Assignment
Analyzing and Interpreting Disclosures on Equity Method Investments
Assume Caterpillar, Inc. (CAT) reports investments in affiliated companies, consisting mainly of its 50% ownership of Shin Caterpillar Mitsubishi, Ltd. Caterpillar reports those investments on its balance sheet at $589 million, and provides the following footnote in its 10-K report.
Investments in unconsolidated affiliated companies
Our investments in affiliated companies accounted for by the equity method consist primarily of a 50% interest in Shin Caterpillar Mitsubishi Ltd. (SCM) located in Japan. Combined financial information of the unconsolidated affiliated companies accounted for by the equity method (generally on a three-month lag, e.g., SCM results reflect the periods ending September 30) was as follows:
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Results of operations:
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|
|
|
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Sales
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$ 4,007
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$ 4,420
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$ 4,140
|
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Cost of sales
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3,210
|
3,526
|
3,257
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Gross profit
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$ 797
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$ 894
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$ 883
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Profit
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$ 157
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$ 187
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$ 161
|
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Caterpillar's profit
|
$ 76
|
$ 81
|
$ 73
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Sales from SCM to Caterpillar of approximately $1.67 billion, $1.81 billion and $1.73 billion in 2011, 2010 and 2009 respectively, are included in the affiliated company sales. In addition, SCM purchased $268 million, $273 million and $282 million of products from Caterpillar in 2011, 2010 and 2009, respectively.
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Financial position:
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|
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|
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Assets
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|
|
|
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Current assets
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$ 2,062
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$ 1,807
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$ 1,714
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Property, plant and equipment-net
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1,286
|
1,119
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1,120
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Other assets
|
173
|
176
|
194
|
|
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3,521
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3,102
|
3,028
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Liabilities
|
|
|
|
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Current liabilities
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1,546
|
1,394
|
1,348
|
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Long-term debt due after one year
|
269
|
309
|
318
|
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Other liabilities
|
393
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145
|
188
|
|
|
2,208
|
1,848
|
1,854
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Ownership
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$ 1,313
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$ 1,254
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$ 1,174
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Investment in equity method companies
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$ 589
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$ 542
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$ 540
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Plus: Investment in cost method companies
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16
|
20
|
25
|
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Investment in unconsolidated affiliated companies
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$ 605
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$ 562
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$ 565
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(a) What assets and liabilities of unconsolidated affiliates are included on CAT's balance sheet as a result of the equity method of accounting for those investments?