The company was originally organized as Caterpillar Tractor Co. in 1925 in the State of California. In 1986, the company reorganized as Caterpillar Inc. in the State of Delaware. As used herein, the term “Caterpillar,” “we,” “us,” “our,” or “the company” refers to Caterpillar Inc. and its subsidiaries unless designated or identified otherwise.
Principal Lines of Business / Nature of Operations
We operate in three principal lines of business:
1. Machinery— A principal line of business which includes the design, manufacture, marketing and sales of construction, mining and forestry machinery—track and wheel tractors, track and wheel loaders, pipelayers, motor graders, wheel tractor-scrapers, track and wheel excavators, backhoe loaders, log skidders, log loaders, off-highway trucks, articulated trucks, paving products, skid steer loaders, underground mining equipment, tunnel boring equipment and related parts. Also includes logistics services for other companies and the design, manufacture, remanufacture, maintenance and services of rail-related products.
2. Engines— A principal line of business including the design, manufacture, marketing and sales of engines for Caterpillar machinery, electric power generation systems, locomotives, marine, petroleum, construction, industrial, agricultural and other applications and related parts. Also includes remanufacturing of Caterpillar engines and a variety of Caterpillar machine and engine components and remanufacturing services for other companies. Reciprocating engines meet power needs ranging from 10 to 21,800 horsepower (8 to over 16 000 kilowatts). Turbines range from 1,600 to 30,000 horsepower (1 200 to 22 000 kilowatts).
3. Financial Products— A principal line of business consisting primarily of Caterpillar Financial Services Corporation (Cat Financial), Caterpillar Insurance Holdings, Inc. (Cat Insurance) and their respective subsidiaries. Cat Financial provides a wide range of financing alternatives to customers and dealers for Caterpillar machinery and engines, Solar gas turbines as well as other equipment and marine vessels. Cat Financial also extends loans to customers and dealers. Cat Insurance provides various forms of insurance to customers and dealers to help support the purchase and lease of our equipment.
The competitive environment for Caterpillar’s machinery business consists of some global competitors and many regional and specialized local competitors. Examples of global competitors include, but are not limited to, Komatsu Ltd., Volvo Construction Equipment (part of the Volvo Group AB), CNH Global N.V., Deere & Co., Hitachi Construction Machinery Co., Terex Corporation, J.C. Bamford Ltd. (JCB) and Doosan Infracore Co., Ltd. Each of these companies have varying numbers of product lines that compete with Caterpillar products and each have varying degrees of regional focus. John Deere Construction and Forestry Division (part of Deere & Co.), for example, has numerous product lines that compete with Caterpillar primarily in North America and Latin America. Others, like JCB, offer a limited range of products that compete globally against Caterpillar.
Caterpillar operates in a very competitive engine/turbine manufacturing and packaging environment. The company designs, manufactures, markets and sells diesel, heavy fuel and natural gas reciprocating engines for Caterpillar machinery, electric power generation systems, locomotives, marine, petroleum, construction, industrial, agricultural and other applications. In addition, Caterpillar provides industrial turbines and turbine related services for oil and gas and power generation applications.
Our financial products business is primarily conducted by Cat Financial. Cat Financial, incorporated in Delaware, is a wholly owned finance subsidiary of Caterpillar. Cat Financial’s primary business is to provide retail and wholesale financing alternatives for Caterpillar products to customers around the world. Retail financing is primarily comprised of financing of Caterpillar equipment, machinery and engines. In addition, Cat Financial also provides financing for vehicles, power generation facilities and marine vessels that, in most cases, incorporate Caterpillar products. In addition to retail financing, Cat Financial provides wholesale financing to Caterpillar dealers and purchases short-term dealer receivables from Caterpillar and its subsidiaries. The various financing plans offered by Cat Financial are designed to increase the opportunity for sales of Caterpillar products and generate financing income for Cat Financial. A significant portion of Cat Financial’s activities is conducted in North America. However, Cat Financial has additional offices and subsidiaries in Asia, Australia, Europe and Latin America.
Business Developments in 2009
Economic and Market Conditions
Our business, results of operations and financial condition were materially affected by the conditions in the global economy during 2009. The continuing global economic crisis and the volatility in the credit and capital markets had a significant impact on our 2009 sales and revenues and profitability. Overall, the company’s sales and revenues decreased 37 percent from 2008, and profit in 2009 was down 75 percent from 2008.
In response to the on-going recession in 2009, we continued executing our “trough” plans, which we had commenced implementing in 2008, and taking other actions to deal with the effects of the recession and to reduce costs. These actions resulted in full-year redundancy costs of $0.75 per share. In addition, we focused on maintaining solid profitability and cash flow and improving our balance sheet. These efforts contributed to our ability to maintain our credit ratings, maintain our dividend rate, make pension contributions and continue selective investment in new products and capacity.
During the second half of 2009, market conditions in developing economies showed signs of improvement; the more developed economies also showed signs of improvement but at a slower pace. Many countries responded to the recession by adopting various forms of economic stimulus packages, including allocations for infrastructure spending, a positive factor for sales of our Machinery and Engines. However, the economic recovery remained uneven at the end of 2009 and beginning of 2010.
Financial Results and Stockholder Value
Full year 2009 results marked a significant decline in sales and revenues and profit for Caterpillar. The company realized 2009 sales and revenues of $32.396 billion and profit of $895 million. Our profit per share in 2009 was $1.43 including redundancy costs of $0.75 per share. In spite of the severe economic conditions, we improved our balance sheet and maintained our dividend rate. The company has not resumed its stock repurchase program since temporarily suspending it on January 26, 2009.
In 2009, the company continued its efforts in sustainable development and its commitment to make sustainable development a “strategic area of improvement” in our enterprise strategy. The company was selected as a member of the Dow Jones Sustainability World Index (DJSI World) for the ninth consecutive year and has retained its Sustainable Asset Management (SAM) Gold Class position in the Industrial Engineering sector. DJSI World uses a best-in-class approach designed to identify best practices across the economic, social and environmental dimensions of corporate sustainability.
Caterpillar Production System (CPS)
We have continued our focus on deploying CPS with 6 Sigma. Through the implementation of CPS, we have made continued progress on our safety and quality goals, reduced inventory and improved cost performance. CPS continues to be a fundamental component to help us achieve our near-term goals and our Vision 2020.
In 2009, the company made selective investments in growth and expansion opportunities as we focused on positioning ourselves for economic recovery. In spite of the challenging economic conditions, we made progress toward our goals of expanding our business in the People’s Republic of China (PRC) and other emerging markets and moving towards achieving market leadership positions. In support of our overall enterprise strategy and Vision 2020, Caterpillar took the following actions during 2009:
· In September 2009, Caterpillar and Navistar International Corporation (Navistar) finalized a joint venture transaction resulting in a new company, NC2 Global LLC (NC2). Plans to form the 50/50 joint venture were first announced in June 2008. NC2 will develop, manufacture, market, distribute and provide product support for on-highway medium- and heavy-duty commercial trucks outside of North America, the Indian subcontinent, Myanmar (Burma) and Malaysia. Initially, NC2 will focus its activities in Australia, Brazil, PRC, Russia, South Africa and Turkey. NC2’s product line will feature both conventional and cab-over truck designs and will be sold under both the Caterpillar and International (Navistar) brands.
· In September 2009, NC2 and Anhui Jianghuai Automobile Co. Ltd. (Jianghuai) signed a framework agreement to potentially establish a joint venture in the PRC that would develop, manufacture and sell trucks and truck parts primarily in the PRC and certain export markets. Jianghuai is a manufacturer of automobiles and trucks and related parts based in Anhui Province, PRC. The framework agreement contemplates finalizing a joint venture by mid-2010.
· In November 2009, Caterpillar entered into an agreement to acquire JCS Co. Ltd. (JCS), a subsidiary of Jinsung T.E.C. Co., Ltd., a South Korea-based manufacturer that specializes in producing undercarriage components for earthmoving and other off-road machinery. The acquisition of JCS will provide Caterpillar proprietary technology to produce engineered seals for undercarriages. The JCS manufacturing facility is the first factory for Caterpillar in South Korea. The acquisition, subject to regulatory approval, is expected to be finalized in early 2010.
· In December 2009, Caterpillar opened the Wuxi multi-functional research and development center in Wuxi, located in Jiangsu Province, PRC. The facility was announced in August 2008 to increase technical support for products serving markets in the PRC and the rest of the Asia Pacific Region. The Wuxi facility also performs engine and component product and process development, validation, localization and technological training. Among its many functions, the new facility will have an engine test facility with performance and emissions development capability, an advanced materials laboratory, an electronics laboratory, a system and machine integration facility and validation capability. The Wuxi facility is strategically located near Caterpillar’s component manufacturing facility and its engine campus. It is also near the medium wheel loader and motor grader manufacturing facility in Suzhou, PRC.
· In December 2009, Caterpillar signed a joint venture agreement with China Yuchai Machinery Co. Ltd. through its main operating subsidiary, Guangxi Yuchai Machinery Co. Ltd. (Yuchai) to establish a company to provide remanufacturing services for Yuchai diesel engines and components and certain Caterpillar diesel engines and components. The new company will provide remanufactured engines and components to customers worldwide. Yuchai is a key diesel engine manufacturer and the largest producer of internal combustion engines in the PRC. Its engine product line family includes mini, light, medium and heavy-duty engines for the truck, commercial bus, generator and passenger car markets. This joint venture, once approved by the applicable regulatory authority, will be the first remanufacturing joint venture for Caterpillar in the PRC.
Other 2009 Developments
· In December 2009, Caterpillar, through its wholly owned subsidiary Cat Logistics, announced plans to open a new parts distribution center in Clayton, Ohio. The new facility will extend more than 1,000,000 square feet and is part of the multi-year expansion and enhancement of the North American Cat Parts distribution network. The new facility will provide inbound receiving capability close to suppliers and align outbound shipments to improve delivery to dealers and customers. It is expected to be fully operational in 2011 and is expected to employ 500 to 600 people.
· In June 2008, Caterpillar announced a multi-year $1 billion capacity expansion for key facilities in Illinois and other areas. This included planned investments of more than $1 billion from 2008 through 2010 in five of our existing facilities in Illinois (East Peoria, Joliet, Decatur, Aurora and Mossville). Through 2009, we have invested about two-thirds of this planned $1 billion in those five facilities. In addition, during this period we have also made significant capital investments at other Illinois facilities.
As of December 31, 2009, we employed 93,813 persons of whom 50,562 were located outside the United States. From a global enterprise perspective, we believe our relationship with our employees is very good. We build and maintain a productive, motivated workforce by striving to treat all employees fairly and equitably.