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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
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FORM
8-K
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Current
Report
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Pursuant
to
Section 13 or 15(d) of the Securities Exchange Act of 1934
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Date
of
Report (Date of earliest event reported):
July
21, 2005
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CATERPILLAR
INC.
(Exact
name
of registrant as specified in its charter)
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Delaware
(State
or
other jurisdiction of incorporation)
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1-768
(Commission
File Number)
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37-0602744
(IRS
Employer
Identification No.)
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100
NE Adams Street, Peoria, Illinois
(Address
of
principal executive offices)
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61629
(Zip
Code)
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Registrant's
telephone number, including area code:
(309) 675-1000
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Former
name
or former address, if changed since last report: N/A
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Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the
following
provisions:
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o
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Written
communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
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o
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
230.425)
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o
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR
240.14d-2(b))
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o
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR
240.13e-4(c))
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Item
7.01.
Regulation FD Disclosure.
The
following is
Caterpillar Inc.'s prepared statements from the results webcast held on July
21,
2005. The furnishing of these materials is not intended to constitute a
representation that such furnishing is required by Regulation FD or that the
materials include material investor information that is not otherwise publicly
available. In addition, the Registrant does not assume any obligation to update
such information in the future.
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2Q05
Caterpillar Conference Call Prepared Remarks
Opening
Remarks
Good
morning and
welcome to Caterpillar's 2nd Quarter 2005 results conference call. I'm Mike
DeWalt, the Director of Investor Relations.
With
me on the call
today are Jim Owens, Chairman and Chief Executive Officer and Dave Burritt,
Vice
President and Chief Financial Officer.
This
call is
copyrighted by Caterpillar Inc. Any use, recording or transmission of any
portion of this call without the express written consent of Caterpillar Inc.
is
strictly prohibited. If you’d like a printed version of the prepared conference
call remarks, you can go to the SEC filings in the Investor section of our
website where they are filed as an 8-K.
To
leave more time for Q & A I don’t intend reiterate what was in the release
other than a few key points on the second quarter and the revised outlook for
2005 and speaking of the outlook …
Certain
information
we’ll be discussing today is forward looking and involves uncertainties that
could impact expected results. A discussion of those uncertainties is in a
Form
8-K filed with the SEC today.
OK,
let's start
with second quarter results.
2nd
Quarter Results
This
morning I’m
very pleased to report record sales and revenues, and record profit for the
second quarter. Sales and revenues were 9 billion, 360 million dollars and
profit was 760 million … or $1.08 a share. Just a reminder - the 2 for 1 stock
split became effective last week, and the per share amounts in our release
all
reflect the split. Sales and revenues were 23% higher than Q2-2004, and profit
was 34% higher.
As
you read our release, and the Q&A included in the release, you’ll likely
come to the conclusion that in some areas of our business, supply and production
capacity are still very key issues … and they certainly are.
To
put the situation in context I think it’s worth noting that sales have been on a
pretty significant upward trend for over two years. While sales and revenues
are
up 23% from last year, they’re up 58% from the second quarter of
2003.
Meeting
customer
demand is a key issue for us and we have numerous 6 Sigma projects working
throughout the company related to improving order fulfillment. Considering
the
level of growth we’ve seen -- our suppliers, dealers, and employees have done a
great job responding to the substantial increase in demand.
Page
2
Outlook
Let’s
turn from the
second quarter to the outlook. 2005
continues to
shape up as a great year, and we’re raising the outlook for Sales and Revenues,
and profit again.
We
now expect our 2005 sales and revenues to be up 18 to 20% vs. 2004 and profit
to
be between $4.00 and $4.20 per share.
That’s
an increase
from the prior outlook of about 2 percent in sales and revenues and an
improvement to profit of 11 to 17 cents a share for the year.
In
dollar terms that puts the outlook for Sales and Revenues in the range of 35.8
to 36.4 billion dollars - another record year.
Before
we move to
Q&A I’d just like to mention that Full details of the outlook for 2005,
including other assumptions, are contained in the press release we issued this
morning.
And,
monthly retail
statistics for June, as well as other supplemental information, can found on
our
website at www.Cat.com under the “About Cat” tab under Investor Information.
Q&A
OK,
let’s move to
the Q&A portion of the call. In the interest of time and fairness to others,
please limit yourself to one question and one follow up. First question
please...
Closing
It's
been a
pleasure sharing Caterpillar's results with all of you this morning. If you
didn't get your questions asked today, please call me. Thanks for your interest
in Caterpillar. Goodbye.
Safe
Harbor Statement under the Securities Litigation Reform Act of
1995
Certain
statements
contained in our second-quarter 2005 results release and prepared statements
from the related results webcast are forward-looking and involve uncertainties
that could significantly impact results. The words "believes," "expects,"
"estimates," "anticipates," "will be," "should" and similar words or expressions
identify forward-looking statements made on behalf of Caterpillar. Uncertainties
include factors that affect international businesses, as well as matters
specific to the company and the markets it serves.
World
Economic Factors
Our
projection for
3 to 3.5 percent growth in the world economy assumes central banks will
cautiously raise interest rates so as not to slow growth too much. Low interest
rates, and continued good economic growth, should encourage further growth
in
construction and mining. Should central banks raise interest rates aggressively,
both the world economic recovery and our Machinery and Engines sales likely
would be weaker.
We
expect the U.S.
economy to continue to grow at about 3.5 percent, which up to now has not
created an inflation problem. While the Federal Reserve has raised interest
rates, we assume the continuation of moderate growth and low inflation will
result in interest rates of 4 percent or less by the end of 2005. Long-term
interest rates are expected to rise less than short-term rates. That environment
should support further growth in construction and manufacturing, helping to
keep
commodity prices favorable. Should financial conditions tighten noticeably,
causing economic growth to slow below 3 percent, expected improvements in
Machinery and Engines sales likely would be lower than projected.
Our
projection of
increased sales of Machinery and Engines in Europe, Africa, Middle East (EAME)
assumes that low interest rates will allow slightly faster economic growth
in
Europe and that favorable commodity prices will extend healthy recoveries in
both Africa and Middle East (AME) and the CIS. Key risks are a significant
slowing in the European economy or a collapse in commodity prices. Those
developments would likely negatively impact our results.
Page 3
Favorable
commodity
prices, increased capital inflows and an improved foreign debt situation are
expected to contribute to about 4 percent growth in Latin America. As a result,
we project that both mining production and construction spending will increase,
supporting an increase in Machinery and Engines sales. This forecast is
vulnerable to a significant weakening in commodity prices, slowing in world
economic growth, widespread increases in interest rates or political
disruptions.
In
Asia/Pacific, we
project sales growth will be concentrated in Australia, India and Indonesia.
Critical assumptions are continued growth in coal demand, low domestic interest
rates in most countries, further gains in exports and continued good economic
growth in China. Some developments that could lower expected results include
reduced demand for thermal and coking coal, significant revaluations of regional
currencies, restrictions on regional exports and sharp interest rate hikes,
particularly in China.
Commodity
Prices
Commodities
represent a significant sales opportunity, with prices and production as key
drivers. Prices have improved sharply over the past two years and our outlook
assumes continued growth in world industrial production will cause metals prices
to remain high enough in 2005 to encourage further mine investment. Any
unexpected weakening in world industrial production or construction, however,
could cause prices to drop sharply to the detriment of our results.
Coal
production and
prices improved last year and our sales have benefited. We expect these trends
to continue in 2005. Should coal prices soften, due to a slowing in world
economic growth or otherwise, the ongoing sales recovery would be
vulnerable.
Oil
and natural gas
prices increased sharply over the past two years due to strong demand and high
capacity usage. Higher energy prices have not halted economic recoveries since
strong demand boosted prices and world production increased. High prices are
encouraging more exploration and development and we expect increased production
in 2005 will constrain price increases. However, should significant supply
cuts
occur, such as from OPEC production cuts or political unrest in a major
producing country, the resulting oil shortages and price spikes could slow
economies, potentially with a depressing impact on our sales.
Monetary
and Fiscal Policies
For
most companies
operating in a global economy, monetary and fiscal policies implemented in
the
United States and abroad could have a significant impact on economic growth,
and
accordingly, demand for our product. In general, higher than expected interest
rates, reductions in government spending, higher taxes, excessive currency
movements, and uncertainty over key policies are some factors likely to lead
to
slower economic growth and lower industry demand.
With
economic data
looking more favorable, central banks in developed countries have raised
interest rates from the lowest rates in decades. Our outlook assumes that
central banks will take great care to ensure that economic recoveries continue
and that interest rates will remain low throughout the forecast period. Should
central banks raise interest rates more aggressively than anticipated, both
economic growth and our sales could suffer.
Budget
deficits in
many countries have increased, which has limited the ability of governments
to
boost economies with tax cuts and more spending. Our outlook assumes that
governments will not aggressively raise taxes and slash spending to deal with
their budget imbalances. Such actions could disrupt growth and negatively affect
our sales.
Page 4
Political
Factors
Political
factors
in the United States and abroad can impact global companies. Our outlook assumes
that no major disruptive changes in economic policies occur in either the United
States or other major economies. Significant changes in either taxing or
spending policies could reduce activities in sectors important to our
businesses, thereby reducing sales.
Our
outlook assumes
that there will be no additional significant military conflicts in either North
Korea or the Middle East in the forecast period. Such military conflicts could
severely disrupt sales into countries affected, as well as nearby
countries.
Our
outlook also
assumes that there will be no major terrorist attacks. If there is a major
terrorist attack, confidence could be undermined, potentially causing a sharp
drop in economic activities and our sales. Attacks in major developed economies
would be the most disruptive.
Our
outlook assumes
that efforts by countries to increase their exports will not result in
retaliatory countermeasures by other countries to block such exports,
particularly in the Asia/Pacific region. Our outlook includes a negative impact
from the phase-out of the Extraterritorial Income Exclusion (ETI) as enacted
by
the American Jobs Creation Act of 2004 (the Act). Our outlook assumes any other
tax law changes will not negatively impact our provision for income taxes.
Currency
Fluctuations
The
company has
costs and revenues in many currencies and is therefore exposed to risks arising
from currency fluctuations. Our outlook assumes no significant changes in
currency values from current rates. Should currency rates change sharply,
economic activity and our results could be negatively impacted.
The
company's
largest manufacturing presence is in the United States, so any unexpected
strengthening of the dollar tends to raise the foreign currency costs to our
end
users and reduce our global competitiveness.
Dealer
Practices
The
company sells
primarily through an independent dealer network. Dealers carry inventories
of
both new and rental equipment and adjust those inventories based on their
assessments of future needs. Such adjustments can impact our results either
positively or negatively. The current outlook assumes dealers will increase
inventories in line with higher deliveries. Should dealers control inventories
more tightly, our sales would be lower.
Financial
Products Division Factors
Inherent
in the
operation of Cat Financial is the credit risk associated with its customers.
The
creditworthiness of each customer, and the rate of delinquencies, repossessions
and net losses on customer obligations are directly impacted by several factors,
including, but not limited to, relevant industry and economic conditions, the
availability of capital, the experience and expertise of the customer's
management team, commodity prices, political events, and the sustained value
of
the underlying collateral. Additionally, interest rate movements create a degree
of risk to our operations by affecting the amount of our interest payments
and
the value of our fixed rate debt. Our "match funding" policy addresses interest
rate risk by aligning the interest rate profile (fixed or floating rate) of
our
debt portfolio with the interest rate profile of our receivables portfolio
(loans and leases with customers and dealers) within pre-determined ranges
on an
ongoing basis. To achieve our match funding objectives, we issue debt with
a
similar interest rate profile to our receivables and also use interest rate
swap
agreements to manage our interest rate risk exposure to interest rate changes
and in some cases to lower our cost of borrowed funds. If interest rates move
upward more sharply than anticipated, our financial results could be negatively
impacted. With respect to our insurance and investment management operations,
changes in the equity and bond markets could cause an impairment of the value
of
our investment portfolio, thus requiring a negative adjustment to
earnings.
Page
5
Other
Factors
The
rate of
infrastructure spending, housing starts, commercial construction and mining
plays a significant role in the company's results. Our products are an integral
component of these activities and as these activities increase or decrease
in
the United States or abroad, demand for our products may be significantly
impacted.
Projected
cost
savings or synergies from alliances with new partners could also be negatively
impacted by a variety of factors. These factors could include, among other
things, higher than expected wages, energy and/or material costs, and/or higher
than expected financing costs due to unforeseen changes in tax, trade,
environmental, labor, safety, payroll or pension policies in any of the
jurisdictions in which the alliances conduct their operations.
Results
may be
impacted positively or negatively by changes in the sales mix. Our outlook
assumes a certain geographic mix of sales as well as a product mix of sales.
If
actual results vary from this projected geographic and product mix of sales,
our
results could be negatively impacted.
The
company
operates in a highly competitive environment and our outlook depends on a
forecast of the company's share of industry sales. An unexpected reduction
in
that share could result from pricing or product strategies pursued by
competitors, unanticipated product or manufacturing difficulties, a failure
to
price the product competitively, or an unexpected buildup in competitors' new
machine or dealer owned rental fleets, leading to severe downward pressure
on
machine rental rates and/or used equipment prices.
The
environment
remains competitive from a pricing standpoint. Our 2005 sales outlook assumes
that the price increases announced in early 2005 will hold in the marketplace.
While we expect that the environment will absorb these price actions, delays
in
the marketplace acceptance would negatively impact our results. Moreover,
additional price discounting to maintain our competitive position could result
in lower than anticipated price realization.
In
general, our
results are sensitive to changes in economic growth, particularly those
originating in construction, mining and energy. Developments reducing such
activities also tend to lower our sales. In addition to the factors mentioned
above, our results could be negatively impacted by any of the
following:
· Any
sudden drop in
consumer or business confidence;
· Delays
in
legislation needed to fund public construction;
· Regulatory
or
legislative changes that slow activity in key industries; and/or
· Unexpected
collapses in stock markets.
This
discussion of
uncertainties is by no means exhaustive, but is designed to highlight important
factors that may impact our outlook. Obvious factors such as general economic
conditions throughout the world do not warrant further discussion, but are
noted
to further emphasize the myriad of contingencies that may cause the company's
actual results to differ from those currently anticipated.
Page 6
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Pursuant
to
the requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
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CATERPILLAR
INC.
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July
21,
2005
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By:
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/s/James
B. Buda
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James
B.
Buda
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Vice
President
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Page
7