01—Abstract
Summary
Summary of the 10-K filed February 22, 2008. Cited figures are marked; the original filing is the authoritative source.
Caterpillar's 2007 Form 10-K reports a record year: sales and revenues rose 8% to $44.958 billiona and profit reached $3.541 billion, or $5.37 per diluted share (up 4%).
Growth was driven by strong demand outside North America, with EAME sales up 34% and Asia/Pacific up 28%, while North American machinery sales fell 11% as the U.S. housing and construction markets weakened. Price realization (about 2%), currency (a $890 millionb tailwind, mostly from the stronger euro), and the Progress Rail acquisition helped offset weak U.S. volume. Operating profit was flat at $4.921 billion because higher core operating costs, driven mainly by manufacturing inefficiencies and supply-chain challenges, absorbed the benefit of higher prices and volume.
Cash generation and balance sheet strength were key positives. Machinery and Engines operating cash flow reached a record $5.446 billionc, and the Machinery and Engines debt-to-capital ratio improved to 31.2% from 38.6%. The company returned capital through $2.405 billion of buybacks (33.5 million shares) under a $7.5 billion authorization running through 2011, and dividends were raised to $1.38 per share.
Backlog grew to $17.8 billiond from $14.5 billion. Management guided to 2008 sales growth of 5–10% and profit per share growth of 5–15%, while expecting U.S. recession risk and stepped-up R&D spending of 15–20%. Risks flagged in the filing include the U.S. housing and nonresidential slowdown, an EPA Clean Air Act Notice of Violation (penalties could exceed $100 thousand), the Kruse patent litigation, and a February 2008 tornado that damaged the Oxford, Mississippi hose-coupling plant and could disrupt assembly for several months, with the impact not yet estimable.
02—Key points
Key Highlights
- Record 2007 results: sales and revenues of $44.958 billion (up 8%) and profit of $3.541 billion, or $5.37 per diluted share, marking the fifth straight year of record sales and fourth of record profit.
- Geographic shift: North American machinery sales fell 11%, while sales outside North America rose sharply (EAME up 34%, Asia/Pacific up 28%, Latin America up 18%), led by emerging-market construction and mining demand.
- Flat operating profit at $4.921 billion: price realization and volume gains were offset by $1.232 billion in higher core operating costs, mainly manufacturing inefficiencies and material costs.
- Strong cash flow and balance sheet: record Machinery and Engines operating cash flow of $5.446 billion, with the Machinery and Engines debt-to-capital ratio improving to 31.2% from 38.6%.
- Shareholder returns: repurchased 33.5 million shares for $2.405 billion under a $7.5 billion program through 2011, and raised the annual dividend to $1.38 per share.
- 2008 outlook: management expects another record year, with sales up 5–10% and profit per share up 5–15%, despite expecting U.S. economic weakness and a possible recession.
- Risk items: a February 2008 tornado damaged the Oxford, Mississippi hose-coupling plant, the EPA has issued a Clean Air Act violation notice, and the Kruse patent suit remains pending.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2007, Caterpillar Inc kept $0.08.
- Revenue$44.96B100.0%
- Cost of revenue−$32.63B72.6%
- Gross profit$12.33B27.4%
- Operating costs−$7.41B16.5%
- Operating income$4.92B10.9%
- Interest, other & tax−$1.38B3.1%
- Net income$3.54B7.9%
Where FY2007 revenue went
$44.96B- Cost of revenue: $32.63B, 73% of revenue
- Net income: $3.54B, 7.9% of revenue
- R&D: $1.40B, 3.1% of revenue
- SG&A: $3.82B, 8.5% of revenue
- Other operating costs: $2.19B, 4.9% of revenue
- Interest, other & tax: $1.38B, 3.1% of revenue
Kept 7.9% as net incomeNet income $3.54B · 7.9%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2007filed February 22, 2008Financial Statements
| Revenue | $44.96B |
| Cost of Revenue | $32.63B |
| Gross Profit | $12.33B |
| R&D Expenses | $1.40B |
| SG&A Expenses | $3.82B |
| Operating Expenses | $40.04B |
| Operating Income | $4.92B |
| Net Income | $3.54B |
| EPS (Basic) | $5.55 |
| EPS (Diluted) | $5.37 |
| Shares Outstanding (Basic) | 638.20M |
| Shares Outstanding (Diluted) | 659.50M |
05—Questions
Frequently Asked Questions
How did Caterpillar perform in 2007 and what drove the results?
Sales and revenues rose 8% to $44.958 billion and profit rose to $3.541 billion ($5.37 diluted EPS, up 4%). Growth came from strong international demand, price realization of over 2%, a $890 million currency benefit (mainly the stronger euro), and the Progress Rail acquisition. These gains offset a 11% decline in North American machinery sales.
Why was operating profit flat despite record sales?
Operating profit stayed at $4.921 billion because core operating costs rose $1.232 billion. About $1.225 billion of that came from higher manufacturing costs, including operating inefficiencies from supply-chain issues, capacity expansion, and a sharp decline in on-highway truck engine production, along with higher material costs.
What is Caterpillar's exposure to the U.S. slowdown?
North America is the weakest region. Machinery sales there fell 11% in 2007 and dealers cut inventories by about $1.1 billion. Management expects North America to be the weakest growth region in 2008 and sees a possible U.S. recession, while expecting continued strength in the rest of the world. Outside North America accounted for 63% of 2007 sales, up from 54%.
How strong is the balance sheet and how is cash being returned to shareholders?
Machinery and Engines operating cash flow was a record $5.446 billion, and the debt-to-capital ratio improved to 31.2% from 38.6%. The company spent $2.405 billion repurchasing 33.5 million shares under a $7.5 billion authorization, and dividends paid were $845 million, with the annual dividend per share rising to $1.38.
What are the key risks and near-term uncertainties for 2008?
Key risks include the U.S. housing and nonresidential downturn, rising steel and commodity costs, currency swings, and the February 2008 tornado that damaged the Oxford, Mississippi hose-coupling plant, which may sporadically disrupt assembly for months. The EPA Clean Air Act notice of violation could bring penalties, though management does not expect a material impact. Management also plans a 15–20% increase in R&D spending and expects the 2008 tax rate to rise to about 31.5%.
06—Continue