UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
|
|
FORM
10-Q
|
|
[X] QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended June 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 ________________
|
|
Commission
File Number: 1-768
|
|
CATERPILLAR
INC.
(Exact name
of registrant as specified in its charter)
|
|
Delaware
(State or
other jurisdiction of incorporation)
|
37-0602744
(IRS Employer
I.D. No.)
|
100 NE Adams
Street, Peoria, Illinois
(Address of
principal executive offices)
|
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 June 30,
2008, 608,716,182 shares of common stock of the registrant were
outstanding.
|
Table
of Contents
|
|||
Page
|
|||
Financial
Statements
|
3
|
||
Management’s
Discussion and Analysis
|
31
|
||
Quantitative
and Qualitative Disclosures About Market Risk
|
62
|
||
Controls and
Procedures
|
62
|
||
Legal
Proceedings
|
62
|
||
Risk
Factors
|
62
|
||
Unregistered
Sales of Equity Securities and Use of Proceeds
|
66
|
||
Item
3.
|
Defaults Upon
Senior Securities
|
*
|
|
Submission of
Matters to a Vote of Security Holders
|
67
|
||
Item
5.
|
Other
Information
|
*
|
|
Exhibits
|
68
|
Caterpillar
Inc.
Consolidated
Statement of Results of Operations
(Unaudited)
(Dollars
in millions except per share data)
|
|||||||||||||
Three
Months Ended
|
|||||||||||||
June
30,
|
|||||||||||||
2008
|
2007
|
||||||||||||
Sales
and revenues:
|
|||||||||||||
Sales of
Machinery and Engines
|
$
|
12,797
|
$
|
10,613
|
|||||||||
Revenues of
Financial Products
|
827
|
743
|
|||||||||||
Total sales
and revenues
|
13,624
|
11,356
|
|||||||||||
Operating
costs:
|
|||||||||||||
Cost of goods
sold
|
10,036
|
8,300
|
|||||||||||
Selling,
general and administrative expenses
|
1,074
|
968
|
|||||||||||
Research and
development expenses
|
415
|
350
|
|||||||||||
Interest
expense of Financial Products
|
279
|
279
|
|||||||||||
Other
operating expenses
|
295
|
246
|
|||||||||||
Total
operating costs
|
12,099
|
10,143
|
|||||||||||
Operating
profit
|
1,525
|
1,213
|
|||||||||||
Interest
expense excluding Financial Products
|
70
|
80
|
|||||||||||
Other income
(expense)
|
75
|
70
|
|||||||||||
Consolidated
profit before taxes
|
1,530
|
1,203
|
|||||||||||
Provision for
income taxes
|
434
|
385
|
|||||||||||
Profit of
consolidated companies
|
1,096
|
818
|
|||||||||||
Equity in
profit (loss) of unconsolidated affiliated companies
|
10
|
5
|
|||||||||||
Profit
|
$
|
1,106
|
$
|
823
|
|||||||||
Profit
per common share
|
$
|
1.80
|
$
|
1.28
|
|||||||||
Profit
per common share – diluted
|
1
|
$
|
1.74
|
$
|
1.24
|
||||||||
Weighted
average common shares outstanding (millions)
|
|||||||||||||
-
Basic
|
614.3
|
640.5
|
|||||||||||
-
Diluted
|
1
|
|
635.5
|
662.8
|
|||||||||
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 Results of Operations
(Unaudited)
(Dollars
in millions except per share data)
|
||||||||||||
Six
Months Ended
|
||||||||||||
June
30,
|
||||||||||||
2008
|
2007
|
|||||||||||
Sales
and revenues:
|
||||||||||||
Sales of
Machinery and Engines
|
$
|
23,776
|
$
|
19,934
|
||||||||
Revenues of
Financial Products
|
1,644
|
1,438
|
||||||||||
Total sales
and revenues
|
25,420
|
21,372
|
||||||||||
Operating
costs:
|
||||||||||||
Cost of goods
sold
|
18,645
|
15,436
|
||||||||||
Selling,
general and administrative expenses
|
2,033
|
1,858
|
||||||||||
Research and
development expenses
|
784
|
690
|
||||||||||
Interest
expense of Financial Products
|
563
|
550
|
||||||||||
Other
operating expenses
|
577
|
485
|
||||||||||
Total
operating costs
|
22,602
|
19,019
|
||||||||||
Operating
profit
|
2,818
|
2,353
|
||||||||||
Interest
expense excluding Financial Products
|
144
|
159
|
||||||||||
Other income
(expense)
|
187
|
181
|
||||||||||
Consolidated
profit before taxes
|
2,861
|
2,375
|
||||||||||
Provision for
income taxes
|
854
|
760
|
||||||||||
Profit of
consolidated companies
|
2,007
|
1,615
|
||||||||||
Equity in
profit (loss) of unconsolidated affiliated companies
|
21
|
24
|
||||||||||
Profit
|
$
|
2,028
|
$
|
1,639
|
||||||||
Profit
per common share
|
$
|
3.29
|
$
|
2.55
|
||||||||
Profit
per common share – diluted
|
1
|
$
|
3.18
|
$
|
2.47
|
|||||||
Weighted
average common shares outstanding (millions)
|
||||||||||||
-
Basic
|
616.0
|
642.4
|
||||||||||
-
Diluted
|
1
|
637.0
|
664.3
|
|||||||||
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)
|
||||||||||
June
30,
2008
|
December
31,
2007
|
|||||||||
Assets
|
||||||||||
Current
assets:
|
||||||||||
Cash and
short-term investments
|
$
|
782
|
$
|
1,122
|
||||||
Receivables –
trade and other
|
9,297
|
8,249
|
||||||||
Receivables –
finance
|
8,025
|
7,503
|
||||||||
Deferred and
refundable income taxes
|
866
|
816
|
||||||||
Prepaid
expenses and other current assets
|
585
|
583
|
||||||||
Inventories
|
8,303
|
7,204
|
||||||||
Total current
assets
|
27,858
|
25,477
|
||||||||
Property,
plant and equipment – net
|
10,394
|
9,997
|
||||||||
Long-term
receivables – trade and other
|
705
|
685
|
||||||||
Long-term
receivables – finance
|
14,795
|
13,462
|
||||||||
Investments in
unconsolidated affiliated companies
|
641
|
598
|
||||||||
Noncurrent
deferred and refundable income taxes
|
1,523
|
1,553
|
||||||||
Intangible
assets
|
492
|
475
|
||||||||
Goodwill
|
1,994
|
1,963
|
||||||||
Other
assets
|
2,051
|
1,922
|
||||||||
Total
assets
|
$
|
60,453
|
$
|
56,132
|
||||||
Liabilities
|
||||||||||
Current
liabilities:
|
||||||||||
Short-term
borrowings:
|
||||||||||
Machinery and
Engines
|
$
|
130
|
$
|
187
|
||||||
Financial
Products
|
6,199
|
5,281
|
||||||||
Accounts
payable
|
5,357
|
4,723
|
||||||||
Accrued
expenses
|
3,633
|
3,178
|
||||||||
Accrued wages,
salaries and employee benefits
|
938
|
1,126
|
||||||||
Customer
advances
|
1,814
|
1,442
|
||||||||
Dividends
payable
|
256
|
225
|
||||||||
Other current
liabilities
|
1,043
|
951
|
||||||||
Long-term debt
due within one year:
|
||||||||||
Machinery and
Engines
|
172
|
180
|
||||||||
Financial
Products
|
6,852
|
4,952
|
||||||||
Total current
liabilities
|
26,394
|
22,245
|
||||||||
Long-term debt
due after one year:
|
||||||||||
Machinery and
Engines
|
3,637
|
3,639
|
||||||||
Financial
Products
|
14,006
|
14,190
|
||||||||
Liability for
postemployment benefits
|
4,836
|
5,059
|
||||||||
Other
liabilities
|
2,110
|
2,116
|
||||||||
Total
liabilities
|
50,983
|
47,249
|
||||||||
Commitments
and contingencies (Notes 10 and 12)
|
||||||||||
Stockholders'
equity
|
||||||||||
Common stock
of $1.00 par value:
|
||||||||||
Authorized
shares: 900,000,000
Issued
shares: (6/30/08 and 12/31/07 – 814,894,624) at paid-in
amount
|
2,897
|
2,744
|
||||||||
Treasury stock
(6/30/08 – 206,178,442; 12/31/07 – 190,908,490) at cost
|
(10,730
|
)
|
(9,451
|
)
|
||||||
Profit
employed in the business
|
18,918
|
17,398
|
||||||||
Accumulated
other comprehensive income (loss)
|
(1,615
|
)
|
(1,808
|
)
|
||||||
Total
stockholders' equity
|
9,470
|
8,883
|
||||||||
Total
liabilities and stockholders' equity
|
$
|
60,453
|
$
|
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 |
Foreign
currency
|
Pension &
other post- retirement
|
Derivative
financial instruments
|
Available-
for-sale |
||||||||||||||||||||||||||||||
Six
Months Ended June 30, 2007
|
stock
|
stock
|
the
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
|
—
|
—
|
1,639
|
—
|
—
|
—
|
—
|
1,639
|
||||||||||||||||||||||||||||
Foreign
currency translation
|
—
|
—
|
—
|
106
|
—
|
—
|
—
|
106
|
||||||||||||||||||||||||||||
Pension and
other postretirement benefits
|
||||||||||||||||||||||||||||||||||||
Amortization
of actuarial (gain) loss,
net of tax of $61 |
—
|
—
|
—
|
—
|
112
|
—
|
—
|
112
|
||||||||||||||||||||||||||||
Amortization
of prior service cost,
net of tax of $5 |
—
|
—
|
—
|
—
|
9
|
—
|
—
|
9
|
||||||||||||||||||||||||||||
Amortization
of transition asset/obligation,
net of tax of $0 |
—
|
—
|
—
|
—
|
1
|
—
|
—
|
1
|
||||||||||||||||||||||||||||
Derivative
financial instruments and other
|
||||||||||||||||||||||||||||||||||||
Gains (losses)
deferred, net of tax of $17
|
—
|
—
|
—
|
—
|
—
|
31
|
—
|
31
|
||||||||||||||||||||||||||||
(Gains) losses
reclassified to earnings,
net of tax of $19 |
—
|
—
|
—
|
—
|
—
|
(35
|
)
|
—
|
(35
|
)
|
||||||||||||||||||||||||||
Available-for-sale
securities
|
||||||||||||||||||||||||||||||||||||
Gains (losses)
deferred, net of tax of $4
|
—
|
—
|
—
|
—
|
—
|
—
|
6
|
6
|
||||||||||||||||||||||||||||
(Gains) losses
reclassified to earnings,
net of tax of $1 |
—
|
—
|
—
|
—
|
—
|
—
|
(4
|
)
|
(4
|
)
|
||||||||||||||||||||||||||
Comprehensive
income (loss)
|
1,865
|
|||||||||||||||||||||||||||||||||||
Dividends
declared
|
—
|
—
|
(422
|
)
|
—
|
—
|
—
|
—
|
(422
|
)
|
||||||||||||||||||||||||||
Common shares
issued from treasury stock
for stock-based compensation: 8,047,005 |
8
|
215
|
—
|
—
|
—
|
—
|
—
|
223
|
||||||||||||||||||||||||||||
Stock-based
compensation expense
|
82
|
—
|
—
|
—
|
—
|
—
|
—
|
82
|
||||||||||||||||||||||||||||
Tax benefits
from stock-based compensation
|
100
|
—
|
—
|
—
|
—
|
—
|
—
|
100
|
||||||||||||||||||||||||||||
Shares
repurchased: 14,700,000
|
—
|
(1,017
|
)
|
—
|
—
|
—
|
—
|
—
|
(1,017
|
)
|
||||||||||||||||||||||||||
Balance
at June 30, 2007
|
$
|
2,655
|
$
|
(8,154
|
)
|
$
|
15,951
|
$
|
577
|
$
|
(3,254
|
)
|
$
|
44
|
$
|
12
|
$
|
7,831
|
||||||||||||||||||
Six
Months Ended June 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
|
—
|
—
|
2,028
|
—
|
—
|
—
|
—
|
2,028
|
||||||||||||||||||||||||||||
Foreign
currency translation, net of tax of $3
|
—
|
—
|
—
|
185
|
(8
|
)
|
—
|
—
|
177
|
|||||||||||||||||||||||||||
Pension and
other postretirement benefits
|
||||||||||||||||||||||||||||||||||||
Amortization
of actuarial (gain) loss,
of FAS 158, net of tax of $41 |
—
|
—
|
—
|
—
|
76
|
—
|
—
|
76
|
||||||||||||||||||||||||||||
Amortization
of transition asset/obligation,
net of tax of $0 |
—
|
—
|
—
|
—
|
1
|
—
|
—
|
1
|
||||||||||||||||||||||||||||
Derivative
financial instruments and other
|
||||||||||||||||||||||||||||||||||||
Gains (losses)
deferred, net of tax of $2
|
—
|
—
|
—
|
—
|
—
|
2
|
—
|
2
|
||||||||||||||||||||||||||||
(Gains) losses
reclassified to earnings,
net of tax of $25 |
—
|
—
|
—
|
—
|
—
|
(43
|
)
|
—
|
(43
|
)
|
||||||||||||||||||||||||||
Available-for-sale
securities
|
||||||||||||||||||||||||||||||||||||
Gains (losses)
deferred, net of tax of $18
|
—
|
—
|
—
|
—
|
—
|
—
|
(36
|
)
|
(36
|
)
|
||||||||||||||||||||||||||
(Gains) losses
reclassified to earnings,
net of tax of $0 |
—
|
—
|
—
|
—
|
—
|
—
|
(1
|
)
|
(1
|
)
|
||||||||||||||||||||||||||
Comprehensive
income (loss)
|
2,204
|
|||||||||||||||||||||||||||||||||||
Dividends
declared
|
—
|
—
|
(475
|
)
|
—
|
—
|
—
|
—
|
(475
|
)
|
||||||||||||||||||||||||||
Common shares
issued from treasury stock
for stock-based compensation: 4,123,074 |
5
|
111
|
—
|
—
|
—
|
—
|
—
|
116
|
||||||||||||||||||||||||||||
Stock-based
compensation expense
|
107
|
—
|
—
|
—
|
—
|
—
|
—
|
107
|
||||||||||||||||||||||||||||
Tax benefits
from stock-based compensation
|
51
|
—
|
—
|
—
|
—
|
—
|
—
|
51
|
||||||||||||||||||||||||||||
Shares
repurchased: 19,393,026
|
3
|
—
|
(1,390
|
)
|
—
|
—
|
—
|
—
|
—
|
(1,390
|
)
|
|||||||||||||||||||||||||
Stock
repurchase derivative contracts
|
(10
|
)
|
—
|
—
|
—
|
—
|
—
|
—
|
(10
|
)
|
||||||||||||||||||||||||||
Balance
at June 30, 2008
|
$
|
2,897
|
$
|
(10,730
|
)
|
$
|
18,918
|
$
|
934
|
$
|
(2,508
|
)
|
$
|
(22
|
)
|
$
|
(19
|
)
|
$
|
9,470
|
1
|
Pension and
other postretirement benefits include net adjustments for unconsolidated
companies of $6 million and $0 million for the six months ended June 30,
2008 and 2007, respectively. The ending balances were $58
million and $43 million at June 30, 2008 and 2007,
respectively.
|
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 $1,362 million of cash-settled purchases and $28 million of
derivative contracts.
|
See
accompanying notes to Consolidated Financial
Statements.
|
Caterpillar
Inc.
Condensed
Consolidated Statement of Cash Flow
(Unaudited)
(Dollars
in millions)
|
|||||||||
Six
Months Ended
|
|||||||||
June
30,
|
|||||||||
2008
|
2007
|
||||||||
Cash
flow from operating activities:
|
|||||||||
Profit
|
$
|
2,028
|
$
|
1,639
|
|||||
Adjustments
for non-cash items:
|
|||||||||
Depreciation
and amortization
|
952
|
849
|
|||||||
Other
|
202
|
71
|
|||||||
Changes in
assets and liabilities:
|
|||||||||
Receivables –
trade and other
|
(1,137
|
)
|
927
|
||||||
Inventories
|
(1,009
|
)
|
(691
|
)
|
|||||
Accounts
payable and accrued expenses
|
1,023
|
14
|
|||||||
Customer
advances
|
210
|
352
|
|||||||
Other assets –
net
|
(93
|
)
|
(300
|
)
|
|||||
Other
liabilities – net
|
(271
|
)
|
375
|
||||||
Net cash
provided by (used for) operating activities
|
1,905
|
3,236
|
|||||||
Cash
flow from investing activities:
|
|||||||||
Capital
expenditures – excluding equipment leased to
others
|
(814
|
)
|
(582
|
)
|
|||||
Expenditures
for equipment leased to others
|
(699
|
)
|
(621
|
)
|
|||||
Proceeds from
disposals of property, plant and equipment
|
449
|
208
|
|||||||
Additions to
finance receivables
|
(7,099
|
)
|
(6,356
|
)
|
|||||
Collections of
finance receivables
|
4,748
|
5,233
|
|||||||
Proceeds from
sales of finance receivables
|
696
|
84
|
|||||||
Investments
and acquisitions (net of cash acquired)
|
(111
|
)
|
(174
|
)
|
|||||
Proceeds from
sales of available-for-sale securities
|
173
|
119
|
|||||||
Investments in
available-for-sale securities
|
(230
|
)
|
(217
|
)
|
|||||
Other –
net
|
56
|
285
|
|||||||
Net cash
provided by (used for) investing activities
|
(2,831
|
)
|
(2,021
|
)
|
|||||
Cash
flow from financing activities:
|
|||||||||
Dividends
paid
|
(444
|
)
|
(386
|
)
|
|||||
Common stock
issued, including treasury shares reissued
|
116
|
223
|
|||||||
Payment for
stock repurchase derivative contracts
|
(38
|
)
|
—
|
||||||
Treasury
shares purchased
|
(1,362
|
)
|
(1,017
|
)
|
|||||
Excess tax
benefit from stock-based compensation
|
53
|
97
|
|||||||
Proceeds from
debt issued (original maturities greater than three
months)
|
|||||||||
– Machinery
and Engines
|
110
|
43
|
|||||||
– Financial
Products
|
9,048
|
5,216
|
|||||||
Payments on
debt (original maturities greater than three months)
|
|||||||||
– Machinery
and Engines
|
(133
|
)
|
(49
|
)
|
|||||
– Financial
Products
|
(6,397
|
)
|
(5,404
|
)
|
|||||
Short-term
borrowings – net (original maturities three months or
less)
|
(393
|
)
|
86
|
||||||
Net cash
provided by (used for) financing activities
|
560
|
(1,191
|
)
|
||||||
Effect of
exchange rate changes on cash
|
26
|
8
|
|||||||
Increase
(decrease) in cash and short-term investments
|
(340
|
)
|
32
|
||||||
Cash and
short-term investments at beginning of period
|
1,122
|
530
|
|||||||
Cash and
short-term investments at end of period
|
$
|
782
|
$
|
562
|
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 six month periods ended June 30, 2008 and 2007, (b) the
consolidated financial position at June 30, 2008 and December 31, 2007,
(c) the consolidated changes in stockholders' equity for the six month
periods ended June 30, 2008 and 2007, and (d) the consolidated statement
of cash flow for the six month periods ended June 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
June 30, 2008 and 2007 was $1,201 million and $989 million,
respectively. Total Comprehensive income for the six months
ended June 30, 2008 and 2007 was $2,204 million and $1,865 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.
|
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 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 14 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.
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
|
January 1,
2008
|
|||||||||||
Prior to SFAS
158 Adjustment
|
SFAS 158
Adjustment
|
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. 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 are currently
reviewing the impact of SFAS 141R and SFAS 160 on our financial statements
and expect to complete this evaluation in 2008.
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 recognizes 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 $70 million and $107 million for the three and six months
ended June 30, 2008, respectively; and $55 million and $82 million for the
three and six months ended June 30, 2007,
respectively.
|
The following
table illustrates the type and fair market value of the stock-based
compensation awards granted during the six month periods ended June 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 six month periods ended June 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 June
30, 2008, the total remaining unrecognized compensation cost related to
nonvested stock-based compensation awards was $224 million, which will be
amortized over the weighted-average remaining requisite service periods of
approximately 2.2 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 June
30, 2008, no deferred net gains or losses 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
June
30,
|
Six
Months Ended
June
30,
|
||||||||||||||||
(Millions
of dollars)
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Machinery and
Engines
|
$
|
(8
|
)
|
$
|
4
|
$
|
(1
|
)
|
$
|
8
|
|||||||
Financial
Products
|
(19
|
)
|
(4
|
)
|
(106
|
)
|
(10
|
)
|
|||||||||
$
|
(27
|
)
|
$
|
—
|
$
|
(107
|
)
|
$
|
(2
|
)
|
|||||||
Gains and
losses on the Financial Products contracts above are substantially offset
by 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
($19 million remaining at June 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 June 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
June
30,
|
Six
Months Ended
June
30,
|
|||||||||||||||||
(Millions
of dollars)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||||
Fixed-to-floating
interest rate swaps
|
||||||||||||||||||
Machinery and
Engines:
|
||||||||||||||||||
Gain (loss) on
designated interest rate derivatives
|
$
|
—
|
$
|
(5
|
)
|
$
|
18
|
$
|
(5
|
)
|
||||||||
Gain (loss) on
hedged debt
|
—
|
4
|
(9
|
)
|
3
|
|||||||||||||
Gain (loss) on
liquidated swaps – included in interest expense
|
1
|
1
|
2
|
2
|
||||||||||||||
Financial
Products:
|
||||||||||||||||||
Gain (loss) on
designated interest rate derivatives
|
(194
|
)
|
(43
|
)
|
(68
|
)
|
(31
|
)
|
||||||||||
Gain (loss) on
hedged debt
|
192
|
43
|
66
|
31
|
||||||||||||||
Gain (loss) on
liquidated swaps – included in interest expense
|
1
|
1
|
1
|
1
|
||||||||||||||
$
|
—
|
$
|
1
|
$
|
10
|
$
|
1
|
|||||||||||
As of June
30, 2008, $9 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 and six months ended June 30, 2007, and no
contracts were outstanding during
2008.
|
Stock Repurchases
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
six months ended June 30, 2008, $100 million of cash was used to
repurchase 1.8 million shares pursuant to calls exercised under this
program. Premiums previously paid associated with these
exercised calls were $28 million. The following table
summarizes the call contracts outstanding as of June 30,
2008:
|
Stock
repurchase derivative contracts outstanding at June 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
|
|||||||||||
November
2007
|
700,000
|
September
2008
|
11
|
58.00
|
88.00
|
||||||||||||||
November
2007
|
800,000
|
August
2008
|
12
|
53.60
|
80.40
|
||||||||||||||
January
2008
|
700,000
|
September
2008
|
10
|
51.00
|
78.00
|
||||||||||||||
January
2008
|
1,000,000
|
December
2008
|
16
|
50.00
|
80.00
|
||||||||||||||
Total
Outstanding
|
4,200,000
|
$
|
66
|
54.09
|
82.98
|
||||||||||||||
5.
|
Inventories
Inventories
(principally using the "last-in, first-out" method) are comprised of the
following:
|
(Millions
of dollars)
|
June
30,
|
December
31,
|
||||||
2008
|
2007
|
|||||||
Raw
materials
|
$
|
2,910
|
$
|
2,474
|
||||
Work-in-process
|
1,515
|
1,379
|
||||||
Finished
goods
|
3,608
|
3,066
|
||||||
Supplies
|
270
|
285
|
||||||
Total
inventories
|
$
|
8,303
|
$
|
7,204
|
||||
6.
|
Investments
in Unconsolidated Affiliated Companies
|
Our
investments in affiliated companies accounted for by the equity method
consist primarily of a 50 percent interest in Shin Caterpillar Mitsubishi
Ltd. (SCM) located in Japan. Combined financial information of the
unconsolidated affiliated companies accounted for by the equity method
(generally on a three month lag, e.g., SCM results reflect the periods
ending March 31) was as follows:
|
Results
of Operations of unconsolidated affiliated companies:
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||||
June
30,
|
June
30,
|
|||||||||||||||
(Millions
of dollars)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||
Sales
|
$
|
1,083
|
$
|
1,050
|
$
|
2,171
|
$
|
2,072
|
||||||||
Cost of
sales
|
901
|
847
|
1,801
|
1,670
|
||||||||||||
Gross
profit
|
$
|
182
|
$
|
203
|
$
|
370
|
$
|
402
|
||||||||
Profit
(loss)
|
$
|
20
|
$
|
40
|
$
|
37
|
$
|
90
|
||||||||
Caterpillar's
profit (loss)
|
$
|
10
|
$
|
5
|
$
|
21
|
$
|
24
|
||||||||
On August 1,
2008, SCM completed the first phase of a share redemption plan whereby SCM
redeemed half of Mitsubishi Heavy Machinery Industries Ltd.’s shares in
SCM. This will result in Caterpillar owning 67 percent of the
outstanding shares and will require the consolidation of SCM within
Caterpillar’s financial statements. See Note 17 for details on
this share redemption.
|
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 our due diligence procedures with
SCM.
|
Sales from
SCM to Caterpillar for the three months ended June 30, 2008 and June 30,
2007 of $553 million and $393 million, respectively, and for the six
months ended June 30, 2008 and June 30, 2007 of $995 million and $772
million, respectively, are included in the affiliated company
sales. In addition, SCM purchases of Caterpillar products were
$66 million and $68 million for the three months ended June 30, 2008 and
June 30, 2007, respectively, and $139 million and $133 million for the six
months ended June 30, 2008 and June 30, 2007,
respectively.
|
Financial
Position of unconsolidated affiliated companies:
|
June
30,
|
December
31,
|
|||||||
(Millions
of dollars)
|
2008
|
2007
|
|||||||
Assets:
|
|||||||||
Current
assets
|
$
|
2,185
|
$
|
2,062
|
|||||
Property,
plant and equipment – net
|
1,609
|
1,286
|
|||||||
Other
assets
|
136
|
173
|
|||||||
3,930
|
3,521
|
||||||||
Liabilities:
|
|||||||||
Current
liabilities
|
1,704
|
1,546
|
|||||||
Long-term debt
due after one year
|
515
|
269
|
|||||||
Other
liabilities
|
438
|
393
|
|||||||
2,657
|
2,208
|
||||||||
Ownership
|
$
|
1,273
|
$
|
1,313
|
|||||
Caterpillar's
investments in unconsolidated affiliated companies:
|
|||||||||
(Millions of
dollars)
|
|||||||||
Investments in
equity method companies
|
$
|
625
|
$
|
582
|
|||||
Plus:
Investments in cost method companies
|
16
|
16
|
|||||||
Total
investments in unconsolidated affiliated companies
|
$
|
641
|
$
|
598
|
|||||
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 June
30, 2008 financial position and equity investment amounts noted above do
not include ASV.
|
7.
|
Intangible
Assets and Goodwill
|
A. Intangible
assets
Intangible
assets are comprised of the
following:
|
(Dollars
in millions)
|
Weighted
Amortizable Life (Years)
|
June
30,
2008
|
December
31,
2007
|
|||||||
Customer
relationships
|
18
|
$
|
402
|
$
|
366
|
|||||
Intellectual
property
|
10
|
176
|
195
|
|||||||
Other
|
11
|
101
|
81
|
|||||||
Total
finite-lived intangible assets – gross
|
15
|
679
|
642
|
|||||||
Less:
Accumulated amortization
|
(187
|
)
|
(167
|
)
|
||||||
Intangible
assets – net
|
$
|
492
|
$
|
475
|
||||||
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 the acquisition of these assets. 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 six months ended June 30, 2008 was $12 million and $32 million,
respectively. Amortization expense for the three and six months
ended June 30, 2007 was $9 million and $20 million,
respectively. Amortization expense related to intangible assets
is expected to be:
|
(Millions
of dollars)
|
|||||||||||||||||||||||
2008
|
2009
|
2010
|
2011
|
2012
|
Thereafter
|
||||||||||||||||||
$
|
58
|
$
|
51
|
$
|
43
|
$
|
35
|
$
|
30
|
$
|
307
|
||||||||||||
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 first half of 2008.
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 the acquisition of these assets. 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 six
months ended June 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
|
|||||||||||||||||||||
Acquisitions
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
30
|
30
|
|||||||||||||||||||||||||||||||
Other
adjustments
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
1
|
1
|
|||||||||||||||||||||||||||||||
Balance at
June 30, 2008
|
$
|
4
|
$
|
51
|
$
|
203
|
$
|
14
|
$
|
478
|
$
|
33
|
$
|
569
|
$
|
60
|
$
|
582
|
$
|
1,994
|
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.
|
June
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
|
$
|
304
|
$
|
—
|
$
|
304
|
$
|
319
|
$
|
1
|
$
|
320
|
||||||||||||
Corporate
bonds
|
836
|
(34
|
)
|
802
|
775
|
(4
|
)
|
771
|
||||||||||||||||
Equity
securities
|
181
|
3
|
184
|
168
|
28
|
196
|
||||||||||||||||||
Total
|
$
|
1,321
|
$
|
(31
|
)
|
$
|
1,290
|
$
|
1,262
|
$
|
25
|
$
|
1,287
|
|||||||||||
Investments
in an unrealized loss position that are not other-than-temporarily
impaired:
|
||||||||||||||||||||||||
June
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
|
$
|
110
|
$
|
1
|
$
|
17
|
$
|
1
|
$
|
127
|
$
|
2
|
||||||||||||
Corporate
bonds
|
479
|
20
|
123
|
16
|
602
|
36
|
||||||||||||||||||
Equity
securities
|
79
|
14
|
5
|
3
|
84
|
17
|
||||||||||||||||||
Total
|
$
|
668
|
$
|
35
|
$
|
145
|
$
|
20
|
$
|
813
|
$
|
55
|
||||||||||||
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 June 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
|
$
|
86
|
||
Due after one
year through five years
|
$
|
223
|
||
Due after five
years through ten years
|
$
|
246
|
||
Due after ten
years
|
$
|
551
|
||
Proceeds from
sales of investments in debt and equity securities during the three and
six months ended June 30, 2008 were $69 million and $173 million,
respectively. Proceeds from sales of investments in debt and
equity securities during the three and six months ended June 30, 2007 were
$57 million and $119 million, respectively. Gross gains of $3 million
and $11 million, and gross losses of $3 million and $9 million were
included in current earnings for the three and six months ended June 30,
2008, respectively. Gross gains of $2 million and $6 million,
and gross losses of $1 million and $1 million were included in current
earnings for the three and six months ended June 30, 2007,
respectively.
|
9.
|
Postretirement
Benefits
|
A. Pension
and postretirement benefit plan
costs
|
(Millions
of dollars)
|
U.S.
Pension
Benefits
|
Non-U.S.
Pension
Benefits
|
Other
Postretirement
Benefits
|
||||||||||||||||||||||||||||
June
30,
|
June
30,
|
June
30,
|
|||||||||||||||||||||||||||||
2008
|
2007
|
2008
|
2007
|
2008
|
2007
|
||||||||||||||||||||||||||
For
the three months ended:
|
|||||||||||||||||||||||||||||||
Components
of net periodic benefit cost:
|
|||||||||||||||||||||||||||||||
Service
cost
|
$
|
50
|
$
|
46
|
$
|
21
|
$
|
17
|
$
|
21
|
$
|
23
|
|||||||||||||||||||
Interest
cost
|
157
|
149
|
39
|
31
|
77
|
74
|
|||||||||||||||||||||||||
Expected
return on plan assets
|
(221
|
)
|
(210
|
)
|
(50
|
)
|
(41
|
)
|
(35
|
)
|
(33
|
)
|
|||||||||||||||||||
Amortization
of:
|
|||||||||||||||||||||||||||||||
Net asset
existing at adoption of SFAS 87/106
|
—
|
—
|
—
|
1
|
1
|
1
|
|||||||||||||||||||||||||
Prior service
cost /(credit)
|
1
|
8
|
15
|
1
|
2
|
(9
|
)
|
(9
|
)
|
||||||||||||||||||||||
Net actuarial
loss /(gain)
|
34
|
53
|
8
|
14
|
16
|
19
|
|||||||||||||||||||||||||
Adjustment for
subsidiary pension plan
|
2
|
—
|
44
|
—
|
—
|
—
|
—
|
||||||||||||||||||||||||
Total cost
included in operating profit
|
$
|
28
|
$
|
97
|
$
|
19
|
$
|
24
|
$
|
71
|
$
|
75
|
|||||||||||||||||||
|
|||||||||||||||||||||||||||||||
(Millions
of dollars)
|
U.S.
Pension
Benefits
|
Non-U.S.
Pension
Benefits
|
Other
Postretirement
Benefits
|
||||||||||||||||||||||||||||
June
30,
|
June
30,
|
June
30,
|
|||||||||||||||||||||||||||||
2008
|
2007
|
2008
|
2007
|
2008
|
2007
|
||||||||||||||||||||||||||
For
the six months ended:
|
|||||||||||||||||||||||||||||||
Components
of net periodic benefit cost:
|
|||||||||||||||||||||||||||||||
Service
cost
|
$
|
100
|
$
|
92
|
$
|
42
|
$
|
35
|
$
|
43
|
$
|
45
|
|||||||||||||||||||
Interest
cost
|
314
|
298
|
78
|
63
|
154
|
148
|
|||||||||||||||||||||||||
Expected
return on plan assets
|
(441
|
)
|
(420
|
)
|
(100
|
)
|
(82
|
)
|
(69
|
)
|
(65
|
)
|
|||||||||||||||||||
Amortization
of:
|
|||||||||||||||||||||||||||||||
Net asset
existing at adoption of SFAS 87/106
|
—
|
—
|
—
|
1
|
1
|
1
|
|||||||||||||||||||||||||
Prior service
cost /(credit)
|
1
|
16
|
29
|
2
|
3
|
(18
|
)
|
(18
|
)
|
||||||||||||||||||||||
Net actuarial
loss /(gain)
|
67
|
107
|
16
|
27
|
32
|
39
|
|||||||||||||||||||||||||
Adjustment for
subsidiary pension plan
|
2
|
—
|
44
|
—
|
—
|
—
|
—
|
||||||||||||||||||||||||
Total cost
included in operating profit
|
$
|
56
|
$
|
150
|
$
|
38
|
$
|
47
|
$
|
143
|
$
|
150
|
|||||||||||||||||||
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 $215 million of contributions to pension
plans during the six months ended June 30, 2008 and we currently
anticipate additional contributions of approximately $215 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 plan costs
|
|
Total company
costs related to U.S. and non-U.S. defined contribution plans were as
follows:
|
Three
Months Ended
June
30,
|
Six
Months Ended
June
30,
|
|||||||||||||||
(Millions
of dollars)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||
U.S.
Plans
|
$
|
36
|
$
|
49
|
$
|
83
|
$
|
103
|
||||||||
Non-U.S.
Plans
|
9
|
7
|
17
|
15
|
||||||||||||
$
|
45
|
$
|
56
|
$
|
100
|
$
|
118
|
|||||||||
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 secured, primarily by dealer assets. 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. The loan guarantees are for the
possibility that the customers will become insolvent. 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 $28 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 June
30, 2008 and December 31, 2007, the related liability was $14 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)
|
June
30,
|
December
31,
|
||||||
2008
|
2007
|
|||||||
Guarantees
with Caterpillar dealers
|
$
|
389
|
$
|
363
|
||||
Guarantees
with customers
|
159
|
53
|
||||||
Limited
indemnity
|
28
|
30
|
||||||
Guarantees –
other
|
39
|
39
|
||||||
Total
guarantees
|
$
|
615
|
$
|
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)
|
(526
|
)
|
||
Increase in
liability (new warranties)
|
602
|
|||
Warranty
liability, June 30
|
$
|
1,121
|
||
(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
June
30,
|
Six
Months Ended
June
30,
|
|||||||||||||||||
(Dollars
in millions except per share data)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||||
I.
|
Profit for the
period (A):
|
$
|
1,106
|
$
|
823
|
$
|
2,028
|
$
|
1,639
|
|||||||||
II.
|
Determination
of shares (in millions):
|
|||||||||||||||||
Weighted-average
number of common shares outstanding (B)
|
614.3
|
640.5
|
616.0
|
642.4
|
||||||||||||||
Shares
issuable on exercise of stock awards, net of shares
assumed
to be purchased out of proceeds at average market price |
21.2
|
22.3
|
21.0
|
21.9
|
||||||||||||||
Average common
shares outstanding for fully diluted computation (C)
|
635.5
|
662.8
|
637.0
|
664.3
|
||||||||||||||
III.
|
Profit per
share of common stock:
|
|||||||||||||||||
Assuming no
dilution (A/B)
|
$
|
1.80
|
$
|
1.28
|
$
|
3.29
|
$
|
2.55
|
||||||||||
Assuming full
dilution (A/C)
|
$
|
1.74
|
$
|
1.24
|
$
|
3.18
|
$
|
2.47
|
||||||||||
SARs and
stock options to purchase 4,871,995 common shares were outstanding for
both the three and six months ended June 30, 2008, but were not included
in the computation of diluted earnings per share because the effect would
have been antidilutive. For the three and six months ended June
30, 2007, there were outstanding SARs and stock options to purchase
4,722,571 and 13,874,110 common shares, respectively, which were
antidilutive.
|
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 no trial date is currently
scheduled. 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. It is reasonably possible that a
change in assertion related to undistributed profits of certain non-U.S.
subsidiaries will be made in the next year. We do not expect
these changes to have an adverse impact on our consolidated financial
position, liquidity or results of
operations.
|
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
31.
|
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; and the design, manufacture,
external sales and ongoing support of forestry
machinery.
|
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
24 to 27 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 June 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
|
$
|
1,024
|
$
|
300
|
$
|
891
|
$
|
2,501
|
$
|
561
|
$
|
2,657
|
$
|
877
|
$
|
975
|
$
|
2,976
|
$
|
12,762
|
$
|
963
|
$
|
13,725
|
||||||||||||
Inter-segment
sales & revenues
|
15
|
798
|
(9
|
)
|
40
|
236
|
21
|
1,313
|
22
|
2,817
|
5,253
|
6
|
5,259
|
|||||||||||||||||||||||
Total sales
and revenues
|
$
|
1,039
|
$
|
1,098
|
$
|
882
|
$
|
2,541
|
$
|
797
|
$
|
2,678
|
$
|
2,190
|
$
|
997
|
$
|
5,793
|
$
|
18,015
|
$
|
969
|
$
|
18,984
|
||||||||||||
Depreciation
and amortization
|
$
|
6
|
$
|
25
|
$
|
5
|
$
|
3
|
$
|
13
|
$
|
1
|
$
|
46
|
$
|
4
|
$
|
149
|
$
|
252
|
$
|
190
|
$
|
442
|
||||||||||||
Imputed
interest expense
|
$
|
5
|
$
|
13
|
$
|
6
|
$
|
3
|
$
|
6
|
$
|
5
|
$
|
14
|
$
|
2
|
$
|
89
|
$
|
143
|
$
|
280
|
$
|
423
|
||||||||||||
Accountable
profit (loss)
|
$
|
78
|
$
|
101
|
$
|
110
|
$
|
458
|
$
|
78
|
$
|
276
|
$
|
254
|
$
|
154
|
$
|
758
|
$
|
2,267
|
$
|
190
|
$
|
2,457
|
||||||||||||
Accountable
assets at
June 30,
2008
|
$
|
624
|
$
|
1,694
|
$
|
837
|
$
|
488
|
$
|
837
|
$
|
704
|
$
|
1,926
|
$
|
496
|
$
|
11,947
|
$
|
19,553
|
$
|
33,159
|
$
|
52,712
|
||||||||||||
Capital
Expenditures
|
$
|
7
|
$
|
44
|
$
|
7
|
$
|
—
|
$
|
25
|
$
|
—
|
$
|
67
|
$
|
11
|
$
|
239
|
$
|
400
|
$
|
414
|
$
|
814
|
||||||||||||
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
|
$
|
798
|
$
|
277
|
$
|
737
|
$
|
2,245
|
$
|
447
|
$
|
2,218
|
$
|
771
|
$
|
728
|
$
|
2,325
|
$
|
10,546
|
$
|
913
|
$
|
11,459
|
||||||||||||
Inter-segment
sales & revenues
|
11
|
666
|
—
|
19
|
156
|
13
|
1,140
|
18
|
2,373
|
4,396
|
—
|
4,396
|
||||||||||||||||||||||||
Total sales
and revenues
|
$
|
809
|
$
|
943
|
$
|
737
|
$
|
2,264
|
$
|
603
|
$
|
2,231
|
$
|
1,911
|
$
|
746
|
$
|
4,698
|
$
|
14,942
|
$
|
913
|
$
|
15,855
|
||||||||||||
Depreciation
and amortization
|
$
|
8
|
$
|
22
|
$
|
6
|
$
|
—
|
$
|
16
|
$
|
—
|
$
|
43
|
$
|
3
|
$
|
125
|
$
|
223
|
$
|
165
|
$
|
388
|
||||||||||||
Imputed
interest expense
|
$
|
4
|
$
|
11
|
$
|
5
|
$
|
3
|
$
|
5
|
$
|
4
|
$
|
14
|
$
|
4
|
$
|
79
|
$
|
129
|
$
|
282
|
$
|
411
|
||||||||||||
Accountable
profit (loss)
|
$
|
43
|
$
|
114
|
$
|
86
|
$
|
445
|
$
|
41
|
$
|
282
|
$
|
171
|
$
|
51
|
$
|
548
|
$
|
1,781
|
$
|
203
|
$
|
1,984
|
||||||||||||
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
|
$
|
6
|
$
|
31
|
$
|
5
|
$
|
—
|
$
|
21
|
$
|
—
|
$
|
54
|
$
|
3
|
$
|
166
|
$
|
286
|
$
|
376
|
$
|
662
|
||||||||||||
Business
Segments
Six
Months Ended June 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
|
$
|
1,914
|
$
|
523
|
$
|
1,605
|
$
|
4,765
|
$
|
1,051
|
$
|
4,969
|
$
|
1,679
|
$
|
1,792
|
$
|
5,392
|
$
|
23,690
|
$
|
1,942
|
$
|
25,632
|
||||||||||||
Inter-segment
sales & revenues
|
28
|
1,537
|
13
|
76
|
444
|
39
|
2,426
|
31
|
5,410
|
10,004
|
6
|
10,010
|
||||||||||||||||||||||||
Total sales
and revenues
|
$
|
1,942
|
$
|
2,060
|
$
|
1,618
|
$
|
4,841
|
$
|
1,495
|
$
|
5,008
|
$
|
4,105
|
$
|
1,823
|
$
|
10,802
|
$
|
33,694
|
$
|
1,948
|
$
|
35,642
|
||||||||||||
Depreciation
and amortization
|
$
|
12
|
$
|
49
|
$
|
11
|
$
|
5
|
$
|
28
|
$
|
2
|
$
|
88
|
$
|
7
|
$
|
293
|
$
|
495
|
$
|
379
|
$
|
874
|
||||||||||||
Imputed
interest expense
|
$
|
10
|
$
|
25
|
$
|
12
|
$
|
7
|
$
|
12
|
$
|
9
|
$
|
27
|
$
|
5
|
$
|
171
|
$
|
278
|
$
|
569
|
$
|
847
|
||||||||||||
Accountable
profit (loss)
|
$
|
218
|
$
|
190
|
$
|
182
|
$
|
846
|
$
|
129
|
$
|
520
|
$
|
503
|
$
|
260
|
$
|
1,359
|
$
|
4,207
|
$
|
399
|
$
|
4,606
|
||||||||||||
Accountable
assets at
June 30,
2008
|
$
|
624
|
$
|
1,694
|
$
|
837
|
$
|
488
|
$
|
837
|
$
|
704
|
$
|
1,926
|
$
|
496
|
$
|
11,947
|
$
|
19,553
|
$
|
33,159
|
$
|
52,712
|
||||||||||||
Capital
Expenditures
|
$
|
12
|
$
|
76
|
$
|
14
|
$
|
—
|
$
|
37
|
$
|
—
|
$
|
150
|
$
|
24
|
$
|
394
|
$
|
707
|
$
|
720
|
$
|
1,427
|
||||||||||||
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
|
$
|
1,518
|
$
|
510
|
$
|
1,406
|
$
|
4,214
|
$
|
857
|
$
|
4,150
|
$
|
1,473
|
$
|
1,365
|
$
|
4,297
|
$
|
19,790
|
$
|
1,788
|
$
|
21,578
|
||||||||||||
Inter-segment
sales & revenues
|
21
|
1,269
|
—
|
32
|
341
|
27
|
2,140
|
27
|
4,699
|
8,556
|
1
|
8,557
|
||||||||||||||||||||||||
Total sales
and revenues
|
$
|
1,539
|
$
|
1,779
|
$
|
1,406
|
$
|
4,246
|
$
|
1,198
|
$
|
4,177
|
$
|
3,613
|
$
|
1,392
|
$
|
8,996
|
$
|
28,346
|
$
|
1,789
|
$
|
30,135
|
||||||||||||
Depreciation
and amortization
|
$
|
15
|
$
|
45
|
$
|
12
|
$
|
1
|
$
|
33
|
$
|
1
|
$
|
83
|
$
|
5
|
$
|
240
|
$
|
435
|
$
|
320
|
$
|
755
|
||||||||||||
Imputed
interest expense
|
$
|
9
|
$
|
22
|
$
|
11
|
$
|
5
|
$
|
10
|
$
|
7
|
$
|
27
|
$
|
8
|
$
|
153
|
$
|
252
|
$
|
556
|
$
|
808
|
||||||||||||
Accountable
profit (loss)
|
$
|
83
|
$
|
219
|
$
|
146
|
$
|
844
|
$
|
73
|
$
|
522
|
$
|
345
|
$
|
141
|
$
|
1,099
|
$
|
3,472
|
$
|
388
|
$
|
3,860
|
||||||||||||
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
|
$
|
13
|
$
|
54
|
$
|
3
|
$
|
—
|
$
|
30
|
$
|
—
|
$
|
89
|
$
|
7
|
$
|
277
|
$
|
473
|
$
|
634
|
$
|
1,107
|
||||||||||||
Reconciliation
of Sales and Revenues:
|
||||||||||||||||
(Millions
of dollars)
|
Machinery
and
Engines
|
Financing
&
Insurance
Services
|
Consolidating
Adjustments
|
Consolidated
Total
|
||||||||||||
Three
Months Ended June 30, 2008:
|
||||||||||||||||
Total external
sales and revenues from business
segments
|
$
|
12,762
|
$
|
963
|
$
|
—
|
$
|
13,725
|
||||||||
Other
|
35
|
(53
|
)
|
(83
|
)
|
1
|
(101
|
)
|
||||||||
Total sales
and revenues
|
$
|
12,797
|
$
|
910
|
$
|
(83
|
)
|
$
|
13,624
|
|||||||
Three
Months Ended June 30, 2007:
|
||||||||||||||||
Total external
sales and revenues from business
segments
|
$
|
10,546
|
$
|
913
|
$
|
—
|
$
|
11,459
|
||||||||
Other
|
67
|
(67
|
)
|
(103
|
)
|
1
|
(103
|
)
|
||||||||
Total sales
and revenues
|
$
|
10,613
|
$
|
846
|
$
|
(103
|
)
|
$
|
11,356
|
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
|
||||||||||||
Six
Months Ended June 30, 2008:
|
||||||||||||||||
Total external
sales and revenues from business
segments
|
$
|
23,690
|
$
|
1,942
|
$
|
—
|
$
|
25,632
|
||||||||
Other
|
86
|
(120
|
)
|
(178
|
)
|
1
|
(212
|
)
|
||||||||
Total sales
and revenues
|
$
|
23,776
|
$
|
1,822
|
$
|
(178
|
)
|
$
|
25,420
|
|||||||
|
||||||||||||||||
Six
Months Ended June 30, 2007:
|
||||||||||||||||
Total external
sales and revenues from business
segments
|
$
|
19,790
|
$
|
1,788
|
$
|
—
|
$
|
21,578
|
||||||||
Other
|
144
|
(143
|
)
|
(207
|
)
|
1
|
(206
|
)
|
||||||||
Total sales
and revenues
|
$
|
19,934
|
$
|
1,645
|
$
|
(207
|
)
|
$
|
21,372
|
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 June 30, 2008:
|
||||||||||||
Total
accountable profit from business segments
|
$
|
2,267
|
$
|
190
|
$
|
2,457
|
||||||
Cost
centers
|
(457
|
)
|
—
|
(457
|
)
|
|||||||
Corporate
costs
|
(365
|
)
|
—
|
(365
|
)
|
|||||||
Timing
|
(60
|
)
|
—
|
(60
|
)
|
|||||||
Methodology
differences:
|
||||||||||||
Inventory/cost
of sales
|
(45
|
)
|
—
|
(45
|
)
|
|||||||
Postretirement
benefit expense
|
(21
|
)
|
—
|
(21
|
)
|
|||||||
Financing
costs
|
29
|
—
|
29
|
|||||||||
Equity in
profit of unconsolidated affiliated companies
|
(10
|
)
|
—
|
(10
|
)
|
|||||||
Other
methodology difference
|
4
|
(2
|
)
|
2
|
||||||||
Total profit
before taxes
|
$
|
1,342
|
$
|
188
|
$
|
1,530
|
||||||
Three
Months Ended June 30, 2007:
|
||||||||||||
Total
accountable profit from business segments
|
$
|
1,781
|
$
|
203
|
$
|
1,984
|
||||||
Cost
centers
|
(425
|
)
|
—
|
(425
|
)
|
|||||||
Corporate
costs
|
(270
|
)
|
—
|
(270
|
)
|
|||||||
Timing
|
(5
|
)
|
—
|
(5
|
)
|
|||||||
Methodology
differences:
|
||||||||||||
Inventory/cost
of sales
|
(13
|
)
|
—
|
(13
|
)
|
|||||||
Postretirement
benefit expense
|
(56
|
)
|
—
|
(56
|
)
|
|||||||
Financing
costs
|
(17
|
)
|
—
|
(17
|
)
|
|||||||
Equity in
profit of unconsolidated affiliated companies
|
(4
|
)
|
(1
|
)
|
(5
|
)
|
||||||
Currency
|
22
|
—
|
22
|
|||||||||
Other
methodology difference
|
(12
|
)
|
—
|
(12
|
)
|
|||||||
Total profit
before taxes
|
$
|
1,001
|
$
|
202
|
$
|
1,203
|
||||||
Reconciliation
of Profit Before Taxes:
|
||||||||||||
(Millions
of dollars)
|
Machinery
and
Engines
|
Financing
&
Insurance
Services
|
Consolidated
Total
|
|||||||||
Six
Months Ended June 30, 2008:
|
||||||||||||
Total
accountable profit from business segments
|
$
|
4,207
|
$
|
399
|
$
|
4,606
|
||||||
Cost
centers
|
(922
|
)
|
—
|
(922
|
)
|
|||||||
Corporate
costs
|
(637
|
)
|
—
|
(637
|
)
|
|||||||
Timing
|
(93
|
)
|
—
|
(93
|
)
|
|||||||
Methodology
differences:
|
||||||||||||
Inventory/cost
of sales
|
(29
|
)
|
—
|
(29
|
)
|
|||||||
Postretirement
benefit expense
|
(43
|
)
|
—
|
(43
|
)
|
|||||||
Financing
costs
|
42
|
—
|
42
|
|||||||||
Equity in
profit of unconsolidated affiliated companies
|
(21
|
)
|
—
|
(21
|
)
|
|||||||
Currency
|
(44
|
)
|
—
|
(44
|
)
|
|||||||
Other
methodology difference
|
4
|
(2
|
)
|
2
|
||||||||
Total profit
before taxes
|
$
|
2,464
|
$
|
397
|
$
|
2,861
|
||||||
Six
Months Ended June 30, 2007:
|
||||||||||||
Total
accountable profit from business segments
|
$
|
3,472
|
$
|
388
|
$
|
3,860
|
||||||
Cost
centers
|
(841
|
)
|
—
|
(841
|
)
|
|||||||
Corporate
costs
|
(534
|
)
|
—
|
(534
|
)
|
|||||||
Timing
|
12
|
—
|
12
|
|||||||||
Methodology
differences:
|
||||||||||||
Inventory/cost
of sales
|
17
|
—
|
17
|
|||||||||
Postretirement
benefit expense
|
(106
|
)
|
—
|
(106
|
)
|
|||||||
Financing
costs
|
(37
|
)
|
—
|
(37
|
)
|
|||||||
Equity in
profit of unconsolidated affiliated companies
|
(22
|
)
|
(2
|
)
|
(24
|
)
|
||||||
Currency
|
36
|
—
|
36
|
|||||||||
Other
methodology difference
|
(12
|
)
|
4
|
(8
|
)
|
|||||||
Total profit
before taxes
|
$
|
1,985
|
$
|
390
|
$
|
2,375
|
||||||
Reconciliation
of Assets:
|
||||||||||||||||
(Millions
of dollars)
|
Machinery
and
Engines
|
Financing
&
Insurance
Services
|
Consolidating
Adjustments
|
Consolidated
Total
|
||||||||||||
June
30, 2008:
|
||||||||||||||||
Total
accountable assets from business segments
|
$
|
19,553
|
$
|
33,159
|
$
|
—
|
$
|
52,712
|
||||||||
Items not
included in segment assets:
|
||||||||||||||||
Cash and
short-term investments
|
478
|
304
|
—
|
782
|
||||||||||||
Intercompany
trade receivables
|
111
|
476
|
(587
|
)
|
—
|
|||||||||||
Trade and
other receivables
|
28
|
—
|
—
|
28
|
||||||||||||
Investment in
unconsolidated affiliated companies
|
559
|
—
|
(31
|
)
|
528
|
|||||||||||
Investment in
Financial Products
|
4,282
|
—
|
(4,282
|
)
|
—
|
|||||||||||
Deferred
income taxes and prepaids
|
2,791
|
145
|
(314
|
)
|
2,622
|
|||||||||||
Intangible
assets and other assets
|
1,210
|
60
|
—
|
1,270
|
||||||||||||
Cost center
assets
|
2,087
|
—
|
—
|
2,087
|
||||||||||||
Liabilities
included in segment assets
|
2,947
|
20
|
—
|
2,967
|
||||||||||||
Inventory
methodology differences
|
(2,560
|
)
|
—
|
—
|
(2,560
|
)
|
||||||||||
Other
|
294
|
(277
|
)
|
—
|
17
|
|||||||||||
Total
assets
|
$
|
31,780
|
$
|
33,887
|
$
|
(5,214
|
)
|
$
|
60,453
|
|||||||
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.
|
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, currency rates, etc. 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.
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 speeds and discount
rates. These assumptions are based on our historical
experience, market trends and anticipated performance relative to the
particular assets securitized.
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.
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 June 30, 2008 are summarized
below:
|
(Millions
of dollars)
|
June
30, 2008
|
|||||||||||||||||
Level
1
|
Level
2
|
Level
3
|
Total
Assets / Liabilities,
at
Fair Value
|
|||||||||||||||
Assets
|
||||||||||||||||||
Available-for-sale
securities (long-term
investments)
|
$
|
193
|
$
|
1,097
|
$
|
—
|
$
|
1,290
|
||||||||||
Securitized
retained interests
|
—
|
—
|
84
|
84
|
||||||||||||||
Total
Assets
|
$
|
193
|
$
|
1,097
|
$
|
84
|
$
|
1,374
|
||||||||||
Liabilities
|
||||||||||||||||||
Derivative
financial instruments
|
$
|
—
|
$
|
106
|
$
|
—
|
$
|
106
|
||||||||||
Guarantees |
—
|
—
|
14 | 14 | ||||||||||||||
Total
Liabilities
|
$
|
—
|
$
|
106
|
$
|
14
|
$
|
120
|
||||||||||
Below is a
roll-forward of assets and liabilities measured at fair value using Level
3 inputs for the six months ended June 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
|
(2
|
)
|
—
|
||||||||
Included in
other comprehensive income (loss)
|
(4
|
)
|
—
|
||||||||
Purchases,
issuances, and settlements
|
41
|
2
|
|||||||||
Balance at
June 30,
2008
|
$
|
84
|
$
|
14
|
|||||||
The amount of
total net losses for the six months ended June 30, 2008 included in
earnings attributable to the change in unrealized gains and losses
relating to assets still held at June 30, 2008 was $1 million on
securitized retained interests.
Gains and
losses included in earnings are reported in Revenues of Financial
Products.
|
15.
|
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 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 the
second quarter of 2008, the credit loss assumptions used to determine the
fair value of our retained interests in the 2006 and 2007 securitization
transactions were revised to reflect an increase in expected credit losses
due to the continued softening of the
U.S. housing industry. This resulted in a $7 million impairment
charge to the retained interests, which was recorded in “Revenues of
Financial Products”.
The fair
value of the retained interests in all securitizations of retail finance
receivables outstanding totaled $84 million and $49 million at June 30,
2008 and December 31, 2007,
respectively.
|
16.
|
Alliances
and Acquisitions
|
Lovat
Inc.
In April
2008, Caterpillar 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.
|
17.
|
Subsequent
Event
|
Shin
Caterpillar Mitsubishi Ltd. (SCM)
On August 1,
2008, SCM completed the first phase of a share redemption plan whereby SCM
redeemed half of Mitsubishi Heavy Industries Ltd.’s (MHI) shares in SCM
for approximately $475 million. This results in Caterpillar
owning 67 percent of the outstanding shares of SCM and MHI owning the
remaining 33 percent. Both SCM 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 SCM. 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 SCM’s
manufacturing, design and process expertise to be fully leveraged across
the global Caterpillar
enterprise.
|
The chart
above graphically illustrates reasons for the change in Consolidated Sales
and Revenues between second quarter 2007 (at left) and second 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
|
|||||||||||||||||||||||
Second
Quarter 2007
|
|||||||||||||||||||||||||||||||||
Machinery
|
$
|
7,275
|
$
|
3,250
|
$
|
2,260
|
$
|
942
|
$
|
823
|
|||||||||||||||||||||||
Engines
|
1
|
3,338
|
1,338
|
1,263
|
475
|
262
|
|||||||||||||||||||||||||||
Financial
Products
|
2
|
743
|
508
|
109
|
60
|
66
|
|||||||||||||||||||||||||||
$
|
11,356
|
$
|
5,096
|
$
|
3,632
|
$
|
1,477
|
$
|
1,151
|
||||||||||||||||||||||||
Second
Quarter 2008
|
|||||||||||||||||||||||||||||||||
Machinery
|
$
|
8,530
|
17%
|
$
|
3,511
|
8%
|
$
|
2,593
|
15%
|
$
|
1,414
|
50%
|
$
|
1,012
|
23%
|
||||||||||||||||||
Engines
|
1
|
4,267
|
28%
|
1,458
|
9%
|
1,693
|
34%
|
745
|
57%
|
371
|
42%
|
||||||||||||||||||||||
Financial
Products
|
2
|
827
|
11%
|
506
|
0%
|
157
|
44%
|
82
|
37%
|
82
|
24%
|
||||||||||||||||||||||
$
|
13,624
|
20%
|
$
|
5,475
|
7%
|
$
|
4,443
|
22%
|
$
|
2,241
|
52%
|
$
|
1,465
|
27%
|
1
|
Does not
include internal engines transfers of $748 million and $647 million in
second 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
$83 million and $103 million in second quarter 2008 and 2007,
respectively.
|
§
|
Sales volume
increased $787 million, with most of the gain coming from outside the
United States.
|
§
|
Price
realization increased $191 million.
|
§
|
Currency
benefited sales by $277 million.
|
§
|
Geographic
mix between regions (included in price realization) was $6 million
unfavorable.
|
§
|
Dealers
reported higher inventories in all regions, which was a positive for sales
volume. However, inventories in months of supply were lower
than a year earlier, with North America the only region to show an
increase.
|
§
|
Sales volume
increased in North America largely because dealers did not reduce their
inventories as much as a year earlier. Coal mining and oil and
natural gas development were positive sectors. Both benefited
from much higher output prices and increased
investment.
|
§
|
Sales volume
in Europe, Africa/Middle East (EAME)
increased due to strong growth in Africa/Middle East and the Commonwealth
of Independent States (CIS). Volume declined in Europe due to a
slowing economy and a drop in housing
permits.
|
§
|
Sales
increased in the developing regions of Asia/Pacific and Latin
America. Factors that supported this growth included
expansive economic policies, increased revenues from commodity exports,
good economic growth and increased investment in construction, mining and
energy.
|
§
|
Coal, oil and
some metals prices increased sharply during the quarter, reflecting
concerns about supplies. These higher prices contributed to
increased sales of machines used to produce or develop capacity for these
commodities.
|
§
|
Sales volume
increased $163 million.
|
§
|
Price
realization increased $98 million.
|
§
|
The sales
volume increase was the result of a lower reduction in dealer-reported
inventory than in second quarter 2007. Dealer inventories at
the end of the quarter were higher than a year earlier in both dollars and
months of supply.
|
§
|
Dealers
reported the eighth consecutive quarter of year-over-year declines in
deliveries. Economic conditions in construction and quarrying
continued to deteriorate, offsetting some improvements in commodity
sectors.
|
§
|
U.S. housing
faced the worst environment since the 1930s. Starts fell 30
percent from a year earlier, new home sales plunged more than 35 percent
and homebuilders held a 10-month supply of unsold
homes. Home repossessions soared, and the decline in home
prices appeared to worsen.
|
§
|
Employment in
the nonresidential construction sector declined more than 4 percent from
second quarter 2007. Banks tightened lending standards for
commercial and industrial loans, property prices softened and vacancy
rates increased.
|
§
|
As a result
of decreased construction, quarry and aggregate production declined 10
percent from last year.
|
§
|
Metals mining
output increased only slightly in both the United States and Canada, a
factor in dealers reporting lower deliveries to that
sector.
|
§
|
Higher
international coal prices caused the Central Appalachian spot coal price
to more than double from last year. U.S. coal exports soared 70
percent in the second quarter, and production in both the United States
and Canada increased. Sales of products used in coal mining
increased.
|
§
|
Higher oil
and natural gas prices benefited tar sands investment, pipeline
construction and drilling. Sales of machinery used in those
activities also increased.
|
§
|
Sales volume
increased $112 million. Volume increased in Africa/Middle East
and the CIS, but declined in
Europe.
|
§
|
Price
realization increased $21 million.
|
§
|
Currency
benefited sales by $200 million.
|
§
|
Dealers added
less to reported inventories than a year earlier, bringing inventories in
months of supply slightly lower.
|
§
|
The European
economy slowed in the second quarter, with consumer spending and housing
most affected. Year to date, euro-zone housing permits declined
20 percent, and housing orders in the United Kingdom dropped 26
percent. Reports indicate home prices are declining in the
United Kingdom, Ireland and Germany. Nonresidential
construction also started to decline in the second
quarter.
|
§
|
Sales volume
increased significantly in Africa/Middle East, particularly in the oil
producing countries. The 80 percent rise in the Organization of
the Petroleum Exporting Countries (OPEC) crude oil reference price caused
countries to increase production 6 percent and increase operating drill
rigs 7 percent. Increased oil revenues and expansive economic
policies sustained construction
booms.
|
§
|
The CIS was
the biggest contributor to the growth in sales volume. Large
gains occurred in Russia, Ukraine and Kazakhstan. Low interest
rates, rapid money growth and increased government spending caused rapid
growth in construction. Mining and oil production also
increased in response to higher
prices.
|
§
|
Sales volume
increased $382 million.
|
§
|
Price
realization increased $43 million.
|
§
|
Currency
benefited sales by $47 million.
|
§
|
Dealers
reported much higher inventories to manage increased deliveries, however
months of supply declined from a year
earlier.
|
§
|
Sales volume
increased substantially in China, the result of the addition of locally
produced wheel loaders and expansive economic policies. Housing
construction increased 35 percent, and nonresidential construction was up
14 percent. Mine output increased, with coal up 16 percent and
iron ore up 25 percent.
|
§
|
Sales
increased significantly in Indonesia, primarily due to much higher coal
prices and good growth in construction. Data suggest
construction is increasing about 8
percent.
|
§
|
Economic
policies in India, despite some tightening, remain very
expansive. Construction increased almost 13 percent, industrial
production increased 5 percent and mining was up 6 percent. As
a result, sales increased rapidly.
|
§
|
Sales volume
increased $124 million.
|
§
|
Price
realization increased $35 million.
|
§
|
Currency
benefited sales by $30 million.
|
§
|
Dealers
reported slightly higher inventories than a year ago, but inventories in
months of supply remained below a year
earlier.
|
§
|
Volume growth
resulted from sharply higher dealer-reported deliveries. Large
sales gains occurred in Brazil, Chile, Colombia and
Mexico.
|
§
|
Most
countries increased interest rates during the past year, but money growth
was rapid. As a result, industrial production increased in most
countries, often by more than 5
percent.
|
§
|
Oil
production declined 4 percent, primarily in Venezuela and
Mexico. However, much higher prices increased revenues, and the
number of operating drill rigs increased 7
percent.
|
§
|
Brazil
benefited from much higher iron ore prices, increasing production almost 6
percent and export revenues 33 percent. Copper production
declined in Chile, and copper export revenues declined 5
percent.
|
§
|
Sales volume
increased $615 million.
|
§
|
Price
realization increased $207 million.
|
§
|
Currency
benefited sales $107 million.
|
§
|
Geographic
mix between regions (included in price realization) was $22 million
favorable.
|
§
|
Dealer-reported
inventories were up, and months of supply were down as the inventory
increase was supported by stronger delivery
rates.
|
§
|
Sales volume
increased $58 million.
|
§
|
Price
realization increased $62 million.
|
§
|
Sales for
on-highway truck applications increased 13 percent compared to a very weak
second quarter 2007. Demand remains below historic norms due to
the slowing U.S. economy that has resulted in a reduction in freight
tonnage.
|
§
|
Sales for
petroleum applications increased 7 percent with an increase in turbine
sales, which reflected increased customer spending in natural gas pipeline
and compression equipment.
|
§
|
Sales for
marine applications increased 39 percent, with strong demand for supply
vessels in support of petroleum offshore
drilling.
|
§
|
Sales for
industrial applications increased 16 percent in small and medium-sized
product, with strong demand in agricultural applications as a result of
high agricultural commodity prices.
|
§
|
Sales for
electric power applications were about the same as the second quarter of
2007.
|
§
|
Sales volume
increased $245 million.
|
§
|
Price
realization increased $93 million.
|
§
|
Currency
benefited sales by $92 million.
|
§
|
Sales for
petroleum applications increased 106 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 25 percent, with strong demand for
small to medium-sized units selling into Africa/Middle
East. High oil prices drove sales in Nigeria, Saudi Arabia and
other Persian Gulf states. The power crisis in South Africa has
also generated increased sales for power
generation.
|
§
|
Sales for
industrial applications increased 19 percent, with strong demand for
agriculture and other types of Original Equipment Manufacturers (OEM)
machines. This demand has been driven by good economic
conditions and high agricultural commodity
prices.
|
§
|
Sales for
marine applications increased 15 percent, with higher demand for workboats
and commercial vessels.
|
§
|
Sales volume
increased $230 million.
|
§
|
Price
realization increased $25 million.
|
§
|
Currency
benefited sales by $15 million.
|
§
|
Sales for
petroleum applications increased 80 percent as Chinese drill rig builders
continued to manufacture at record levels for domestic and export use and
to support increased demand from Asian shipyards in support of offshore
drilling.
|
§
|
Sales of
electric power engines increased 45 percent, with strong demand in gas
generator sets for industrial power producers in Bangladesh and other
Southeast Asia countries.
|
§
|
Sales for
industrial applications increased 75 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 to Chinese and Korean industrial
OEMs.
|
§
|
Sales for
marine applications increased 6 percent, with continued strong demand for
workboat and offshore shipbuilding. Large diesel demand grew in
the offshore and general cargo
industries.
|
§
|
Sales volume
increased $104 million.
|
§
|
Price
realization increased $5 million.
|
§
|
Sales for
petroleum applications increased 98 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 14 percent as delivery began on projects
in Chile and Brazil.
|
§
|
Sales for
on-highway truck applications increased 48 percent as industry demand
strengthened in advance of the mid-year 2008 emissions changes in the
region.
|
§
|
Growth in
average earning
assets increased revenues $109 million, which was partially offset
by a decrease of $58 million due to lower interest rates on new and
existing finance receivables.
|
§
|
Revenues from
earned premiums at Cat Insurance increased $21
million.
|
|
||
The chart
above graphically illustrates reasons for the change in Consolidated
Operating Profit between second quarter 2007 (at left) and second 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)
|
Second
Quarter
2007
|
Second
Quarter
2008
|
$
Change
|
%
Change
|
|||||||||||||||
Machinery
|
1
|
$
|
741
|
$
|
719
|
$
|
(22
|
)
|
(3
|
)
|
%
|
||||||||
Engines
|
1
|
379
|
711
|
332
|
88
|
%
|
|||||||||||||
Financial
Products
|
184
|
166
|
(18
|
)
|
(10
|
)
|
%
|
||||||||||||
Consolidating
Adjustments
|
(91
|
)
|
(71
|
)
|
20
|
||||||||||||||
Consolidated
Operating Profit
|
$
|
1,213
|
$
|
1,525
|
$
|
312
|
26
|
%
|
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 $719 million was down $22 million, or 3 percent, from second
quarter 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 $711 million was up $332 million, or 88 percent, from second quarter
2007. The favorable impacts of improved price realization,
higher sales volume and the absence of a second quarter 2007 charge of $44
million to recognize previously unrecorded liabilities related to a
subsidiary pension plan were partially offset by higher
costs.
|
§
|
Financial Products
operating profit of $166 million was down $18 million, or 10 percent, from
second quarter 2007. The decrease was primarily attributable to a $23
million impact from lower net yield on average earning assets, a $21
million increase in the provision for credit losses at Cat Financial and a
$13 million unfavorable impact from various other operating items,
partially offset by a $39 million favorable impact from higher average
earning assets.
|
§
|
Other income/(expense)
was income of $75 million compared with income of $70 million in second
quarter 2007.
|
§
|
The provision for income taxes
in the second quarter of 2008 reflects an estimated annual tax rate
of 31.5 percent, excluding the discrete item discussed below, compared to
32 percent for the second 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 provision
for income taxes in the second quarter of 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 $10 million
compared with income of $5 million in the second quarter of
2007. The change reflects the absence of a $13 million
after-tax charge for net adjustments that were identified during 2007 due
diligence procedures related to a transaction that would result in
Caterpillar owning a majority stake in Shin Caterpillar Mitsubishi Ltd.
(SCM), partially offset by reduced profit at
SCM.
|
The chart
above graphically illustrates reasons for the change in Consolidated Sales
and Revenues between June 2007 YTD (at left) and June 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 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.
|
Sales
and Revenues by Geographic Region
|
||||||||||||||||||||||||||||||||||||||
(Millions
of dollars)
|
Total
|
%
Change
|
North
America
|
%
Change
|
EAME
|
%
Change
|
Asia/
Pacific
|
%
Change
|
Latin
America
|
%
Change
|
||||||||||||||||||||||||||||
Six
months ended June 30, 2007
|
||||||||||||||||||||||||||||||||||||||
Machinery
|
$
|
13,776
|
$
|
6,328
|
$
|
4,100
|
$
|
1,833
|
$
|
1,515
|
||||||||||||||||||||||||||||
Engines
|
1
|
6,158
|
2,506
|
2,266
|
874
|
512
|
||||||||||||||||||||||||||||||||
Financial
Products
|
2
|
1,438
|
993
|
211
|
115
|
119
|
||||||||||||||||||||||||||||||||
$
|
21,372
|
$
|
9,827
|
$
|
6,577
|
$
|
2,822
|
$
|
2,146
|
|||||||||||||||||||||||||||||
Six
months ended June
30, 2008
|
||||||||||||||||||||||||||||||||||||||
Machinery
|
$
|
16,078
|
17
|
%
|
$
|
6,691
|
6
|
%
|
$
|
4,937
|
20
|
%
|
$
|
2,620
|
43
|
%
|
$
|
1,830
|
21
|
%
|
||||||||||||||||||
Engines
|
1
|
7,698
|
25
|
%
|
2,666
|
6
|
%
|
3,024
|
33
|
%
|
1,304
|
49
|
%
|
704
|
38
|
%
|
||||||||||||||||||||||
Financial
Products
|
2
|
1,644
|
14
|
%
|
1,020
|
3
|
%
|
296
|
40
|
%
|
164
|
43
|
%
|
164
|
38
|
%
|
||||||||||||||||||||||
$
|
25,420
|
19
|
%
|
$
|
10,377
|
6
|
%
|
$
|
8,257
|
26
|
%
|
$
|
4,088
|
45
|
%
|
$
|
2,698
|
26
|
%
|
1
|
Does not
include internal engines transfers of $1.438 billion and $1.268 billion in
the six months ended June 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
$178 million and $207 million in the six months ended June 30, 2008 and
2007, respectively.
|
§
|
Sales volume
increased $1,511 million, with most of the gain coming from outside the
United States.
|
§
|
Price
realization increased $292 million.
|
§
|
Currency
benefited sales by $499 million.
|
§
|
Geographic
mix between regions (included in price realization) was $15 million
unfavorable.
|
§
|
Last year
dealers reported reductions in inventory, particularly in North America;
this year dealers reported additions. This change helped
increase sales volume. Inventories in months of supply were
lower than a year earlier in all regions except North America, the only
region to show an increase.
|
§
|
Sales volume
rose in North America, due to dealers moving from inventory reductions to
modest additions. Most key sectors were depressed, with dealers
reporting sharply lower deliveries. Exceptions were coal mining
and the oil and natural gas industries, where favorable output prices
encouraged investment.
|
§
|
In Europe,
sales volume was lower than a year earlier, with the decline occurring in
the second quarter. High interest rates in Europe slowed the
economy and extended the decline in housing
permits.
|
§
|
Sales
continued to increase in most developing economies. Attractive
coal, crude oil and metals prices encouraged countries to invest in those
industries. These higher prices resulted in increased revenues
that governments used to upgrade infrastructure. Expansive
economic policies kept economic growth strong and created a need for more
construction.
|
§
|
Sales volume
increased $229 million.
|
§
|
Price
realization increased $134 million.
|
§
|
Dealers
reported additions to inventories in this year’s first half, in contrast
to reductions last year. That change accounted for the growth
in sales volume; Dealer-reported inventories at midyear were above a year
earlier in months of supply.
|
§
|
Unfavorable
economic conditions caused dealers to report significantly lower
deliveries than a year earlier. Problems in construction and
quarrying offset some improvement in coal mining and oil and natural gas
development.
|
§
|
Economic
factors affecting the U.S. housing industry were probably the worst since
the 1930s. Starts averaged 1.03 million units in the first
half, down 29 percent from a year earlier and less than half the peak rate
in early 2006. Home prices declined more than 10 percent, and
home repossessions more than
doubled.
|
§
|
Leading
indicators for nonresidential building construction softened and
employment in this sector declined 3 percent from a year
earlier. Property prices have weakened, vacancy rates increased
and banks tightened standards for commercial and industrial
lending. Problems in this sector appeared to worsen over the
first half of the year.
|
§
|
Orders for
highway and bridge construction declined 7.5 percent from last year, and
employment in that sector was lower. Federal funding in the
current fiscal year increased only 5 percent, and some state and local
governments had budget problems. Materials used in highway
construction increased almost 14 percent, which likely caused governments
to curtail or eliminate some
projects.
|
§
|
Quarry
production declined 14 percent in the first half and was off about 30
percent from its early 2006 peak. Customers in this sector
sharply curtailed purchases.
|
§
|
The Central
Appalachian coal price averaged almost double the first half 2007 average,
reflecting strong demand in international markets. Mines
increased production and
investment.
|
§
|
The 80
percent increase in oil prices and the 36 percent increase in natural gas
prices benefited tar sands investment, pipeline construction and
drilling. Sales of machines used in those activities
increased.
|
§
|
Sales volume
increased $412 million.
|
§
|
Price
realization increased $68 million.
|
§
|
Currency
benefited sales by $357 million.
|
§
|
Dealers added
less to reported inventories than a year earlier, bringing inventories
lower in months of supply.
|
§
|
Volume was
down slightly in Europe, primarily due to large declines in Germany,
United Kingdom and Ireland. Economic growth slowed in these
countries and housing industries
weakened.
|
§
|
Sales volume
increased significantly in Africa/Middle East, particularly in the oil
producing countries. Higher oil prices and increased production
boosted revenues and sustained construction booms. Sales in
South Africa benefited from higher metals prices and increased
construction.
|
§
|
Sales volume
also increased significantly in the CIS, largely in Russia, Ukraine and
Kazakhstan. Higher prices for oil, natural gas, coal and metals
benefited investment in those sectors and, along with expansive economic
policies, caused good growth in
construction.
|
§
|
Sales volume
increased $641 million.
|
§
|
Price
realization increased $51 million.
|
§
|
Currency
benefited sales by $95 million.
|
§
|
Dealers
reported adding much more to inventory this year to manage increased
deliveries, however months of supply
declined.
|
§
|
Sales in
China were up sharply, due to the introduction of locally produced wheel
loaders and good economic growth. Both construction and mining
increased.
|
§
|
Indonesia had
sizable sales volume growth, primarily due to the sharp increase in
thermal coal prices this year.
|
§
|
India’s
strong growth in both construction and mining increased sales
volume.
|
§
|
Sales volume
increased $214 million.
|
§
|
Price
realization increased $54 million.
|
§
|
Currency
benefited sales by $47 million.
|
§
|
Dealers added
slightly less to reported inventories than a year ago, and inventories
were lower in months of supply.
|
§
|
Brazil,
Colombia and Mexico accounted for most of the volume
growth.
|
§
|
Brazil’s
growth was largely driven by construction. Investment in iron
ore mining also benefited from higher prices and production increased 8
percent.
|
§
|
Colombia has
become a major coal exporter and higher prices encouraged more investment
in coal mining. The value of coal exports increased 20 percent
through April.
|
§
|
Construction
increased in Mexico, which contributed to the growth in sales
volume.
|
§
|
Sales volume
increased $978 million.
|
§
|
Price
realization increased $367 million.
|
§
|
Currency
benefited sales $195 million.
|
§
|
Geographic
mix between regions (included in price realization) was $32 million
favorable.
|
§
|
Dealer
reported inventories were up, and months of supply were down as the
inventories were supported by strong delivery
rates.
|
§
|
Sales volume
increased $31 million.
|
§
|
Price
realization increased $129 million.
|
§
|
Sales for
on-highway truck applications increased 15 percent compared to a very weak
first half of 2007. Demand remains below historic norms due to
the slowing U.S. economy that has resulted in a reduction in freight
tonnage.
|
§
|
Sales for
electric power applications decreased 10 percent resulting from a gradual
decline in the construction of light commercial facilities and dealer
inventory reductions.
|
§
|
Sales for
petroleum applications increased 4 percent with an increase in turbine
sales, which reflected increased customer spending in natural gas pipeline
and compression equipment.
|
§
|
Sales for
marine applications increased 26 percent with increased demand for supply
vessels in support of petroleum offshore
drilling.
|
§
|
Sales for
industrial applications increased 10 percent in small and medium-sized
product due to increased demand in agricultural and mining applications as
a result of high commodity prices.
|
§
|
Sales volume
increased $459 million.
|
§
|
Price
realization increased $136 million.
|
§
|
Currency
benefited sales by $163 million.
|
§
|
Sales for
petroleum applications increased 106 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 oil and gas applications in
Africa.
|
§
|
Sales for
electric power applications increased 25 percent with increased demand for
small to medium-sized units selling into Africa/Middle
East. High oil prices drove sales of larger units in Saudi
Arabia, Nigeria and other Persian Gulf states. The power crisis
in South Africa has also generated increased sales for power
generation. Turbine sales increased as a result of large power
plant projects.
|
§
|
Sales for
industrial applications increased 16 percent with strong demand for
agriculture and other types of OEM machines. This demand has
been driven by good economic conditions and high agricultural commodity
prices.
|
§
|
Sales for
marine applications increased 22 percent with higher demand for workboats
and commercial vessels.
|
§
|
Sales volume
increased $345 million.
|
§
|
Price
realization increased $53 million.
|
§
|
Currency
benefited sales by $32 million.
|
§
|
Sales for
petroleum applications increased 71 percent as Chinese drill rig builders
continued to manufacture at record high levels and to support increased
demand from Asian shipyards in support of offshore
drilling.
|
§
|
Sales of
electric power engines increased 28 percent with increased demand for
large gas generator sets for Southeast Asia and
China.
|
§
|
Sales for
industrial applications increased 86 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 to Chinese and Korean industrial
OEMs.
|
§
|
Sales for
marine applications increased 17 percent with continued strong demand for
workboat and offshore shipbuilding. Large diesel demand grew in
the offshore and general cargo
industries.
|
§
|
Sales volume
increased $175 million.
|
§
|
Price
realization increased $17 million.
|
§
|
Sales for
petroleum applications increased 71 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 gas transmission applications in South
America.
|
§
|
Sales of
electric power engines increased 19 percent as delivery began on projects
in Chile and Brazil.
|
§
|
Sales for
on-highway truck applications increased 32 percent as industry demand
strengthened in advance of the mid-year 2008 emissions changes in the
region.
|
§
|
Growth in
average earning assets increased revenues $211 million, which was
partially offset by a decrease of $70 million due to lower interest rates
on new and existing finance
receivables.
|
§
|
Revenues from
earned premiums at Cat Insurance increased $40
million.
|
The chart
above graphically illustrates reasons for the change in Consolidated
Operating Profit between June 2007 YTD (at left) and June 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 its 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)
|
Six
Months Ended
June
30, 2007
|
Six
Months Ended
June
30, 2008
|
$
Change
|
%
Change
|
||||||||||||||||
Machinery
|
1
|
$
|
1,458
|
$
|
1,345
|
$
|
(113
|
)
|
(8
|
)
|
%
|
|||||||||
Engines
|
1
|
726
|
1,265
|
539
|
74
|
%
|
||||||||||||||
Financial
Products
|
351
|
361
|
10
|
3
|
%
|
|||||||||||||||
Consolidating
Adjustments
|
(182
|
)
|
(153
|
)
|
29
|
|||||||||||||||
Consolidated
Operating Profit
|
$
|
2,353
|
$
|
2,818
|
$
|
465
|
20
|
%
|
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 $1.345 billion was down $113 million, or 8 percent, from the six
months ended June 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 $1.265 billion was up $539 million, or 74 percent, from the six months
ended June 30, 2007. The favorable impacts of improved price
realization, higher sales volume and the absence of a second quarter 2007
charge of $44 million to recognize previously unrecorded liabilities
related to a subsidiary pension plan were partially offset by higher
costs.
|
|
§
|
Financial Products operating profit of $361 million was up $10
million, or 3 percent, from the six months ended June 30,
2007. The increase was primarily attributable to a $68 million
impact from higher average earning assets, partially offset by a $40
million increase in the provision for credit losses at Cat Financial and
an $18 million unfavorable impact from various other operating
items.
|
§
|
Other income/(expense)
was income of $187 million compared with income of $181 million for the
six months ended June 30, 2007.
|
§
|
The provision for income taxes
in the first six months of 2008 reflects an estimated annual tax
rate of 31.5 percent, excluding the discrete item discussed below,
compared to 32 percent for the first six 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 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 $21 million
compared with income of $24 million for the six months ended June 30,
2007. Reduced profit at SCM and other affiliates more than
offset the absence of a $13 million after-tax charge for net adjustments
that were identified during 2007 due diligence procedures related to a
transaction that would result in Caterpillar owning a majority stake in
SCM.
|
1.
|
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.
|
2.
|
Consolidating
Adjustments – Eliminations of transactions between Machinery and
Engines and Financial Products.
|
3.
|
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.
|
4.
|
EAME – Geographic region
including Europe, Africa, the Middle East and the Commonwealth of
Independent States (CIS).
|
5.
|
Earning Assets – Assets
consisting primarily of total finance receivables net of unearned income,
plus equipment on operating leases, less accumulated depreciation at Cat
Financial.
|
6.
|
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).
|
7.
|
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.
|
8.
|
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.
|
9.
|
Latin America –
Geographic region including Central and South American countries and
Mexico.
|
10.
|
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.
|
11.
|
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.
|
12.
|
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.
|
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.
|
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.
|
15.
|
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.
|
16.
|
6 Sigma – On a technical
level, 6 Sigma represents a measure of variation that achieves 3.4 defects
per million opportunities. At Caterpillar, 6 Sigma represents a
much broader cultural philosophy to drive continuous improvement
throughout the value chain. It is a fact-based, data-driven
methodology that we are using to improve processes, enhance quality, cut
costs, grow our business and deliver greater value to our customers
through Black Belt-led project teams. At Caterpillar, 6 Sigma
goes beyond mere process improvement—it has become the way we work as
teams to process business information, solve problems and manage our
business successfully.
|
(Millions
of dollars)
|
||||||||||||
Machinery
|
Financial
|
|||||||||||
Consolidated
|
and
Engines
|
Products
|
||||||||||
Credit lines
available:
|
||||||||||||
Global credit
facility
|
$
|
6,550
|
$
|
1,000
|
$
|
5,550
|
||||||
Other
external
|
3,687
|
1,062
|
2,625
|
|||||||||
Total credit
lines available
|
10,237
|
2,062
|
8,175
|
|||||||||
Less: Global
credit facility supporting commercial paper
|
(4,846
|
)
|
—
|
(4,846
|
)
|
|||||||
Less: Utilized
credit
|
(1,663
|
)
|
(117
|
)
|
(1,546
|
)
|
||||||
Available
credit
|
$
|
3,728
|
$
|
1,945
|
$
|
1,783
|
||||||
|
§
|
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 June 30, 2008
(Unaudited)
(Millions
of dollars)
|
|||||||||||||||||
Supplemental
Consolidating Data
|
|||||||||||||||||
Machinery
and
|
Financial
|
Consolidating
|
|||||||||||||||
Consolidated
|
Engines
|
1
|
Products
|
Adjustments
|
|||||||||||||
Sales
and revenues:
|
|||||||||||||||||
Sales of
Machinery and Engines
|
$
|
12,797
|
$
|
12,797
|
$
|
—
|
$
|
—
|
|||||||||
Revenues of
Financial Products
|
827
|
—
|
910
|
(83
|
)
|
2
|
|||||||||||
Total sales
and revenues
|
13,624
|
12,797
|
910
|
(83
|
)
|
||||||||||||
Operating
costs:
|
|||||||||||||||||
Cost of goods
sold
|
10,036
|
10,036
|
—
|
—
|
|||||||||||||
Selling,
general and administrative expenses
|
1,074
|
925
|
154
|
(5
|
)
|
3
|
|||||||||||
Research and
development expenses
|
415
|
415
|
—
|
—
|
|||||||||||||
Interest
expense of Financial Products
|
279
|
—
|
279
|
—
|
4
|
||||||||||||
Other
operating expenses
|
295
|
(9
|
)
|
311
|
(7
|
)
|
3
|
||||||||||
Total
operating costs
|
12,099
|
11,367
|
744
|
(12
|
)
|
||||||||||||
Operating
profit
|
1,525
|
1,430
|
166
|
(71
|
)
|
||||||||||||
Interest
expense excluding Financial Products
|
70
|
70
|
—
|
—
|
4
|
||||||||||||
Other income
(expense)
|
75
|
(18
|
)
|
22
|
71
|
5
|
|||||||||||
Consolidated
profit before taxes
|
1,530
|
1,342
|
188
|
—
|
|||||||||||||
Provision for
income taxes
|
434
|
386
|
48
|
—
|
|||||||||||||
Profit of
consolidated companies
|
1,096
|
956
|
140
|
—
|
|||||||||||||
Equity in
profit (loss) of unconsolidated
affiliated
companies
|
10
|
10
|
—
|
—
|
|||||||||||||
Equity in
profit of Financial Products' subsidiaries
|
—
|
140
|
—
|
(140
|
)
|
6
|
|||||||||||
Profit
|
$
|
1,106
|
$
|
1,106
|
$
|
140
|
$
|
(140
|
)
|
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 June 30, 2007
(Unaudited)
(Millions
of dollars)
|
|||||||||||||||||
Supplemental
Consolidating Data
|
|||||||||||||||||
Machinery
and
|
Financial
|
Consolidating
|
|||||||||||||||
Consolidated
|
Engines
|
1
|
Products
|
Adjustments
|
|||||||||||||
Sales
and revenues:
|
|||||||||||||||||
Sales of
Machinery and Engines
|
$
|
10,613
|
$
|
10,613
|
$
|
—
|
$
|
—
|
|||||||||
Revenues of
Financial Products
|
743
|
—
|
846
|
(103
|
)
|
2
|
|||||||||||
Total sales
and revenues
|
11,356
|
10,613
|
846
|
(103
|
)
|
||||||||||||
Operating
costs:
|
|||||||||||||||||
Cost of goods
sold
|
8,300
|
8,300
|
—
|
—
|
|||||||||||||
Selling,
general and administrative expenses
|
968
|
853
|
120
|
(5
|
)
|
3
|
|||||||||||
Research and
development expenses
|
350
|
350
|
—
|
—
|
|||||||||||||
Interest
expense of Financial Products
|
279
|
—
|
279
|
—
|
|||||||||||||
Other
operating expenses
|
246
|
(10
|
)
|
263
|
(7
|
)
|
3
|
||||||||||
Total
operating costs
|
10,143
|
9,493
|
662
|
(12
|
)
|
||||||||||||
Operating
profit
|
1,213
|
1,120
|
184
|
(91
|
)
|
||||||||||||
Interest
expense excluding Financial Products
|
80
|
83
|
—
|
(3
|
)
|
4
|
|||||||||||
Other income
(expense)
|
70
|
(36
|
)
|
18
|
88
|
5
|
|||||||||||
Consolidated
profit before taxes
|
1,203
|
1,001
|
202
|
—
|
|||||||||||||
Provision for
income taxes
|
385
|
316
|
69
|
—
|
|||||||||||||
Profit of
consolidated companies
|
818
|
685
|
133
|
—
|
|||||||||||||
Equity in
profit (loss) of unconsolidated
affiliated
companies
|
5
|
4
|
1
|
—
|
|||||||||||||
Equity in
profit of Financial Products' subsidiaries
|
—
|
134
|
—
|
(134
|
)
|
6
|
|||||||||||
Profit
|
$
|
823
|
$
|
823
|
$
|
134
|
$
|
(134
|
)
|
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 Six Months Ended June 30, 2008
(Unaudited)
(Millions
of dollars)
|
|||||||||||||||||
Supplemental
Consolidating Data
|
|||||||||||||||||
Machinery
and
|
Financial
|
Consolidating
|
|||||||||||||||
Consolidated
|
Engines
|
1
|
Products
|
Adjustments
|
|||||||||||||
Sales
and revenues:
|
|||||||||||||||||
Sales of
Machinery and Engines
|
$
|
23,776
|
$
|
23,776
|
$
|
—
|
$
|
—
|
|||||||||
Revenues of
Financial Products
|
1,644
|
—
|
1,822
|
(178
|
)
|
2
|
|||||||||||
Total sales
and revenues
|
25,420
|
23,776
|
1,822
|
(178
|
)
|
||||||||||||
Operating
costs:
|
|||||||||||||||||
Cost of goods
sold
|
18,645
|
18,645
|
—
|
—
|
|||||||||||||
Selling,
general and administrative expenses
|
2,033
|
1,757
|
288
|
(12
|
)
|
3
|
|||||||||||
Research and
development expenses
|
784
|
784
|
—
|
—
|
|||||||||||||
Interest
expense of Financial Products
|
563
|
—
|
565
|
(2
|
)
|
4
|
|||||||||||
Other
operating expenses
|
577
|
(20
|
)
|
608
|
(11
|
)
|
3
|
||||||||||
Total
operating costs
|
22,602
|
21,166
|
1,461
|
(25
|
)
|
||||||||||||
Operating
profit
|
2,818
|
2,610
|
361
|
(153
|
)
|
||||||||||||
Interest
expense excluding Financial Products
|
144
|
144
|
—
|
—
|
4
|
||||||||||||
Other income
(expense)
|
187
|
(2
|
)
|
36
|
153
|
5
|
|||||||||||
Consolidated
profit before taxes
|
2,861
|
2,464
|
397
|
—
|
|||||||||||||
Provision for
income taxes
|
854
|
736
|
118
|
—
|
|||||||||||||
Profit of
consolidated companies
|
2,007
|
1,728
|
279
|
—
|
|||||||||||||
Equity in
profit (loss) of unconsolidated
affiliated
companies
|
21
|
21
|
—
|
—
|
|||||||||||||
Equity in
profit of Financial Products' subsidiaries
|
—
|
279
|
—
|
(279
|
)
|
6
|
|||||||||||
Profit
|
$
|
2,028
|
$
|
2,028
|
$
|
279
|
$
|
(279
|
)
|
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 Six Months Ended June 30, 2007
(Unaudited)
(Millions
of dollars)
|
|||||||||||||||||
Supplemental
Consolidating Data
|
|||||||||||||||||
Machinery
and
|
Financial
|
Consolidating
|
|||||||||||||||
Consolidated
|
Engines
|
1
|
Products
|
Adjustments
|
|||||||||||||
Sales
and revenues:
|
|||||||||||||||||
Sales of
Machinery and Engines
|
$
|
19,934
|
$
|
19,934
|
$
|
—
|
$
|
—
|
|||||||||
Revenues of
Financial Products
|
1,438
|
—
|
1,645
|
(207
|
)
|
2
|
|||||||||||
Total sales
and revenues
|
21,372
|
19,934
|
1,645
|
(207
|
)
|
||||||||||||
Operating
costs:
|
|||||||||||||||||
Cost of goods
sold
|
15,436
|
15,436
|
—
|
—
|
|||||||||||||
Selling,
general and administrative expenses
|
1,858
|
1,638
|
230
|
(10
|
)
|
3
|
|||||||||||
Research and
development expenses
|
690
|
690
|
—
|
—
|
|||||||||||||
Interest
expense of Financial Products
|
550
|
—
|
551
|
(1
|
)
|
4
|
|||||||||||
Other
operating expenses
|
485
|
(14
|
)
|
513
|
(14
|
)
|
3
|
||||||||||
Total
operating costs
|
19,019
|
17,750
|
1,294
|
(25
|
)
|
||||||||||||
Operating
profit
|
2,353
|
2,184
|
351
|
(182
|
)
|
||||||||||||
Interest
expense excluding Financial Products
|
159
|
163
|
—
|
(4
|
)
|
4
|
|||||||||||
Other income
(expense)
|
181
|
(36
|
)
|
39
|
178
|
5
|
|||||||||||
Consolidated
profit before taxes
|
2,375
|
1,985
|
390
|
—
|
|||||||||||||
Provision for
income taxes
|
760
|
629
|
131
|
—
|
|||||||||||||
Profit of
consolidated companies
|
1,615
|
1,356
|
259
|
—
|
|||||||||||||
Equity in
profit (loss) of unconsolidated
affiliated
companies
|
24
|
22
|
2
|
—
|
|||||||||||||
Equity in
profit of Financial Products' subsidiaries
|
—
|
261
|
—
|
(261
|
)
|
6
|
|||||||||||
Profit
|
$
|
1,639
|
$
|
1,639
|
$
|
261
|
$
|
(261
|
)
|
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
June 30, 2008
(Unaudited)
(Millions
of dollars)
|
||||||||||||||||||
Supplemental
Consolidating Data
|
||||||||||||||||||
Machinery
and
|
Financial
|
Consolidating
|
||||||||||||||||
Consolidated
|
Engines
|
1
|
Products
|
Adjustments
|
||||||||||||||
Assets
|
||||||||||||||||||
Current
assets:
|
||||||||||||||||||
Cash and
short-term investments
|
$
|
782
|
$
|
478
|
$
|
304
|
$
|
—
|
||||||||||
Receivables -
trade and other
|
9,297
|
4,963
|
996
|
3,338
|
2,3
|
|||||||||||||
Receivables -
finance
|
8,025
|
—
|
11,920
|
(3,895
|
)
|
3
|
||||||||||||
Deferred and
refundable income taxes
|
866
|
780
|
86
|
—
|
||||||||||||||
Prepaid
expenses and other current assets
|
585
|
547
|
51
|
(13
|
)
|
4
|
||||||||||||
Inventories
|
8,303
|
8,303
|
—
|
—
|
||||||||||||||
Total current
assets
|
27,858
|
15,071
|
13,357
|
(570
|
)
|
|||||||||||||
Property,
plant and equipment – net
|
10,394
|
7,086
|
3,308
|
—
|
||||||||||||||
Long-term
receivables – trade and other
|
705
|
106
|
31
|
568
|
2,3
|
|||||||||||||
Long-term
receivables – finance
|
14,795
|
—
|
15,393
|
(598
|
)
|
3
|
||||||||||||
Investments in
unconsolidated affiliated companies
|
641
|
672
|
—
|
(31
|
)
|
5
|
||||||||||||
Investments in
Financial Products subsidiaries
|
—
|
4,282
|
—
|
(4,282
|
)
|
6
|
||||||||||||
Noncurrent
deferred and refundable income taxes
|
1,523
|
1,765
|
59
|
(301
|
)
|
7
|
||||||||||||
Intangible
assets
|
492
|
488
|
4
|
—
|
||||||||||||||
Goodwill
|
1,994
|
1,994
|
—
|
—
|
||||||||||||||
Other
assets
|
2,051
|
316
|
1,735
|
—
|
||||||||||||||
Total
assets
|
$
|
60,453
|
$
|
31,780
|
$
|
33,887
|
$
|
(5,214
|
)
|
|||||||||
Liabilities
|
||||||||||||||||||
Current
liabilities:
|
||||||||||||||||||
Short-term
borrowings
|
$
|
6,329
|
$
|
563
|
$
|
6,259
|
$
|
(493
|
)
|
8
|
||||||||
Accounts
payable
|
5,357
|
4,950
|
471
|
(64
|
)
|
9
|
||||||||||||
Accrued
expenses
|
3,633
|
2,221
|
1,425
|
(13
|
)
|
10
|
||||||||||||
Accrued wages,
salaries and employee benefits
|
938
|
924
|
14
|
—
|
||||||||||||||
Customer
advances
|
1,814
|
1,814
|
—
|
—
|
||||||||||||||
Dividends
payable
|
256
|
256
|
—
|
—
|
||||||||||||||
Other current
liabilities
|
1,043
|
953
|
101
|
(11
|
)
|
7
|
||||||||||||
Long-term debt
due within one year
|
7,024
|
172
|
6,852
|
—
|
||||||||||||||
Total current
liabilities
|
26,394
|
11,853
|
15,122
|
(581
|
)
|
|||||||||||||
Long-term debt
due after one year
|
17,643
|
3,667
|
14,006
|
(30
|
)
|
8
|
||||||||||||
Liability for
postemployment benefits
|
4,836
|
4,836
|
—
|
—
|
||||||||||||||
Other
liabilities
|
2,110
|
1,954
|
476
|
(320
|
)
|
5,7
|
||||||||||||
Total
liabilities
|
50,983
|
22,310
|
29,604
|
(931
|
)
|
|||||||||||||
Commitments
and Contingencies
|
||||||||||||||||||
Stockholders'
equity
|
||||||||||||||||||
Common
stock
|
2,897
|
2,897
|
860
|
(860
|
)
|
6
|
||||||||||||
Treasury
stock
|
(10,730
|
)
|
(10,730
|
)
|
—
|
—
|
||||||||||||
Profit
employed in the business
|
18,918
|
18,918
|
2,845
|
(2,845
|
)
|
6
|
||||||||||||
Accumulated
other comprehensive income (loss)
|
(1,615
|
)
|
(1,615
|
)
|
578
|
(578
|
)
|
6
|
||||||||||
Total
stockholders' equity
|
9,470
|
9,470
|
4,283
|
(4,283
|
)
|
|||||||||||||
Total
liabilities and stockholders' equity
|
$
|
60,453
|
$
|
31,780
|
$
|
33,887
|
$
|
(5,214
|
)
|
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
subsidiary.
|
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)
(Millions
of dollars)
|
||||||||||||||||||
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
subsidiary.
|
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 Six Months Ended June 30, 2008
(Unaudited)
(Millions
of dollars)
|
||||||||||||||||||
Supplemental
Consolidating Data
|
||||||||||||||||||
Machinery
and
|
Financial
|
Consolidating
|
||||||||||||||||
Consolidated
|
Engines
|
1
|
Products
|
Adjustments
|
||||||||||||||
Cash
flow from operating activities:
|
||||||||||||||||||
Profit
|
$
|
2,028
|
$
|
2,028
|
$
|
279
|
$
|
(279
|
)
|
2
|
||||||||
Adjustments
for non-cash items:
|
||||||||||||||||||
Depreciation
and amortization
|
952
|
573
|
379
|
—
|
||||||||||||||
Undistributed
profit of Financial Products
|
—
|
(279
|
)
|
—
|
279
|
3
|
||||||||||||
Other
|
202
|
192
|
(146
|
)
|
156
|
4
|
||||||||||||
Changes in
assets and liabilities:
|
||||||||||||||||||
Receivables -
trade and other
|
(1,137
|
)
|
(657
|
)
|
(20
|
)
|
(460
|
)
|
4,5
|
|||||||||
Inventories
|
(1,009
|
)
|
(1,009
|
)
|
—
|
—
|
||||||||||||
Accounts
payable and accrued expenses
|
1,023
|
748
|
159
|
116
|
4
|
|||||||||||||
Customer
advances
|
210
|
210
|
—
|
—
|
||||||||||||||
Other assets -
net
|
(93
|
)
|
(48
|
)
|
(19
|
)
|
(26
|
)
|
4
|
|||||||||
Other
liabilities - net
|
(271
|
)
|
(278
|
)
|
(4
|
)
|
11
|
4
|
||||||||||
Net cash
provided by (used for) operating activities
|
1,905
|
1,480
|
628
|
(203)
|
||||||||||||||
Cash
flow from investing activities:
|
||||||||||||||||||
Capital
expenditures - excluding equipment leased to others
|
(814
|
)
|
(804
|
)
|
(10
|
)
|
—
|
|||||||||||
Expenditures
for equipment leased to others
|
(699
|
)
|
—
|
(710
|
)
|
11
|
4
|
|||||||||||
Proceeds from
disposals of property, plant and equipment
|
449
|
18
|
431
|
—
|
||||||||||||||
Additions to
finance receivables
|
(7,099
|
)
|
—
|
(19,164
|
)
|
12,065
|
5
|
|||||||||||
Collections of
finance receivables
|
4,748
|
—
|
15,846
|
(11,098
|
)
|
5
|
||||||||||||
Proceeds from
sales of finance receivables
|
696
|
—
|
1,471
|
(775
|
)
|
5
|
||||||||||||
Net
intercompany borrowings
|
—
|
220
|
(433
|
)
|
213
|
6
|
||||||||||||
Investments
and acquisitions (net of cash acquired)
|
(111
|
)
|
(111
|
)
|
—
|
—
|
||||||||||||
Proceeds from
sales of available-for-sale securities
|
173
|
12
|
161
|
—
|
||||||||||||||
Investments in
available-for-sale securities
|
(230
|
)
|
(11
|
)
|
(219
|
)
|
—
|
|||||||||||
Other –
net
|
56
|
116
|
(60
|
)
|
—
|
|||||||||||||
Net cash
provided by (used for) investing activities
|
(2,831
|
)
|
(560
|
)
|
(2,687
|
)
|
416
|
|||||||||||
Cash
flow from financing activities:
|
||||||||||||||||||
Dividends
paid
|
(444
|
)
|
(444
|
)
|
—
|
—
|
||||||||||||
Common stock
issued, including treasury shares reissued
|
116
|
116
|
—
|
—
|
||||||||||||||
Payment for
stock repurchase derivative contracts
|
(38
|
)
|
(38
|
)
|
—
|
—
|
||||||||||||
Treasury
shares purchased
|
(1,362
|
)
|
(1,362
|
)
|
—
|
—
|
||||||||||||
Excess tax
benefit from stock-based compensation
|
53
|
53
|
—
|
—
|
||||||||||||||
Net
intercompany borrowings
|
—
|
433
|
(220
|
)
|
(213
|
)
|
6
|
|||||||||||
Proceeds from
debt issued (original maturities greater than three
months)
|
9,158
|
110
|
9,048
|
—
|
||||||||||||||
Payments on
debt (original maturities greater than three months)
|
(6,530
|
)
|
(133
|
)
|
(6,397
|
)
|
—
|
|||||||||||
Short-term
borrowings (original maturities three months or less) –
net
|
(393
|
)
|
(62
|
)
|
(331
|
)
|
—
|
|||||||||||
Net cash
provided by (used for) financing activities
|
560
|
(1,327
|
)
|
2,100
|
(213
|
)
|
||||||||||||
Effect of
exchange rate changes on cash
|
26
|
23
|
3
|
—
|
||||||||||||||
Increase
(decrease) in cash and short-term investments
|
(340
|
)
|
(384
|
)
|
44
|
—
|
||||||||||||
Cash and
short-term investments at beginning of period
|
1,122
|
862
|
260
|
—
|
||||||||||||||
Cash and
short-term investments at end of period
|
$
|
782
|
$
|
478
|
$
|
304
|
$
|
—
|
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.
|
Caterpillar
Inc.
Supplemental
Data for Cash Flow
For
The Six Months Ended June 30, 2007
(Unaudited)
(Millions
of dollars)
|
||||||||||||||||||
Supplemental
Consolidating Data
|
||||||||||||||||||
Machinery
and
|
Financial
|
Consolidating
|
||||||||||||||||
Consolidated
|
Engines
|
1
|
Products
|
Adjustments
|
||||||||||||||
Cash
flow from operating activities:
|
||||||||||||||||||
Profit
|
$
|
1,639
|
$
|
1,639
|
$
|
261
|
$
|
(261
|
)
|
2
|
||||||||
Adjustments
for non-cash items:
|
||||||||||||||||||
Depreciation
and amortization
|
849
|
512
|
337
|
—
|
||||||||||||||
Undistributed
profit of Financial Products
|
—
|
(261
|
)
|
—
|
261
|
3
|
||||||||||||
Other
|
71
|
47
|
(146
|
)
|
170
|
4
|
||||||||||||
Changes in
assets and liabilities:
|
||||||||||||||||||
Receivables -
trade and other
|
927
|
(117
|
)
|
(20
|
)
|
1,064
|
4,5
|
|||||||||||
Inventories
|
(691
|
)
|
(691
|
)
|
—
|
—
|
||||||||||||
Accounts
payable and accrued expenses
|
14
|
(86
|
)
|
36
|
64
|
4
|
||||||||||||
Customer
advances
|
352
|
352
|
—
|
—
|
||||||||||||||
Other assets -
net
|
(300
|
)
|
(255
|
)
|
2
|
(47
|
)
|
4
|
||||||||||
Other
liabilities - net
|
375
|
337
|
8
|
30
|
4
|
|||||||||||||
Net cash
provided by (used for) operating activities
|
3,236
|
1,477
|
478
|
1,281
|
||||||||||||||
Cash
flow from investing activities:
|
||||||||||||||||||
Capital
expenditures - excluding equipment leased to others
|
(582
|
)
|
(575
|
)
|
(7
|
)
|
—
|
|||||||||||
Expenditures
for equipment leased to others
|
(621
|
)
|
—
|
(627
|
)
|
6
|
4
|
|||||||||||
Proceeds from
disposals of property, plant and equipment
|
208
|
13
|
196
|
(1
|
)
|
4
|
||||||||||||
Additions to
finance receivables
|
(6,356
|
)
|
—
|
(17,369
|
)
|
11,013
|
5
|
|||||||||||
Collections of
finance receivables
|
5,233
|
—
|
16,846
|
(11,613
|
)
|
5
|
||||||||||||
Proceeds from
sales of finance receivables
|
84
|
—
|
777
|
(693
|
)
|
5
|
||||||||||||
Net
intercompany borrowings
|
—
|
35
|
(29
|
)
|
(6
|
)
|
6
|
|||||||||||
Investments
and acquisitions (net of cash acquired)
|
(174
|
)
|
(181
|
)
|
—
|
7
|
7
|
|||||||||||
Proceeds from
sales of available-for-sale securities
|
119
|
7
|
112
|
—
|
||||||||||||||
Investments in
available-for-sale securities
|
(217
|
)
|
(8
|
)
|
(209
|
)
|
—
|
|||||||||||
Other –
net
|
285
|
81
|
206
|
(2
|
)
|
7
|
||||||||||||
Net cash
provided by (used for) investing activities
|
(2,021
|
)
|
(628
|
)
|
(104
|
)
|
(1,289
|
)
|
||||||||||
Cash
flow from financing activities:
|
||||||||||||||||||
Dividends
paid
|
(386
|
)
|
(386
|
)
|
—
|
—
|
||||||||||||
Common stock
issued, including treasury shares reissued
|
223
|
223
|
(2
|
)
|
2
|
7
|
||||||||||||
Treasury
shares purchased
|
(1,017
|
)
|
(1,017
|
)
|
—
|
—
|
||||||||||||
Excess tax
benefit from stock-based compensation
|
97
|
97
|
—
|
—
|
||||||||||||||
Net
intercompany borrowings
|
—
|
29
|
(35
|
)
|
6
|
6
|
||||||||||||
Proceeds from
debt issued (original maturities greater than three
months)
|
5,259
|
43
|
5,216
|
—
|
||||||||||||||
Payments on
debt (original maturities greater than three months)
|
(5,453
|
)
|
(49
|
)
|
(5,404
|
)
|
—
|
|||||||||||
Short-term
borrowings (original maturities three months or less) -
net
|
86
|
267
|
(181
|
)
|
—
|
|||||||||||||
Net cash
provided by (used for) financing activities
|
(1,191
|
)
|
(793
|
)
|
(406
|
)
|
8
|
|||||||||||
Effect of
exchange rate changes on cash
|
8
|
4
|
4
|
—
|
||||||||||||||
Increase
(decrease) in cash and short-term investments
|
32
|
60
|
(28
|
)
|
—
|
|||||||||||||
Cash and
short-term investments at beginning of period
|
530
|
319
|
211
|
—
|
||||||||||||||
Cash and
short-term investments at end of period
|
$
|
562
|
$
|
379
|
$
|
183
|
$
|
—
|
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.
|
§
|
Most
developed countries shifted their focus to inflation and are holding or
raising interest rates. Economies are slowing, and financial
markets remain distressed. Eventually central banks will return
to cutting interest rates, but it will likely be too late to help
economies this year. Growth in the developed economies should
average about 1.5 percent, the slowest pace since
2002.
|
§
|
Many
developing economies are experiencing increased inflation, and some have
tightened economic policies. However, most countries have moved
cautiously, and policies remain expansive. We expect strong
growth in construction to continue.
|
§
|
The West
Texas Intermediate oil price hit a new high this year, and we assume the
price will average $120 per barrel for the year. We expect that
oil prices will average about 16 percent higher in the last half of 2008
as compared with the first half, and that should have a continuing
positive impact on drilling activity and pipeline
construction.
|
§
|
We expect the
Australian thermal coal price will average almost $140 per metric ton
this year, with about a 16 percent increase from the first half to the
second half of 2008. Australian prices have been setting the
tone for other regional coal prices, so coal miners worldwide should
invest to increase production.
|
§
|
Most metals
prices advanced in the first half due to strong demand and supply
disruptions. We expect some improvement in supplies in the
second half, but prices overall should remain attractive for new
investment.
|
§
|
Employment
reports, manufacturing and service surveys and sales of large consumer
items suggest more distress in the economy than do gross domestic product
(GDP) accounts. Employment likely will decline further making
it difficult for the economy to avoid a recession. We expect
the U.S. economy will grow about 1 percent this
year.
|
§
|
Continued
financial market distress and the weak economy suggest the Fed will
eventually need to shift its focus back to addressing those
problems. We are assuming at least one more rate cut later this
year.
|
§
|
We see no
sign of a recovery in housing. Starts averaged a 1.03 million unit rate in
the first half, with permits even lower. For the full year, we
expect starts to be slightly under one million units—the lowest level
since 1945.
|
§
|
Nonresidential
construction starts should decline about 1 percent this year in response
to rising vacancy rates, declining capacity utilization and tighter
lending standards. Declines in commercial property values will
likely create additional problems for
banks.
|
§
|
Coal mining
and oil and natural gas should remain positive for the rest of the year,
since we assume prices will average higher in the second half than in the
first half.
|
§
|
The Canadian
economy unexpectedly declined in the first quarter, the second quarter of
weak activity. Despite the possibility of recession, high
metals and energy prices should benefit mining and the oil
sands.
|
§
|
Inflation
concerns prompted the European Central Bank (ECB) to raise interest rates
to 4.25 percent and the Bank of England (BoE) to hold its target rate at 5
percent. We assume a weakening economy will cause the ECB to
reverse policy and cut rates by at least 25 basis points before year-end.
We also expect that the BoE will cut rates 25 basis
points.
|
§
|
Interest
rates at 4 percent for the past year have taken a toll on euro-zone
economies, with surveys suggesting a very weak second
quarter. We expect euro-zone economic growth of 1.6 percent
this year and economic growth of 1.7 percent for the United
Kingdom.
|
§
|
Higher
interest rates and some softening in home prices caused residential
building permits to decline. We assume the two-year decline in
housing permits will continue for the rest of this
year.
|
§
|
Growth in
nonresidential construction slowed in the first quarter, and surveys
suggest further slowing will occur. Infrastructure construction
should hold up better than building
construction.
|
§
|
Growth in
Africa/Middle East should be 5.5 percent, slightly higher than last
year. We expect most governments will maintain expansive
policies, which will benefit economic growth at the cost of higher
inflation. The recent surge in oil prices will sustain
construction booms in the oil producing
countries.
|
§
|
We expect the
CIS economy will grow at 7.5 percent, down from 9 percent in
2007. Inflation is a growing problem, but central banks have
reacted slowly. Expansive economic policies and high commodity
prices should benefit construction, mining and energy
development.
|
§
|
Growth in the
Latin American economies should be 4.5 percent this year, a percentage
point lower than last year. Most countries raised interest
rates to address higher inflation, but we do not expect significant
impacts on growth this year. Higher metals prices should
encourage more investment in
mining.
|
§
|
The
Asia/Pacific region should grow 7.5 percent this year, down from more than
8 percent last year. Both China and India tightened economic
policies numerous times, but impacts on growth have been quite
small. We project more than 10 percent growth in China and more
than 8 percent growth in India. Growth in most other countries
should slow slightly. Construction and mining should continue
to do well throughout the region.
|
Sales
and Revenues 2008 vs. 2007
|
||
|
§
|
In 2007,
dealers reduced their machine inventories by about $1.1 billion, resulting
in company sales to North American dealers lower than dealer sales to end
customers. While we expect dealer sales to end users to decline
again in 2008, company sales will benefit as a result of substantially
lower forecasted changes to dealer inventories than we experienced in
2007.
|
§
|
Sales related
to energy and mining remain strong and are expected to improve again in
2008. Coal mining in the United States is particularly strong,
with rising coal prices and increasing exports driving the
improvement.
|
§
|
While the
industry for on-highway truck engines is still very weak as a result of
very slow growth in the U.S. economy, we expect our sales to improve from
the depressed levels of 2007.
|
§
|
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)
|
||||||||||||
April 1-30,
2008
|
—
|
$
|
—
|
—
|
$
|
4.940
|
1
|
|||||||||
May 1-31,
2008
|
600,000
|
$
|
81.77
|
600,000
|
$
|
4.891
|
1
|
|||||||||
June 1-30,
2008
|
8,533,000
|
$
|
75.96
|
8,533,000
|
$
|
4.243
|
1
|
|||||||||
Total
|
9,133,000
|
$
|
76.34
|
9,133,000
|
||||||||||||
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
|
||||||||||
November
2007
|
700,000
|
September
2008
|
11
|
58.00
|
88.00
|
|||||||||||||
November
2007
|
800,000
|
August
2008
|
12
|
53.60
|
80.40
|
|||||||||||||
January
2008
|
700,000
|
September
2008
|
10
|
51.00
|
78.00
|
|||||||||||||
January
2008
|
1,000,000
|
December
2008
|
16
|
50.00
|
80.00
|
|||||||||||||
Total
Outstanding
|
4,200,000
|
$
|
66
|
|
54.09
|
|
82.98
|
|||||||||||
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
|
|||||||||||
April 1-30,
2008
|
4,648
|
$
|
76.51
|
NA
|
NA
|
|||||||||||
May 1-31,
2008
|
1,070
|
$
|
81.13
|
NA
|
NA
|
|||||||||||
June 1-30,
2008
|
441
|
$
|
81.96
|
NA
|
NA
|
|||||||||||
Total
|
6,159
|
$
|
77.70
|
|||||||||||||
1
|
Represents
shares delivered
back to issuer for the payment of taxes resulting from the exercise of
stock options by employees and
Directors.
|
Proposal
1 - Election of Directors
All of
management's nominees for Class I directors as listed in the proxy
statement were ELECTED with the
following vote:
|
|||||||
Shares
Voted "FOR"
|
Shares
"WITHHELD"
|
Broker
Non-Votes
|
|||||
W. Frank
Blount
|
511,159,973
|
32,224,641
|
N/A
|
||||
John R.
Brazil
|
525,042,090
|
18,342,524
|
N/A
|
||||
Eugene V.
Fife
|
526,337,851
|
17,046,763
|
N/A
|
||||
Gail D.
Fosler
|
526,397,833
|
16,986,780
|
N/A
|
||||
Peter A.
Magowan
|
522,898,631
|
20,485,983
|
N/A
|
||||
The Class I
directors received an average affirmative vote of 96.13%. Class
II and III directors that were not up for election will continue in office
for the remainder of their terms.
|
Proposal
2 - Ratification of Independent Registered Public Accounting
Firm
A management
proposal requesting ratification of Independent Registered Public
Accounting Firm received the affirmative vote of 96.26% of the shares
present at the meeting and PASSED with the
following vote:
|
|||||||
Shares
Voted
"FOR"
|
Shares
Voted
"AGAINST"
|
Shares
"ABSTAINING"
|
Broker
Non-Votes
|
||||
523,064,364
|
8,022,256
|
12,297,993
|
N/A
|
Proposal
3 - Stockholder Proposal – Annual Election of Directors
A stockholder
proposal requesting the Board of Directors to elect all directors annually
received the affirmative vote of 54.94% of the shares
present at the meeting and PASSED with the
following vote:
|
|||||||
Shares
Voted
"FOR"
|
Shares
Voted
"AGAINST"
|
Shares
"ABSTAINING"
|
Broker
Non-Votes
|
||||
298,552,700
|
131,597,336
|
12,918,090
|
100,316,487
|
Proposal
4 - Stockholder Proposal – Director Election Majority Vote
Standard
A stockholder
proposal requesting the Board of Directors to adopt majority vote standard
received the affirmative vote of 34.42% of the shares
present at the meeting and FAILED TO PASS with the
following vote:
|
|||||||
Shares
Voted
"FOR"
|
Shares
Voted
"AGAINST"
|
Shares
"ABSTAINING"
|
Broker
Non-Votes
|
||||
187,012,686
|
242,537,413
|
13,518,028
|
100,316,487
|
Proposal
5 - Stockholder Proposal – Foreign Military Sales
A stockholder
proposal requesting the Board of Directors to prepare a report on foreign
military sales received the affirmative vote of 3.38% of the shares
present at the meeting FAILED TO PASS with the
following vote:
|
|||||||
Shares
Voted
"FOR"
|
Shares
Voted
"AGAINST"
|
Shares
"ABSTAINING"
|
Broker
Non-Votes
|
||||
18,354,487
|
351,991,283
|
72,722,356
|
100,316,487
|
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 among Caterpillar Inc.,
Caterpillar Financial Services Corporation, Caterpillar International
Finance p.l.c. and Caterpillar Finance Corporation, certain financial
institutions 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 Five-Year Credit Agreement dated September 21,
2006 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 Five-Year Credit Agreement dated September 21, 2006 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).
|
10.12
|
Five-Year
Credit Agreement dated September 20, 2007 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).
|
10.13
|
Japan Local
Currency Addendum to the Five-Year Credit Agreement dated September 20,
2007 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).
|
11
|
Computations
of Earnings per Share (included in Note 11 of this Form 10-Q filed for the
quarter ended June 30, 2008).
|
31.1
|
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.
|
31.2
|
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.
|
32
|
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.
|
|
|||
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.
|
|||
August 1, 2008
|
/s/ James
W. Owens
|
Chairman of
the Board and Chief Executive Officer
|
|
(James W.
Owens)
|
|||
August 1, 2008
|
/s/ David B. Burritt |
Vice
President and Chief Financial Officer
|
|
(David B.
Burritt)
|
|||
August 1,
2008
|
/s/ Bradley M. Halverson |
Controller
|
|
(Bradley M.
Halverson)
|
|||
August 1,
2008
|
/s/ James B. Buda
|
Vice
President, General Counsel and Secretary
|
|
(James B.
Buda)
|
|||
August 1,
2008
|
/s/
Jananne A. Copeland
|
Chief
Accounting Officer
|
|
(Jananne A.
Copeland)
|