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SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
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FORM
10-K |
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(Mark
One) |
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[X] |
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year ended December 31, 2004
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OR
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[ ] |
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the
transition period from __________ to __________.
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Commission
File No. 1-768
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CATERPILLAR
INC.
(Exact name
of Registrant as specified in its charter)
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Delaware
(State
or other jurisdiction of incorporation)
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37-0602744
(IRS
Employer I.D. No.)
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100
NE Adams Street, Peoria, Illinois
(Address
of principal executive offices)
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61629
(Zip
Code)
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Registrant's
telephone number, including area code: (309)
675-1000 |
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Securities
registered pursuant to Section 12(b) of the Act: |
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Title
of each class |
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Name
of each exchange
on
which registered |
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Common
Stock ($1.00 par value) |
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Chicago
Stock Exchange
New
York Stock Exchange
Pacific
Exchange, Inc. |
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Preferred
Stock Purchase Rights |
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Chicago
Stock Exchange
New
York Stock Exchange
Pacific
Exchange, Inc. |
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9%
Debentures due April 15, 2006 |
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New
York Stock Exchange |
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9
3/8% Debentures due August 15, 2011 |
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New
York Stock Exchange |
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9
3/8% Debentures due March 15, 2021 |
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New
York Stock Exchange |
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8%
Debentures due February 15, 2023 |
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New
York Stock Exchange |
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Securities
registered pursuant to Section 12(g) of the Act: None |
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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 [ ü ]
No [ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate
by check mark whether the Registrant is an accelerated filer (as defined in Rule
12b-2 of the Act).
Yes
[ ü ]
No [ ]
As
of December 31, 2004, there were 342,936,949 shares of common stock of the
Registrant outstanding, and the aggregate market value of the voting stock held
by non-affiliates of the Registrant (assuming only for purposes of this
computation that directors and officers may be affiliates) was $32,772,664,307.
Documents
Incorporated by Reference
Portions
of the documents listed below have been incorporated by reference into the
indicated parts of this Form 10-K, as specified in the responses to the item
numbers involved.
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2005
Annual Meeting Proxy Statement (Proxy Statement) filed with the Securities
and Exchange Commission (SEC) on February 24, 2005. |
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General
and Financial Information for 2004 containing the information required by
SEC Rule 14a-3 for an annual report to security holders filed with the SEC
as an appendix to the 2005 Annual Meeting Proxy Statement (Appendix) on
February 24, 2005, and furnished as Exhibit 13 to this Form
10-K. |
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TABLE
OF CONTENTS
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Part
I |
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Business
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Executive
Officers of the Registrant as of December 31, 2004
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Properties
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Legal
Proceedings
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Part
II |
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Market for
Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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Selected
Financial Data
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Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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Quantitative
and Qualitative Disclosures About Market Risk
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Financial
Statements and Supplementary Data
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Controls and
Procedures
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Part
III |
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Directors and
Executive Officers of the Registrant
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Executive
Compensation
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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Certain
Relationships and Related Transactions
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Principal
Accountant Fees and Services
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Part
IV |
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Exhibits and
Financial Statement Schedules
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Principal
Lines of Business / Nature of Operations
We operate in three
principal lines of business:
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1.
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Machinery - This
principal line of business 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, telescopic handlers, skid steer loaders and related parts. We
also include logistics services for other companies in this line of
business.
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2.
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Engines - This
principal line of business includes the design, manufacture, marketing and
sales of engines for Caterpillar machinery; electric power generation
systems; on-highway vehicles and locomotives; marine, petroleum,
construction, industrial, agricultural and other applications; and related
parts. Reciprocating engines meet power needs ranging from 5 to over
22,000 horsepower (4 to over 16 200 kilowatts). Turbines range from 1,200
to 20,500 horsepower (900 to 15 000 kilowatts).
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3.
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Financial
Products - This
principal line of business consists primarily of Caterpillar Financial
Services Corporation (Cat Financial), Caterpillar Insurance Holdings, Inc.
(Cat Insurance), Caterpillar Power Ventures Corporation (Cat Power
Ventures), 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. Cat Power Ventures is an active investor in independent power
projects using Caterpillar power generation equipment and
services.
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Due
to financial information required by Statement of Financial Accounting Standards
No. 131, Disclosures
about Segments of an Enterprise and Related Information, we
have also divided our business into eight reportable segments for financial
reporting purposes. Information about our reportable segments, including
geographic information, appears in Note 25 on pages A-29 through A-33 of
the Appendix.
Other
information about our operations in 2004 and outlook for 2005, including risks
associated with foreign operations is incorporated by reference from
"Management's Discussion and Analysis" on pages A-36 through A-61 of the
Appendix.
Company
Strengths
Caterpillar
is the leader in construction and mining equipment, diesel and natural gas
engines and industrial gas turbines in our size range. Annual sales and revenues
top $30 billion, making Caterpillar the largest manufacturer in its industry.
Caterpillar is also a leading U.S. exporter, with more than one-half of its
sales outside the United States. Through a global network of independent
dealers, Caterpillar builds long-term relationships with customers around the
world. For over 75 years, the Caterpillar name has been associated with the
highest level of quality products and services.
Competitive
Environment
Caterpillar
products and product support services are sold worldwide into a variety of
highly competitive markets. In all markets, we compete on the basis of product
performance, customer service, quality and price. From time to time, the
intensity of competition results in price discounting in a particular industry
or region. Such price discounting puts pressure on margins and can negatively
impact operating profit.
Outside of the
United States, certain competitors enjoy competitive advantages inherent to
operating in their home countries.
Page 1
The
competitive environment for Caterpillar's machinery business consists of global
competitors, regional competitors, and specialized local competitors. Principal
global competitors include Komatsu, Volvo Construction Equipment (part of the
Volvo Group AB), CNH Global, Hitachi Construction Machinery, John Deere (part of
Deere & Co.), Terex, JCB, and Ingersoll-Rand. Each has particular regional
pockets of strength. John Deere Construction and Forestry Division (part of
Deere & Co.), for example, is a principal competitor in North America. Some
competitors have broad ranges of products which compete with Caterpillar.
Others, like Ingersoll-Rand, only offer a limited range of products
that compete with Caterpillar.
During
2004, the machinery business in general enjoyed an increase in industry demand.
Most of our competitors saw sales and operating profits improve from years of
stagnant sales and difficult profitability. The sharp industry upturn created
supply chain challenges in addition to the material cost challenges of high
commodity prices for all competitors. Several competitors continued to face
distribution channel challenges. Asia-based competitors were impacted the most
by the industry slowdown in China. Europe-based competitors were most impacted
by the strong euro. Most North America-based competitors benefited from the very
strong North American industry upturn. While the competitive environment in the
machinery business continued to be intense, the financial health of the industry
as a whole improved.
Caterpillar
operates in a very competitive engine/turbine manufacturing and packaging
environment. The company manufactures diesel, heavy fuel and natural gas
reciprocating engines for the on- and off-highway mobile markets - as well as
for a wide array of stationary applications - and manufactures industrial
turbines for the oil and gas and power generation markets. In North America,
on-highway heavy-duty and mid-range diesel engine competitors include but are
not limited to Cummins Inc., Volvo Group AB, Mack Trucks, Inc. (part of the
Volvo Group AB), Detroit Diesel Corp. and Mercedes-Benz (both part of
DaimlerChrysler AG), Isuzu Motors, Ltd. and Navistar International Corp.
Overseas on-highway diesel engine competitors include but are not limited to
Mercedes-Benz (part of DaimlerChrysler AG), Volvo Group AB, Mitsubishi Fuso
Truck & Bus Corp. (part of Daimler Chrysler AG), Scania AB, MAN
Aktiengesellschaft, Iveco Motors, Isuzu Motors, Ltd., Hino Motors, Ltd. and MWM
Motores Diesel.
In the North
America off-highway mobile and stationary markets, domestic-based competitors
include but are not limited to Cummins Inc., John Deere Power Systems (part of
Deere & Co.), Detroit Diesel Corp., Ford Power Products (part of Ford Motor
Co.), General Electric Co. and Waukesha (part of Dresser Inc.). Overseas-based
off-highway mobile and stationary application competitors include but are not
limited to Wartsila NSD, MAN B&W Diesel AG, MTU Friedrichshafen GmbH (part
of DaimlerChrysler AG), Volvo Penta (part of the Volvo Group AB), Mitsubishi
Heavy Industries, Ltd., Deutz AG, GE Jenbacher (part of General Electric Co.),
Kubota Corp., Isuzu Motors, Ltd., Kawasaki Heavy Industries Ltd., Yanmar Diesel
Engine Co. Ltd., Bergen (part of Rolls Royce plc), Rolls-Royce plc, Siemens AG
and Alstom.
In the packaging
area, Caterpillar also faces a wide variety of generator set packagers and other
engine and turbine-related packaging competitors. North America-based packagers
include but are not limited to General Electric Co., Cummins Inc., Kohler Co.,
Katolight Corp., Generac Power Systems, Inc., Multiquip Inc., Detroit Diesel
Corp., Stewart & Stevenson Services, Inc., Hanover Compressor Co. and other
regional companies. Overseas-based packagers include but are not limited to
Alstom, Siemens AG, Rolls Royce plc, Wartsila NSD, MAN B&W Diesel AG, GE
Jenbacher, SDMO, Himoinsa s.l., Mitsubishi Heavy Industries, Ltd., Atlas Copco
AB, Kawasaki Heavy Industries, Ltd., AKSA Power Generation (Kazanci Holding) and
many other regional packagers dispersed around the world. These packagers source
emission compliant as well as non-compliant engines and turbines and other
components from domestic and international suppliers, and market their products
regionally and internationally through a variety of company owned, independent,
on-line and multi-brand distribution channels.
Page 2
In the North
America market, heavy-duty and midrange on-highway truck engine competitors
continued to market emission certified engines meeting the January 1, 2004
United States Environmental Protection Agency (EPA) emission limits using cooled
exhaust gas re-circulation technology (EGR). In addition, the industry continued
to invest heavily in new technology to meet future on- and off-highway emission
regulations in North America, Europe, and Asia. Furthermore, competitors formed
or continued joint ventures and partnerships in an effort to share development
costs, strengthen customer relationships, reach new markets and leverage core
competencies. Moreover, key component suppliers such as Delphi Corp., Bosch
GmbH, Denso Corp., Stanadyne Corp. and Fleetguard Inc. (part of Cummins Inc.)
continued to play visible roles as emission technology drivers, partners, and
key suppliers to the reciprocating engine business.
During
2004, Caterpillar completed the introduction of its full line of ACERT® engines
into the North America on-highway truck market, and continued to maintain its
leadership position in this market. In addition, Caterpillar established itself
as a leading provider of truck engines for the specialty, bus and recreational
vehicle (RV) markets. Customer acceptance of Caterpillar ACERT engine
performance, quality and reliability is strong. As a result of strong industry
growth, Caterpillar experienced some heavy-duty ACERT engines capacity
constraints in 2004.
Caterpillar also
focused 2004 investment and resources on leveraging its success with ACERT
engines in on-highway truck markets into off-road markets, as well as the
remainder of its engine platforms. The building blocks for ACERT Technology are
very flexible and scaleable, and are being applied as needed based on engine
platform and application. We have announced that 13 Caterpillar machine models
are being upgraded to ACERT engine technology, and 6 of these 13 models are
already shipping. A full line of seven ACERT industrial engines has been
released, and plans are in place to leverage ACERT Technology throughout
Caterpillar's businesses and engine platforms. We expect this to establish
Caterpillar as the first company to offer a full line of Tier 3/Stage 3a
emission compliant off-highway engines.
We believe ACERT
provides Caterpillar a competitive advantage now and in the future to meet
emission and performance requirements, and we plan to continue investing in
developing and leveraging ACERT Technology systems and components. While
Caterpillar is able to leverage its ACERT Technology directly into its
off-highway businesses, our competitors must pursue alternative technologies or
further develop their existing technologies to meet off-highway market needs and
emission requirements.
Cat Financial,
incorporated in Delaware, is a wholly owned finance subsidiary of Caterpillar.
Cat Financial's primary business is to provide retail-financing alternatives for
Caterpillar products to customers and Caterpillar dealers around the world. Such
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. 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. Cat Financial's activity is conducted primarily in the United
States, with additional offices and subsidiaries in Asia, Australia, Canada,
Europe and Latin America.
Cat Financial has
over 20 years of experience in providing financing in the various markets in
which it participates, contributing to its knowledge of asset values, industry
trends, product structuring and customer needs. As of December 31, 2004, Cat
Financial had 1,399 full-time employees.
In certain
instances, Cat Financial's operations are subject to supervision and regulation
by state, federal and various foreign government authorities, and may be subject
to various laws and judicial and administrative decisions imposing various
requirements and restrictions, which, among other things, (i) regulate credit
granting activities, (ii) establish maximum interest rates, finance charges and
other charges, (iii) require disclosures to customers, (iv) govern secured
transactions, (v) set collection, foreclosure, repossession and other trade
practices, (vi) prohibit discrimination in the extension of credit and
administration of loans, and (vii) regulate the use and reporting of information
related to a borrower's credit experience.
Page 3
Cat Financial's
retail financing leases and installment sale contracts (total 58 percent*)
include:
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Tax leases
that are classified as either operating or finance leases for financial
accounting purposes, depending on the characteristics of the lease. For
tax purposes, Cat Financial is considered the owner of the equipment (19
percent*). |
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Finance
(non-tax) leases where the lessee is considered the owner of the equipment
during the term of the lease that either require or allow the customer to
purchase the equipment for a fixed price at the end of the term (14
percent*). |
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Installment
sale contracts, which are equipment loans that enable customers to
purchase equipment with a down payment or trade-in and structure payments
over time (24 percent*). |
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Governmental
lease-purchase plans in the United States that offer low interest rates
and flexible terms to qualified non-federal government agencies (1
percent*). |
Retail notes
receivable includes:
| · |
Loans that
allow customers and dealers to use their Caterpillar equipment as
collateral to obtain financing (20
percent*). |
Wholesale notes
receivable, finance leases, and installment sale contracts (total 22 percent*)
include:
| · |
Inventory/rental
programs which provide assistance to dealers by financing their inventory,
rental fleets and rental facilities (6 percent*).
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Short-term
dealer receivables Cat Financial purchases from Caterpillar and
subsidiaries at a discount (16 percent*). |
*Indicates the
percentage of Cat Financial's total portfolio at December 31, 2004. For more
information on the above and Cat Financial's concentration of credit risk,
please refer to Note 21 on pages A-26 and A-27 of the
Appendix.
The retail
financing business is highly competitive, with financing for users of
Caterpillar equipment available through a variety of sources, principally
commercial banks and finance and leasing companies. Cat Financial's competitors
include CIT Group, Citibank, General Electric Capital Corporation and local
banks. In addition, many of our competitor manufacturers use below-market
interest rate programs (subsidized by the manufacturer) to assist machine sales.
Caterpillar and Cat Financial work together to provide a broad array of
financial merchandising programs around the world to meet these competitive
offers.
Cat
Financial's results are largely dependent upon Caterpillar dealers' ability to
sell equipment and customers' willingness to enter into financing or leasing
agreements with it. It is also affected by the availability of funds from its
financing sources and general economic conditions such as inflation and market
interest rates.
Cat
Financial has a "match funding" policy whereby the interest rate profile (fixed
rate or floating rate) of its debt portfolio largely matches the interest rate
profile of its receivable portfolio plus retained interests in securitized
wholesale receivables within established guidelines. In connection with that
policy, Cat Financial uses interest rate derivative instruments to modify the
debt structure to match these assets. This "match funding" reduces the
volatility of margins between interest-bearing assets and interest-bearing
liabilities, regardless of which direction interest rates move. Cat Financial
also uses these instruments to gain an economic and/or competitive advantage
through a lower cost of borrowed funds. This is accomplished by changing the
characteristics of existing debt instruments or entering into new agreements in
combination with the issuance of new debt. For more information regarding match
funding, please see Note 3 on pages A-12 and A-13 of the Appendix.
In managing foreign
currency risk for Cat Financial's operations, the objective is to minimize
earnings volatility resulting from conversion and the remeasurement of net
foreign currency balance sheet positions. This policy allows the use of foreign
currency forward contracts to offset the risk of currency mismatch between the
receivable and debt portfolio. None of these foreign currency forward contracts
are designated as a hedge.
Page 4
Cat Financial
provides financing only when acceptable criteria are met. Credit decisions are
based on, among other things, the customer's credit history, financial strength,
and equipment application. Cat Financial typically maintains a security interest
in retail-financed equipment and requires physical damage insurance coverage on
financed equipment. Cat Financial finances a significant portion of Caterpillar
dealers' sales and inventory of Caterpillar equipment, especially in North
America. Cat Financial's competitive position is improved by marketing programs,
subsidized by Caterpillar and/or Caterpillar dealers, which allow it to offer
below-market interest rates. Under these programs, Caterpillar, or the dealer,
subsidizes an amount at the outset of the transaction, which Cat Financial then
recognizes as revenue over the term of the financing. Transaction processing
time and the supporting technologies continue to drive Cat Financial in its
efforts to respond quickly to customers and improve internal processing
efficiencies. We believe Cat Financial's web-based Cat FinancExpressSM transaction
processing and information tool currently available in the United States,
France, Canada and Australia helps to give Cat Financial a competitive advantage
in those areas. Cat FinancExpress collects
information on-line to provide finance quotes and credit decisions and then
prints the related documents, all in a very short time frame.
Caterpillar
Insurance Company, a wholly owned subsidiary of Cat Insurance (Cat Insurance and
its subsidiaries are referred to herein collectively as Cat Holdings), is a U.S.
insurance company domiciled in Missouri and primarily regulated by the Missouri
Department of Insurance. The insurance company is licensed to conduct Property
and Casualty Insurance business in forty-eight states and the District of
Columbia, and as such, is regulated in those jurisdictions as well. The state of
Missouri acts as the lead regulatory authority and monitors the company's
financial status to ensure that the company is in compliance with minimum
solvency requirements, as well as other financial ratios prescribed by the
National Association of Insurance Commissioners.
Caterpillar
Life Insurance Company, a wholly owned subsidiary of Caterpillar, is a U.S.
insurance company domiciled in Missouri and primarily regulated by the Missouri
Department of Insurance. The insurance company is licensed to conduct Life and
Accident and Health Insurance business in fourteen states and the District of
Columbia, and as such, is regulated in those jurisdictions as well. As the state
of Missouri acts as the lead regulatory authority, it monitors the financial
status to ensure that the company is in compliance with minimum solvency
requirements, as well as other financial ratios prescribed by the National
Association of Insurance Commissioners.
Caterpillar
Insurance Co. Ltd., a wholly owned subsidiary of Cat Insurance is a captive
insurance company domiciled in Bermuda and regulated by the Bermuda Monetary
Authority. The
company is a Class 2 insurer (as defined by the Bermuda Insurance Amendment Act
of 1995), which primarily insures affiliates and, as such, the Bermuda Monetary
Authority requires an Annual Financial Filing for purposes of monitoring
compliance with solvency requirements.
Caterpillar
Product Services Corporation, a wholly owned subsidiary of Caterpillar, is a
warranty company domiciled in Missouri. It is regulated as a special purpose
warranty company in a limited number of jurisdictions and conducts the
Caterpillar engine extended service contract business (parts and labor) in all
states except Virginia, Washington and Wisconsin. It also conducts the machine
extended service contract program in Italy, France and Germany.
Caterpillar
Insurance Services Corporation, a wholly owned subsidiary of Cat Insurance is a
Tennessee insurance brokerage company licensed in all fifty states and the
District of Columbia. It provides brokerage services for all property and
casualty and life and health lines of business.
Cat
Holdings provides protection for claims under the following
programs:
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Contractual
Liability Insurance to Caterpillar dealers and Original Equipment
Manufacturers (OEM) for extended service contracts (parts and labor)
offered by third party dealers and OEMs. |
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Reinsurance
for the worldwide cargo risks of Caterpillar
products. |
| ·
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Contractors'
Equipment physical damage insurance to equipment manufactured by
Caterpillar, which is leased, rented, or sold by third party
dealers. |
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Inventory
Protection Insurance for Caterpillar dealer floor-plan property
risks. |
| ·
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Insurance for
Caterpillar general liability, employer's liability, auto liability,
property, and retiree medical stop loss
insurance. |
| ·
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Brokerage
services for property and casualty and life and health
business. |
Page 5
Cat
Power Ventures, a wholly owned subsidiary of Caterpillar, primarily invests
equity and takes an ownership interest in power generation projects throughout
the world that utilize Caterpillar power generation equipment. In some cases,
these projects also utilize construction and operations and maintenance services
that are provided by other Caterpillar subsidiaries. Currently, Cat Power
Ventures has investments in power projects in Poland, the Dominican Republic,
Tunisia, Cambodia, India and Sri Lanka. Cat Power Ventures has created direct
and indirect subsidiaries and affiliates to hold these investments.
Business
Developments in 2004
2004 was a year of
many milestones, accomplishments and celebrations for Caterpillar. We reached
the $30 billion sales and revenues milestone we set in 1997 ahead of schedule.
We delivered record sales and revenues and profits. We celebrated our
50th year of operations
in Brazil, 20th in Indonesia and
10th in Xuzhou, China.
Cat Financial was one of seven recipients of the Malcolm Baldrige National
Quality Award feted by President George W. Bush at the White House in March.
This award is given to U.S. organizations with exemplary achievements in seven
areas - leadership, strategic planning, customer and market focus, information
and analysis, human resource focus, process management and results. November of
2004 marked the 100-year anniversary of the introduction of our signature
track-type tractor design. In December, our Chairman and CEO James W. Owens rang
the closing bell at the New York Stock Exchange to commemorate the
75th anniversary of our
listing on the Exchange.
We continued to
make progress on our strategy to establish a market leadership position in China
in 2004. In January, Caterpillar shipped the 10,000th Cat hydraulic
excavator from Caterpillar Xuzhou Ltd. This achievement demonstrated the
company's commitment to maintaining a strong presence in China and its excellent
execution by committed people. In April, the Chinese Ministry of Commerce
granted Caterpillar (China) Financial Leasing Co., Ltd. a business license to
provide leasing services in China. By November, Caterpillar (China) Financial
Leasing Co., Ltd. had announced the signing of its first customer lease
contracts. Also in November, Caterpillar announced the signing of a definitive
agreement to acquire an equity interest in Shandong SEM Machinery Co., Ltd.
(SEM), one of China's key wheel loader manufacturers. Caterpillar Logistics
Services Inc., a wholly owned subsidiary of Caterpillar, launched a project to
develop a parts distribution center based in China to serve the company's
dealers and their branches. Each accomplishment in China continued Caterpillar's
rapid implementation of its business model in China, including financing,
logistics, distribution, procurement, rental and used equipment.
2004 also marked
Caterpillar's announcement of the expansion of Caterpillar Remanufacturing
Services' business to provide services for manufacturers and customers in
industries beyond those Caterpillar currently serves. This expansion of
Caterpillar's remanufacturing strategy builds on our successful services
business model, which includes Caterpillar Logistics Services and Financial
Products. In August, we announced the acquisitions of Williams Technologies,
Inc. - a leading remanufacturer of automatic transmissions, torque converters,
and engines for automotive and medium- and heavy-duty truck applications,
located in Summerville, South Carolina - and Wealdstone Engineering Ltd., one of
Europe's leading remanufacturers of gasoline and diesel engines located in the
United Kingdom. These two acquisitions provide Caterpillar the opportunity to
leverage our core remanufacturing strengths to provide remanufacturing services
to original equipment manufacturers in the diesel engine and automotive
industries.
We also continued
to leverage our award-winning ACERT Technology to solidify our position as the
emissions reduction leader in both on- and off-highway applications. In July,
shortly after two Caterpillar employees, Jim Weber and Scott Leman, received the
national Inventors of the Year award from the Intellectual Property Owners
Association, Caterpillar became the first company to offer a full line of EPA
Tier 3 compliant engines in the 175-300 horsepower range. ACERT Technology
enabled us to meet this requirement ahead of the January 2005 and January 2006
planned implementation dates. In November, our new D8T track-type tractor
powered by a Caterpillar engine using ACERT Technology became the first machine
to meet EPA Tier 3 standards, and 6 of an additional 12 machine upgrades to
ACERT Technology have already begun shipping. These milestones continue to
establish the importance of our ACERT Technology, demonstrating the competitive
advantage it provides to Caterpillar and the value it provides to our customers
and the public at large.
Page 6
Acquisitions
Information
about charges related to Turbomach S.A., MG Rover Ltd. and Williams Technology,
Inc. appears in Note 26 on page A-32 of the Appendix.
Order
Backlog
The
dollar amount of backlog believed to be firm was approximately $9.1 billion at
December 31, 2004 and $4.9 billion at December 31, 2003. Of the total backlog,
approximately $613 million at December 31, 2004 and $320 million at December 31,
2003, was not expected to be filled in the following year. Our backlog is
generally highest in the first and second quarters because of seasonal buying
trends in our industry.
Dealers
Our
machines are distributed principally through a worldwide organization of dealers
(dealer network), 53
located in the United States and 145 located outside the United States.
Worldwide, these dealers serve 178 countries and operate
3,324
places of business, including 1,437
dealer
rental outlets. Reciprocating
engines are sold principally through the dealer network and to other
manufacturers for use in their products. Some of the reciprocating engines
manufactured by Perkins are also sold through a worldwide network of 170
distributors located in 150 countries. Most of the electric power generation
systems manufactured by FG Wilson are sold through a worldwide network of 250
dealers located in 170 countries.
These dealers do
not deal exclusively with our products; however, in most cases sales and
servicing of our products are the dealers' principal business. Turbines and
large marine reciprocating engines are sold through sales forces employed by
Solar Turbines and MaK, respectively. Occasionally, these employees are assisted
by independent sales representatives.
The company's
relationship with each independent dealer within the dealer network is
memorialized in a standard sales and service agreement. Pursuant to this
agreement, the company grants the dealer the right to purchase and sell its
products and to service the products in a specified geographic region. Prices to
dealers are established by the company after receiving input from dealers on
transactional pricing in the marketplace. The company also agrees to defend its
intellectual property and to provide warranty and technical support to the
dealer. The agreement further grants the dealer a non-exclusive license to the
company's trademarks, service marks and brand names.
In exchange for
these rights, the agreement obligates the dealer to develop and promote the sale
of the company's products to current and prospective customers in the dealer's
region. Each dealer specifically agrees to employ adequate sales and support
personnel to market, sell and promote the company's products, demonstrate and
exhibit the products, perform the company's product improvement programs, inform
the company concerning any features that might affect the safe operation of any
of the company's products and maintain detailed books and records of the
dealer's financial condition, sales and inventories and make these books and
records available at the company's reasonable request.
These sales and
service agreements are terminable at will by either party upon 90 days written
notice and terminate automatically if the dealer files for bankruptcy protection
or upon the occurrence of comparable action seeking protection from creditors.
Our
products are sold primarily under the brands "Caterpillar," "Cat," design
versions of "Cat" and "Caterpillar," "Solar Turbines," "MaK," "Perkins," "FG
Wilson" and "Olympian." We own a number of patents and trademarks relating to
the products we manufacture, which have been obtained over a period of years.
These patents and trademarks have been of value in the growth of our business
and may continue to be of value in the future. We do not regard any of our
business as being dependent upon any single patent or group of
patents.
Page 7
We have always
placed strong emphasis on product-oriented research and development relating to
the development of new or improved machines, engines and major components. In
2004, 2003, and 2002, we spent $928
million, $669 million, and
$656 million, or 3.1 percent, 2.9 percent, and 3.3 percent of our sales and
revenues, respectively, on our research and development programs.
Employment
As of December 31,
2004, we employed 76,920 persons of whom 38,792 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 treating all employees fairly and
equitably.
In
the United States, most of our 38,128 employees are at-will employees and,
therefore, not subject to any type of employment contract or agreement. At
select business units, certain highly specialized employees have been hired
under employment contracts that specify a term of employment and specify pay and
other benefits.
As
of December 31, 2004, there were 11,465 U.S. hourly production employees who
were covered by collective bargaining agreements with various labor unions. The
United Automobile, Aerospace and Agricultural Implement Workers of America (UAW)
represents 9,450 Caterpillar employees under a six-year central labor agreement
that will expire March 1, 2011. The International Association of Machinists
(IAM) represents 1,999 employees under labor agreements expiring on April 30,
2005, and May 29, 2005. Based on our historical experience during periods when
labor unrest or work stoppage by union-represented employees has occurred, we do
not expect that the occurrence of such events, if any, arising in connection
with the expiration of these agreements will have a material impact on our
operations or results.
Outside
the United States, the company enters into employment contracts and agreements
in those countries in which such relationships are mandatory or customary. The
provisions of these agreements correspond in each case with the required or
customary terms in the subject jurisdiction.
Sales
Sales
outside the United States were 54 percent of consolidated sales for
2004, 56
percent for 2003, and 55
percent for 2002.
Environmental
Matters
The
company is regulated by federal, state, and international environmental laws
governing our use of substances and control of emissions in all our operations.
Compliance with these existing laws has not had a material impact on our capital
expenditures, earnings, or competitive position.
We
are cleaning up hazardous waste at a number of locations, often with other
companies, pursuant to federal and state laws. When it is likely we will pay
clean-up costs at a site and those costs can be estimated, the costs are charged
against our earnings. In doing that estimate, we do not consider amounts
expected to be recovered from insurance companies and others.
The
amount recorded for environmental clean-up is not material and is included in
Statement 3 on page A-7 of the Appendix under "Accrued Expenses." If
a range of liability estimates is available on a particular site, we accrue at
the lower end of that range.
We
cannot estimate costs on sites in the very early stages of clean-up. Currently,
we have several sites in the very early stages of clean-up, and there is no more
than a remote chance that a material amount for clean-up at any individual site
or at all sites in the aggregate will be required.
Page 8
Pursuant to a
consent decree Caterpillar entered with the EPA, the company was required to
meet certain emission standards by October 2002. The decree provides that if
engine manufacturers were unable to meet the standards at that time, they would
be required to pay a Non-Conformance Penalty (NCP) on each engine sold that did
not meet the standard. The amount of the NCP would be based on how close to
meeting the standard the engine came - the more out of compliance the higher the
penalty. The company began introduction of fully compliant ACERT engines in 2003
and by the end of 2003 Caterpillar was only producing fully compliant engine
models. As a result, NCPs were not payable for any engines built in 2004. NCPs
of $153 million were paid in 2003.
In addition, the
consent decree required Caterpillar to pay a fine of $25 million, which was
expensed in 1998 and to make investments totaling $35 million in
environmental-related products by July 7, 2007. Total qualifying investments to
date for these projects are $34.9 million, of which $5.9 million was made during
2004. Caterpillar expects to reach the $35 million requirement during the first
quarter of 2005. A future benefit is expected to be realized from these
environmental projects related to Caterpillar's ability to capitalize on the
technologies it developed in complying with its environmental project
obligations. In short, Caterpillar expects to receive a positive net return on
the environmental projects by being able to market the technology it
developed.
Available
Information
The
company files electronically with the SEC required reports on Form 8-K, Form
10-Q and Form 10-K; proxy materials; ownership reports for insiders as required
by Section 16 of the Securities Exchange Act of 1934; and registration
statements on Forms S-3 and S-8, as necessary. The public may read and copy any
materials the company has filed with the SEC at the SEC's Public Reference Room
at 450 Fifth Street, N.W., Washington, DC 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at
(800) SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC. Copies of our annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any
amendments to these reports filed with the SEC are available free of charge
through our Internet site (www.CAT.com/secfilings) as soon as
reasonably practicable after filing with the SEC. Copies of our board committee
charters, our board's Guidelines on Corporate Governance Issues, Worldwide Code
of Business Conduct, and other corporate governance information are available on
our Internet site (www.CAT.com/governance), or upon written
request to the Corporate Secretary at 100 NE Adams Street, Peoria, Illinois
61629.
Additional company
information may be obtained as follows:
Current
information -
| · |
phone
our Information Hotline - (800) 228-7717 (U.S. or Canada) or (858)
244-2080 (outside U.S. or Canada) to request company publications by mail,
listen to a summary of Caterpillar's latest financial results and current
outlook, or to request a copy of results by facsimile or
mail |
| · |
request,
view, or download materials on-line or register for email alerts at
www.CAT.com/materialsrequest |
Historical
information -
| · |
view/download
on-line at www.CAT.com/historical |
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