CATERPILLAR INC - 10-Q Quarterly Report

Summary Page
Financial Statements
Notes to Financial Statements
MD&A
Safe Harbor Statement
Other Information

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________
Commission File Number: 1-768
CATERPILLAR INC. (Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation)	37-0602744 (IRS Employer I.D. No.)
100 NE Adams Street, Peoria, Illinois (Address of principal executive offices)	61629 (Zip Code)
Registrant's telephone number, including area code: (309) 675-1000
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __.
At June 30, 2002, 344,153,202 shares of common stock of the Registrant were outstanding.

This summary page highlights selected information and may not contain all of the information that is important to you. For a detailed analysis of the company's results for the second quarter, you should read the entire document.

SUMMARY OF RESULTS

On July 16, 2002, Caterpillar Inc. reported sales and revenues of $5.29 billion and profit of $200 million or 58 cents per share for the second quarter 2002. For the first half of the year, sales and revenues were $9.70 billion and profit was $280 million or 81 cents per share.

"Business for the first half of the year has been extremely difficult, in line with our expectations," said Chairman and CEO Glen Barton. "While overall economic indicators have been positive, the anticipated recovery in capital spending has yet to materialize. Nevertheless, the broad diversity of our products and services enabled us to remain solidly profitable despite uneven recoveries and very weak market conditions in many of the industries we serve."

Sales and revenues for the quarter were $197 million below second quarter 2001, primarily due to lower physical sales volume. Sales for the quarter were higher in Asia/Pacific and Latin America, partially offsetting declines in North America. Sales in Europe, Africa and the Middle East were the same as last year. Truck and bus engine sales rebounded strongly and sales to heavy construction were up, partially offsetting sharp declines in electric power generation and coal mining.

Caterpillar's Financial Products Division continued its solid growth. Financial Products revenues for the second quarter were $419 million or $11 million higher than the second quarter 2001 primarily due to growth in the Cat Financial portfolio and increased revenue at Caterpillar Insurance Holdings, Inc. (Cat Insurance).

Corporate profit was $71 million lower than second quarter 2001 mainly due to lower sales volume, particularly in larger reciprocating engines and coal mining equipment, and to manufacturing inefficiencies resulting from significantly lower production hours at the large engine and machine facilities. The company also recognized a $40 million pretax charge in accordance with the application of SFAS 115 for "other than temporary" declines in the market value of securities in the Cat Insurance investment portfolio.

"We are well-positioned to take advantage of economic recovery. Dealers have continued to lower their inventories, so we should see an immediate impact on shipments to dealers once retail sales begin to recover. However, the delay in investment decisions by many of our customers is having a dampening effect on the expected rebound in construction, mining and electric power generation sales. Economic recovery in these industries is not occurring as quickly as we had anticipated earlier in the year. We now expect sales and revenues for 2002 to be down slightly from last year," said Barton.

Due to lower volume and the likely continuation of an unfavorable sales mix, profit for the year is expected to be about 15 percent lower than last year, excluding nonrecurring charges recorded in 2001. (Complete outlook begins on page 15.)

The company continued to make progress on development and testing of ACERT technology, which will allow Caterpillar engines to achieve EPA emission levels while meeting customer needs for reliable, fuel-efficient engines. Caterpillar will ship the first clean-diesel engines with ACERT technology in early 2003, ramping up to full production in the second half of the year. Starting October 1, 2002, Caterpillar will also offer an EPA-certified low-emissions version of its current industry-leading heavy-duty engines until the ACERT products reach full production. Despite the fact that our certified engines will generate non-compliance penalties (NCPs) mandated by the EPA, we expect the financial impact on Caterpillar resulting from volatility in the truck engine market and NCPs to be minimal for the year.

The company is seeing tangible results from strategies to improve quality and control costs. "The implementation of 6 Sigma is making a strong contribution to our bottom line and is proving to be an excellent framework for managing our business during this period of economic uncertainty," Barton said. "Caterpillar is also benefiting from an intense focus on asset management, which is resulting in improved net free cash flow."

"The strategies we have implemented over the past decade allow Caterpillar to deliver a solid profit when many in our industry are unable to do so," Barton continued. "These results, together with our long-standing reputation for integrity and conservative financial reporting, should give our investors, employees and customers confidence in our future."

OUTLOOK

We expect full-year 2002 sales and revenues to be down slightly from 2001. Full-year profit is expected to be about 15 percent lower than last year, excluding nonrecurring charges recorded in 2001 for the sale of the Challenger agricultural tractor line, plant closing and consolidations and costs for planned employment reductions. (Complete outlook begins on page 15.)

Page 1

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Caterpillar Inc.
Statement of Results of Operations
(Unaudited)
(Dollars in millions except per share data)

						Supplemental Consolidating Data

		Consolidated				Machinery & Engines ⁽¹⁾				Financial Products
		Three Months Ended				Three Months Ended				Three Months Ended
		June 30,				June 30,				June 30,
		2002		2001		2002		2001		2002		2001

Sales and revenues:
	Sales of Machinery and Engines	$	4,915	$	5,132	$	4,915	$	5,132	$	-	$	-
	Revenues of Financial Products		376		356		-		-		419		408

	Total sales and revenues		5,291		5,488		4,915		5,132		419		408

Operating costs:
	Cost of goods sold		3,856		3,955		3,856		3,955		-		-
	Selling, general, and administrative expenses		620		655		534		568		103		98
	Research and development expenses		186		172		186		172		-		-
	Interest expense of Financial Products		135		175		-		-		139		182
	Other operating expenses		101		73		-		-		101		73

	Total operating costs		4,898		5,030		4,576		4,695		343		353

Operating profit			393		458		339		437		76		55

	Interest expense excluding Financial Products		71		75		71		75		-		-
	Other income (expense)		(27)		19		(6)		(28)		(43)		13

Consolidated profit before taxes			295		402		262		334		33		68

	Provision for income taxes		89		128		77		103		12		25

	Profit of consolidated companies		206		274		185		231		21		43

	Equity in profit (loss) of unconsolidated affiliated companies (Note 7)		(6)		(3)		(8)		(5)		2		2
	Equity in profit of Financial Products' subsidiaries		-		-		23		45		-		-

Profit		$	200	$	271	$	200	$	271	$	23	$	45


Profit per common share		$	0.58	$	0.79
Profit per common share - diluted ⁽²⁾		$	0.58	$	0.78
Weighted-average common shares			344.0		343.3
Weighted-average common shares - diluted ⁽²⁾			348.2		347.8
Cash dividends paid per common share		$	0.35	$	0.34


^{(1) Represents Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis.}
^{(2) Diluted by assumed exercise of stock options, using the treasury stock method.}
The supplemental consolidating data is presented for the purpose of additional analysis. Transactions between Machinery & Engines and Financial Products have been eliminated to arrive at the consolidated data.
See accompanying notes to Consolidated Financial Statements.

Page 2

Caterpillar Inc.
Statement of Results of Operations
(Unaudited)
(Dollars in millions except per share data)

							Supplemental Consolidating Data

		Consolidated					Machinery & Engines ⁽¹⁾				Financial Products
		Six Months Ended					Six Months Ended				Six Months Ended
		June 30,					June 30,				June 30,
		2002		2001			2002		2001		2002		2001

Sales and revenues:
	Sales of Machinery and Engines	$	8,959	$	9,593		$	8,959	$	9,593	$	-	$	-
	Revenues of Financial Products		741		705			-		-		821		813

	Total sales and revenues		9,700		10,298			8,959		9,593		821		813

Operating costs:
	Cost of goods sold		7,061		7,417			7,061		7,417		-		-
	Selling, general, and administrative expenses		1,269		1,276			1,095		1,122		211		175
	Research and development expenses		357		339			357		339		-		-
	Interest expense of Financial Products		258		357			-		-		266		375
	Other operating expenses		192		142			-		-		192		142

	Total operating costs		9,137		9,531			8,513		8,878		669		692

Operating profit			563		767			446		715		152		121

	Interest expense excluding Financial Products		140		153			140		153		-		-
	Other income (expense)		(7)		23			(13)		(76)		(29)		30

Consolidated profit before taxes			416		637			293		486		123		151
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