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Caterpillar: 3Q 2015 Earnings Release

The following excerpt is from the company's SEC filing.

October 22, 2015

FOR IMMEDIATE RELEASE

Caterpillar Reports Third-Quarter 2015 Results

Third-quarter profit per share was $0.62, or $0.75 excluding

restructuring costs.

Sales and revenues were $11.0 billion.

2015 Outlook Expect sales and revenues of about $48 billion and profit per share of about $3.70, or $4.60 excluding restructuring costs.

2016 sales and revenues are expected to be about 5 percent lower than 2015.

Restructuring costs for 2015 are now expected to be about $800 million as a result of significant restructuring actions announced on September 2 4.

Company repurchased $1.5 billion of common stock in the third quarter.

PEORIA, Ill. Caterpillar Inc. (NYSE: CAT) today announced profit per share of $0.62 for the third quarter of 2015, a decrease from $1.63 per share in the third quarter of 2014. Excluding restructuring costs, profit per share was $0.75, down from $1.72 per share in the third quarter of 2014. Third-quarter 2015 sales and revenues were $11.0 billion, down from $13.5 billion in the third quarter of 2014.

The environment remains extremely challenging for most of the key industries we serve, with sales and revenues down 19 percent from the third quarter last year. Improving how we operate is our focus amidst the continued weakness in mining and oil and gas. Were tackling costs, and our year-to-date decremental profit pull through has been better than our target. Were also focusing on our global market position, and it continues to improve even in challenging end markets. Our product quality is in great shape, and our safety record is among the best of any industrial company today, said Caterpillar Chairman and Chief Executive Officer Doug Oberhelman.

Our strong balance sheet is important in these difficult times. Our ME&T

debt-to-capital

ratio is near the middle of our target range at 37.4 percent; we have about $6 billion of cash, and our captive finance company is healthy and strong. Weve repurchased close to $2 billion of stock in 2015 and more than $8 billion over the past three years. In addition, the dividend, which is a priority for our use of cash, has increased 83 percent since 2009, added Oberhelman.

The additional restructuring actions announced recently are substantial, but necessary to manage through this downturn and keep the company strong for the long term. The actions are expected to lower operating costs by about $1.5 billion annually once fully implemented, with about $750 million of that expected in 2016.

(more)

The 2015 outlook for sales and revenues is about $48 billion, and that is unchanged from the outlook that was included with the September 24 announcement of new restructuring actions.

The outlook for profit per share is about $3.70, or $4.60 excluding restructuring costs. The expectation for 2015 restructuring costs has increased significantly, from about $250 million to about $800 million, and is a result of the additional restructuring actions.

The previous outlook for profit per share was provided in late July along with second-quarter 2015 financial results. At that time, the outlook for profit per share was $4.70, or $5.00 excluding restructuring costs and was based on sales and revenues of about $49 billion.

Preliminary 2016 Sales and Revenues Outlook

Sales and revenues for 2016 are expected to be about 5 percent below 2015. We expect

Construction Industries

sales to be flat to down 5 percent with some improvement in developed countries offset by declining sales in developing countries.

Energy & Transportation

s sales are expected to be down 5 to 10 percent as a result of continuing weakness in oil and gas coupled with a weaker order backlog than in 2015. Mining is expected to be down again, resulting in a decline in

Resource Industries

sales of about 10 percent.

The preliminary outlook reflects weak economic growth in the United States and Europe with U.S. construction activity impacted by low infrastructure investment and continued headwinds from oil and gas. It also reflects a slowing China, Brazil in recession and continuing weakness in commodity prices.

Managing through cyclicality has been critical to Caterpillars success for the past 90 years; its nothing new for us or our customers. When world growth improves, the key industries we serve construction, mining, energy and rail will be needed to support that growth. Were confident in the long-term success of the industries were in, and together with our customers, well weather todays challenging market conditions, Oberhelman said.

We cant control the business cycle, but we continue to drive improvements in our business. Were implementing

to drive improvements through our businesses and executing our

Across the Table

initiative with dealers to improve our market position, service performance and value to customers. Were also investing in emerging technologies and data analytics tools to continue our role as an innovation leader for our customers. As we look ahead to what will likely be our fourth consecutive down year for sales, which has never happened in our 90-year history, we are restructuring to lower our cost structure. Its painful and will affect thousands of people, but is essential for the long-term health of the company and should position us for better results when conditions improve, added Oberhelman.

Notes:

Glossary of terms is included on pages 17-18; first occurrence of terms shown in bold italics.

Information on non-GAAP financial measures is included on page 19.

About Caterpillar:

For 90 years, Caterpillar Inc. has been making sustainable progress possible and driving positive change on every continent. Customers turn to Caterpillar to help them develop infrastructure, energy and natural resource assets. With 2014 sales and revenues of $55.184 billion, Caterpillar is the worlds leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The company principally operates through its three product segments - Construction Industries, Resource Industries and Energy & Transportation - and also provides financing and related services through its Financial Products segment. For more information, visit

caterpillar.com

. To connect with us on social media, visit

caterpillar.com/social-media

Caterpillar contact:

Rachel Potts, 309-675-6892 (Office), 309-573-3444 (Mobile) or

Potts_Rachel_A@cat.com

Forward-Looking Statements

Certain statements in this Release relate to future events and expectations and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as believe, estimate, will be, will, would, expect, anticipate, plan, project, intend, could, should or other similar words or expressions often identify forward-looking statements. All statements other than statements of historical fact are forward-looking statements, including, without limitation, statements regarding our outlook, projections, forecasts or trend descriptions. These statements do not guarantee future performance, and we do not undertake to update our forward-looking statements.

Caterpillars actual results may differ materially from those described or implied in our forward-looking statements based on a number of factors, including, but not limited to: (i) global and regional economic conditions and economic conditions in the industries we serve; (ii) government monetary or fiscal policies and infrastructure spending; (iii) commodity price changes, component price increases, fluctuations in demand for our products or significant shortages of component products; (iv) disruptions or volatility in global financial markets limiting our sources of liquidity or the liquidity of our customers, dealers and suppliers; (v) political and economic risks, commercial instability and events beyond our control in the countries in which we operate; (vi) failure to maintain our credit ratings and potential resulting increases to our cost of borrowing and adverse effects on our cost of funds, liquidity, competitive position and access to capital markets; (vii) our Financial Products segments risks associated with the financial services industry; (viii) changes in interest rates or market liquidity conditions; (ix) an increase in delinquencies, repossessions or net losses of Cat Financials customers; (x) new regulations or changes in financial services regulations; (xi) a failure to realize, or a delay in realizing, all of the anticipated benefits of our acquisitions, joint ventures or divestitures; (xii) international trade policies and their impact on demand for our products and our competitive position; (xiii) our ability to develop, produce and market quality products that meet our customers needs; (xiv) the impact of the highly competitive environment in which we operate on our sales and pricing; (xv) failure to realize all of the anticipated benefits from initiatives to increase our productivity, efficiency and cash flow and to reduce costs; (xvi) additional restructuring costs or a failure to realize anticipated savings or benefits from past or future cost reduction actions; (xvii) inventory management decisions and sourcing practices of our dealers and our OEM customers; (xviii) compliance with environmental laws and regulations; (xix) alleged or actual violations of trade or anti-corruption laws and regulations; (xx) additional tax expense or exposure; (xxi) currency fluctuations; (xxii) our or Cat Financials compliance with financial covenants; (xxiii) increased pension plan funding obligations; (xxiv) union disputes or other employee relations issues; (xxv) significant legal proceedings, claims, lawsuits or government investigations; (xxvi) changes in accounting standards; (xxvii) failure or breach of IT security; (xxviii) adverse effects of unexpected events including natural disasters; and (xxix) other factors described in more detail under Item 1A. Risk Factors in our Form 10-K filed with the SEC on February 17, 2015 for the year ended December 31, 2014.

Key Points

Third Quarter 2015

(Dollars in millions except per share data)

Third Quarter

2015

2014

$ Change

% Change

Machinery, Energy & Transportation Sales

10,285

12,758

(2,473

Financial Products Revenues

Total Sales and Revenues

10,962

13,549

(2,587

Profit

Profit per common share - diluted

(excluding restructuring costs)

Third-Quarter 2015 Highlights

Third-quarter sales and revenues were $10.962 billion, down 19 percent from the third quarter of 2014.

Restructuring costs were $101 million in the third quarter of 2015, with an after-tax impact of $0.13 per share.

Profit per share was $0.62 in the third quarter of 2015, or $0.75 per share excluding restructuring costs. Profit in the third quarter of 2014 was $1.63 per share, or $1.72 per share excluding restructuring costs.

ME&T operating cash flow was $766 million in the third quarter of 2015, compared with $1.442 billion in the third quarter of 2014.

ME&T debt-to-capital ratio was 37.4 percent, the same as the end of 2014.

The company repurchased $1.5 billion of Caterpillar common stock during the third quarter of 2015.

The company expects 2015 sales and revenues to be about $48 billion, unchanged from the September 24 announcement.

With sales and revenues at $48 billion, the revised profit outlook is about $3.70 per share, or $4.60 per share excluding restructuring costs.

The company expects restructuring costs of about $800 million in 2015, an increase from the previous estimate of about $250 million.

We expect ME&T capital expenditures in 2015 to be about the same as 2014 capital expenditures of $1.6 billion.

The company expects 2016 sales and revenues to be down about 5 percent from the 2015 outlook.

CONSOLIDATED RESULTS

Consolidated Sales and Revenues

The chart above graphically illustrates reasons for the change in Consolidated Sales and Revenues between the third quarter of 2014 (at left) and the third quarter of 2015 (at right). Items favorably impacting sales and revenues appear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting sales and revenues appear as downward stair steps with dollar amounts reflected in parentheses above each bar. Caterpillar management utilizes these charts internally to visually communicate with the companys Board of Directors and employees.

Total sales and revenues were $10.962 billion in the third quarter of 2015, compared with $13.549 billion in the third quarter of 2014, a decline of $2.587 billion, or 19 percent. The decrease was primarily due to lower

sales volume

and the unfavorable impact of

due to continued strengthening of the U.S. dollar against most currencies, with the largest impact from the euro. While sales for both new equipment and aftermarket parts declined in all segments, most of the decrease was for new equipment.

Sales declined in all regions. In North America, sales decreased 17 percent, primarily due to lower end-user demand across all the Energy & Transportation applications and for construction equipment. Asia/Pacific sales declined 25 percent, primarily due to lower end-user demand for mining equipment, products used in oil and gas applications and construction equipment. In addition, the impact of currency was unfavorable as sales, mostly in Australian dollars and Japanese yen, translated into fewer U.S. dollars. S

ales decreased 31 percent in

Latin America,

primarily due to widespread economic weakness across the region, which had a negative impact on demand for construction equipment and spending. The most significant decrease was in Brazil. In

, sales declined 13 percent, mostly due to the unfavorable impact of currency, as sales in euros translated into fewer U.S. dollars, and lower end-user demand for products used in mining equipment and power generation applications.

Sales decreased in all segments. Energy & Transportations sales declined 25 percent as sales decreased across all of the applications and the impact of currency was unfavorable. Construction Industries sales decreased 15 percent, primarily due to lower end-user demand and the unfavorable impact of currency.

Resource Industries sales declined 17 percent, mostly due to lower end-user demand.

Financial Products segment

revenues were down 12 percent, primarily due to lower average

earning assets

and lower average financing rates.

Consolidated Operating Profit

The chart above graphically illustrates reasons for the change in Consolidated Operating Profit between the third quarter of 2014 (at left) and the third quarter of 2015 (at right). Items favorably impacting operating profit appear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting operating profit appear as downward stair steps with dollar amounts reflected in parentheses above each bar. Caterpillar management utilizes these charts internally to visually communicate with the companys Board of Directors and employees. The bar entitled Other includes

consolidating adjustments

Machinery, Energy & Transportation other operating (income) expenses

Operating profit for the third quarter of 2015 was $713 million, a decline of $679 million from the third quarter of 2014. The decrease in profit was primarily due to lower sales volume reflecting weak market conditions in most of the industries we serve.

The unfavorable

price realization

resulted from competitive market conditions and an unfavorable geographic mix of sales.

Although the stronger U.S. dollar had a negative impact to our sales, our sizable manufacturing presence outside of the United States resulted in a favorable impact to operating profit. The majority of the favorability for the quarter was due to the Japanese yen, as we are a net exporter from Japan.

Manufacturing costs

were favorable due to lower incentive compensation expense and improved material costs, partially offset by the unfavorable impact of cost absorption and manufacturing inefficiencies driven by declining production volume. The unfavorable cost absorption resulted from a significant decrease in inventory in the third quarter of 2015, compared to an increase in the third quarter of 2014.

SG&A and R&D expenses were favorable due to lower incentive compensation expense, partially offset by new product introduction programs.

Restructuring costs of $101 million in the third quarter of 2015 were related to the Resource Industries segment and other restructuring programs across the company. In the third quarter of 2014, restructuring costs were $81 million.

Other Profit/Loss Items

Other income/expense

in the third quarter of 2015 was expense of $68 million, compared with income of $117 million in the third quarter of 2014. The unfavorable change of $185 million was primarily due to the net impact from currency translation and hedging gains and losses. The third quarter of 2015 included net losses related to currency translation and hedging, compared to net gains in the third quarter of 2014. Net losses in the third quarter of 2015 were primarily due to the Brazilian real and the Chinese yuan. Net gains in the third quarter of 2014 were primarily due to the euro.

provision for income taxes

for the third quarter of 2015 reflects an estimated annual tax rate of 27 percent, compared with 29.5 percent for the third quarter of 2014 excluding the items discussed below. The decrease is mostly due to a more favorable expected geographic mix of profits from a tax perspective in 2015, including the impact of restructuring costs primarily at higher U.S. tax rates.

The provision for income taxes for the third quarter of 2015 also includes a $42 million net charge for prior year tax adjustments. This net charge was offset by a benefit of $38 million related to the decrease from the second-quarter estimated annual...


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