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CATERPILLAR INC Annual Report, Year Ended Dec 31, 2003

Filing Date
Filed March 10, 2004
Period End
December 31, 2003
Security
CAT
In the record · 2016–202610-K1110-Q328-K184

CAT filed 11 annual reports (10-K), 32 quarterly reports (10-Q) and 184 current reports (8-K) between 2016 and 2026.

  1. FY2016 annual report10-K · Feb ’17Feb ’17
  2. Material agreement8-K · Sep ’19Sep ’19
  3. Leadership change8-K · Feb ’22Feb ’22
  4. Leadership change8-K · Jan ’26Jan ’26

01—Abstract

Summary

Summary of the 10-K filed March 10, 2004. Cited figures are marked; the original filing is the authoritative source.

Caterpillar's 2003 10-K shows a strong recovery year.

Total sales and revenues rose 13% to $22.76 billiona, and profit increased 38% to $1.10 billion ($3.13 diluted EPS, versus $2.30 in 2002). Operating profit climbed 27% to $1.69 billion. Machinery sales grew 14% and Engines sales grew 10%, driven by volume recovery in North America and Asia/Pacific, favorable currency (a stronger euro), and emissions-related price increases tied to the ACERT engine launch.

Cat Financial revenues rose 14%b as its earning assets grew. Management guided to roughly 12% sales growth and about 40% higher profit per share in 2004. The main risk and cost item was the EPA emissions consent decree.

Non-conformance penalties (NCPs) rose to $153 millionc in 2003 from $40 million in 2002, and emissions-related items reduced 2003 pre-tax profit by a net $46 million. Caterpillar said it had completed the transition to fully compliant ACERT engines, so it does not expect to pay NCPs on engines built in 2004. Pension expense also rose sharply, by about $310 million in Machinery and Engines, and pension contributions of $720 million reduced operating cash flow to $2.07 billion, down from $2.37 billion.

Balance sheet growth was driven mainly by Cat Financial, whose debt rose $2.4 billion to $16.3 billiond. Consolidated total debt reached $19.8 billion.

Cat Financial's financing needs and pension funding are the key items for investors to monitor. The company also repurchased 5.45 million shares for $405 million in Q4, under a program aimed at reducing outstanding shares to 320 million by 2008.

02—Key points

Key Highlights

  1. Total sales and revenues rose 13% to $22.76B (from $20.15B), and profit rose 38% to $1.10B, or $3.13 per diluted share (from $2.30).
  2. Operating profit increased 27% to $1.69B. Machinery operating profit rose 32% on better price realization and volume.
  3. Emissions compliance cost: NCP expense jumped to $153M (from $40M), and the net 2003 pre-tax impact of emissions standards was -$46M. Caterpillar says NCP payments end with 2003 production.
  4. Pension and retirement benefit costs rose about $310M, and $720M of pension contributions cut operating cash flow to $2.07B (from $2.37B).
  5. Cat Financial drove balance sheet growth: total debt reached $19.8B (up $2.1B), with Financial Products debt up $2.4B to $16.3B.
  6. Backlog rose to $4.91B (from $2.90B) at year-end, and 2004 guidance projects roughly 12% sales growth and about 40% higher profit per share.
  7. Share repurchases of $405M (5.45M shares) in Q4 2003, under a plan to reduce outstanding shares to 320M by 2008.

03—Questions

Frequently Asked Questions

  1. How much did Caterpillar's profit and earnings per share grow in 2003?

    Profit rose to $1.099 billion from $798 million in 2002, a 38% increase. Diluted EPS was $3.13, compared with $2.30. The gain reflected higher sales volume, favorable currency, better price realization, and higher operating profit, partly offset by higher pension costs and emissions-related expenses.

  2. What is the financial impact of the EPA emissions consent decree?

    In 2003, NCP expense was $153 million, up from $40 million in 2002. Including price increases and higher production costs, the net pre-tax impact of emissions standard changes was -$46 million (about -$34 million after tax). Caterpillar says it now produces fully compliant ACERT engines and does not expect to pay NCPs on engines built in 2004. Investors should watch whether the ACERT pricing premium holds as competitors also meet the standards.

  3. Why did operating cash flow decline, and what does it mean for liquidity?

    Operating cash flow fell $300 million to $2.07 billion, mainly because pension contributions rose to $720 million from $197 million. Machinery and Engines still generated $1.43 billion after those contributions. Management expects about $500 million of voluntary U.S. pension contributions in 2004, so cash flow will remain pressured. Financial Products relies on capital markets to fund its growth, so total debt is rising.

  4. What are the main risks facing Caterpillar's outlook?

    Key risks include a sharp rise in interest rates, which would hurt both economic growth and Cat Financial's margins; a much stronger euro; intensified price competition from Komatsu and other rivals; possible expiration of the Navistar supply contract; and labor contract expirations. The company also faces pending litigation with Navistar and International Truck and Engine, and the EU's WTO-related tariffs, which management does not expect to be material. Its 2004 guidance assumes low interest rates persist, no major geopolitical shocks, and no significant reduction in dealer inventories.

04—Continue

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