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OFFON

CATERPILLAR INC.

(CAT)
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Caterpillar Inc.: Files Form 10-Q FQE 31 March -4-

05/12/2021 | 05:45pm EDT

As of March 31, 2021, we have entered into contracts with dealers and end users for which sales have not been recognized as we have not satisfied our performance obligations and transferred control of the products. The dollar amount of unsatisfied performance obligations for contracts with an original duration greater than one year is USD6.0 billion, with about one-third of the amount expected to be completed and revenue recognized in the twelve months following March 31, 2021. We have elected the practical expedient not to disclose unsatisfied performance obligations with an original contract duration of one year or less. Contracts with an original duration of one year or less are primarily sales to dealers for machinery, engines and replacement parts.

See Note 16 for further disaggregated sales and revenues information. 3. Stock-based compensation

Accounting for stock-based compensation requires that the cost resulting from all stock-based payments be recognized in the financial statements based on the grant date fair value of the award. Our stock-based compensation primarily

consists of stock options, restricted stock units (RSUs) and performance-based restricted stock units (PRSUs).

We recognized pretax stock-based compensation expense of USD42 million and USD47 million for the three months ended March 31, 2021 and 2020, respectively.

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The following table illustrates the type and fair value of the stock-based compensation awards granted during the three months ended March 31, 2021 and 2020, respectively:

Three Months Ended March 31, 2021 Three Months Ended March 31, 2020

Weighted- Weighted- Weighted- Weighted-

Average Fair Average Grant Average Fair Average Grant

Shares Granted Value Per Share Date Stock Price Shares Granted Value Per Share Date Stock Price

Stock options......... 1,084,821 USD 56.30  USD 219.76 1,913,888 USD 25.98  USD 127.60 
RSUs..............     448,311   USD 219.76 USD 219.76 705,287   USD 127.60 USD 127.60 
PRSUs.............     266,894   USD 219.76 USD 219.76 371,641   USD 127.60 USD 127.60 

The following table provides the assumptions used in determining the fair value of the stock-based awards for the three months ended March 31, 2021 and 2020, respectively:

                                                                       Grant Year 
 
                                                                       2021 2020 
Weighted-average dividend yield....................................    2.60%         2.47% 
Weighted-average volatility........................................    32.9%         25.7% 
Range of volatilities............................................      29.2% - 45.8% 24.5% - 29.7% 
Range of risk-free interest rates..................................... 0.06% - 1.41% 1.21% - 1.39% 
Weighted-average expected lives.....................................   8 years       8 years 

As of March 31, 2021, the total remaining unrecognized compensation expense related to nonvested stock-based compensation awards was USD306 million, which will be amortized over the weighted-average remaining requisite service periods of approximately 1.9 years.

5. Derivative financial instruments and risk management

Our earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates, interest rates and commodity prices. Our Risk Management Policy (policy) allows for the use of derivative financial instruments to prudently manage foreign currency exchange rate, interest rate and commodity price exposures. Our policy specifies that derivatives are not to be used for speculative purposes. Derivatives that we use are primarily foreign currency forward, option and cross currency contracts, interest rate contracts and commodity forward and option contracts. Our derivative activities are subject to the management, direction and control of our senior financial officers. We present at least annually to the Audit Committee of the Board of Directors on our risk management practices, including our use of financial derivative instruments.

We recognize all derivatives at their fair value on the Consolidated Statement of Financial Position. On the date the derivative contract is entered into, we designate the derivative as (1) a hedge of the fair value of a recognized asset or liability (fair value hedge), (2) a hedge of a forecasted transaction or the variability of cash flow (cash flow hedge) or (3) an undesignated instrument. We record in current earnings changes in the fair value of a derivative that is qualified, designated and highly effective as a fair value hedge, along with the gain or loss on the hedged recognized asset or liability that is attributable to the hedged risk. We record in Accumulated other comprehensive income (loss) (AOCI) changes in the fair value of a derivative that is qualified, designated and highly effective as a cash flow hedge, to the extent effective, on the Consolidated Statement of Financial Position until we reclassify them to earnings in the same period or periods during which the hedged transaction affects earnings. We report changes in the fair value of undesignated derivative instruments in current earnings. We classify cash flows from designated derivative financial instruments within the same category as the item being hedged on the Consolidated Statement of Cash Flow. We include cash flows from undesignated derivative financial instruments in the investing category on the Consolidated Statement of Cash Flow.

We formally document all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair value hedges to specific assets and liabilities on the Consolidated Statement of Financial Position and linking cash flow hedges to specific forecasted transactions or variability of cash flow.

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We also formally assess, both at the hedge's inception and on an ongoing basis, whether the designated derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flow of hedged items. When a derivative is determined not to be highly effective as a hedge or the underlying hedged transaction is no longer probable, we discontinue hedge accounting prospectively, in accordance with the derecognition criteria for hedge accounting.

Foreign Currency Exchange Rate Risk

Foreign currency exchange rate movements create a degree of risk by affecting the U.S. dollar value of sales made and costs incurred in foreign currencies. Movements in foreign currency rates also affect our competitive position as these changes may affect business practices and/or pricing strategies of non-U.S.-based competitors. Additionally, we have balance sheet positions denominated in foreign currencies, thereby creating exposure to movements in exchange rates.

Our ME&T operations purchase, manufacture and sell products in many locations around the world. As we have a diversified revenue and cost base, we manage our future foreign currency cash flow exposure on a net basis. We use foreign currency forward and option contracts to manage unmatched foreign currency cash inflow and outflow. Our objective is to minimize the risk of exchange rate movements that would reduce the U.S. dollar value of our foreign currency cash flow. Our policy allows for managing anticipated foreign currency cash flow for up to approximately five years. As of March 31, 2021, the maximum term of these outstanding contracts was approximately 60 months.

We generally designate as cash flow hedges at inception of the contract any Australian dollar, Brazilian real, British pound, Canadian dollar, Chinese yuan, Indian rupee, Japanese yen, Mexican peso, Norwegian Krona, Singapore dollar or Thailand baht forward or option contracts that meet the requirements for hedge accounting and the maturity extends beyond the current quarter-end. We perform designation on a specific exposure basis to support hedge accounting. The remainder of ME&T foreign currency contracts are undesignated.

In managing foreign currency risk for our Financial Products operations, our objective is to minimize earnings volatility resulting from conversion and the remeasurement of net foreign currency balance sheet positions and future transactions denominated in foreign currencies. Our policy allows the use of foreign currency forward, option and cross currency contracts to offset the risk of currency mismatch between our assets and liabilities and exchange rate risk associated with future transactions denominated in foreign currencies. Our foreign currency forward and option contracts are primarily undesignated. We designate fixed-to-fixed cross currency contracts as cash flow hedges to protect against movements in exchange rates on foreign currency fixed-rate assets and liabilities.

Interest Rate Risk

Interest rate movements create a degree of risk by affecting the amount of our interest payments and the value of our fixed-rate debt. Our practice is to use interest rate contracts to manage our exposure to interest rate changes.

Our ME&T operations generally use fixed-rate debt as a source of funding. Our objective is to minimize the cost of borrowed funds. Our policy allows us to enter into fixed-to-floating interest rate contracts and forward rate agreements to meet that objective. We designate fixed-to-floating interest rate contracts as fair value hedges at inception of the contract, and we designate certain forward rate agreements as cash flow hedges at inception of the contract.

(MORE TO FOLLOW) Dow Jones Newswires

May 12, 2021 19:45 ET (23:45 GMT)

Stocks mentioned in the article
ChangeLast1st jan.
AUSTRALIAN DOLLAR / CANADIAN DOLLAR (AUD/CAD) 0.00% 0.92487 Delayed Quote.-5.32%
AUSTRALIAN DOLLAR / JAPANESE YEN (AUD/JPY) 0.22% 80.225 Delayed Quote.1.13%
AUSTRALIAN DOLLAR / NEW ZEALAND DOLLAR (AUD/NZD) 0.06% 1.03195 Delayed Quote.-3.85%
AUSTRALIAN DOLLAR / SWISS FRANC (AUD/CHF) 0.05% 0.67679 Delayed Quote.-0.84%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) 0.10% 0.7303 Delayed Quote.-4.58%
BRITISH POUND / AUSTRALIAN DOLLAR (GBP/AUD) -0.08% 1.89045 Delayed Quote.6.24%
BRITISH POUND / CANADIAN DOLLAR (GBP/CAD) -0.07% 1.7485 Delayed Quote.0.54%
BRITISH POUND / US DOLLAR (GBP/USD) 0.05% 1.38079 Delayed Quote.1.27%
CANADIAN DOLLAR / JAPANESE YEN (CAD/JPY) 0.22% 86.729 Delayed Quote.6.85%
CANADIAN DOLLAR / SWISS FRANC (CAD/CHF) 0.02% 0.7317 Delayed Quote.4.94%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) 0.12% 0.78947 Delayed Quote.0.91%
CATERPILLAR INC. -1.04% 203.6 Delayed Quote.11.86%
DJ INDUSTRIAL -0.18% 34751.32 Delayed Quote.12.97%
EURO / AUSTRALIAN DOLLAR (EUR/AUD) -0.06% 1.61184 Delayed Quote.1.46%
EURO / BRAZILIAN REAL (EUR/BRL) 0.05% 6.2057 Delayed Quote.-2.79%
EURO / BRITISH POUND (EUR/GBP) 0.00% 0.85262 Delayed Quote.-4.48%
EURO / US DOLLAR (EUR/USD) 0.08% 1.17733 Delayed Quote.-3.23%
INDIAN RUPEE / US DOLLAR (INR/USD) 0.07% 0.013615 Delayed Quote.-0.58%
MSCI SINGAPORE (GDTR) -0.43% 6532.371 Real-time Quote.12.38%
NEW ZEALAND DOLLAR / CANADIAN DOLLAR (NZD/CAD) -0.05% 0.89615 Delayed Quote.-1.49%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) 0.10% 0.70768 Delayed Quote.-0.67%
UNITED STATES DOLLAR (B) / CHINESE YUAN IN HONG KONG (USD/CNH) -0.02% 6.44624 Delayed Quote.-0.70%
US DOLLAR / BRAZILIAN REAL (USD/BRL) 0.00% 5.2713 Delayed Quote.0.48%
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Financials (USD)
Sales 2021 50 491 M - -
Net income 2021 5 369 M - -
Net Debt 2021 25 600 M - -
P/E ratio 2021 20,9x
Yield 2021 2,11%
Capitalization 111 B 111 B -
EV / Sales 2021 2,71x
EV / Sales 2022 2,43x
Nbr of Employees 97 300
Free-Float 67,1%
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Number of Analysts 27
Last Close Price 203,60 $
Average target price 233,47 $
Spread / Average Target 14,7%
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Managers and Directors
Donald James Umpleby Chairman & Chief Executive Officer
Andrew Robert John Bonfield Chief Financial Officer
Karl E. Weiss Chief Technology Officer
Jamie Engstrom Chief Information Officer & Vice president
Eric A. Braun Chief Compliance Officer