01—Abstract
Summary
Summary of the 10-K filed February 20, 2009. Cited figures are marked; the original filing is the authoritative source.
Caterpillar's 2008 Form 10-K (filed February 20, 2009) reports record full-year sales and revenues of $51.324 billiona, up 14 percent, and profit of $3.557 billion, or $5.66 per diluted share, roughly flat with 2007.
Results were strong through the first three quarters, but fourth-quarter profit fell 28 percent to $1.08b per share as demand collapsed, manufacturing costs failed to fall with volume, and Financial Products earnings were hit by financial market turbulence. The company has entered a sharp downturn: management projects 2009 sales of about $40 billion (down roughly 25 percent) and profit near $2.00 per share, or $2.50 excluding about $500 million in redundancy costs, and warns that a first-quarter loss is possible. The balance sheet shows increased strain.
Total debt rose to $35.5 billionc, and the Machinery and Engines debt-to-capital ratio jumped to 57.9 percent from 31.2 percent, well above its 35 to 45 percent target range, largely due to a $3.4 billion after-tax pension and retiree benefit charge to other comprehensive income. Year-end stockholders' equity fell to $6.087 billion. Caterpillar fell below a consolidated net worth covenant in its credit facility and Cat Financial missed an interest coverage covenant in the fourth quarter.
Lenders waived these for Q4 2008 and raised interest rate margins, and the company has temporarily suspended its $7.5 billiond share repurchase program. Management is responding with a broad "trough" plan: about 20,000 workers removed, roughly 15 percent cuts in indirect spending, sharply reduced capital expenditures (about $1.5 billion in 2009, down 38 percent), and a planned pension contribution near $1 billion. Growth investments continue, including a $1 billion Illinois capacity expansion, a $200 million India investment, and acquisitions such as Lovat, Gremada, MGE and the consolidation of Caterpillar Japan Ltd. The dividend has been raised for 15 consecutive years, though management expects only modest increases in 2009.
02—Key points
Key Highlights
- Record 2008 sales and revenues of $51.324 billion (up 14%); profit of $3.557 billion, or $5.66 per diluted share, roughly flat year over year.
- Fourth-quarter profit fell to $661 million ($1.08 per share), down 28%, as manufacturing costs did not fall in line with a sharp drop in production volume.
- 2009 outlook: sales of about $40 billion (down ~25%) with profit of about $2.00 per share ($2.50 excluding ~$500 million of redundancy costs); a first-quarter 2009 loss is possible.
- Machinery and Engines debt-to-capital ratio rose to 57.9% (target 35–45%), driven by a $3.4 billion pension and retiree benefit charge to equity; consolidated stockholders' equity fell to $6.087 billion.
- Covenant pressure: consolidated net worth and Cat Financial interest coverage fell below Credit Facility levels; lenders granted waivers for Q4 2008 in exchange for higher interest rate margins.
- Cost actions include ~20,000 worker reductions, ~15% cuts in indirect spending, capex down ~38% to about $1.5 billion, and the suspension of the $7.5 billion share repurchase program.
- Strategic growth continues in emerging markets (China, India, Russia, Asia/Pacific), with Asia/Pacific sales up 42% and total outside-U.S. sales at 67% of the total.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2008, Caterpillar Inc kept $0.07.
- Revenue$51.32B100.0%
- Cost of revenue−$38.41B74.8%
- Gross profit$12.91B25.2%
- Operating costs−$8.46B16.5%
- Operating income$4.45B8.7%
- Interest, other & tax−$891.0M1.7%
- Net income$3.56B6.9%
Where FY2008 revenue went
$51.32B- Cost of revenue: $38.41B, 75% of revenue
- Net income: $3.56B, 6.9% of revenue
- R&D: $1.73B, 3.4% of revenue
- SG&A: $4.40B, 8.6% of revenue
- Other operating costs: $2.33B, 4.5% of revenue
- Interest, other & tax: $891.0M, 1.7% of revenue
Kept 6.9% as net incomeNet income $3.56B · 6.9%Interest, other & tax $891.0M · 1.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 20, 2009Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $51.32B$44.96B | +14.2% |
| Cost of Revenue | $38.41B$32.63B | +17.7% |
| Gross Profit | $12.91B$12.33B | +4.7% |
| R&D Expenses | $1.73B$1.40B | +23.1% |
| SG&A Expenses | $4.40B$3.82B | +15.1% |
| Operating Expenses | $46.88B$40.04B | +17.1% |
| Operating Income | $4.45B$4.92B | −9.6% |
| Net Income | $3.56B$3.54B | +0.5% |
| EPS (Basic) | $5.83$5.55 | +5.0% |
| EPS (Diluted) | $5.66$5.37 | +5.4% |
| Shares Outstanding (Basic) | 610.50M638.20M | −4.3% |
| Shares Outstanding (Diluted) | 627.90M659.50M | −4.8% |
05—Questions
Frequently Asked Questions
How did Caterpillar perform financially in 2008?
Caterpillar posted record sales and revenues of $51.324 billion, up 14% from 2007, and profit of $3.557 billion, or $5.66 per diluted share. Profit was roughly flat year over year despite higher sales, because higher material and freight costs offset gains from price realization and volume. Fourth-quarter profit declined 28% as the global downturn hit.
What is the 2009 outlook for Caterpillar?
Management expects 2009 sales and revenues of about $40 billion, plus or minus 10%, roughly 25% below 2008, with profit of about $2.00 per share, or $2.50 excluding about $500 million in redundancy costs. Profit in the first half, particularly the first quarter, will be under severe pressure, and a first-quarter loss is possible. The company is planning on the basis of a weak economy and is taking actions to reach its trough profit targets.
Why did the company's balance sheet and leverage deteriorate in 2008?
Stockholders' equity dropped to $6.087 billion, largely because a $3.4 billion after-tax charge to accumulated other comprehensive income reflected pension and retiree benefit plan losses from asset declines. This pushed the Machinery and Engines debt-to-capital ratio to 57.9%, above its 35–45% target. Total company debt rose to $35.5 billion, including the consolidation of Cat Japan and higher cash balances held for liquidity.
Is Caterpillar's financing arm under pressure, and are there covenant issues?
Yes. Cat Financial's quarterly interest coverage ratio fell below the Credit Facility requirement, and consolidated net worth fell below the 75% threshold. Lenders consented to the lower levels (a $6.087 billion net worth and a 0.97 interest coverage ratio for Cat Financial) for Q4 2008 and raised certain interest rate margins by roughly 1 to 1.5 percentage points. Cat Financial's 2009 profit before tax is expected to fall about 50% due to higher liquidity costs and tighter lending spreads. Future covenant breaches could lead to terminated commitments or accelerated borrowings.
What actions is Caterpillar taking to protect profitability and cash flow?
Caterpillar has launched a 'trough' plan that includes removing about 20,000 workers, cutting indirect spending about 15%, reducing capital expenditures to about $1.5 billion (a 38% decline), and shifting resources to material cost and inventory reduction. It has also suspended its $7.5 billion stock repurchase program. Management expects operating cash flow to benefit from lower inventory and receivables, though it plans to contribute about $1 billion to pension plans in 2009.
06—Continue