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CAT > SEC Filings for CAT > Form 10-Q on 2-May-2013All Recent SEC Filings

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Form 10-Q for CATERPILLAR INC


2-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

We reported first-quarter 2013 sales and revenues of $13.210 billion, a 17 percent decrease from first-quarter 2012 sales and revenues of $15.981 billion. Profit per share for the first quarter of 2013 was $1.31, a 45 percent decrease from first-quarter 2012 profit per share of $2.37. Profit was $880 million in the quarter, a decrease of 45 percent from $1.586 billion in the first quarter of 2012.

Highlights for the first quarter of 2013 include:

? First-quarter sales and revenues of $13.210 billion were 17 percent lower than the first quarter of 2012.

? Profit per share was $1.31 in the first quarter of 2013, down $1.06 from the first quarter of 2012.

? Inventory continued to decline in the first quarter of 2013 and was about a half billion dollars below year-end 2012.

? Machinery and Power Systems (M&PS) operating cash flow was $1.089 billion in the first quarter of 2013, compared with $234 million in the first quarter of 2012.

? M&PS debt-to-capital ratio was 36.4 percent, down from 37.4 percent at year-end 2012.

Notes:
Glossary of terms is included on pages 52-53; first occurrence of terms shown in bold italics.

Information on non-GAAP financial measures is included on page 62.


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Consolidated Results of Operations

THREE MONTHS ENDED MARCH 31, 2013 COMPARED WITH THREE MONTHS ENDED MARCH 31,
2012

CONSOLIDATED SALES AND REVENUES

[[Image Removed]]

The chart above graphically illustrates reasons for the change in Consolidated Sales and Revenues between the first quarter of 2012 (at left) and the first quarter of 2013 (at right). Items favorably impacting sales and revenues appear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting sales and revenues appear as downward stair steps with dollar amounts reflected in parentheses above each bar. Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees

Total sales and revenues were $13.210 billion in the first quarter of 2013, a decrease of $2.771 billion, or 17 percent, from the first quarter of 2012. When reviewing the change in sales and revenues, we focus on the following perspectives:
? Reason for the change: Sales volume decreased $2.671 billion. The majority of the decrease was related to changes in dealer new machine inventories. During the first quarter of 2012, dealers increased machine inventory about $875 million in anticipation of higher demand in the spring and summer. In the first quarter of 2013, dealers reduced their machine inventories by about $700 million to be better aligned with expected demand. In addition, the net impact of acquisitions and divestitures was unfavorable $171 million, and the impact of currency was unfavorable $91 million. These decreases were partially offset by increased price realization of $129 million. Financial Products revenues were $33 million higher.

? Sales by geographic region: Sales were negatively impacted by dealer inventory changes and declined in all geographic regions. While sales in Asia/Pacific declined, sales increased in China and were about flat in Japan. Sales in China were higher due to the absence of dealer inventory reductions that occurred in the first quarter of 2012 and an increase in Power Systems' sales.

? Segment: Sales decreased in all segments. Resource Industries' sales were down 23 percent, Construction Industries' sales decreased 17 percent, and Power Systems' sales were 12 percent lower. Financial Products' revenues were up 4 percent.


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CONSOLIDATED OPERATING PROFIT

[[Image Removed]]

The chart above graphically illustrates reasons for the change in Consolidated Operating Profit between the first quarter of 2012 (at left) and the first quarter of 2013 (at right). Items favorably impacting operating profit appear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting operating profit appear as downward stair steps with dollar amounts reflected in parentheses above each bar. Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees. The bar entitled Other includes consolidating adjustments and Machinery and Power Systems other operating (income) expenses.

Operating profit for the first quarter of 2013 was $1.218 billion, a decline of $1.105 billion from the first quarter of 2012. The decrease was primarily the result of lower sales volume, increased manufacturing costs and the unfavorable impact from acquisitions and divestitures. These decreases were partially offset by improved price realization, increased operating profit at Financial Products and the favorable impact of currency.
Manufacturing costs increased $317 million. The increase was primarily due to unfavorable changes in cost absorption resulting from a decrease in inventory during the first quarter of 2013 and an increase in inventory during the first quarter of 2012, as well as inefficiencies driven by lower production in the first quarter of 2013. These impacts were partially offset by favorable material costs.
We reduced inventory in both the fourth quarter of 2012 and the first quarter of 2013. The groundwork for these reductions began in mid-2012 as economic indicators began to soften and actions were needed to bring inventory levels in line with expected demand. Based on softening economic conditions worldwide and the amount of finished goods we had available in our Product Distribution Centers (PDCs), dealers also took action to lower their inventories. As a result, new orders from dealers declined sharply in the third quarter of 2012, and we began lowering production schedules and incoming material purchases from suppliers around the world. While production schedules began to decline in the third quarter, the most significant impacts on production and inventory, including rolling plant shutdowns at a number of facilities, occurred in the fourth quarter of 2012 and continued into the first quarter of 2013. Inventory for all segments declined during the fourth quarter of 2012, and the first quarter decline was primarily Construction Industries' finished goods. We anticipate some additional inventory reduction in 2013, primarily in Resource Industries related to mining products, to continue to align inventory with expected demand. However, reductions are expected to be less than over the past two quarters, and, as a result, we are planning to increase production in the second quarter of 2013 when compared with the first quarter of 2013. Acquisitions and divestitures negatively impacted operating profit by $128 million and included operating losses at Siwei, as well as the impact from selling portions of the Bucyrus distribution business to Cat dealers and the absence of profit from our third party logistics business, which was sold in the third quarter of 2012.


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Currency favorably impacted operating profit by $77 million primarily due to the Japanese yen. We have a sizeable manufacturing presence in Japan, and while some of this production is sold in Japan, we are a net exporter, and, therefore, a weaker yen provides a cost benefit.
Short-term incentive compensation expense related to 2013 was about $120 million in the first quarter of 2013 compared to about $230 million in the first quarter of 2012.

Other Profit/Loss Items
? Interest expense excluding Financial Products increased $7 million from the first quarter of 2012.

? Other income/expense was income of $29 million compared with income of $88 million in the first quarter of 2012. The decrease was primarily due to the unfavorable impact of currency gains and losses.

? The provision for income taxes in the first quarter reflects an estimated annual effective tax rate of 29.5 percent, excluding the item discussed below, compared with 30 percent for the first quarter of 2012.

As expected, the first-quarter 2013 tax provision also includes a benefit of $87 million primarily related to the research and development tax credit that was retroactively extended for 2012.
? Profit/loss attributable to noncontrolling interests favorably impacted profit by $23 million compared with the first quarter of 2012.


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Segment Information

Sales and Revenues by Geographic Region


                                          %         North          %         Latin          %                       %         Asia/          %
(Millions of dollars)      Total        Change      America      Change      America      Change      EAME        Change      Pacific      Change
First Quarter 2013
Construction Industries1 $  4,197        (17 )%   $  1,525        (14 )%   $    595        (14 )%   $   953        (23 )%   $  1,124        (17 )%
Resource Industries2        3,676        (23 )%      1,033        (34 )%        759         10  %       923        (10 )%        961        (36 )%
Power Systems3              4,405        (12 )%      1,815        (17 )%        425        (13 )%     1,236        (10 )%        929         (1 )%
All Other Segment4            217        (54 )%        157        (30 )%          8        (62 )%        32        (78 )%         20        (76 )%
Corporate Items and
Eliminations                  (11 )        -           (13 )                      -                       1                        1
Machinery & Power
Systems Sales              12,484        (18 )%      4,517        (21 )%      1,787         (6 )%     3,145        (17 )%      3,035        (22 )%

Financial Products
Segment                       795          4  %        389          -  %        110         12  %       139          9  %        157          8  %
Corporate Items and
Eliminations                  (69 )                    (37 )                     (6 )                    (6 )                    (20 )
Financial
Products Revenues             726          5  %        352          3  %        104         14  %       133         10  %        137         (1 )%

Consolidated Sales and
Revenues                 $ 13,210        (17 )%   $  4,869        (20 )%   $  1,891         (5 )%   $ 3,278        (16 )%   $  3,172        (21 )%

First Quarter 2012
Construction Industries1 $  5,062                 $  1,780                 $    690                 $ 1,233                 $  1,359
Resource Industries2        4,778                    1,560                      690                   1,030                    1,498
Power Systems3              4,987                    2,178                      491                   1,377                      941
All Other Segment4            474                      225                       21                     144                       84
Corporate Items and
Eliminations                  (13 )                    (11 )                      -                      (1 )                     (1 )
Machinery & Power
Systems Sales              15,288                    5,732                    1,892                   3,783                    3,881

Financial Products
Segment                       761                      389                       98                     128                      146
Corporate Items and
Eliminations                  (68 )                    (46 )                     (7 )                    (7 )                     (8 )
Financial
Products Revenues             693                      343                       91                     121                      138

Consolidated Sales and
Revenues                 $ 15,981                 $  6,075                 $  1,983                 $ 3,904                 $  4,019

1 Does not include inter-segment sales of $111 million and $130 million in first quarter 2013 and 2012, respectively.
2 Does not include inter-segment sales of $220 million and $328 million in first quarter 2013 and 2012, respectively.
3 Does not include inter-segment sales of $396 million and $675 million in first quarter 2013 and 2012, respectively.
4 Does not include inter-segment sales of $769 million and $907 million in first quarter 2013 and 2012, respectively.


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Sales and Revenues by Segment
                         First Quarter      Sales          Price                                                                    First Quarter       $           %
(Millions of dollars)        2012          Volume       Realization       Currency       Acquisitions/Divestitures       Other          2013          Change      Change

Construction Industries  $     5,062     $    (836 )   $         42     $      (71 )   $                     -         $      -     $     4,197     $   (865 )     (17 )%
Resource Industries            4,778        (1,130 )             52            (16 )                        (8 )              -           3,676       (1,102 )     (23 )%
Power Systems                  4,987          (616 )             38             (4 )                         -                -           4,405         (582 )     (12 )%
All Other Segment                474           (93 )             (1 )            -                        (163 )              -             217         (257 )     (54 )%
Corporate Items and              (13 )           4               (2 )            -                           -                -             (11 )          2
Eliminations
Machinery & Power
Systems Sales                 15,288        (2,671 )            129            (91 )                      (171 )              -          12,484       (2,804 )     (18 )%

Financial Products               761             -                -              -                           -               34             795           34         4  %
Segment
Corporate Items and              (68 )           -                -              -                           -               (1 )           (69 )         (1 )
Eliminations
Financial                        693             -                -              -                           -               33             726           33         5  %
Products Revenues

Consolidated Sales and   $    15,981     $  (2,671 )   $        129     $      (91 )   $                  (171 )       $     33     $    13,210     $ (2,771 )     (17 )%
Revenues




Operating Profit by Segment
                                                                                       $               %
(Millions of dollars)             First Quarter 2013      First Quarter 2012        Change           Change
Construction Industries          $             239       $             616       $      (377 )          (61 )%
Resource Industries                            477                   1,168              (691 )          (59 )%
Power Systems                                  598                     812              (214 )          (26 )%
All Other Segment                              192                     218               (26 )          (12 )%
Corporate Items and Eliminations              (503 )                  (617 )             114
Machinery & Power Systems                    1,003                   2,197            (1,194 )          (54 )%

Financial Products Segment                     273                     205                68             33  %
Corporate Items and Eliminations                 9                     (11 )              20
Financial Products                             282                     194                88             45  %
Consolidating Adjustments                      (67 )                   (68 )               1
Consolidated Operating Profit    $           1,218       $           2,323       $    (1,105 )          (48 )%

Construction Industries
Construction Industries' sales were $4.197 billion in the first quarter of 2013, a decrease of $865 million, or 17 percent, from the first quarter of 2012. The sales decrease was due to lower volume and the unfavorable impact of currency, partially offset by favorable price realization. The lower sales volume was primarily due to changes in dealer new machine inventories and decreases in dealer deliveries to end users. Dealer-reported new machine inventory was about flat during the first quarter of 2013 compared with an increase during the first quarter of 2012. Sales of new equipment declined, and sales of aftermarket parts were about flat. Sales declined in all geographic regions of the world. Construction Industries' profit was $239 million in the first quarter of 2013 compared with $616 million in the first quarter of 2012. The decrease in profit was primarily due to lower sales volume and increased manufacturing costs, partially offset by favorable price realization. Higher manufacturing costs were driven by unfavorable changes in cost absorption resulting from a decrease in inventory during the first quarter of 2013 and an increase in inventory during the first quarter of 2012.
Resource Industries
Resource Industries' sales were $3.676 billion in the first quarter of 2013, a decrease of $1.102 billion, or 23 percent, from the first quarter of 2012. The sales volume decrease was primarily due to changes in dealer new machine inventories and decreases in dealer deliveries to end users. Dealer-reported new machine inventory decreased during the first quarter of 2013 compared with an increase during the first quarter of 2012. Improved price realization partially offset the decrease in sales volume. While sales for both new equipment and aftermarket parts declined, the more significant decrease was for new equipment. Although first-quarter 2013 parts sales were lower than the first quarter of 2012, they were higher than the fourth quarter of 2012. New machine


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shipments have been down as compared with last year, but commodity demand has remained positive, and equipment fleets are being utilized and require maintenance and support.
Sales decreased in every region of the world except Latin America. The increase in Latin America sales was primarily due to the timing of shipments in the first quarter of 2012.
The trends we are observing in the mining industry are somewhat contradictory. World economic growth is relatively stable and seems to be on a path for continued improvement in 2013. Commodity consumption and production are increasing overall, and most mined commodity prices, while off their highs, are at attractive levels for continued investment when compared with historical levels.
However, despite generally positive economics for most of the mining industry, customers have cut their capital plans for 2013. Much of the new equipment mining companies will purchase this year was ordered before 2013 or was already in dealer inventory at the beginning of 2013. As a result of weak order rates, some cancellations and customers pushing out delivery times during the second half of 2012, product availability and customer lead times have improved significantly. As lead times for deliveries of new equipment have shortened, customers do not feel the need to place orders for equipment as far ahead as they did in 2011 and early 2012, further depressing order rates in 2013. Resource Industries' profit was $477 million in the first quarter of 2013 compared with $1.168 billion in the first quarter of 2012. The decrease was a result of lower sales volume, higher manufacturing costs and the unfavorable impact from the acquisition of Siwei and the divestiture of portions of the Bucyrus distribution businesses. These decreases were partially offset by favorable price realization. Higher manufacturing costs were driven by lower production in the first quarter of 2013 and unfavorable changes in cost absorption resulting from a decrease in inventory during the first quarter of 2013 and an increase in inventory during the first quarter of 2012. Depreciation expense also increased.
Power Systems
Power Systems' sales were $4.405 billion in the first quarter of 2013, a decrease of $582 million, or 12 percent, from the first quarter of 2012. The decrease was primarily the result of lower volume. Sales decreased in all regions. Sales were lower for nearly all applications, with the most significant decreases in electric power and industrial applications. More than one-third of the sales decline was a result of dealers reducing their inventory levels in the first quarter of 2013, compared with dealers increasing inventory levels in the first quarter of 2012.
Power Systems' profit was $598 million in the first quarter of 2013 compared with $812 million in the first quarter of 2012. The decrease was primarily due to lower sales volume and losses on a power-generation project in EAME. These unfavorable impacts were partially offset by favorable price realization, decreased SG&A and R&D expenses and the absence of expenses in the first quarter of 2012 from the closure of the Electro-Motive Diesel facility located in London, Ontario.
Financial Products Segment
Financial Products' revenues were $795 million, an increase of $34 million, or 4 percent, from the first quarter of 2012. The increase was primarily due to the favorable impact from higher average earning assets and an increase in Cat Insurance revenues. These increases were partially offset by the unfavorable impact from lower average financing rates on new and existing finance receivables and operating leases.
Financial Products' profit was $273 million in the first quarter of 2013, compared with $205 million in the first quarter of 2012. The increase was primarily due to a $49 million favorable impact from lower claims experience at Cat Insurance, which includes favorable reserve adjustments, and a $34 million favorable impact from higher average earning assets.
At the end of the first quarter of 2013, past dues at Cat Financial were 2.52 percent compared with 2.26 percent at the end of 2012. The increase in past dues from year-end is due to seasonality impacts. At the end of the first quarter of 2012, past dues were 3.19 percent. Write-offs, net of recoveries, were $10 million for the first quarter of 2013, down from $11 million for the first quarter of 2012.
As of March 31, 2013, Cat Financial's allowance for credit losses totaled $429 million or 1.49 percent of net finance receivables, compared with $426 million or 1.49 percent of net finance receivables at year-end 2012. The allowance for credit losses as of March 31, 2012, was $379 million or 1.47 percent of net finance receivables.
All Other Segment
All Other Segment includes groups that provide services such as component manufacturing, remanufacturing and logistics.
The decrease in sales and profit was primarily due to the absence of our third party logistics business, which was sold in the third quarter of 2012.


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Corporate Items and Eliminations
Expense for corporate items and eliminations was $494 million in the first quarter of 2013, a decrease of $134 million from the first quarter of 2012. Corporate items and eliminations include: corporate-level expenses; timing differences, as some expenses are reported in segment profit on a cash basis; retirement benefit costs other than service cost; currency differences, as segment profit is reported using annual fixed exchange rates; and inter-segment eliminations.
The decrease in expense from the first quarter of 2012 was primarily due to the favorable impact of timing, partially offset by the unfavorable impact of currency. Segment profit for 2013 is based on fixed exchange rates set at the beginning of 2013, while segment profit for 2012 is based on fixed exchange rates set at the beginning of 2012. The difference in actual exchange rates compared with fixed exchange rates is included in corporate items and eliminations and is not reflected in segment profit.

GLOSSARY OF TERMS

1. All Other Segment - Primarily includes activities such as: the remanufacturing of Cat engines and components and remanufacturing services for other companies as well as the product management, development, manufacturing, marketing and product support of undercarriage, specialty products, hardened bar stock components and ground engaging tools primarily for Caterpillar products; logistics services; the product management, development, marketing, sales and product support of on-highway vocational trucks for North America (U.S. & Canada only); distribution services responsible for dealer development and administration, dealer portfolio management and ensuring the most efficient and effective distribution of machines, engines and parts. On July 31, 2012, we sold a majority interest in Caterpillar's third party logistics business.

2. Consolidating Adjustments - Eliminations of transactions between Machinery and Power Systems 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, select work tools, small, medium and large track excavators, wheel excavators, medium wheel loaders, medium track-type tractors, track-type loaders, motor graders and pipe layers. In addition, Construction Industries has responsibility for Power Systems and three wholly-owned dealers in Japan and an integrated manufacturing cost center that supports Machinery and Power Systems businesses.

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 and Power Systems 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 and the net effect of changes in foreign currency exchange rates on our foreign currency assets and liabilities for consolidated results.

5. Debt-to-Capital Ratio - A key measure of Machinery and Power Systems' financial strength used by both management and our credit rating agencies. The metric is defined as Machinery and Power Systems 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 and Power Systems debt and stockholders' equity. Debt also includes Machinery and Power Systems 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 . . .

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