Caterpillar Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; fourth-quarter comparisons are year over year. Amounts are U.S. dollars. Caterpillar manufactures construction and mining equipment, engines, turbines and locomotives, and provides equipment financing and insurance.
Financial results
| Metric | 2020 | 2019 |
|---|---|---|
| Sales and revenues | $41.748 billion | $53.800 billion |
| Profit attributable to common shareholders | $2.998 billion | $6.093 billion |
| Diluted earnings per share | $5.46 | $10.74 |
| Operating profit | $4.553 billion | $8.290 billion |
| Operating profit margin | 10.9% | 15.4% |
| Cash from operating activities | $6.327 billion | $6.912 billion |
| Total debt at year-end | $37.163 billion | $37.657 billion |
| Cash and short-term investments at year-end | $9.352 billion | $8.284 billion |
Machinery, Energy & Transportation (ME&T) free cash flow, a company-defined non-GAAP measure, was $3.060 billion, down from $5.297 billion. The company reported more than $14 billion of available liquidity sources. Year-end total assets were $78.324 billion. Dividends declared were $4.12 per share, versus $3.95 in 2019.
Business context and material changes
Annual sales and revenues fell 22%, reflecting lower end-user demand and dealer inventory reductions across all three primary machinery segments and regions. Dealers reduced machine and engine inventories by about $2.9 billion in 2020, compared with an approximately $0.8 billion increase in 2019. Management did not expect a significant dealer inventory reduction in 2021.
- Construction Industries sales declined 25% to $16.918 billion; segment profit fell 40% to $2.373 billion.
- Resource Industries sales declined 23% to $7.906 billion; segment profit fell 45% to $896 million.
- Energy & Transportation sales declined 21% to $17.470 billion; segment profit fell 38% to $2.405 billion.
- Financial Products revenues declined 11% to $3.044 billion, and segment profit fell from $832 million to $590 million, reflecting lower financing rates and earning assets and higher credit-loss provisions.
Fourth-quarter sales and revenues were $11.235 billion, down 15% year over year; profit was $780 million, or $1.42 diluted per share, compared with $1.098 billion, or $1.97 per share. Fourth-quarter operating profit margin was 12.3%, versus 14.1%.
Outlook, commentary and risks
- Outlook: The filing does not provide a clear consolidated 2021 sales or earnings forecast. Management expected ME&T capital expenditures of $1.0–$1.2 billion, restructuring costs of about $400 million, and roughly $150 million of incremental operating-cost benefit from prior restructuring actions versus 2020. Short-term incentive compensation expense was expected to be about $900 million in 2021.
- Demand and COVID-19: Management said nearly all primary production facilities were operating at year-end, while warning that the pandemic, economic recovery and possible shutdowns remained uncertain. Risks include weaker demand, supply-chain disruption, logistics costs and customer or dealer credit deterioration.
- Other principal risks: Cyclical construction, mining and energy markets; commodity-price and foreign-exchange movements; competition and pricing pressure; supplier constraints; financing access and credit losses; environmental and emissions regulation; cybersecurity; and legal, tax and trade matters.
- Financial Products credit: Cat Financial past dues rose to 3.49% from 3.14%. The MD&A reports an allowance for credit losses of $479 million (1.77% of finance receivables); a financial-statement note reports $475 million, so the filing presents differing figures that warrant reconciliation.
- Unusual legal and tax matters: The IRS proposed approximately $2.3 billion of additional U.S. tax and penalties relating to Caterpillar SARL parts transactions for 2007–2012, including a loss carryback to 2005. Caterpillar is contesting the matter and recorded no amount for those proposed adjustments, stating it does not expect a material adverse effect. The auditor identified the tax position as a critical audit matter. The company also disclosed an ongoing federal grand jury investigation and said it could not predict the outcome or estimate potential loss.
- Capital actions: Caterpillar issued $2.0 billion of long-term bonds in 2020 to bolster liquidity. It repurchased $1.13 billion of shares but temporarily suspended repurchases in the second half of the year; $4.8 billion remained authorized. The quarterly dividend was maintained at $1.03 per share.
- Backlog: Firm order backlog was approximately $14.2 billion at year-end, up from $13.7 billion; about $3.6 billion was not expected to be filled in 2021.
Investor items to verify
- Whether sales, margins and dealer inventory trends recover, and how much 2021 demand depends on end users versus dealer restocking.
- Cat Financial credit quality, credit-loss allowance, past dues and repossessed-equipment exposure, including the $479 million versus $475 million allowance figures.
- Developments in the $2.3 billion IRS dispute and the federal investigation, including any change to Caterpillar’s accounting assessment or stated view of materiality.
- Execution against 2021 restructuring, cost, capital expenditure and incentive-compensation expectations, and the timing of any resumption of share repurchases.
- Debt maturities, funding access and covenant headroom, particularly given the company’s sizable consolidated debt and the financing subsidiary’s dependence on capital markets.
The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting as of December 31, 2020.