Caterpillar Inc. — 2009 Form 10-K
Reporting period: Fiscal year ended December 31, 2009. This is an annual report, not a standalone fourth-quarter filing; the supplied text gives no clear Q4 financial totals. Caterpillar operates Machinery, Engines and Financial Products businesses.
Financial and operating results
- Sales and revenues: $32.396 billion, down 37% from 2008.
- Profit: $895 million, down 75% from 2008.
- Profit per share: $1.43, including $0.75 per share of redundancy costs.
- Margins: The supplied filing text does not provide clear margin values.
- Cash flow and liquidity: Management emphasized maintaining solid profitability and cash flow and improving the balance sheet. The supplied text does not provide clear cash-flow or liquidity figures. The company maintained its dividend rate and credit ratings; share repurchases remained suspended.
- Debt: Debt balances are not stated clearly in the supplied text. The filing describes reliance on capital markets and committed credit facilities, and identifies debt covenant requirements and funding-access risks.
- Backlog: Approximately $9.6 billion at year-end, versus $14.7 billion in 2008 and $17.8 billion in 2007. About $2.5 billion was not expected to be filled during 2010.
- Research and development: $1.421 billion, or 4.4% of sales and revenues, versus $1.728 billion (3.4%) in 2008. R&D spending was expected to rise about 20% in 2010, primarily for EPA Tier 4 product development.
Material changes versus 2008
- The global recession drove sharply lower equipment demand; end users cut purchases and dealers reduced reported inventories by more than $3.3 billion. Machinery sales volume fell at an unprecedented rate.
- Sales and revenues fell 37% and profit fell 75%; redundancy actions incurred full-year costs of $0.75 per share.
- Backlog declined by $5.1 billion year over year. Caterpillar attributed the reduction to weak conditions and allowing dealers to cancel orders.
- Sales outside the United States were 69% of consolidated sales, versus 67% in 2008.
- Despite the downturn, Caterpillar maintained its dividend rate, continued selective investment and reported an improved balance sheet. No shares were repurchased in Q4.
- Economic conditions showed signs of recovery in the second half of 2009, more clearly in developing economies, but recovery remained uneven. The year-on-year sales-volume decline in Q4 was less severe than in the two preceding quarters.
Outlook, risks and unusual items
- Management expected developing markets to grow in 2010 and anticipated significant volume increases, while cautioning that the recovery remained uncertain and uneven. The supplied text does not provide a clear quantified 2010 sales or earnings forecast.
- Key risks include weaker-than-expected global, construction, mining and energy activity; commodity-price volatility; supplier capacity or financial distress as production ramps up; pricing competition; and reduced customer access to financing.
- Cat Financial faces customer credit and collateral risks, as well as funding, liquidity, interest-rate and foreign-exchange exposure. Rating-agency outlooks for Caterpillar and Cat Financial were negative at Moody’s and S&P; Fitch and DBRS had downgraded them to A with stable outlooks. The company said it maintained its credit ratings overall.
- EPA Tier 4 nonroad emissions requirements begin applying to most relevant products in 2011. Delays, development costs or weak customer acceptance of resulting prices could affect results and competitiveness. Potential carbon-emissions regulation was also identified as an uncertain risk.
- Redundancy costs were a significant unusual item. The filing also describes unresolved EPA matters relating to alleged emissions violations and a 2009 wastewater release at the Joliet facility. Management did not expect these proceedings to have a material adverse effect; the EPA’s revised civil-penalty notice for the wastewater matter sought $167,800.
- Environmental remediation reserves were described as not material. Management said unresolved legal actions were not expected to have a material aggregate impact, while noting future outcomes could differ.
Important facts for investors to verify
- Review the incorporated financial statements and MD&A in Exhibit 13 for complete cash-flow, debt, liquidity, segment and margin details; these are not clearly stated in the supplied filing text.
- Confirm the extent and timing of any recovery in equipment demand, dealer inventories and backlog conversion.
- Assess the scale of Cat Financial’s credit-loss exposure, funding needs and access to debt markets.
- Track Tier 4 compliance execution, related costs and customer acceptance of product pricing.
- Monitor resolution and any financial consequences of the EPA matters and other legal contingencies.