Annual Report ProjectCaterpillar Inc.

Amy SmithACG2021 Section 080

Caterpillar Inc.

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 everyone’s 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

Introduction

Jim Owens Chairman and CEOCaterpillar Inc. Headquarters

100 N.E. Adams StreetPeoria, 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

Audit Report

Caterpillar Inc. Audit CommitteeEugene 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

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, it’s not looking like Caterpillar stocks are going to go through the roof too soon.

Industry Situation and Company Plans

Caterpillar is a technology leader and the world’s 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: VisionLink to industry information: Equipment World Online

AEM News About 2004 Business Growth

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 (NCP’s) 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.

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.”

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.

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

Financial Analysis Liquidity RatiosWorking 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 A|R and it’s 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 company’s amount of inventory for a certain point in time.

Average Days’ Inventory On Hand: 2004: 76 Days 2003: 65.2 DaysA good estimate for the inventory’s shelf life is 2.5 months for 2004.

Financial Analysis Profitability RatiosProfit 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. (n>1 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.

Financial Analysis Solvency Ratio

Debt to Equity

2004 4.78

2003 5.08

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.

Financial Analysis Market Strength RatiosPrice 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.