Analysis of Property, Plant and Equipment
Difficulty level: Advanced
Property, Plant and Equipment Accounting Policy
Depreciation
Depreciation of plant and equipment is computed principally using accelerated methods. Depreciation on equipment leased to others, primarily for Financial Products, is computed using the straight-line method over the term of the lease. The depreciable basis is the original cost of the equipment less the estimated residual value of the equipment at the end of the lease term. In 2014, 2013 and 2012, Cat Financial depreciation on equipment leased to others was $872 million, $768 million and $688 million, respectively, and was included in Other operating (income) expenses in Statement 1. In 2014, 2013 and 2012, consolidated depreciation expense was $2,795 million, $2,710 million and $2,421 million, respectively.
Source: Caterpillar Inc., Annual Report
Property, Plant and Equipment Disclosure
Caterpillar Inc., Statement of Financial Position, Property, Plant and Equipment
USD $ in millions
| Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | Dec 31, 2010 | ||
|---|---|---|---|---|---|---|
| Land | 665 | 688 | 723 | 753 | 682 | |
| Buildings and land improvements | 7,119 | 6,928 | 6,214 | 5,857 | 5,174 | |
| Machinery, equipment and other | 16,971 | 16,793 | 16,073 | 14,435 | 13,414 | |
| Equipment leased to others | 5,596 | 5,365 | 4,658 | 4,285 | 4,444 | |
| Construction-in-process | 1,221 | 1,542 | 2,264 | 1,996 | 1,192 | |
| Property, plant and equipment, at cost | 31,572 | 31,316 | 29,932 | 27,326 | 24,906 | |
| Accumulated depreciation | (14,995) | (14,241) | (13,471) | (12,931) | (12,367) | |
| Property, plant and equipment, net | 16,577 | 17,075 | 16,461 | 14,395 | 12,539 |
Source: Based on data from Caterpillar Inc. Annual Reports
| Item | Description | The company |
|---|---|---|
| Land | Carrying amount as of the balance sheet date of real estate held for productive use. This excludes land held for sale. | Caterpillar Inc.'s land declined from 2012 to 2013 and from 2013 to 2014. |
| Buildings and land improvements | Carrying amount as of the balance sheet date of long-lived, depreciable assets that include building structures held for productive use including any addition, improvement, or renovation to the structure, such as interior masonry, interior flooring, electrical, and plumbing. | Caterpillar Inc.'s buildings and land improvements increased from 2012 to 2013 and from 2013 to 2014. |
| Machinery, equipment and other | Carrying amount as of the balance sheet date of long-lived, depreciable asset used in production process to produce goods and services. | Caterpillar Inc.'s machinery, equipment and other increased from 2012 to 2013 and from 2013 to 2014. |
| Equipment leased to others | The amount of lessor property subject to or available for lease, at cost adjusted for any previously recognized impairment charges, by major property class, as of the balance sheet date. | Caterpillar Inc.'s equipment leased to others increased from 2012 to 2013 and from 2013 to 2014. |
| Construction-in-process | Carrying amount at the balance sheet date of long-lived asset under construction that include construction costs to date on capital projects that have not been completed and assets being constructed that are not ready to be placed into service. | Caterpillar Inc.'s construction-in-process declined from 2012 to 2013 and from 2013 to 2014. |
| Property, plant and equipment, at cost | Carrying amount at the balance sheet date for long-lived physical assets used in the normal conduct of business and not intended for resale. This can include land, physical structures, machinery, vehicles, furniture, computer equipment, construction in progress, and similar items. Amount does not include depreciation. | Caterpillar Inc.'s property, plant and equipment, at cost increased from 2012 to 2013 and from 2013 to 2014. |
| Property, plant and equipment, net | Tangible assets that are held by an entity for use in the production or supply of goods and services, for rental to others, or for administrative purposes and that are expected to provide economic benefit for more than one year; net of accumulated depreciation. Examples include land, buildings, and production equipment. | Caterpillar Inc.'s property, plant and equipment, net increased from 2012 to 2013 but then slightly declined from 2013 to 2014 not reaching 2012 level. |
Property, Plant and Equipment Ratios (Summary)
Caterpillar Inc., Property, Plant and Equipment Ratios
| Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | Dec 31, 2010 | ||
|---|---|---|---|---|---|---|
| Average age | 48.52% | 46.50% | 46.12% | 48.66% | 51.05% | |
| Estimated total useful life (years) | 11 | 11 | 12 | 12 | 11 | |
| Estimated age, time elapsed since purchase (years) | 5 | 5 | 6 | 6 | 6 | |
| Estimated remaining life (years) | 6 | 6 | 7 | 6 | 5 |
| Ratio | Description | The company |
|---|---|---|
| Average age | As long as straight-line depreciation is used, this is an accurate estimate of asset age as a percentage of depreciable life. The relative age is a useful measure of whether the company's fixed asset base is old or new. Newer assets are likely to be more efficient. | Caterpillar Inc.'s average age of depreciable property, plant and equipment deteriorated from 2012 to 2013 and from 2013 to 2014. |
| Estimated total useful life | Over longer time periods, this ratio is a useful measure of company's depreciation policy and can be used for comparisons with competitors. | Caterpillar Inc.'s estimated total useful life of depreciable property, plant and equipment declined from 2012 to 2013 and from 2013 to 2014. |
| Estimated time elapsed since purchase | The approximate age in years of a company's fixed assets. Useful for comparison purposes. | Caterpillar Inc.'s estimated time elapsed since purchase of depreciable property, plant and equipment improved from 2012 to 2013 but then slightly deteriorated from 2013 to 2014. |
| Estimated remaining life | Caterpillar Inc.'s estimated remaining life of depreciable property, plant and equipment declined from 2012 to 2013 and from 2013 to 2014. |
Average Age
| Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | Dec 31, 2010 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in millions) | ||||||
| Accumulated depreciation | 14,995 | 14,241 | 13,471 | 12,931 | 12,367 | |
| Property, plant and equipment, at cost | 31,572 | 31,316 | 29,932 | 27,326 | 24,906 | |
| Land | 665 | 688 | 723 | 753 | 682 | |
| Ratio | ||||||
| Average age1 | 48.52% | 46.50% | 46.12% | 48.66% | 51.05% | |
2014 Calculations
1 Average age = 100 × Accumulated depreciation ÷ (Property, plant and equipment, at cost – Land)
= 100 × 14,995 ÷ (31,572 – 665) = 48.52%
| Ratio | Description | The company |
|---|---|---|
| Average age | As long as straight-line depreciation is used, this is an accurate estimate of asset age as a percentage of depreciable life. The relative age is a useful measure of whether the company's fixed asset base is old or new. Newer assets are likely to be more efficient. | Caterpillar Inc.'s average age of depreciable property, plant and equipment deteriorated from 2012 to 2013 and from 2013 to 2014. |
Estimated Total Useful Life
| Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | Dec 31, 2010 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in millions) | ||||||
| Property, plant and equipment, at cost | 31,572 | 31,316 | 29,932 | 27,326 | 24,906 | |
| Land | 665 | 688 | 723 | 753 | 682 | |
| Consolidated depreciation expense | 2,795 | 2,710 | 2,421 | 2,211 | 2,202 | |
| Ratio | ||||||
| Estimated total useful life (years)1 | 11 | 11 | 12 | 12 | 11 | |
2014 Calculations
1 Estimated total useful life (years) = (Property, plant and equipment, at cost – Land) ÷ Consolidated depreciation expense
= (31,572 – 665) ÷ 2,795 = 11
| Ratio | Description | The company |
|---|---|---|
| Estimated total useful life | Over longer time periods, this ratio is a useful measure of company's depreciation policy and can be used for comparisons with competitors. | Caterpillar Inc.'s estimated total useful life of depreciable property, plant and equipment declined from 2012 to 2013 and from 2013 to 2014. |
Estimated Age, Time Elapsed Since Purchase
| Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | Dec 31, 2010 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in millions) | ||||||
| Accumulated depreciation | 14,995 | 14,241 | 13,471 | 12,931 | 12,367 | |
| Consolidated depreciation expense | 2,795 | 2,710 | 2,421 | 2,211 | 2,202 | |
| Ratio | ||||||
| Time elapsed since purchase (years)1 | 5 | 5 | 6 | 6 | 6 | |
2014 Calculations
1 Time elapsed since purchase (years) = Accumulated depreciation ÷ Consolidated depreciation expense
= 14,995 ÷ 2,795 = 5
| Ratio | Description | The company |
|---|---|---|
| Estimated time elapsed since purchase | The approximate age in years of a company's fixed assets. Useful for comparison purposes. | Caterpillar Inc.'s estimated time elapsed since purchase of depreciable property, plant and equipment improved from 2012 to 2013 but then slightly deteriorated from 2013 to 2014. |
Estimated Remaining Life
| Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | Dec 31, 2010 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in millions) | ||||||
| Property, plant and equipment, net | 16,577 | 17,075 | 16,461 | 14,395 | 12,539 | |
| Land | 665 | 688 | 723 | 753 | 682 | |
| Consolidated depreciation expense | 2,795 | 2,710 | 2,421 | 2,211 | 2,202 | |
| Ratio | ||||||
| Estimated remaining life (years)1 | 6 | 6 | 7 | 6 | 5 | |
2014 Calculations
1 Estimated remaining life (years) = (Property, plant and equipment, net – Land) ÷ Consolidated depreciation expense
= (16,577 – 665) ÷ 2,795 = 6
| Ratio | Description | The company |
|---|---|---|
| Estimated remaining life | Caterpillar Inc.'s estimated remaining life of depreciable property, plant and equipment declined from 2012 to 2013 and from 2013 to 2014. |