Caterpillar Inc. — 2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010. This is an annual filing, not a standalone fourth-quarter report. The filing was signed February 22, 2011.
Business context and performance
Caterpillar operates in Machinery, Engines and Financial Products, including equipment and engine manufacturing, financing, insurance, remanufacturing and logistics. It reported 2010 sales and revenues of $42.588 billion.
| Metric | 2010 | Prior comparable period | Change |
|---|---|---|---|
| Sales and revenues | $42.588 billion | 2009 value not stated in the supplied filing text | Up 31% |
| Profit | $2.7 billion | 2009 value not stated in the supplied filing text | Up 202% |
| Profit per share | $4.15 | $1.43 | Increased |
| Firm order backlog | $18.7 billion | $9.6 billion at December 31, 2009 | Increased; filing cites stronger order volume and EMD acquisition |
| Research and development | $1.905 billion, or 4.5% of sales and revenues | $1.421 billion in 2009 | Increased |
Sales outside the United States were 68% of consolidated sales, versus 69% in 2009. The filing excerpt does not provide clear values for cash flow, margins, debt, liquidity, or detailed segment results; these disclosures are incorporated by reference from Exhibit 13.
Material changes and management commentary
- Management attributed the recovery in results to improving global economies, increased equipment demand, dealer inventory and rental-fleet replenishment, and higher commodity prices. Developing economies recovered more strongly, while construction remained weak in many developed markets.
- Backlog rose from $9.6 billion at year-end 2009 to $18.7 billion at year-end 2010; approximately $2.8 billion of the 2010 backlog was not expected to be filled in 2011.
- Caterpillar acquired Electro-Motive Diesel (EMD) in August 2010, along with other rail-related businesses. It also agreed to acquire Bucyrus, subject to closing conditions and regulatory approvals, and agreed to acquire engine supplier MWM, also subject to conditions and approvals.
- In June 2010, the company updated its Vision 2020 strategy, emphasizing customer success, stockholder returns, product development, cost reduction, growth in strategic markets and talent development. Douglas R. Oberhelman became CEO in 2010.
Outlook, risks and contingencies
- Management expected 2011 R&D expense to increase about 20%, primarily to develop and roll out products meeting emissions requirements. The supplied text provides no clear numerical 2011 sales or earnings guidance.
- Capacity expansions and new facilities were planned across mining, rail, engines, excavators and other product lines. Several were expected to begin production in 2012 or 2013; execution and demand assumptions remain relevant.
- Key risks include cyclical global demand, commodity-price volatility, component supply constraints, competition and pricing, currency and interest-rate movements, access to funding, Cat Financial credit losses, and regulatory and emissions-compliance costs. Tier 4 requirements were scheduled to affect many nonroad products beginning in 2011.
- The Bucyrus transaction was expected to be funded partly with debt and equity securities, which could increase leverage or dilute shareholders. Integration, approvals, synergies and timing were uncertain.
- Labor negotiations were ongoing for the U.S. United Auto Workers agreement expiring March 1, 2011; a failure to reach agreement could lead to a strike or work stoppage.
- Environmental and legal matters included an EPA emissions case with a $3.2 million penalty demand and requested injunctive relief; management said penalties would likely exceed $100,000 but did not expect a material consolidated impact. Other disclosed environmental matters were also assessed by management as not expected to have a material impact, though some investigations remained unresolved.
Most important facts for investors to verify
- Review Exhibit 13 for the complete income statement, cash-flow statement, balance sheet, margins, debt and liquidity measures, segment results, and the detailed 2011 outlook.
- Confirm the status, financing, dilution and subsequent integration outcomes of the Bucyrus and MWM transactions, and the results of other acquisitions.
- Assess whether backlog converts to sales on expected timing and margins, and whether planned capacity can meet demand without supply bottlenecks.
- Track Tier 4 product launches, related R&D and production costs, customer acceptance of pricing, and compliance deadlines.
- Monitor labor negotiations, Cat Financial funding and credit quality, and developments in the disclosed environmental and legal proceedings.