How did Caterpillar perform financially in 2002?

Sales and revenues were $20.15 billion, down about 1% from 2001. Profit was $798 million, or $2.30 per diluted share, nearly flat with 2001's $805 million. Excluding 2001 unusual charges, profit declined about 12%, as lower sales volume and manufacturing inefficiencies offset favorable pricing and currency effects.

What is the main risk tied to the engine business?

Engine operating profit fell 50% to $175 million. The emissions transition under the EPA consent decree is a key factor: bridge engines carry non-conformance penalties, and the company's ACERT engines are not expected to be in full production until late 2003. Management expects the net 2003 emissions impact to be no worse than 2002's roughly $17 million after tax, but the estimate depends on PCA testing results and banked credit usage.

What does the 2003 outlook look like?

Management expects company sales and revenues to be about the same as 2002, with profit down about 5%. The company expects roughly 3% worldwide economic growth, with sales up in EAME and Asia/Pacific and down in North America and Latin America. Higher pension and health care costs of about $300 million are expected to be largely offset by operational improvements.

What significant legal matters does the company face?

Caterpillar is in litigation with Navistar, which it sued in January 2002 over a purchase contract. Caterpillar has a $104 million past-due receivable from Navistar tied to the case. International Truck and Engine has also sued, alleging breach of a long-term term sheet and seeking damages it describes as exceeding $500 million in an earlier complaint. Management believes these claims are without merit and does not expect a material impact on its financial statements.

How is the company's financing structure changing?

Total debt reached $17.7 billion at year-end 2002. Most of the increase came from Financial Products, where debt rose $1.14 billion to $13.96 billion to fund growth in Cat Financial's receivables portfolio. Machinery and Engines debt fell slightly, and the company has a $4.55 billion global credit facility, of which $3.95 billion is available to Cat Financial.

CAT 10-K FY2002 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 31, 2003. Cited figures are marked; the original filing is the authoritative source.

Caterpillar's fiscal 2002 10-K shows a company under cyclical pressure but with improving cash generation and a strategic emissions transition underway.

Consolidated sales and revenues were $20.15 billion^a, down about 1% from $20.45 billion, as lower sales volume (about $680 million) was largely offset by price realization (about $300 million, half from a weaker dollar). Profit fell less than 1% to $798 million, or $2.30 per diluted share, versus $805 million, but excluding 2001 unusual charges, profit declined about 12%. Operating cash flow rose to $2.37 billion from $1.99 billion, driven by inventory and working capital reductions, and Machinery and Engines operating cash flow improved to $1.70 billion.

The most important investor issues are the engine business and emissions compliance. Engine operating profit fell 50% to $175 million^b, with Engine segment profit pressured by lower large reciprocating engine volume and non-conformance penalties (NCPs) on bridge engines. Caterpillar estimates the net 2003 emissions impact will be no worse than 2002's roughly $17 million after tax, with ACERT engines expected to reduce NCP exposure after 2003.

Management also projects 2003 company sales roughly flat versus 2002, with profit down about 5%, reflecting roughly $300 million^c of higher pension, health care and related benefit costs. Management guided to about 3% worldwide economic growth in 2003, with weakness in North America and Latin America offset by gains in Asia/Pacific and EAME. Balance sheet and financing activity remained significant.

Total debt reached $17.7 billion^d, with Financial Products debt up $1.14 billion to $13.96 billion to support Cat Financial's portfolio growth. Total stockholders' equity was $5.47 billion, and the company faces material legal exposure from its dispute with Navistar, including a $104 million past-due receivable and claims that International Truck and Engine has framed as exceeding $500 million, which management says it will vigorously contest. Pension and postretirement obligations also weighed on equity, with the additional minimum pension liability reducing accumulated other comprehensive income by $610 million after tax.

02—Key points

Key Highlights

Sales and revenues of $20.15 billion, down about 1% from $20.45 billion; sales volume fell about $680 million, partly offset by roughly $300 million in price realization
Profit of $798 million, or $2.30 per diluted share, versus $805 million ($2.32) in 2001; excluding 2001 unusual charges, profit fell about 12%
Engine segment operating profit fell 50% to $175 million, while Machinery operating profit rose 10% to $932 million on reported basis (down 2% excluding unusual charges)
Operating cash flow rose to $2.37 billion from $1.99 billion, driven by working capital and inventory reductions
Total debt of $17.7 billion, up $1.08 billion, mainly from Financial Products growth at Cat Financial; Machinery and Engines debt decreased $59 million
2003 outlook: company sales roughly flat, profit expected to decline about 5%, with about $300 million (roughly 60 cents per share) of higher retiree benefit costs
Emissions compliance: $40 million of 2002 NCP expense; 2003 NCPs estimated at about $93 million pre-tax, partly offset by about $153 million in bridge and ACERT price increases

03—Questions

Frequently Asked Questions

How did Caterpillar perform financially in 2002?
Sales and revenues were $20.15 billion, down about 1% from 2001. Profit was $798 million, or $2.30 per diluted share, nearly flat with 2001's $805 million. Excluding 2001 unusual charges, profit declined about 12%, as lower sales volume and manufacturing inefficiencies offset favorable pricing and currency effects.
What is the main risk tied to the engine business?
Engine operating profit fell 50% to $175 million. The emissions transition under the EPA consent decree is a key factor: bridge engines carry non-conformance penalties, and the company's ACERT engines are not expected to be in full production until late 2003. Management expects the net 2003 emissions impact to be no worse than 2002's roughly $17 million after tax, but the estimate depends on PCA testing results and banked credit usage.
What does the 2003 outlook look like?
Management expects company sales and revenues to be about the same as 2002, with profit down about 5%. The company expects roughly 3% worldwide economic growth, with sales up in EAME and Asia/Pacific and down in North America and Latin America. Higher pension and health care costs of about $300 million are expected to be largely offset by operational improvements.
What significant legal matters does the company face?
Caterpillar is in litigation with Navistar, which it sued in January 2002 over a purchase contract. Caterpillar has a $104 million past-due receivable from Navistar tied to the case. International Truck and Engine has also sued, alleging breach of a long-term term sheet and seeking damages it describes as exceeding $500 million in an earlier complaint. Management believes these claims are without merit and does not expect a material impact on its financial statements.
How is the company's financing structure changing?
Total debt reached $17.7 billion at year-end 2002. Most of the increase came from Financial Products, where debt rose $1.14 billion to $13.96 billion to fund growth in Cat Financial's receivables portfolio. Machinery and Engines debt fell slightly, and the company has a $4.55 billion global credit facility, of which $3.95 billion is available to Cat Financial.

04—Continue

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