UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-768
CATERPILLAR INC.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation) |
|
37-0602744 (IRS Employer I.D. No.) |
|
|
|
100 NE Adams Street, Peoria, Illinois (Address of principal executive offices) |
|
61629 (Zip Code) |
Registrants telephone number, including area code:
(309) 675-1000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesx No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
x |
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Accelerated filer |
o |
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|
|
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Non-accelerated filer |
o |
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Smaller reporting company |
o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
At September 30, 2011, 646,620,369 shares of common stock of the registrant were outstanding.
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| ||
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3 | ||
Managements Discussion and Analysis of Financial Condition and Results of Operations |
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50 | |
|
86 | ||
|
86 | ||
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|
|
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|
87 | ||
Item 1A. |
Risk Factors |
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* |
|
87 | ||
Item 3. |
Defaults Upon Senior Securities |
|
* |
Item 4. |
Removed and Reserved |
|
* |
Item 5. |
Other Information |
|
* |
|
88 |
* Item omitted because no answer is called for or item is not applicable.
Caterpillar Inc.
Consolidated Statement of Results of Operations
(Unaudited)
(Dollars in millions except per share data)
|
|
Three Months Ended |
| ||
|
|
2011 |
|
2010 |
|
Sales and revenues: |
|
|
|
|
|
Sales of Machinery and Power Systems |
|
$15,023 |
|
$10,452 |
|
Revenues of Financial Products |
|
693 |
|
682 |
|
Total sales and revenues |
|
15,716 |
|
11,134 |
|
|
|
|
|
|
|
Operating costs: |
|
|
|
|
|
Cost of goods sold |
|
11,455 |
|
7,752 |
|
Selling, general and administrative expenses |
|
1,360 |
|
1,148 |
|
Research and development expenses |
|
584 |
|
510 |
|
Interest expense of Financial Products |
|
211 |
|
227 |
|
Other operating (income) expenses |
|
347 |
|
310 |
|
Total operating costs |
|
13,957 |
|
9,947 |
|
|
|
|
|
|
|
Operating profit (loss) |
|
1,759 |
|
1,187 |
|
|
|
|
|
|
|
Interest expense excluding Financial Products |
|
112 |
|
85 |
|
Other income (expense) |
|
(13) |
|
1 |
|
|
|
|
|
|
|
Consolidated profit (loss) before taxes |
|
1,634 |
|
1,103 |
|
|
|
|
|
|
|
Provision (benefit) for income taxes |
|
474 |
|
295 |
|
Profit (loss) of consolidated companies |
|
1,160 |
|
808 |
|
|
|
|
|
|
|
Equity in profit (loss) of unconsolidated affiliated companies |
|
(6) |
|
(7) |
|
|
|
|
|
|
|
Profit (loss) of consolidated and affiliated companies |
|
1,154 |
|
801 |
|
|
|
|
|
|
|
Less: Profit (loss) attributable to noncontrolling interests |
|
13 |
|
9 |
|
|
|
|
|
|
|
Profit (loss) 1 |
|
$1,141 |
|
$792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) per common share |
|
$1.76 |
|
$1.25 |
|
|
|
|
|
|
|
Profit (loss) per common share diluted 2 |
|
$1.71 |
|
$1.22 |
|
|
|
|
|
|
|
Weighted-average common shares outstanding (millions) |
|
|
|
|
|
- Basic |
|
646.6 |
|
632.6 |
|
- Diluted 2 |
|
666.0 |
|
651.6 |
|
|
|
|
|
|
|
Cash dividends declared per common share |
|
$ |
|
$ |
|
|
|
|
|
|
|
1 Profit (loss) attributable to common stockholders.
2 Diluted by assumed exercise of stock-based compensation awards using the treasury stock method.
See accompanying notes to Consolidated Financial Statements.
Caterpillar Inc.
Consolidated Statement of Results of Operations
(Unaudited)
(Dollars in millions except per share data)
|
|
Nine Months Ended |
| ||
|
|
2011 |
|
2010 |
|
Sales and revenues: |
|
|
|
|
|
Sales of Machinery and Power Systems |
|
$40,835 |
|
$27,726 |
|
Revenues of Financial Products |
|
2,060 |
|
2,055 |
|
Total sales and revenues |
|
42,895 |
|
29,781 |
|
|
|
|
|
|
|
Operating costs: |
|
|
|
|
|
Cost of goods sold |
|
30,815 |
|
21,018 |
|
Selling, general and administrative expenses |
|
3,716 |
|
3,139 |
|
Research and development expenses |
|
1,693 |
|
1,362 |
|
Interest expense of Financial Products |
|
623 |
|
694 |
|
Other operating (income) expenses |
|
855 |
|
896 |
|
Total operating costs |
|
37,702 |
|
27,109 |
|
|
|
|
|
|
|
Operating profit (loss) |
|
5,193 |
|
2,672 |
|
|
|
|
|
|
|
Interest expense excluding Financial Products |
|
289 |
|
268 |
|
Other income (expense) |
|
(157) |
|
114 |
|
|
|
|
|
|
|
Consolidated profit (loss) before taxes |
|
4,747 |
|
2,518 |
|
|
|
|
|
|
|
Provision (benefit) for income taxes |
|
1,304 |
|
735 |
|
Profit (loss) of consolidated companies |
|
3,443 |
|
1,783 |
|
|
|
|
|
|
|
Equity in profit (loss) of unconsolidated affiliated companies |
|
(24) |
|
(13) |
|
|
|
|
|
|
|
Profit (loss) of consolidated and affiliated companies |
|
3,419 |
|
1,770 |
|
|
|
|
|
|
|
Less: Profit (loss) attributable to noncontrolling interests |
|
38 |
|
38 |
|
|
|
|
|
|
|
Profit (loss) 1 |
|
$3,381 |
|
$1,732 |
|
|
|
|
|
|
|
Profit (loss) per common share |
|
$5.25 |
|
$2.75 |
|
|
|
|
|
|
|
Profit (loss) per common share diluted 2 |
|
$5.08 |
|
$2.68 |
|
|
|
|
|
|
|
Weighted-average common shares outstanding (millions) |
|
|
|
|
|
- Basic |
|
644.3 |
|
629.6 |
|
- Diluted 2 |
|
666.1 |
|
647.0 |
|
|
|
|
|
|
|
Cash dividends declared per common share |
|
$0.90 |
|
$0.86 |
|
|
|
|
|
|
|
1 Profit (loss) attributable to common stockholders.
2 Diluted by assumed exercise of stock-based compensation awards using the treasury stock method.
See accompanying notes to Consolidated Financial Statements.
Caterpillar Inc.
Consolidated Statement of Financial Position
(Unaudited)
(Dollars in millions)
|
|
September 30, |
|
December 31, |
|
Assets |
|
|
|
|
|
Current assets: |
|
|
|
|
|
Cash and short-term investments |
|
$3,229 |
|
$3,592 |
|
Receivables trade and other |
|
9,386 |
|
8,494 |
|
Receivables finance |
|
7,920 |
|
8,298 |
|
Deferred and refundable income taxes |
|
1,122 |
|
931 |
|
Prepaid expenses and other current assets |
|
795 |
|
908 |
|
Inventories |
|
14,412 |
|
9,587 |
|
Total current assets |
|
36,864 |
|
31,810 |
|
Property, plant and equipment net |
|
13,397 |
|
12,539 |
|
Long-term receivables trade and other |
|
1,283 |
|
793 |
|
Long-term receivables finance |
|
11,445 |
|
11,264 |
|
Investments in unconsolidated affiliated companies |
|
121 |
|
164 |
|
Noncurrent deferred and refundable income taxes |
|
806 |
|
2,493 |
|
Intangible assets |
|
4,529 |
|
805 |
|
Goodwill |
|
7,778 |
|
2,614 |
|
Other assets |
|
1,544 |
|
1,538 |
|
Total assets |
|
$77,767 |
|
$64,020 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
Short-term borrowings: |
|
|
|
|
|
Machinery and Power Systems |
|
$366 |
|
$204 |
|
Financial Products |
|
3,548 |
|
3,852 |
|
Accounts payable |
|
7,524 |
|
5,856 |
|
Accrued expenses |
|
3,186 |
|
2,880 |
|
Accrued wages, salaries and employee benefits |
|
2,062 |
|
1,670 |
|
Customer advances |
|
2,745 |
|
1,831 |
|
Dividends payable |
|
|
|
281 |
|
Other current liabilities |
|
2,193 |
|
1,521 |
|
Long-term debt due within one year: |
|
|
|
|
|
Machinery and Power Systems |
|
72 |
|
495 |
|
Financial Products |
|
3,522 |
|
3,430 |
|
Total current liabilities |
|
25,218 |
|
22,020 |
|
Long-term debt due after one year: |
|
|
|
|
|
Machinery and Power Systems |
|
8,903 |
|
4,505 |
|
Financial Products |
|
17,878 |
|
15,932 |
|
Liability for postemployment benefits |
|
7,494 |
|
7,584 |
|
Other liabilities |
|
3,570 |
|
2,654 |
|
Total liabilities |
|
63,063 |
|
52,695 |
|
Commitments and contingencies (Notes 10 and 12) |
|
|
|
|
|
Redeemable noncontrolling interest |
|
491 |
|
461 |
|
Stockholders equity |
|
|
|
|
|
Common stock of $1.00 par value: |
|
|
|
|
|
Authorized shares: 2,000,000,000 Issued shares: (9/30/11 and 12/31/10 814,894,624) at paid-in amount |
|
4,229 |
|
3,888 |
|
Treasury stock (9/30/11 168,274,255 shares; 12/31/10 176,071,910 shares) at cost |
|
(10,299) |
|
(10,397) |
|
Profit employed in the business |
|
24,251 |
|
21,384 |
|
Accumulated other comprehensive income (loss) |
|
(4,019) |
|
(4,051) |
|
Noncontrolling interests |
|
51 |
|
40 |
|
Total stockholders equity |
|
14,213 |
|
10,864 |
|
Total liabilities, redeemable noncontrolling interest and stockholders equity |
|
$77,767 |
|
$64,020 |
|
See accompanying notes to Consolidated Financial Statements.
Caterpillar Inc.
Consolidated Statement of Changes in Stockholders Equity
(Unaudited)
(Dollars in millions)
|
|
Common |
|
Treasury |
|
Profit |
|
Accumulated |
|
Noncontrolling |
|
Total |
|
Comprehensive |
|
Nine Months Ended September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
$3,439 |
|
$(10,646) |
|
$19,711 |
|
$(3,764) |
|
$83 |
|
$8,823 |
|
|
|
Adjustment to adopt consolidation of variable interest entities1 |
|
|
|
|
|
(6) |
|
3 |
|
|
|
(3) |
|
|
|
Balance at January 1, 2010 |
|
$3,439 |
|
$(10,646) |
|
$19,705 |
|
$(3,761) |
|
$83 |
|
$8,820 |
|
|
|
Profit (loss) of consolidated and affiliated companies |
|
|
|
|
|
1,732 |
|
|
|
38 |
|
1,770 |
|
$1,770 |
|
Foreign currency translation, net of tax of $51 |
|
|
|
|
|
|
|
(40) |
|
14 |
|
(26) |
|
(26) |
|
Pension and other postretirement benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year actuarial gain (loss), net of tax of $5003 |
|
|
|
|
|
|
|
(857) |
|
|
|
(857) |
|
(857) |
|
Amortization of actuarial (gain) loss, net of tax of $121 |
|
|
|
|
|
|
|
218 |
|
3 |
|
221 |
|
221 |
|
Current year prior service (cost) credit, net of tax of $13 |
|
|
|
|
|
|
|
(1) |
|
|
|
(1) |
|
(1) |
|
Amortization of prior service (credit) cost, net of tax of $9 |
|
|
|
|
|
|
|
(11) |
|
|
|
(11) |
|
(11) |
|
Amortization of transition (asset) obligation, net of tax of $0 |
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
1 |
|
Derivative financial instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) deferred, net of tax of $15 |
|
|
|
|
|
|
|
(29) |
|
|
|
(29) |
|
(29) |
|
(Gains) losses reclassified to earnings, net of tax of $16 |
|
|
|
|
|
|
|
32 |
|
|
|
32 |
|
32 |
|
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) deferred, net of tax of $23 |
|
|
|
|
|
|
|
35 |
|
|
|
35 |
|
35 |
|
(Gains) losses reclassified to earnings, net of tax of $0 |
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
1 |
|
Change in ownership from noncontrolling interests |
|
(68) |
|
|
|
|
|
|
|
(66) |
|
(134) |
|
|
|
Dividends declared |
|
|
|
|
|
(542) |
|
|
|
|
|
(542) |
|
|
|
Common shares issued from treasury stock for stock-based compensation: 8,502,582 |
|
37 |
|
156 |
|
|
|
|
|
|
|
193 |
|
|
|
Common shares issued from treasury stock for benefit plans: 1,447,5004 |
|
66 |
|
27 |
|
|
|
|
|
|
|
93 |
|
|
|
Stock-based compensation expense |
|
196 |
|
|
|
|
|
|
|
|
|
196 |
|
|
|
Net excess tax benefits from stock-based compensation |
|
87 |
|
|
|
|
|
|
|
|
|
87 |
|
|
|
Cat Japan share redemption2 |
|
|
|
|
|
60 |
|
|
|
(34) |
|
26 |
|
|
|
Balance at September 30, 2010 |
|
$3,757 |
|
$(10,463) |
|
$20,955 |
|
$(4,412) |
|
$38 |
|
$9,875 |
|
$1,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
$3,888 |
|
$(10,397) |
|
$21,384 |
|
$(4,051) |
|
$40 |
|
$10,864 |
|
|
|
Profit (loss) of consolidated and affiliated companies |
|
|
|
|
|
3,381 |
|
|
|
38 |
|
3,419 |
|
3,419 |
|
Foreign currency translation, net of tax of $15 |
|
|
|
|
|
|
|
(244) |
|
32 |
|
(212) |
|
(212) |
|
Pension and other postretirement benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial (gain) loss, net of tax of $158 |
|
|
|
|
|
|
|
300 |
|
(1) |
|
299 |
|
299 |
|
Amortization of prior service (credit) cost, net of tax of $9 |
|
|
|
|
|
|
|
(15) |
|
|
|
(15) |
|
(15) |
|
Amortization of transition (asset) obligation, net of tax of $1 |
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
1 |
|
Derivative financial instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) deferred, net of tax of $15 |
|
|
|
|
|
|
|
24 |
|
|
|
24 |
|
24 |
|
(Gains) losses reclassified to earnings, net of tax of $14 |
|
|
|
|
|
|
|
(21) |
|
|
|
(21) |
|
(21) |
|
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) deferred, net of tax of $8 |
|
|
|
|
|
|
|
(11) |
|
|
|
(11) |
|
(11) |
|
(Gains) losses reclassified to earnings, net of tax of $0 |
|
|
|
|
|
|
|
(2) |
|
|
|
(2) |
|
(2) |
|
Change in ownership from noncontrolling interests |
|
|
|
|
|
|
|
|
|
4 |
|
4 |
|
|
|
Dividends declared |
|
|
|
|
|
(581) |
|
|
|
|
|
(581) |
|
|
|
Distribution to noncontrolling interests |
|
|
|
|
|
|
|
|
|
(3) |
|
(3) |
|
|
|
Common shares issued from treasury stock for stock-based compensation: 7,797,655 |
|
12 |
|
98 |
|
|
|
|
|
|
|
110 |
|
|
|
Stock-based compensation expense |
|
163 |
|
|
|
|
|
|
|
|
|
163 |
|
|
|
Net excess tax benefits from stock-based compensation |
|
166 |
|
|
|
|
|
|
|
|
|
166 |
|
|
|
Cat Japan share redemption2 |
|
|
|
|
|
67 |
|
|
|
(59) |
|
8 |
|
|
|
Balance at September 30, 2011 |
|
$4,229 |
|
$(10,299) |
|
$24,251 |
|
$(4,019) |
|
$51 |
|
$14,213 |
|
$3,482 |
|
1 See Note 15 for additional information.
2 See Note 16 regarding the Cat Japan share redemption.
3 Changes in amounts due to plan re-measurements. See Note 9 for additional information.
4 See Note 9 regarding shares issued for benefit plans.
See accompanying notes to Consolidated Financial Statements.
Caterpillar Inc.
Consolidated Statement of Cash Flow
(Unaudited)
(Millions of dollars)
|
|
Nine Months Ended | ||
|
|
2011 |
|
2010 |
Cash flow from operating activities: |
|
|
|
|
Profit (loss) of consolidated and affiliated companies |
|
$3,419 |
|
$1,770 |
Adjustments for non-cash items: |
|
|
|
|
Depreciation and amortization |
|
1,832 |
|
1,681 |
Other |
|
558 |
|
345 |
Changes in assets and liabilities, net of acquisitions and divestitures: |
|
|
|
|
Receivables trade and other |
|
(254) |
|
(1,337) |
Inventories |
|
(2,716) |
|
(2,086) |
Accounts payable |
|
1,308 |
|
1,966 |
Accrued expenses |
|
134 |
|
7 |
Accrued wages, salaries and employee benefits |
|
275 |
|
647 |
Customer advances |
|
333 |
|
183 |
Other assets net |
|
(74) |
|
131 |
Other liabilities net |
|
700 |
|
(360) |
Net cash provided by (used for) operating activities |
|
5,515 |
|
2,947 |
|
|
|
|
|
Cash flow from investing activities: |
|
|
|
|
Capital expenditures excluding equipment leased to others |
|
(1,515) |
|
(957) |
Expenditures for equipment leased to others |
|
(984) |
|
(708) |
Proceeds from disposals of leased assets and property, plant and equipment |
|
922 |
|
1,101 |
Additions to finance receivables |
|
(7,091) |
|
(6,121) |
Collections of finance receivables |
|
6,503 |
|
6,424 |
Proceeds from sale of finance receivables |
|
106 |
|
13 |
Investments and acquisitions (net of cash acquired) |
|
(7,413) |
|
(1,111) |
Proceeds from sale of businesses and investments (net of cash sold) |
|
21 |
|
|
Proceeds from sale of available-for-sale securities |
|
180 |
|
141 |
Investments in available-for-sale securities |
|
(216) |
|
(129) |
Other net |
|
37 |
|
130 |
Net cash provided by (used for) investing activities |
|
(9,450) |
|
(1,217) |
|
|
|
|
|
Cash flow from financing activities: |
|
|
|
|
Dividends paid |
|
(862) |
|
(804) |
Distribution to noncontrolling interests |
|
(3) |
|
|
Common stock issued, including treasury shares reissued |
|
110 |
|
193 |
Excess tax benefit from stock-based compensation |
|
169 |
|
89 |
Acquisitions of noncontrolling interests |
|
|
|
(132) |
Proceeds from debt issued (original maturities greater than three months): |
|
|
|
|
Machinery and Power Systems |
|
4,544 |
|
190 |
Financial Products |
|
8,703 |
|
5,738 |
Payments on debt (original maturities greater than three months): |
|
|
|
|
Machinery and Power Systems |
|
(2,203) |
|
(1,185) |
Financial Products |
|
(6,080) |
|
(8,031) |
Short-term borrowings net (original maturities three months or less) |
|
(766) |
|
(330) |
Net cash provided by (used for) financing activities |
|
3,612 |
|
(4,272) |
Effect of exchange rate changes on cash |
|
(40) |
|
(60) |
Increase (decrease) in cash and short-term investments |
|
(363) |
|
(2,602) |
|
|
|
|
|
Cash and short-term investments at beginning of period |
|
3,592 |
|
4,867 |
Cash and short-term investments at end of period |
|
$3,229 |
|
$2,265 |
All short-term investments, which consist primarily of highly liquid investments with original maturities of three months or less, are considered to be cash equivalents.
See accompanying notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. A. Basis of Presentation
In the opinion of management, the accompanying financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of (a) the consolidated results of operations for the three and nine month periods ended September 30, 2011 and 2010, (b) the consolidated financial position at September 30, 2011 and December 31, 2010, (c) the consolidated changes in stockholders equity for the nine month periods ended September 30, 2011 and 2010, and (d) the consolidated statement of cash flow for the nine month periods ended September 30, 2011 and 2010. The financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (U.S. GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain amounts for prior periods have been reclassified to conform to the current period financial statement presentation.
Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with the audited financial statements and notes thereto included in our Companys annual report on Form 10-K for the year ended December 31, 2010, as supplemented by the Companys current report on Form 8-K filed on May 23, 2011 (2010 Form 10-K) to reflect the change in our reportable segments as discussed in Note 14.
The Company revised previously reported cash flows from operating and investing activities for the nine month period ended September 30, 2010 to adjust for the impact of accrued but unpaid capital expenditures. Cash provided by operating activities increased from the amount previously reported by $115 million for the nine month period ended September 30, 2010, and cash flow from investing activities decreased by the same amount. Management has concluded that the impact was not material to the nine month period.
The December 31, 2010 financial position data included herein is derived from the audited consolidated financial statements included in the 2010 Form 10-K but does not include all disclosures required by U.S. GAAP.
B. Nature of Operations
Information in our financial statements and related commentary are presented in the following categories:
Machinery and Power Systems Represents the aggregate total of Construction Industries, Resource Industries, Power Systems, and All Other segments and related corporate items and eliminations.
Financial Products Primarily includes the companys Financial Products Segment. This category includes Caterpillar Financial Services Corporation (Cat Financial), Caterpillar Insurance Holdings Inc. (Cat Insurance) and their respective subsidiaries.
As discussed in Note 14 Segment Information, during the first quarter of 2011, we revised our reportable segments in line with the changes to our organizational structure that were announced during 2010. The 2010 financial information has been retrospectively adjusted to conform to the 2011 presentation.
C. Accumulated Other Comprehensive Income (Loss)
Comprehensive income (loss) and its components are presented in Consolidated Statement of Changes in Stockholders Equity. Accumulated other comprehensive income (loss), net of tax, consisted of the following:
(Millions of dollars) |
|
September 30, |
|
September 30, |
|
Foreign currency translation |
|
$307 |
|
$564 |
|
Pension and other postretirement benefits |
|
(4,409) |
|
(5,089) |
|
Derivative financial instruments |
|
48 |
|
63 |
|
Available-for-sale securities |
|
35 |
|
50 |
|
Total accumulated other comprehensive income (loss) |
|
$(4,019) |
|
$(4,412) |
|
|
|
|
|
|
|
2. New Accounting Guidance
Fair value measurements - In January 2010, the FASB issued accounting guidance that requires the gross presentation of activity within the Level 3 fair value measurement roll forward and details of transfers in and out of Level 1 and 2 fair value measurements. It also clarifies existing disclosure requirements regarding the level of disaggregation of fair value measurements and disclosures on inputs. We adopted this new accounting guidance for the quarterly period ended March 31, 2010. The adoption of this guidance did not have a material impact on our financial statements. See Note 17 for additional information.
Accounting for transfers of financial assets - In June 2009, the FASB issued accounting guidance on accounting for transfers of financial assets. This guidance amends previous guidance and includes: the elimination of the qualifying special-purpose entity (QSPE) concept; a new participating interest definition that must be met for transfers of portions of financial assets to be eligible for sale accounting; clarifications and changes to the derecognition criteria for a transfer to be accounted for as a sale; and a change to the amount of recognized gain or loss on a transfer of financial assets accounted for as a sale when beneficial interests are received by the transferor. Additionally, the guidance requires extensive new disclosures regarding an entitys involvement in a transfer of financial assets. Finally, existing QSPEs (prior to the effective date of this guidance) must be evaluated for consolidation by reporting entities in accordance with the applicable consolidation guidance upon the elimination of this concept. We adopted this new guidance on January 1, 2010. The adoption of this guidance did not have a material impact on our financial statements. See Note 15 for additional information.
Consolidation of variable interest entities - In June 2009, the FASB issued accounting guidance on the consolidation of VIEs. This new guidance revises previous guidance by eliminating the exemption for qualifying special purpose entities, by establishing a new approach for determining who should consolidate a VIE and by changing when it is necessary to reassess who should consolidate a VIE. We adopted this new guidance on January 1, 2010. The adoption of this guidance resulted in the consolidation of QSPEs related to Cat Financials asset-backed securitization program that were previously not recorded on our consolidated financial statements. The restricted assets (Receivables-finance, Long-term receivables-finance, Prepaid expenses and other current assets, and Other assets) of the consolidated QSPEs totaled $324 million at January 1, 2010. The liabilities (Accrued expenses, Long-term debt due within one year-Financial Products and Long-term debt due after one year-Financial Products) of the consolidated QSPEs totaled $327 million at January 1, 2010. See Note 15 for additional information.
Disclosures about the credit quality of financing receivables and the allowance for credit losses - In July 2010, the FASB issued accounting guidance on disclosures about the credit quality of financing receivables and the allowance for credit losses. The guidance expands disclosures for the allowance for credit losses and financing receivables by requiring entities to disclose information at disaggregated levels. It also requires disclosure of credit quality indicators, past due information and modifications of financing receivables. Also, in April 2011, the FASB issued guidance clarifying when a restructuring of a receivable should be considered a troubled debt restructuring by providing additional guidance for determining whether the creditor has granted a concession and whether the debtor is experiencing financial difficulties. For end of period balances, the new disclosures were effective December 31, 2010 and did not have a material impact on our financial statements. For activity during a reporting period, the disclosures were effective January 1, 2011 and did not have a material impact on our financial statements. The disclosures related to modifications of financing receivables, as well as the guidance clarifying when a restructured receivable should be considered a troubled debt restructuring were effective July 1, 2011 and did not have a material impact on our financial statements. See Note 15 for additional information.
Presentation of comprehensive income In June 2011, the FASB issued accounting guidance on the presentation of comprehensive income. The guidance provides two options for presenting net income and other comprehensive income. The total of comprehensive income, the components of net income, and the components of other comprehensive income may be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance will be effective January 1, 2012 and we do not expect the adoption to have a material impact on our financial statements.
3. Stock-Based Compensation
Accounting for stock-based compensation requires that the cost resulting from all stock-based payments be recognized in the financial statements based on the grant date fair value of the award. Stock-based compensation primarily consists of stock-settled stock appreciation rights (SARs), restricted stock units (RSUs) and stock options. We recognized pretax stock-based compensation cost in the amount of $52 million and $163 million for the three and nine months ended September 30, 2011, respectively; and $58 million and $196 million for the three and nine months ended September 30, 2010, respectively.
The following table illustrates the type and fair value of the stock-based compensation awards granted during the nine month periods ended September 30, 2011 and 2010, respectively:
|
|
2011 |
|
2010 |
| ||||
|
|
# Granted |
|
Fair Value |
|
# Granted |
|
Fair Value |
|
SARs |
|
2,722,689 |
|
$36.73 |
|
7,125,210 |
|
$22.31 |
|
RSUs |
|
1,082,032 |
|
97.51 |
|
1,711,771 |
|
53.35 |
|
Stock options |
|
237,906 |
|
36.73 |
|
431,271 |
|
22.31 |
|
|
|
|
|
|
|
|
|
|
|
The stock price on the date of grant was $102.13 and $57.85 for 2011 and 2010, respectively.
The following table provides the assumptions used in determining the fair value of the stock-based awards for the nine month periods ended September 30, 2011 and 2010, respectively:
|
|
Grant Year | |||
|
|
2011 |
|
2010 |
|
Weighted-average dividend yield |
|
2.22% |
|
2.32% |
|
Weighted-average volatility |
|
32.7% |
|
36.4% |
|
Range of volatilities |
|
20.9-45.4% |
|
35.2-51.8% |
|
Range of risk-free interest rates |
|
0.25-3.51% |
|
0.32-3.61% |
|
Weighted-average expected lives |
|
8 years |
|
7 years |
|
|
|
|
|
|
|
As of September 30, 2011, the total remaining unrecognized compensation cost related to nonvested stock-based compensation awards was $184 million, which will be amortized over the weighted-average remaining requisite service periods of approximately 2.0 years.
4. Derivative Financial Instruments and Risk Management
Our earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates, interest rates and commodity prices. In addition, the amount of Caterpillar stock that can be repurchased under our stock repurchase program is impacted by movements in the price of the stock. Our Risk Management Policy (policy) allows for the use of derivative financial instruments to prudently manage foreign currency exchange rate, interest rate, commodity price and Caterpillar stock price exposures. Our policy specifies that derivatives are not to be used for speculative purposes. Derivatives that we use are primarily foreign currency forward and option contracts, interest rate swaps, commodity forward and option contracts, and stock repurchase contracts. Our derivative activities are subject to the management, direction and control of our senior financial officers. Risk management practices, including the use of financial derivative instruments, are presented to the Audit Committee of the Board of Directors at least annually.
All derivatives are recognized on the Consolidated Statement of Financial Position at their fair value. On the date the derivative contract is entered into, we designate the derivative as (1) a hedge of the fair value of a recognized asset or liability (fair value hedge), (2) a hedge of a forecasted transaction or the variability of cash flow to be paid (cash flow hedge), or (3) an undesignated instrument. Changes in the fair value of a derivative that is qualified, designated and highly effective as a fair value hedge, along with the gain or loss on the hedged recognized asset or liability that is attributable to the hedged risk, are recorded in current earnings. Changes in the fair value of a derivative that is qualified, designated and highly effective as a cash flow hedge are recorded in Accumulated other comprehensive income (loss) (AOCI) on the Consolidated Statement of Financial Position until they are reclassified to earnings in the same period or periods during which the hedged transaction affects earnings. Changes in the fair value of undesignated derivative instruments and the ineffective portion of designated derivative instruments are reported in current earnings. Cash flow from designated derivative financial instruments is classified within the same category as the item being hedged on the Consolidated Statement of Cash Flow. Cash flow from undesignated derivative financial instruments is included in the investing category on the Consolidated Statement of Cash Flow.
We formally document all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair value hedges to specific assets and liabilities on the Consolidated Statement of Financial Position and linking cash flow hedges to specific forecasted transactions or variability of cash flow.
We also formally assess, both at the hedges inception and on an ongoing basis, whether the designated derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flow of hedged items. When a derivative is determined not to be highly effective as a hedge or the underlying hedged transaction is no longer probable, we discontinue hedge accounting prospectively, in accordance with the derecognition criteria for hedge accounting.
Foreign Currency Exchange Rate Risk
Foreign currency exchange rate movements create a degree of risk by affecting the U.S. dollar value of sales made and costs incurred in foreign currencies. Movements in foreign currency rates also affect our competitive position as these changes may affect business practices and/or pricing strategies of non-U.S.-based competitors. Additionally, we have balance sheet positions denominated in foreign currencies, thereby creating exposure to movements in exchange rates.
Our Machinery and Power Systems operations purchase, manufacture and sell products in many locations around the world. As we have a diversified revenue and cost base, we manage our future foreign currency cash flow exposure on a net basis. We use foreign currency forward and option contracts to manage unmatched foreign currency cash inflow and outflow. Our objective is to minimize the risk of exchange rate movements that would reduce the U.S. dollar value of our foreign currency cash flow. Our policy allows for managing anticipated foreign currency cash flow for up to five years.
We generally designate as cash flow hedges at inception of the contract any Australian dollar, Brazilian real, British pound, Canadian dollar, Chinese yuan, euro, Indian rupee, Japanese yen, Mexican peso, Singapore dollar or Swiss franc forward or option contracts that meet the requirements for hedge accounting and the maturity extends beyond the current quarter-end. Designation is performed on a specific exposure basis to support hedge accounting. The remainder of Machinery and Power Systems foreign currency contracts are undesignated, including any hedges designed to protect our competitive exposure. Periodically we also designate as fair value hedges specific euro forward contracts used to hedge firm commitments.
As of September 30, 2011, $34 million of deferred net gains, net of tax, included in equity (Accumulated other comprehensive income (loss) in the Consolidated Statement of Financial Position), are expected to be reclassified to current earnings (Other income (expense) in the Consolidated Statement of Results of Operations) over the next twelve months when earnings are affected by the hedged transactions. The actual amount recorded in Other income (expense) will vary based on exchange rates at the time the hedged transactions impact earnings.
In managing foreign currency risk for our Financial Products operations, our objective is to minimize earnings volatility resulting from conversion and the remeasurement of net foreign currency balance sheet positions. Our policy allows the use of foreign currency forward and option contracts to offset the risk of currency mismatch between our receivables and debt. All such foreign currency forward and option contracts are undesignated.
Interest Rate Risk
Interest rate movements create a degree of risk by affecting the amount of our interest payments and the value of our fixed-rate debt. Our practice is to use interest rate derivatives to manage our exposure to interest rate changes and, in some cases, lower the cost of borrowed funds.
Our Machinery and Power Systems operations generally use fixed-rate debt as a source of funding. Our objective is to minimize the cost of borrowed funds. Our policy allows us to enter into fixed-to-floating interest rate swaps and forward rate agreements to meet that objective with the intent to designate as fair value hedges at inception of the contract all fixed-to-floating interest rate swaps. Designation as a hedge of the fair value of our fixed-rate debt is performed to support hedge accounting.
Financial Products operations has a match-funding policy that addresses interest rate risk by aligning the interest rate profile (fixed or floating rate) of Cat Financials debt portfolio with the interest rate profile of their receivables portfolio within predetermined ranges on an ongoing basis. In connection with that policy, we use interest rate derivative instruments to modify the debt structure to match assets within the receivables portfolio. This matched funding reduces the volatility of margins between interest-bearing assets and interest-bearing liabilities, regardless of which direction interest rates move.
Our policy allows us to use fixed-to-floating, floating-to-fixed, and floating-to-floating interest rate swaps to meet the match-funding objective. We designate fixed-to-floating interest rate swaps as fair value hedges to protect debt against changes in fair value due to changes in the benchmark interest rate. We designate most floating-to-fixed interest rate swaps as cash flow hedges to protect against the variability of cash flows due to changes in the benchmark interest rate.
As of September 30, 2011, $5 million of deferred net losses, net of tax, included in equity (Accumulated other comprehensive income (loss) in the Consolidated Statement of Financial Position), related to Financial Products floating-to-fixed interest rate swaps, are expected to be reclassified to current earnings (Interest expense of Financial Products in the Consolidated Statement of Results of Operations) over the next twelve months. The actual amount recorded in Interest expense of Financial Products will vary based on interest rates at the time the hedged transactions impact earnings.
We have, at certain times, liquidated fixed-to-floating and floating-to-fixed interest rate swaps at both Machinery and Power Systems and Financial Products. The gains or losses associated with these swaps at the time of liquidation are amortized into earnings over the original term of the previously designated hedged item.
In anticipation of issuing debt to finance our acquisition of Bucyrus International, Inc., we entered into interest rate swaps to manage our exposure to interest rate changes. For the nine months ended September 30, 2011, we recognized a net loss of $149 million in connection with these swaps, which was included in Other income (expense) in the Consolidated Statement of Results of Operations. The contracts were liquidated in conjunction with our issuance of senior notes in May 2011, therefore, there were no gains or losses for the three months ended September 30, 2011. These contracts were not designated as hedging instruments, and therefore, did not receive hedge accounting treatment.
Commodity Price Risk
Commodity price movements create a degree of risk by affecting the price we must pay for certain raw material. Our policy is to use commodity forward and option contracts to manage the commodity risk and reduce the cost of purchased materials.
Our Machinery and Power Systems operations purchase base and precious metals embedded in the components we purchase from suppliers. Our suppliers pass on a share of the price changes in the commodity portion of the component cost. In addition, we are subject to price changes on energy products such as natural gas and diesel fuel purchased for operational use.
Our objective is to minimize volatility in the price of these commodities. Our policy allows us to enter into commodity forward and option contracts to lock in the purchase price of a portion of these commodities within a five-year horizon. All such commodity forward and option contracts are undesignated.
The location and fair value of derivative instruments reported in the Consolidated Statement of Financial Position are as follows:
(Millions of dollars) |
|
|
|
|
|
|
|
|
|
|
|
Asset (Liability) Fair Value |
| ||
|
|
Statement of Financial Position Location |
|
September 30, 2011 |
|
December 31, 2010 |
|
Designated derivatives |
|
|
|
|
|
|
|
Foreign exchange contracts |
|
|
|
|
|
|
|
Machinery and Power Systems |
|
Receivables trade and other |
|
$65 |
|
$65 |
|
Machinery and Power Systems |
|
Long-term receivables trade and other |
|
57 |
|
52 |
|
Machinery and Power Systems |
|
Accrued expenses |
|
(58) |
|
(66) |
|
Machinery and Power Systems |
|
Other liabilities |
|
(4) |
|
(1) |
|
Interest rate contracts |
|
|
|
|
|
|
|
Machinery and Power Systems |
|
Receivables trade and other |
|
|
|
1 |
|
Financial Products |
|
Receivables trade and other |
|
11 |
|
14 |
|
Financial Products |
|
Long-term receivables trade and other |
|
258 |
|
197 |
|
Financial Products |
|
Accrued expenses |
|
(7) |
|
(18) |
|
|
|
|
|
$322 |
|
$244 |
|
|
|
|
|
|
|
|
|
Undesignated derivatives |
|
|
|
|
|
|
|
Foreign exchange contracts |
|
|
|
|
|
|
|
Machinery and Power Systems |
|
Receivables trade and other |
|
$81 |
|
$120 |
|
Machinery and Power Systems |
|
Long-term receivables trade and other |
|
1 |
|
|
|
Machinery and Power Systems |
|
Accrued expenses |
|
(31) |
|
(46) |
|
Machinery and Power Systems |
|
Other liabilities |
|
(90) |
|
(58) |
|
Financial Products |
|
Receivables trade and other |
|
13 |
|
6 |
|
Financial Products |
|
Accrued expenses |
|
(20) |
|
(9) |
|
Interest rate contracts |
|
|
|
|
|
|
|
Machinery and Power Systems |
|
Accrued expenses |
|
|
|
(6) |
|
Financial Products |
|
Accrued expenses |
|
(1) |
|
(1) |
|
Commodity contracts |
|
|
|
|
|
|
|
Machinery and Power Systems |
|
Receivables trade and other |
|
3 |
|
17 |
|
Machinery and Power Systems |
|
Accrued expenses |
|
(17) |
|
|
|
|
|
|
|
$(61) |
|
$23 |
|
The effect of derivatives designated as hedging instruments on the Consolidated Statement of Results of Operations is as follows:
Fair Value Hedges (Millions of dollars) |
|
|
|
|
|
|
| ||||
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
| ||||
|
|
Classification |
|
Gains (Losses) |
|
Gains (Losses) |
|
Gains (Losses) |
|
Gains (Losses) |
|
Interest rate contracts |
|
|
|
|
|
|
|
|
|
|
|
Machinery and Power Systems |
|
Other income (expense) |
|
$ |
|
$ |
|
$(1) |
|
$1 |
|
Financial Products |
|
Other income (expense) |
|
70 |
|
(77) |
|
59 |
|
(65) |
|
|
|
|
|
$70 |
|
$(77) |
|
$58 |
|
$(64) |
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
| ||||
|
|
Classification |
|
Gains (Losses) |
|
Gains (Losses) |
|
Gains (Losses) |
|
Gains (Losses) |
|
Interest rate contracts |
|
|
|
|
|
|
|
|
|
|
|
Financial Products |
|
Other income (expense) |
|
$63 |
|
$(61) |
|
$204 |
|
$(195) |
|
|
|
|
|
$63 |
|
$(61) |
|
$204 |
|
$(195) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges (Millions of dollars) |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2011 |
| ||||||
|
|
|
|
Recognized in Earnings |
| ||||
|
|
Amount of Gains |
|
Classification of |
|
Amount of Gains |
|
Recognized |
|
Foreign exchange contracts |
|
|
|
|
|
|
|
|
|
Machinery and Power Systems |
|
$62 |
|
Other income (expense) |
|
$43 |
|
$ |
|
Interest rate contracts |
|
|
|
|
|
|
|
|
|
Machinery and Power Systems |
|
|
|
Other income (expense) |
|
(1) |
|
|
|
Financial Products |
|
(4) |
|
Interest expense of Financial Products |
|
(3) |
|
(2)1 |
|
|
|
$58 |
|
|
|
$39 |
|
$(2) |
|
|
|
Three Months Ended September 30, 2010 |
| ||||||
|
|
|
|
Recognized in Earnings |
| ||||
|
|
Amount of Gains |
|
Classification of |
|
Amount of Gains |
|
Recognized |
|
Foreign exchange contracts |
|
|
|
|
|
|
|
|
|
Machinery and Power Systems |
|
$37 |
|
Other income (expense) |
|
$15 |
|
$1 |
|
Interest rate contracts |
|
|
|
|
|
|
|
|
|
Machinery and Power Systems |
|
|
|
Other income (expense) |
|
(1) |
|
|
|
Financial Products |
|
(2) |
|
Interest expense of Financial Products |
|
(10) |
|
(2)1 |
|
|
|
$35 |
|
|
|
$4 |
|
$(1) |
|
|
|
Nine Months Ended September 30, 2011 |
| ||||||
|
|
|
|
Recognized in Earnings |
| ||||
|
|
Amount of Gains |
|
Classification of |
|
Amount of Gains |
|
Recognized |
|
Foreign exchange contracts |
|
|
|
|
|
|
|
|
|
Machinery and Power Systems |
|
$44 |
|
Other income (expense) |
|
$52 |
|
$ |
|
Interest rate contracts |
|
|
|
|
|
|
|
|
|
Machinery and Power Systems |
|
|
|
Other income (expense) |
|
(2) |
|
|
|
Financial Products |
|
(5) |
|
Interest expense of Financial Products |
|
(15) |
|
(1)1 |
|
|
|
$39 |
|
|
|
$35 |
|
$(1) |
|
|
|
Nine Months Ended September 30, 2010 |
| ||||||
|
|
|
|
Recognized in Earnings |
| ||||
|
|
Amount of Gains |
|
Classification of |
|
Amount of Gains |
|
Recognized |
|
Foreign exchange contracts |
|
|
|
|
|
|
|
|
|
Machinery and Power Systems |
|
$(36) |
|
Other income (expense) |
|
$(4) |
|
$1 |
|
Interest rate contracts |
|
|
|
|
|
|
|
|
|
Machinery and Power Systems |
|
|
|
Other income (expense) |
|
(2) |
|
|
|
Financial Products |
|
(8) |
|
Interest expense of Financial Products |
|
(42) |
|
(1)1 |
|
|
|
$(44) |
|
|
|
$(48) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
1 The classification of the ineffective portion recognized in earnings is included in Other income (expense). | |||||||||
|
|
|
|
|
|
|
|
|
|
The effect of derivatives not designated as hedging instruments on the Consolidated Statement of Results of Operations is as follows:
(Millions of dollars) |
|
|
|
|
|
|
|
|
|
Classification of Gains (Losses) |
|
Three Months Ended |
|
Nine Months Ended |
|
Foreign exchange contracts |
|
|
|
|
|
|
|
Machinery and Power Systems |
|
Other income (expense) |
|
$(1) |
|
$46 |
|
Financial Products |
|
Other income (expense) |
|
(10) |
|
(12) |
|
Interest rate contracts |
|
|
|
|
|
|
|
Machinery and Power Systems |
|
Other income (expense) |
|
|
|
(149) |
|
Commodity contracts |
|
|
|
|
|
|
|
Machinery and Power Systems |
|
Other income (expense) |
|
(23) |
|
(21) |
|
|
|
|
|
$(34) |
|
$(136) |
|
|
|
Classification of Gains (Losses) |
|
Three Months Ended |
|
Nine Months Ended |
|
Foreign exchange contracts |
|
|
|
|
|
|
|
Machinery and Power Systems |
|
Other income (expense) |
|
$(21) |
|
$(14) |
|
Financial Products |
|
Other income (expense) |
|
12 |
|
23 |
|
Interest rate contracts |
|
|
|
|
|
|
|
Machinery and Power Systems |
|
Other income (expense) |
|
|
|
(2) |
|
Financial Products |
|
Other income (expense) |
|
2 |
|
3 |
|
Commodity contracts |
|
|
|
|
|
|
|
Machinery and Power Systems |
|
Other income (expense) |
|
10 |
|
7 |
|
|
|
|
|
$3 |
|
$17 |
|
|
|
|
|
|
|
|
|
Stock Repurchase Risk
Payments for stock repurchase derivatives are accounted for as a reduction in stockholders equity. In February 2007, the Board of Directors authorized a $7.5 billion stock repurchase program, expiring on December 31, 2011. The amount of Caterpillar stock that can be repurchased under the authorization is impacted by movements in the price of the stock. In August 2007, the Board of Directors authorized the use of derivative contracts to reduce stock repurchase price volatility. There were no stock repurchase derivatives outstanding for the three and nine months ended September 30, 2011 or 2010.
5. Inventories
Inventories (principally using the last-in, first-out (LIFO) method) are comprised of the following:
(Millions of dollars) |
|
September 30, |
|
December 31, |
|
Raw materials |
|
$3,649 |
|
$2,766 |
|
Work-in-process |
|
3,020 |
|
1,483 |
|
Finished goods |
|
7,474 |
|
5,098 |
|
Supplies |
|
269 |
|
240 |
|
Total inventories |
|
$14,412 |
|
$9,587 |
|
|
|
|
|
|
|
During the third quarter of 2011, we acquired $2,305 million of inventory (valued using the first-in, first-out (FIFO) method) as a result of the acquisition of Bucyrus International, Inc. See Note 18 for details on this business combination.
6. Investments in Unconsolidated Affiliated Companies
Combined financial information of the unconsolidated affiliated companies accounted for by the equity method (generally on a lag of 3 months or less) was as follows:
Results of Operations of unconsolidated affiliated companies: |
|
Three Months Ended |
|
Nine Months Ended |
| ||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Sales |
|
$302 |
|
$216 |
|
$741 |
|
$580 |
|
Cost of sales |
|
257 |
|
171 |
|
616 |
|
445 |
|
Gross profit |
|
$45 |
|
$45 |
|
$125 |
|
$135 |
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) |
|
$(12) |
|
$(10) |
|
$(46) |
|
$(12) |
|
|
|
|
|
|
|
|
|
|
|
Financial Position of unconsolidated affiliated companies: (Millions of dollars) |
|
September 30, |
|
December 31, |
|
Assets: |
|
|
|
|
|
Current assets |
|
$310 |
|
$414 |
|
Property, plant and equipment net |
|
172 |
|
196 |
|
Other assets |
|
7 |
|
39 |
|
|
|
489 |
|
649 |
|
Liabilities: |
|
|
|
|
|
Current liabilities |
|
202 |
|
274 |
|
Long-term debt due after one year |
|
74 |
|
72 |
|
Other liabilities |
|
12 |
|
40 |
|
|
|
288 |
|
386 |
|
Equity |
|
$201 |
|
$263 |
|
1 The decrease is due to the sale of our ownership in NC2 Global LLC (NC2), which occurred on September 29, 2011. |
Caterpillars investments in unconsolidated affiliated companies: (Millions of dollars) |
|
September 30, |
|
December 31, |
|
Investments in equity method companies |
|
$99 |
|
$135 |
|
Plus: Investments in cost method companies |
|
22 |
|
29 |
|
Total investments in unconsolidated affiliated companies |
|
$121 |
|
$164 |
|
|
|
|
|
|
|
7. Intangible Assets and Goodwill
A. Intangible assets
Intangible assets are comprised of the following:
|
|
|
|
September 30, 2011 |
| ||||
(Millions of dollars) |
|
Weighted |
|
Gross |
|
Accumulated |
|
Net |
|
Customer relationships |
|
15 |
|
$2,929 |
|
$(173) |
|
$2,756 |
|
Intellectual property |
|
12 |
|
1,775 |
|
(208) |
|
1,567 |
|
Other |
|
11 |
|
277 |
|
(89) |
|
188 |
|
Total finite-lived intangible assets |
|
14 |
|
4,981 |
|
(470) |
|
4,511 |
|
Indefinite-lived intangible assets - In-process research & development |
|
|
|
18 |
|
|
|
18 |
|
Total intangible assets |
|
|
|
$4,999 |
|
$(470) |
|
$4,529 |
|
|
|
|
|
December 31, 2010 |
| ||||
(Millions of dollars) |
|
Weighted |
|
Gross |
|
Accumulated |
|
Net |
|
Customer relationships |
|
17 |
|
$630 |
|
$(108) |
|
$522 |
|
Intellectual property |
|
9 |
|
306 |
|
(166) |
|
140 |
|
Other |
|
13 |
|
197 |
|
(72) |
|
125 |
|
Total finite-lived intangible assets |
|
14 |
|
1,133 |
|
(346) |
|
787 |
|
Indefinite-lived intangible assets - In-process research & development |
|
|
|
18 |
|
|
|
18 |
|
Total intangible assets |
|
|
|
$1,151 |
|
$(346) |
|
$805 |
|
|
|
|
|
|
|
|
|
|
|
During the third quarter of 2011, we acquired finite-lived intangible assets aggregating $3,941 million due to purchases of Bucyrus International, Inc. and Pyroban Group Ltd. See Note 18 for details on these business combinations.
Amortization expense for the three and nine months ended September 30, 2011 was $91 million and $135 million, respectively. Amortization expense for the three and nine months ended September 30, 2010 was $20 million and $52 million, respectively. Amortization expense related to intangible assets is expected to be:
(Millions of dollars) | |||||||||||
2011 |
|
2012 |
|
2013 |
|
2014 |
|
2015 |
|
Thereafter |
|
$229 |
|
$376 |
|
$368 |
|
$365 |
|
$360 |
|
$2,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
B. Goodwill
During the third quarter of 2011, we recorded goodwill of $5,286 million related to the acquisitions of Bucyrus International, Inc. and Pyroban Group Ltd. See Note 18 for details on these business combinations.
We test goodwill for impairment annually and whenever events or circumstances make it more likely than not that an impairment may have occurred. We perform our annual goodwill impairment test as of October 1 and monitor for interim triggering events on an ongoing basis. Goodwill is reviewed for impairment utilizing a two-step process. The first step requires us to compare the fair value of each reporting unit, which we primarily determine using an income approach based on the present value of discounted cash flows, to the respective carrying value, which includes goodwill. If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired. If the carrying value is greater than the fair value, there is an indication that an impairment may exist and the second step is required. Additionally, if the carrying amount of a reporting unit is zero or negative, the second step of the goodwill impairment test is also required if an analysis of qualitative factors indicates it more likely than not that a goodwill impairment exists. In step two, the implied fair value of goodwill is calculated as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities. If the implied fair value of goodwill is less than the carrying value of the reporting units goodwill, the difference is recognized as an impairment loss. No goodwill was impaired during the three and nine months ended September 30, 2011 or 2010.
As discussed in Note 14 Segment Information, during the first quarter of 2011, we revised our reportable segments in line with the changes to our organizational structure that were announced during 2010. Our reporting units did not change as a result of the changes to our reportable segments.
The changes in the carrying amount of the goodwill by reportable segment for the nine months ended September 30, 2011 were as follows:
(Millions of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
Resource |
|
Power |
|
Other |
|
Consolidated |
|
Balance at December 31, 2010 |
|
$357 |
|
$51 |
|
$2,077 |
|
$129 |
|
$2,614 |
|
Business acquisitions1 |
|
|
|
5,263 |
|
23 |
|
|
|
5,286 |
|
Business divestitures2 |
|
|
|
|
|
|
|
(12) |
|
(12) |
|
Other adjustments3 |
|
24 |
|
(133) |
|
(1) |
|
|
|
(110) |
|
Balance at September 30, 2011 |
|
$381 |
|
$5,181 |
|
$2,099 |
|
$117 |
|
$7,778 |
|
1 Purchase of Bucyrus International, Inc. and Pyroban Group Ltd. See Note 18 for additional details.
2 Sale of Carter Machinery. See Note 18 for additional details.
3 Other adjustments are comprised primarily of foreign currency translation.
|
|
|
|
|
|
|
|
|
|
|
|
8. Available-For-Sale Securities
We have investments in certain debt and equity securities, primarily at Cat Insurance, that have been classified as available-for-sale and recorded at fair value based upon quoted market prices. These fair values are primarily included in Other assets in the Consolidated Statement of Financial Position. Unrealized gains and losses arising from the revaluation of available-for-sale securities are included, net of applicable deferred income taxes, in equity (Accumulated other comprehensive income (loss) in the Consolidated Statement of Financial Position). Realized gains and losses on sales of investments are generally determined using the FIFO (first-in, first-out) method for debt instruments and the specific identification method for equity securities. Realized gains and losses are included in Other income (expense) in the Consolidated Statement of Results of Operations.
|
|
September 30, 2011 |
|
December 31, 2010 |
| ||||||||
|
|
|
|
Unrealized |
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
|
Pretax Net |
|
|
|
|
|
Pretax Net |
|
|
|
(Millions of dollars) |
|
Cost |
|
Gains |
|
Fair |
|
Cost |
|
Gains |
|
Fair |
|
Government debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury bonds |
|
$10 |
|
$ |
|
$10 |
|
$12 |
|
$ |
|
$12 |
|
Other U.S. and non-U.S. government bonds |
|
72 |
|
2 |
|
74 |
|
76 |
|
1 |
|
77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
526 |
|
30 |
|
556 |
|
481 |
|
30 |
|
511 |
|
Asset-backed securities |
|
117 |
|
(1) |
|
116 |
|
136 |
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. governmental agency mortgage-backed securities |
|
274 |
|
16 |
|
290 |
|
258 |
|
15 |
|
273 |
|
Residential mortgage-backed securities |
|
36 |
|
(4) |
|
32 |
|
43 |
|
(3) |
|
40 |
|
Commercial mortgage-backed securities |
|
156 |
|
1 |
|
157 |
|
164 |
|
4 |
|
168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Large capitalization value |
|
116 |
|
6 |
|
122 |
|
100 |
|
22 |
|
122 |
|
Smaller company growth |
|
21 |
|
6 |
|
27 |
|
23 |
|
8 |
|
31 |
|
Total |
|
$1,328 |
|
$56 |
|
$1,384 |
|
$1,293 |
|
$77 |
|
$1,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three and nine months ended September 30, 2011, charges for other-than-temporary declines in the market value of securities were $4 million. During the three and nine months ended September 30, 2010, charges for other-than-temporary declines in the market value of securities were $1 million and $2 million, respectively. These charges were accounted for as realized losses and were included in Other income (expense) in the Consolidated Statement of Results of Operations. The cost basis of the impacted securities was adjusted to reflect these charges.
Investments in an unrealized loss position that are not other-than-temporarily impaired: |
|
|
September 30, 2011 |
| ||||||||||
|
|
Less than 12 months 1 |
|
12 months or more 1 |
|
Total |
| ||||||
(Millions of dollars) |
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
$65 |
|
$1 |
|
$ |
|
$ |
|
$65 |
|
$1 |
|
Asset-backed securities |
|
|
|
|
|
17 |
|
5 |
|
17 |
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities |
|
|
|
|
|
18 |
|
4 |
|
18 |
|
4 |
|
Commercial mortgage-backed securities |
|
14 |
|
2 |
|
7 |
|
2 |
|
21 |
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Large capitalization value |
|
49 |
|
9 |
|
5 |
|
1 |
|
54 |
|
10 |
|
Small company growth |
|
5 |
|
1 |
|
|
|
|
|
5 |
|
1 |
|
Total |
|
$133 |
|
$13 |
|
$47 |
|
$12 |
|
$180 |
|
$25 |
|
|
|
December 31, 2010 |
| ||||||||||
|
|
Less than 12 months 1 |
|
12 months or more 1 |
|
Total |
| ||||||
|
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities |
|
$19 |
|
$ |
|
$19 |
|
$4 |