. Business.
General
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.
Due to financial
information required by accounting guidance on segment reporting, we have also divided our
business into 11 reportable segments for financial reporting
purposes. Information about our reportable segments, including
geographic information, appears in Note 24 – “Segment information” of Exhibit
13.
Other information
about our operations in 2009 and our outlook for 2010, including certain risks
associated with foreign operations, is incorporated by reference
from “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” of Exhibit 13.
Company Strengths
Caterpillar is the
leader in construction and mining equipment, and diesel and natural gas engines
and industrial gas turbines in our size range. The company is also a leading
services provider through Cat Financial, Caterpillar Logistics Services Inc.
(Cat Logistics), Caterpillar Remanufacturing Services and Progress Rail Services
Corporation (Progress Rail). Annual sales and revenues were $32.396
billion in 2009, making Caterpillar the largest manufacturer in its
industry. Caterpillar is also a leading U.S.
exporter. Through direct sales of certain products and a global
network of independent dealers, Caterpillar builds long-term relationships with
customers around the world. For almost 85 years, the Caterpillar name
has been associated with the highest level of quality products and
services. More information is available at www.CAT.com.
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 or regions.
Machinery
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.
The world economy
experienced its worst postwar recession in 2009, causing construction spending
to decline in many countries and mining companies to reduce
production. End users significantly reduced purchases of equipment
and dealers reduced their reported inventories by over $3.3
billion. As a result, machinery sales volume declined at an
unprecedented rate. Governments responded with large infrastructure
programs and central banks reduced interest rates to record lows. As
a result, the world economy began recovering in the third quarter of 2009 and
the year-on-year decline in sales volume in the fourth quarter was less than in
the prior two quarters.
Caterpillar’s
logistics business provides integrated supply chain services for Caterpillar and
50 other companies worldwide. It competes with global, regional and
local competitors, including companies such as DHL International, CEVA and
United Parcel Service, Inc. The unit has grown signifcantly
since its inception in 1987.
Since its
acquisition by Caterpillar in June 2006, wholly owned subsidiary Progress Rail
has continued its position in North America as a leading provider of a broad
range of products. Based in Albertville, Alabama, Progress Rail is a
leading provider of remanufactured locomotive, railcar and track products and
services to the North American railroad industry. The company also
has one of the most extensive rail service and supply networks in North
America. Expansion into the railroad aftermarket business is a good
fit with our strategic direction and leverages Caterpillar’s global
remanufacturing capabilities.