Deciphering Financial Statements (Caterpillar)
Caterpillar is a U.S. based manufacturer of construction machinery and heavy duty engines. Caterpillar’s consolidated comparative statement of cash flows for 2002, 2003, and 2004 follows. All amounts are in millions of U.S. dollars.
|
Years ended December 31, |
2004 |
2003 |
2002 |
|
|
Profit |
$ 2,035 |
$ 1,099 |
$ 798 |
|
|
Adjustments for non cash items: |
|
|
|
|
|
Depreciation and amortization |
1,397 |
1,347 |
1,220 |
|
|
Other |
(113) |
(69) |
350 |
|
|
Changes in assets and liabilities: |
|
|
|
|
|
Receivables—trade and other |
(7,616) |
(8,115) |
(6,323) |
|
|
Inventories |
(1,391) |
(286) |
162 |
|
|
Accounts payable and accrued expenses |
1,457 |
542 |
97 |
|
|
Other—net |
240 |
(129) |
(266) |
|
|
NET CASH USED FOR OPERATING ACTIVITIES |
$ (3,991) |
$(5,611) |
$(3,962) |
|
|
Capital expenditures excluding equipment leased to others |
(926) |
(682) |
(728) |
|
|
Expenditures for equipment leased to others |
(1,188) |
(1,083) |
(1,045) |
|
|
Proceeds from disposals of property, plant, and equipment |
673 |
761 |
561 |
|
|
Additions to finance receivables |
(8,930) |
(6,868) |
(5,933) |
|
|
Collections of finance receivables |
6,216 |
5,251 |
4,569 |
|
|
Proceeds from sale of finance receivables |
700 |
661 |
613 |
|
|
Collections of retained interests in securitized trade receivables |
5,722 |
7,129 |
5,917 |
|
|
Investments and acquisitions (net of cash acquired) |
(290) |
(268) |
(294) |
|
|
Proceeds from sale of partnership involvement |
290 |
— |
— |
|
|
Other—net |
(190) |
(17) |
(40) |
|
|
NET CASH PROVIDED BY INVESTING ACTIVITIES |
$ 2,077 |
$ 4,884 |
$ 3,620 |
|
|
Dividends paid |
(534) |
(491) |
(481) |
|
|
Common stock issued, including Treasury shares reissued |
317 |
157 |
10 |
|
|
Treasury shares purchased |
(539) |
(405) |
— |
|
|
Proceeds from long term debt issued: |
|
|
|
|
|
Machinery and Engines |
9 |
128 |
248 |
|
|
Financial Products |
5,079 |
5,506 |
3,889 |
|
|
Payments on long term debt: |
|
|
|
|
|
Machinery and Engines |
$ (35) |
$ (463) |
$ (225) |
|
|
Financial Products |
(2,973) |
(3,774) |
(3,114) |
|
|
Short term borrowings—net |
$ 550 |
$ 87 |
$ (102) |
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES |
1,874 |
745 |
225 |
|
|
Effect of exchange rate changes on cash |
143 |
15 |
26 |
|
|
INCREASE (DECREASE) IN CASH AND SHORT TERM INVESTMENTS |
103 |
33 |
(91) |
|
|
CASH AND SHORT TERM INVESTMENTS AT BEGINNING OF PERIOD |
342 |
309 |
400 |
|
|
CASH AND SHORT TERM INVESTMENTS AT END OF PERIOD |
$ 445 |
$ 342 |
$ 309 |
|
1. For each year reported Caterpillar reports a profit and each year cash flow from operating activities is negative. Identify the primary reason for the negative cash from operating activities.
2. How is Caterpillar compensating for the negative cash from operating activities?
3. In your opinion, is Caterpillar’s negative cash from operating activites sustainable over the long term?