REG-Caterpillar Inc: Final Results <Origin Href="QuoteRef">CAT.N</Origin> - Part 2
01/04/2016 13:46
- Part 2: For the preceding part double click ID:nPRrSB6F4a
(Millions
of dollars)
Sales Comparison
Fourth Sales Price Currency Fourth $ %
Quarter Volume Realization Quarter Change Change
2014 2015
Sales $6,191 ($1,600) ($3) ($169) $4,419 ($1,772) (29) %
Comparison1
Sales by Geographic
Region
Fourth Fourth $ %
Quarter Quarter Change Change
2015 2014
North $1,852 $2,730 ($878) (32) %
America
Latin 408 541 (133) (25) %
America
EAME 1,406 1,980 (574) (29) %
Asia/ 753 940 (187) (20) %
Pacific
Total1 $4,419 $6,191 ($1,772) (29) %
Operating
Profit
Fourth Fourth $ %
Quarter Quarter Change Change
2015 2014
Operating $712 $1,123 ($411) (37) %
Profit
1 Does not include inter-segment sales of $382 million and $542 million in
fourth quarter 2015 and 2014, respectively.
Energy & Transportation's sales were $4.419 billion in the fourth quarter of
2015, a decrease of $1.772 billion, or 29 percent, from the fourth quarter of
2014. The decrease was primarily the result of lower sales volume and the
unfavorable impact of currency, mostly from the euro. Sales decreased in all
applications.
* Oil and Gas - Sales continued to decrease in much of the world due to
substantially lower oil prices. The decline was most pronounced in
equipment used for well servicing and drilling applications, with the most
significant impact in North America, our largest market for well servicing.
Demand for reciprocating engines used in gas compression was also down.
* Power Generation - Sales decreased in EAME and North America and were about
flat in Latin America and Asia/Pacific. In EAME, sales decreased primarily
due to the absence of a large project in the fourth quarter of 2014. In
North America, sales declined primarily due to the absence of several large
projects and unfavorable changes in dealer inventories as dealers decreased
inventories in the fourth quarter of 2015 and increased inventories in the
fourth quarter of 2014.
* Transportation - Sales decreased in North America and were about flat in
all other geographic regions. In North America, sales weakened primarily
due to the absence of a Tier IV locomotive offering.
* Industrial - Sales were lower in all regions. Lower sales in EAME were
mostly the result of lower demand and the unfavorable impact of currency.
In Asia/Pacific, North America and Latin America, the decline in sales was
primarily due to lower end-user demand for most industrial applications
primarily due to weak economic conditions.
Energy & Transportation's profit was $712 million in the fourth quarter of
2015, compared with $1.123 billion in the fourth quarter of 2014. The decrease
was due to lower sales volume partially offset by lower costs, primarily
incentive compensation expense, and favorable product mix due to the absence of
the sale of a large power generation project in EAME that was recognized in the
fourth quarter of 2014.
FINANCIAL PRODUCTS SEGMENT
(Millions of dollars)
Revenues by Geographic Region
Fourth Quarter 2015 Fourth Quarter 2014 $ %
Change Change
North America $452 $451 $1 - %
Latin America 97 112 (15) (13) %
EAME 97 115 (18) (16) %
Asia/Pacific 100 133 (33) (25) %
Total $746 $811 ($65) (8) %
Operating Profit
Fourth Quarter 2015 Fourth Quarter 2014 $ %
Change Change
Operating Profit $191 $197 ($6) (3) %
Financial Products' revenues were $746 million in the fourth quarter of 2015, a
decrease of $65 million, or 8 percent, from the fourth quarter of 2014. The
decline was primarily due to lower average earning assets and lower average
financing rates. Average earning assets were down in Asia/Pacific, Latin
America and EAME, partially offset by higher average earning assets in North
America. Average financing rates were down in North America, EAME and Asia/
Pacific, partially offset by higher rates in Latin America.
Financial Products' profit was $191 million in the fourth quarter of 2015,
compared with $197 million in the fourth quarter of 2014. The decrease was
primarily due to a $17 million unfavorable impact from lower average earning
assets, a $10 million decrease in net yield on average earning assets
reflecting changes in the geographic mix of margin and currency impacts and a
$10 million unfavorable impact from returned or repossessed equipment. These
decreases were partially offset by a $24 million increase in gains on sales of
securities at Caterpillar Financial Insurance Services and a $12 million
decrease in SG&A expenses due to lower incentive compensation expense.
At the end of 2015, past dues at Cat Financial were 2.14 percent, compared with
2.17 percent at the end of 2014. Write-offs, net of recoveries, were $155
million for the full-year 2015, compared with $104 million for the full-year
2014. The increase in write-offs, net of recoveries, was primarily driven by
the mining and marine portfolios.
As of December 31, 2015, Cat Financial's allowance for credit losses totaled
$338 million, or 1.22 percent of net finance receivables, compared with $401
million, or 1.36 percent of net finance receivables, at year-end 2014.
Corporate Items and Eliminations
Expense for corporate items and eliminations was $1.210 billion in the fourth
quarter of 2015, an increase of $469 million from the fourth quarter of 2014.
Corporate items and eliminations include: corporate-level expenses;
restructuring costs; timing differences, as some expenses are reported in
segment profit on a cash basis; retirement benefit costs other than service
cost; currency differences for ME&T, as segment profit is reported using annual
fixed exchange rates; and inter-segment eliminations.
The increase in expense from the fourth quarter of 2014 was primarily due to a
$585 million increase in restructuring costs partially offset by timing
differences.
2016 OUTLOOK
From an economic perspective, the company does not anticipate significant
improvement in the world economy. We are expecting world GDP growth in 2016 to
be similar to 2015 at about 2.5 percent. While economic growth is expected to
continue to be weak, but stable, there are certainly risks. Political
conflicts and social unrest continue to disrupt economic activity in parts of
the world, particularly the Middle East. The Chinese government's push for
structural reform has slowed growth and increased volatility, and U.S. monetary
policy could temper business confidence. In addition, commodity prices, oil in
particular, have declined substantially. Further declines in commodity prices
could negatively impact 2016 financial results.
Sales and revenues in 2016 are expected to be in a range of $40 to $44 billion
- a mid-point of $42 billion.
At the mid-point of the sales and
revenues range
Restructuring Outlook
Excluding
2016 Costs Restructuring
Outlook Costs
Profit per share excluding change in $3.00 $0.50 $3.50
accounting principle
Change in accounting principle related to $0.50 $0.50
pension and OPEB costs*
Profit per share $3.50 $0.50 $4.00
*See Q&A 10 for more information on this change and a change in accounting
estimate for pension and OPEB costs.
Sales and Revenues
The outlook for 2016 sales and revenues does not anticipate improvement in
world economic growth or commodity prices. It is based on the continuation of
substantial weakness in many of the key industries the company serves. Sales
and revenues are expected to be in a range of $40 to $44 billion - a mid-point
of $42 billion. The mid-point reflects a year-over-year decline of about 10
percent.
In October 2015, the company provided a preliminary outlook for 2016 that
expected sales and revenues to be about 5 percent below the $48 billion outlook
for 2015 - about $45.5 billion for 2016. The mid-point of today's outlook
reflects a decline of about $3.5 billion from last October's preliminary
outlook for 2016 sales and revenues. That decline is largely a result of
continued declines in commodity prices and sustained economic weakness in
developing countries.
Sales in Energy & Transportation are expected to decline about 10 to 15 percent
from 2015. Much of the decline is a result of low oil prices. During the
first half of 2015, sales remained at relatively high levels for equipment used
in drilling and well servicing because we started the year with a substantial
order backlog. Sales declined during the second half of 2015 as orders from
the backlog were shipped and new order levels were weak. That impact, along
with the further decline in oil prices, are the primary reasons for the
expected decline in Energy & Transportation's 2016 sales. In addition,
continuing weakness in economic conditions in much of the world is expected to
be negative for sales of power generation equipment, industrial engines, marine
and rail.
Sales in Resource Industries are expected to be down about 15 to 20 percent
from 2015 as a result of continuing reductions in mining-related commodity
prices and difficult financial conditions for many mining customers around the
world.
Sales in Construction Industries are expected to decline about 5 to 10 percent
from 2015. In the United States, improving labor market conditions and
relatively stable economic growth should continue to support the wider economy
and construction. However, we expect weakness in developing countries and
lower activity in oil-producing regions to persist.
Profit Outlook
The profit outlook for 2016 is $3.50 per share at the mid-point of the sales
and revenues range. To provide a better understanding of our expectations for
2016 profit, we are providing our outlook with and without anticipated
restructuring costs. Over the past few years, we have undertaken restructuring
activities designed to lower our long-term cost structure. Additional
restructuring actions are anticipated in our outlook for 2016. In total, we
expect the cost of these restructuring actions in 2016 to be about $400 million
or about $0.50 per share. Excluding restructuring costs, our profit outlook
for 2016 is about $4.00 per share at the mid-point of the sales and revenues
range.
The profit outlook excluding restructuring costs includes several substantial
positive and negative factors outlined below:
Positive Factors
* Lower period costs (includes period manufacturing, SG&A and R&D - about
$900 million) - The expected improvement in period costs is largely a
result of substantial restructuring actions implemented near the end of
2015 and continuing in 2016. About $180 million or about $0.20 per share of
the expected improvement is a result of a change in accounting estimate
from weighted average discount rates to spot rates for pension and OPEB
service and interest costs. (See Q&A 10 on page 19 for more information.)
* Change in accounting principle for pension and OPEB costs (about $425
million) - In 2016, we will recognize actuarial gains and losses for
pension and OPEB plans in the period in which they occur and recognize
expected returns based on the fair value of plan assets. (See Q&A 10 on
page 19 for more information.)
* Variable costs (about $350 million) - Material costs, cost absorption and
variable labor and burden costs are expected to be favorable in 2016 as a
result of lower commodity prices and supplier collaboration, a smaller
inventory decline than 2015 and continued implementation of Lean.
Negative Factors
* Sales volume ($2.1 billion at mid-point of outlook range) - By far the most
significant negative impact on profit is expected to be from lower sales
volume, including a substantial impact due to an unfavorable sales mix, as
the decline in sales is expected to be relatively more concentrated in
products with higher than average margin rates.
* Price realization (about $200 million) - While price realization was
relatively neutral from 2014 to 2015, it was positive in the first half of
2015 and negative over the second half of 2015. We expect that negative
trend to continue in 2016. We are experiencing pricing pressure from the
competitive nature of the businesses we are in and from the impact of a
stronger U.S. dollar.
The tax rate in 2016 is expected to be about 1 percent higher than in 2015
(excluding 2015 discrete items), and ME&T capital expenditures in 2016 are
expected to be lower than 2015.
QUESTIONS AND ANSWERS
Q1: What is causing you to forecast reduced Resource Industries' sales again
in 2016?
A: Resource Industries' sales are expected to be lower in 2016 because mining
companies are continuing to cut capital expenditures in response to lower
commodity prices and difficult financial conditions for many of them. As
a result, machine quoting activity remains at a very low level. In
addition, some machines remain parked, which continues to negatively
impact aftermarket sales. We would expect to see parked machines brought
back into service and machine rebuild activity pick up as early indicators
of a potential upturn - unfortunately, we have not seen these signs of
improvement yet.
Q2: Retail statistics released on January 27, 2016, show Construction
Industries' deliveries to end users in North America down 3 percent. Many
of the economic indicators in the United States remain positive. What is
your view for 2016?
A: We expect general and heavy construction activity to expand in 2016 in the
United States. However, we believe lower activity in the oil and gas
sector is freeing up equipment that is being redirected to other building
and infrastructure construction jobsites.
Q3: Can you comment on the health of Cat Financial?
A: Cat Financial continues to perform well despite ongoing weakness in many
key end markets. Past dues improved further in fourth-quarter 2015, with
year-end past dues improving to 2.14 percent from 2.68 percent in
third-quarter 2015 and 2.17 percent reported at the end of 2014.
Write-offs, net of recoveries, were $155 million in 2015, and although
above 2014 write-offs of $104 million, remain near historical averages.
Cat Financial continues to work closely with its global customer base to
provide financing support for new Caterpillar product purchases and
actively monitor global portfolio health to minimize future losses.
Q4: Can you discuss changes in dealer inventories in the fourth quarter of
2015? What are your expectations for 2016?
A: Dealer machine and engine inventories decreased about $1 billion in the
fourth quarter of 2015, compared with a decrease of about $600 million in
the fourth quarter of 2014. For both the full year of 2015 and 2014,
dealer machine and engine inventories decreased about $1 billion.
While we believe dealer inventory levels are not excessive, we do expect
that lower sales in 2016 will cause dealers to reduce inventory levels
about as much as they did in 2015.
Q5: Caterpillar inventory declined in the fourth quarter of 2015. Can you
explain this decrease, and do you expect further reductions in 2016?
A: Caterpillar inventory declined $1.45 billion during the fourth quarter of
2015, compared to a decline of about $1.1 billion during the fourth
quarter of 2014. A fourth-quarter decrease is not unusual, as some of our
businesses ship long lead-time capital goods in the fourth quarter. For
the full year of 2015, Caterpillar inventory declined about $2.5 billion.
While we believe our inventory levels are not excessive, we are
anticipating that lower sales and our ongoing Lean initiatives will result
in some reduction in inventory in 2016.
Q6: Can you comment on your order backlog by segment?
A: At the end of the fourth quarter of 2015, the order backlog was about
$13.0 billion. This represents about a $0.7 billion reduction from the end
of the third quarter of 2015. The decrease was primarily in Energy &
Transportation. In addition, the order backlog for Resource Industries
declined and was about flat for Construction Industries.
Compared to year-end 2014, the order backlog declined about $4.3 billion.
The decrease was split about evenly across Construction Industries, Energy
& Transportation and Resource Industries.
Q7: Can you comment on expense related to your short-term incentive
compensation plans?
A: Short-term incentive compensation expense is directly related to financial
and operational performance measured against targets set annually.
Fourth-quarter 2015 expense was about $45 million and about $585 million
for the full-year 2015. Fourth-quarter 2014 expense was about $310
million and about $1.3 billion for the full-year 2014.
For 2016, our outlook includes short-term incentive compensation expense
similar to 2015.
Q8: Can you comment on your balance sheet and ME&T operating cash flow in
2015?
A: ME&T operating cash flow for the full year of 2015 was $5.2 billion,
compared with $7.5 billion in 2014. The decline was primarily due to
lower profit. Our top cash deployment priority is to maintain a strong
financial position to support our credit rating. The ME&T debt-to-capital
ratio was 39.1 percent, up from 37.4 percent at the end of 2014, but
within our target range of 30 to 45 percent. The increase was primarily
due to a return of capital to stockholders of $3.8 billion ($2.0 billion
stock repurchase and $1.8 billion dividends) and unfavorable foreign
currency translation adjustment to equity of $1.0 billion. These items
were partially offset by profit. Our cash and liquidity positions also
remain strong with an enterprise cash balance of $6.5 billion as of
year-end. After maintaining our financial strength, our remaining
priorities for use of cash are to support growth, appropriately fund
employee benefit plans, pay dividends and repurchase common stock. During
the year, ME&T capital expenditures totaled $1.6 billion, and funding for
defined benefit pension plans was about $0.2 billion.
Q9: Can you update us on recent restructuring actions and your progress?
A: We announced on September 24, 2015, that we would reduce permanent
headcount by 4,000-5,000 between then and the end of 2016, with most
occurring in 2015, and with a total possible workforce reduction of more
than 10,000 people, including the contemplated consolidation and closures
of manufacturing facilities occurring through 2018. We have eliminated
approximately 5,000 positions since then, with about 3,000 by December 31,
2015, and another 2,100 employees electing to take the voluntary
retirement enhancement program in the United States and leave the company
January 1, 2016. We are anticipating significant cost reduction as a
result of these actions.
We continue to contemplate facility consolidation and closures in order to
right size our capacity needs. Since the September 24 announcement, we
have announced the closure or consolidation of 9 facilities.
Q10: Can you provide more information on the accounting changes for pension and
OPEB costs?
A: We have elected to make two changes in accounting for our pension and OPEB
plans.
The first is a change in accounting estimate related to discount rates
used for calculating pension and OPEB costs. Beginning in 2016, we will
use spot rates rather than weighted average discount rates for determining
service and interest costs for plans that utilize a yield curve approach.
This change will have no impact on pension or OPEB liabilities and will be
accounted for prospectively as a change in accounting estimate (no change
to costs reported in 2015 or prior years). We expect this change to lower
2016 pension and OPEB service and interest costs by approximately $180
million.
The second is a change in accounting principle for recognizing actuarial
gains and losses and expected return on assets for our pension and OPEB
plans. Gains and losses historically recognized as a component of equity
and amortized to earnings in future periods will be recognized in earnings
in the period in which they occur. In addition, we will change our policy
for recognizing expected returns on plan assets from a market-related
value method (based on a three-year smoothing of asset returns) to a fair
value method.
Under the new principle, we will immediately recognize actuarial gains and
losses as a mark-to-market gain or loss through earnings upon the annual
remeasurement in the fourth quarter, or on an interim basis as triggering
events warrant remeasurement.
Excluding any mark-to-market gains or losses from remeasurements, the
estimated benefit of the change in accounting principle in 2016 is
approximately $425 million pre-tax or $0.50 per share. The benefit
primarily represents prior period actuarial losses that would have been
amortized to earnings under the previous accounting policy. This change
will be applied retrospectively to prior years. We are currently
determining the impact on prior years and will provide that information
later in 2016. Our current estimate of the impact on 2015 earnings is a
benefit of about $575 million or about $0.65 per share.
As the change to spot rates for service and interest costs does not impact
the measurement of benefit liabilities, the decrease in service and
interest costs will be offset in the mark-to-market gains or losses
reported when benefit plans are remeasured. Our 2016 outlook does not
include any impact from mark-to-market gains or losses.
None of the accounting changes will have an impact on future pension or
OPEB funding or benefits paid to participants.
GLOSSARY OF TERMS
1. All Other Segments - Primarily includes activities such as: the
remanufacturing of Cat® engines and components and remanufacturing services
for other companies as well as the business strategy, product management,
development, manufacturing, marketing and product support of undercarriage,
specialty products, hardened bar stock components and ground engaging tools
primarily for Cat products, paving products, forestry products and
industrial and waste products; the product management, development,
marketing, sales and product support of on-highway vocational trucks for
North America; parts distribution; distribution services responsible for
dealer development and administration including a wholly owned dealer in
Japan, dealer portfolio management and ensuring the most efficient and
effective distribution of machines, engines and parts.
2. Consolidating Adjustments - Elimination of transactions between Machinery,
Energy & Transportation and Financial Products.
3. Construction Industries - A segment primarily responsible for supporting
customers using machinery in infrastructure and building construction
applications. Responsibilities include business strategy, product design,
product management and development, manufacturing, marketing and sales and
product support. The product portfolio includes backhoe loaders, small
wheel loaders, small track-type tractors, skid steer loaders, multi-terrain
loaders, mini excavators, compact wheel loaders, telehandlers, select work
tools, small, medium and large track excavators, wheel excavators, medium
wheel loaders, compact track loaders, medium track-type tractors,
track-type loaders, motor graders, pipelayers and mid-tier soil
compactors. In addition, Construction Industries has responsibility for an
integrated manufacturing cost center.
4. Currency - With respect to sales and revenues, currency represents the
translation impact on sales resulting from changes in foreign currency
exchange rates versus the U.S. dollar. With respect to operating profit,
currency represents the net translation impact on sales and operating costs
resulting from changes in foreign currency exchange rates versus the U.S.
dollar. Currency includes the impact on sales and operating profit for the
Machinery, Energy & Transportation lines of business only; currency impacts
on Financial Products' revenues and operating profit are included in the
Financial Products' portions of the respective analyses. With respect to
other income/expense, currency represents the effects of forward and option
contracts entered into by the company to reduce the risk of fluctuations in
exchange rates (hedging) and the net effect of changes in foreign currency
exchange rates on our foreign currency assets and liabilities for
consolidated results (translation).
5. Debt-to-Capital Ratio - A key measure of Machinery, Energy &
Transportation's financial strength used by both management and our credit
rating agencies. The metric is defined as Machinery, Energy &
Transportation's short-term borrowings, long-term debt due within one year
and long-term debt due after one year (debt) divided by the sum of
Machinery, Energy & Transportation's debt and stockholders' equity. Debt
also includes Machinery, Energy & Transportation's borrowings from
Financial Products.
6. EAME - A geographic region including Europe, Africa, the Middle East and
the Commonwealth of Independent States (CIS).
7. Earning Assets - Assets consisting primarily of total finance receivables
net of unearned income, plus equipment on operating leases, less
accumulated depreciation at Cat Financial.
8. Energy & Transportation - A segment primarily responsible for supporting
customers using reciprocating engines, turbines, diesel-electric
locomotives and related parts across industries serving power generation,
industrial, oil and gas and transportation applications, including marine
and rail-related businesses. Responsibilities include business strategy,
product design, product management, development, manufacturing, marketing,
sales and product support of turbines and turbine-related services,
reciprocating engine powered generator sets, integrated systems used in the
electric power generation industry, reciprocating engines and integrated
systems and solutions for the marine and oil and gas industries;
reciprocating engines supplied to the industrial industry as well as Cat
machinery; the business strategy, product design, product management,
development, manufacturing, remanufacturing, leasing and service of
diesel-electric locomotives and components and other rail-related products
and services.
9. Financial Products Segment - Provides financing to customers and dealers
for the purchase and lease of Cat and other equipment, as well as some
financing for Caterpillar sales to dealers. Financing plans include
operating and finance leases, installment sale contracts, working capital
loans and wholesale financing plans. The segment also provides various
forms of insurance to customers and dealers to help support the purchase
and lease of our equipment. Financial Products Segment profit is
determined on a pretax basis and includes other income/expense items.
10. Latin America - A geographic region including Central and South American
countries and Mexico.
11. Lean Management - A holistic management system that uses a sequential
cadence of principles to drive the highest quality and lowest total cost to
achieve customer requirements.
12. Machinery, Energy & Transportation (ME&T) - Represents the aggregate total
of Construction Industries, Resource Industries, Energy & Transportation
and All Other Segments and related corporate items and eliminations.
13. Machinery, Energy & Transportation Other Operating (Income) Expenses
- Comprised primarily of gains/losses on disposal of long-lived assets,
gains/losses on divestitures and legal settlements and accruals.
Restructuring costs classified as other operating expenses on the Results
of Operations are presented separately on the Operating Profit Comparison.
14. Manufacturing Costs - Manufacturing costs exclude the impacts of currency
and represent the volume-adjusted change for variable costs and the
absolute dollar change for period manufacturing costs. Variable
manufacturing costs are defined as having a direct relationship with the
volume of production. This includes material costs, direct labor and other
costs that vary directly with production volume such as freight, power to
operate machines and supplies that are consumed in the manufacturing
process. Period manufacturing costs support production but are defined as
generally not having a direct relationship to short-term changes in
volume. Examples include machinery and equipment repair, depreciation on
manufacturing assets, facility support, procurement, factory scheduling,
manufacturing planning and operations management.
15. Pension and other postemployment benefit (OPEB) costs - Costs for the
company's defined benefit pension and postretirement benefit plans.
16. Price Realization - The impact of net price changes excluding currency and
new product introductions. Price realization includes geographic mix of
sales, which is the impact of changes in the relative weighting of sales
prices between geographic regions.
17. Resource Industries - A segment primarily responsible for supporting
customers using machinery in mining and quarrying applications.
Responsibilities include business strategy, product design, product
management and development, manufacturing, marketing and sales and product
support. The product portfolio includes large track-type tractors, large
mining trucks, hard rock vehicles, longwall miners, electric rope shovels,
draglines, hydraulic shovels, track and rotary drills, highwall miners,
large wheel loaders, off-highway trucks, articulated trucks, wheel tractor
scrapers, wheel dozers, continuous miners, scoops and haulers, hardrock
continuous mining systems, select work tools, machinery components and
electronics and control systems. Resource Industries also manages areas
that provide services to other parts of the company, including integrated
manufacturing and research and development.
18. Restructuring Costs - Primarily costs for employee separation costs,
long-lived asset impairments and contract terminations. These costs are
included in Other Operating (Income) Expenses. Beginning in the third
quarter of 2015, restructuring costs also include other exit-related costs
associated with the consolidation of manufacturing facilities as we expect
these costs to be significant as we implement the restructuring plan that
was announced on September 24. Other exit-related costs are primarily for
equipment relocation and accelerated depreciation.
19. Sales Volume - With respect to sales and revenues, sales volume represents
the impact of changes in the quantities sold for Machinery, Energy &
Transportation as well as the incremental revenue impact of new product
introductions, including emissions-related product updates. With respect
to operating profit, sales volume represents the impact of changes in the
quantities sold for Machinery, Energy & Transportation combined with
product mix as well as the net operating profit impact of new product
introductions, including emissions-related product updates. Product mix
represents the net operating profit impact of changes in the relative
weighting of Machinery, Energy & Transportation sales with respect to total
sales.
NON-GAAP FINANCIAL MEASURES
The following definition is provided for "non-GAAP financial measures" in
connection with Regulation G issued by the Securities and Exchange Commission.
The non-GAAP financial measures we use have no standardized meaning prescribed
by U.S. GAAP and therefore are unlikely to be comparable to the calculation of
similar measures for other companies. Management does not intend these items
to be considered in isolation or substituted for the related GAAP measure.
Profit Per Share Excluding Restructuring Costs
We incurred significant restructuring costs in 2015 and expect to incur
additional restructuring costs in 2016. We believe it is important to
separately quantify the profit per share impact of restructuring costs in order
for our 2015 results and the 2016 outlook to be meaningful to our readers. We
have also provided 2014 profit per share excluding restructuring costs
comparable to the 2015 and 2016 presentation. Reconciliation of profit per
share excluding restructuring costs to the most directly comparable GAAP
measure, diluted profit per share, is as follows:
Fourth Quarter Full Year Outlook
2014 2015 2014 2015 Original 2016
2015 1 Midpoint
2
Profit (Loss) per share $1.23 ($0.15) $5.88 $3.50 $4.60 $3.50
Per share restructuring $0.12 $0.89 $0.50 $1.14 $0.15 $0.50
costs3
Profit per share excluding $1.35 $0.74 $6.38 $4.64 $4.75 $4.00
restructuring costs
1 2015 Sales and Revenues Outlook of $50 billion (as of January 27,
2015).
2 2016 Sales and Revenues Outlook in a range of $40-44 billion. Does not
include any impact from mark-to-market gains or losses resulting from pension
and OPEB plan remeasurements.
3At effective tax rate excluding discrete items.
Machinery, Energy & Transportation
Caterpillar defines Machinery, Energy & Transportation as it is presented in
the supplemental data as Caterpillar Inc. and its subsidiaries with Financial
Products accounted for on the equity basis. Machinery, Energy & Transportation
information relates to the design, manufacture and marketing of our products.
Financial Products' information relates to the financing to customers and
dealers for the purchase and lease of Caterpillar and other equipment. The
nature of these businesses is different, especially with regard to the
financial position and cash flow items. Caterpillar management utilizes this
presentation internally to highlight these differences. We also believe this
presentation will assist readers in understanding our business. Pages 24-32
reconcile Machinery, Energy & Transportation with Financial Products on the
equity basis to Caterpillar Inc. consolidated financial information.
Caterpillar's latest financial results and outlook are also available via:
Telephone:
800-228-7717 (Inside the United States and Canada)
858-764-9492 (Outside the United States and Canada)
Internet:
www.caterpillar.com/en/investors.html
www.caterpillar.com/en/investors/quarterly-results.html (live broadcast/
replays of quarterly conference call)
Caterpillar contact: Rachel Potts, 309-675-6892 (Office), 309-573-3444
(Mobile) or Potts_Rachel_A@cat.com
Caterpillar Inc.
Condensed Consolidated Statement of Results of Operations
(Unaudited)
(Dollars in millions except per share data)
Three Months Ended Twelve Months Ended
December 31, December 31,
2015 2014 2015 2014
Sales and revenues:
Sales of Machinery, Energy & Transportation $ 10,318 $ 13,500 $ 44,147 $ 52,142
Revenues of Financial Products 712 744 2,864 3,042
Total sales and revenues 11,030 14,244 47,011 55,184
Operating costs:
Cost of goods sold 8,183 10,499 33,742 39,767
Selling, general and administrative expenses 1,267 1,522 5,199 5,697
Research and development expenses 553 578 2,165 2,135
Interest expense of Financial Products 147 154 587 624
Other operating (income) expenses 994 428 2,062 1,633
Total operating costs 11,144 13,181 43,755 49,856
Operating profit (loss) (114) 1,063 3,256 5,328
Interest expense excluding Financial 126 126 507 484
Products
Other income (expense) 30 3 106 239
Consolidated profit (loss) before taxes (210) 940 2,855 5,083
Provision (benefit) for income taxes (128) 179 742 1,380
Profit (loss) of consolidated companies (82) 761 2,113 3,703
Equity in profit (loss) of unconsolidated (1) 2 - 8
affiliated companies
Profit (loss) of consolidated and affiliated (83) 763 2,113 3,711
companies
Less: Profit (loss) attributable to 4 6 11 16
noncontrolling interests
Profit (loss) 1 $ (87) $ 757 $ 2,102 $ 3,695
Profit (loss) per common share $ (0.15) $ 1.25 $ 3.54 $ 5.99
Profit (loss) per common share - diluted 2 $ (0.15) $ 1.23 $ 3.50 $ 5.88
Weighted-average common shares
outstanding (millions)
- Basic 582.3 605.8 594.3 617.2
- Diluted 2,3 582.3 616.0 601.3 628.9
Cash dividends declared per common share $ 1.54 $ 1.40 $ 3.01 $ 2.70
1 Profit (loss) attributable to common stockholders.
2 Diluted by assumed exercise of stock-based compensation awards using the
treasury stock method.
3 In the fourth quarter 2015, the assumed exercise of stock-based compensation
awards was not considered because the impact would be anti-dilutive.
Caterpillar Inc.
Condensed Consolidated Statement of Financial Position
(Unaudited)
(Millions of dollars)
December 31, December 31,
2015 2014
Assets
Current assets:
Cash and short-term investments $ 6,460 $ 7,341
Receivables - trade and other 6,695 7,737
Receivables - finance 8,991 9,027
Deferred and refundable income taxes 1,526 1,739
Prepaid expenses and other current assets 1,046 818
Inventories 9,700 12,205
Total current assets 34,418 38,867
Property, plant and equipment - net 16,090 16,577
Long-term receivables - trade and other 1,170 1,364
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