01—Abstract
Summary
Summary of the 10-K filed February 18, 2014. Cited figures are marked; the original filing is the authoritative source.
Caterpillar's 2013 Form 10-K (with Exhibit 13 annual report) shows a year of sharp cyclical contraction.
Consolidated sales and revenues fell 16% to $55.656 billiona from $65.875 billion, and profit declined 33% to $3.789 billion ($5.75 diluted EPS, down 32%). The decline was driven primarily by a $9.5 billion drop in sales volume, with Resource Industries (mining) down 37% as mining customers cut capital spending and dealers reduced machine inventories by more than $3 billion. Operating profit fell 34% to $5.628 billion, though management highlighted about $1.2 billion of cost reductions excluding cost absorption effects, and Power Systems held profit roughly flat near its 2012 record.
Balance sheet and cash flow were the bright spots. Machinery and Power Systems operating cash flow reached a record $9.0 billionb, and Caterpillar lowered its inventory by $2.9 billion, reversing the 2012 build. The Machinery and Power Systems debt-to-capital ratio improved to 29.7% from 37.4%, just below the company's 30-45% target range, and cash rose to $6.1 billion.
Caterpillar repurchased $2 billionc of stock in 2013 and, in January 2014, completed its $7.5 billion buyback program and authorized a new $10 billion repurchase program through 2018. The dividend was raised 15% during 2013.
Forward-looking items include roughly $400d-500 million of restructuring charges expected in 2014, including about $300 million tied to the Gosselies, Belgium facility, and a stated belief that the significant dealer inventory reductions are largely over. Risks flagged in the filing include exposure to mining and energy commodity cycles, Cat Financial credit and funding conditions, currency (notably the weaker Japanese yen), an ongoing criminal investigation involving Progress Rail that management does not expect to be material, and the Siwei accounting misconduct that led to a $580 million goodwill impairment in 2012.
02—Key points
Key Highlights
- Sales and revenues of $55.7B, down 16% year over year; Resource Industries sales fell 37% on dealer inventory reductions and weaker mining demand.
- Profit of $3.79B ($5.75 diluted EPS) declined 33%, while operating profit fell 34% to $5.63B.
- Record Machinery and Power Systems operating cash flow of $9.0B, up $4.8B, supported by a $2.9B inventory reduction.
- Debt-to-capital ratio for Machinery and Power Systems improved to 29.7% from 37.4%, just below the 30-45% target range; year-end cash of $6.1B.
- Returned capital via $2B of 2013 buybacks, a 15% dividend increase, and a January 2014 completion of the $7.5B program plus a new $10B authorization through 2018.
- Cost reduction actions delivered about $1.2B of improvement excluding cost absorption; about $400-500M of additional restructuring charges expected in 2014.
- Backlog fell to $18.0B from $20.2B, with most of the decline in mining-related Resource Industries products.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Caterpillar Inc kept $0.07.
- Revenue$55.66B100.0%
- Cost of revenue−$40.73B73.2%
- Gross profit$14.93B26.8%
- Operating costs−$9.30B16.7%
- Operating income$5.63B10.1%
- Interest, other & tax−$1.84B3.3%
- Net income$3.79B6.8%
Where FY2013 revenue went
$55.66B- Cost of revenue: $40.73B, 73% of revenue
- Net income: $3.79B, 6.8% of revenue
- R&D: $2.05B, 3.7% of revenue
- SG&A: $5.55B, 10.0% of revenue
- Other operating costs: $1.71B, 3.1% of revenue
- Interest, other & tax: $1.84B, 3.3% of revenue
Kept 6.8% as net incomeNet income $3.79B · 6.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 18, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $55.66B$65.88B | −15.5% |
| Cost of Revenue | $40.73B$47.05B | −13.4% |
| Gross Profit | $14.93B$18.82B | −20.7% |
| R&D Expenses | $2.05B$2.47B | −17.0% |
| SG&A Expenses | $5.55B$5.92B | −6.3% |
| Operating Expenses | $50.03B$57.30B | −12.7% |
| Operating Income | $5.63B$8.57B | −34.4% |
| Net Income | $3.79B$5.68B | −33.3% |
| EPS (Basic) | $5.87$8.71 | −32.6% |
| EPS (Diluted) | $5.75$8.48 | −32.2% |
| Shares Outstanding (Basic) | 645.20M652.60M | −1.1% |
| Shares Outstanding (Diluted) | 658.60M669.60M | −1.6% |
05—Questions
Frequently Asked Questions
Why did Caterpillar's sales and profit decline so sharply in 2013?
The decline was driven mainly by lower sales volume, which fell $9.5 billion. More than half of the volume decrease came from dealers reducing machine and engine inventories, and the rest from weaker end-user demand, particularly in mining as customers cut capital spending. Unfavorable currency (weaker Japanese yen) and the absence of the third-party logistics business sale gain also weighed on results.
Is the dealer inventory destocking over, and what does that mean for 2014?
Management stated that it believes the significant dealer inventory reductions are largely over. It expects a modest further decline in dealer mining machine inventory in 2014, and it believes current inventory and production levels are reasonably aligned with anticipated demand.
How strong is Caterpillar's balance sheet and cash generation?
Machinery and Power Systems operating cash flow was a record $9.0 billion, and year-end consolidated cash was $6.1 billion. The Machinery and Power Systems debt-to-capital ratio improved to 29.7%, and Caterpillar has a $10 billion Credit Facility with a $9 billion net worth covenant that it was comfortably above at $25 billion.
What are the main risks and legal matters investors should watch?
Key risks include cyclicality in mining, energy and construction; Cat Financial credit quality and funding access; currency and trade policy exposure; and restructuring execution, including Gosselies, Belgium. A grand jury subpoena and criminal investigation involving Progress Rail is ongoing, but management does not expect it to have a material adverse effect. The 2012 Siwei goodwill impairment of $580 million stemmed from accounting misconduct at that acquired business.
06—Continue