The most prevalent of these unresolved actions involve disputes related to product design, manufacture and performance liability (including claimed asbestos and welding fumes exposure), contracts, employment issues or intellectual property rights. Although it is not possible to predict with certainty the outcome of these unresolved legal actions, we believe that these actions will not individually or in the aggregate have a material adverse effect on our consolidated results of operations, financial position or liquidity.
On May 14, 2007, the U.S. Environmental Protection Agency (EPA) issued a Notice of Violation to Caterpillar Inc., alleging various violations of Clean Air Act Sections 203, 206 and 207. EPA claims that Caterpillar violated such sections by shipping engines and catalytic converter after-treatment devices separately, introducing into commerce a number of uncertified and/or misbuilt engines, and failing to timely report emissions-related defects. Caterpillar is currently engaging in negotiations with EPA to resolve these issues, but it is too early in the process to place precise estimates on the potential exposure to penalties. However, Caterpillar is cooperating with EPA and, based upon initial discussions, and although penalties could potentially exceed $100,000, management does not believe that this issue will have a material adverse impact on our consolidated results of operations, financial position or liquidity.
On February 8, 2009, an incident at Caterpillar's Joliet, Illinois facility resulted in the release of approximately 3,000 gallons of wastewater into the Des Plaines River. In coordination with state and federal authorities, appropriate remediation measures have been taken. On February 23, 2009, the Illinois Attorney General filed a Complaint in Will County Circuit Court containing seven counts of violations of state environmental laws and regulations. Each count seeks injunctive relief, as well as statutory penalties of $50,000 per violation and $10,000 per day of violation. In addition, on March 5, 2009, the EPA served Caterpillar with a Notice of Intent to file a Civil Administrative Action (notice), indicating the EPA's intent to seek civil penalties for violations of the Clean Water Act and Oil Pollution Act. On January 25, 2010, the EPA issued a revised notice seeking civil penalties in the amount of $167,800, and Caterpillar responded to the revised notice and is engaged in follow up discussions with the EPA. On March 8, 2010, the Illinois Attorney General submitted a demand to Caterpillar seeking a $100,000 civil penalty. At this time, we do not believe these proceedings will have a material adverse impact on our consolidated results of operations, financial position or liquidity.
Retirement Benefits
We recognized pension expense of $156 million for the three months ended March 31, 2010, as compared to $257 million for the three months ended March 31, 2009. The decrease in expense was the result of $139 million of curtailment, settlement and special termination benefit costs due to voluntary and involuntary separation programs (discussed below) recognized for the three months ended March 31, 2009, partially offset by increased amortization of net actuarial losses due to significant asset losses in 2008 and lower discount rates at the end of 2009. Accounting guidance on retirement benefits requires companies to discount future benefit obligations back to today's dollars using a discount rate that is based on high-quality fixed-income investments. A decrease in the discount rate increases the pension benefit obligation, while an increase in the discount rate decreases the pension benefit obligation. This increase or decrease in the pension benefit obligation is recognized in Accumulated other comprehensive income (loss) and subsequently amortized into earnings as an actuarial gain or loss. The guidance also requires companies to use an expected long-term rate of asset return for computing current year pension expense. Differences between the actual and expected returns are also recognized in Accumulated other comprehensive income (loss) and subsequently amortized into earnings as actuarial gains and losses. As of March 31, 2010, total actuarial losses, recognized in Accumulated other comprehensive income (loss), related to pensions were $6.22 billion. The majority of the actuarial losses are due to significant asset losses during 2008 in addition to losses resulting from other demographic and economic assumptions over the past several years.
Other postretirement benefit expense was $49 million for the three months ended March 31, 2010, as compared to $128 million for the three months ended March 31, 2009. The decrease in expense is due to curtailment losses of $62 million recognized for the three months ended March 31, 2009 as a result of employee separation programs (discussed below) and the impact of amendments to our U.S. support and management other postretirement benefit plan (discussed below) on 2010 expense. Actuarial losses, recognized in Accumulated other comprehensive income (loss), for other postretirement benefit plans were $651 million at March 31, 2010. These losses mainly reflect several years of declining discount rates and significant asset losses during 2008, partially offset by gains from lower than expected health care costs.
Actuarial losses for both pensions and other postretirement benefits will be impacted in future periods by actual asset returns, actual health care inflation, discount rate changes, actual demographic experience and other factors that impact these expenses. These losses, reported in Accumulated other comprehensive income (loss), will be amortized as a component of net periodic benefit cost on a straight-line basis over the average remaining service period of active employees expected to receive benefits under the benefit plans. At the end of 2009, the average remaining service period of active employees was 11 years for our U.S. pension plans, 11 years for our non-U.S. pension plans and 7 years for other postretirement benefit plans. We expect our amortization of net actuarial losses to increase approximately $150 million in 2010 as compared to 2009, primarily due to significant asset losses in 2008 and a decrease in the discount rate during 2009.
First quarter 2009 voluntary and involuntary separation programs impacted employees participating in U.S. and non-U.S. pension and other postretirement benefit plans. Due to the significance of these events, certain plans were re-measured as of January 31 and March 31, 2009. U.S. separation programs resulted in curtailment losses of $124 million to pension and $61 million to other postretirement benefit plans. Special termination benefits of $6 million were also recognized for a U.S. pension early retirement program. Non-U.S. separation programs resulted in settlement losses of $9 million to pension and curtailment losses of $1 million to other postretirement benefit plans.
In March 2009, we amended our U.S. support and management postretirement benefit plan. Beginning in 2010, certain retirees age 65 and older will no longer participate in a Caterpillar-sponsored group health plan. Instead, the retirees will enroll in individual health plans that work with Medicare, such as Medicare Advantage and Medicare Supplement plans. In addition, Caterpillar will fund a tax-advantaged Health Reimbursement Arrangement (HRA) to assist retirees with premiums and other qualified medical expenses. The plan amendment required a plan re-measurement as of March 31, 2009, which resulted in a decrease in our Liability for postretirement benefits of $432 million and an increase in Accumulated other comprehensive income (loss) of $272 million net of tax. The plan was further amended in December 2009 to define the HRA benefit that active employees will receive once they are retired and reach age 65. The plan was re-measured at year-end 2009 and the December amendment resulted in a decrease in our Liability for postretirement benefits of $101 million and an increase in Accumulated other comprehensive income (loss) of $64 million net of tax. These decreases will be amortized into earnings on a straight-line basis over approximately 7 years, the average remaining service period of active employees in the plan. The amendments reduced other postretirement benefits expense by approximately $27 million for the three months ended March 31, 2010 and did not impact expense for the three months ended March 31, 2009.
In March 2010, the Patient Protection and Affordable Care Act (the PPACA) and the Health Care and Education Reconciliation Act of 2010 (H.R. 4872) which amends certain provisions of the PPACA were signed into law. The Medicare Part D retiree drug subsidies effectively become taxable beginning in 2013.
We expect our total defined benefit expense to increase approximately $150 million in 2010 as compared to 2009, excluding the impacts from the 2009 curtailment, settlement and special termination benefits discussed above. This increase in expense is primarily due to increased amortization of net actuarial losses due to significant asset losses in 2008 and a decrease in the discount rate during 2009, partially offset by an approximate $110 million reduction in U.S. other postretirement benefits cost as a result of plan amendments.
We made $248 million of contributions to our U.S. and non-U.S. pension plans during the three months ended March 31, 2010 and we currently anticipate additional contributions of approximately $750 million during the remainder of the year, most of which are voluntary contributions. We believe we have adequate liquidity resources to fund both U.S. and non-U.S. plans.
Employee Separation Charges
In 2009, we reported employee separation charges of $481 million in Other operating (income) expenses in the Consolidated Statement of Results of Operations related to various voluntary and involuntary separation programs. These programs were in response to a sharp decline in sales volume due to the global recession.
Our accounting for separations is dependent upon how the particular program is designed. For voluntary programs, eligible separation costs are recognized at the time of employee acceptance. For involuntary programs, eligible costs are recognized when management has approved the program, the affected employees have been properly identified and the costs are estimable.
The following table summarizes the 2009 separation charges and subsequent 2010 activity by geographic region:
| | Machinery and Engines | | Financial Products1 | | |
| (Millions of dollars) | North America | | Latin America | | EAME | | Asia Pacific | | | Total |
| Liability balance at December 31, 2008 | $ | 4 | | | $ | 2 | | | $ | 5 | | | $ | — | | | $ | — | | | $ | 11 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
2009 Separation charges2 | $ | 323 | | | $ | 15 | | | $ | 102 | | | $ | 31 | | | $ | 10 | | | $ | 481 | |
| 2009 Benefit payments and other adjustments | | (313 | ) | | | (17 | ) | | | (78 | ) | | | (25 | ) | | | (10 | ) | | | (443 | ) |
| Liability balance at December 31, 2009 | $ | 14 | | | $ | — | | | $ | 29 | | | $ | 6 | | | $ | — | | | $ | 49 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| 2010 Benefit payments and other adjustments | $ | (8 | ) | | $ | — | | | $ | (8 | ) | | $ | (6 | ) | | $ | — | | | $ | (22 | ) |
| Liability balance at March 31, 2010 | $ | 6 | | | $ | — | | | $ | 21 | | | $ | — | | | $ | — | | | $ | 27 | |
| | |
| 1 | Includes $8 million for North America and $2 million for EAME. |
| 2 | Includes $357 million recognized in the first quarter of 2009. |
The remaining liability balances as of March 31, 2010 represent costs for employees that have either not yet separated from the Company or their full severance has not yet been paid. The majority of these remaining costs are expected to be paid during 2010.
In addition to the 2009 separation charges noted above, we reported $225 million ($201 million in the first quarter) of costs associated with certain pension and other postretirement benefit plans, which were also recognized in Other operating (income) expenses in the Consolidated Statement of Results of Operations.
The majority of the separation charges, made up primarily of cash severance payments, and pension and other postretirement benefit costs noted above were not assigned to operating segments. They are included in the reconciliation of total accountable profit from reportable segments to total profit before taxes.
Order Backlog
The dollar amount of backlog believed to be firm was approximately $12.7 billion at March 31, 2010 and $9.6 billion at December 31, 2009. Of the total backlog, approximately $2.3 billion at March 31, 2010 and $2.5 billion at December 31, 2009 was not expected to be filled in the following twelve months. Our backlog is generally highest in the first and second quarters because of seasonal buying trends in our industry.
NON-GAAP FINANCIAL MEASURES
The following definitions are provided for “non-GAAP financial measures” in connection with Item 10(e) of Regulation S-K issued by the Securities and Exchange Commission. These non-GAAP financial measures have no standardized meaning prescribed by U.S. GAAP and therefore are unlikely to be comparable to the calculation of similar measures for other companies. Management does not intend these items to be considered in isolation or substitutes for the related GAAP measures.
Profit Per Share Excluding U.S. Health Care Legislation Tax Charge
During the first quarter of 2010, we recognized a $90 million after-tax charge due to the enactment of U.S. health care legislation effectively making government subsidies received for Medicare-equivalent prescription drug coverage taxable. We believe it is important to separately quantify the profit-per-share impact of this charge in order for our first-quarter 2010 results to be meaningful to our readers. Reconciliation of profit per share excluding the U.S. Health Care Legislation Tax Charge to the most directly comparable GAAP measure, profit per share, is as follows:
| | First Quarter 2010 |
| Profit per share | $ | 0.36 | |
| Per share impact of U.S. Health Care Legislation Tax Charge | $ | 0.14 | |
| Profit per share excluding U.S. Health Care Legislation Tax Charge | $ | 0.50 | |
| |
Profit Per Share Excluding Redundancy Costs
During the first quarter of 2009, we incurred redundancy costs of $558 million before tax related to employment reductions in response to the global recession. Full-year 2009 redundancy costs were $706 million before tax. We believe it is important to separately quantify the profit-per-share impact of redundancy costs in order for our 2009 results to be meaningful to our readers. Reconciliation of profit per share excluding redundancy costs to the most directly comparable GAAP measure, profit per share, is as follows:
| | | First Quarter 2009 | | Full Year 2009 |
| Profit per share | | $ | (0.19 | ) | | $ | 1.43 | |
| Per share redundancy costs | | $ | 0.58 | | | $ | 0.75 | |
| Profit per share excluding redundancy costs | | $ | 0.39 | | | $ | 2.18 | |
| |
SUPPLEMENTAL CONSOLIDATING DATA
We are providing supplemental consolidating data for the purpose of additional analysis. The data has been grouped as follows:
Consolidated – Caterpillar Inc. and its subsidiaries.
Machinery and Engines – The Machinery and Engines data contained in the schedules on pages 54 to 59 are "non-GAAP financial measures" as defined by the Securities and Exchange Commission in Item 10(e) of Regulation S-K. 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. 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 our design, manufacturing, marketing and parts distribution operations. 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.
Financial Products – Our finance and insurance subsidiaries, primarily Cat Financial and Cat Insurance.
Consolidating Adjustments – Eliminations of transactions between Machinery and Engines and Financial Products.
Pages 54 to 59 reconcile Machinery and Engines with Financial Products on the Equity Basis to Caterpillar Inc. consolidated financial information.
Caterpillar Inc. Supplemental Data for Results of Operations For The Three Months Ended March 31, 2010 (Unaudited) (Millions of dollars) |
| | | | Supplemental Consolidating Data |
| | Consolidated | | Machinery and Engines1 | | Financial Products | | Consolidating Adjustments |
| Sales and revenues: | | | | | | | | | | | | | | | | |
| | Sales of Machinery and Engines | $ | 7,551 | | | $ | 7,551 | | | $ | — | | | $ | — | | |
| | Revenues of Financial Products | | 687 | | | | — | | | | 746 | | | | (59 | ) | 2 |
| | Total sales and revenues | | 8,238 | | | | 7,551 | | | | 746 | | | | (59 | ) | |
| | | | | | | | | | | | | | | | | | |
| Operating costs: | | | | | | | | | | | | | | | | |
| | Cost of goods sold | | 5,894 | | | | 5,894 | | | | — | | | | — | | |
| | Selling, general and administrative expenses | | 932 | | | | 798 | | | | 144 | | | | (10 | ) | 3 |
| | Research and development expenses | | 402 | | | | 402 | | | | — | | | | — | | |
| | Interest expense of Financial Products | | 233 | | | | — | | | | 234 | | | | (1 | ) | 4 |
| | Other operating (income) expenses | | 269 | | | | (1 | ) | | | 271 | | | | (1 | ) | 3 |
| | Total operating costs | | 7,730 | | | | 7,093 | | | | 649 | | | | (12 | ) | |
| | | | | | | | | | | | | | | | | | |
| Operating profit (loss) | | 508 | | | | 458 | | | | 97 | | | | (47 | ) | |
| | | | | | | | | | | | | | | | | | |
| | Interest expense excluding Financial Products | | 102 | | | | 122 | | | | — | | | | (20 | ) | 4 |
| | Other income (expense) | | 63 | | | | 23 | | | | 13 | | | | 27 | | 5 |
| | | | | | | | | | | | | | | | | | |
| Consolidated profit (loss) before taxes | | 469 | | | | 359 | | | | 110 | | | | — | | |
| | | | | | | | | | | | | | | | | | |
| | Provision (benefit) for income taxes | | 231 | | | | 202 | | | | 29 | | | | — | | |
| | Profit (loss) of consolidated companies | | 238 | | | | 157 | | | | 81 | | | | — | | |
| | | | | | | | | | | | | | | | | | |
| | Equity in profit (loss) of unconsolidated affiliated companies | | (2 | ) | | | (2 | ) | | | — | | | | — | | |
| | Equity in profit of Financial Products' subsidiaries | | — | | | | 79 | | | | — | | | | (79 | ) | 6 |
| | | | | | | | | | | | | | | | | |
| Profit (loss) of consolidated and affiliated companies | | 236 | | | | 234 | | | | 81 | | | | (79 | ) | |
| | | | | | | | | | | | | | | | | |
| Less: Profit (loss) attributable to noncontrolling interests | | 3 | | | | 1 | | | | 2 | | | | — | | |
| | | | | | | | | | | | | | | | | |
Profit (loss) 7 | $ | 233 | | | $ | 233 | | | $ | 79 | | | $ | (79 | ) | |
| 1 | Represents Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis. |
| 2 | Elimination of Financial Products’ revenues earned from Machinery and Engines. |
| 3 | Elimination of net expenses recorded by Machinery and Engines paid to Financial Products. |
| 4 | Elimination of interest expense recorded between Financial Products and Machinery and Engines. |
| 5 | Elimination of discount recorded by Machinery and Engines on receivables sold to Financial Products and of interest earned between Machinery and Engines and Financial Products. |
| 6 | Elimination of Financial Products’ profit due to equity method of accounting. |
| 7 | Profit (loss) attributable to common stockholders. |
Caterpillar Inc. Supplemental Data for Results of Operations For The Three Months Ended March 31, 2009 (Unaudited) (Millions of dollars) |
| | | | Supplemental Consolidating Data |
| | Consolidated | | Machinery and Engines1 | | Financial Products | | Consolidating Adjustments |
| Sales and revenues: | | | | | | | | | | | | | | | | |
| | Sales of Machinery and Engines | $ | 8,510 | | | $ | 8,510 | | | $ | — | | | $ | — | | |
| | Revenues of Financial Products | | 715 | | | | — | | | | 796 | | | | (81 | ) | 2 |
| | Total sales and revenues | | 9,225 | | | | 8,510 | | | | 796 | | | | (81 | ) | |
| | | | | | | | | | | | | | | | | | |
| Operating costs: | | | | | | | | | | | | | | | | |
| | Cost of goods sold | | 7,027 | | | | 7,027 | | | | — | | | | — | | |
| | Selling, general and administrative expenses | | 882 | | | | 760 | | | | 125 | | | | (3 | ) | 3 |
| | Research and development expenses | | 388 | | | | 388 | | | | — | | | | — | | |
| | Interest expense of Financial Products | | 279 | | | | — | | | | 282 | | | | (3 | ) | 4 |
| | Other operating (income) expenses | | 824 | | | | 546 | | | | 290 | | | | (12 | ) | 3 |
| | Total operating costs | | 9,400 | | | | 8,721 | | | | 697 | | | | (18 | ) | |
| | | | | | | | | | | | | | | | | | |
| Operating profit (loss) | | (175 | ) | | | (211 | ) | | | 99 | | | | (63 | ) | |
| | | | | | | | | | | | | | | | | | |
| | Interest expense excluding Financial Products | | 101 | | | | 114 | | | | — | | | | (13 | ) | 4 |
| | Other income (expense) | | 64 | | | | 34 | | | | (20 | ) | | | 50 | | 5 |
| | | | | | | | | | | | | | | | | | |
| Consolidated profit (loss) before taxes | | (212 | ) | | | (291 | ) | | | 79 | | | | — | | |
| | | | | | | | | | | | | | | | | | |
| | Provision (benefit) for income taxes | | (80 | ) | | | (99 | ) | | | 19 | | | | — | | |
| | Profit (loss) of consolidated companies | | (132 | ) | | | (192 | ) | | | 60 | | | | — | | |
| | | | | | | | | | | | | | | | | | |
| | Equity in profit (loss) of unconsolidated affiliated companies | | 1 | | | | 1 | | | | — | | | | — | | |
| | Equity in profit of Financial Products' subsidiaries | | — | | | | 56 | | | | — | | | | (56 | ) | 6 |
| | | | | | | | | | | | | | | | | |
| Profit (loss) of consolidated and affiliated companies | | (131 | ) | | | (135 | ) | | | 60 | | | | (56 | ) | |
| | | | | | | | | | | | | | | | | |
| Less: Profit (loss) attributable to noncontrolling interests | | (19 | ) | | | (23 | ) | | | 4 | | | | — | | |
| | | | | | | | | | | | | | | | | |
Profit (loss) 7 | $ | (112 | ) | | $ | (112 | ) | | $ | 56 | | | $ | (56 | ) | |
| 1 | Represents Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis. |
| 2 | Elimination of Financial Products’ revenues earned from Machinery and Engines. |
| 3 | Elimination of net expenses recorded by Machinery and Engines paid to Financial Products. |
| 4 | Elimination of interest expense recorded between Financial Products and Machinery and Engines. |
| 5 | Elimination of discount recorded by Machinery and Engines on receivables sold to Financial Products and of interest earned between Machinery and Engines and Financial Products. |
| 6 | Elimination of Financial Products’ profit due to equity method of accounting. |
| 7 | Profit (loss) attributable to common stockholders. |
Caterpillar Inc. Supplemental Data for Financial Position At March 31, 2010 (Unaudited) (Millions of dollars) |
| | | | | Supplemental Consolidating Data |
| | | Consolidated | | Machinery and Engines1 | | Financial Products | | Consolidating Adjustments |
| Assets | | | | | | | | | | | | | | | | |
| | Current assets: | | | | | | | | | | | | | | | | |
| | | Cash and short-term investments | $ | 3,538 | | | $ | 1,683 | | | $ | 1,855 | | | $ | — | | |
| | | Receivables – trade and other | | 6,068 | | | | 4,670 | | | | 1,387 | | | | 11 | | 2,3 |
| | | Receivables – finance | | 8,123 | | | | — | | | | 9,829 | | | | (1,706 | ) | 3 |
| | | Deferred and refundable income taxes | | 1,153 | | | | 1,038 | | | | 115 | | | | — | | |
| | | Prepaid expenses and other current assets | | 540 | | | | 327 | | | | 226 | | | | (13 | ) | 4 |
| | | Inventories | | 6,990 | | | | 6,990 | | | | — | | | | — | | |
| | Total current assets | | 26,412 | | | | 14,708 | | | | 13,412 | | | | (1,708 | ) | |
| | | | | | | | | | | | | | | | | | |
| | Property, plant and equipment – net | | 12,057 | | | | 9,109 | | | | 2,948 | | | | — | | |
| | Long-term receivables – trade and other | | 722 | | | | 296 | | | | 214 | | | | 212 | | 2,3 |
| | Long-term receivables – finance | | 12,157 | | | | — | | | | 12,399 | | | | (242 | ) | 3 |
| | Investments in unconsolidated affiliated companies | | 133 | | | | 125 | | | | 8 | | | | — | | |
| | Investments in Financial Products subsidiaries | | — | | | | 3,871 | | | | — | | | | (3,871 | ) | 5 |
| | Noncurrent deferred and refundable income taxes | | 2,558 | | | | 2,981 | | | | 70 | | | | (493 | ) | 6 |
| | Intangible assets | | 488 | | | | 487 | | | | 1 | | | | — | | |
| | Goodwill | | 2,284 | | | | 2,284 | | | | — | | | | — | | |
| | Other assets | | 2,025 | | | | 318 | | | | 1,707 | | | | — | | |
| Total assets | $ | 58,836 | | | $ | 34,179 | | | $ | 30,759 | | | $ | (6,102 | ) | |
| | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | |
| | Current liabilities: | | | | | | | | | | | | | | | | |
| | | Short-term borrowings | $ | 3,580 | | | $ | 1,584 | | | $ | 3,596 | | | $ | (1,600 | ) | 7 |
| | | Accounts payable | | 3,431 | | | | 3,335 | | | | 186 | | | | (90 | ) | 8 |
| | | Accrued expenses | | 3,216 | | | | 2,032 | | | | 1,197 | | | | (13 | ) | 9 |
| | | Accrued wages, salaries and employee benefits | | 900 | | | | 891 | | | | 9 | | | | — | | |
| | | Customer advances | | 1,367 | | | | 1,367 | | | | | | | | — | | |
| | | Other current liabilities | | 881 | | | | 811 | | | | 91 | | | | (21 | ) | 6 |
| | | Long-term debt due within one year | | 5,042 | | | | 248 | | | | 4,794 | | | | — | | |
| | Total current liabilities | | 18,417 | | | | 10,268 | | | | 9,873 | | | | (1,724 | ) | |
| | Long-term debt due after one year | | 21,548 | | | | 5,169 | | | | 16,413 | | | | (34 | ) | 7 |
| | Liability for postemployment benefits | | 7,281 | | | | 7,281 | | | | | | | | — | | |
| | Other liabilities | | 2,116 | | | | 1,987 | | | | 602 | | | | (473 | ) | 6 |
| Total liabilities | | 49,362 | | | | 24,705 | | | | 26,888 | | | | (2,231 | ) | |
| Commitments and contingencies | | | | | | | | | | | | | | | | |
| Redeemable noncontrolling interest | | 452 | | | | 452 | | | | — | | | | — | | |
| Stockholders' equity | | | | | | | | | | | | | | | | |
| | Common stock | | 3,482 | | | | 3,482 | | | | 882 | | | | (882 | ) | 5 |
| | Treasury stock | | (10,595 | ) | | | (10,595 | ) | | | — | | | | — | | |
| | Profit employed in the business | | 19,941 | | | | 19,941 | | | | 2,755 | | | | (2,755 | ) | 5 |
| | Accumulated other comprehensive income (loss) | | (3,886 | ) | | | (3,886 | ) | | | 161 | | | | (161 | ) | 5 |
| | Noncontrolling interests | | 80 | | | | 80 | | | | 73 | | | | (73 | ) | 5 |
| Total stockholders' equity | | 9,022 | | | | 9,022 | | | | 3,871 | | | | (3,871 | ) | |
| Total liabilities, redeemable noncontrolling interest and stockholders' equity | $ | 58,836 | | | $ | 34,179 | | | $ | 30,759 | | | $ | (6,102 | ) | |
| 1 | Represents Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis. |
| 2 | Elimination of receivables between Machinery and Engines and Financial Products. |
| 3 | Reclassification of Machinery and Engines’ trade receivables purchased by Cat Financial and Cat Financial's wholesale inventory receivables. |
| 4 | Elimination of Machinery and Engines’ insurance premiums that are prepaid to Financial Products. |
| 5 | Elimination of Financial Products’ equity which is accounted for by Machinery and Engines on the equity basis. |
| 6 | Reclassification reflecting required netting of deferred tax assets / liabilities by taxing jurisdiction. |
| 7 | Elimination of debt between Machinery and Engines and Financial Products. |
| 8 | Elimination of payables between Machinery and Engines and Financial Products. |
| 9 | Elimination of prepaid insurance in Financial Products' accrued expenses. |
Caterpillar Inc. Supplemental Data for Financial Position At December 31, 2009 (Unaudited) (Millions of dollars) |
| | | | | Supplemental Consolidating Data |
| | | Consolidated | | Machinery and Engines1 | | Financial Products | | Consolidating Adjustments |
| Assets | | | | | | | | | | | | | | | | |
| | Current assets: | | | | | | | | | | | | | | | | |
| | | Cash and short-term investments | $ | 4,867 | | | $ | 2,239 | | | $ | 2,628 | | | $ | — | | |
| | | Receivables – trade and other | | 5,611 | | | | 3,705 | | | | 1,464 | | | | 442 | | 2,3 |
| | | Receivables – finance | | 8,301 | | | | — | | | | 9,872 | | | | (1,571 | ) | 3 |
| | | Deferred and refundable income taxes | | 1,216 | | | | 1,094 | | | | 122 | | | | — | | |
| | | Prepaid expenses and other current assets | | 434 | | | | 385 | | | | 75 | | | | (26 | ) | 4 |
| | | Inventories | | 6,360 | | | | 6,360 | | | | — | | | | — | | |
| | Total current assets | | 26,789 | | | | 13,783 | | | | 14,161 | | | | (1,155 | ) | |
| | Property, plant and equipment – net | | 12,386 | | | | 9,308 | | | | 3,078 | | | | — | | |
| | Long-term receivables – trade and other | | 971 | | | | 381 | | | | 182 | | | | 408 | | 2,3 |
| | Long-term receivables – finance | | 12,279 | | | | — | | | | 12,717 | | | | (438 | ) | 3 |
| | Investments in unconsolidated affiliated companies | | 105 | | | | 97 | | | | 8 | | | | — | | |
| | Investments in Financial Products subsidiaries | | — | | | | 4,514 | | | | — | | | | (4,514 | ) | 5 |
| | Noncurrent deferred and refundable income taxes | | 2,714 | | | | 3,083 | | | | 65 | | | | (434 | ) | 6 |
| | Intangible assets | | 465 | | | | 464 | | | | 1 | | | | — | | |
| | Goodwill | | 2,269 | | | | 2,269 | | | | — | | | | — | | |
| | Other assets | | 2,060 | | | | 297 | | | | 1,763 | | | | — | | |
Total assets | $ | 60,038 | | | $ | 34,196 | | | $ | 31,975 | | | $ | (6,133 | ) | |
Liabilities | | | | | | | | | | | | | | | | |
| | Current liabilities: | | | | | | | | | | | | | | | | |
| | | Short-term borrowings | $ | 4,083 | | | $ | 1,433 | | | $ | 3,676 | | | $ | (1,026 | ) | 7 |
| | | Accounts payable | | 2,993 | | | | 2,862 | | | | 229 | | | | (98 | ) | 8 |
| | | Accrued expenses | | 3,351 | | | | 2,055 | | | | 1,323 | | | | (27 | ) | 9 |
| | | Accrued wages, salaries and employee benefits | | 797 | | | | 790 | | | | 7 | | | | — | | |
| | | Customer advances | | 1,217 | | | | 1,217 | | | | — | | | | — | | |
| | | Dividends payable | | 262 | | | | 262 | | | | — | | | | — | | |
| | | Other current liabilities | | 888 | | | | 808 | | | | 101 | | | | (21 | ) | 6 |
| | | Long-term debt due within one year | | 5,701 | | | | 302 | | | | 5,399 | | | | — | | |
| | Total current liabilities | | 19,292 | | | | 9,729 | | | | 10,735 | | | | (1,172 | ) | |
| | Long-term debt due after one year | | 21,847 | | | | 5,687 | | | | 16,195 | | | | (35 | ) | 7 |
| | Liability for postemployment benefits | | 7,420 | | | | 7,420 | | | | — | | | | — | | |
| | Other liabilities | | 2,179 | | | | 2,060 | | | | 531 | | | | (412 | ) | 6 |
Total liabilities | | 50,738 | | | | 24,896 | | | | 27,461 | | | | (1,619 | ) | |
| Commitments and contingencies | | | | | | | | | | | | | | | | |
Redeemable noncontrolling interest | | 477 | | | | 477 | | | | — | | | | — | | |
| Stockholders' equity | | | | | | | | | | | | | | | | |
| | Common stock | | 3,439 | | | | 3,439 | | | | 883 | | | | (883 | ) | 5 |
| | Treasury stock | | (10,646 | ) | | | (10,646 | ) | | | — | | | | — | | |
| | Profit employed in the business | | 19,711 | | | | 19,711 | | | | 3,282 | | | | (3,282 | ) | 5 |
| | Accumulated other comprehensive income (loss) | | (3,764 | ) | | | (3,764 | ) | | | 279 | | | | (279 | ) | 5 |
| | Noncontrolling interests | | 83 | | | | 83 | | | | 70 | | | | (70 | ) | 5 |
Total stockholders' equity | | 8,823 | | | | 8,823 | | | | 4,514 | | | | (4,514 | ) | |
| Total liabilities, redeemable noncontrolling interest and stockholders' equity | $ | 60,038 | | | $ | 34,196 | | | $ | 31,975 | | | $ | (6,133 | ) | |
| 1 | Represents Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis. |
| 2 | Elimination of receivables between Machinery and Engines and Financial Products. |
| 3 | Reclassification of Machinery and Engines’ trade receivables purchased by Cat Financial and Cat Financial's wholesale inventory receivables. |
| 4 | Elimination of Machinery and Engines’ insurance premiums that are prepaid to Financial Products. |
| 5 | Elimination of Financial Products’ equity which is accounted for by Machinery and Engines on the equity basis. |
| 6 | Reclassification reflecting required netting of deferred tax assets / liabilities by taxing jurisdiction. |
| 7 | Elimination of debt between Machinery and Engines and Financial Products. |
| 8 | Elimination of payables between Machinery and Engines and Financial Products. |
| 9 | Elimination of prepaid insurance in Financial Products' accrued expenses. |
Caterpillar Inc. Supplemental Data for Cash Flow For The Three Months Ended March 31, 2010 (Unaudited) (Millions of dollars) |
| | | | Supplemental Consolidating Data |
| | Consolidated | | Machinery and Engines1 | | Financial Products | | Consolidating Adjustments |
| Cash flow from operating activities: | | | | | | | | | | | | | | | | |
| | Profit of consolidated and affiliated companies | $ | 236 | | | $ | 234 | | | $ | 81 | | | $ | (79 | ) | 2 |
| | Adjustments for non-cash items: | | | | | | | | | | | | | | | | |
| | | Depreciation and amortization | | 554 | | | | 371 | | | | 183 | | | | — | | |
| | | Other | | 94 | | | | 117 | | | | (57 | ) | | | 34 | | 4 |
| | Financial Products’ dividend in excess of profit | | — | | | | 521 | | | | — | | | | (521 | ) | 3 |
| | Changes in assets and liabilities: | | | | | | | | | | | | | | | | |
| | | Receivables - trade and other | | (373 | ) | | | (430 | ) | | | 31 | | | | 26 | | 4,5 |
| | | Inventories | | (644 | ) | | | (644 | ) | | | — | | | | — | | |
| | | Accounts payable | | 533 | | | | 527 | | | | (9 | ) | | | 15 | | 4 |
| | | Accrued expenses | | (65 | ) | | | (16 | ) | | | (63 | ) | | | 14 | | 4 |
| | | Customer advances | | 140 | | | | 140 | | | | — | | | | — | | |
| | | Other assets – net | | 109 | | | | 70 | | | | (7 | ) | | | 46 | | 4 |
| | | Other liabilities – net | | (33 | ) | | | 31 | | | | (3 | ) | | | (61 | ) | 4 |
| Net cash provided by (used for) operating activities | | 551 | | | | 921 | | | | 156 | | | | (526 | ) | |
| Cash flow from investing activities: | | | | | | | | | | | | | | | | |
| | Capital expenditures - excluding equipment leased to others | | (204 | ) | | | (203 | ) | | | (1 | ) | | | — | | |
| | Expenditures for equipment leased to others | | (169 | ) | | | — | | | | (173 | ) | | | 4 | | 4 |
| | Proceeds from disposals of property, plant and equipment | | 353 | | | | 17 | | | | 336 | | | | — | | |
| | Additions to finance receivables | | (1,757 | ) | | | — | | | | (4,816 | ) | | | 3,059 | | 5 |
| | Collections of finance receivables | | 1,956 | | | | — | | | | 5,093 | | | | (3,137 | ) | 5 |
| | Proceeds from sales of finance receivables | | 2 | | | | — | | | | 2 | | | | — | | |
| | Net intercompany borrowings | | — | | | | (574 | ) | | | (6 | ) | | | 580 | | 6 |
| | Investments and acquisitions (net of cash acquired) | | (103 | ) | | | (103 | ) | | | — | | | | — | | |
| | Proceeds from sale of available-for-sale securities | | 45 | | | | 1 | | | | 44 | | | | — | | |
| | Investments in available-for-sale securities | | (46 | ) | | | — | | | | (46 | ) | | | — | | |
| | Other – net | | 33 | | | | 22 | | | | 11 | | | | — | | |
| Net cash provided by (used for) investing activities | | 110 | | | | (840 | ) | | | 444 | | | | 506 | | |
| Cash flow from financing activities: | | | | | | | | | | | | | | | | |
| | Dividends paid | | (262 | ) | | | (262 | ) | | | (600 | ) | | | 600 | | 7 |
| | Common stock issued, including treasury shares reissued | | 26 | | | | 26 | | | | — | | | | — | | |
| | Excess tax benefit from stock-based compensation | | 13 | | | | 13 | | | | — | | | | — | | |
| | Acquisitions of noncontrolling interests | | (26 | ) | | | (26 | ) | | | — | | | | — | | |
| | Net intercompany borrowings | | — | | | | 6 | | | | 574 | | | | (580 | ) | 6 |
| | Proceeds from debt issued (original maturities greater than three months) | | 1,318 | | | | 54 | | | | 1,264 | | | | — | | |
| | Payments on debt (original maturities greater than three months) | | (3,336 | ) | | | (607 | ) | | | (2,729 | ) | | | — | | |
| | Short-term borrowings – net (original maturities three months or less) | | 331 | | | | 164 | | | | 167 | | | | — | | |
| Net cash provided by (used for) financing activities | | (1,936 | ) | | | (632 | ) | | | (1,324 | ) | | | 20 | | |
| Effect of exchange rate changes on cash | | (54 | ) | | | (5 | ) | | | (49 | ) | | | — | | |
| Increase (decrease) in cash and short-term investments | | (1,329 | ) | | | (556 | ) | | | (773 | ) | | | — | | |
| Cash and short-term investments at beginning of period | | 4,867 | | | | 2,239 | | | | 2,628 | | | | — | | |
| Cash and short-term investments at end of period | $ | 3,538 | | | $ | 1,683 | | | $ | 1,855 | | | $ | — | | |
| 1 | Represents Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis. |
| 2 | Elimination of Financial Products’ profit after tax due to equity method of accounting. |
| 3 | Elimination of Financial Products’ dividend to Machinery and Engines in excess of Financial Products’ profit. |
| 4 | Elimination of non-cash adjustments and changes in assets and liabilities related to consolidated reporting. |
| 5 | Reclassification of Cat Financial's cash flow activity from investing to operating for receivables that arose from the sale of inventory. |
| 6 | Elimination of net proceeds and payments to/from Machinery and Engines and Financial Products. |
| 7 | Elimination of dividend from Financial Products to Machinery and Engines. |
Caterpillar Inc. Supplemental Data for Cash Flow For The Three Months Ended March 31, 2009 (Unaudited) (Millions of dollars) |
| | | | Supplemental Consolidating Data |
| | Consolidated | | Machinery and Engines1 | | Financial Products | | Consolidating Adjustments |
| Cash flow from operating activities: | | | | | | | | | | | | | | | | |
| | Profit (loss) of consolidated and affiliated companies | $ | (131 | ) | | $ | (135 | ) | | $ | 60 | | | $ | (56 | ) | 2 |
| | Adjustments for non-cash items: | | | | | | | | | | | | | | | | |
| | | Depreciation and amortization | | 534 | | | | 354 | | | | 180 | | | | — | | |
| | | Undistributed profit of Financial Products | | — | | | | (56 | ) | | | — | | | | 56 | | 3 |
| | | Other | | 106 | | | | 193 | | | | (92 | ) | | | 5 | | 4 |
| | Changes in assets and liabilities: | | | | | | | | | | | | | | | | |
| | | Receivables - trade and other | | 1,622 | | | | 718 | | | | 104 | | | | 800 | | 4,5 |
| | | Inventories | | 764 | | | | 764 | | | | — | | | | — | | |
| | | Accounts payable | | (1,406 | ) | | | (1,381 | ) | | | (38 | ) | | | 13 | | 4 |
| | | Accrued expenses | | (321 | ) | | | (322 | ) | | | — | | | | 1 | | 4 |
| | | Customer advances | | (179 | ) | | | (179 | ) | | | — | | | | — | | |
| | | Other assets – net | | 48 | | | | (143 | ) | | | 170 | | | | 21 | | 4 |
| | | Other liabilities – net | | (142 | ) | | | (133 | ) | | | 8 | | | | (17 | ) | 4 |
| Net cash provided by (used for) operating activities | | 895 | | | | (320 | ) | | | 392 | | | | 823 | | |
| Cash flow from investing activities: | | | | | | | | | | | | | | | | |
| | Capital expenditures - excluding equipment leased to others | | (224 | ) | | | (224 | ) | | | — | | | | — | | |
| | Expenditures for equipment leased to others | | (221 | ) | | | — | | | | (222 | ) | | | 1 | | 4 |
| | Proceeds from disposals of property, plant and equipment | | 208 | | | | 24 | | | | 184 | | | | — | | |
| | Additions to finance receivables | | (1,789 | ) | | | — | | | | (5,795 | ) | | | 4,006 | | 5 |
| | Collections of finance receivables | | 2,450 | | | | — | | | | 6,887 | | | | (4,437 | ) | 5 |
| | Proceeds from sales of finance receivables | | 27 | | | | — | | | | 420 | | | | (393 | ) | 5 |
| | Net intercompany borrowings | | — | | | | 401 | | | | (1,465 | ) | | | 1,064 | | 6 |
| | Proceeds from sale of available-for-sale securities | | 87 | | | | 2 | | | | 85 | | | | — | | |
| | Investments in available-for-sale securities | | (58 | ) | | | (2 | ) | | | (56 | ) | | | — | | |
| | Other – net | | 23 | | | | 15 | | | | (12 | ) | | | 20 | | 7 |
| Net cash provided by (used for) investing activities | | 503 | | | | 216 | | | | 26 | | | | 261 | | |
| Cash flow from financing activities: | | | | | | | | | | | | | | | | |
| | Dividends paid | | (253 | ) | | | (253 | ) | | | — | | | | — | | |
| | Common stock issued, including treasury shares reissued | | — | | | | — | | | | 20 | | | | (20 | ) | 7 |
| | Net intercompany borrowings | | — | | | | 1,465 | | | | (401 | ) | | | (1,064 | ) | 6 |
| | Proceeds from debt issued (original maturities greater than three months) | | 4,818 | | | | 121 | | | | 4,697 | | | | — | | |
| | Payments on debt (original maturities greater than three months) | | (3,321 | ) | | | (205 | ) | | | (3,116 | ) | | | — | | |
| | Short-term borrowings – net (original maturities three months or less) | | (1,779 | ) | | | (393 | ) | | | (1,386 | ) | | | — | | |
| Net cash provided by (used for) financing activities | | (535 | ) | | | 735 | | | | (186 | ) | | | (1,084 | ) | |
| Effect of exchange rate changes on cash | | (33 | ) | | | (30 | ) | | | (3 | ) | | | — | | |
| Increase (decrease) in cash and short-term investments | | 830 | | | | 601 | | | | 229 | | | | — | | |
| Cash and short-term investments at beginning of period | | 2,736 | | | | 1,517 | | | | 1,219 | | | | — | | |
| Cash and short-term investments at end of period | $ | 3,566 | | | $ | 2,118 | | | $ | 1,448 | | | $ | — | | |
| 1 | Represents Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis. |
| 2 | Elimination of Financial Products’ profit after tax due to equity method of accounting. |
| 3 | Elimination of non-cash adjustment for the undistributed earnings from Financial Products. |
| 4 | Elimination of non-cash adjustments and changes in assets and liabilities related to consolidated reporting. |
| 5 | Reclassification of Cat Financial's cash flow activity from investing to operating for receivables that arose from the sale of inventory. |
| 6 | Elimination of net proceeds and payments to/from Machinery and Engines and Financial Products. |
| 7 | Elimination of change in investment and common stock related to Financial Products. |
2010 Outlook
Economic Outlook
Worldwide economic conditions began to improve in mid-2009, and recent surveys and economic reports indicate the pace of recovery is accelerating. We expect that strong recovery in developing countries will lead to world economic growth of about 3.5 percent this year.
| § | Key credit spreads are near normal and in ranges consistent with past recoveries. Loan surveys indicate banks in the major developed economies have begun, or are close to, easing tight credit standards. |
| § | Credit demand remains weak in developed economies because businesses have relied on cash flows to finance initial recoveries in investment or have not yet increased investments. Limited data suggest increased credit growth in developing economies; bank lending in Brazil and China has been increasing at double-digit percentage rates. |
| § | A few countries tightened economic policies but others further lowered interest rates. Overall, economic policies remain some of the most accommodative in history and should support stronger future growth. |
Commodities
| § | By the end of the first quarter, most metals prices were within 20 percent of their record highs. This recovery, occurring while industrial production in most countries was well below past peaks, indicates a need for the metals mining industry to increase production and capacity. We expect copper will average about $3.25 per pound this year. |
| § | Most energy prices have recovered over the past year, and a stronger world economy should extend this recovery throughout 2010. We assume that West Texas intermediate crude oil will average almost $85 per barrel this year, and Central Appalachian coal prices will average more than $55 per ton. Both prices should encourage increased production. |
Developing Economies
| § | Developing economies should grow more than 6 percent this year, benefiting from growth-oriented economic policies, a recovery in world trade and favorable commodity prices. |
| § | Inflation in Asian developing economies appears high enough to concern central bankers in those countries. We expect many countries will tighten monetary policies this year but that interest rates will remain well below 2008 peaks. The Asia/Pacific regional economy should grow more than 7.5 percent this year. |
| § | China’s loan growth has been above 20 percent, and property price increases reached 2-year highs. We anticipate the central bank will slow loan growth into a more normal 15- to 20-percent range as it becomes more confident the worldwide economic recovery is well established. Gradual tightening should allow economic growth in China to average 10.5 percent this year, which would be the fastest growth since 2007. |
| § | Major Latin American economies had 6-percent or higher growth rates in the fourth quarter of 2009, and early data suggest a strong start to 2010. While central banks likely will increase interest rates from record lows, the regional economy should grow at least 4 percent this year. Construction should increase even faster. |
| § | The economies of Africa/Middle East and the CIS should each grow about 4 percent this year, benefiting from higher metals and energy prices. In addition, much lower interest rates than a year earlier in South Africa, Turkey and Russia should boost construction. |
| § | We expect developing economies will be able to sustain rapid economic growth this year. |
Developed Economies
| § | Recoveries in developed economies started slowly, but recent data suggest growth should improve throughout 2010. However, we expect developed economies in total to grow slightly less than 2.5 percent, not enough to recoup output lost in 2009. |
| § | In the United States, recent data—manufacturing and nonmanufacturing surveys, retail sales and employment—suggest that U.S. economic activity is increasing. Our forecast is for 3.5 percent economic growth in the United States this year. |
| § | U.S. housing construction got off to a disappointing start this year; however, the supply of new homes, either under construction or awaiting sale, continues to shrink. Housing affordability is near a record high, and an expected recovery in employment should revive depressed household formations. We project housing starts should average close to 800,000 units this year. |
| § | U.S. nonresidential building construction should decline this year, but highway contracting is already rebounding and should be up in 2010. Most U.S. mining sectors are in recovery, and output should increase this year in response to favorable prices. However, difficulties in securing permits could hamper coal production. |
| § | We expect the strengthening economy will prompt the U.S. Federal Reserve Bank to start withdrawing stimulus in the last half of the year. The Fed Funds rate is expected to end the year at 1 percent. |
| § | The euro-zone economy grew at a slow 0.9 percent rate in the last half of 2009, but recent surveys suggest modest strengthening. Our forecast is that the economy will grow close to 1.5 percent this year, one of the weakest performances in the world. |
| § | Even though inflation has been below target and unemployment is at a record high, we expect the European Central Bank will raise interest rates in the last half of 2010 in response to somewhat better economic growth. Its target rate is expected to increase by 75 basis points to 1.75 percent. |
| § | The Bank of Japan increased liquidity in the banking system, and banks eased credit standards. Industrial production increased 31 percent over the past year, recouping more than half of the loss sustained in the worldwide economic recession. We assume interest rates will remain near zero this year, and the Japanese economy will grow more than 2 percent. |
| § | Our major concern is that central banks in the developed economies will be premature in withdrawing stimulus, causing another downturn. However, with the year almost one-third finished and no significant actions yet taken, we view the risk of a downturn starting this year as low. In addition, high unemployment may limit central banks’ decisions to tighten policies. |
2010 Sales and Revenues Outlook
We are forecasting 2010 sales and revenues to be in a range of $38 to $42 billion. The previous range was an increase of 10 to 25 percent from 2009 ($35.6 to $40.5 billion). Improvement from the previous outlook is a result of improving expectations in Asia/Pacific and Latin America, for mining in most regions of the world and for turbines used in oil and gas and electric power applications.
Key elements of the outlook for 2010 include:
| § | At the midpoint of the revised 2010 sales and revenues range, we expect little change in dealer inventories. In 2009, dealers reduced inventories of new Caterpillar machines and engines by nearly $4 billion. The absence of this reduction will result in higher sales for Caterpillar in 2010. |
| § | Robust economic improvement in the developing economies of Asia/Pacific and Latin America is improving construction spending and increasing end-user demand for Machinery. |
| § | Growth in the world economy is driving improved demand for commodities. Higher demand coupled with favorable commodity prices should be positive for mining-related sales in 2010. Mining-related order activity has remained robust, and we expect to increase production and sales as the year progresses. |
| § | We expect that price realization will be positive by about 1 percent in 2010. |
| § | While Machinery sales are expected to increase in 2010, at the midpoint of the outlook range, Engines sales are expected to be about flat. |
| § | Based on order activity, expectations for turbine sales in 2010 have improved, and we are forecasting sales to be near the record levels of 2008 and 2009. Increasing orders by Latin American customers are the major reason for the improvement in 2010 expectations. While turbine sales for the year are expected to be near 2009 levels, the first quarter of 2010 was well below the first quarter of 2009. Production schedules are increasing, and turbine sales should increase throughout the year, particularly in the second half. |
2010 Profit Outlook
Profit is expected to be in a range of $2.50 to $3.25 per share. The previous outlook expected profit of $2.50 per share at the midpoint of the prior sales and revenues range.
Key positive elements of the profit outlook for 2010 include:
| § | Absence of 2009 employee redundancy costs of $706 million, or about $0.75 per share. |
| § | Material costs are expected to be favorable in 2010. |
| § | Improved operating efficiency—resulting from higher production volume and continuing improvement from the Caterpillar Production System with 6 Sigma. |
| § | We expect that price realization will be positive by about 1 percent in 2010. |
| § | Financial Products’ profit before tax is expected to be about flat compared with 2009, as the impact of improving economic conditions is expected to be about offset by the impact of lower earning assets. |
The key positive elements of the 2010 profit outlook are expected to be partially offset by:
| § | Higher income taxes. We are forecasting income taxes to be an expense of about 30 percent of profit before tax plus the $90 million charge in the first quarter related to signing of the U.S. health care legislation. |
| § | Product mix is expected to be unfavorable. Product mix had a negative impact on profit in the first quarter, and we expect the impact will increase as new machine sales improve over the remainder of 2010. |
| § | R&D expense is expected to increase about 25 percent, primarily to support product development programs related to EPA Tier 4 emissions requirements. |
| § | Higher costs related to incentive compensation due to improving financial performance. The midpoint of the current profit outlook would result in about $350 million of short-term incentive compensation in 2010. |
| § | We are not forecasting last in, first out (LIFO) inventory decrement benefits for 2010. LIFO decrement benefits in 2009 were $300 million. |
| § | We do not expect the favorable impact of currency that was in 2009’s other income/expense to recur in 2010. |
| § | Pension expense is expected to be higher in 2010. |
| § | Depreciation expense is expected to increase. Machinery and Engines capital expenditures are expected to be about $1.8 billion in 2010, up from $1.3 billion in 2009. |
| § | Diluted shares outstanding are expected to be higher than the 2009 full-year average. This is a result of stock contributed to the pension plan in the second quarter of 2009 as well as increased dilution related to the increase in the share price. |
Forward-looking Statements
Certain statements in this release relate to future events and expectations and, as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to known and unknown factors that may cause actual results of Caterpillar Inc. to be different from those expressed or implied in the forward-looking statements. Words such as “believe,” “estimate,” “will be,” “will,�� “would,” “expect,” “anticipate,” “plan,” “project,” “intend,” “could,” “should” or other similar words or expressions often identify forward-looking statements. All statements other than statements of historical fact are forward-looking statements, including, without limitation, statements regarding our outlook, projections, forecasts or trend descriptions. These statements do not guarantee future performance, and Caterpillar does not undertake to update its forward-looking statements.
It is important to note that actual results of the company may differ materially from those described or implied in such forward-looking statements based on a number of factors, including, but not limited to: (i) economic volatility in the global economy generally and in capital and credit markets; (ii) Caterpillar’s ability to generate cash from operations, secure external funding for operations and manage liquidity needs; (iii) adverse changes in the economic conditions of the industries or markets Caterpillar serves; (iv) government regulations or policies, including those affecting interest rates, liquidity, access to capital and government spending on infrastructure development; (v) commodity price increases and/or limited availability of raw materials and component products, including steel; (vi) compliance costs associated with environmental laws and regulations; (vii) Caterpillar’s and Cat Financial’s ability to maintain their respective credit ratings, material increases in either company’s cost of borrowing or an inability of either company to access capital markets; (viii) financial condition and credit worthiness of Cat Financial’s customers; (ix) material adverse changes in our customers’ access to liquidity and capital; (x) market acceptance of Caterpillar’s products and services; (xi) effects of changes in the competitive environment, which may include decreased market share, lack of acceptance of price increases, and/or negative changes to our geographic and product mix of sales; (xii) Caterpillar’s ability to successfully implement Caterpillar Production System or other productivity initiatives; (xiii) international trade and investment policies, such as import quotas, capital controls or tariffs; (xiv) failure of Caterpillar or Cat Financial to comply with financial covenants in their respective credit facilities; (xv) adverse changes in sourcing practices for our dealers or original equipment manufacturers; (xvi) additional tax expense or exposure; (xvii) political and economic risks associated with our global operations, including changes in laws, regulations or government policies, currency restrictions, restrictions on repatriation of earnings, burdensome tariffs or quotas, national and international conflict, including terrorist acts and political and economic instability or civil unrest in the countries in which Caterpillar operates; (xviii) currency fluctuations, particularly increases and decreases in the U.S. dollar against other currencies; (xix) increased payment obligations under our pension plans; (xx) inability to successfully integrate and realize expected benefits from acquisitions; (xxi) significant legal proceedings, claims, lawsuits or investigations; (xxii) imposition of significant costs or restrictions due to the enactment and implementation of health care reform legislation and proposed financial regulation legislation; (xxiii) changes in accounting standards or adoption of new accounting standards; (xxiv) adverse effects of natural disasters; and (xxv) other factors described in more detail in “Item 1A – Risk Factors” in Part II of this Form 10-Q and in Part I of our Form 10-K filed with the SEC on February 19, 2010 for the year ended December 31, 2009. This filing is available on our website at www.cat.com/sec_filings.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The information required by this Item is incorporated by reference from Note 4 – “Derivative Instruments and Hedging Activities” included in Part I, Item 1 and Management’s Discussion and Analysis included in Part I, Item 2 of this Form 10-Q.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
An evaluation was performed under the supervision and with the participation of the company's management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the company's disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on that evaluation, the company's management, including the CEO and CFO, concluded that the company's disclosure controls and procedures are effective as of the end of the period covered by this quarterly report.
Changes in internal control over financial reporting
During the first quarter 2010, there has been no change in the company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting.
The information required by this Item is incorporated by reference from Note 12 included in Part I, Item 1 of this Form 10-Q.
In addition to the risk factors included in Item 1A of our Form 10-K filed with the SEC on February 19, 2010, for the fiscal year ended December 31, 2009, you should carefully consider the following risk in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the “Notes to Consolidated Statements.”
Financial Regulation Legislation
Financial regulation legislation, including proposed derivatives legislation, is currently under consideration by the U.S. Congress. The impact of the proposed legislation remains uncertain. Should any final legislation impose significant costs or restrictions on the company, including, without limitation, costs or restrictions on the Company's or Cat Financial’s use of derivatives, we could experience a material adverse effect on our results of operations and financial condition.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
No shares were repurchased during the first quarter 2010.
Other Purchases of Equity Securities
| Period | | Total Number of Shares Purchased1 | | Average Price Paid per Share | | Total Number of Shares Purchased Under the Program | | Approximate Dollar Value of Shares that may yet be Purchased under the Program |
| January 1-31, 2010 | | 4,776 | | | $ | 58.36 | | | | NA | | | | NA | |
| February 1-28, 2010 | | — | | | $ | — | | | | NA | | | | NA | |
| March 1-31, 2010 | | 368,208 | | | $ | 58.31 | | | | NA | | | | NA | |
| | Total | | 372,984 | | | $ | 58.31 | | | | | | | | | |
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| 1 | Represents shares delivered back to issuer for the payment of taxes resulting from the vesting of restricted stock units and the exercise of stock options by employees and Directors. |
Non-U.S. Employee Stock Purchase Plans
We have 30 employee stock purchase plans administered outside the United States for our non-U.S. employees. As of March 31, 2010, those plans had approximately 10,700 active participants in the aggregate. During the first quarter of 2010, approximately 193,000 shares of Caterpillar common stock or foreign denominated equivalents were distributed under the plans. Participants in some foreign plans have the option of receiving non-U.S. share certificates (foreign-denominated equivalents) in lieu of U.S. shares of Caterpillar common stock upon withdrawal from the plan. These equivalent certificates are tradable only on the local stock market and are included in our determination of shares outstanding.
Distributions of Caterpillar stock under the plans are exempt from registration under the Securities Act of 1933 (Act) pursuant to 17 CFR 230.903.
| | 3.1 | Restated Certificate of Incorporation (incorporated by reference from Exhibit 3(i) to the Form 10-Q filed for the quarter ended March 31, 1998). |
| | 3.2 | Bylaws amended and restated as of December 9, 2009 (incorporated by reference from Exhibit 3.2 to Form 8-K filed December 15, 2009). |
| | 4.1 | Indenture dated as of May 1, 1987, between the Registrant and The First National Bank of Chicago, as Trustee (incorporated by reference from Exhibit 4.1 to Form S-3 (Registration No. 333-22041) filed February 19, 1997). |
| | 4.2 | First Supplemental Indenture, dated as of June 1, 1989, between Caterpillar Inc. and The First National Bank of Chicago, as Trustee (incorporated by reference from Exhibit 4.2 to Form S-3 (Registration No. 333-22041) filed February 19, 1997). |
| | 4.3 | Appointment of Citibank, N.A. as Successor Trustee, dated October 1, 1991, under the Indenture, as supplemented, dated as of May 1, 1987 (incorporated by reference from Exhibit 4.3 to Form S-3 (Registration No. 333-22041) filed February 19, 1997). |
| | 4.4 | Second Supplemental Indenture, dated as of May 15, 1992, between Caterpillar Inc. and Citibank, N.A., as Successor Trustee (incorporated by reference from Exhibit 4.4 to Form S-3 (Registration No. 333-22041) filed February 19, 1997). |
| | 4.5 | Third Supplemental Indenture, dated as of December 16, 1996, between Caterpillar Inc. and Citibank, N.A., as Successor Trustee (incorporated by reference from Exhibit 4.5 to Form S-3 (Registration No. 333-22041) filed February 19, 1997). |
| | 4.6 | Tri-Party Agreement, dated as of November 2, 2006, between Caterpillar Inc., Citibank, N.A. and U.S. Bank National Association appointing U.S. Bank as Successor Trustee under the Indenture dated as of May 1, 1987, as amended and supplemented (incorporated by reference from Exhibit 4.6 to the 2006 Form 10-K). |
| | | Terms Applicable to Awards of Restricted Stock Units. |
| | 11 | Computations of Earnings per Share (included in Note 11 of this Form 10-Q filed for the quarter ended March 31, 2010). |
| | | Certification of James W. Owens, Chairman and Chief Executive Officer of Caterpillar Inc., as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | Certification of David B. Burritt, Vice President and Chief Financial Officer of Caterpillar Inc., as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | Certification of James W. Owens, Chairman and Chief Executive Officer of Caterpillar Inc. and David B. Burritt, Vice President and Chief Financial Officer of Caterpillar Inc., as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURES |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. |
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| | CATERPILLAR INC. | | |
May 3, 2010 | /s/ James W. Owens | | Chairman of the Board and Chief Executive Officer |
| | (James W. Owens) | | |
| | | | |
May 3, 2010 | /s/ David B. Burritt | | Vice President and Chief Financial Officer |
| | (David B. Burritt) | | |
| | | | |
May 3, 2010 | /s/ Bradley M. Halverson | | Controller |
| | (Bradley M. Halverson) | | |
| | | | |
| May 3, 2010 | /s/ James B. Buda | | Vice President, General Counsel and Secretary |
| | (James B. Buda) | | |
| | | | |
May 3, 2010 | /s/ Jananne A. Copeland | | Chief Accounting Officer |
| | (Jananne A. Copeland) | | |
