01—Abstract
Summary
Summary of the 10-K filed February 19, 2010. Cited figures are marked; the original filing is the authoritative source.
Caterpillar's 2009 10-K (filed February 19, 2010) reports a severe downturn: total sales and revenues fell 37% to $32.396 billiona from $51.324 billion, and profit fell 75% to $895 million, or $1.43 per diluted share.
Management cites redundancy costs of $0.75b per share (about $706 million); excluding those costs, profit was $2.18 per share. The decline reflected the worst postwar recession, with machinery sales volume falling at an unprecedented rate and dealers cutting reported inventories by more than $3.3 billion for machines and $600 million for engines. Operating profit dropped to $577 million from $4.448 billion, although cost reductions, a $300 million LIFO inventory decrement benefit, and a lower tax provision cushioned the impact.
Balance sheet and liquidity improved meaningfully. The Machinery and Engines debt-to-capital ratio fell to 47.2% from 57.5%, though still above the company's 35–45% target. Consolidated cash rose $2.1 billion to $4.9 billionc, operating cash flow was $6.34 billion, and the dividend was maintained at $1.68 per share.
The company suspended its stock repurchase program in January 2009 and has not resumed it. Pension funding reached 76% at year-end, up from 61%, after roughly $1.1 billiond in contributions, including $650 million in Caterpillar stock. Credit ratings were maintained in the mid-A range, though S&P and Moody's moved outlooks to negative and Fitch and DBRS downgraded to 'A'.
Management's 2010 outlook calls for sales and revenues up 10% to 25% and profit of about $2.50 per share at the midpoint, driven by volume recovery in mining and developing markets, lower redundancy costs, and improved factory efficiency. Headwinds include higher taxes (about 30% effective rate), an unfavorable product mix, R&D up about 20% for EPA Tier 4 compliance, and no LIFO decrement benefit. Risks disclosed include Cat Financial's funding and credit exposure, covenant requirements (consolidated net worth of at least $9 billion, with Cat Financial's interest coverage at 1.26x against a 1.15x minimum), a pending EPA Clean Air Act matter, and Tier 4 emissions execution risk.
02—Key points
Key Highlights
- Sales and revenues fell 37% to $32.4 billion; profit fell 75% to $895 million ($1.43 per diluted share), or $2.18 per share before $0.75 of redundancy costs
- Operating profit collapsed to $577 million from $4.45 billion, with Machinery posting an operating loss of $1.0 billion while Engines remained profitable at $1.46 billion
- Dealer inventory reductions of over $3.3 billion (machines) and $600 million (engines) depressed 2009 sales, which management says were nearly $4 billion below end-user demand
- Balance sheet strengthened: Machinery and Engines debt-to-capital improved to 47.2% from 57.5%, and cash increased $2.1 billion to $4.9 billion
- Dividend maintained at $1.68 per share (sixteenth consecutive annual increase) while stock buybacks remain suspended since January 2009
- 2010 outlook: sales up 10–25% and profit near $2.50 per share at midpoint, with mining demand recovering and lower redundancy costs, partly offset by higher taxes and R&D spending for Tier 4 emissions
- Cat Financial's funding and credit exposure is a key risk: 2009 bad debt write-offs rose to $253 million and past dues reached 5.54%, while covenant headroom remains constrained
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2009, Caterpillar Inc kept $0.03.
- Revenue$32.40B100.0%
- Cost of revenue−$23.89B73.7%
- Gross profit$8.51B26.3%
- Operating costs−$7.93B24.5%
- Operating income$577.0M1.8%
- Interest, other & tax$318.0M1.0%
- Net income$895.0M2.8%
Where FY2009 revenue went
$32.40B- Cost of revenue: $23.89B, 74% of revenue
- Operating income: $577.0M, 1.8% of revenue
- R&D: $1.42B, 4.4% of revenue
- SG&A: $3.65B, 11% of revenue
- Other operating costs: $2.87B, 8.8% of revenue
Kept 1.8% as operating incomeOperating income $577.0M · 1.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 19, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $32.40B$51.32B | −36.9% |
| Cost of Revenue | $23.89B$38.41B | −37.8% |
| Gross Profit | $8.51B$12.91B | −34.1% |
| R&D Expenses | $1.42B$1.73B | −17.8% |
| SG&A Expenses | $3.65B$4.40B | −17.1% |
| Operating Expenses | $31.82B$46.88B | −32.1% |
| Operating Income | $577.00M$4.45B | −87.0% |
| Net Income | $895.00M$3.56B | −74.8% |
| EPS (Basic) | $1.45$5.83 | −75.1% |
| EPS (Diluted) | $1.43$5.66 | −74.7% |
| Shares Outstanding (Basic) | 615.20M610.50M | +0.8% |
| Shares Outstanding (Diluted) | 626.00M627.90M | −0.3% |
05—Questions
Frequently Asked Questions
Why did Caterpillar's 2009 profit decline so sharply?
Profit fell 75% primarily because sales volume collapsed in the global recession: machinery volume dropped about $13.9 billion and engine volume about $5.1 billion. Redundancy costs of $706 million ($0.75 per share) further reduced results. Partial offsets included lower SG&A and R&D expenses, roughly $2 billion in manufacturing and overhead cost reductions, improved price realization of about $910 million, and a favorable tax provision.
Is Caterpillar's balance sheet and liquidity under control?
Management reports that liquidity improved. Year-end cash reached $4.9 billion, operating cash flow was $6.34 billion, and the Machinery and Engines debt-to-capital ratio fell to 47.2%, though still above the 35–45% target. Cat Financial met its 2009 maturities through debt issuance and cash receipts, but it faces $5.4 billion in 2010 long-term debt maturities. Covenant headroom is adequate but not wide: Cat Financial's interest coverage ratio was 1.26x against a 1.15x minimum.
What is the 2010 outlook and what could go wrong?
Management expects 2010 sales and revenues up 10–25% and profit around $2.50 per share at the midpoint, with Q1 expected to be less than one-quarter of the full-year outlook. Key risks include a slower recovery in developed economies, central banks raising rates too quickly, a 2010 effective tax rate near 30%, unfavorable product mix, the absence of LIFO decrement benefits, Tier 4 emissions execution, potential U.S. healthcare legislation affecting Medicare Part D subsidy taxation, and credit rating downgrades that could raise borrowing costs.
Are there material legal or regulatory issues?
Management does not expect material adverse impacts from disclosed matters. These include an EPA Notice of Violation (May 2007) alleging Clean Air Act violations related to engine certification and reporting, where penalties could potentially exceed $100,000; and a 2009 Joliet, Illinois wastewater release with a state complaint and a revised EPA penalty proposal of $167,800. Tier 4 emissions compliance and proposed U.S. carbon regulation are longer-term regulatory risks.
06—Continue