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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):
January 26, 2006
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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 January
26, 2006. 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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4Q05
Caterpillar Results Conference Call Prepared Remarks
Year-end
Conference Call Prepared Remark
Good
morning and
welcome to Caterpillar's year-end results conference call. I'm Mike DeWalt,
the
Director of Investor Relations.
With
me on the call
today are Jim Owens, Chairman and CEO, and Dave Burritt, Caterpillar’s
CFO.
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 copy of our prepared remarks, you
can go to the SEC filings in the Investor section of our website where they
are
filed as an 8-K they’re also available on the SEC’s website.
In
addition, certain information we’ll be discussing today is forward looking and
involves uncertainties that could impact expected results. A discussion of
those
uncertainties is included in the safe harbor statement in the Form 8-K filed
with the Securities and Exchange Commission January 26, 2006.
To
start off this morning I’ll take a few minutes to walk you through the past year
… and the 4th
quarter.
2005
was certainly
a great year.
Sales
and revenues
were up 6 billion dollars to $36.3 billion for the year 20% higher than 2004
and
right on the outlook we provided with the 3rd
quarter release.
Profit
per share
for the year was $4.04 … 40% above last year’s $2.88 per share, 4 cents above
the top end of the outlook we issued with the 3rd
quarter release,
and 11 cents per share above the mid-point of the range.
For
Machinery and
Engines, the operating profit pull through for the year was 20% that’s the
increase in operating profit divided by the increase in sales.
For
the year,
operating cash flow was $3.1 billion, and that included over $900 million in
pension funding. We used $1.7 billion of the cash to buy back 33.9 million
shares, $1.2 billion to fund capital expenditures for capacity, growth, and
to
support new product introduction programs. In addition, over $600 million was
spent on dividends and speaking of dividends, we raised the rate in 2005 the
dividend paid in the 3rd
quarter was up
22%.
The
fourth quarter
was the best in our history -- in terms of Sales and Revenues, and profit.
Sales
and revenues
were $9.7 billion a 13% increase from fourth-quarter 2004. Profit per share
was
$1.20, up 56% from last year. For the quarter, operating profit pull through
for
machinery and engines - that is, the increase in operating profit divided by
the
increase in sales -- was 40% and that 40% included about $70 million of charges
in the 4th
quarter related to
changes in our dealer distribution support software, and the product realignment
that we highlighted in our outlook last quarter.
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2
We’ll
spend much of
our time today talking about how 2005 compared with 2004, the 4th
quarter
comparison, and the 2006 outlook.
But
I think it’s
appropriate to go back a couple of years and put 2005 into perspective in terms
of where we’ve come from.
2005
Sales and
Revenues were up for the 3rd
year in a row. A
year ago we were talking about the extraordinary growth in 2004 when the top
line was up $7.5 billion.
In
dollar terms the 2005 improvement was up $6.0 billion almost as dramatic as
the
$7.5 billion increase in 2004.
2005
Sales and
Revenues were up 60% vs 2003. When you consider that some parts of Caterpillar
haven’t grown that fast you realize that there are areas of the company that
have more than doubled over the past two years - mining trucks, for example.
Supply
chain
issues, expediting of material, our efficiency in dealing with rapid growth,
and
the production capacity of some of our factories have all been key discussion
points for many of you and for us internally, over the past two years.
We
didn’t have a crystal ball and if you look back at our original outlooks for
both 2004, and 2005 you’ll see that we didn’t anticipate that demand for our
products was going to be as significantly higher - in both years - as it turned
out to be.
As
a result, supply has been an issue, and in some areas it still is - like very
large tires for mining trucks. However, on the whole, our suppliers rose to
the
challenge and have done an excellent job of supporting Caterpillar even though
volume in each of the past two years ended up being quite a bit higher than
we’d
predicted.
We’ve
talked a lot
about factory efficiency, and the tough job we’ve had in ramping up production
in our own factories. It’s been a very significant challenge considering the
production increases we’ve seen over the past two years. The bottom line is our
employees have done an exceptional job. One of our top priorities has been
responding to the needs of our customers and in an environment with the kind
of
growth we’ve experienced, it was tough but our employees have responded and 6
Sigma was a key driver in making it happen.
Core
operating
costs a subject that many of you have talked to us about. It’s a subject that’s
extremely important and we’ve worked hard to manage in an environment of rising
material costs, significant volume increases, and substantial new product
introductions.
That
said, costs
have risen sharply over the past couple of years even so, the increase needs
to
be viewed in perspective.
Internally,
we
categorize our costs as “period or variable” you can get a feel for period and
variable by looking at the glossary at the end of our release. The point is
we
volume adjust variable costs when we do our analysis the core operating cost
bar
in our release includes the “rate” increase in variable costs and material
content has been the major variable cost factor over the past 2 years. For
period costs SG&A, R&D, and a sizable chunk of our manufacturing costs
we don’t volume adjust. In our analysis, we show dollar for dollar the increase
in period costs. Given a 60% increase in sales and revenues over the past 2
years it’s not surprising that period costs have gone up.
However
as a
percent of sales, period costs are lower. For example -- If you look at the
combination of Machinery and Engines SG&A and R&D they were 12.7% of
sales and revenues in 2003, 12.3% in 2004, and 11.4% in 2005 -- A 1.3 point
drop
from 2003 at a time when the investment in R&D - in absolute dollars -- has
been increasing substantially to support the development and introduction of
a
significant number of new products.
Profit
before tax
as a percent of sales and revenues has risen 4.2 percentage points over the
past
2 years. From 6.5% in 2003, to 8.9% in 2004, to 10.7% in 2005.
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Now,
I’d like to
turn it over Jim Owens, who’ll take you through some of the highlights of the
year and our expectations for 2006.
Jim
Bottom
line 2005
was a successful and eventful year for Caterpillar, and we continued to position
ourselves for the future.
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Record
sales
and profit
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Strong
demand
across almost all the industries we serve like mining, electric power,
oil
and gas, heavy and general construction and a strong close to the year
with reported dealer sales and new
orders.
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Selective
acquisition activity to strengthen our service businesses and grow
in
China
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A
record
number of new products were introduced
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Signing
of
the US highway and energy bills
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5
consecutive
years for Caterpillar in the Dow Jones sustainability
index
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We
increased
dividends in 11th
of the past
12 years.
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We
rolled out
our new Vision 2020 strategy with definitive targets for
2010
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And,
we
responded to the tsunami, gulf coast hurricanes, and south Asian
earthquakes … and the generosity of Cat and Dealer employees in
contributing to relief efforts was very gratifying
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All
- in - all, a
great year for the Company.
Before
I start with
the outlook I’d like to reiterate a point that Mike made.
2005
was a
spectacular year for Caterpillar record sales, record profit, and $3.1 billion
of operating cash flow. We’re proud of the accomplishments of our employees,
suppliers, and dealers who’ve all worked so hard to meet the needs of our
customers and deliver these exceptional financial results.
As
for the 2006 outlook, you’ve probably read this morning that we’re maintaining
our previous outlook for sales and revenues -- $40 billion - up about 10% from
2005, and we’ve increased our estimated profit to range from $4.65 to $5.00 per
share.
We
continue to have a positive view of the overall world economy, and for the
industries we serve.
Inflation
remains
low in most countries and should help keep interest rates worldwide at
relatively low levels. Our expectation is that the Fed is about finished raising
interest rates - suggesting a Fed Funds rate under 5 percent.
This
should support
continued growth in the world economy - our forecast for worldwide economic
growth is about 3.5 percent in 2006, which is about the same as 2005.
In
particular, we expect continued strength from most of the industries we serve
such as mining, road building and paving, infrastructure development,
non-residential construction, and engines for petroleum, electric power, marine,
and on-highway applications.
Overall,
the
fundamentals look good. That said, there are a number of challenges and risks
that face both Caterpillar and the economy as a whole.
Internally,
we’ll
be focused on executing our strategy - Vision 2020
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We
created a
new officer led group at the end of 2005 to lead the implementation
of the
“Cat Production System”. They’re focused on operating consistency and
excellence throughout our factories to drive better quality, better
asset
utilization, shorter lead times for our dealers and customers, and
lower
costs.
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We’re
introducing a number of new products in 2006, and we’re preparing now for
new machine and engine introductions in 2007 & 2008, including the
next generation of ACERT engines. 2006 will be another heavy year
for
R&D.
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We’ll
be
focused on continuing to grow our service businesses. To provide
additional focus, we created a new officer position late last year
to lead
our growing remanufacturing business.
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We’re
working
hard to increase production at a number of our factories particularly
those producing large machines and engines.
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In
summary, there are a number of things we need to work on and get right in 2006
and while we’re at it, we’ll also be working to improve the flexibility of our
cost structure and our profitability at the bottom of the next cycle whenever
that might occur.
So
2005 was a great year, 2006 looks better, we have a lot of work to do, but
I’m
confident we’re well positioned for the challenges ahead.
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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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January
26,
2006
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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 6