UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington,
D.C. 20549
|
|
|
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FORM 10-Q
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[X] QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended September 30, 2008
OR
[ ] TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from ________________ to ________________
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Commission File
Number: 1-768
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CATERPILLAR
INC.
(Exact name of registrant as
specified in its charter)
|
|
Delaware
(State or other jurisdiction of
incorporation)
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37-0602744
(IRS Employer I.D.
No.)
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100 NE Adams Street, Peoria,
Illinois
(Address of principal executive
offices)
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61629
(Zip Code)
|
Registrant's telephone number,
including area code:
(309) 675-1000
|
|
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [ X ] No
[ ]
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer”, “accelerated filer" and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
|
Large accelerated
filer
|
X
|
Accelerated
filer
|
||||||
Non-accelerated
filer
|
Smaller reporting
company
|
|||||||
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes [ ] No [ X ]
|
||||||||
At September
30, 2008, 603,233,837 shares of common stock of the registrant were
outstanding.
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Table
of Contents
|
|||
Page
|
|||
Financial
Statements
|
3
|
||
Management’s
Discussion and Analysis
|
30
|
||
Quantitative
and Qualitative Disclosures About Market Risk
|
62
|
||
Controls and
Procedures
|
62
|
||
Legal
Proceedings
|
63
|
||
Risk Factors
|
63
|
||
Unregistered
Sales of Equity Securities and Use of Proceeds
|
68
|
||
Item
3.
|
Defaults Upon
Senior Securities
|
*
|
|
Item
4.
|
Submission of
Matters to a Vote of Security Holders
|
*
|
|
Item
5.
|
Other
Information
|
*
|
|
Exhibits
|
69
|
Caterpillar
Inc.
Consolidated Statement of Results
of Operations
(Unaudited)
(Dollars in millions except per
share data)
|
||||||||||||
Three Months
Ended
|
||||||||||||
September
30,
|
||||||||||||
2008
|
2007
|
|||||||||||
Sales and
revenues:
|
||||||||||||
Sales of Machinery and
Engines
|
$
|
12,148
|
$
|
10,668
|
||||||||
Revenues of Financial
Products
|
833
|
774
|
||||||||||
Total sales and revenues
|
12,981
|
11,442
|
||||||||||
Operating
costs:
|
||||||||||||
Cost of goods sold
|
9,704
|
8,270
|
||||||||||
Selling, general and
administrative expenses
|
1,061
|
938
|
||||||||||
Research and development
expenses
|
437
|
357
|
||||||||||
Interest expense of Financial
Products
|
291
|
289
|
||||||||||
Other operating expenses
|
315
|
275
|
||||||||||
Total operating costs
|
11,808
|
10,129
|
||||||||||
Operating profit
|
1,173
|
1,313
|
||||||||||
Interest expense excluding
Financial Products
|
59
|
69
|
||||||||||
Other income (expense)
|
138
|
51
|
||||||||||
Consolidated profit before
taxes
|
1,252
|
1,295
|
||||||||||
Provision for income
taxes
|
395
|
395
|
||||||||||
Profit of consolidated
companies
|
857
|
900
|
||||||||||
Equity in profit (loss) of
unconsolidated affiliated companies
|
11
|
27
|
||||||||||
Profit
|
$
|
868
|
$
|
927
|
||||||||
Profit per common share
|
$
|
1.43
|
$
|
1.45
|
||||||||
Profit per common share –
diluted
|
1
|
$
|
1.39
|
$
|
1.40
|
|||||||
Weighted average common shares
outstanding (millions)
|
||||||||||||
- Basic
|
607.0
|
638.3
|
||||||||||
- Diluted
|
1
|
624.8
|
660.0
|
|||||||||
Cash dividends declared per common
share
|
$
|
—
|
$
|
—
|
1
|
Diluted by
assumed exercise of stock-based compensation awards using the treasury
stock method.
|
See
accompanying notes to Consolidated Financial
Statements.
|
Caterpillar
Inc.
Consolidated Statement of Results
of Operations
(Unaudited)
(Dollars in millions except per
share data)
|
||||||||||||
Nine Months
Ended
|
||||||||||||
September
30,
|
||||||||||||
2008
|
2007
|
|||||||||||
Sales and
revenues:
|
||||||||||||
Sales of Machinery and
Engines
|
$
|
35,924
|
$
|
30,602
|
||||||||
Revenues of Financial
Products
|
2,477
|
2,212
|
||||||||||
Total sales and revenues
|
38,401
|
32,814
|
||||||||||
Operating
costs:
|
||||||||||||
Cost of goods sold
|
28,349
|
23,706
|
||||||||||
Selling, general and
administrative expenses
|
3,094
|
2,796
|
||||||||||
Research and development
expenses
|
1,221
|
1,047
|
||||||||||
Interest expense of Financial
Products
|
854
|
839
|
||||||||||
Other operating expenses
|
892
|
760
|
||||||||||
Total operating costs
|
34,410
|
29,148
|
||||||||||
Operating profit
|
3,991
|
3,666
|
||||||||||
Interest expense excluding
Financial Products
|
203
|
228
|
||||||||||
Other income (expense)
|
325
|
232
|
||||||||||
Consolidated profit before
taxes
|
4,113
|
3,670
|
||||||||||
Provision for income taxes
|
1,249
|
1,155
|
||||||||||
Profit of consolidated
companies
|
2,864
|
2,515
|
||||||||||
Equity in profit (loss) of
unconsolidated affiliated companies
|
32
|
51
|
||||||||||
Profit
|
$
|
2,896
|
$
|
2,566
|
||||||||
Profit per common share
|
$
|
4.72
|
$
|
4.00
|
||||||||
Profit per common share –
diluted
|
1
|
$
|
4.57
|
$
|
3.87
|
|||||||
Weighted average common shares
outstanding (millions)
|
||||||||||||
- Basic
|
613.2
|
641.0
|
||||||||||
- Diluted
|
1
|
633.2
|
662.7
|
|||||||||
Cash dividends declared per common
share
|
$
|
.78
|
$
|
.66
|
1
|
Diluted by
assumed exercise of stock-based compensation awards using the treasury
stock method.
|
See
accompanying notes to Consolidated Financial
Statements.
|
Caterpillar
Inc.
Consolidated
Statement of Financial Position
(Unaudited)
(Dollars
in millions)
|
||||||||||
September
30,
2008
|
December
31,
2007
|
|||||||||
Assets
|
||||||||||
Current
assets:
|
||||||||||
Cash and
short-term investments
|
$
|
2,138
|
$
|
1,122
|
||||||
Receivables –
trade and other
|
9,580
|
8,249
|
||||||||
Receivables –
finance
|
8,094
|
7,503
|
||||||||
Deferred and
refundable income taxes
|
839
|
816
|
||||||||
Prepaid
expenses and other current assets
|
583
|
583
|
||||||||
Inventories
|
9,290
|
7,204
|
||||||||
Total current
assets
|
30,524
|
25,477
|
||||||||
Property,
plant and equipment – net
|
11,817
|
9,997
|
||||||||
Long-term
receivables – trade and other
|
685
|
685
|
||||||||
Long-term
receivables – finance
|
15,024
|
13,462
|
||||||||
Investments in
unconsolidated affiliated companies
|
100
|
598
|
||||||||
Noncurrent
deferred and refundable income taxes
|
1,337
|
1,553
|
||||||||
Intangible
assets
|
536
|
475
|
||||||||
Goodwill
|
2,234
|
1,963
|
||||||||
Other assets
|
1,972
|
1,922
|
||||||||
Total
assets
|
$
|
64,229
|
$
|
56,132
|
||||||
Liabilities
|
||||||||||
Current
liabilities:
|
||||||||||
Short-term
borrowings:
|
||||||||||
Machinery and Engines
|
$
|
1,858
|
$
|
187
|
||||||
Financial Products
|
6,315
|
5,281
|
||||||||
Accounts
payable
|
5,149
|
4,723
|
||||||||
Accrued
expenses
|
3,668
|
3,178
|
||||||||
Accrued wages,
salaries and employee benefits
|
1,115
|
1,126
|
||||||||
Customer
advances
|
1,946
|
1,442
|
||||||||
Dividends
payable
|
—
|
225
|
||||||||
Other current
liabilities
|
1,112
|
951
|
||||||||
Long-term debt
due within one year:
|
||||||||||
Machinery and
Engines
|
353
|
180
|
||||||||
Financial
Products
|
5,844
|
4,952
|
||||||||
Total current
liabilities
|
27,360
|
22,245
|
||||||||
Long-term debt
due after one year:
|
||||||||||
Machinery and
Engines
|
4,265
|
3,639
|
||||||||
Financial
Products
|
15,529
|
14,190
|
||||||||
Liability for
postemployment benefits
|
4,796
|
5,059
|
||||||||
Other
liabilities
|
2,170
|
2,116
|
||||||||
Total
liabilities
|
54,120
|
47,249
|
||||||||
Commitments
and contingencies (Notes 10 and 12)
|
||||||||||
Redeemable
noncontrolling interest (Note 16)
|
464
|
—
|
||||||||
Stockholders'
equity
|
||||||||||
Common stock of $1.00 par
value:
|
||||||||||
Authorized shares:
900,000,000
Issued shares: (9/30/08 and
12/31/07 – 814,894,624) at paid-in amount
|
2,993
|
2,744
|
||||||||
Treasury stock (9/30/08 –
211,660,787; 12/31/07 – 190,908,490) at cost
|
(11,109
|
)
|
(9,451
|
)
|
||||||
Profit
employed in the business
|
19,673
|
17,398
|
||||||||
Accumulated
other comprehensive income (loss)
|
(1,912
|
)
|
(1,808
|
)
|
||||||
Total
stockholders' equity
|
9,645
|
8,883
|
||||||||
Total
liabilities, redeemable noncontrolling interest and stockholders'
equity
|
$
|
64,229
|
$
|
56,132
|
See accompanying notes to
Consolidated Financial
Statements.
|
Caterpillar
Inc.
Consolidated Statement of Changes
in Stockholders' Equity
(Unaudited)
(Dollars
in millions)
|
||||||||||||||||||||||||||||||||||
Accumulated
other comprehensive income (loss)
|
||||||||||||||||||||||||||||||||||
Common
|
Treasury
|
Profit
employed
in
the
|
Foreign
currency
|
Pension &
other post-
retirement
|
Derivative
financial
instruments
|
Available-
for-sale
|
||||||||||||||||||||||||||||
Nine
Months Ended September 30, 2007
|
stock
|
stock
|
business
|
translation
|
benefits
|
1
|
and
other
|
securities
|
Total
|
|||||||||||||||||||||||||
Balance
at December 31, 2006
|
$
|
2,465
|
$
|
(7,352
|
)
|
$
|
14,593
|
$
|
471
|
$
|
(3,376
|
)
|
$
|
48
|
$
|
10
|
$
|
6,859
|
||||||||||||||||
Adjustment to
adopt FIN 48
|
—
|
—
|
141
|
—
|
—
|
—
|
—
|
141
|
||||||||||||||||||||||||||
Balance at
January 1, 2007
|
2,465
|
(7,352
|
)
|
14,734
|
471
|
(3,376
|
)
|
48
|
10
|
7,000
|
||||||||||||||||||||||||
Profit
|
—
|
—
|
2,566
|
—
|
—
|
—
|
—
|
2,566
|
||||||||||||||||||||||||||
Foreign
currency translation
|
—
|
—
|
—
|
190
|
—
|
—
|
—
|
190
|
||||||||||||||||||||||||||
Pension and
other postretirement benefits
|
||||||||||||||||||||||||||||||||||
Amortization
of actuarial (gain) loss, net of tax of
$91
|
—
|
—
|
—
|
—
|
171
|
—
|
—
|
171
|
||||||||||||||||||||||||||
Amortization
of prior service cost, net of tax of
$7
|
—
|
—
|
—
|
—
|
13
|
—
|
—
|
13
|
||||||||||||||||||||||||||
Amortization
of transition asset/obligation, net of tax of
$1
|
—
|
—
|
—
|
—
|
2
|
—
|
—
|
2
|
||||||||||||||||||||||||||
Derivative
financial instruments and other
|
||||||||||||||||||||||||||||||||||
Gains (losses)
deferred, net of tax of
$19
|
—
|
—
|
—
|
—
|
—
|
34
|
—
|
34
|
||||||||||||||||||||||||||
(Gains) losses
reclassified to earnings, net of tax of
$30
|
—
|
—
|
—
|
—
|
—
|
(52
|
)
|
—
|
(52
|
)
|
||||||||||||||||||||||||
Available-for-sale
securities
|
||||||||||||||||||||||||||||||||||
Gains (losses)
deferred, net of tax of
$9
|
—
|
—
|
—
|
—
|
—
|
—
|
14
|
14
|
||||||||||||||||||||||||||
(Gains) losses
reclassified to earnings, net of tax of
$3
|
—
|
—
|
—
|
—
|
—
|
—
|
(6
|
)
|
(6
|
)
|
||||||||||||||||||||||||
Comprehensive
income (loss)
|
2,932
|
|||||||||||||||||||||||||||||||||
Dividends
declared
|
—
|
—
|
(423
|
)
|
—
|
—
|
—
|
—
|
(423
|
)
|
||||||||||||||||||||||||
Common
shares issued from treasury stock
for
stock-based compensation: 11,052,070
|
21
|
290
|
—
|
—
|
—
|
—
|
—
|
311
|
||||||||||||||||||||||||||
Stock-based
compensation expense
|
125
|
—
|
—
|
—
|
—
|
—
|
—
|
125
|
||||||||||||||||||||||||||
Tax
benefits from stock-based compensation
|
148
|
—
|
—
|
—
|
—
|
—
|
—
|
148
|
||||||||||||||||||||||||||
Shares
repurchased: 20,900,000
|
—
|
(1,485
|
)
|
—
|
—
|
—
|
—
|
—
|
(1,485
|
)
|
||||||||||||||||||||||||
Balance
at September 30, 2007
|
$
|
2,759
|
$
|
(8,547
|
)
|
$
|
16,877
|
$
|
661
|
$
|
(3,190
|
)
|
$
|
30
|
$
|
18
|
$
|
8,608
|
||||||||||||||||
Nine
Months Ended September 30, 2008
|
||||||||||||||||||||||||||||||||||
Balance
at December 31, 2007
|
$
|
2,744
|
$
|
(9,451
|
)
|
$
|
17,398
|
$
|
749
|
$
|
(2,594
|
)
|
$
|
19
|
$
|
18
|
$
|
8,883
|
||||||||||||||||
Adjustment
to adopt measurement date
|
||||||||||||||||||||||||||||||||||
provisions of
FAS 158, net of tax
|
2 |
—
|
—
|
(33
|
)
|
—
|
17
|
—
|
—
|
(16
|
)
|
|||||||||||||||||||||||
Balance at
January 1, 2008
|
2,744
|
(9,451
|
)
|
17,365
|
749
|
(2,577
|
)
|
19
|
18
|
8,867
|
||||||||||||||||||||||||
Profit
|
—
|
—
|
2,896
|
—
|
—
|
—
|
—
|
2,896
|
||||||||||||||||||||||||||
Foreign
currency translation,
net of tax of
$107
|
—
|
—
|
—
|
(234
|
)
|
(3
|
)
|
—
|
—
|
(237
|
)
|
|||||||||||||||||||||||
Pension and
other postretirement benefits
|
||||||||||||||||||||||||||||||||||
Amortization
of actuarial (gain) loss, of FAS 158,
net of tax of
$61
|
—
|
—
|
—
|
—
|
113
|
—
|
—
|
113
|
||||||||||||||||||||||||||
Amortization
of prior service cost, net of tax of
$0
|
—
|
—
|
—
|
—
|
1
|
—
|
—
|
1
|
||||||||||||||||||||||||||
Amortization
of transition asset/obligation, net of tax of
$1
|
—
|
—
|
—
|
—
|
1
|
—
|
—
|
1
|
||||||||||||||||||||||||||
Derivative
financial instruments and other
|
||||||||||||||||||||||||||||||||||
Gains (losses)
deferred, net of tax of
$63
|
—
|
—
|
—
|
—
|
—
|
90
|
—
|
90
|
||||||||||||||||||||||||||
(Gains) losses
reclassified to earnings, net of tax of
$16
|
—
|
—
|
—
|
—
|
—
|
(18
|
)
|
—
|
(18
|
)
|
||||||||||||||||||||||||
Available-for-sale
securities
|
||||||||||||||||||||||||||||||||||
Gains (losses)
deferred, net of tax of
$39
|
—
|
—
|
—
|
—
|
—
|
—
|
(72
|
)
|
(72
|
)
|
||||||||||||||||||||||||
(Gains) losses
reclassified to earnings, net of tax of
$1
|
—
|
—
|
—
|
—
|
—
|
—
|
1
|
1
|
||||||||||||||||||||||||||
Comprehensive
income (loss)
|
2,775
|
|||||||||||||||||||||||||||||||||
Dividends
declared
|
—
|
—
|
(475
|
)
|
—
|
—
|
—
|
—
|
(475
|
)
|
||||||||||||||||||||||||
Common
shares issued from treasury stock
for
stock-based compensation: 4,514,729
|
8
|
120
|
—
|
—
|
—
|
—
|
—
|
128
|
||||||||||||||||||||||||||
Stock-based
compensation expense
|
163
|
—
|
—
|
—
|
—
|
—
|
—
|
163
|
||||||||||||||||||||||||||
Tax
benefits from stock-based compensation
|
54
|
—
|
—
|
—
|
—
|
—
|
—
|
54
|
||||||||||||||||||||||||||
Shares
repurchased: 25,267,026
|
3
|
—
|
(1,778
|
)
|
—
|
—
|
—
|
—
|
—
|
(1,778
|
)
|
|||||||||||||||||||||||
Stock
repurchase derivative contracts
|
24
|
—
|
—
|
—
|
—
|
—
|
—
|
24
|
||||||||||||||||||||||||||
Cat Japan share redemption | 4 |
—
|
—
|
(113
|
)
|
—
|
—
|
—
|
—
|
(113
|
)
|
|||||||||||||||||||||||
Balance
at September 30, 2008
|
$
|
2,993
|
$
|
(11,109
|
)
|
$
|
19,673
|
$
|
515
|
$
|
(2,465
|
)
|
$
|
91
|
$
|
(53
|
)
|
$
|
9,645
|
1
|
Pension and
other postretirement benefits include net adjustments for Caterpillar
Japan Limited (Cat Japan) of $1 million and $(3) million for the nine
months ended September 30, 2008 and 2007, respectively. The
ending balances were $53 million and $40 million at September 30, 2008 and
2007, respectively. See Note 16 regarding the Cat Japan share
redemption.
|
2
|
Adjustments to
profit employed in the business and pension and other postemployment
benefits were net of tax of $(17) million and $9 million,
respectively.
|
3
|
Amount
consists of $1,716 million of cash-settled purchases and $62 million of
derivative contracts.
|
4
|
See Note 16
regarding the Cat Japan share redemption.
|
See accompanying notes to Consolidated Financial Statements. |
Caterpillar
Inc.
Consolidated
Statement of Cash Flow
(Unaudited)
(Dollars
in millions)
|
|||||||||
Nine Months
Ended
|
|||||||||
September
30,
|
|||||||||
2008
|
2007
|
||||||||
Cash flow from operating
activities:
|
|||||||||
Profit
|
$
|
2,896
|
$
|
2,566
|
|||||
Adjustments for non-cash
items:
|
|||||||||
Depreciation and
amortization
|
1,453
|
1,301
|
|||||||
Other
|
84
|
38
|
|||||||
Changes in assets and
liabilities:
|
|||||||||
Receivables – trade and other
|
(676
|
)
|
850
|
||||||
Inventories
|
(1,380
|
)
|
(715
|
)
|
|||||
Accounts payable and accrued
expenses
|
790
|
268
|
|||||||
Customer advances
|
321
|
541
|
|||||||
Other assets – net
|
154
|
(89
|
)
|
||||||
Other liabilities – net
|
(372
|
)
|
670
|
||||||
Net cash provided by (used for)
operating activities
|
3,270
|
5,430
|
|||||||
Cash flow from investing
activities:
|
|||||||||
Capital expenditures – excluding equipment leased to
others
|
(1,362
|
)
|
(969
|
)
|
|||||
Expenditures for equipment leased
to others
|
(1,082
|
)
|
(971
|
)
|
|||||
Proceeds from disposals of
property, plant and equipment
|
754
|
302
|
|||||||
Additions to finance
receivables
|
(11,168
|
)
|
(9,797
|
)
|
|||||
Collections of finance
receivables
|
7,402
|
7,908
|
|||||||
Proceeds from sales of finance
receivables
|
710
|
800
|
|||||||
Investments and acquisitions (net
of cash acquired)
|
(139
|
)
|
(130
|
)
|
|||||
Proceeds from sales of
available-for-sale securities
|
292
|
196
|
|||||||
Investments in available-for-sale
securities
|
(270
|
)
|
(286
|
)
|
|||||
Other – net
|
116
|
336
|
|||||||
Net cash provided by (used for)
investing activities
|
(4,747
|
)
|
(2,611
|
)
|
|||||
Cash flow from financing
activities:
|
|||||||||
Dividends paid
|
(700
|
)
|
(617
|
)
|
|||||
Common stock issued, including
treasury shares reissued
|
128
|
311
|
|||||||
Payment for stock repurchase
derivative contracts
|
(38
|
)
|
—
|
||||||
Treasury shares purchased
|
(1,716
|
)
|
(1,485
|
)
|
|||||
Excess tax benefit from
stock-based compensation
|
55
|
143
|
|||||||
Proceeds from debt issued
(original maturities greater than three months)
|
|||||||||
- Machinery and Engines
|
49
|
125
|
|||||||
- Financial Products
|
13,971
|
7,381
|
|||||||
Payments on debt (original
maturities greater than three months)
|
|||||||||
- Machinery and Engines
|
(173
|
)
|
(169
|
)
|
|||||
- Financial Products
|
(10,715
|
)
|
(7,754
|
)
|
|||||
Short-term borrowings (original
maturities three months or less) – net
|
1,646
|
(374
|
)
|
||||||
Net cash provided by (used for)
financing activities
|
2,507
|
(2,439
|
)
|
||||||
Effect of exchange rate changes on
cash
|
(14
|
)
|
—
|
||||||
Increase (decrease) in cash and
short-term investments
|
1,016
|
380
|
|||||||
Cash and short-term investments at
beginning of period
|
1,122
|
530
|
|||||||
Cash and short-term investments at
end of period
|
$
|
2,138
|
$
|
910
|
All short-term
investments, which consist primarily of highly liquid investments with
original maturities of three months or less, are considered to be cash
equivalents.
|
See
accompanying notes to Consolidated Financial
Statements.
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
1.
|
A. Basis
of Presentation
In the opinion
of management, the accompanying financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary
for a fair statement of (a) the consolidated results of operations for the
three and nine month periods ended September 30, 2008 and 2007, (b) the
consolidated financial position at September 30, 2008 and December 31,
2007, (c) the consolidated changes in stockholders' equity for the nine
month periods ended September 30, 2008 and 2007, and (d) the consolidated
statement of cash flow for the nine month periods ended September 30, 2008
and 2007. The financial statements have been prepared in
conformity with generally accepted accounting principles in the United
States of America (U.S. GAAP) and pursuant to the rules and regulations of
the Securities and Exchange Commission (SEC). Certain amounts
for prior periods have been reclassified to conform to the current period
financial statement presentation.
Interim
results are not necessarily indicative of results for a full year. The
information included in this Form 10-Q should be read in conjunction with
the audited financial statements and notes thereto included in our Company's annual report on Form
10-K for the year ended December 31, 2007 (2007 Form
10-K).
Comprehensive
income is comprised of profit, as well as adjustments for foreign currency
translation, derivative instruments designated as cash flow hedges,
available-for-sale securities and pension and other postretirement
benefits. Total comprehensive income for the three months ended September
30, 2008 and 2007 was $571 million and $1,067 million, respectively. Total
comprehensive income for the nine months ended September 30, 2008 and 2007
was $2,775 million and $2,932 million, respectively.
The December
31, 2007 financial position data included herein is derived from the
audited consolidated financial statements included in the 2007 Form 10-K,
but does not include all disclosures required by U.S.
GAAP.
|
B. Nature
of Operations
We operate in
three principal lines of business:
|
||
(1)
|
Machinery— A principal
line of business which includes the design, manufacture, marketing and
sales of construction, mining and forestry machinery—track and wheel
tractors, track and wheel loaders, pipelayers, motor graders, wheel
tractor-scrapers, track and wheel excavators, backhoe loaders, log
skidders, log loaders, off-highway trucks, articulated trucks, paving
products, skid steer loaders and related parts. Also includes logistics
services for other companies and the design, manufacture, remanufacture,
maintenance and services of rail-related products.
|
|
(2)
|
Engines— A principal
line of business including the design, manufacture, marketing and sales of
engines for Caterpillar machinery; electric power generation systems;
on-highway vehicles and locomotives; marine, petroleum, construction,
industrial, agricultural and other applications; and related
parts. Also includes remanufacturing of Caterpillar engines and
a variety of Caterpillar machine and engine components and remanufacturing
services for other companies. Reciprocating engines meet power
needs ranging from 5 to 21,500 horsepower (4 to over 16 000
kilowatts). Turbines range from 1,600 to 30,000 horsepower (1
200 to 22 000 kilowatts).
|
|
(3)
|
Financial Products— A
principal line of business consisting primarily of Caterpillar Financial
Services Corporation (Cat Financial), Caterpillar Insurance Holdings, Inc.
(Cat Insurance), Caterpillar Power Ventures Corporation (Cat Power
Ventures) and their respective subsidiaries. Cat Financial
provides a wide range of financing alternatives to customers and dealers
for Caterpillar machinery and engines, Solar gas turbines as well as other
equipment and marine vessels. Cat Financial also extends loans
to customers and dealers. Cat Insurance provides various forms
of insurance to customers and dealers to help support the purchase and
lease of our equipment. Cat Power Ventures is an investor in
independent power projects using Caterpillar power generation equipment
and services.
|
|
Our Machinery
and Engines operations are
highly integrated. Throughout the Notes, Machinery and Engines
represents the aggregate total of these principal lines of
business.
|
2.
|
New
Accounting Pronouncements
|
FIN 48 – In July 2006,
the Financial Accounting Standards Board (FASB) issued FIN 48 “Accounting
for Uncertainty in Income Taxes – an interpretation of FASB Statement No.
109” to create a single model to address accounting for uncertainty in tax
positions. FIN 48 clarifies that a tax position must be more likely than
not of being sustained before being recognized in the financial
statements. As required, we adopted the provisions of FIN 48 as of January
1, 2007. The following table summarizes the effect of the
initial adoption of FIN 48.
|
Initial
adoption of FIN 48
|
||||||||||||
January 1,
2007
Prior to FIN
48 Adjustment
|
FIN 48
Adjustment
|
January 1,
2007
Post FIN 48
Adjustment
|
||||||||||
(Millions
of dollars)
|
||||||||||||
Deferred and
refundable income taxes
|
$
|
733
|
$
|
82
|
$
|
815
|
||||||
Noncurrent
deferred and refundable income taxes
|
1,949
|
211
|
2,160
|
|||||||||
Other current
liabilities
|
1,145
|
(530
|
)
|
615
|
||||||||
Other
liabilities
|
1,209
|
682
|
1,891
|
|||||||||
Profit
employed in the business
|
14,593
|
141
|
14,734
|
SFAS 157 – In September
2006, the FASB issued Statement of Financial Accounting Standards No. 157
(SFAS 157), “Fair Value Measurements.” SFAS 157 provides a common
definition of fair value and a framework for measuring assets and
liabilities at fair values when a particular standard prescribes it. In
addition, the statement expands disclosures about fair value measurements.
In February 2008, the FASB issued final Staff Positions that (1) deferred
the effective date of this Statement for one year for certain nonfinancial
assets and nonfinancial liabilities (see below) and (2) removed certain
leasing transactions from the scope of the Statement. We
applied this new accounting standard to all other fair value measurements
effective January 1, 2008. The adoption of SFAS 157 did not have a
material impact on our financial statements. See Note 15 for additional
information.
FSP 157-2 – In February 2008,
the FASB issued FASB Staff Position on Statement 157 "Effective Date of
FASB Statement No. 157" (FSP 157-2). FSP 157-2 delays the
effective date of SFAS 157 for nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed on a recurring
basis, to fiscal years beginning after November 15, 2008. Our
significant nonfinancial assets and liabilities that could be impacted by
this deferral include assets and liabilities initially measured at fair
value in a business combination and goodwill tested annually for
impairment. The adoption of FSP 157-2 is not expected to have a
significant impact on our financial statements.
FSP 157-3 – In October 2008,
the FASB issued FASB Staff Position on Statement 157 "Determining the Fair
Value of a Financial Asset When the Market for That Asset Is Not Active”
(FSP 157-3). FSP 157-3 clarifies how FAS 157 should be applied
when valuing securities in markets that are not active by illustrating key
considerations in determining fair value. It also reaffirms the
notion of fair value as the exit price as of the measurement
date. FSP 157-3 was effective upon issuance, which included
periods for which financial statements have not yet been
issued. This new accounting standard has been adopted for our
financial statements ended September 30, 2008. The adoption of
FSP157-3 did not have a material impact on our financial
statements.
SFAS 158 – In September
2006, the FASB issued Statement of Financial Accounting Standards No. 158
(SFAS 158), “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and
132(R).” SFAS 158 requires recognition of the overfunded or
underfunded status of pension and other postretirement benefit plans on
the balance sheet. Also, the measurement date – the date at
which the benefit obligation and plan assets are measured – is required to
be the company’s fiscal year-end. We adopted the balance sheet
recognition provisions at December 31, 2006, and adopted the year-end
measurement date effective January 1, 2008 using the “one measurement”
approach. Under the one measurement approach, net periodic
benefit cost for the period between any early measurement date and the end
of the fiscal year that the measurement provisions are applied are
allocated proportionately between amounts to be recognized as an
adjustment of retained earnings and net periodic benefit cost for the
fiscal year. Previously, we used a November 30th measurement
date for our U.S. pension and other postretirement benefit plans and
September 30th for our
non-U.S. plans. The following summarizes the effect of adopting the
year-end measurement date provisions as of January 1, 2008. See
Note 9 for additional information.
|
Adoption
of SFAS 158 year-end measurement date
|
||||||||||||
January 1,
2008
Prior to SFAS
158 Adjustment
|
SFAS 158
Adjustment
|
January 1,
2008
Post SFAS 158
Adjustment
|
||||||||||
(Millions
of dollars)
|
||||||||||||
Noncurrent
deferred and refundable income taxes
|
$
|
1,553
|
$
|
8
|
$
|
1,561
|
||||||
Liability for
postemployment benefits
|
5,059
|
24
|
5,083
|
|||||||||
Accumulated
other comprehensive income (loss)
|
(1,808
|
)
|
17
|
(1,791
|
)
|
|||||||
Profit
employed in the business
|
17,398
|
(33
|
)
|
17,365
|
SFAS 159 – In
February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159 (SFAS 159), “The Fair Value Option for Financial Assets and
Financial Liabilities – including an amendment of SFAS No. 115.” SFAS 159
creates a fair value option under which an entity may irrevocably elect
fair value as the initial and subsequent measurement attribute for certain
financial assets and liabilities on a contract by contract basis, with
changes in fair values recognized in earnings as these changes
occur. We adopted this new accounting standard on January 1,
2008. We have not elected to measure any financial assets or financial
liabilities at fair value which were not previously required to be
measured at fair value. Therefore, the adoption of SFAS 159 did not have a
material impact on our financial statements.
SFAS 141R & SFAS 160
– In December 2007, the FASB issued Statement of Financial Accounting
Standards No. 141 (revised 2007) (SFAS 141R), “Business Combinations,” and
No. 160 (SFAS 160), “Noncontrolling Interests in Consolidated Financial
Statements – an amendment of ARB No. 51.” SFAS 141R requires the acquiring
entity in a business combination to recognize the assets acquired and
liabilities assumed. Further, SFAS 141R also changes the accounting for
acquired in-process research and development assets, contingent
consideration, partial acquisitions and transaction
costs. Under SFAS 160, all entities are required to report
noncontrolling (minority) interests in subsidiaries as equity in the
consolidated financial statements. In addition, transactions between an
entity and noncontrolling interests will be treated as equity
transactions. SFAS 141R and SFAS 160 will become effective for fiscal
years beginning after December 15, 2008. We will adopt these new
accounting standards on January 1, 2009. We do not expect the
adoption to have a material impact on our financial
statements.
SFAS 161 – In March 2008, the
FASB issued Statement of Financial Accounting Standards No. 161 (SFAS
161), “Disclosures about Derivative Instruments and Hedging Activities –
an amendment of FASB Statement No. 133.” SFAS 161 expands disclosures for
derivative instruments by requiring entities to disclose the fair value of
derivative instruments and their gains or losses in tabular
format. SFAS 161 also requires disclosure of information about
credit risk-related contingent features in derivative agreements,
counterparty credit risk, and strategies and objectives for using
derivative instruments. SFAS 161 will become effective
for fiscal years beginning after November 15, 2008. We will
adopt this new accounting standard on January 1, 2009. We do
not expect the adoption to have a material impact on our financial
statements.
SFAS 162 – In May 2008, the
FASB issued Statement of
Financial Accounting Standards No. 162 (SFAS 162), “The Hierarchy of
Generally Accepted Accounting Principles.” SFAS 162 identifies the sources
of accounting principles and the framework for selecting the principles to
be used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with U.S. GAAP. SFAS 162 will
become effective 60 days following the SEC’s approval of the Public
Company Accounting Oversight Board amendments to AU Section 411, “The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles.” This statement is not expected to result in a
change in our current practice.
SFAS 163 – In May 2008, the
FASB issued Statement of Financial Accounting Standards No. 163 (SFAS
163), “Accounting for Financial Guarantee Insurance Contracts – an
interpretation of FASB Statement No. 60.” SFAS 163 requires that an
insurance enterprise recognize a claim liability prior to an event of
default (insured event) when there is evidence that credit deterioration
has occurred in an insured financial obligation. It also requires
disclosure about (1) the risk-management activities used by an insurance
enterprise to evaluate credit deterioration in its insured financial
obligations and (2) the insurance enterprise’s surveillance or watch
list. SFAS 163 will become effective for fiscal years beginning
after December 15, 2008. We will adopt this new accounting
standard on January 1, 2009. We do not expect the adoption to
have a material impact on our financial
statements.
|
3.
|
Stock-Based
Compensation
|
Statement of
Financial Accounting Standards No. 123 (revised 2004), “Share-Based
Payment” (SFAS 123R), requires that the cost resulting from all
stock-based payments be recognized in the financial statements based on
the grant date fair value of the award. Our stock-based
compensation primarily consists of stock options, stock-settled stock
appreciation rights (SARs) and restricted stock units
(RSUs). We recognized pretax stock-based compensation cost in
the amount of $56 million and $163 million for the three and nine months
ended September 30, 2008, respectively; and $43 million and $125 million
for the three and nine months ended September 30, 2007,
respectively.
|
The following
table illustrates the type and fair market value of the stock-based
compensation awards granted during the nine month periods ended September
30, 2008 and 2007, respectively:
|
2008
|
2007
|
|||||||||||||||
#
Granted
|
Fair Value Per
Award
|
#
Granted
|
Fair Value Per
Award
|
|||||||||||||
SARs
|
4,476,095
|
$
|
22.32
|
4,195,188
|
$
|
20.73
|
||||||||||
Stock
options
|
410,506
|
22.32
|
231,615
|
20.73
|
||||||||||||
RSUs
|
1,511,523
|
69.17
|
1,282,020
|
59.94
|
||||||||||||
The following
table provides the assumptions used in determining the fair value of the
stock-based awards for the nine month periods ended September 30, 2008 and
2007, respectively:
|
Grant
Year
|
||||||||
2008
|
2007
|
|||||||
Weighted-average
dividend yield
|
1.89%
|
1.68%
|
||||||
Weighted-average
volatility
|
27.14%
|
26.04%
|
||||||
Range of
volatilities
|
27.13-28.99%
|
26.03-26.62%
|
||||||
Range of
risk-free interest rates
|
1.60-3.64%
|
4.40-5.16%
|
||||||
Weighted-average
expected lives
|
8
years
|
8
years
|
||||||
As of
September 30, 2008, the total remaining unrecognized compensation cost
related to nonvested stock-based compensation awards was $167 million,
which will be amortized over the weighted-average remaining requisite
service periods of approximately 2.0
years.
|
Our
long-standing practices and policies specify all stock-based compensation
awards are approved by the Compensation Committee (the Committee) of the
Board of Directors on the date of grant. The stock-based award
approval process specifies the number of awards granted, the terms of the
award and the grant date. The same terms and conditions are
consistently applied to all employee grants, including Officers. The
Committee approves all individual Officer grants. The number of
stock-based compensation awards included in an individual’s award is
determined based on the methodology approved by the
Committee. In 2007, under the terms of the Caterpillar Inc.
2006 Long-Term Incentive Plan (approved by stockholders in June of 2006),
the Committee approved the exercise price methodology to be the closing
price of the Company stock on the date of
grant.
|
4.
|
Derivative
Instruments and Hedging Activities
|
Our earnings
and cash flow are subject to fluctuations due to changes in foreign
currency exchange rates, interest rates and commodity
prices. In addition, the amount of Caterpillar stock that can
be repurchased under our stock repurchase program is impacted by movements
in the price of the stock. Our Risk Management Policy (policy)
allows for the use of derivative financial instruments to prudently manage
foreign currency exchange rate, interest rate, commodity price and
Caterpillar stock price exposures. Our policy specifies that
derivatives not be used for speculative purposes. Derivatives
that we use are primarily foreign currency forward and option contracts,
interest rate swaps, commodity forward and option contracts and stock
repurchase contracts. Our derivative activities are subject to the
management, direction and control of our senior financial
officers. Risk management practices, including the use of
financial derivative instruments, are presented to the Audit Committee of
the Board of Directors at least
annually.
|
Foreign Currency
Exchange Rate Risk
Foreign
currency exchange rate movements create a degree of risk by affecting the
U.S. dollar value of sales made and costs incurred in foreign currencies.
Movements in foreign currency rates also affect our competitive position
as these changes may affect business practices and/or pricing strategies
of non-U.S.-based competitors. Additionally, we have balance sheet
positions denominated in foreign currency, thereby creating exposure to
movements in exchange rates.
Our Machinery
and Engines operations purchase, manufacture and sell products in many
locations around the world. As we have diversified revenue and cost base,
we manage our future foreign currency cash flow exposure on a net basis.
We use foreign currency forward and option contracts to manage unmatched
foreign currency cash inflow and outflow. Our objective is to minimize the
risk of exchange rate movements that would reduce the U.S. dollar value of
our foreign currency cash flow. Our policy allows for managing anticipated
foreign currency cash flow for up to five years.
We generally
designate as cash flow hedges at inception of the contract any Australian
dollar, Brazilian real, British pound, Canadian dollar, Chinese yuan,
euro, Japanese yen, Mexican peso, Singapore dollar, New Zealand dollar or
Swiss franc forward or option contracts that meet the requirements for
hedge accounting. Designation is performed on a specific exposure basis to
support hedge accounting. The remainder of Machinery and Engines foreign
currency contracts is undesignated. We designate as fair value hedges
specific euro forward contracts used to hedge firm
commitments.
|
As of
September 30, 2008, $46 million of deferred net gains (net of tax)
included in equity ("Accumulated other comprehensive income (loss)" in the
Consolidated Statement of Financial Position) are expected to be
reclassified to current earnings ("Other income (expense)" in the
Consolidated Statement of Results of Operations) over the next 12 months.
The actual amount recorded in “Other income (expense)” will vary based on
the exchange rates at the time the hedged transactions impact
earnings.
|
In managing
foreign currency risk for our Financial Products operations, our objective
is to minimize earnings volatility resulting from conversion and the
remeasurement of net foreign currency balance sheet positions. Our policy
allows the use of foreign currency forward and option contracts to offset
the risk of currency mismatch between our receivables and debt. All such
foreign currency forward and option contracts are
undesignated.
|
Gains
(losses) included in current earnings [Other income (expense)] on
undesignated contracts:
|
||||||||||||||||
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|||||||||||||||
(Millions
of dollars)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||
Machinery and
Engines
|
$
|
33
|
$
|
14
|
$
|
32
|
$
|
22
|
||||||||
Financial
Products
|
151
|
(42
|
)
|
45
|
(52
|
)
|
||||||||||
$
|
184
|
$
|
(28
|
)
|
$
|
77
|
$
|
(30
|
)
|
|||||||
Gains and
losses on the Financial Products contracts above are designed to offset
balance sheet translation gains and losses.
Interest Rate
Risk
Interest rate
movements create a degree of risk by affecting the amount of our interest
payments and the value of our fixed-rate debt. Our practice is to use
interest rate swap agreements to manage our exposure to interest rate
changes and, in some cases, lower the cost of borrowed funds.
Machinery and
Engines operations generally use fixed rate debt as a source of
funding. Our objective is to minimize the cost of borrowed
funds. Our policy allows us to enter into fixed-to-floating
interest rate swaps and forward rate agreements to meet that objective
with the intent to designate as fair value hedges at inception of the
contract all fixed-to-floating interest rate swaps.
Since 2006, we
entered into $400 million (notional amount) of interest rate swaps
designated as fair value hedges of our fixed rate long-term debt. During
the first quarter 2008, our Machinery and Engines operations liquidated
all of these fixed-to-floating interest rate swaps. The gain
($18 million remaining at September 30, 2008) is being amortized to
earnings ratably over the remaining life of the hedged debt.
Financial
Products operations have a match-funding policy that addresses interest
rate risk by aligning the interest rate profile (fixed or floating rate)
of Cat Financial’s debt portfolio with the interest rate profile of their
receivables portfolio within predetermined ranges on an on-going basis. In
connection with that policy, we use interest rate derivative instruments
to modify the debt structure to match assets within the receivables
portfolio. This match funding reduces the volatility of margins between
interest-bearing assets and interest-bearing liabilities, regardless of
which direction interest rates move.
Our policy
allows us to use fixed-to-floating, floating-to-fixed and
floating-to-floating interest rate swaps to meet the match-funding
objective. To support hedge accounting, we designate fixed-to-floating
interest rate swaps as fair value hedges of the fair value of our
fixed-rate debt at the inception of the contract. Financial Products'
practice is to designate most floating-to-fixed interest rate swaps as
cash flow hedges of the variability of future cash flows at the inception
of the swap contract.
Financial
Products liquidated fixed-to-floating interest rate swaps during 2006,
2005 and 2004, which resulted in deferred net gains. These
gains ($4 million remaining at September 30, 2008) are being amortized to
earnings ratably over the remaining life of the hedged
debt.
|
Gains
(losses) included in current earnings [Other income
(expense)]:
|
||||||||||||||||||
Three Months
Ended
September
30,
|
Nine Months
Ended
September
30,
|
|||||||||||||||||
(Millions of
dollars)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||||
Fixed-to-floating
interest rate swaps
|
||||||||||||||||||
Machinery and
Engines:
|
||||||||||||||||||
Gain (loss) on designated interest
rate derivatives
|
$
|
—
|
$
|
14
|
$
|
18
|
$
|
9
|
||||||||||
Gain (loss) on hedged
debt
|
—
|
(2
|
)
|
(9
|
)
|
—
|
||||||||||||
Gain (loss) on liquidated swaps –
included in interest expense
|
1
|
1
|
3
|
2
|
||||||||||||||
Financial
Products:
|
||||||||||||||||||
Gain (loss) on designated interest
rate derivatives
|
66
|
62
|
(2
|
)
|
31
|
|||||||||||||
Gain (loss) on hedged
debt
|
(55
|
)
|
(64
|
)
|
11
|
(33
|
)
|
|||||||||||
Gain (loss) on liquidated swaps –
included in interest expense
|
—
|
1
|
1
|
2
|
||||||||||||||
$
|
12
|
$
|
12
|
$
|
22
|
$
|
11
|
|||||||||||
As of
September 30, 2008, $12 million of deferred net losses included in
equity ("Accumulated other comprehensive income (loss)" in the
Consolidated Statement of Financial Position), related to Financial
Products floating-to-fixed interest rate swaps, are expected to be
reclassified to current earnings ("Interest expense of Financial Products"
in the Consolidated Statement of Results of Operations) over the next 12
months.
Commodity Price
Risk
Commodity
price movements create a degree of risk by affecting the price we must pay
for certain raw material. Our policy is to use commodity forward and
option contracts to manage the commodity risk and reduce the cost of
purchased materials.
Our Machinery
and Engines operations purchase aluminum, copper and nickel embedded in
the components we purchase from suppliers. Our suppliers pass on to us
price changes in the commodity portion of the component cost. In addition,
we are also subject to price changes on natural gas purchased for
operational use.
Our objective
is to minimize volatility in the price of these commodities. Our policy
allows us to enter into commodity forward and option contracts to lock in
the purchase price of a portion of these commodities within a four-year
horizon. All such commodity forward and option contracts are
undesignated. There were no net gains or losses on undesignated
contracts for the three or nine months ended September 30, 2007, and no
contracts were outstanding during
2008.
|
Stock Repurchase
Risk
In February
2007, the Board of Directors authorized a $7.5 billion stock repurchase
program, expiring on December 31, 2011. The amount of
Caterpillar stock that can be repurchased under the authorization is
impacted by the movements in the price of the stock. In August
2007, the Board of Directors authorized the use of derivative contracts to
reduce stock repurchase volatility.
In connection
with our stock repurchase program, we entered into capped call
transactions (“call”) with a major bank for an aggregate of 6.0 million
shares. During 2008, we paid the bank premiums of $38 million
for the establishment of calls for 2.5 million shares, which was accounted
for as a reduction to stockholders’ equity. A call permits us
to reduce share repurchase price volatility by providing a floor and cap
on the price at which the shares can be repurchased. The floor,
cap and strike prices for the calls were based upon the average purchase
price paid by the bank to purchase our common stock to hedge these
transactions. Each call will mature and be exercisable within
one year after the call was established. If we exercise a call,
we can elect to settle the transaction with the bank by physical
settlement (paying cash and receiving shares), cash settle (receiving a
net amount of cash) or net share settlement (receiving a net amount of
shares). We will continue to use open market purchases in
conjunction with capped call transactions to repurchase our
stock.
During the
three and nine months ended September 30, 2008, $119 million and $219
million of cash were used to repurchase 2.2 million shares and 4.0 million
shares, respectively, pursuant to calls exercised under this program.
Premiums previously paid associated with these exercised calls were $34
million and $62 million, respectively. The following table
summarizes the call contracts outstanding as of September 30,
2008:
|
Stock
repurchase derivative contracts outstanding at September 30,
2008
|
|||||||||||||||||||
per
share
|
|||||||||||||||||||
Contract
Date
|
Number
of
Shares
|
Expiration
Date
|
Net
Premiums
Paid
(Millions)
|
Lower
Strike
Price
|
Upper
Strike
Price
|
||||||||||||||
October
2007
|
1,000,000
|
October
2008
|
$
|
17
|
$
|
58.00
|
$
|
88.00
|
|||||||||||
January
2008
|
1,000,000
|
December
2008
|
16
|
50.00
|
80.00
|
||||||||||||||
Total
Outstanding
|
2,000,000
|
$
|
33
|
54.00
|
84.00
|
||||||||||||||
5.
|
Inventories
Inventories
(principally using the "last-in, first-out" method) are comprised of the
following:
|
(Millions
of dollars)
|
September
30,
|
December
31,
|
||||||
2008
|
2007
|
|||||||
Raw materials
|
$
|
3,051
|
$
|
2,474
|
||||
Work-in-process
|
1,739
|
1,379
|
||||||
Finished goods
|
4,205
|
3,066
|
||||||
Supplies
|
295
|
285
|
||||||
Total
inventories
|
$
|
9,290
|
$
|
7,204
|
||||
6.
|
Investments
in Unconsolidated Affiliated Companies
|
Our
investments in affiliated companies accounted for by the equity method
have historically consisted primarily of a 50 percent interest in Shin
Caterpillar Mitsubishi Ltd. (SCM) located in Japan. On August
1, 2008, SCM redeemed half of Mitsubishi Heavy Industries Ltd.’s (MHI’s)
shares in SCM. As a result, Caterpillar now owns 67 percent of
the renamed entity, Caterpillar Japan Ltd. (Cat Japan). Because
Cat Japan is accounted for on a lag, Cat Japan’s August 1,
2008 financial position was consolidated on September 30,
2008. Cat Japan’s results of operations will be consolidated in
the fourth quarter. See Note 16 for details on this share
redemption. In February 2008, we sold our 23 percent equity
investment in A.S.V. Inc. (ASV) resulting in a $60 million pretax
gain. Accordingly, the September 30, 2008 financial position
and equity investment amounts noted below do not include ASV or Cat
Japan.
Combined
financial information of the unconsolidated affiliated companies accounted
for by the equity method (generally on a lag) was as
follows:
|
Results
of Operations of unconsolidated affiliated companies:
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
(Millions
of dollars)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||
Sales
|
$
|
1,285
|
$
|
859
|
$
|
3,455
|
$
|
2,931
|
||||||||
Cost of sales
|
1,063
|
697
|
2,863
|
2,367
|
||||||||||||
Gross profit
|
222
|
162
|
592
|
564
|
||||||||||||
Profit (loss)
|
$
|
16
|
$
|
23
|
$
|
53
|
$
|
113
|
||||||||
Caterpillar's
profit (loss)
|
$
|
11
|
$
|
27
|
$
|
32
|
$
|
51
|
||||||||
Sales from SCM
to Caterpillar for the three months ended September 30, 2008 and September
30, 2007 of $437 million and $460 million, respectively, and for the nine
months ended September 30, 2008 and September 30, 2007 of $1,669 million
and $1,232 million, respectively, are included in the affiliated company
sales. In addition, SCM purchases of Caterpillar products were $95 million
and $69 million for the three months ended September 30, 2008 and
September 30, 2007, respectively, and $353 million and $202 million for
the nine months ended September 30, 2008 and September 30, 2007,
respectively.
|
Second quarter
2007 Equity in profit of unconsolidated affiliated companies reflected a
$13 million after tax charge for net adjustments related to revenue
recognition, deferred tax valuation allowances and environmental
liabilities that were identified during due diligence procedures with SCM.
These adjustments were recorded by SCM in the third quarter 2007 and are
reflected in the tables above.
|
Financial
Position of unconsolidated affiliated companies:
|
September
30,
|
December
31,
|
|||||||
(Millions of
dollars)
|
2008
|
2007
|
|||||||
Assets:
|
|||||||||
Current assets
|
$
|
238
|
$
|
2,062
|
|||||
Property,
plant and equipment – net
|
225
|
1,286
|
|||||||
Other assets
|
29
|
173
|
|||||||
492
|
3,521
|
||||||||
Liabilities:
|
|||||||||
Current
liabilities
|
222
|
1,546
|
|||||||
Long-term debt
due after one year
|
105
|
269
|
|||||||
Other
liabilities
|
24
|
393
|
|||||||
351
|
2,208
|
||||||||
Ownership
|
$
|
141
|
$
|
1,313
|
|||||
Caterpillar's
investments in unconsolidated affiliated companies:
|
|||||||||
(Millions of
dollars)
|
|||||||||
Investments in
equity method companies
|
$
|
70
|
$
|
582
|
|||||
Plus:
Investments in cost method companies
|
30
|
16
|
|||||||
Total
investments in unconsolidated affiliated companies
|
$
|
100
|
$
|
598
|
|||||
7.
|
Intangible
Assets and Goodwill
|
A. Intangible
assets
Intangible
assets are comprised of the
following:
|
(Dollars
in millions)
|
Weighted
Amortizable Life (Years)
|
September
30,
2008
|
December
31,
2007
|
|||||||
Customer
relationships
|
18
|
$
|
407
|
$
|
366
|
|||||
Intellectual
property
|
11
|
212
|
195
|
|||||||
Other
|
11
|
113
|
81
|
|||||||
Total
finite-lived intangible assets – gross
|
15
|
732
|
642
|
|||||||
Less:
Accumulated amortization
|
(196
|
)
|
(167
|
)
|
||||||
Intangible
assets – net
|
$
|
536
|
$
|
475
|
||||||
During the
third quarter of 2008, the Cat Japan share redemption resulted in
additional finite-lived intangible assets of $55
million. During the second quarter of 2008, we acquired
finite-lived intangible assets of $17 million due to the purchase of Lovat
Inc. See Note 16 for details on these business
combinations. Also during the second quarter of 2008, we
acquired finite-lived intangible assets of $32 million from other
acquisitions.
|
Amortization
expense on intangible assets for the three and nine months ended September
30, 2008 was $12 million and $44 million,
respectively. Amortization expense for the three and nine
months ended September 30, 2007 was $10 million and $30 million,
respectively. Amortization expense related to intangible assets
is expected to be:
|
(Millions
of dollars)
|
|||||||||||||||||||||||
2008
|
2009
|
2010
|
2011
|
2012
|
Thereafter
|
||||||||||||||||||
$
|
57
|
$
|
60
|
$
|
58
|
$
|
49
|
$
|
43
|
$
|
313
|
||||||||||||
B. Goodwill
|
|
On an annual
basis, we test goodwill for impairment in accordance with Statement of
Financial Accounting Standards No. 142 "Goodwill and Other Intangible
Assets." Goodwill is tested for impairment between annual tests
whenever events or circumstances make it more likely than not that an
impairment may have occurred. No goodwill was impaired or
disposed of during the nine months ended September 30, 2008.
During the
third quarter of 2008, the Cat Japan share redemption resulted in $199
million of goodwill. Also during the third quarter of 2008, we
acquired net assets with related goodwill of $41 million as part of the
purchase of Gremada Industries, Inc. During the second quarter
of 2008, we acquired net assets with related goodwill of $22 million as
part of the purchase of Lovat Inc. See Note 16 for details on
these business combinations. Also during the second quarter of
2008, we acquired net assets with related goodwill of $8 million from
other acquisitions.
The changes in
carrying amount of the goodwill by reportable segment for the nine months
ended September 30, 2008 were as
follows:
|
Building
Construction
|
EAME
|
Electric
|
Heavy
Construction
|
Industrial
Power
|
Infrastructure
|
Large
Power
|
Marine
&
Petroleum
|
All
|
Consolidated
|
||||||||||||||||||||||||||||||||
(Millions
of dollars)
|
Products
|
Operations
|
Power
|
&
Mining
|
Systems
|
Development
|
Systems
|
2
|
Power
|
2
|
Other
|
1
|
Total
|
||||||||||||||||||||||||||||
Balance
at December 31, 2007
|
$
|
4
|
$
|
51
|
$
|
203
|
$
|
14
|
$
|
478
|
$
|
33
|
$
|
569
|
$
|
60
|
$
|
551
|
$
|
1,963
|
|||||||||||||||||||||
Business
combinations
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
270
|
270
|
|||||||||||||||||||||||||||||||
Other
adjustments
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
1
|
1
|
|||||||||||||||||||||||||||||||
Balance
at September 30, 2008
|
$
|
4
|
$
|
51
|
$
|
203
|
$
|
14
|
$
|
478
|
$
|
33
|
$
|
569
|
$
|
60
|
$
|
822
|
$
|
2,234
|
1
|
All Other
includes operating segments included in “All Other” category (See Note
13).
|
|
2
|
As
discussed in Note 13, our reportable segments were changed in the first
quarter of 2008. As a result, goodwill of $60 million was reallocated from
the Large Power Systems reportable segment to the newly formed Marine
& Petroleum Power reportable segment.
|
|
8.
|
Available-For-Sale
Securities
|
Financial
Products, primarily Cat Insurance, has investments in certain debt and
equity securities that have been classified as available-for-sale in
accordance with Statement of Financial Accounting Standards No. 115 (SFAS
115), “Accounting for Certain Investments in Debt and Equity Securities”
and recorded at fair value based upon quoted market prices. These fair
values are included in "Other assets" in the Consolidated Statement of
Financial Position. Unrealized gains and losses arising from the
revaluation of available-for-sale securities are included, net of
applicable deferred income taxes, in equity ("Accumulated other
comprehensive income (loss)" in the Consolidated Statement of Financial
Position). Realized gains and losses on sales of investments
are generally determined using the FIFO ("first-in, first-out") method for
debt instruments and the specific identification method for equity
securities. Realized gains and losses are included in "Other
income (expense)" in the Consolidated Statement of Results of
Operations.
|
September
30, 2008
|
December
31, 2007
|
|||||||||||||||||||||||
Unrealized
|
Unrealized
|
|||||||||||||||||||||||
Pretax
Net
|
Pretax
Net
|
|||||||||||||||||||||||
(Millions
of dollars)
|
Cost
Basis
|
Gains
(Losses)
|
Fair
Value
|
Cost
Basis
|
Gains
(Losses)
|
Fair
Value
|
||||||||||||||||||
Government
debt
|
$
|
317
|
$
|
—
|
$
|
317
|
$
|
319
|
$
|
1
|
$
|
320
|
||||||||||||
Corporate
bonds
|
789
|
(67
|
)
|
722
|
775
|
(4
|
)
|
771
|
||||||||||||||||
Equity
securities
|
182
|
(16
|
)
|
166
|
168
|
28
|
196
|
|||||||||||||||||
Total
|
$
|
1,288
|
$
|
(83
|
)
|
$
|
1,205
|
$
|
1,262
|
$
|
25
|
$
|
1,287
|
|||||||||||
Investments
in an unrealized loss position that are not other-than-temporarily
impaired:
|
||||||||||||||||||||||||
September
30, 2008
|
||||||||||||||||||||||||
Less
than 12 months
|
1
|
12
months or more
|
1
|
Total
|
||||||||||||||||||||
(Millions
of dollars)
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
||||||||||||||||||
Government
debt
|
$
|
103
|
$
|
1
|
$
|
16
|
$
|
1
|
$
|
119
|
$
|
2
|
||||||||||||
Corporate
bonds
|
519
|
45
|
127
|
22
|
646
|
67
|
||||||||||||||||||
Equity
securities
|
94
|
23
|
6
|
4
|
100
|
27
|
||||||||||||||||||
Total
|
$
|
716
|
$
|
69
|
$
|
149
|
$
|
27
|
$
|
865
|
$
|
96
|
||||||||||||
December
31, 2007
|
||||||||||||||||||||||||
Less
than 12 months
|
1
|
12
months or more
|
1
|
Total
|
||||||||||||||||||||
(Millions
of dollars)
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
||||||||||||||||||
Government
debt
|
$
|
22
|
$
|
—
|
$
|
96
|
$
|
1
|
$
|
118
|
$
|
1
|
||||||||||||
Corporate
bonds
|
269
|
4
|
163
|
4
|
432
|
8
|
||||||||||||||||||
Equity
securities
|
55
|
5
|
1
|
—
|
56
|
5
|
||||||||||||||||||
Total
|
$
|
346
|
$
|
9
|
$
|
260
|
$
|
5
|
$
|
606
|
$
|
14
|
1
|
Indicates
length of time that individual securities have been in a continuous
unrealized loss position.
|
|
The fair value
of the available-for-sale debt securities at September 30, 2008, by
contractual maturity, is shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to prepay and
creditors may have the right to call
obligations.
|
(Millions
of dollars)
|
Fair
Value
|
|||
Due in one
year or less
|
$
|
76
|
||
Due after one
year through five years
|
$
|
206
|
||
Due after five
years through ten years
|
$
|
204
|
||
Due after ten
years
|
$
|
553
|
||
Proceeds from
sales of investments in debt and equity securities during the three and
nine months ended September 30, 2008 were $119 million and $292
million, respectively. Proceeds from sales of investments in
debt and equity securities during the three and nine months ended
September 30, 2007 were $77 million and $196 million, respectively.
Gross gains of $5 million and $16 million, and gross losses of $9 million
and $18 million were included in current earnings for the three and nine
months ended September 30, 2008, respectively. Gross gains of
$3 million and $9 million, and gross losses of $1 million and $2 million
were included in current earnings for the three and nine months ended
September 30, 2007, respectively. Losses related to impairment
write-downs during 2008 were not
significant.
|
9.
|
Postretirement
Benefits
|
A. Pension
and postretirement benefit costs
|
(Millions
of dollars)
|
U.S.
Pension
Benefits
|
Non-U.S.
Pension
Benefits
|
Other
Postretirement
Benefits
|
|||||||||||||||||||||||||||
September
30,
|
September
30,
|
September
30,
|
||||||||||||||||||||||||||||
2008
|
2007
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||||||||||||||
For the three months
ended:
|
||||||||||||||||||||||||||||||
Components
of net periodic benefit cost:
|
||||||||||||||||||||||||||||||
Service cost
|
$
|
49
|
$
|
47
|
$
|
22
|
$
|
17
|
$
|
22
|
$
|
22
|
||||||||||||||||||
Interest cost
|
157
|
148
|
40
|
32
|
76
|
74
|
||||||||||||||||||||||||
Expected
return on plan assets
|
(220
|
)
|
(210
|
)
|
(50
|
)
|
(40
|
)
|
(34
|
)
|
(33
|
)
|
||||||||||||||||||
Amortization
of:
|
||||||||||||||||||||||||||||||
Net asset
existing at adoption of SFAS 87/106
|
—
|
—
|
1
|
—
|
—
|
—
|
||||||||||||||||||||||||
Prior service
cost /(credit)
|
1
|
8
|
14
|
1
|
2
|
(8
|
)
|
(9
|
)
|
|||||||||||||||||||||
Net actuarial
loss /(gain)
|
33
|
53
|
8
|
13
|
16
|
20
|
||||||||||||||||||||||||
Total cost
included in operating profit
|
$
|
27
|
$
|
52
|
$
|
22
|
$
|
24
|
$
|
72
|
$
|
74
|
||||||||||||||||||
(Millions
of dollars)
|
U.S.
Pension
Benefits
|
Non-U.S.
Pension
Benefits
|
Other
Postretirement
Benefits
|
|||||||||||||||||||||||||||
September
30,
|
September
30,
|
September
30,
|
||||||||||||||||||||||||||||
2008
|
2007
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||||||||||||||
For the nine months
ended:
|
||||||||||||||||||||||||||||||
Components
of net periodic benefit cost:
|
||||||||||||||||||||||||||||||
Service cost
|
$
|
149
|
$
|
139
|
$
|
64
|
$
|
52
|
$
|
65
|
$
|
67
|
||||||||||||||||||
Interest cost
|
471
|
446
|
118
|
95
|
230
|
222
|
||||||||||||||||||||||||
Expected
return on plan assets
|
(661
|
)
|
(630
|
)
|
(150
|
)
|
(122
|
)
|
(103
|
)
|
(98
|
)
|
||||||||||||||||||
Amortization
of:
|
||||||||||||||||||||||||||||||
Net asset
existing at adoption of SFAS 87/106
|
—
|
—
|
1
|
1
|
1
|
1
|
||||||||||||||||||||||||
Prior service
cost /(credit)
|
1
|
24
|
43
|
3
|
5
|
(26
|
)
|
(27
|
)
|
|||||||||||||||||||||
Net actuarial
loss /(gain)
|
100
|
160
|
24
|
40
|
48
|
59
|
||||||||||||||||||||||||
Adjustment for
subsidiary pension plan
|
2
|
—
|
44
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||||
Total cost
included in operating profit
|
$
|
83
|
$
|
202
|
$
|
60
|
$
|
71
|
$
|
215
|
$
|
224
|
||||||||||||||||||
Weighted-average
assumptions used to
determine
net cost:
|
||||||||||||||||||||||||||||||
Discount rate
|
5.8
|
%
|
5.5
|
%
|
5.3
|
%
|
4.8
|
%
|
5.8
|
%
|
5.5
|
%
|
||||||||||||||||||
Expected
return on plan assets
|
9.0
|
%
|
9.0
|
%
|
7.6
|
%
|
7.7
|
%
|
9.0
|
%
|
9.0
|
%
|
||||||||||||||||||
Rate of
compensation increase
|
4.5
|
%
|
4.0
|
%
|
4.0
|
%
|
4.0
|
%
|
4.4
|
%
|
4.0
|
%
|
1
|
Prior
service costs for both pension and other postretirement benefits are
generally amortized using the straight-line method over the average
remaining service period to the full retirement eligibility date of
employees expected to receive benefits from the plan amendment. For other
postretirement benefit plans in which all or almost all of the plan's
participants are fully eligible for benefits under the plan, prior service
costs are amortized using the straight-line method over the remaining life
expectancy of those participants.
|
|
2
|
Second quarter
2007 charge to recognize previously unrecorded liabilities related to a
subsidiary pension plan.
|
Although we
have no ERISA (Employee Retirement Income Security Act) funding
requirements in 2008, we made $328 million of contributions to pension
plans during the nine months ended September 30, 2008 and we currently
anticipate additional contributions of approximately $110 million during
the remainder of the year.
|
As discussed
in Note 2, we adopted the year-end measurement date provisions of SFAS 158
as of January 1, 2008.
|
B. Defined
contribution benefit costs
|
|
Total company
costs related to U.S. and non-U.S. defined contribution plans were as
follows:
|
Three Months
Ended
September
30,
|
Nine Months
Ended
September
30,
|
|||||||||||||||
(Millions of
dollars)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||
U.S. Plans
|
$
|
16
|
$
|
39
|
$
|
99
|
$
|
142
|
||||||||
Non-U.S. Plans
|
8
|
7
|
25
|
22
|
||||||||||||
$
|
24
|
$
|
46
|
$
|
124
|
$
|
164
|
|||||||||
10.
|
Guarantees
and Product Warranty
|
We have
guaranteed to repurchase loans of certain Caterpillar dealers from
third-party lenders in the event of default. These guarantees arose in
conjunction with Cat Financial's relationship with third-party dealers who
sell Caterpillar equipment. These guarantees generally have one-year terms
and are both secured and unsecured. Additionally, we have provided an
indemnity to a third-party insurance company for potential losses related
to performance bonds issued on behalf of Caterpillar
dealers. The bonds are issued to insure governmental agencies
against nonperformance by certain Caterpillar dealers.
We provide
loan guarantees to third-party lenders for financing associated with
machinery purchased by customers. These guarantees have varying terms
and are secured by the machinery. In addition, Cat Financial participates
in standby letters of credit issued to third parties on behalf of their
customers. These standby letters of credit have varying terms and
beneficiaries and are secured by customer assets.
Cat Financial
has provided a limited indemnity to a third-party bank for $27 million
resulting from the assignment of certain leases to that bank. The
indemnity is for the possibility that the insurers of these leases would
become insolvent. The indemnity expires December 15, 2012 and is
unsecured.
No loss has
been experienced or is anticipated under any of these guarantees. At
September 30, 2008 and December 31, 2007, the related liability was
$15 million and $12 million, respectively. The maximum potential amounts
of future payments (undiscounted and without reduction for any amounts
that may possibly be recovered under recourse or collateralized
provisions) we could be required to make under the guarantees are as
follows:
|
(Millions
of dollars)
|
September
30,
|
December
31,
|
||||||
2008
|
2007
|
|||||||
Guarantees
with Caterpillar dealers
|
$
|
608
|
$
|
363
|
||||
Guarantees
with customers
|
143
|
53
|
||||||
Limited
indemnity
|
27
|
30
|
||||||
Guarantees –
other
|
42
|
39
|
||||||
Total
guarantees
|
$
|
820
|
$
|
485
|
||||
Our product
warranty liability is determined by applying historical claim rate
experience to the current field population and dealer
inventory. Generally, historical claim rates are based on
actual warranty experience for each product by machine model/engine
size. Specific rates are developed for each product build month
and are updated monthly based on actual warranty claim
experience.
|
(Millions
of dollars)
|
2008
|
|||
Warranty
liability, January 1
|
$
|
1,045
|
||
Reduction in
liability (payments)
|
(796
|
)
|
||
Increase in
liability (new warranties)
|
924
|
|||
Warranty
liability, September 30
|
$
|
1,173
|
||
(Millions
of dollars)
|
2007
|
|||
Warranty
liability, January 1
|
$
|
953
|
||
Reduction in
liability (payments)
|
(906
|
)
|
||
Increase in
liability (new warranties)
|
998
|
|||
Warranty
liability, December 31
|
$
|
1,045
|
||
11.
|
Computations
of Profit Per Share
|
Three Months
Ended
September
30,
|
Nine Months
Ended
September
30,
|
|||||||||||||||||
(Dollars in millions except per
share data)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||||
I.
|
Profit for the period (A):
|
$
|
868
|
$
|
927
|
$
|
2,896
|
$
|
2,566
|
|||||||||
II.
|
Determination of shares (in
millions):
|
|||||||||||||||||
Weighted-average number of common
shares outstanding (B)
|
607.0
|
638.3
|
613.2
|
641.0
|
||||||||||||||
Shares issuable on exercise of
stock awards, net of shares assumed
to be purchased out of proceeds at
average market price
|
17.8
|
21.7
|
20.0
|
21.7
|
||||||||||||||
Average common shares outstanding
for fully diluted computation (C)
|
624.8
|
660.0
|
633.2
|
662.7
|
||||||||||||||
III.
|
Profit per share of common
stock:
|
|||||||||||||||||
Assuming no dilution (A/B)
|
$
|
1.43
|
$
|
1.45
|
$
|
4.72
|
$
|
4.00
|
||||||||||
Assuming full dilution
(A/C)
|
$
|
1.39
|
$
|
1.40
|
$
|
4.57
|
$
|
3.87
|
||||||||||
SARs and stock
options to purchase 4,857,021 common shares were outstanding for both the
three and nine months ended September 30, 2008, but were not included in
the computation of diluted earnings per share because the effect would
have been antidilutive. For the nine months ended September 30,
2007, there were outstanding SARs and stock options to purchase 9,670,104
common shares, which were not included in the computation of diluted
earnings per share because the effect would have been
antidilutive. There were no antidilutive stock awards
outstanding for the three months ended September 30,
2007.
|
12.
|
Environmental,
Legal and Tax 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 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 the 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.
|
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 financial
position.
|
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 financial
position, liquidity or results of
operations.
|
On September 29, 2004, Kruse
Technology Partnership (Kruse) filed a lawsuit against Caterpillar in the
United States District Court for the Central District of California
alleging that certain Caterpillar engines built from October 2002 to the
present infringe upon certain claims of three of Kruse's patents on engine
fuel injection timing and combustion strategies. Kruse seeks
monetary damages, injunctive relief and a finding that the alleged
infringement by Caterpillar was willful. Caterpillar denies
Kruse's allegations, believes they are without merit and filed a
counterclaim seeking a declaration from the court that Caterpillar is not
infringing upon Kruse's patents and that the patents are invalid and
unenforceable. The counterclaim filed by Caterpillar is pending
and a trial date has been scheduled for February 2009. In the
opinion of management, the ultimate disposition of this matter will not
have a material adverse effect on our consolidated financial position,
liquidity or results of
operations.
|
We have recorded income tax
expense at U.S. tax rates on all profits, except for undistributed profits
of non-U.S. subsidiaries which are considered indefinitely
reinvested. While uncertain, it is possible that we will
change our assertion related to undistributed profits of certain non-U.S.
subsidiaries in the near term resulting in the recognition of a
significant tax benefit.
|
13.
|
Segment
Information
|
A.
|
Basis
for segment information
Caterpillar is
organized based on a decentralized structure that has established
responsibilities to continually improve business focus and increase our
ability to react quickly to changes in the global business cycle, customer
needs and competitors' actions. Our current structure uses a product,
geographic matrix organization comprised of multiple profit and cost
center divisions.
|
In the first
quarter of 2008, our internal measurement system was changed to reflect a
revised set of responsibilities for divisions as
follows:
|
§
|
Product and
component divisions are profit centers primarily responsible for product
management, development, external sales and ongoing support. Inter-segment
sales of components may also be a source of revenue for these divisions.
Previously product division revenue was primarily inter-segment sales of
finished products to machinery marketing divisions.
|
|
§
|
Manufacturing
divisions are profit centers primarily responsible for the manufacture of
products and/or components within a geographic region. Inter-segment sales
of components, machines and/or engines to product divisions are the
primary sources of revenue for these divisions. Previously manufacturing
divisions’ inter-segment sales were primarily to machinery marketing or
product divisions.
|
|
§
|
Service
divisions are cost centers primarily responsible for the performance of
corporate functions and to provide centralized services. They
also perform certain support functions globally (e.g. Finance, Information
Technology and Human Resources) that were previously included in product,
component, manufacturing and machinery marketing
divisions.
|
|
§
|
Machinery
marketing divisions are cost centers primarily responsible for marketing
through dealers within a geographic region. These divisions
were previously profit centers responsible for external
sales.
|
Caterpillar is
a highly integrated company. Some product and component divisions also
have marketing and/or manufacturing responsibilities. In addition, some
geographically based manufacturing divisions also have product management,
development, external sales and ongoing support
responsibilities. One of our profit centers provides various
financial services to our customers and
dealers.
|
Also in the
first quarter of 2008, a new profit center was formed through
restructuring the Large Power Systems and Power Systems & OEM
Solutions reportable segments. The new profit center, Marine
& Petroleum Power Division is a reportable segment primarily
responsible for the product management, development, marketing, external
sales and ongoing support of reciprocating engines supplied to the marine
and petroleum industries. The division also includes
manufacturing of certain reciprocating engines for marine, petroleum and
electric power applications. In addition, certain marketing
functions previously included in Power Systems & OEM Solutions were
transferred to Large Power Systems and Motion & Power Control Division
(included in “All Other”).
|
The segment
information for 2007 has been retrospectively adjusted to conform to the
2008 presentation.
|
We have
developed an internal measurement system to evaluate performance and to
drive continuous improvement. This measurement system, which is not based
on U.S. GAAP, is intended to motivate desired behavior of employees and
drive performance. It is not intended to measure a division's
contribution to enterprise results. The sales and cost information used
for internal purposes varies significantly from our consolidated
externally reported information, resulting in substantial reconciling
items. Each division has specific performance targets and is
evaluated and compensated based on achieving those targets. Performance
targets differ from division to division; therefore, meaningful
comparisons cannot be made among the profit, service or machinery
marketing divisions. It is the comparison of actual results to
budgeted results that makes our internal reporting valuable to
management. Consequently, we feel that the financial
information required by Statement of Financial Accounting Standards No.
131 (SFAS 131), "Disclosures about Segments of an Enterprise and Related
Information" has limited value for our external readers.
|
|
Due to
Caterpillar's high level of integration and our concern that segment
disclosures based on SFAS 131 requirements have limited value to external
readers, we are continuing to disclose financial results for our three
principal lines of business (Machinery, Engines and Financial Products) in
our Management's Discussion and Analysis beginning on page
30.
|
B.
|
Description
of segments
|
The profit
center divisions meet the SFAS 131 definition of "operating
segments;" however, the service and machinery marketing divisions do
not. Following is a brief description of our nine reportable
segments and the business activities included in the “All Other”
category.
Building Construction
Products: Primarily
responsible for product management, development, manufacture, external
sales and ongoing support of light construction machines and select work
tools.
EAME Operations:
Primarily responsible for the manufacture of medium and large excavators,
medium wheel loaders, articulated trucks, medium track-type tractors,
wheel and small excavators and certain machine components in Europe,
Africa and the Commonwealth of Independent States (CIS). Also
responsible for product management, development, manufacture, external
sales and ongoing support of paving products and select work
tools.
Electric
Power: Primarily responsible for product management,
development, manufacture, marketing, external sales and ongoing support of
reciprocating engine powered generator sets as well as integrated systems
used in the electric power generation industry.
Heavy Construction &
Mining: Primarily responsible for product management, development,
external sales and ongoing support of mining trucks, quarry and
construction trucks, large and medium track-type tractors, large wheel
loaders, wheel tractor scrapers and track-type loaders.
Industrial Power
Systems: Primarily responsible for product management, development,
manufacture and ongoing support of reciprocating engines supplied to
industrial, agricultural, electric power and marine industries and
Caterpillar machinery. Also responsible for the marketing and
external sales of industrial, agricultural and certain electric power
engines.
Infrastructure
Development: Primarily
responsible for product management, development, external sales and
ongoing support of medium wheel loaders, medium and large excavators,
motor graders, articulated trucks, powertrain components and wheeled
excavators.
Large Power
Systems: Primarily responsible for product management,
development, manufacture and ongoing support of reciprocating engines
supplied to Caterpillar machinery and the electric power, on-highway
vehicle, petroleum, marine and industrial industries. Also
responsible for engine component manufacturing and the marketing and
external sales of on-highway vehicle engines.
Marine &
Petroleum Power:
Primarily responsible for the product management, development, marketing,
external sales and ongoing support of reciprocating engines supplied to
the marine and petroleum industries. The division also includes
manufacturing of certain reciprocating engines for marine, petroleum and
electric power applications.
Financing & Insurance
Services: Provides financing to customers and dealers for the
purchase and lease of Caterpillar and other equipment, as well as some
financing for Caterpillar sales to dealers. Financing plans
include operating and finance leases, installment sale contracts, working
capital loans and wholesale financing plans. The division also provides
various forms of insurance to customers and dealers to help support the
purchase and lease of our
equipment.
|
All
Other: Primarily includes activities such as: the
regional manufacturing of construction and mining machinery and components
in Latin America, North America and Asia; the design, manufacture,
marketing, external sales and ongoing support of machinery and engine
components, electronics and control systems; the design, manufacture,
marketing, external sales and ongoing support of turbines; logistics
services for Caterpillar and other companies; the design, manufacture,
remanufacture, maintenance and services of rail-related products and
services; remanufacturing of Caterpillar engines and components and
remanufacturing services for other companies; the design,
manufacture, external sales and ongoing support of forestry machinery; and
the manufacturing of construction and mining machinery and components,
marketing, external sales and ongoing support of machinery, engines and
components in Japan.
|
C.
|
Segment
measurement and reconciliations
|
There are
several accounting differences between our segment reporting and our
external reporting. Our segments are measured on an accountable basis;
therefore, only those items for which divisional management is directly
responsible are included in the determination of segment profit (loss) and
assets.
|
The following
is a list of the more significant accounting differences:
|
||
§
|
Generally,
liabilities are managed at the corporate level and are not included in
segment operations. Segment accountable assets generally include
inventories, receivables and property, plant and equipment.
|
|
§
|
Segment
inventories and cost of sales are valued using a current cost
methodology.
|
|
§
|
Postretirement
benefit expenses are split; segments are generally responsible for service
and prior services costs, with the remaining elements of net periodic
benefit cost included as a methodology difference.
|
|
§
|
Currency
exposures are generally managed at the corporate level and the effects of
changes in exchange rates on results of operations within the year are not
included in segment results. The net difference created in the
translation of revenues and costs between exchange rates used for U.S.
GAAP reporting and exchange rates used for segment reporting are recorded
as a methodology difference.
|
|
§
|
Interest
expense is imputed (i.e., charged) to profit centers based on their level
of accountable assets.
|
|
§
|
Accountable
profit is determined on a pretax basis.
|
|
Effective the
first quarter of 2008 we made the following changes to our segment
reporting methodology:
|
||
§
|
Manufacturing
divisions value inter-segment sales of machines on a manufacturing fee
basis. Previously these transactions were valued at
market-based transfer prices.
|
|
§
|
Service
divisions are primarily treated as cost centers. Previously,
service divisions primarily charged segments for services
provided.
|
|
§
|
Machinery
marketing divisions are treated as cost centers. These
divisions were previously treated as profit centers responsible for
external sales. External sales are now the responsibility of
product divisions.
|
|
The
information for 2007 has been retrospectively adjusted to conform to the
2008 presentation.
Reconciling
items are created based on accounting differences between segment
reporting and our consolidated, external reporting. Please refer to pages
23 to 26 for financial information regarding significant reconciling
items. Most of our reconciling items are self-explanatory given the above
explanations of accounting differences. However, for the reconciliation of
profit, we have grouped the reconciling items as follows:
|
||
§
|
Cost
centers: The costs related to service and machinery
marketing divisions are primarily treated as cost centers and are not
charged to segments.
|
|
§
|
Corporate costs:
Certain corporate costs are not charged to our segments. These costs are
related to corporate requirements and strategies that are considered to be
for the benefit of the entire organization.
|
|
§
|
Timing: Timing
differences in the recognition of costs between segment reporting and
consolidated external reporting.
|
|
§
|
Methodology differences:
See previous discussion of significant accounting differences
between segment reporting and consolidated external
reporting.
|
Business
Segments
Three
Months Ended September 30,
(Millions
of dollars)
|
||||||||||||||||||||||||||||||||||||
|
Machinery and
Engines
|
|||||||||||||||||||||||||||||||||||
2008
|
Building Construction
Products
|
EAME
Operations
|
Electric
Power
|
Heavy
Construction
&
Mining
|
Industrial Power
Systems
|
Infrastructure
Development
|
Large
Power
Systems
|
Marine & Petroleum
Power
|
All
Other
|
Total
Machinery
&
Engines
|
Financing
&
Insurance
Services
|
Total
|
||||||||||||||||||||||||
External sales and
revenues
|
$
|
810
|
$
|
233
|
$
|
955
|
$
|
2,451
|
$
|
515
|
$
|
2,445
|
$
|
801
|
$
|
1,085
|
$
|
2,799
|
$
|
12,094
|
$
|
958
|
$
|
13,052
|
||||||||||||
Inter-segment sales &
revenues
|
10
|
656
|
9
|
81
|
237
|
12
|
1,415
|
21
|
2,908
|
5,349
|
—
|
5,349
|
||||||||||||||||||||||||
Total sales and
revenues
|
$
|
820
|
$
|
889
|
$
|
964
|
$
|
2,532
|
$
|
752
|
$
|
2,457
|
$
|
2,216
|
$
|
1,106
|
$
|
5,707
|
$
|
17,443
|
$
|
958
|
$
|
18,401
|
||||||||||||
Depreciation and
amortization
|
$
|
6
|
$
|
24
|
$
|
6
|
$
|
2
|
$
|
13
|
$
|
1
|
$
|
48
|
$
|
4
|
$
|
163
|
$
|
267
|
$
|
196
|
$
|
463
|
||||||||||||
Imputed interest
expense
|
$
|
5
|
$
|
13
|
$
|
6
|
$
|
4
|
$
|
6
|
$
|
5
|
$
|
15
|
$
|
4
|
$
|
91
|
$
|
149
|
$
|
294
|
$
|
443
|
||||||||||||
Accountable profit
(loss)
|
$
|
30
|
$
|
29
|
$
|
119
|
$
|
430
|
$
|
45
|
$
|
200
|
$
|
226
|
$
|
149
|
$
|
637
|
$
|
1,865
|
$
|
173
|
$
|
2,038
|
||||||||||||
Accountable assets
at
September 30,
2008
|
$
|
625
|
$
|
1,742
|
$
|
883
|
$
|
444
|
$
|
829
|
$
|
696
|
$
|
1,941
|
$
|
594
|
$
|
15,088
|
$
|
22,842
|
$
|
33,057
|
$
|
55,899
|
||||||||||||
Capital
Expenditures
|
$
|
7
|
$
|
46
|
$
|
15
|
$
|
—
|
$
|
31
|
$
|
—
|
$
|
79
|
$
|
17
|
$
|
438
|
$
|
633
|
$
|
398
|
$
|
1,031
|
||||||||||||
Machinery and
Engines
|
||||||||||||||||||||||||||||||||||||
2007
|
Building Construction
Products
|
EAME
Operations
|
Electric
Power
|
Heavy
Construction
&
Mining
|
Industrial Power
Systems
|
Infrastructure
Development
|
Large
Power
Systems
|
Marine & Petroleum
Power
|
All
Other
|
Total
Machinery
&
Engines
|
Financing
&
Insurance
Services
|
Total
|
||||||||||||||||||||||||
External sales and
revenues
|
$
|
879
|
$
|
220
|
$
|
798
|
$
|
2,247
|
$
|
440
|
$
|
2,068
|
$
|
749
|
$
|
739
|
$
|
2,458
|
$
|
10,598
|
$
|
937
|
$
|
11,535
|
||||||||||||
Inter-segment sales &
revenues
|
10
|
591
|
8
|
11
|
181
|
11
|
1,096
|
16
|
2,316
|
4,240
|
1
|
4,241
|
||||||||||||||||||||||||
Total sales and
revenues
|
$
|
889
|
$
|
811
|
$
|
806
|
$
|
2,258
|
$
|
621
|
$
|
2,079
|
$
|
1,845
|
$
|
755
|
$
|
4,774
|
$
|
14,838
|
$
|
938
|
$
|
15,776
|
||||||||||||
Depreciation and
amortization
|
$
|
8
|
$
|
24
|
$
|
5
|
$
|
1
|
$
|
17
|
$
|
1
|
$
|
46
|
$
|
4
|
$
|
127
|
$
|
233
|
$
|
173
|
$
|
406
|
||||||||||||
Imputed interest
expense
|
$
|
5
|
$
|
11
|
$
|
6
|
$
|
3
|
$
|
5
|
$
|
3
|
$
|
14
|
$
|
3
|
$
|
79
|
$
|
129
|
$
|
293
|
$
|
422
|
||||||||||||
Accountable profit
(loss)
|
$
|
67
|
$
|
73
|
$
|
115
|
$
|
472
|
$
|
50
|
$
|
264
|
$
|
186
|
$
|
56
|
$
|
589
|
$
|
1,872
|
$
|
202
|
$
|
2,074
|
||||||||||||
Accountable assets
at
December 31,
2007
|
$
|
648
|
$
|
1,553
|
$
|
826
|
$
|
494
|
$
|
715
|
$
|
476
|
$
|
1,740
|
$
|
397
|
$
|
11,141
|
$
|
17,990
|
$
|
30,571
|
$
|
48,561
|
||||||||||||
Capital
Expenditures
|
$
|
8
|
$
|
40
|
$
|
10
|
$
|
—
|
$
|
17
|
$
|
—
|
$
|
52
|
$
|
7
|
$
|
203
|
$
|
337
|
$
|
357
|
$
|
694
|
||||||||||||
Business
Segments
Nine
Months Ended September 30,
(Millions
of dollars)
|
||||||||||||||||||||||||||||||||||||
|
Machinery and
Engines
|
|||||||||||||||||||||||||||||||||||
2008
|
Building Construction
Products
|
EAME
Operations
|
Electric
Power
|
Heavy
Construction
&
Mining
|
Industrial Power
Systems
|
Infrastructure
Development
|
Large
Power
Systems
|
Marine & Petroleum
Power
|
All
Other
|
Total
Machinery
&
Engines
|
Financing
&
Insurance
Services
|
Total
|
||||||||||||||||||||||||
External sales and
revenues
|
$
|
2,724
|
$
|
756
|
$
|
2,560
|
$
|
7,216
|
$
|
1,566
|
$
|
7,414
|
$
|
2,480
|
$
|
2,877
|
$
|
8,191
|
$
|
35,784
|
$
|
2,900
|
$
|
38,684
|
||||||||||||
Inter-segment sales &
revenues
|
38
|
2,193
|
22
|
157
|
681
|
51
|
3,841
|
52
|
8,318
|
15,353
|
6
|
15,359
|
||||||||||||||||||||||||
Total sales and
revenues
|
$
|
2,762
|
$
|
2,949
|
$
|
2,582
|
$
|
7,373
|
$
|
2,247
|
$
|
7,465
|
$
|
6,321
|
$
|
2,929
|
$
|
16,509
|
$
|
51,137
|
$
|
2,906
|
$
|
54,043
|
||||||||||||
Depreciation and
amortization
|
$
|
18
|
$
|
73
|
$
|
17
|
$
|
7
|
$
|
41
|
$
|
3
|
$
|
136
|
$
|
11
|
$
|
456
|
$
|
762
|
$
|
575
|
$
|
1,337
|
||||||||||||
Imputed interest
expense
|
$
|
15
|
$
|
38
|
$
|
18
|
$
|
11
|
$
|
18
|
$
|
14
|
$
|
42
|
$
|
9
|
$
|
262
|
$
|
427
|
$
|
863
|
$
|
1,290
|
||||||||||||
Accountable profit
(loss)
|
$
|
248
|
$
|
219
|
$
|
301
|
$
|
1,276
|
$
|
174
|
$
|
720
|
$
|
729
|
$
|
409
|
$
|
1,996
|
$
|
6,072
|
$
|
572
|
$
|
6,644
|
||||||||||||
Accountable assets
at
September 30,
2008
|
$
|
625
|
$
|
1,742
|
$
|
883
|
$
|
444
|
$
|
829
|
$
|
696
|
$
|
1,941
|
$
|
594
|
$
|
15,088
|
$
|
22,842
|
$
|
33,057
|
$
|
55,899
|
||||||||||||
Capital
Expenditures
|
$
|
19
|
$
|
122
|
$
|
29
|
$
|
—
|
$
|
68
|
$
|
—
|
$
|
229
|
$
|
41
|
$
|
832
|
$
|
1,340
|
$
|
1,118
|
$
|
2,458
|
||||||||||||
|
||||||||||||||||||||||||||||||||||||
Machinery and
Engines
|
||||||||||||||||||||||||||||||||||||
2007
|
Building Construction
Products
|
EAME
Operations
|
Electric
Power
|
Heavy
Construction
&
Mining
|
Industrial Power
Systems
|
Infrastructure
Development
|
Large
Power
Systems
|
Marine & Petroleum
Power
|
All
Other
|
Total
Machinery
&
Engines
|
Financing
&
Insurance
Services
|
Total
|
||||||||||||||||||||||||
External sales and
revenues
|
$
|
2,397
|
$
|
730
|
$
|
2,204
|
$
|
6,461
|
$
|
1,297
|
$
|
6,218
|
$
|
2,222
|
$
|
2,104
|
$
|
6,755
|
$
|
30,388
|
$
|
2,725
|
$
|
33,113
|
||||||||||||
Inter-segment sales &
revenues
|
31
|
1,860
|
8
|
43
|
522
|
38
|
3,236
|
43
|
7,015
|
12,796
|
2
|
12,798
|
||||||||||||||||||||||||
Total sales and
revenues
|
$
|
2,428
|
$
|
2,590
|
$
|
2,212
|
$
|
6,504
|
$
|
1,819
|
$
|
6,256
|
$
|
5,458
|
$
|
2,147
|
$
|
13,770
|
$
|
43,184
|
$
|
2,727
|
$
|
45,911
|
||||||||||||
Depreciation and
amortization
|
$
|
23
|
$
|
69
|
$
|
17
|
$
|
2
|
$
|
50
|
$
|
2
|
$
|
129
|
$
|
9
|
$
|
367
|
$
|
668
|
$
|
493
|
$
|
1,161
|
||||||||||||
Imputed interest
expense
|
$
|
14
|
$
|
33
|
$
|
17
|
$
|
8
|
$
|
15
|
$
|
10
|
$
|
41
|
$
|
11
|
$
|
232
|
$
|
381
|
$
|
849
|
$
|
1,230
|
||||||||||||
Accountable profit
(loss)
|
$
|
150
|
$
|
292
|
$
|
261
|
$
|
1,316
|
$
|
123
|
$
|
786
|
$
|
531
|
$
|
197
|
$
|
1,688
|
$
|
5,344
|
$
|
590
|
$
|
5,934
|
||||||||||||
Accountable assets
at
December 31,
2007
|
$
|
648
|
$
|
1,553
|
$
|
826
|
$
|
494
|
$
|
715
|
$
|
476
|
$
|
1,740
|
$
|
397
|
$
|
11,141
|
$
|
17,990
|
$
|
30,571
|
$
|
48,561
|
||||||||||||
Capital
Expenditures
|
$
|
21
|
$
|
94
|
$
|
13
|
$
|
—
|
$
|
47
|
$
|
—
|
$
|
141
|
$
|
14
|
$
|
480
|
$
|
810
|
$
|
991
|
$
|
1,801
|
||||||||||||
Reconciliation
of Sales and Revenues:
|
||||||||||||||||
(Millions
of dollars)
|
Machinery
and
Engines
|
Financing
&
Insurance
Services
|
Consolidating
Adjustments
|
Consolidated
Total
|
||||||||||||
Three Months Ended
September 30, 2008:
|
||||||||||||||||
Total external
sales and revenues from business
segments
|
$
|
12,094
|
$
|
958
|
$
|
—
|
$
|
13,052
|
||||||||
Other
|
54
|
(61
|
)
|
(64
|
)
|
1
|
(71
|
)
|
||||||||
Total sales
and revenues
|
$
|
12,148
|
$
|
897
|
$
|
(64
|
)
|
$
|
12,981
|
|||||||
Three Months Ended
September 30, 2007:
|
||||||||||||||||
Total external
sales and revenues from business
segments
|
$
|
10,598
|
$
|
937
|
$
|
—
|
$
|
11,535
|
||||||||
Other
|
70
|
(74
|
)
|
(89
|
)
|
1
|
(93
|
)
|
||||||||
Total sales
and revenues
|
$
|
10,668
|
$
|
863
|
$
|
(89
|
)
|
$
|
11,442
|
1
|
Elimination of
Financial Products revenues from Machinery and
Engines.
|
Reconciliation
of Sales and Revenues:
|
||||||||||||||||
(Millions
of dollars)
|
Machinery
and
Engines
|
Financing
&
Insurance
Services
|
Consolidating
Adjustments
|
Consolidated
Total
|
||||||||||||
Nine Months Ended
September 30, 2008:
|
||||||||||||||||
Total external
sales and revenues from business
segments
|
$
|
35,784
|
$
|
2,900
|
$
|
—
|
$
|
38,684
|
||||||||
Other
|
140
|
(181
|
)
|
(242
|
)
|
1
|
(283
|
)
|
||||||||
Total sales
and revenues
|
$
|
35,924
|
$
|
2,719
|
$
|
(242
|
)
|
$
|
38,401
|
|||||||
Nine Months Ended
September 30, 2007:
|
||||||||||||||||
Total external
sales and revenues from business
segments
|
$
|
30,388
|
$
|
2,725
|
$
|
—
|
$
|
33,113
|
||||||||
Other
|
214
|
(217
|
)
|
(296
|
)
|
1
|
(299
|
)
|
||||||||
Total sales
and revenues
|
$
|
30,602
|
$
|
2,508
|
$
|
(296
|
)
|
$
|
32,814
|
1
|
Elimination of
Financial Products revenues from Machinery and
Engines.
|
Reconciliation
of Profit Before Taxes:
|
||||||||||||
(Millions
of dollars)
|
Machinery
and
Engines
|
Financing
&
Insurance
Services
|
Consolidated
Total
|
|||||||||
Three Months Ended
September 30, 2008:
|
||||||||||||
Total
accountable profit from business segments
|
$
|
1,865
|
$
|
173
|
$
|
2,038
|
||||||
Cost centers
|
(483
|
)
|
—
|
(483
|
)
|
|||||||
Corporate
costs
|
(275
|
)
|
—
|
(275
|
)
|
|||||||
Timing
|
(89
|
)
|
—
|
(89
|
)
|
|||||||
Methodology
differences:
|
||||||||||||
Inventory/cost
of sales
|
(48
|
)
|
—
|
(48
|
)
|
|||||||
Postretirement
benefit expense
|
(28
|
)
|
—
|
(28
|
)
|
|||||||
Financing
costs
|
61
|
—
|
61
|
|||||||||
Equity in
profit of unconsolidated affiliated companies
|
(12
|
)
|
1
|
(11
|
)
|
|||||||
Currency
|
84
|
—
|
84
|
|||||||||
Other
methodology difference
|
9
|
(6
|
)
|
3
|
||||||||
Total profit
before taxes
|
$
|
1,084
|
$
|
168
|
$
|
1,252
|
||||||
Three Months Ended
September 30, 2007:
|
||||||||||||
Total
accountable profit from business segments
|
$
|
1,872
|
$
|
202
|
$
|
2,074
|
||||||
Cost centers
|
(405
|
)
|
—
|
(405
|
)
|
|||||||
Corporate
costs
|
(237
|
)
|
—
|
(237
|
)
|
|||||||
Timing
|
(18
|
)
|
—
|
(18
|
)
|
|||||||
Methodology
differences:
|
||||||||||||
Inventory/cost
of sales
|
8
|
—
|
8
|
|||||||||
Postretirement
benefit expense
|
(56
|
)
|
—
|
(56
|
)
|
|||||||
Financing
costs
|
2
|
—
|
2
|
|||||||||
Equity in
profit of unconsolidated affiliated companies
|
(26
|
)
|
(1
|
)
|
(27
|
)
|
||||||
Currency
|
(4
|
)
|
—
|
(4
|
)
|
|||||||
Other
methodology difference
|
(37
|
)
|
(5
|
)
|
(42
|
)
|
||||||
Total profit
before taxes
|
$
|
1,099
|
$
|
196
|
$
|
1,295
|
||||||
Reconciliation
of Profit Before Taxes:
|
||||||||||||
(Millions
of dollars)
|
Machinery
and
Engines
|
Financing
&
Insurance
Services
|
Consolidated
Total
|
|||||||||
Nine Months Ended
September 30, 2008:
|
||||||||||||
Total
accountable profit from business segments
|
$
|
6,072
|
$
|
572
|
$
|
6,644
|
||||||
Cost centers
|
(1,405
|
)
|
—
|
(1,405
|
)
|
|||||||
Corporate
costs
|
(912
|
)
|
—
|
(912
|
)
|
|||||||
Timing
|
(182
|
)
|
—
|
(182
|
)
|
|||||||
Methodology
differences:
|
||||||||||||
Inventory/cost
of sales
|
(77
|
)
|
—
|
(77
|
)
|
|||||||
Postretirement
benefit expense
|
(71
|
)
|
—
|
(71
|
)
|
|||||||
Financing
costs
|
103
|
—
|
103
|
|||||||||
Equity in
profit of unconsolidated affiliated companies
|
(33
|
)
|
1
|
(32
|
)
|
|||||||
Currency
|
40
|
—
|
40
|
|||||||||
Other
methodology difference
|
13
|
(8
|
)
|
5
|
||||||||
Total profit
before taxes
|
$
|
3,548
|
$
|
565
|
$
|
4,113
|
||||||
Nine Months Ended
September 30, 2007:
|
||||||||||||
Total
accountable profit from business segments
|
$
|
5,344
|
$
|
590
|
$
|
5,934
|
||||||
Cost centers
|
(1,246
|
)
|
—
|
(1,246
|
)
|
|||||||
Corporate
costs
|
(771
|
)
|
—
|
(771
|
)
|
|||||||
Timing
|
(7
|
)
|
—
|
(7
|
)
|
|||||||
Methodology
differences:
|
||||||||||||
Inventory/cost
of sales
|
25
|
—
|
25
|
|||||||||
Postretirement
benefit expense
|
(163
|
)
|
—
|
(163
|
)
|
|||||||
Financing
costs
|
(35
|
)
|
—
|
(35
|
)
|
|||||||
Equity in
profit of unconsolidated affiliated companies
|
(48
|
)
|
(3
|
)
|
(51
|
)
|
||||||
Currency
|
32
|
—
|
32
|
|||||||||
Other
methodology difference
|
(47
|
)
|
(1
|
)
|
(48
|
)
|
||||||
Total profit
before taxes
|
$
|
3,084
|
$
|
586
|
$
|
3,670
|
||||||
Reconciliation
of Assets:
|
||||||||||||||||
(Millions
of dollars)
|
Machinery
and
Engines
|
Financing
&
Insurance
Services
|
Consolidating
Adjustments
|
Consolidated
Total
|
||||||||||||
September 30,
2008:
|
||||||||||||||||
Total
accountable assets from business segments
|
$
|
22,842
|
$
|
33,057
|
$
|
—
|
$
|
55,899
|
||||||||
Items not
included in segment assets:
|
||||||||||||||||
Cash and
short-term investments
|
965
|
1,173
|
—
|
2,138
|
||||||||||||
Intercompany
trade receivables
|
112
|
46
|
(158
|
)
|
—
|
|||||||||||
Trade and
other receivables
|
202
|
—
|
—
|
202
|
||||||||||||
Investment in
unconsolidated affiliated companies
|
—
|
—
|
(33
|
)
|
(33
|
)
|
||||||||||
Investment in
Financial Products
|
4,037
|
—
|
(4,037
|
)
|
—
|
|||||||||||
Deferred
income taxes and prepaids
|
2,734
|
150
|
(467
|
)
|
2,417
|
|||||||||||
Intangible
assets and other assets
|
1,190
|
65
|
—
|
1,255
|
||||||||||||
Cost center
assets
|
1,899
|
—
|
—
|
1,899
|
||||||||||||
Liabilities
included in segment assets
|
3,005
|
21
|
—
|
3,026
|
||||||||||||
Inventory
methodology differences
|
(2,590
|
)
|
—
|
—
|
(2,590
|
)
|
||||||||||
Other
|
316
|
(300
|
)
|
—
|
16
|
|||||||||||
Total assets
|
$
|
34,712
|
$
|
34,212
|
$
|
(4,695
|
)
|
$
|
64,229
|
|||||||
December 31,
2007:
|
||||||||||||||||
Total
accountable assets from business segments
|
$
|
17,990
|
$
|
30,571
|
$
|
—
|
$
|
48,561
|
||||||||
Items not
included in segment assets:
|
||||||||||||||||
Cash and
short-term investments
|
862
|
260
|
—
|
1,122
|
||||||||||||
Intercompany
trade receivables
|
366
|
113
|
(479
|
)
|
—
|
|||||||||||
Trade and
other receivables
|
272
|
—
|
—
|
272
|
||||||||||||
Investment in
unconsolidated affiliated companies
|
461
|
—
|
(24
|
)
|
437
|
|||||||||||
Investment in
Financial Products
|
3,948
|
—
|
(3,948
|
)
|
—
|
|||||||||||
Deferred
income taxes and prepaids
|
2,701
|
138
|
(339
|
)
|
2,500
|
|||||||||||
Intangible
assets and other assets
|
1,210
|
63
|
—
|
1,273
|
||||||||||||
Cost center
assets
|
1,765
|
—
|
—
|
1,765
|
||||||||||||
Liabilities
included in segment assets
|
2,664
|
20
|
—
|
2,684
|
||||||||||||
Inventory
methodology differences
|
(2,482
|
)
|
—
|
—
|
(2,482
|
)
|
||||||||||
Other
|
295
|
(295
|
)
|
—
|
—
|
|||||||||||
Total assets
|
$
|
30,052
|
$
|
30,870
|
$
|
(4,790
|
)
|
$
|
56,132
|
|||||||
14.
|
Securitizations
|
Cat Financial
periodically sells certain finance receivables related to retail
installment sale contracts and finance leases to special purpose entities
(SPEs) as part of their asset-backed securitization program (program). The
SPEs, typically trusts, are considered to be qualifying special purpose
entities (QSPEs) and thus, in accordance with SFAS 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities," are not consolidated. The QSPEs issue debt to pay for the
finance receivables they acquire from Cat Financial. The
primary source for repayment of the debt is the cash flows generated from
the finance receivables owned by the QSPEs. The assets of the
QSPEs are legally isolated and are not available to pay the creditors of
Cat Financial or any other affiliate of Cat Financial. For
bankruptcy analysis purposes, Cat Financial has sold the finance
receivables to the QSPEs in a true sale and the QSPEs are separate legal
entities.
|
Cat Financial
retains interests in the finance receivables that are sold through their
program. These retained interests are generally subordinate to
the investors’ interests and are included in “Other assets” in the
Consolidated Statement of Financial Position. Cat Financial
determines the fair value based on discounted cash flow models that
incorporate assumptions including credit losses, prepayment speeds and
discount rates. These assumptions are based on historical
experience, market trends and anticipated performance relative to the
particular assets securitized.
|
During the
second quarter of 2008, Cat Financial sold certain finance receivables
related to retail installment sale contracts and finance leases to an SPE
as part of their program. Net cash proceeds received were $600
million and a net gain of $12 million was recorded in “Revenues of
Financial Products”. Retained interests include
subordinated certificates with an initial fair value of $27 million, an
interest in future cash flows (excess) with an initial fair value of $8
million and a reserve account with an initial fair value of $9
million. Significant assumptions used to estimate the fair
value of the retained interests include a 7.2 percent discount rate, a
weighted-average prepayment rate of 14.5 percent and expected credit
losses of 1.55
percent.
|
Cat Financial
also sold certain finance receivables as part of their program in the
third quarter of 2007. Net cash proceeds received were $650
million and a net gain of $4 million was recorded in “Revenues of
Financial Products”. Retained interests include an interest in
future cash flows (excess) with an initial fair value of $2 million and a
reserve account with an initial fair value of $9
million. Significant assumptions used to estimate the fair
value of the retained interests include an 8.4 percent discount rate, a
weighted-average prepayment rate of 14 percent and expected credit losses
of 1.48 percent.
|
Cat Financial
also retains servicing responsibilities for which they receive a fee of
approximately 1 percent of the remaining value of the finance
receivables. A servicing asset or liability is generally not
recorded since the servicing fee is considered market
compensation.
|
During 2008,
the assumptions used to determine the fair value of our retained interests
in the 2006, 2007 and 2008 securitization transactions were
revised. The most significant revision was an increase in the
credit loss assumption due to the continued softening of the U.S. housing
industry. This resulted in a $6 million and $13 million
impairment charge to the retained interests for the three and nine months
ended September 30, 2008, respectively. The impairment charges
were recorded in Revenues of Financial Products in the Consolidated
Statement of Results of
Operations.
|
During the
third quarter of 2008, Cat Financial deposited $19 million into a
supplemental reserve account for the 2007 securitization transaction to
maintain the credit ratings assigned to the transaction, as
loss experiences have been higher than anticipated primarily due to the
softening of the U.S. housing industry. This resulted in an
increase in the retained interests.
|
The fair value
of the retained interests in all securitizations of retail finance
receivables outstanding totaled $68 million and $49 million at September
30, 2008 and December 31, 2007,
respectively.
|
15.
|
Fair
Value Measurements
|
We adopted
SFAS 157, “Fair Value Measurements” as of January 1, 2008. See Note 2 for
additional information. SFAS 157 defines fair value as the
exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for
the asset or liability in an orderly transaction between market
participants. SFAS 157 also specifies a fair value hierarchy
based upon the observability of inputs used in valuation
techniques. Observable inputs (highest level) reflect market
data obtained from independent sources, while unobservable inputs (lowest
level) reflect internally developed market assumptions. In
accordance with SFAS 157, fair value measurements are classified under the
following hierarchy:
|
§
|
Level 1 –
Quoted prices for identical instruments in active
markets.
|
|
§
|
Level 2 – Quoted prices
for similar instruments in active markets; quoted prices for identical or
similar instruments in markets that are not active; and model-derived
valuations in which all significant inputs or significant value-drivers
are observable in active markets.
|
|
§
|
Level 3 – Model-derived
valuations in which one or more significant inputs or significant
value-drivers are unobservable.
|
When
available, we use quoted market prices to determine fair value and we
classify such measurements within Level 1. In some cases where
market prices are not available, we make use of observable market based
inputs to calculate fair value, in which case the measurements are
classified within Level 2. If quoted or observable market
prices are not available, fair value is based upon internally developed
models that use, where possible, current market-based parameters such as
interest rates, yield curves and currency
rates. These measurements are classified within Level
3.
|
Fair value
measurements are classified according to the lowest level input or
value-driver that is significant to the valuation. A
measurement may therefore be classified within Level 3 even though there
may be significant inputs that are readily
observable.
|
Available-for-sale
securities
Our
available-for-sale securities include a mix of equity and debt instruments
(see Note 8 for additional information). Fair values for our
government debt and equity securities are based upon valuations for
identical instruments in active markets. Fair values for
corporate bonds are based upon prices obtained from independent
third-party pricing services. The third-party pricing services
employ various models that take into consideration such market-based
factors as recent sales, risk-free yield curves and prices of similarly
rated bonds.
|
Derivative financial
instruments
The fair value
of interest rate swap derivatives is primarily based on third-party
pricing service models. These models use discounted cash flows
that utilize the appropriate market-based forward swap curves and
zero-coupon interest rates. The fair value of foreign currency
forward contracts is based on a valuation model that discounts cash flows
resulting from the differential between the contract price and the
market-based forward rate.
|
Securitized retained
interests
The fair value
of securitized retained interests is based upon a valuation model that
calculates the present value of future expected cash flows using key
assumptions for credit losses, prepayment rates and discount
rates. These assumptions are based on our historical
experience, market trends and anticipated performance relative to the
particular assets securitized.
Guarantees
The fair value
of guarantees is based upon the premium we would require to issue the same
guarantee in a stand-alone arm’s-length transaction with an unrelated
party. If quoted or observable market prices are not available, fair value
is based upon internally developed models that utilize current
market-based assumptions.
|
Assets and
liabilities measured at fair value, primarily related to Financial
Products, included in our Consolidated Statement of Financial Position as
of September 30, 2008 are summarized
below:
|
(Millions
of dollars)
|
September
30, 2008
|
|||||||||||||||||
Level
1
|
Level
2
|
Level
3
|
Total
Assets / Liabilities,
at
Fair Value
|
|||||||||||||||
Assets
|
||||||||||||||||||
Available-for-sale
securities (long-term
investments)
|
$
|
176
|
$
|
1,029
|
$
|
—
|
$
|
1,205
|
||||||||||
Derivative
financial instruments
|
—
|
272
|
—
|
272
|
||||||||||||||
Securitized
retained interests
|
—
|
—
|
68
|
68
|
||||||||||||||
Total Assets
|
$
|
176
|
$
|
1,301
|
$
|
68
|
$
|
1,545
|
||||||||||
Liabilities
|
||||||||||||||||||
Guarantees
|
$
|
—
|
$
|
—
|
$
|
15
|
$
|
15
|
||||||||||
Total
Liabilities
|
$
|
—
|
$
|
—
|
$
|
15
|
$
|
15
|
||||||||||
Below is a
roll-forward of assets and liabilities measured at fair value using Level
3 inputs for the nine months ended September 30,
2008. These instruments, primarily related to Cat Financial,
were valued using pricing models that, in management’s judgment, reflect
the assumptions a marketplace participant would
use.
|
(Millions
of dollars)
|
Securitized
Retained Interests
|
Guarantees
|
||||||||
Balance at
December 31, 2007
|
$
|
49
|
$
|
12
|
||||||
Total gains or
losses (realized / unrealized)
|
||||||||||
Included in
earnings
|
(7
|
)
|
—
|
|||||||
Included in
other comprehensive income (loss)
|
(12
|
)
|
—
|
|||||||
Purchases,
issuances and settlements
|
38
|
3
|
||||||||
Balance at
September 30, 2008
|
$
|
68
|
$
|
15
|
||||||
The amount of
total net losses for the nine months ended September 30, 2008 included in
earnings attributable to the change in unrealized gains and losses
relating to assets still held at September 30, 2008 were $6 million on
securitized retained interests.
Gains and
losses included in earnings are reported in Revenues of Financial Products
in the Consolidated Statement of Results of
Operations.
|
16.
|
Business
Combinations
|
Lovat
Inc.
In April 2008,
we acquired 100 percent of the equity in privately held Lovat Inc. (Lovat)
for approximately $49 million. Based in Toronto, Canada, Lovat
is a leading manufacturer of tunnel boring machines used globally in the
construction of subway, railway, road, sewer, water main, mine access and
high voltage cable and telecommunications tunnels. Expansion
into the tunnel boring business is a strong fit with our strategic
direction and the customers we serve around the
world.
|
The
transaction was financed with available cash and commercial paper
borrowings. Net tangible assets acquired and liabilities
assumed of $10 million were recorded at their fair
values. Finite-lived intangible assets acquired of $17 million
related to customer relationships, intellectual property and trade names
are being amortized on a straight-line basis over a weighted-average
amortization period of approximately 6 years. Goodwill of $22
million, non-deductible for income tax purposes, represents the excess of
cost over the fair value of net tangible and finite-lived intangible
assets acquired. These values represent a preliminary
allocation of the purchase price subject to finalization of fair value
appraisals and other post-closing procedures. The results of
the acquired business for the period from the acquisition date are
included in the accompanying consolidated financial statements and
reported in the “All Other” category in Note 13. Assuming this
transaction had been made at the beginning of any period presented, the
consolidated pro forma results would not be materially different from
reported results.
|
Gremada
Industries Inc.
In
July 2008, we acquired certain assets and assumed certain liabilities of
Gremada Industries, Inc. (Gremada), a supplier to our remanufacturing
business. The cost of the acquisition was $62 million,
consisting of $60 million paid at closing and an additional $2 million
post-closing adjustment paid in August 2008. Gremada is a
remanufacturer of transmissions, torque converters, final drives and
related components. This acquisition increases our product and
service offerings for our existing customers, while providing a platform
for further growth opportunities.
This
transaction was financed with available cash and commercial paper
borrowings. Net tangible assets acquired and liabilities
assumed of $21 million were recorded at their fair
values. Goodwill of $41 million, deductible for income tax
purposes, represents the excess cost over the fair value of net tangible
and finite-lived intangible assets acquired. The results of the
acquired business for the period from the acquisition date are included in
the accompanying consolidated financial statements and are reported in the
“All Other” category in Note 13. Assuming this transaction had
been made at the beginning of any period presented, the consolidated pro
forma results would not be materially different from reported
results.
|
Shin
Caterpillar Mitsubishi Ltd. (SCM)
On August 1, 2008, SCM completed
the first phase of a share redemption plan whereby SCM redeemed half of
MHI’s shares in SCM for $464 million. This resulted in
Caterpillar owning 67 percent of the outstanding shares of SCM and MHI
owning the remaining 33 percent. As part of the share
redemption, SCM was renamed Caterpillar Japan Ltd. (Cat
Japan). Both Cat Japan and MHI have options, exercisable after
five years, to require the redemption of the remaining shares owned by
MHI, which if exercised, would make Caterpillar the sole owner of Cat
Japan. The share redemption plan is part of our comprehensive
business strategy for expansion in the emerging markets of Asia and the
Commonwealth of Independent States and will allow Cat Japan’s
manufacturing, design and process expertise to be fully leveraged across
the global Caterpillar enterprise.
The change in Caterpillar’s
ownership interest from 50 percent to 67 percent was accounted for as a
business combination. The $464 million redemption price was
assigned to 17 percent of Cat Japan’s assets and liabilities based upon
their respective fair values as of the transaction date. The
revaluation resulted in an increase in property, plant and equipment of
$90 million and an increase in inventory of $8 million over the book value
of these assets. Finite-lived intangible assets of $55 million
were recognized and related primarily to customer relationships,
intellectual property and trade names. These intangibles are being
amortized on a straight-line basis over a weighted-average amortization
period of approximately 9 years. Deferred tax liabilities of
$62 million were also recognized as part of the business combination.
Goodwill of $199 million, non-deductible for income tax purposes,
represents the excess of the redemption price over the 17 percent of Cat
Japan’s net tangible and finite-lived intangible assets that were reported
at their fair values. These values represent a preliminary allocation of
the redemption price subject to finalization of fair value appraisals and
other post-closing procedures.
Because Cat Japan is accounted for
on a lag, we consolidated Cat Japan’s August 1, 2008 financial position on
September 30, 2008. We will begin consolidating Cat Japan’s
results of operations in the fourth quarter. Including the amounts
assigned as part of the business combination, the consolidation resulted
in a net increase in assets of $2,401 million (primarily property, plant
and equipment of $1,291 million, inventory of $640 million, receivables of
$612 million, and goodwill and intangibles of $254 million partially
offset by a $528 million reduction in investment in unconsolidated
affiliates) and a net increase in liabilities of $2,050 million (including
$1,388 million in debt).
Additionally, the remaining 33
percent of Cat Japan owned by MHI has been reported as redeemable
noncontrolling interest and classified as mezzanine equity (temporary
equity) in the Consolidated Statement of Financial Position. This
redeemable noncontrolling interest was reported at its estimated future
redemption value of $464 million with the difference between the $351
million book value of the 33 percent interest and the redemption value
reported as a $113 million reduction of Profit employed in the
business.
In subsequent reporting periods,
the redeemable noncontrolling interest will continue to be reported at its
estimated redemption value. Any adjustment to the redemption
value will impact Profit employed in the business, but will not impact
Profit. If the fair value of the redeemable noncontrolling
interest falls below the redemption value, profit available to common
stockholders would be reduced by the difference between the redemption
value and the fair value. This would result in lower profit in
the profit per common share computation in that
period. Reductions impacting the profit per common share
computation may be partially or fully reversed in subsequent periods if
the fair value of the redeemable noncontrolling interest increases
relative to the redemption value. Such increases in profit per
common share would be limited to cumulative prior
reductions.
Cat Japan’s financial position was
included in the “All Other” category in Note 13. Assuming this
transaction had been made at the beginning of any period presented, the
consolidated pro forma results would not be materially different from
reported
results.
|
|
||
The chart
above graphically illustrates reasons for the change in Consolidated Sales
and Revenues between third quarter 2007 (at left) and third quarter 2008
(at right). Items favorably impacting sales and revenues appear
as upward stair steps with the corresponding dollar amounts above each
bar, while items negatively impacting sales and revenues appear as
downward stair steps with dollar amounts reflected in parentheses above
each bar. Caterpillar management utilizes these charts
internally to visually communicate with the company’s Board of Directors
and employees.
|
Sales
and Revenues by Geographic Region
|
|||||||||||||||||||||||||||||||||||||||||||
(Millions of
dollars)
|
Total
|
%
Change
|
North
America
|
%
Change
|
EAME
|
%
Change
|
Asia/
Pacific
|
%
Change
|
Latin
America
|
%
Change
|
|||||||||||||||||||||||||||||||||
3rd
Quarter 2007
|
|||||||||||||||||||||||||||||||||||||||||||
Machinery
|
$
|
7,123
|
$
|
3,156
|
$
|
2,166
|
$
|
999
|
$
|
802
|
|||||||||||||||||||||||||||||||||
Engines
|
1
|
3,545
|
1,311
|
1,362
|
608
|
264
|
|||||||||||||||||||||||||||||||||||||
Financial
Products
|
2
|
774
|
520
|
118
|
63
|
73
|
|||||||||||||||||||||||||||||||||||||
$
|
11,442
|
$
|
4,987
|
$
|
3,646
|
$
|
1,670
|
$
|
1,139
|
||||||||||||||||||||||||||||||||||
3rd
Quarter 2008
|
|||||||||||||||||||||||||||||||||||||||||||
Machinery
|
$
|
8,051
|
13
|
%
|
$
|
3,245
|
3
|
%
|
$
|
2,270
|
5
|
%
|
$
|
1,437
|
44
|
%
|
$
|
1,099
|
37
|
%
|
|||||||||||||||||||||||
Engines
|
1
|
4,097
|
16
|
%
|
1,400
|
7
|
%
|
1,617
|
19
|
%
|
757
|
25
|
%
|
323
|
22
|
%
|
|||||||||||||||||||||||||||
Financial
Products
|
2
|
833
|
8
|
%
|
491
|
(6
|
)
|
%
|
150
|
27
|
%
|
108
|
71
|
%
|
84
|
15
|
%
|
||||||||||||||||||||||||||
$
|
12,981
|
13
|
%
|
$
|
5,136
|
3
|
%
|
$
|
4,037
|
11
|
%
|
$
|
2,302
|
38
|
%
|
$
|
1,506
|
32
|
%
|
1
|
Does not include internal engines
transfers of $738 million and $629 million in third quarter 2008 and 2007,
respectively. Internal engines transfers are valued at prices
comparable to those for unrelated parties.
|
2
|
Does not include internal revenues
earned from Machinery
and Engines of $64 million and $89 million in
third quarter 2008 and 2007,
respectively.
|
|
§
|
Sales volume
increased $591 million, with the gain coming from developing
economies. Most developed economies were weak, with several
entering into recession.
|
|
§
|
Price
realization increased $164 million.
|
|
§
|
Currency
benefited sales by $173 million.
|
|
§
|
Geographic mix
between regions (included in price realization) was $3 million
favorable.
|
|
§
|
Dealers
reported higher inventories in all regions, which was a positive for sales
volume. Inventories in months of supply were slightly higher
than a year earlier, with Asia Pacific the only region to show a
decrease.
|
|
§
|
In North
America, sales volume declined in response to weak U.S. construction and
quarrying. Higher coal and crude oil prices benefited coal
mining and oil sands development.
|
|
§
|
Sales volume
in Europe declined sharply from a year earlier as economies in the
euro-zone and the United Kingdom were very weak. Both
residential and nonresidential construction
declined.
|
|
§
|
Sales
increased in the developing regions of Africa/Middle East, the
Commonwealth of Independent States (CIS), Asia/Pacific and Latin
America where most countries maintained healthy economic growth and
increased exports. Higher commodity prices and increased
production of these commodities boosted government revenues resulting in
continued construction spending and investment in oil, coal and metals
production capacity.
|
|
§
|
Sales volume
decreased $18 million.
|
|
§
|
Price
realization increased $107 million.
|
|
§
|
Sales volume
declined in response to lower demand from end users, particularly in the
United States. Dealers reported higher inventories than a year
earlier in both dollars and months of
supply.
|
|
§
|
The decline in
sales volume resulted from ongoing weaknesses in construction and
construction-related industries such as quarrying and
forestry. Energy-related industries, such as coal mining and
oil sands, contributed positively.
|
|
§
|
U.S. housing
starts declined 32 percent from a year earlier, and the median price of
new homes dropped more than 5 percent. Lower employment, high
mortgage interest rates, declining home prices and excessive stocks of
unsold homes caused the decline in new
construction.
|
|
§
|
Orders for
nonresidential construction declined 12 percent. Negatives
included rising vacancy rates, declining property prices, tighter credit
conditions for businesses and increased pressure on state and local
government budgets.
|
|
§
|
The decline in
construction in the United States caused nonmetals mining and quarry
production to drop almost 16 percent from third quarter
2007.
|
|
§
|
Coal prices
more than doubled from a year earlier following price increases in
Asia. U.S. coal production increased 3 percent, largely to
accommodate substantial increases in exports which rose more than 50
percent in the first half of the year. Higher coal prices are
encouraging Canadian miners to increase capital expenditures more than 70
percent this year.
|
|
§
|
Oil prices
averaged more than $115 per barrel in the quarter, which made further
development of Canada’s oil sands attractive. Capital
expenditures should increase about 23 percent this year, the fifth
consecutive year with an increase in excess of 20
percent.
|
|
§
|
Sales volume
decreased $17 million. Lower volume in Europe offset gains in
both Africa/Middle East and the
CIS.
|
|
§
|
Price
realization increased $17 million.
|
|
§
|
Currency
benefited sales by $104 million.
|
|
§
|
Dealers
reduced inventories during the quarter, which is normal, but inventories
at the end of the quarter were higher than a year earlier in both dollars
and months of supply.
|
|
§
|
Sales declined
significantly in both the euro-zone and the United Kingdom. The
combination of financial market turmoil, high interest rates and strong
currencies caused these economies to slow abruptly. Some
economies within the euro-zone were in
recession.
|
|
§
|
Slower growth
and high interest rates weakened construction. Housing permits
in the euro-zone were down 22 percent in the first half, and in the United
Kingdom third-quarter housing orders fell 44 percent from a year
earlier. Third-quarter infrastructure construction in the
euro-zone declined almost 4
percent.
|
|
§
|
The sales
increase in Africa/Middle East occurred largely in the oil producing
countries. Oil production increased almost 5 percent from a
year earlier, and prices were up more than 70 percent. Higher
oil revenues enabled countries to spend more on construction and increase
the drill rig count by 3 percent.
|
|
§
|
Sales volume
expanded in most countries in the CIS region. The increase in
oil prices offset a decline in production, allowing governments to spend
more for construction. Other positives included higher metals
and coal prices.
|
|
§
|
Sales volume
increased $382 million.
|
|
§
|
Price
realization increased $20 million.
|
|
§
|
Currency
benefited sales by $36 million.
|
|
§
|
Dealers
reported much higher inventories, which benefited
sales. However, months of supply were slightly lower than a
year earlier.
|
|
§
|
Sales also
benefited from higher customer demand as reported by
dealers. Good economic growth and favorable commodity prices
led to increased demand, with most of the gain concentrated in China,
Indonesia and Australia.
|
|
§
|
Sales volume
increased substantially in China, the result of the introduction of
locally produced wheel loaders this year and growth in both construction
and mining. Spending increased 33 percent for housing
construction and 18 percent for commercial construction. Coal
production was up 14 percent, and iron ore production rose 3
percent.
|
|
§
|
Indonesia, the
world’s largest thermal coal exporter, benefited from much higher coal
prices. Construction has been increasing at about an 8 percent
annual rate.
|
|
§
|
High interest
rates in Australia slowed economic growth and caused the housing sector to
decline. However, higher coal and iron ore prices led to more
than 50 percent increases in exploration expenditures for both these
commodities. In addition, infrastructure construction increased
11 percent in the first half, in part to alleviate transportation problems
resulting from increased mine
output.
|
|
§
|
Sales volume
increased $247 million.
|
|
§
|
Price
realization rose $17 million.
|
|
§
|
Currency
benefited sales by $33 million.
|
|
§
|
Dealers
reported significant additions to inventories during the quarter, which
contributed to the gain in sales volume. Inventories were
higher than a year ago in both dollars and months of
supply. Inventories had been low, so the increase returned
months of supply to more normal rates and supports future growth in dealer
deliveries.
|
|
§
|
Brazil was the
biggest contributor to sales volume growth. Although interest
rates increased this year, the economy continued to benefit from the large
rate reductions during the past two years. As a result,
construction increased over 9 percent in the first half. The
country’s large commodity sector grew rapidly, with oil production up more
than 5 percent and mining output up more than 8
percent.
|
|
§
|
In Mexico,
energy revenues rose substantially due to higher oil prices and a 14
percent increase in natural gas production. These higher
revenues, along with some growth in construction, led to a large gain in
sales volume.
|
|
§
|
Sales volume
increased in Colombia, largely as a result of much higher coal
prices.
|
|
§
|
Sales volume
increased $242 million.
|
|
§
|
Price
realization increased $221 million.
|
|
§
|
Currency
benefited sales $89 million.
|
|
§
|
Geographic mix
between regions (included in price realization) was $2 million
favorable.
|
|
§
|
Dealer-reported
inventories were up, and months of supply were up slightly, supporting
stronger delivery rates.
|
|
§
|
Sales volume
increased $9 million.
|
|
§
|
Price
realization increased $80 million.
|
|
§
|
Sales for
marine applications increased 68 percent, with strong demand for petroleum
supply vessels to support offshore
drilling.
|
|
§
|
Sales for
industrial applications increased 30 percent in small- and medium-sized
product due to increased demand in agricultural and mining applications as
a result of high commodity prices.
|
|
§
|
Sales for
on-highway truck applications increased 7 percent, which resulted from a
slight improvement in the North American on-highway heavy-duty truck
market compared with a very weak third quarter
2007.
|
|
§
|
Sales for
petroleum engine applications declined 3 percent due to a
temporary pause in North American drill rig production. Turbine sales for
gas transmission projects were down due to timing of customer project
schedules. This was partially offset by an increase in
turbine-related services.
|
|
§
|
Sales for
electric power applications were about the same as the third quarter of
2007.
|
|
§
|
Sales volume
increased $95 million.
|
|
§
|
Price
realization increased $85 million.
|
|
§
|
Currency
benefited sales by $75 million.
|
|
§
|
Sales for
electric power applications increased 20 percent, with strong demand in
Africa/Middle East offsetting weaker demand in Europe and the
CIS.
|
|
§
|
Sales for
marine applications increased 49 percent to support higher demand for
workboats and commercial vessels.
|
|
§
|
Sales for
industrial applications increased 12 percent, with strong demand for
agriculture and mining support
equipment.
|
|
§
|
Sales for
petroleum applications increased 8 percent based on strong demand for
engines used in drilling and production. Turbine-related
services were up as well but were offset by a decline in shipments of
turbines for oil and gas production projects in the Middle East due to
timing of customer project
schedules.
|
|
§
|
Sales volume
increased $88 million.
|
|
§
|
Price
realization increased $47 million.
|
|
§
|
Currency
benefited sales by $14 million.
|
|
§
|
Sales for
marine applications increased 49 percent, with continued strong demand for
workboat and offshore shipbuilding.
|
|
§
|
Sales of
electric power engines increased 32 percent, with strong demand in gas
generator sets for industrial power in Bangladesh and with demand for data
and telecommunication centers in
China.
|
|
§
|
Sales for
petroleum applications increased 11 percent in support of Chinese drill
rig builders that continue to manufacture at record levels and to support
increased demand from Asian shipyards in support of offshore
drilling. Sales of turbine-related services increased but
were offset by a decline in shipments of turbines for oil and gas
production projects due to timing of customer project
schedules.
|
|
§
|
Sales volume
increased $52 million.
|
|
§
|
Price
realization increased $7 million.
|
|
§
|
Sales for
petroleum applications increased 44 percent driven by strong demand for
on-site power generation to support oil production across the region and
to support drilling in Venezuela. Turbines and turbine-related
services increased for oil and gas production applications in
Mexico.
|
|
§
|
Sales of
electric power engines increased 24 percent as strong demand was driven by
high commodity prices and infrastructure
investment.
|
|
§
|
Sales for
on-highway truck applications decreased 57 percent as a result of Original
Equipment Manufacturer (OEM) customers working down inventory that was
accumulated prior to emission law changes in the
region.
|
|
§
|
Growth in
average earning
assets increased revenues $101 million, which was partially offset
by a decrease of $59 million due to lower interest rates on new and
existing finance receivables.
|
|
§
|
Revenues from
earned premiums at Cat Insurance increased $20
million.
|
|
||
The
chart above graphically illustrates reasons for the change in Consolidated
Operating Profit between third quarter 2007 (at left) and third quarter
2008 (at right). Items favorably impacting operating
profit appear
as upward stair steps with the corresponding dollar amounts above each
bar, while items negatively impacting operating profit appear as downward
stair steps with dollar amounts reflected in parentheses above each
bar. Caterpillar management utilizes these charts internally to
visually communicate with the company’s Board of Directors and
employees. The bar entitled Other includes the operating profit
impact of consolidating
adjustments and
Machinery
and Engines other operating expenses.
|
Operating
Profit by Principal Line of Business
|
||||||||||||||||||||
(Millions of
dollars)
|
Third Quarter
2007
|
Third Quarter
2008
|
$
Change
|
%
Change
|
||||||||||||||||
Machinery
|
1
|
$
|
681
|
$
|
464
|
$
|
(217
|
)
|
(32
|
)
|
%
|
|||||||||
Engines
|
1
|
529
|
616
|
87
|
16
|
%
|
||||||||||||||
Financial Products
|
178
|
144
|
(34
|
)
|
(19
|
)
|
%
|
|||||||||||||
Consolidating Adjustments
|
(75
|
)
|
(51
|
)
|
24
|
|||||||||||||||
Consolidated Operating
Profit
|
$
|
1,313
|
$
|
1,173
|
$
|
(140
|
)
|
(11
|
)
|
%
|
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 of
$464 million was down $217 million, or 32 percent, from third quarter
2007. Improved price realization and higher sales volume were
more than offset by higher costs and the unfavorable impact of
currency.
|
|
§
|
Engines operating profit of $616 million was up $87 million,
or 16 percent, from third quarter 2007. Improved price
realization and higher sales volume were partially offset by higher
costs.
|
|
§
|
Financial
Products operating
profit of $144 million was down $34 million, or 19 percent, from third quarter
2007. The decrease was primarily attributable to a $38 million
impact from decreased net yield on average earning assets, a $17 million
increase in SG&A expenses and a $13 million increase in the provision
for credit losses at Cat Financial, partially offset by a $40 million
favorable impact from higher average earning
assets.
|
|
§
|
Other
income/expense was
income of $138 million compared with income of $51 million in third
quarter 2007. The increase was primarily due to the favorable
impacts of currency.
|
|
§
|
The provision
for income taxes in
the third quarter of 2008 reflects an estimated annual tax rate of 31.5
percent compared to an actual rate of 30.5 percent for the third quarter
2007 and 30 percent for the full-year 2007. The increase over
2007 is attributable to expected changes in our geographic mix of profits
from a tax perspective and the expiration of the U.S. research and
development tax credit. The renewal of the U.S. research and
development tax credit in October 2008 will be reflected in the fourth
quarter as a reduction of approximately one percentage point in the
estimated annual tax rate.
|
|
§
|
Equity in
profit/(loss) of unconsolidated affiliated companies was income of $11 million compared
with income of $27 million in the third quarter of 2007. The
decline reflects lower profit at Shin
Caterpillar Mitsubishi Ltd. (SCM) and the absence of profit due to
the sale of our investment in A.S.V. Inc. during the first
quarter 2008.
On August 1,
2008, SCM redeemed one-half of Mitsubishi Heavy Industries Ltd.’s (MHI’s)
shares in SCM for $464 million. Caterpillar now owns 67 percent
of the renamed entity, Caterpillar Japan Ltd. (Cat
Japan). Because Cat Japan is accounted for on a lag, we
consolidated Cat Japan’s August 1, 2008 financial position on September
30, 2008. We will begin consolidating Cat Japan’s results of
operations in the fourth
quarter.
|
|
||
The
chart above graphically illustrates reasons for the change in Consolidated
Sales and Revenues between September 2007 YTD (at left) and September 2008
YTD (at right). Items favorably impacting sales and revenues
appear as upward stair steps with the corresponding dollar amounts above
each bar, while items negatively impacting sales and revenues appear as
downward stair steps with dollar amounts reflected in parentheses above
each bar. Caterpillar management utilizes these charts
internally to visually communicate with the company’s Board of Directors
and employees.
|
Sales
and Revenues by Geographic Region
|
||||||||||||||||||||||||||||||||||||||
(Millions of
dollars)
|
Total
|
%
Change
|
North
America
|
%
Change
|
EAME
|
%
Change
|
Asia/
Pacific
|
%
Change
|
Latin
America
|
%
Change
|
||||||||||||||||||||||||||||
Nine
months ended
September
30, 2007
|
||||||||||||||||||||||||||||||||||||||
Machinery
|
$
|
20,899
|
$
|
9,484
|
$
|
6,266
|
$
|
2,832
|
$
|
2,317
|
||||||||||||||||||||||||||||
Engines
|
1
|
9,703
|
3,817
|
3,628
|
1,482
|
776
|
||||||||||||||||||||||||||||||||
Financial
Products
|
2
|
2,212
|
1,513
|
329
|
178
|
192
|
||||||||||||||||||||||||||||||||
$
|
32,814
|
$
|
14,814
|
$
|
10,223
|
$
|
4,492
|
$
|
3,285
|
|||||||||||||||||||||||||||||
Nine
months ended
September
30, 2008
|
||||||||||||||||||||||||||||||||||||||
Machinery
|
$
|
24,129
|
15
|
%
|
$
|
9,936
|
5
|
%
|
$
|
7,207
|
15
|
%
|
$
|
4,057
|
43
|
%
|
$
|
2,929
|
26
|
%
|
||||||||||||||||||
Engines
|
1
|
11,795
|
22
|
%
|
4,066
|
7
|
%
|
4,641
|
28
|
%
|
2,061
|
39
|
%
|
1,027
|
32
|
%
|
||||||||||||||||||||||
Financial
Products
|
2
|
2,477
|
12
|
%
|
1,511
|
0
|
%
|
446
|
36
|
%
|
272
|
53
|
%
|
248
|
29
|
%
|
||||||||||||||||||||||
$
|
38,401
|
17
|
%
|
$
|
15,513
|
5
|
%
|
$
|
12,294
|
20
|
%
|
$
|
6,390
|
42
|
%
|
$
|
4,204
|
28
|
%
|
1
|
Does not include internal engines
transfers of $2,176 million and $1,897 million in the nine months ended
September 30, 2008 and 2007, respectively. Internal engines transfers are
valued at prices comparable to those for unrelated
parties.
|
2
|
Does not include internal revenues
earned from Machinery and Engines of $242 million and $296 million
in the nine months ended September 30, 2008 and 2007,
respectively.
|
|
§
|
Sales volume
increased $2.102 billion, with most of the gain coming from outside the
United States.
|
|
§
|
Price
realization increased $456 million.
|
|
§
|
Currency
benefited sales by $672 million.
|
|
§
|
Geographic mix
between regions (included in price realization) was $12 million
unfavorable.
|
|
§
|
Dealers in all
regions reported inventory builds this year, in contrast to last year when
sharp reductions in North America caused a worldwide drawdown in
inventories. This change was the major contributor to increased
sales volume. Inventories in months of supply were slightly
higher than a year earlier.
|
|
§
|
Sales volume
rose in North America, since dealers reported some inventory build this
year compared to large reductions last year. Construction and
construction-related sectors were depressed and dealers reported much
lower deliveries to these industries. Coal mining and oil sands
development were positives since favorable output prices encouraged
investment.
|
|
§
|
Sales volume
declined in Europe, starting in the second quarter. High
interest rates and a rapidly slowing economy caused both residential and
nonresidential construction to
decline.
|
|
§
|
Sales volume
increased in the developing economies, particularly those with significant
commodity production. These countries used increased revenues
resulting from higher prices and output to invest in production capacity
and infrastructure.
|
|
§
|
Sales volume
increased $211 million.
|
|
§
|
Price
realization increased $241 million.
|
|
§
|
Dealers
reported modest additions to inventories this year, in contrast to deep
reductions last year. That change caused the growth in sales
volume; dealer inventories ended the quarter higher than a year earlier in
both dollars and months of supply.
|
|
§
|
Dealers
reported much lower deliveries than a year earlier due to weakness in
construction and construction-related industries. Coal mining
and oil sands development were the only areas of
strength.
|
|
§
|
Housing starts
averaged an annual rate of 986 thousand units through the third quarter,
which was the lowest sustained rate since 1945. Lower home
prices and a large inventory of unsold new homes contributed to the
decline in starts.
|
|
§
|
Nonresidential
construction weakened, with orders down 3 percent. Rising
vacancy rates and declining property prices caused a deterioration
throughout the year. Orders for highways declined 9 percent in
response to a limited increase in Federal funding, rising costs and state
budget problems.
|
|
§
|
Weak
construction caused quarry production to drop 14 percent from last
year.
|
|
§
|
The Central
Appalachian coal price more than doubled, the result of strong
international demand. A 50 percent increase in U.S. coal
exports led to a 2 percent increase in coal
production. Canadian mines increased production 4
percent.
|
|
§
|
Higher oil and
natural gas prices contributed to a 6 percent increase in drill rig
activity and more pipeline construction. Investment in Canadian
oil sands increased.
|
|
§
|
Sales volume
increased $395 million.
|
|
§
|
Price
realization increased $85 million.
|
|
§
|
Currency
benefited sales by $461 million.
|
|
§
|
Dealers
reported significant additions to inventories, although not as much as a
year earlier. Inventories were higher than a year earlier in
both dollars and months of supply.
|
|
§
|
Volume
declined in Europe, reflecting decreases in both residential and
non-residential construction. High interest rates and home
price declines in several countries contributed to problems in the housing
sector.
|
|
§
|
South Africa
and the oil producing countries accounted for the sales volume growth that
occurred in Africa/Middle East. Government revenues increased
sharply due to a 5 percent increase in oil production combined with 69
percent higher prices, allowing construction booms to
continue. In South Africa, construction increased 14
percent.
|
|
§
|
Sales volume
increased significantly in the CIS, with large gains in Russia, Ukraine
and Kazakhstan. Expansive economic policies and higher prices
for oil, natural gas, coal and metals benefited investment in those
sectors and caused good growth in
construction.
|
|
§
|
Sales volume
increased $1.020 billion.
|
|
§
|
Price
realization increased $74 million.
|
|
§
|
Currency
benefited sales by $131 million.
|
|
§
|
Dealers
reported a large inventory build this year to support continued rapid
growth in their deliveries. Although dollar inventories were
higher than a year earlier, inventories in months of supply declined
slightly.
|
|
§
|
Sales in China
continued to grow rapidly, benefiting from the introduction of locally
produced wheel loaders and good economic growth. Both
construction and mining increased.
|
|
§
|
Sales volume
in Indonesia was much higher than a year earlier. Coal mining
benefited from higher contract coal prices and construction increased
about 8 percent.
|
|
§
|
In India,
sales volume increased due to a strong first half. Construction
increased 12 percent and mining was up 5
percent.
|
|
§
|
Sales volume
increased $464 million.
|
|
§
|
Price
realization rose $68 million.
|
|
§
|
Currency
benefited sales by $80 million.
|
|
§
|
Dealers added
significantly to reported inventories, with most of the gain occurring in
the third quarter. As a result, inventories, which had been
low, were higher than a year earlier, both in dollars and months of
supply.
|
|
§
|
Brazil,
Colombia and Mexico accounted for the volume
growth.
|
|
§
|
The Brazilian
economy continued to benefit from interest rate reductions in the past two
years and favorable commodity prices. Both construction and
iron ore production increased 9 percent. Oil production rose 4
percent.
|
|
§
|
Positives for
sales volume in Mexico were a 51 percent increase in oil exports, a 14
percent increase in natural gas and a slight increase in
construction.
|
|
§
|
Sales volume
in Colombia benefited from a 43 percent increase in coal
exports.
|
|
§
|
Sales volume
increased $1.220 billion.
|
|
§
|
Price
realization increased $588 million.
|
|
§
|
Currency
benefited sales $284 million.
|
|
§
|
Geographic mix
between regions (included in price realization) was $34 million
favorable.
|
|
§
|
Dealer-reported
inventories were up, and months of supply were up slightly, supporting
stronger delivery rates.
|
|
§
|
Sales volume
increased $40 million.
|
|
§
|
Price
realization increased $209 million.
|
|
§
|
Sales for
on-highway truck applications increased 12 percent compared to a very weak
2007. Demand remains below historic norms due to the slowing
U.S. economy that has resulted in a reduction in freight
tonnage.
|
|
§
|
Sales for
marine applications increased 40 percent, with increased demand for supply
vessels in support of petroleum offshore
drilling.
|
|
§
|
Sales for
industrial applications increased 16 percent in small- and medium-sized
product due to increased demand in agricultural and mining applications as
a result of high commodity prices.
|
|
§
|
Sales for
electric power applications decreased 5 percent due to the slow down in
non-residential construction and in response to efforts to bring dealer
inventories down. Delayed deliveries for rental units also
contributed to this decrease.
|
|
§
|
Sales for
petroleum engine applications increased 2 percent, as sales increased in
turbine-related services. These were partially offset by a decline in
engine sales due to a temporary pause in North American drill rig
production.
|
|
§
|
Sales volume
increased $554 million.
|
|
§
|
Price
realization increased $221 million.
|
|
§
|
Currency
benefited sales by $238 million.
|
|
§
|
Sales for
petroleum applications increased 63 percent based on strong demand for
engines used in drilling and production. Turbine and
turbine-related services increased to support gas transmission
applications in Europe and the Middle East and for oil and gas
applications in Africa.
|
|
§
|
Sales for
electric power applications increased 23 percent, with increased demand
resulting from high oil prices for all products selling into Africa/Middle
East. Turbine sales increased as a result of large power
plant projects.
|
|
§
|
Sales for
marine applications increased 31 percent, with higher demand for workboats
and commercial vessels.
|
|
§
|
Sales for
industrial applications increased 15 percent, with strong demand for
agriculture and mining support equipment. This demand has been
driven by high agricultural commodity
prices.
|
|
§
|
Sales volume
increased $433 million.
|
|
§
|
Price
realization increased $100 million.
|
|
§
|
Currency
benefited sales by $46 million.
|
|
§
|
Sales for
petroleum applications increased 44 percent to support record high level
Chinese drill rig manufacturing and increased demand from Asian
shipyards in support of offshore drilling. This was partially
offset by a decline in turbine and turbine-related services due to timing
of customer project schedules.
|
|
§
|
Sales of
electric power engines increased 29 percent, with increased demand from
Bangladesh industrial customers for large gas generator
sets. Diesel demand resulted from data and telecommunication
center demand in China and utility, mining and paper mill demand from
Indonesia.
|
|
§
|
Sales for
marine applications increased 29 percent, with continued strong demand for
workboat and offshore shipbuilding. Large diesel demand grew in
the offshore and general cargo
industries.
|
|
§
|
Sales for
industrial applications increased 71 percent driven by sales in Australia
into mining and irrigation sectors and by sales in New Zealand into
compressed natural gas applications. Smaller product benefited
from sales into Chinese and Korean industrial Original Equipment
Manufacturers (OEM).
|
|
§
|
Sales volume
increased $227 million.
|
|
§
|
Price
realization increased $24 million.
|
|
§
|
Sales for
petroleum applications increased 61 percent driven by the energy crisis in
Argentina, which increased demand for on-site power generation to support
oil production. Demand in Venezuela also increased to support
drilling and production. Turbines and turbine-related services
increased for oil and gas production and gas transmission applications in
South America.
|
|
§
|
Sales of
electric power engines increased 21 percent driven by high commodity
prices and infrastructure investment. Strong sales growth in
utility grid support projects in Brazil also contributed to this
increase.
|
|
§
|
Sales for
industrial applications increased 35 percent, with strong demand for
agriculture and other types of OEM machines. This demand was
driven by good economic conditions and higher agricultural commodity
prices.
|
|
§
|
Sales for
on-highway truck applications were about the same as the first nine months
of 2007.
|
|
§
|
Growth in
average earning assets increased revenues $312 million, which was
partially offset by a decrease of $129 million due to lower interest rates
on new and existing finance
receivables.
|
|
§
|
Revenues from
earned premiums at Cat Insurance increased $60
million.
|
|
||
The
chart above graphically illustrates reasons for the change in Consolidated
Operating Profit between September 2007 YTD (at left) and September 2008
YTD (at right). Items favorably impacting operating profit
appear as upward stair steps with the corresponding dollar amounts above
each bar, while items negatively impacting operating profit appear as
downward stair steps with dollar amounts reflected in parentheses above
each bar. Caterpillar management utilizes these charts
internally to visually communicate with the company's Board of Directors
and employees. The bar entitled Other includes the operating
profit impact of consolidating adjustments and Machinery and Engines other
operating expenses.
|
Operating Profit by Principal Line
of Business
|
|||||||||||||||||||||
(Millions of
dollars)
|
Nine months
ended
September 30,
2007
|
Nine months
ended
September 30,
2008
|
$
Change
|
%
Change
|
|||||||||||||||||
Machinery
|
1
|
$
|
2,139
|
$
|
1,809
|
$
|
(330
|
)
|
(15
|
)
|
%
|
||||||||||
Engines
|
1
|
1,255
|
1,881
|
626
|
50
|
%
|
|||||||||||||||
Financial
Products
|
529
|
505
|
(24
|
)
|
(5
|
)
|
%
|
||||||||||||||
Consolidating
Adjustments
|
(257
|
)
|
(204
|
)
|
53
|
||||||||||||||||
Consolidated Operating
Profit
|
$
|
3,666
|
$
|
3,991
|
$
|
325
|
9
|
%
|
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 of
$1.809 billion was down $330 million, or 15 percent, from the nine months
ended September 30, 2007. Improved price realization and higher
sales volume were more than offset by higher costs and the unfavorable
impact of currency. Sales volume includes the impact of a
negative mix of product.
|
|
§
|
Engines operating profit of $1.881
billion was up $626 million, or 50 percent, from the nine months ended
September 30, 2007. The favorable impacts of improved price
realization and higher sales volume were partially offset by higher
costs.
|
|
§
|
Financial
Products operating
profit of $505 million was down $24 million, or 5 percent, from the nine
months ended September 30, 2007. The decrease was primarily
attributable to a $53 million increase in the provision for credit losses
at Cat Financial, a $48 million impact from decreased net yield on average
earning assets and a $35 million increase in SG&A expenses, partially
offset by a $108 million favorable impact from higher average earning
assets.
|
|
§
|
Other income/(expense)
was income of $325 million compared with income of $232 million in the
first nine months of 2007. The increase was primarily due to the favorable
impacts of currency.
|
The provision
for income taxes in
the first nine months of 2008 reflects an estimated annual tax rate of
31.5 percent, excluding the discrete item discussed below, compared to
31.5 percent for the first nine months of 2007 and 30 percent for the
full-year 2007. The increase over 2007 is attributable to
expected changes in our geographic mix of profits from a tax perspective
and the expiration of the U.S. research and development tax
credit. The renewal of the U.S. research and development tax
credit in October 2008 will be reflected in our fourth quarter results as
a reduction of approximately one percentage point in the estimated annual
tax rate.
The provision for income taxes for
2008 also includes a discrete benefit of $47 million due to a change in
tax status of a non-U.S. subsidiary allowing indefinite reinvestment of
undistributed profits and reversal of U.S. tax previously
recorded.
|
|
§
|
Equity in profit/(loss) of
unconsolidated affiliated companies was income of $32 million
compared with income of $51 million in nine months ended
September 30, 2007. The decline reflects lower profit at Shin
Caterpillar Mitsubishi Ltd. (SCM) and an unfavorable impact due to the
sale of certain investments in affiliates in
2008.
|
1.
|
A.S.V. Inc.
– A company in which
Caterpillar previously held a 23 percent equity
investment. This investment was sold in February
2008.
|
2.
|
Caterpillar Production System
(CPS) – The Caterpillar Production System is the common
Order-to-Delivery process being implemented enterprise-wide to achieve our
safety, quality, velocity, earnings and growth goals for 2010 and
beyond.
|
3.
|
Consolidating
Adjustments – Eliminations of transactions between Machinery and
Engines and Financial Products.
|
4.
|
Currency – With respect to sales and
revenues, currency represents the translation impact on sales resulting
from changes in foreign currency exchange rates versus the U.S.
dollar. With respect to operating profit, currency represents
the net translation impact on sales and operating costs resulting from
changes in foreign currency exchange rates versus the U.S.
dollar. Currency includes the impacts on sales and operating
profit for the Machinery and Engines lines of business only; currency
impacts on Financial Products revenues and operating profit are included
in the Financial Products portions of the respective
analyses. With respect to other income/expense, currency
represents the effects of forward and option contracts entered into by the
company to reduce the risk of fluctuations in exchange rates and
the net effect of changes in foreign currency exchange rates on our
foreign currency assets and liabilities for consolidated
results.
|
5.
|
EAME – Geographic region including
Europe, Africa, the Middle East and the Commonwealth of Independent States
(CIS).
|
6.
|
Earning
Assets – Assets
consisting primarily of total finance receivables net of unearned income,
plus equipment on operating leases, less accumulated depreciation at Cat
Financial.
|
7.
|
Engines – A principal line of
business including the design, manufacture, marketing and sales of engines
for Caterpillar machinery; electric power generation systems; on-highway
vehicles and locomotives; marine, petroleum, construction, industrial,
agricultural and other applications and related parts. Also
includes remanufacturing of Caterpillar engines and a variety of
Caterpillar machinery and engine components and remanufacturing services
for other companies. Reciprocating engines meet power needs
ranging from 5 to 21,500 horsepower (4 to more than 16 000
kilowatts). Turbines range from 1,600 to 30,000 horsepower (1
200 to 22 000 kilowatts).
|
8.
|
Financial
Products – A
principal line of business consisting primarily of Caterpillar Financial
Services Corporation (Cat Financial), Caterpillar Insurance Holdings, Inc.
(Cat Insurance), Caterpillar Power Ventures Corporation (Cat Power
Ventures) and their respective subsidiaries. Cat Financial
provides a wide range of financing alternatives to customers and dealers
for Caterpillar machinery and engines, Solar gas turbines as well as other
equipment and marine vessels. Cat Financial also extends loans
to customers and dealers. Cat Insurance provides various forms
of insurance to customers and dealers to help support the purchase and
lease of our equipment. Cat Power Ventures is an investor in
independent power projects using Caterpillar power generation equipment
and services.
|
9.
|
Integrated
Service Businesses –
A service business or a business containing an important service
component. These businesses include, but are not limited to,
aftermarket parts, Cat Financial, Cat Insurance, Progress Rail, Solar
Turbines Customer Services, Cat Logistics, OEM Solutions and Cat
Reman.
|
10.
|
Latin
America – Geographic
region including Central and South American countries and
Mexico.
|
11.
|
Machinery – A principal line of business
which includes the design, manufacture, marketing and sales of
construction, mining and forestry machinery—track and wheel tractors,
track and wheel loaders, pipelayers, motor graders, wheel
tractor-scrapers, track and wheel excavators, backhoe loaders, log
skidders, log loaders, off-highway trucks, articulated trucks, paving
products, skid steer loaders and related parts. Also includes logistics
services for other companies and the design, manufacture, remanufacture,
maintenance and services of rail-related products.
|
12.
|
Machinery and
Engines (M&E) – Due to the highly integrated
nature of operations, it represents the aggregate total of the Machinery
and Engines lines of business and includes primarily our manufacturing,
marketing and parts distribution operations.
|
13.
|
Machinery and
Engines Other Operating Expenses – Comprised primarily of gains
(losses) on disposal of long-lived assets and long-lived asset impairment
charges.
|
14.
|
Manufacturing
Costs – Represent the
volume-adjusted change for manufacturing costs. Manufacturing
costs are defined as material costs and labor and overhead costs related
to the production process. Excludes the impact of
currency.
|
15.
|
Price
Realization – The
impact of net price changes excluding currency and new product
introductions. Consolidated price realization includes the
impact of changes in the relative weighting of sales between geographic
regions.
|
16.
|
Sales
Volume – With respect
to sales and revenues, sales volume represents the impact of changes in
the quantities sold for machinery and engines as well as the incremental
revenue impact of new product introductions. With respect to
operating profit, sales volume represents the impact of changes in the
quantities sold for machinery and engines combined with product mix—the
net operating profit impact of changes in the relative weighting of
machinery and engines sales with respect to total
sales.
|
17.
|
Shin
Caterpillar Mitsubishi Ltd. (SCM) – Formerly a 50/50 joint venture
between Caterpillar and Mitsubishi Heavy Industries Ltd.
(MHI). On August 1, 2008, SCM redeemed one-half of MHI's
shares. Caterpillar now owns 67 percent of the renamed entity,
Caterpillar Japan Ltd.
|
18.
|
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.
|
(Millions
of dollars)
|
||||||||||||
Machinery
|
Financial
|
|||||||||||
Consolidated
|
and
Engines
|
Products
|
||||||||||
Credit lines
available:
|
||||||||||||
Global credit
facility
|
$
|
6,853
|
$
|
1,000
|
$
|
5,853
|
||||||
Other
external
|
4,998
|
2,081
|
2,917
|
|||||||||
Total credit
lines
available
|
11,851
|
3,081
|
8,770
|
|||||||||
Less: Global
credit facility supporting commercial paper
|
(6,004
|
)
|
(999
|
)
|
(5,005
|
)
|
||||||
Less: Utilized
credit
|
(2,074
|
)
|
(594
|
)
|
(1,480
|
)
|
||||||
Available
credit
|
$
|
3,773
|
$
|
1,488
|
$
|
2,285
|
||||||
|
·
|
Volatility is
a measure of the amount by which the stock price is expected to fluctuate
each year during the expected life of the award and is based on historical
and current implied volatilities from traded options on Caterpillar stock.
The implied volatilities from traded options are impacted by changes in
market conditions. An increase in the volatility would result
in an increase in our expense.
|
|
·
|
The expected
term represents the period of time that awards granted are expected to be
outstanding and is an output of the lattice-based option-pricing model. In
determining the expected term of the award, future exercise and forfeiture
patterns are estimated from Caterpillar employee historical exercise
behavior. These patterns are also affected by the vesting
conditions of the award. Changes in the future exercise
behavior of employees or in the vesting period of the award could result
in a change in the expected term. An increase in the expected
term would result in an increase to our
expense.
|
|
·
|
The
weighted-average dividend yield is based on Caterpillar's historical
dividend yields. As holders of stock-based awards do not
receive dividend payments, this could result in employees retaining the
award for a longer period of time if dividend yields decrease or
exercising the award sooner if dividend yields increase. A
decrease in the dividend yield would result in an increase in our
expense.
|
|
·
|
The risk-free
interest rate is based on the U.S. Treasury yield curve in effect at time
of grant. As the risk-free interest rate increases, the
expected term increases, resulting in an increase in our
expense.
|
|
·
|
The U.S.
expected long-term rate of return on plan assets is based on our estimate
of long-term passive returns for equities and fixed income securities
weighted by the allocation of our plan assets. Based on historical
performance, we increase the passive returns due to our active management
of the plan assets. A similar process is used to determine the rate for
our non-U.S. pension plans. This rate is impacted by changes in general
market conditions, but because it represents a long-term rate, it is not
significantly impacted by short-term market swings. Changes in our
allocation of plan assets would also impact this rate. For example, a
shift to more fixed income securities would lower the rate. A decrease in
the rate would increase our
expense.
|
|
·
|
The assumed
discount rate is used to discount future benefit obligations back to
today's dollars. The U.S. discount rate is based on the Moody's Aa bond
yield as of our measurement date, and represents the rate at which our
benefit obligations could effectively be settled. To validate the discount
rate, a detailed analysis of the individual plans' expected cash flows is
made annually. This involves analyzing Caterpillar's projected cash flows
against a high quality bond yield curve, calculated using a wide
population of corporate Aa bonds. The modeled discount rate that results
from matching the aggregate expected future cash flow from the Caterpillar
benefit plans to the yield curve of high quality corporate bonds is
consistent with the annualized Moody's Aa rate. A comprehensive process is
also used to determine the assumed discount rate for our non-U.S. plans.
This rate is sensitive to changes in interest rates. A decrease in the
discount rate would increase our obligation and
expense.
|
|
·
|
The expected
rate of compensation increase is used to develop benefit obligations using
projected pay at retirement. It represents average long-term salary
increases. This rate is influenced by our long-term compensation policies.
An increase in the rate would increase our obligation and
expense.
|
|
·
|
The assumed
health care trend rate represents the rate at which health care costs are
assumed to increase and is based on historical and expected experience.
Changes in our projections of future health care costs due to general
economic conditions and those specific to health care (e.g. technology
driven cost changes) will impact this trend rate. An increase in the trend
rate would increase our obligation and
expense.
|
Caterpillar
Inc.
Supplemental Data for Results of
Operations
For The Three Months Ended
September 30, 2008
(Unaudited)
(Dollars in
millions)
|
|||||||||||||||||
Supplemental Consolidating
Data
|
|||||||||||||||||
Machinery
and
|
Financial
|
Consolidating
|
|||||||||||||||
Consolidated
|
Engines
|
1
|
Products
|
Adjustments
|
|||||||||||||
Sales and
revenues:
|
|||||||||||||||||
Sales of Machinery and
Engines
|
$
|
12,148
|
$
|
12,148
|
$
|
—
|
$
|
—
|
|||||||||
Revenues of Financial
Products
|
833
|
—
|
897
|
(64
|
)
|
2
|
|||||||||||
Total sales and revenues
|
12,981
|
12,148
|
897
|
(64
|
)
|
||||||||||||
Operating
costs:
|
|||||||||||||||||
Cost of goods sold
|
9,704
|
9,704
|
—
|
—
|
|||||||||||||
Selling, general and
administrative expenses
|
1,061
|
924
|
142
|
(5
|
)
|
3
|
|||||||||||
Research and development
expenses
|
437
|
437
|
—
|
—
|
|||||||||||||
Interest expense of Financial
Products
|
291
|
—
|
292
|
(1
|
)
|
4
|
|||||||||||
Other operating expenses
|
315
|
3
|
319
|
(7
|
)
|
3
|
|||||||||||
Total operating costs
|
11,808
|
11,068
|
753
|
(13
|
)
|
||||||||||||
Operating profit
|
1,173
|
1,080
|
144
|
(51
|
)
|
||||||||||||
Interest expense excluding
Financial Products
|
59
|
59
|
—
|
—
|
4
|
||||||||||||
Other income (expense)
|
138
|
63
|
24
|
51
|
5
|
||||||||||||
Consolidated profit before
taxes
|
1,252
|
1,084
|
168
|
—
|
|||||||||||||
Provision for income taxes
|
395
|
353
|
42
|
—
|
|||||||||||||
Profit of consolidated
companies
|
857
|
731
|
126
|
—
|
|||||||||||||
Equity in profit (loss) of
unconsolidated affiliated
companies
|
11
|
12
|
(1
|
)
|
—
|
||||||||||||
Equity in
profit of Financial Products' subsidiaries
|
—
|
125
|
—
|
(125
|
)
|
6
|
|||||||||||
Profit
|
$
|
868
|
$
|
868
|
$
|
125
|
$
|
(125
|
)
|
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.
|
Caterpillar
Inc.
Supplemental Data for Results of
Operations
For The Three Months Ended
September 30, 2007
(Unaudited)
(Dollars in
millions)
|
|||||||||||||||||
Supplemental Consolidating
Data
|
|||||||||||||||||
Machinery
and
|
Financial
|
Consolidating
|
|||||||||||||||
Consolidated
|
Engines
|
1
|
Products
|
Adjustments
|
|||||||||||||
Sales and
revenues:
|
|||||||||||||||||
Sales of Machinery and
Engines
|
$
|
10,668
|
$
|
10,668
|
$
|
—
|
$
|
—
|
|||||||||
Revenues of Financial
Products
|
774
|
—
|
863
|
(89
|
)
|
2
|
|||||||||||
Total sales and revenues
|
11,442
|
10,668
|
863
|
(89
|
)
|
||||||||||||
Operating
costs:
|
|||||||||||||||||
Cost of goods sold
|
8,270
|
8,270
|
—
|
—
|
|||||||||||||
Selling, general and
administrative expenses
|
938
|
831
|
112
|
(5
|
)
|
3
|
|||||||||||
Research and development
expenses
|
357
|
357
|
—
|
—
|
|||||||||||||
Interest expense of Financial
Products
|
289
|
—
|
291
|
(2
|
)
|
4
|
|||||||||||
Other operating expenses
|
275
|
—
|
282
|
(7
|
)
|
3
|
|||||||||||
Total operating costs
|
10,129
|
9,458
|
685
|
(14
|
)
|
||||||||||||
Operating profit
|
1,313
|
1,210
|
178
|
(75
|
)
|
||||||||||||
Interest expense excluding
Financial Products
|
69
|
70
|
—
|
(1
|
)
|
4
|
|||||||||||
Other income (expense)
|
51
|
(41
|
)
|
18
|
74
|
5
|
|||||||||||
Consolidated profit before
taxes
|
1,295
|
1,099
|
196
|
—
|
|||||||||||||
Provision for income taxes
|
395
|
337
|
58
|
—
|
|||||||||||||
Profit of consolidated
companies
|
900
|
762
|
138
|
—
|
|||||||||||||
Equity in profit (loss) of
unconsolidated affiliated companies
|
27
|
26
|
1
|
—
|
|||||||||||||
Equity in
profit of Financial Products' subsidiaries
|
—
|
139
|
—
|
(139
|
)
|
6
|
|||||||||||
Profit
|
$
|
927
|
$
|
927
|
$
|
139
|
$
|
(139
|
)
|
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.
|
Caterpillar
Inc.
Supplemental Data for Results of
Operations
For The Nine Months Ended
September 30, 2008
(Unaudited)
(Dollars in
millions)
|
|||||||||||||||||
Supplemental Consolidating
Data
|
|||||||||||||||||
Machinery
and
|
Financial
|
Consolidating
|
|||||||||||||||
Consolidated
|
Engines
|
1
|
Products
|
Adjustments
|
|||||||||||||
Sales and
revenues:
|
|||||||||||||||||
Sales of Machinery and
Engines
|
$
|
35,924
|
$
|
35,924
|
$
|
—
|
$
|
—
|
|||||||||
Revenues of Financial
Products
|
2,477
|
—
|
2,719
|
(242
|
)
|
2
|
|||||||||||
Total sales and revenues
|
38,401
|
35,924
|
2,719
|
(242
|
)
|
||||||||||||
Operating
costs:
|
|||||||||||||||||
Cost of goods sold
|
28,349
|
28,349
|
—
|
—
|
|||||||||||||
Selling, general and
administrative expenses
|
3,094
|
2,681
|
430
|
(17
|
)
|
3
|
|||||||||||
Research and development
expenses
|
1,221
|
1,221
|
—
|
—
|
|||||||||||||
Interest expense of Financial
Products
|
854
|
—
|
857
|
(3
|
)
|
4
|
|||||||||||
Other operating expenses
|
892
|
(17
|
)
|
927
|
(18
|
)
|
3
|
||||||||||
Total operating costs
|
34,410
|
32,234
|
2,214
|
(38
|
)
|
||||||||||||
Operating profit
|
3,991
|
3,690
|
505
|
(204
|
)
|
||||||||||||
Interest expense excluding
Financial Products
|
203
|
203
|
—
|
—
|
4
|
||||||||||||
Other income (expense)
|
325
|
61
|
60
|
204
|
5
|
||||||||||||
Consolidated profit before
taxes
|
4,113
|
3,548
|
565
|
—
|
|||||||||||||
Provision for income taxes
|
1,249
|
1,089
|
160
|
—
|
|||||||||||||
Profit of consolidated
companies
|
2,864
|
2,459
|
405
|
—
|
|||||||||||||
Equity in profit (loss) of
unconsolidated affiliated
companies
|
32
|
33
|
(1
|
)
|
—
|
||||||||||||
Equity in
profit of Financial Products' subsidiaries
|
—
|
404
|
—
|
(404
|
)
|
6
|
|||||||||||
Profit
|
$
|
2,896
|
$
|
2,896
|
$
|
404
|
$
|
(404
|
)
|
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.
|
Caterpillar
Inc.
Supplemental Data for Results of
Operations
For The Nine Months Ended
September 30, 2007
(Unaudited)
(Dollars in
millions)
|
|||||||||||||||||
Supplemental Consolidating
Data
|
|||||||||||||||||
Machinery
and
|
Financial
|
Consolidating
|
|||||||||||||||
Consolidated
|
Engines
|
1
|
Products
|
Adjustments
|
|||||||||||||
Sales and
revenues:
|
|||||||||||||||||
Sales of Machinery and
Engines
|
$
|
30,602
|
$
|
30,602
|
$
|
—
|
$
|
—
|
|||||||||
Revenues of Financial
Products
|
2,212
|
—
|
2,508
|
(296
|
)
|
2
|
|||||||||||
Total sales and
revenues
|
32,814
|
30,602
|
2,508
|
(296
|
)
|
||||||||||||
Operating
costs:
|
|||||||||||||||||
Cost of goods
sold
|
23,706
|
23,706
|
—
|
—
|
|||||||||||||
Selling, general and
administrative expenses
|
2,796
|
2,469
|
342
|
(15
|
)
|
3
|
|||||||||||
Research and development
expenses
|
1,047
|
1,047
|
—
|
—
|
|||||||||||||
Interest expense of Financial
Products
|
839
|
—
|
842
|
(3
|
)
|
4
|
|||||||||||
Other operating
expenses
|
760
|
(14
|
)
|
795
|
(21
|
)
|
3
|
||||||||||
Total operating
costs
|
29,148
|
27,208
|
1,979
|
(39
|
)
|
||||||||||||
Operating
profit
|
3,666
|
3,394
|
529
|
(257
|
)
|
||||||||||||
Interest expense excluding
Financial Products
|
228
|
233
|
—
|
(5
|
)
|
4
|
|||||||||||
Other income
(expense)
|
232
|
(77
|
)
|
57
|
252
|
5
|
|||||||||||
Consolidated profit before
taxes
|
3,670
|
3,084
|
586
|
—
|
|||||||||||||
Provision for income
taxes
|
1,155
|
966
|
189
|
—
|
|||||||||||||
Profit of consolidated
companies
|
2,515
|
2,118
|
397
|
—
|
|||||||||||||
Equity in profit (loss) of
unconsolidated affiliated
companies
|
51
|
48
|
3
|
—
|
|||||||||||||
Equity in
profit of Financial Products' subsidiaries
|
—
|
400
|
—
|
(400
|
)
|
6
|
|||||||||||
Profit
|
$
|
2,566
|
$
|
2,566
|
$
|
400
|
$
|
(400
|
)
|
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.
|
Caterpillar
Inc.
Supplemental Data for Financial
Position
At September 30,
2008
(Unaudited)
(Dollars in
millions)
|
||||||||||||||||||
Supplemental Consolidating
Data
|
||||||||||||||||||
Machinery
and
|
Financial
|
Consolidating
|
||||||||||||||||
Consolidated
|
Engines
|
1
|
Products
|
Adjustments
|
||||||||||||||
Assets
|
||||||||||||||||||
Current
assets:
|
||||||||||||||||||
Cash and short-term
investments
|
$
|
2,138
|
$
|
965
|
$
|
1,173
|
$
|
—
|
||||||||||
Receivables - trade and
other
|
9,580
|
5,436
|
630
|
3,514
|
2,3
|
|||||||||||||
Receivables - finance
|
8,094
|
—
|
11,736
|
(3,642
|
)
|
3
|
||||||||||||
Deferred and refundable income
taxes
|
839
|
732
|
107
|
—
|
||||||||||||||
Prepaid expenses and other current
assets
|
583
|
564
|
49
|
(30
|
)
|
4
|
||||||||||||
Inventories
|
9,290
|
9,290
|
—
|
—
|
||||||||||||||
Total current assets
|
30,524
|
16,987
|
13,695
|
(158
|
)
|
|||||||||||||
Property, plant and equipment –
net
|
11,817
|
8,588
|
3,229
|
—
|
||||||||||||||
Long-term receivables – trade and
other
|
685
|
174
|
32
|
479
|
2,3
|
|||||||||||||
Long-term receivables –
finance
|
15,024
|
—
|
15,533
|
(509
|
)
|
3
|
||||||||||||
Investments in unconsolidated
affiliated companies
|
100
|
133
|
—
|
(33
|
)
|
5
|
||||||||||||
Investments in Financial Products
subsidiaries
|
—
|
4,037
|
—
|
(4,037
|
)
|
6
|
||||||||||||
Noncurrent deferred and refundable
income taxes
|
1,337
|
1,731
|
43
|
(437
|
)
|
7
|
||||||||||||
Intangible assets
|
536
|
532
|
4
|
—
|
||||||||||||||
Goodwill
|
2,234
|
2,234
|
—
|
—
|
||||||||||||||
Other assets
|
1,972
|
296
|
1,676
|
—
|
||||||||||||||
Total assets
|
$
|
64,229
|
$
|
34,712
|
$
|
34,212
|
$
|
(4,695
|
)
|
|||||||||
Liabilities
|
||||||||||||||||||
Current
liabilities:
|
||||||||||||||||||
Short-term borrowings
|
$
|
8,173
|
$
|
1,863
|
$
|
6,349
|
$
|
(39
|
)
|
8
|
||||||||
Accounts payable
|
5,149
|
4,831
|
405
|
(87
|
)
|
9
|
||||||||||||
Accrued expenses
|
3,668
|
2,329
|
1,371
|
(32
|
)
|
10
|
||||||||||||
Accrued wages, salaries and
employee benefits
|
1,115
|
1,101
|
14
|
—
|
||||||||||||||
Customer advances
|
1,946
|
1,946
|
—
|
—
|
||||||||||||||
Dividends payable
|
—
|
—
|
—
|
—
|
||||||||||||||
Other current
liabilities
|
1,112
|
1,066
|
57
|
(11
|
)
|
7
|
||||||||||||
Long-term debt due within one
year
|
6,197
|
353
|
5,844
|
—
|
||||||||||||||
Total current liabilities
|
27,360
|
13,489
|
14,040
|
(169
|
)
|
|||||||||||||
Long-term debt due after one
year
|
19,794
|
4,295
|
15,529
|
(30
|
)
|
8
|
||||||||||||
Liability for postemployment
benefits
|
4,796
|
4,795
|
1
|
—
|
||||||||||||||
Other liabilities
|
2,170
|
2,024
|
605
|
(459
|
)
|
5,7
|
||||||||||||
Total liabilities
|
54,120
|
24,603
|
30,175
|
(658
|
)
|
|||||||||||||
Commitments and
Contingencies
|
||||||||||||||||||
Redeemable noncontrolling
interest
|
464
|
464
|
—
|
—
|
||||||||||||||
Stockholders'
equity
|
||||||||||||||||||
Common stock
|
2,993
|
2,993
|
860
|
(860
|
)
|
6
|
||||||||||||
Treasury stock
|
(11,109
|
)
|
(11,109
|
)
|
—
|
—
|
||||||||||||
Profit employed in the
business
|
19,673
|
19,673
|
2,970
|
(2,970
|
)
|
6
|
||||||||||||
Accumulated other comprehensive
income (loss)
|
(1,912
|
)
|
(1,912
|
)
|
207
|
(207
|
)
|
6
|
||||||||||
Total stockholders' equity
|
9,645
|
9,645
|
4,037
|
(4,037
|
)
|
|||||||||||||
Total liabilities, redeemable
noncontrolling
interest and stockholders' equity |
$
|
64,229
|
$
|
34,712
|
$
|
34,212
|
$
|
(4,695
|
)
|
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
Machinery and Engines’ investment in Financial Products
subsidiaries.
|
6
|
Elimination of
Financial Products’ equity which is accounted for by Machinery and Engines
on the equity basis.
|
7
|
Reclassification
reflecting required netting of deferred tax assets / liabilities by taxing
jurisdiction.
|
8
|
Elimination of
debt between Machinery and Engines and Financial
Products.
|
9
|
Elimination of
payables between Machinery and Engines and Financial
Products.
|
10
|
Elimination of
prepaid insurance in Financial Products' accrued
expenses.
|
Caterpillar
Inc.
Supplemental Data for Financial
Position
At December 31,
2007
(Unaudited)
(Dollars in
millions)
|
||||||||||||||||||
Supplemental Consolidating
Data
|
||||||||||||||||||
Machinery
and
|
Financial
|
Consolidating
|
||||||||||||||||
Consolidated
|
Engines
|
1
|
Products
|
Adjustments
|
||||||||||||||
Assets
|
||||||||||||||||||
Current
assets:
|
||||||||||||||||||
Cash and short-term
investments
|
$
|
1,122
|
$
|
862
|
$
|
260
|
$
|
—
|
||||||||||
Receivables - trade and
other
|
8,249
|
4,715
|
525
|
3,009
|
2,3
|
|||||||||||||
Receivables - finance
|
7,503
|
—
|
10,961
|
(3,458
|
)
|
3
|
||||||||||||
Deferred and refundable income
taxes
|
816
|
746
|
70
|
—
|
||||||||||||||
Prepaid expenses and other current
assets
|
583
|
565
|
39
|
(21
|
)
|
4
|
||||||||||||
Inventories
|
7,204
|
7,204
|
—
|
—
|
||||||||||||||
Total current assets
|
25,477
|
14,092
|
11,855
|
(470
|
)
|
|||||||||||||
Property, plant and equipment –
net
|
9,997
|
6,782
|
3,215
|
—
|
||||||||||||||
Long-term receivables – trade and
other
|
685
|
90
|
30
|
565
|
2,3
|
|||||||||||||
Long-term receivables –
finance
|
13,462
|
—
|
14,057
|
(595
|
)
|
3
|
||||||||||||
Investments in unconsolidated
affiliated companies
|
598
|
610
|
12
|
(24
|
)
|
5
|
||||||||||||
Investments in Financial Products
subsidiaries
|
—
|
3,948
|
—
|
(3,948
|
)
|
6
|
||||||||||||
Noncurrent deferred and refundable
income taxes
|
1,553
|
1,803
|
68
|
(318
|
)
|
7
|
||||||||||||
Intangible assets
|
475
|
471
|
4
|
—
|
||||||||||||||
Goodwill
|
1,963
|
1,963
|
—
|
—
|
||||||||||||||
Other assets
|
1,922
|
293
|
1,629
|
—
|
||||||||||||||
Total assets
|
$
|
56,132
|
$
|
30,052
|
$
|
30,870
|
$
|
(4,790
|
)
|
|||||||||
Liabilities
|
||||||||||||||||||
Current
liabilities:
|
||||||||||||||||||
Short-term borrowings
|
$
|
5,468
|
$
|
187
|
$
|
5,556
|
$
|
(275
|
)
|
8
|
||||||||
Accounts payable
|
4,723
|
4,518
|
373
|
(168
|
)
|
9
|
||||||||||||
Accrued expenses
|
3,178
|
1,932
|
1,273
|
(27
|
)
|
10
|
||||||||||||
Accrued wages, salaries and
employee benefits
|
1,126
|
1,108
|
18
|
—
|
||||||||||||||
Customer advances
|
1,442
|
1,442
|
—
|
—
|
||||||||||||||
Dividends payable
|
225
|
225
|
—
|
—
|
||||||||||||||
Other current
liabilities
|
951
|
867
|
105
|
(21
|
)
|
7
|
||||||||||||
Long-term debt due within one
year
|
5,132
|
180
|
4,952
|
—
|
||||||||||||||
Total current liabilities
|
22,245
|
10,459
|
12,277
|
(491
|
)
|
|||||||||||||
Long-term debt due after one
year
|
17,829
|
3,669
|
14,190
|
(30
|
)
|
8
|
||||||||||||
Liability for postemployment
benefits
|
5,059
|
5,058
|
1
|
—
|
||||||||||||||
Other liabilities
|
2,116
|
1,983
|
454
|
(321
|
)
|
5,7
|
||||||||||||
Total liabilities
|
47,249
|
21,169
|
26,922
|
(842
|
)
|
|||||||||||||
Commitments and
Contingencies
|
||||||||||||||||||
Stockholders'
equity
|
||||||||||||||||||
Common stock
|
2,744
|
2,744
|
860
|
(860
|
)
|
6
|
||||||||||||
Treasury stock
|
(9,451
|
)
|
(9,451
|
)
|
—
|
—
|
||||||||||||
Profit employed in the
business
|
17,398
|
17,398
|
2,566
|
(2,566
|
)
|
6
|
||||||||||||
Accumulated other comprehensive
income (loss)
|
(1,808
|
)
|
(1,808
|
)
|
522
|
(522
|
)
|
6
|
||||||||||
Total stockholders' equity
|
8,883
|
8,883
|
3,948
|
(3,948
|
)
|
|||||||||||||
Total liabilities and
stockholders' equity
|
$
|
56,132
|
$
|
30,052
|
$
|
30,870
|
$
|
(4,790
|
)
|
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
Machinery and Engines’ investment in Financial Products
subsidiaries.
|
6
|
Elimination of
Financial Products’ equity which is accounted for by Machinery and Engines
on the equity basis.
|
7
|
Reclassification
reflecting required netting of deferred tax assets / liabilities by taxing
jurisdiction.
|
8
|
Elimination of
debt between Machinery and Engines and Financial
Products.
|
9
|
Elimination of
payables between Machinery and Engines and Financial
Products.
|
10
|
Elimination of
prepaid insurance in Financial Products' accrued
expenses.
|
Caterpillar
Inc.
Supplemental Data for Cash
Flow
For The Nine Months Ended
September 30, 2008
(Unaudited)
(Dollars in
millions)
|
||||||||||||||||||
Supplemental Consolidating
Data
|
||||||||||||||||||
Machinery
and
|
Financial
|
Consolidating
|
||||||||||||||||
Consolidated
|
Engines
|
1
|
Products
|
Adjustments
|
||||||||||||||
Cash flow from operating
activities:
|
||||||||||||||||||
Profit
|
$
|
2,896
|
$
|
2,896
|
$
|
404
|
$
|
(404
|
)
|
2
|
||||||||
Adjustments for non-cash
items:
|
||||||||||||||||||
Depreciation and
amortization
|
1,453
|
879
|
574
|
—
|
||||||||||||||
Undistributed profit of Financial
Products
|
—
|
(404
|
)
|
—
|
404
|
3
|
||||||||||||
Other
|
84
|
151
|
(199
|
)
|
132
|
4
|
||||||||||||
Changes in assets and
liabilities:
|
||||||||||||||||||
Receivables - trade and
other
|
(676
|
)
|
(489
|
)
|
(30
|
)
|
(157
|
)
|
4,5
|
|||||||||
Inventories
|
(1,380
|
)
|
(1,380
|
)
|
—
|
—
|
||||||||||||
Accounts payable and accrued
expenses
|
790
|
557
|
161
|
72
|
4
|
|||||||||||||
Customer advances
|
321
|
321
|
—
|
—
|
||||||||||||||
Other assets - net
|
154
|
52
|
(26
|
)
|
128
|
4
|
||||||||||||
Other liabilities - net
|
(372
|
)
|
(240
|
)
|
(13
|
)
|
(119
|
)
|
4
|
|||||||||
Net cash provided by (used for)
operating activities
|
3,270
|
2,343
|
871
|
56
|
||||||||||||||
Cash flow from investing
activities:
|
||||||||||||||||||
Capital expenditures - excluding
equipment leased to others
|
(1,362
|
)
|
(1,345
|
)
|
(17
|
)
|
—
|
|||||||||||
Expenditures for equipment leased
to others
|
(1,082
|
)
|
—
|
(1,101
|
)
|
19
|
4
|
|||||||||||
Proceeds from disposals of
property, plant and equipment
|
754
|
27
|
727
|
—
|
||||||||||||||
Additions to finance
receivables
|
(11,168
|
)
|
—
|
(29,272
|
)
|
18,104
|
5
|
|||||||||||
Collections of finance
receivables
|
7,402
|
—
|
24,430
|
(17,028
|
)
|
5
|
||||||||||||
Proceeds from sales of finance
receivables
|
710
|
—
|
1,861
|
(1,151
|
)
|
5
|
||||||||||||
Net intercompany borrowings
|
—
|
239
|
(6
|
)
|
(233
|
)
|
6
|
|||||||||||
Investments and acquisitions (net
of cash acquired)
|
(139
|
)
|
(139
|
)
|
—
|
—
|
7
|
|||||||||||
Proceeds from sales of
available-for-sale securities
|
292
|
20
|
272
|
—
|
||||||||||||||
Investments in available-for-sale
securities
|
(270
|
)
|
(14
|
)
|
(256
|
)
|
—
|
|||||||||||
Other – net
|
116
|
151
|
(35
|
)
|
—
|
7
|
||||||||||||
Net cash provided by (used for)
investing activities
|
(4,747
|
)
|
(1,061
|
)
|
(3,397
|
)
|
(289
|
)
|
||||||||||
Cash flow from financing
activities:
|
||||||||||||||||||
Dividends paid
|
(700
|
)
|
(700
|
)
|
—
|
—
|
8
|
|||||||||||
Common stock issued, including
treasury shares reissued
|
128
|
128
|
—
|
—
|
7
|
|||||||||||||
Payment for stock repurchase
derivative contracts
|
(38
|
)
|
(38
|
)
|
—
|
—
|
||||||||||||
Treasury shares purchased
|
(1,716
|
)
|
(1,716
|
)
|
—
|
—
|
||||||||||||
Excess tax benefit from
stock-based compensation
|
55
|
55
|
—
|
—
|
||||||||||||||
Net intercompany borrowings
|
—
|
6
|
(239
|
)
|
233
|
6
|
||||||||||||
Proceeds from debt issued
(original maturities greater than three months)
|
14,020
|
49
|
13,971
|
—
|
||||||||||||||
Payments on debt (original
maturities greater than three months)
|
(10,888
|
)
|
(173
|
)
|
(10,715
|
)
|
—
|
|||||||||||
Short-term borrowings (original
maturities three months or less) - net
|
1,646
|
1,219
|
427
|
—
|
||||||||||||||
Net cash provided by (used for)
financing activities
|
2,507
|
(1,170
|
)
|
3,444
|
233
|
|||||||||||||
Effect of exchange rate changes on
cash
|
(14
|
)
|
(9
|
)
|
(5
|
)
|
—
|
|||||||||||
Increase (decrease) in cash and
short-term investments
|
1,016
|
103
|
913
|
—
|
||||||||||||||
Cash and short-term investments at
beginning of period
|
1,122
|
862
|
260
|
—
|
||||||||||||||
Cash and short-term investments at
end of period
|
$
|
2,138
|
$
|
965
|
$
|
1,173
|
$
|
—
|
1
|
Represents
Caterpillar Inc. and its subsidiaries with Financial Products accounted
for on the equity basis.
|
2
|
Elimination of
Financial Products’ profit after tax due to equity method of
accounting.
|
3
|
Non-cash
adjustment for the undistributed earnings from Financial
Products.
|
4
|
Elimination of
non-cash adjustments and changes in assets and liabilities related to
consolidated reporting.
|
5
|
Reclassification
of Cat Financial's cash flow activity from investing to operating for
receivables that arose from the sale of inventory.
|
6
|
Net proceeds
and payments to/from Machinery and Engines and Financial
Products.
|
7
|
Change in
investment and common stock related to Financial
Products.
|
8
|
Elimination of
dividends from Financial Products to Machinery and
Engines.
|
Caterpillar
Inc.
Supplemental Data for Cash
Flow
For The Nine Months Ended
September 30, 2007
(Unaudited)
(Dollars in
millions)
|
||||||||||||||||||
Supplemental Consolidating
Data
|
||||||||||||||||||
Machinery
and
|
Financial
|
Consolidating
|
||||||||||||||||
Consolidated
|
Engines
|
1
|
Products
|
Adjustments
|
||||||||||||||
Cash flow from operating
activities:
|
||||||||||||||||||
Profit
|
$
|
2,566
|
$
|
2,566
|
$
|
400
|
$
|
(400
|
)
|
2
|
||||||||
Adjustments for non-cash
items:
|
||||||||||||||||||
Depreciation and
amortization
|
1,301
|
784
|
517
|
—
|
||||||||||||||
Undistributed profit of Financial
Products
|
—
|
(400
|
)
|
—
|
400
|
3
|
||||||||||||
Other
|
38
|
88
|
(276
|
)
|
226
|
4
|
||||||||||||
Changes in assets and
liabilities:
|
||||||||||||||||||
Receivables - trade and
other
|
850
|
(448
|
)
|
5
|
1,293
|
4,5
|
||||||||||||
Inventories
|
(715
|
)
|
(715
|
)
|
—
|
—
|
||||||||||||
Accounts payable and accrued
expenses
|
268
|
30
|
202
|
36
|
4
|
|||||||||||||
Customer advances
|
541
|
541
|
—
|
—
|
||||||||||||||
Other assets - net
|
(89
|
)
|
(59
|
)
|
(12
|
)
|
(18
|
)
|
4
|
|||||||||
Other liabilities - net
|
670
|
630
|
47
|
(7
|
)
|
4
|
||||||||||||
Net cash provided by (used for)
operating activities
|
5,430
|
3,017
|
883
|
1,530
|
||||||||||||||
Cash flow from investing
activities:
|
||||||||||||||||||
Capital expenditures - excluding
equipment leased to others
|
(969
|
)
|
(956
|
)
|
(13
|
)
|
—
|
|||||||||||
Expenditures for equipment leased
to others
|
(971
|
)
|
—
|
(978
|
)
|
7
|
4
|
|||||||||||
Proceeds from disposals of
property, plant and equipment
|
302
|
14
|
292
|
(4
|
)
|
4
|
||||||||||||
Additions to finance
receivables
|
(9,797
|
)
|
—
|
(26,452
|
)
|
16,655
|
5
|
|||||||||||
Collections of finance
receivables
|
7,908
|
—
|
25,020
|
(17,112
|
)
|
5
|
||||||||||||
Proceeds from sales of finance
receivables
|
800
|
—
|
1,888
|
(1,088
|
)
|
5
|
||||||||||||
Net intercompany borrowings
|
—
|
13
|
1
|
(14
|
)
|
6
|
||||||||||||
Investments and acquisitions (net
of cash acquired)
|
(130
|
)
|
(138
|
)
|
—
|
8
|
7
|
|||||||||||
Proceeds from sales of
available-for-sale securities
|
196
|
17
|
179
|
—
|
||||||||||||||
Investments in available-for-sale
securities
|
(286
|
)
|
(19
|
)
|
(267
|
)
|
—
|
|||||||||||
Other – net
|
336
|
101
|
237
|
(2
|
)
|
7
|
||||||||||||
Net cash provided by (used for)
investing activities
|
(2,611
|
)
|
(968
|
)
|
(93
|
)
|
(1,550
|
)
|
||||||||||
Cash flow from financing
activities:
|
||||||||||||||||||
Dividends paid
|
(617
|
)
|
(617
|
)
|
(4
|
)
|
4
|
8
|
||||||||||
Common stock issued, including
treasury shares reissued
|
311
|
311
|
(2
|
)
|
2
|
7
|
||||||||||||
Treasury shares purchased
|
(1,485
|
)
|
(1,485
|
)
|
—
|
—
|
||||||||||||
Excess tax benefit from
stock-based compensation
|
143
|
143
|
—
|
—
|
||||||||||||||
Net intercompany borrowings
|
—
|
(1
|
)
|
(13
|
)
|
14
|
6
|
|||||||||||
Proceeds from debt issued
(original maturities greater than three months)
|
7,506
|
125
|
7,381
|
—
|
||||||||||||||
Payments on debt (original
maturities greater than three months)
|
(7,923
|
)
|
(169
|
)
|
(7,754
|
)
|
—
|
|||||||||||
Short-term borrowings (original
maturities three months or less) – net
|
(374
|
)
|
(84
|
)
|
(290
|
)
|
—
|
|||||||||||
Net cash provided by (used for)
financing activities
|
(2,439
|
)
|
(1,777
|
)
|
(682
|
)
|
20
|
|||||||||||
Effect of exchange rate changes on
cash
|
—
|
(9
|
)
|
9
|
—
|
|||||||||||||
Increase (decrease) in cash and
short-term investments
|
380
|
263
|
117
|
—
|
||||||||||||||
Cash and short-term investments at
beginning of period
|
530
|
319
|
211
|
—
|
||||||||||||||
Cash and short-term investments at
end of period
|
$
|
910
|
$
|
582
|
$
|
328
|
$
|
—
|
1
|
Represents
Caterpillar Inc. and its subsidiaries with Financial Products accounted
for on the equity basis.
|
2
|
Elimination of
Financial Products’ profit after tax due to equity method of
accounting.
|
3
|
Non-cash
adjustment for the undistributed earnings from Financial
Products.
|
4
|
Elimination of
non-cash adjustments and changes in assets and liabilities related to
consolidated reporting.
|
5
|
Reclassification
of Cat Financial's cash flow activity from investing to operating for
receivables that arose from the sale of inventory.
|
6
|
Net proceeds
and payments to/from Machinery and Engines and Financial
Products.
|
7
|
Change in
investment and common stock related to Financial
Products.
|
8
|
Elimination of
dividends from Financial Products to Machinery and
Engines.
|
§
|
U.S. gross
domestic product (GDP) may have increased slightly during the third
quarter, but employment has declined all year. Declining
employment and growing weaknesses in consumer spending lead us to believe
the National Bureau of Economic Research will eventually declare a
recession is underway.
|
§
|
Credit markets
are not functioning properly, with commercial paper outstanding declining
rapidly, key interest rate spreads reaching the highest in years and banks
tightening lending standards. These disruptions almost
certainly mean the economy will slow sharply in coming
quarters.
|
§
|
The government
enacted a comprehensive plan, which will allow the U.S. Treasury
Department to buy distressed assets, inject capital into banks and support
the Fed in directly providing credit. Government spending
should increase substantially and eventually benefit economic
growth.
|
§
|
The Fed is now
aggressively addressing financial problems. Most important, it
cut its interest rate target to 1.5 percent and injected significant
funding into the banking system. We believe the Fed will soon
cut interest rates to 1 percent or lower and provide even more funds to
banks.
|
§
|
In the
meantime, the Fed indicated it would provide credit directly, helping to
offset disruptions. It announced it would buy commercial paper,
and other actions are likely.
|
§
|
The adoption
of highly expansive economic policies should correct current financial and
economic problems. However, these policies will take time to
work, and we do not expect meaningful improvement before late
2009.
|
§
|
The Canadian
economy is near recession, and the Bank of Canada participated in the
recent round of coordinated interest rate reductions. We expect
further interest rate reductions, but the economy will remain weak
throughout 2009.
|
§
|
The euro-zone
economy declined in the second quarter, and survey data indicated further
deterioration in the third quarter. The U.K. economy is also
weakening. We believe much of Europe will be in recession by
the end of the year.
|
§
|
Many European
governments reacted to banking crises by taking capital positions in banks
and guaranteeing bank deposits. Several central banks also
participated in the coordinated 50 basis point interest rate
reduction.
|
§
|
Despite those
positive moves, European interest rates are well above levels that were
needed to start the last recovery in Europe. Moving rates much
lower, which we think will be necessary, could take considerable
time.
|
§
|
We are not
planning on an economic recovery in Europe in
2009.
|
§
|
The Bank of
Japan tightened economic policies last year, adopting a more severe
position than existed prior to the last recovery in Japan. As a
result, the economy declined in the second quarter and is now probably in
recession.
|
§
|
Despite a weak
economy, the central bank has not eased policy
significantly. As a result, we do not expect a recovery in
Japan in 2009.
|
§
|
Developing
economies have experienced significant growth over the past few years as a
result of much lower inflation, substantially lower interest rates, very
competitive exports and favorable commodity prices. Many of
those factors remain in place
today.
|
§
|
Commodity
prices declined sharply over the past few weeks from very high
levels. We assume prices will ease further but not so low that
producers will sharply curtail investments. Most governments
did not increase spending nearly as much as revenues increased, so they
will not be forced to cut infrastructure spending simply because commodity
prices are lower.
|
§
|
Many
developing countries had been tightening economic policies to slow
inflation. Some, such as China, have already reversed policies,
and we believe the ongoing financial crisis will cause others to slow, or
even reverse policies. As a result, domestic economies should
hold up fairly well, helping offset weaknesses in
exports.
|
§
|
In the past,
these developing economies encountered problems in paying for imports
since they ran deficits with developed countries. This is not
likely in the coming year since these countries have been running large
surpluses with developed countries and have accumulated large
reserves.
|
§
|
We expect that
most developing economies will respond to internal financial difficulty by
using reserves and sovereign wealth funds to maintain economic
growth. Russia has already responded in that way to internal
financial challenges.
|
Sales
and Revenues 2008 vs. 2007
|
|
§
|
Rapid growth
in the developing countries’ industry opportunities over the past seven
years means this opportunity is now larger than that in the developed
economies. We expect that industry opportunity in developing
economies, while slowing, will still grow in 2009, helping to offset sharp
declines in the developed
economies.
|
§
|
For several
years, the mining and energy sectors have demanded more large machines,
engines and turbines than manufacturers could provide. As a
result, equipment fleets have aged. We believe that planned
investments by mining and energy companies, coupled with the need to
replace aged equipment, should support continuing strong demand for mining
and energy-related products in
2009.
|
§
|
Most dealers
are reporting inventories that are appropriate for their
deliveries. We do not anticipate a need for dealers to sharply
reduce inventories in 2009.
|
§
|
2009 will
include a full year of Cat Japan
sales.
|
§
|
Growth
opportunities in service areas, like Progress Rail and Cat Logistics,
should continue in 2009.
|
§
|
Price
increases announced for 2009 are also expected to be positive for sales
next year.
|
§
|
1st quarter
2008 Form 10-Q (filed with the SEC on May 2, 2008) — removed the reference
to tornado damage at our manufacturing facility in Oxford, Mississippi,
after we determined that the disruption did not have a material impact on
the company's first quarter 2008 results and will not likely have any such
impact on future results of the
company.
|
§
|
2nd quarter
2008 Form 10-Q (filed with the SEC on August 1, 2008) — included risks
associated with meeting EPA Tier 4 nonroad diesel emission requirements
applicable to the majority of our nonroad machinery and engine products
commencing in 2011.
|
§
|
In this
report, new risks due to the current global economic downturn and more
specifically as a result of the current volatility and uncertainty in the
global capital and credit markets are
included.
|
§
|
the business
culture of the acquired business may not match well with our
culture;
|
§
|
technological
and product synergies, economies of scale and cost reductions may not
occur as expected;
|
§
|
the company
may acquire or assume unexpected
liabilities;
|
§
|
unforeseen
difficulties may arise in integrating operations and
systems;
|
§
|
the company
may fail to retain and assimilate employees of the acquired
business;
|
§
|
higher than
expected finance costs due to unforeseen changes in tax, trade,
environmental, labor, safety, payroll or pension policies in any
jurisdiction in which the acquired business conducts its operations;
and
|
§
|
the company
may experience problems in retaining customers and integrating customer
bases.
|
§
|
changes in
regulations; imposition of currency restrictions and other
restraints;
|
§
|
imposition of
burdensome tariffs and quotas;
|
§
|
national and
international conflict, including terrorist acts;
and
|
§
|
economic
downturns, political instability and war or civil unrest may severely
disrupt economic activity in affected
countries.
|
Period
|
Total
Number
of
Shares
Purchased
|
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
(dollars in billions)
|
||||||||||||
July 1-31,
2008
|
424,000
|
$
|
71.13
|
424,000
|
$
|
4.213
|
1
|
|||||||||
August 1-31,
2008
|
800,000
|
$
|
68.84
|
800,000
|
$
|
4.158
|
1
|
|||||||||
September
1-30, 2008
|
4,650,000
|
$
|
65.14
|
4,650,000
|
$
|
3.855
|
1
|
|||||||||
Total
|
5,874,000
|
$
|
66.07
|
5,874,000
|
||||||||||||
1
|
In February
2007, the Board of Directors authorized a $7.50 billion stock repurchase
program over the next five years, expiring on December 31,
2011.
|
per
share
|
||||||||||||||||||
Contract
Date
|
Number
of
Shares
|
Expiration
Date
|
Net
Premiums
Paid
(millions)
|
Lower
Strike
Price
|
Upper
Strike
Price
|
|||||||||||||
October
2007
|
1,000,000
|
October
2008
|
$
|
17
|
$
|
58.00
|
$
|
88.00
|
||||||||||
January
2008
|
1,000,000
|
December
2008
|
16
|
50.00
|
80.00
|
|||||||||||||
Total
Outstanding
|
2,000,000
|
$
|
33
|
54.00
|
84.00
|
|||||||||||||
Total
Number
of
Shares
|
Average
Price
|
Total
Number
of
Shares Purchased
|
Approximate
Dollar Value of Shares that may yet be Purchased
|
|||||||||||||
Period
|
Purchased
|
1
|
Paid
per Share
|
Under
the Program
|
under
the Program
|
|||||||||||
July 1-31,
2008
|
8,379
|
$
|
73.27
|
NA
|
NA
|
|||||||||||
August 1-31,
2008
|
146
|
$
|
68.94
|
NA
|
NA
|
|||||||||||
September
1-30, 2008
|
185
|
$
|
70.33
|
NA
|
NA
|
|||||||||||
Total
|
8,710
|
$
|
73.13
|
|||||||||||||
1
|
Represents
shares delivered back to issuer for the payment of taxes resulting from
the exercise of stock options by employees and
Directors.
|
Item 6. Exhibits
|
||
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
February 11, 2004 (incorporated by reference from Exhibit 3.3 to
the Form 10-Q filed for the quarter ended March 31, 2004).
|
|
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).
|
|
10.1
|
Caterpillar
Inc. 1996 Stock Option and Long-Term Incentive Plan amended and restated
through third amendment (incorporated by reference from Exhibit 10.1 to
the 2007 Form 10-K).
|
|
10.2
|
Caterpillar
Inc. 2006 Long-Term Incentive Plan as amended and restated through third
amendment (incorporated by reference from Exhibit 10.2 to the 2007 Form
10-K).
|
|
10.3
|
Supplemental
Pension Benefit Plan, as amended and restated January 2003 (incorporated
by reference from Exhibit 10.3 to the 2004 Form 10-K).
|
|
10.4
|
Supplemental
Employees' Investment Plan, as amended and restated through December 1,
2002 (incorporated by
reference from Exhibit 10.4 to the 2002 Form 10-K).
|
|
10.5
|
Caterpillar
Inc. Executive Incentive Compensation Plan, effective as of January 1,
2002 (incorporated by
reference from Exhibit 10.5 to the 2002 Form
10-K).
|
10.6
|
Directors'
Deferred Compensation Plan, as amended and restated through January 1,
2005 (incorporated by reference from Exhibit 10.6 to the 2006 Form
10-K).
|
|
10.7
|
Directors'
Charitable Award Program (incorporated by reference from Exhibit 10(h) to
the 1993 Form
10-K).
|
10.8
|
Deferred
Employees' Investment Plan, as amended and restated through February 16,
2005 (incorporated by reference as Exhibit 10.8 to the 2005 Form
10-K).
|
|
10.9
|
Five-Year
Credit Agreement dated September 21, 2006 (2006 Five-Year Credit
Agreement) among Caterpillar Inc., Caterpillar Financial Services
Corporation, Caterpillar International Finance p.l.c. and Caterpillar
Finance Corporation, the Banks named therein, Citibank, N.A., The Bank of
Tokyo-Mitsubishi UFJ, Ltd., Citibank International plc, ABN AMRO Bank
N.V., Bank of America, N.A., Barclays Bank PLC, J.P. Morgan Securities,
Inc., Société Générale and Citigroup Global Markets Inc. (incorporated by
reference from Exhibit 99.1 to Form 8-K filed September 26,
2006).
|
|
10.10
|
Japan Local
Currency Addendum to the 2006 Five-Year Credit Agreement among Caterpillar
Financial Services Corporation, Caterpillar Finance Corporation, the Japan
Local Currency Banks named therein, Citibank, N.A. and The Bank of
Tokyo-Mitsubishi UFJ, Ltd. (incorporated by reference from Exhibit 99.2 to
Form 8-K filed September 26, 2006).
|
|
10.11
|
Local Currency
Addendum to the 2006 Five-Year Credit Agreement among Caterpillar
Financial Services Corporation, Caterpillar International Finance p.l.c.,
the Local Currency Banks named therein, Citibank, N.A., and
Citibank International plc (incorporated by reference from Exhibit 99.3 to
Form 8-K filed September 26, 2006).
|
|
|
Amendment No.
1 to the 2006 Five-Year Credit Agreement among Caterpillar Inc.,
Caterpillar Financial Services Corporation, Caterpillar Finance
Corporation and Caterpillar International Finance p.l.c., the Banks, Japan
Local Currency Banks and Local Currency Banks named therein, The Bank of
Tokyo-Mitsubishi UFJ, Ltd., Citibank International plc and Citibank,
N.A.
|
|
|
Omnibus
Amendment and Waiver Agreement (Amendment No. 2) to the 2006 Five-Year
Credit Agreement among Caterpillar Inc., Caterpillar Financial Services
Corporation, Caterpillar Finance Corporation, Caterpillar International
Finance p.l.c., the Banks and Local Currency Banks named therein, Citibank
International plc and Citibank, N.A.
|
|
10.14
|
Amendment No.
3 to the 2006 Five-Year Credit Agreement among Caterpillar Inc.,
Caterpillar Financial Services Corporation, Caterpillar Finance
Corporation and Caterpillar International Finance Limited (f/k/a
Caterpillar International Finance p.l.c.), the Banks, Japan Local Currency
Banks and Local Currency Banks named therein, The Bank of Tokyo-Mitsubishi
UFJ, Ltd., Citibank International plc and Citibank, N.A. (incorporated by
reference from Exhibit 99.4 to Form 8-K filed September 23,
2008).
|
|
10.15
|
Five-Year
Credit Agreement dated September 20, 2007 (2007 Five-Year Credit
Agreement) among Caterpillar Inc., Caterpillar Financial Services
Corporation and Caterpillar Finance Corporation, certain financial
institutions named therein, Citibank, N.A., The Bank of Tokyo-Mitsubishi
UFJ, Ltd., ABN AMRO Bank N.V., Bank of America, N.A., Barclays Bank PLC,
J.P. Morgan Securities, Inc., Société Générale and Citigroup Global
Markets Inc. (incorporated by reference from Exhibit 99.1 to Form 8-K
filed September 25, 2007).
|
|
10.16
|
Japan Local
Currency Addendum to the 2007 Five-Year Credit Agreement among Caterpillar
Financial Services Corporation, Caterpillar Finance Corporation, the Japan
Local Currency Banks named therein, Citibank, N.A. and The Bank of
Tokyo-Mitsubishi UFJ, Ltd. (incorporated by reference from Exhibit 99.2 to
Form 8-K filed September 25, 2007).
|
|
10.17
|
Amendment No.
1 to the 2007 Five-Year Credit Agreement among Caterpillar Inc.,
Caterpillar Financial Services Corporation and Caterpillar Finance
Corporation, the Banks and Japan Local Currency Banks named therein, The
Bank of Tokyo-Mitsubishi UFJ, Ltd. and Citibank, N.A. (incorporated by
reference from Exhibit 99.3 to Form 8-K filed September 23,
2008).
|
|
10.18
|
364-Day Credit
Agreement dated September 18, 2008 (2008 364-Day Credit Agreement) among
Caterpillar Inc., Caterpillar Financial Services Corporation, Caterpillar
Finance Corporation, the Banks named therein, Citibank, N.A., The Bank of
Tokyo-Mitsubishi UFJ, Ltd., ABN AMRO Bank N.V., Bank of America, N.A.,
Barclays Bank PLC, J.P. Morgan Securities, Inc., Société Générale and
Citigroup Global Markets Inc. (incorporated by reference from Exhibit 99.1
to Form 8-K filed September 23, 2008).
|
|
10.19
|
Japan Local
Currency Addendum to the 2008 364-Day Credit Agreement among Caterpillar
Financial Services Corporation, Caterpillar Finance Corporation, the Japan
Local Currency Banks named therein, Citibank, N.A. and The Bank of
Tokyo-Mitsubishi UFJ, Ltd. (incorporated by reference from Exhibit 99.2 to
Form 8-K filed September 23, 2008).
|
|
11
|
Computations
of Earnings per Share (included in Note 11 of this Form 10-Q filed for the
quarter ended September 30, 2008).
|
|
12 |
Computation of
Ratios of Earnings to Fixed Charges.
|
|
|
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.
|
|||
CATERPILLAR
INC.
|
|||
October 31,
2008
|
/s/ James W.
Owens
|
Chairman of the Board and Chief
Executive Officer
|
|
(James W.
Owens)
|
|||
October 31,
2008
|
/s/ David B.
Burritt
|
Vice President and Chief Financial
Officer
|
|
(David B.
Burritt)
|
|||
October 31,
2008
|
/s/ Bradley M.
Halverson
|
Controller
|
|
(Bradley M.
Halverson)
|
|||
October 31,
2008
|
/s/ James B.
Buda
|
Vice President, General Counsel
and Secretary
|
|
(James B.
Buda)
|
|||
October 31,
2008
|
/s/ Jananne A.
Copeland
|
Chief Accounting
Officer
|
|
(Jananne A.
Copeland)
|