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Caterpillar Inc. (CAT)

Analysis of Property, Plant and Equipment

Advanced level

Accounting Policy on Property, Plant and Equipment

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 2018, 2017 and 2016, Cat Financial depreciation on equipment leased to others was $819 million, $810 million and $841 million, respectively, and was included in Other operating (income) expenses in Statement 1. In 2018, 2017 and 2016, consolidated depreciation expense was $2,435 million, $2,555 million and $2,707 million, respectively.

Source: 10-K (filing date: 2019-02-14).

Property, Plant and Equipment Disclosure

Caterpillar Inc., balance sheet: property, plant and equipment

US$ in millions

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Land 671  664  667  644  665 
Buildings and land improvements 6,977  7,515  7,383  7,242  7,119 
Machinery, equipment and other 13,733  14,888  15,392  15,686  15,516 
Software 1,703  1,745  1,641  1,636  1,455 
Equipment leased to others 6,015  6,038  6,086  5,728  5,596 
Construction-in-process 682  688  771  1,041  1,221 
Property, plant and equipment, at cost 29,781  31,538  31,940  31,977  31,572 
Accumulated depreciation (16,207) (17,383) (16,618) (15,887) (14,995)
Property, plant and equipment, net 13,574  14,155  15,322  16,090  16,577 

Based on: 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-17).

Item Description The company
Property, plant and equipment, at cost Amount before accumulated depreciation, depletion and amortization of physical assets used in the normal conduct of business and not intended for resale. Examples include, but are not limited to, land, buildings, machinery and equipment, office equipment, and furniture and fixtures. Caterpillar Inc.’s property, plant and equipment, at cost decreased from 2016 to 2017 and from 2017 to 2018.
Property, plant and equipment, net Amount after accumulated depreciation, depletion and amortization of physical assets used in the normal conduct of business to produce goods and services and not intended for resale. Examples include, but are not limited to, land, buildings, machinery and equipment, office equipment, and furniture and fixtures. Caterpillar Inc.’s property, plant and equipment, net decreased from 2016 to 2017 and from 2017 to 2018.

Asset Age Ratios (Summary)

Caterpillar Inc., asset age ratios

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Average age ratio 55.68% 56.30% 53.14% 50.70% 48.52%
Estimated total useful life (years) 12 12 12 12 11
Estimated age, time elapsed since purchase (years) 7 7 6 6 5
Estimated remaining life (years) 5 5 5 6 6

Based on: 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-17).

Asset age ratio Description The company
Average age ratio 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 ratio of depreciable property, plant and equipment deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.
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 increased from 2016 to 2017 but then slightly decreased from 2017 to 2018.
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 deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.
Estimated remaining life Caterpillar Inc.’s estimated remaining life of depreciable property, plant and equipment decreased from 2016 to 2017 but then slightly increased from 2017 to 2018.

Average Age

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in millions)
Accumulated depreciation 16,207  17,383  16,618  15,887  14,995 
Property, plant and equipment, at cost 29,781  31,538  31,940  31,977  31,572 
Land 671  664  667  644  665 
Asset Age Ratio
Average age1 55.68% 56.30% 53.14% 50.70% 48.52%

Based on: 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-17).

2018 Calculations

1 Average age = 100 × Accumulated depreciation ÷ (Property, plant and equipment, at cost – Land)
= 100 × 16,207 ÷ (29,781 – 671) = 55.68%

Asset age 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 ratio of depreciable property, plant and equipment deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.

Estimated Total Useful Life

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in millions)
Property, plant and equipment, at cost 29,781  31,538  31,940  31,977  31,572 
Land 671  664  667  644  665 
Consolidated depreciation expense 2,435  2,555  2,707  2,705  2,795 
Asset Age Ratio (Years)
Estimated total useful life1 12 12 12 12 11

Based on: 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-17).

2018 Calculations

1 Estimated total useful life = (Property, plant and equipment, at cost – Land) ÷ Consolidated depreciation expense
= (29,781 – 671) ÷ 2,435 = 12

Asset age 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 increased from 2016 to 2017 but then slightly decreased from 2017 to 2018.

Estimated Age, Time Elapsed since Purchase

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in millions)
Accumulated depreciation 16,207  17,383  16,618  15,887  14,995 
Consolidated depreciation expense 2,435  2,555  2,707  2,705  2,795 
Asset Age Ratio (Years)
Time elapsed since purchase1 7 7 6 6 5

Based on: 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-17).

2018 Calculations

1 Time elapsed since purchase = Accumulated depreciation ÷ Consolidated depreciation expense
= 16,207 ÷ 2,435 = 7

Asset age 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 deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.

Estimated Remaining Life

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in millions)
Property, plant and equipment, net 13,574  14,155  15,322  16,090  16,577 
Land 671  664  667  644  665 
Consolidated depreciation expense 2,435  2,555  2,707  2,705  2,795 
Asset Age Ratio (Years)
Estimated remaining life1 5 5 5 6 6

Based on: 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-17).

2018 Calculations

1 Estimated remaining life = (Property, plant and equipment, net – Land) ÷ Consolidated depreciation expense
= (13,574 – 671) ÷ 2,435 = 5

Asset age ratio Description The company
Estimated remaining life Caterpillar Inc.’s estimated remaining life of depreciable property, plant and equipment decreased from 2016 to 2017 but then slightly increased from 2017 to 2018.