Annual Report Project

1
Annual Report Project

• Caterpillar Inc.Amy SmithACG2021 Section 080
• Caterpillar Inc.

2
Executive Summary

• This conclusion of the company was very
  difficult determine because there were key
  elements for success in the year and some serious
  set backs that squandered the true
  accomplishments that took place. Everyone knows
  that the economy has suffered some serious set
  backs since 911 and announcement of War on
  Terrorism. With these significant events
  political occurrences have had an enormous impact
  on the overall performance of Caterpillar Inc.
  Throughout the year Caterpillar faced difficult
  obstacles such as a severe increase in operation
  costs (primarily associated with steel products,
  gasoline usage, and expedited costs.) Other
  damaging obstacles included a negative impact of
  currency on profit, and higher Retirement
  Benefits. These aspects totaled to an estimated
  1.56 billion dollar negative impact on the
  overall bottom line.
• To offset these harsh conditions Caterpillar
  completely flipped the tables and pulled off an
  incredible 7.5 billion increase in sales and
  revenues for an overall line of 30.25. This was
  a huge feet and surpassed everyones
  expectations! Also positive contributing factors
  include 515 million impact on currency primarily
  associated with the strengthening of the Euro and
  British pound, and 512 million increase of Price
  Realization and 200 million increase in
  Financial Products revenue.
• With everything taken into consideration
  Caterpillar made an impressive turn for the
  better in large due to a wide variety in multiple
  world markets leading to another successful year
  for Caterpillars financial strength.
  Caterpillar Annual Report 2004

3
Introduction

• Jim Owens Chairman and CEO
• Caterpillar Inc. Headquarters
• 100 N.E. Adams Street
• Peoria, IL 61629-5310
• Caterpillar Inc. is such a well rooted company
  because of all of the different markets the
  company has infiltrated. The three principal
  lines of business are best classified as
  machinery, engines and financial products.
  Caterpillar machines are precise equipment for
  large and small projects typically related to
  earthmoving, mining, construction projects,
  forestry, paving, and similar fields of work.
  Caterpillar Engines are the source of power for
  all of the companies machinery plus trucks, ships
  and boats. These engines are a vital part for
  transporting crude oil and natural gas. Making
  all of these products financially capable is
  proudly supported by Caterpillar Financial
  Services Corporation.
• Caterpillar Inc. is not limited to the U.S., but
  is also considered a major contributor to markets
  in Asia/Pacific, Europe, Africa, Middle East,
  Common Wealth of Independent States, as well as
  in Latin and North America.
• Ending Date of Latest Fiscal Year 12/31/2003

4
Audit Report

• Caterpillar Inc. Audit Committee
• Eugene V. Fife, chair
• W. Frank Blount
• John T. Dillon
• David R. Goode
• Gordon R. Parker
• Edward B. Rust, Jr.

The auditors are very impressed with the strength
of the company in a wide variety of markets. They
constantly refer to the power enabled for growth
and progression in not only different products
and services but by making more available in
different regions of the world. With this
strength the auditors leave a very-present
opinion of financial stability as well a vast
opportunity of more expansion and greater
security in a sound company. Not only are things
going well now, they wont stop anytime soon.
Caterpillar Inc. is always proving their strength
even through the market fluctuations. Policies
and Procedures
5
Stock Market Information

• Date February 3rd, 2006
• Company's Stock Price 68.81
• Twelve Month High 69.34
• Twelve Month Low 41.30
• Dividend Per Share 0.52
• Right now a smart decision would be to invest in
  Caterpillar Inc. stock as a long term investment.
  BUY
• However if your looking to get rich over night,
  its not looking like Caterpillar stocks are
  going to go through the roof too soon.

6
Industry Situation and Company Plans

• Caterpillar is a technology leader and the
  worlds leading manufacturer of construction and
  mining equipment, diesel and natural gas engines
  and industrial gas turbines. With a large influx
  in expense with the ever rising price of gas, the
  demand is still great enough to off-set any
  potential crisis. Also with a state-of-the-art
  Innovation Center for product and process
  development in China in future grasps and the
  newly signed agreement with National Aeronautics
  and Space Administration (NASA) to develop
  technology for space exploration, the end in
  progress is no where in sight!
• Link to company information Caterpillar
  Vision
• Link to industry information Equipment World
  Online
• AEM News About 2004 Business Growth

7
Income Statement

• The format used is most like a Multi-step Income
  Statement

( in the millions) 2004
2003 Gross Profit 5,916
4,103 Income From Operations 2,733
1,688 Net Income 2,035 1,099
Gross profit increased 1.81 million largely due
to higher Machinery and Engines volume also there
was a favorable impact of Currency on sales and
an increase in Price Realization also contributed
to the increase. Profit increase were higher
because of a higher Sales Volume and the absence
of 153 million in Penalties (NCPs) that were
recorded in 2003. Noted was a huge increase in
Core Operating Costs as well as higher Retirement
Benefits. All of these things ultimately effected
Net Income.
8
Balance Sheet
In Millions Assets Liabilities Stockholders Equity
2004 43,137 35,670 7,467
2003 36,933 30,855 6,078
Caterpillar has increased their assets by 6,204
Million. Stockholders Equity has also gone up by
1,389 Million, while liabilities have gone up
4,815 million. It looks like Caterpillars
strategy is to make more money you must spend
more money.
9
Statement of Cash Flows

• 2004 delivered solid improvement in cash flow
  and the company ended the year with an even
  stronger financial position. After providing
  continued funding for growth opportunities and
  new product development, the company was able to
  make significant contributions to its pension
  plans, increase dividends to shareholders an
  repurchase Caterpillar shares. Pension plans
  remain well funded due to solid investment
  returns and over 600 million in contributions
  for the second year in a row. The company has
  increased its dividend in ten of the last eleven
  years and repurchased almost seven million shares
  during 2004. Which leaves Caterpillar more
  financially sound in 2004 compared to 2003.

10
Accounting Policies

• The preparation of Caterpillar Inc. financial
  statements are in conformity with generally
  accepted accounting principles requires
  management to make estimates and assumptions that
  affect reported amounts. The more significant
  estimates include
• -Residual values for leased assets
• -Fair market values for goodwill impairment
  tests
• -Reserves for warranty
• -Product liability and insurance losses
• -Post-retirement benefits
• -Post-sale discounts
• -Credit losses
• -Income taxes

11
Financial Analysis Liquidity Ratios

• Working Capital 2004 5,401 2003 4,170
• There is a positive amount of current assets
  showing!
• Current Ratio 2004 1.35 2003 1.33
• There is a 1.35/1.33 assets for every 1.00 of
  liability.
• Receivable Turnover 2004 2.4 Times 2003 2.3
  Times
• This shows the size of AR and its efficiency.
• Average Days Sales Uncollected 2004 152 Days
• Caterpillar on averages waits 152 Days for the
  customer to pay.
• Inventory Turnover 2004 4.8 Times 2003 5.6
  Times
• A valid measurement of the companys amount of
  inventory for a certain point in time.
• Average Days Inventory On Hand 2004 76
  Days 2003 65.2 Days
• A good estimate for the inventorys shelf life
  is 2.5 months for 2004.

12
Financial Analysis Profitability Ratios

• Profit Margin 2004 7.2 2003 8.0
• The profit margin from 2003-2004 decreased by
  0.8.
• Asset Turnover 2004 .66 Times 2003 .57 Times
  
• The are using their assets for more
  profitability compared to 2003 however, this
  figure is still not a good one. (ngt1 is ideal)
• Return on Assets 2004 6.3 2003 6.5
• For every dollar Caterpillar invested their
  assets it produced a 6.3 percentage of Net
  Income.
• Return on Equity 2004 30 2003 19
• This shows how much the stock holders earned on
  their investment.

13
Financial Analysis Solvency Ratio
In 2004 Caterpillar received more than 95 of
their financing from outside creditors. In 2003
Caterpillar received just under 95 of their
financing from outside creditors. Both year the
creditors significantly owned the company
compared to the Stock Holders. This is pretty
embarrassing and is not pointed out in the Annual
Report.
Debt to Equity 2004 4.78
Debt to Equity 2003 5.08
14
Financial Analysis Market Strength Ratios

• Price Earnings Ratio 2004 16.9
• This ratio is often boasted to show how well a
  company is doing in order to encourage the
  purchase of more shares.
• Dividend Yield 2004 1.6
• The higher the number the more the company is
  paying out to its shareholders. Caterpillar is
  not paying at a lot of dividends compared to past
  years.