Caterpillar Inc.: Files Form 10-Q for the quarter ended March 31, 2022

Caterpillar Inc. Caterpillar Inc.: Files Form 10-Q for the quarter ended March 31, 2022 04-Mai-2022 / 19:24 CET/CEST Information réglementaire transmise par EQS Group. Le contenu de ce communiqué est de la responsabilité de l’émetteur.     UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C.  20549   FORM 10-Q   ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended  March 31, 2022 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                                       37-0602744 (State or other jurisdiction of incorporation)                 (IRS Employer I.D. No.) 510 Lake Cook Road,  Suite 100,   Deerfield,   Illinois   60015 (Address of principal executive offices)                 (Zip Code)   Registrant’s telephone number, including area code: (224) 551-4000 Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report: N/A Securities registered pursuant to Section 12(b) of the Act:   Title of each class                            Trading Symbol (s)         Name of each exchange on which registered Common Stock ($1.00 par value)                             CAT                                                     New York Stock Exchange  ¹ 8% Debentures due February 15, 2023                       CAT23                                                   New York Stock Exchange 5.3% Debentures due September 15, 2035                    CAT35                                                   New York Stock Exchange ¹                In addition to the New York Stock Exchange, Caterpillar common stock is also listed on stock exchanges in France and Switzerland. 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 ☒    No  ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒   No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and  “emerging growth company” in Rule 12b-2 of the Exchange Act.   Large accelerated filer                                           ☒                                                      Accelerated filer                                                 ☐ Non-accelerated filer                                            ☐                                            Smaller reporting company                                         ☐ Emerging growth company                                         ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No ☒   At March 31, 2022, 533,353,205 shares of common stock of the registrant were outstanding.         Table of Contents     Part I. Financial Information Item 1. Financial Statements 3 Item 2. Management’s Discussion and Analysis of Financial Con Operations dition and Results of                   40 Item 3. Quantitative and Qualitative Disclosures About Market R isk                                               61 Item 4. Controls and Procedures 61   Part II. Other Information Item 1. Legal Proceedings 62 Item 1A. Risk Factors 62 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 62 Item 3. Defaults Upon Senior Securities * Item 4. Item 5. Mine Safety Disclosures Other Information * 62 Item 6. Exhibits 63   * Item omitted because no answer is called for or item is not applicable.       Part I.  FINANCIAL INFORMATION   Item 1.  Financial Statements   Caterpillar Inc. Consolidated Statement of Results of Operations (Unaudited) (Dollars in millions except per share data)         Sales and revenues: Three Months Ended March 31 2022           2021   Sales of Machinery, Energy & Transportation ........................................................................................ $  12,886 $  11,191 Revenues of Financial Products .............................................................................................................. 703 696 Total sales and revenues .......................................................................................................................... 13,589 11,887   Operating costs: Cost of goods sold ................................................................................................................................... 9,559 8,012 Selling, general and administrative expenses .......................................................................................... 1,346 1,239 Research and development expenses....................................................................................................... 457 374 Interest expense of Financial Products .................................................................................................... 106 125 Other operating (income) expenses ......................................................................................................... 266 323 Total operating costs................................................................................................................................ 11,734 10,073   Operating profit .........................................................................................................................................   1,855   1,814   Interest expense excluding Financial Products........................................................................................   109   142 Other income (expense)........................................................................................................................... 253 325   Consolidated profit before taxes ...............................................................................................................   1,999   1,997 Provision (benefit) for income taxes ....................................................................................................... 469 475 Profit of consolidated companies ............................................................................................................ 1,530 1,522   Equity in profit (loss) of unconsolidated affiliated companies................................................................   7   9   Profit of consolidated and affiliated companies ......................................................................................   1,537   1,531   Less: Profit (loss) attributable to noncontrolling interests ...........................................................................   —   1   Profit 1 .........................................................................................................................................................   $    1,537   $    1,530 Profit per common share ...........................................................................................................................   $      2.88   $      2.80   Profit per common share – diluted 2 ........................................................................................................   $      2.86   $      2.77   Weighted-average common shares outstanding (millions)     – Basic .................................................................................................................................................. 534.5 546.4 – Diluted 2  ............................................................................................................................................ 538.3 551.4   1     Profit attributable to common shareholders. 2    Diluted by assumed exercise of stock-based compensation awards using the treasury stock method. See accompanying notes to Consolidated Financial Statements.         Caterpillar Inc. Consolidated Statement of Comprehensive Income (Unaudited) (Dollars in millions)     Three Months Ended March 31 2022            2021     Profit of consolidated and affiliated companies...............................................................................................  $     1,537    $     1,531 Other comprehensive income (loss), net of tax (Note 13): Foreign currency translation:.............................................................................................................................          (115)           (347) Pension and other postretirement benefits: ........................................................................................................              (1)               (8) Derivative financial instruments:.......................................................................................................................              23               (31) Available-for-sale securities:                                                                                                                                          (64)             (16)   Total other comprehensive income (loss), net of tax ...........................................................................................          (157)           (402) Comprehensive income ........................................................................................................................................         1,380           1,129 Less: comprehensive income attributable to the noncontrolling interests............................................................              —                  1 Comprehensive income attributable to shareholders .....................................................................................  $     1,380    $     1,128       See accompanying notes to Consolidated Financial Statements.                         Assets Current assets: Caterpillar Inc. Consolidated Statement of Financial Position (Unaudited) (Dollars in millions)             March 31, 2022             December 31, 2021   Cash and cash equivalents ............................................................................................................. $               6,526   $               9,254 Receivables – trade and other ........................................................................................................ 9,135   8,477 Receivables – finance .................................................................................................................... 9,003   8,898 Prepaid expenses and other current assets ..................................................................................... 2,868   2,788 Inventories...................................................................................................................................... 15,038   14,038 Total current assets ............................................................................................................................. 42,570   43,455 Property, plant and equipment – net ................................................................................................... 11,932   12,090 Long-term receivables – trade and other ............................................................................................ 1,204   1,204 Long-term receivables – finance......................................................................................................... 12,665   12,707 Noncurrent deferred and refundable income taxes ............................................................................. 1,973   1,840 Intangible assets .................................................................................................................................. 967   1,042 Goodwill ............................................................................................................................................. 6,293   6,324 Other assets ......................................................................................................................................... 4,672   4,131 Total assets................................................................................................................................................. $             82,276   $             82,793 Liabilities Current liabilities: Short-term borrowings: Machinery, Energy & Transportation ....................................................................................  $                    —     $                      9 Financial Products..................................................................................................................                   4,501                      5,395 Accounts payable ...........................................................................................................................                   8,361                      8,154 Accrued expenses...........................................................................................................................                   3,846                      3,757 Accrued wages, salaries and employee benefits ............................................................................                   1,275                      2,242 Customer advances ........................................................................................................................                   1,388                      1,087 Dividends payable..........................................................................................................................                        —                         595 Other current liabilities ..................................................................................................................                   2,355                      2,256 Long-term debt due within one year:............................................................................................. Machinery, Energy & Transportation ....................................................................................                      127                           45 Financial Products..................................................................................................................                   7,679                      6,307 Total current liabilities........................................................................................................................                 29,532                    29,847   Long-term debt due after one year: Machinery, Energy & Transportation ....................................................................................                   9,636                      9,746 Financial Products..................................................................................................................                 15,641                    16,287 Liability for postemployment benefits................................................................................................                   5,363                      5,592 Other liabilities....................................................................................................................................                   5,007                      4,805 Total liabilities...........................................................................................................................................                 65,179                    66,277 Commitments and contingencies (Notes 11 and 14) Shareholders’ equity Common stock of $1.00 par value: Authorized shares: 2,000,000,000 Issued shares: (3/31/22 and 12/31/21 – 814,894,624) at paid-in amount ...........................................                   6,281                      6,398 Treasury stock (3/31/22 – 281,541,419 shares; 12/31/21 – 279,006,573 shares) at cost ...................                (28,326)                  (27,643) Profit employed in the business ..........................................................................................................                 40,820                    39,282 Accumulated other comprehensive income (loss) ..............................................................................                  (1,710)                    (1,553) Noncontrolling interests......................................................................................................................                        32                           32 Total shareholders’ equity .......................................................................................................................                 17,097                    16,516 Total liabilities and shareholders’ equity ...............................................................................................  $             82,276     $             82,793   See accompanying notes to Consolidated Financial Statements.         Caterpillar Inc. Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) (Dollars in millions)           Three Months Ended March 31, 2021     Common stock     Treasury stock   Profit employed in the business   Accumulated other comprehensive income (loss)     Noncontrolling interests             Total   Balance at December 31, 2020 ......................................................  $     6,230    $   (25,178)   $   35,167    $                 (888)   $                   47    $ 15,378 Profit of consolidated and affiliated companies ..............................              —                  —            1,530                           —                            1          1,531 Foreign currency translation, net of tax...........................................              —                  —                 —                        (347)                         —            (347) Pension and other postretirement benefits, net of tax......................              —                  —                 —                            (8)                         —                (8) Derivative financial instruments, net of tax.....................................              —                  —                 —                          (31)                         —              (31) Available-for-sale securities, net of tax ...........................................              —                  —                 —                          (16)                         —              (16) Distribution to noncontrolling interests...........................................              —                  —                 —                           —                           (2)              (2) Common shares issued from treasury stock for stock-based compensation: 2,459,683 .................................................................             (63)               128                 —                           —                          —               65 Stock-based compensation expense.................................................              42                  —                 —                           —                          —               42 Other ................................................................................................                6                    1                 —                           —                           (2)                5 Balance at March 31, 2021............................................................  $     6,215    $   (25,049)   $   36,697    $              (1,290)   $                   44    $ 16,617   Three Months Ended March 31, 2022 Balance at December 31, 2021 ......................................................  $     6,398    $   (27,643)   $   39,282    $              (1,553)   $                   32    $ 16,516 Profit of consolidated and affiliated companies ..............................              —                  —            1,537                           —                          —          1,537 Foreign currency translation, net of tax...........................................              —                  —                 —                        (115)                         —            (115) Pension and other postretirement benefits, net of tax......................              —                  —                 —                            (1)                         —                (1) Derivative financial instruments, net of tax.....................................              —                  —                 —                           23                          —               23 Available-for-sale securities, net of tax ...........................................              —                  —                 —                          (64)                         —              (64) Dividends declared .........................................................................              —                  —                   1                           —                          —                 1 Common shares issued from treasury stock for stock-based compensation: 1,037,468 .................................................................             (65)                 37                 —                           —                          —              (28) Stock-based compensation expense.................................................              40                  —                 —                           —                          —               40 Common shares repurchased: 3,571,684 1 ......................................              —               (720)                —                           —                          —            (720) Other ................................................................................................             (92)                 —                 —                           —                          —              (92) Balance at March 31, 2022............................................................  $     6,281    $   (28,326)   $   40,820    $              (1,710)   $                   32    $ 17,097     1   See Note 12 for additional information.     See accompanying notes to Consolidated Financial Statements.                         Cash flow from operating activities: Caterpillar Inc. Consolidated Statement of Cash Flow (Unaudited) (Millions of dollars)           Three Months Ended March 31 2022                             2021   Profit of consolidated and affiliated companies ...................................................................  $                     1,537    $                       1,531 Adjustments for non-cash items: Depreciation and amortization......................................................................................                            557                                 586 Provision (benefit) for deferred income taxes ..............................................................                             (99)                               109 Other .............................................................................................................................                             (52)                              (104) Changes in assets and liabilities, net of acquisitions and divestitures: Receivables – trade and other.......................................................................................                           (372)                              (543) Inventories ....................................................................................................................                        (1,032)                              (657) Accounts payable..........................................................................................................                            452                                 733 Accrued expenses .........................................................................................................                             (74)                                 84 Accrued wages, salaries and employee benefits...........................................................                           (965)                               191 Customer advances .......................................................................................................                            311                                   58 Other assets – net..........................................................................................................                              99                                   56 Other liabilities – net ....................................................................................................                             (49)                              (116) Net cash provided by (used for) operating activities.................................................................                            313                              1,928   Cash flow from investing activities: Capital expenditures – excluding equipment leased to others..............................................                           (346)                              (252) Expenditures for equipment leased to others........................................................................                           (333)                              (252) Proceeds from disposals of leased assets and property, plant and equipment......................                            269                                 309 Additions to finance receivables...........................................................................................                        (2,988)                           (2,629) Collections of finance receivables........................................................................................                         2,966                              2,770 Proceeds from sale of finance receivables............................................................................                                9                                     5 Investments and acquisitions (net of cash acquired) ............................................................                               (8)                              (386) Proceeds from sale of businesses and investments (net of cash sold) ..................................                              —                                   28 Proceeds from sale of securities ...........................................................................................                            571                                 126 Investments in securities.......................................................................................................                        (1,438)                              (148) Other – net ............................................................................................................................                             (15)                                (48) Net cash provided by (used for) investing activities .................................................................                        (1,313)                              (477)   Cash flow from financing activities: Dividends paid......................................................................................................................                           (595)                              (562) Common stock issued, including treasury shares reissued...................................................                             (28)                                 65 Common shares repurchased ................................................................................................                           (820)                                 — Proceeds from debt issued (original maturities greater than three months): Machinery, Energy & Transportation...........................................................................                              —                                 494 Financial Products ........................................................................................................                         2,131                              1,779 Payments on debt (original maturities greater than three months): Machinery, Energy & Transportation...........................................................................                               (6)                              (644) Financial Products ........................................................................................................                        (1,381)                           (2,243) Short-term borrowings – net (original maturities three months or less)...............................                        (1,016)                            1,659 Other – net                                                                                                                                                           —                                   (2) Net cash provided by (used for) financing activities.................................................................                        (1,715)                               546 Effect of exchange rate changes on cash ...................................................................................                             (16)                                (12) Increase (decrease) in cash, cash equivalents and restricted cash ......................................                        (2,731)                            1,985 Cash, cash equivalents and restricted cash at beginning of period............................................                         9,263                              9,366 Cash, cash equivalents and restricted cash at end of period......................................................  $                     6,532    $                     11,351   Cash equivalents primarily represent short-term, highly liquid investments with original maturities of generally three months or less.   See accompanying notes to Consolidated Financial Statements.       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)   1.           A.  Nature of operations   Information in our financial statements and related commentary are presented in the following categories:   Machinery, Energy & Transportation (ME&T) – We define ME&T as Caterpillar Inc. and its subsidiaries, excluding Financial Products. ME&T’s information relates to the design, manufacturing and marketing of our products.   Financial  Products  –  We  define  Financial  Products  as  our  finance  and  insurance  subsidiaries,  primarily Caterpillar Financial Services Corporation (Cat Financial) and Caterpillar Insurance Holdings Inc. (Insurance Services).  Financial Products’ information relates to the financing to customers and dealers for the purchase and lease of Caterpillar and other equipment.   B.  Basis of presentation   In the opinion of management, the accompanying unaudited financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of (a) the consolidated results of operations for the three months ended March 31, 2022 and 2021, (b) the consolidated comprehensive income for the three months ended March 31, 2022 and 2021, (c) the consolidated financial position at March 31, 2022 and December 31, 2021, (d) the consolidated changes in shareholders’ equity for the three months ended March 31, 2022 and 2021 and (e) the consolidated cash flow for the three months ended March 31, 2022 and 2021.   The financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (U.S. GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).   Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with the audited financial statements and notes thereto included in our company’s annual report on Form 10-K for the year ended December 31, 2021 (2021 Form 10-K).   The December 31, 2021 financial position data included herein is derived from the audited consolidated financial statements included in the 2021 Form 10-K but does not include all disclosures required by U.S. GAAP.   Certain amounts for prior periods have been reclassified to conform to the current period financial statement presentation.   Cat Financial has end-user customers that are variable interest entities (VIEs) of which we are not the primary beneficiary. Although we have provided financial support to these entities and therefore have a variable interest, we do not have the power to direct the activities that most significantly impact their economic performance. Our maximum exposure to loss from our involvement with these VIEs is limited to the credit risk inherently present in the financial support that we have provided. These risks were evaluated and reflected in our financial statements as part of our overall portfolio of finance receivables and related allowance for credit losses. See Note 11 for further discussions on a consolidated VIE.   2.          New accounting guidance   A.  Adoption of new accounting standards   We consider the applicability and impact of all ASUs. We adopted the following ASUs effective January 1, 2022, none of which had a material impact on our financial statements:   ASU            Description 2020-06       Debt with conversion and other options and Derivatives and hedging 2021-05       Lessor - Variable lease payments 2021-10       Government assistance       B.  Accounting standards issued but not yet adopted   We consider the applicability and impact of all ASUs. We assessed the ASUs and determined that they either were not applicable or were not expected to have a material impact on our financial statements.   3.           Sales and revenue contract information   Trade receivables represent amounts due from dealers and end users for the sale of our products.   In addition, Cat Financial  provides  wholesale  inventory  financing  for  a  dealer’s  purchase  of  inventory.    We  include  wholesale inventory receivables in Receivables – trade and other and Long-term receivables – trade and other in the Consolidated Statement of Financial Position.  We recognize trade receivables from dealers and end users in Receivables – trade and other and Long-term receivables – trade and other in the Consolidated Statement of Financial Position. Trade receivables from dealers and end users were $7,818 million, $7,267 million and $6,310 million as of March 31, 2022, December 31, 2021 and December 31, 2020, respectively.  Long-term trade receivables from dealers and end users were $553 million, $624 million and $657 million as of March 31, 2022, December 31, 2021 and December 31, 2020, respectively.   We invoice in advance of recognizing the sale of certain products.  We recognize advanced customer payments as a contract liability in Customer advances and Other liabilities in the Consolidated Statement of Financial Position. Contract liabilities were $1,869 million, $1,557 million and $1,526 million as of March 31, 2022, December 31, 2021 and December 31, 2020, respectively.  We reduce the contract liability when revenue is recognized.  During the three months ended March 31, 2022 and 2021, we recognized $437 million and $433 million, respectively, of revenue that was recorded as a contract liability at the beginning of 2022 and 2021, respectively.   As of March 31, 2022, we have entered into contracts with dealers and end users for which sales have not been recognized as we have not satisfied our performance obligations and transferred control of the products.  The dollar amount of unsatisfied performance obligations for contracts with an original duration greater than one year is $7.7 billion, with about one-half of the amount expected to be completed and revenue recognized in the twelve months following  March  31,  2022.    We  have  elected  the  practical  expedient  not  to  disclose  unsatisfied  performance obligations with an original contract duration of one year or less.  Contracts with an original duration of one year or less are primarily sales to dealers for machinery, engines and replacement parts.   See Note 16 for further disaggregated sales and revenues information.   4.           Stock-based compensation   Accounting for stock-based compensation requires that the cost resulting from all stock-based payments be recognized in the financial statements based on the grant date fair value of the award.  Our stock-based compensation primarily consists of stock options, restricted stock units (RSUs) and performance-based restricted stock units (PRSUs).   We recognized pretax stock-based compensation expense of $40 million and $42 million for the three months ended March 31, 2022 and 2021, respectively.   The following table illustrates the type and fair value of the stock-based compensation awards granted during the three months ended March 31, 2022 and 2021, respectively:     Three Months Ended March 31, 2022                  Three Months Ended March 31, 2021       Weighted-   Weighted-     Weighted-   Weighted- Average Fair Average Grant   Average Fair Average Grant   Shares Granted Value Per Share Date Stock Price Shares Granted Value Per Share Date Stock Price Stock options........................ 1,029,202 $            51.69 $           196.70 1,084,821 $            56.30 $         219.76 RSUs .................................... 484,025 $          196.70 $           196.70 448,311 $          219.76 $         219.76 PRSUs .................................. 258,900 $          196.70 $           196.70 266,894 $          219.76 $         219.76       The following table provides the assumptions used in determining the fair value of the stock-based awards for the three months ended March 31, 2022 and 2021, respectively:     Grant Year   2022 2021 Weighted-average dividend yield........................................................................................ 2.60% 2.60% Weighted-average volatility ................................................................................................ 31.7% 32.9% Range of volatilities ............................................................................................................ 25.3% - 36.8% 29.2% - 45.8% Range of risk-free interest rates .......................................................................................... 1.03% - 2.00% 0.06% - 1.41% Weighted-average expected lives........................................................................................ 8 years 8 years   As of March 31, 2022, the total remaining unrecognized compensation expense related to nonvested stock-based compensation awards was $299 million, which will be amortized over the weighted-average remaining requisite service periods of approximately 1.8 years.   5.           Derivative financial instruments and risk management   Our earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates, interest rates and commodity prices.  Our Risk Management Policy (policy) allows for the use of derivative financial instruments to prudently manage foreign currency exchange rate, interest rate and commodity price exposures.  Our policy specifies that derivatives are not to be used for speculative purposes.  Derivatives that we use are primarily foreign currency forward, option and cross currency contracts, interest rate contracts and commodity forward and option contracts.  Our derivative activities are subject to the management, direction and control of our senior financial officers.  We present at least annually to the Audit Committee of the Board of Directors on our risk management practices, including our use of financial derivative instruments.   We recognize all derivatives at their fair value on the Consolidated Statement of Financial Position.  On the date the derivative contract is entered into, we designate the derivative as (1) a hedge of the fair value of a recognized asset or liability (fair value hedge), (2) a hedge of a forecasted transaction or the variability of cash flow (cash flow hedge) or (3) an undesignated instrument.   We record in current earnings changes in the fair value of a derivative that is qualified, designated and highly effective as a fair value hedge, along with the gain or loss on the hedged recognized asset or liability that is attributable to the hedged risk.  We record in Accumulated other comprehensive income (loss) (AOCI) changes in the fair value of a derivative that is qualified, designated and highly effective as a cash flow hedge, to the extent effective, on the Consolidated Statement of Financial Position until we reclassify them to earnings in the same period or periods during which the hedged transaction affects earnings.  We report changes in the fair value of undesignated derivative instruments in current earnings.  We classify cash flows from designated derivative financial instruments within the same category as the item being hedged on the Consolidated Statement of Cash Flow.   We include cash flows from undesignated derivative financial instruments in the investing category on the Consolidated Statement of Cash Flow.   We formally document all relationships between hedging instruments and hedged items, as well as the risk- management objective and strategy for undertaking various hedge transactions.   This process includes linking all derivatives that are designated as fair value hedges to specific assets and liabilities on the Consolidated Statement of Financial Position and linking cash flow hedges to specific forecasted transactions or variability of cash flow.   We also formally assess, both at the hedge’s inception and on an ongoing basis, whether the designated derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flow of hedged items.  When a derivative is determined not to be highly effective as a hedge or the underlying hedged transaction is no longer probable, we discontinue hedge accounting prospectively, in accordance with the derecognition criteria for hedge accounting.   Foreign Currency Exchange Rate Risk   Foreign currency exchange rate movements create a degree of risk by affecting the U.S. dollar value of sales made and costs incurred in foreign currencies.  Movements in foreign currency rates also affect our competitive position as these changes may affect business practices and/or pricing strategies of non-U.S.-based competitors.  Additionally, we have balance sheet positions denominated in foreign currencies, thereby creating exposure to movements in exchange rates.         Our ME&T operations purchase, manufacture and sell products in many locations around the world.  As we have a diversified revenue and cost base, we manage our future foreign currency cash flow exposure on a net basis.  We use foreign currency forward and option contracts to manage unmatched foreign currency cash inflow and outflow.  Our objective is to minimize the risk of exchange rate movements that would reduce the U.S. dollar value of our foreign currency cash flow. ...