|
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
|
||||||
 |
||||||
|
FORM
10-K
|
||||||
|
(Mark
One)
|
||||||
|
[X]
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the
fiscal year ended December 31, 2006
|
|||||
|
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 No. 1-768
|
||||||
|
CATERPILLAR
INC.
(Exact
name
of Registrant as specified in its charter)
|
||||||
|
Delaware
(State
or
other jurisdiction of incorporation)
|
37-0602744
(IRS
Employer
I.D. No.)
|
|||||
|
100
NE Adams
Street, Peoria, Illinois
(Address
of
principal executive offices)
|
61629
(Zip
Code)
|
|||||
|
Registrant's
telephone number, including area code: (309)
675-1000
|
||||||
|
Securities
registered pursuant to Section 12(b) of the Act:
|
|||
|
Title
of each class
|
Name
of each exchange
on
which registered
|
||
|
|
|
||
|
Common
Stock
($1.00 par value)
|
Chicago
Stock
Exchange
New
York
Stock Exchange
NYSE
Arca*
|
||
|
Preferred
Stock Purchase Rights
|
Chicago
Stock
Exchange
New
York
Stock Exchange
NYSE
Arca*
|
||
|
9
3/8%
Debentures due August 15, 2011
|
New
York
Stock Exchange
|
||
|
9
3/8%
Debentures due March 15, 2021
|
New
York
Stock Exchange
|
||
|
8%
Debentures
due February 15, 2023
|
New
York
Stock Exchange
|
||
|
5.3%
Debentures due September 15, 2035
|
New
York
Stock Exchange
|
||
|
*
Caterpillar
voluntarily delisted from NYSE Arca (formerly Pacific Exchange) in
January
2007
|
|||
|
Securities
registered pursuant to Section 12(g) of the Act:
None
|
|||
Indicate
by check
mark whether the Registrant is a well-known seasoned issuer, as defined in
Rule
405 of the Securities Act. Yes [ ü ]
No
[ ]
Indicate
by check
mark if the Registrant is not required to file reports pursuant to Section
13 or
Section 15(d) of the Act.
Yes
[ ] No [ ü ]
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.
[ ü ]
Indicate
by check
mark whether the Registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of "accelerated filer and large
accelerated filer" in Rule 12b-2 of the Exchange Act.
(Check
one): Large
accelerated filer [ ü ]
Accelerated
filer [ ] Non-accelerated filer [
]
Indicate
by check
mark whether the Registrant is a shell company (as defined in Rule 12b-2 of
the
Exchange Act).
Yes
[ ]
No [ ü ]
As
of June 30,
2006, there were 655,748,473 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 executive officers may be affiliates) was approximately
$48,350,000,000.
As
of December 31,
2006, there were 645,808,176 shares of common stock of the Registrant
outstanding.
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.
|
Part
III
|
2007
Annual
Meeting Proxy Statement (Proxy Statement) expected to be filed with
the
Securities and Exchange Commission (SEC) on April 17, 2007 but not
later
than June 30, 2007 (within 120 days after the end of the calendar
year).
|
|
Parts
I, II,
IV
|
General
and
Financial Information for 2006 containing the information required
by SEC
Rule 14a-3 for an annual report to security holders filed as Exhibit
13 to
this Form 10-K.
|
|
TABLE
OF CONTENTS |
||
|
|
|
|
|
|
|
Business
|
|
|
|
Business
Risk
Factors
|
|
|
Unresolved
Staff Comments
|
|
|
|
Executive
Officers of the Registrant as of December 31, 2006
|
|
|
|
Properties
|
|
|
|
Legal
Proceedings
|
|
|
|
Submission
of
Matters to a Vote of Security Holders
|
|
|
|
|
|
|
|
|
Market
for
Registrant's Common Equity and Related Stockholder
Matters
|
|
|
Selected
Financial Data
|
|
|
|
Management's
Discussion and Analysis of Financial
Condition
and
Results of Operations
|
|
|
|
Quantitative
and Qualitative Disclosures About Market Risk
|
|
|
|
Financial
Statements and Supplementary Data
|
|
|
|
Changes
in
and Disagreements With Accountants on Accounting and Financial
Disclosure
|
|
|
|
Controls
and
Procedures
|
|
|
|
Other
Information
|
|
|
|
|
|
|
|
|
Directors,
Executive Officers and Corporate Governance
|
|
|
Executive
Compensation
|
|
|
|
Security
Ownership of Certain Beneficial Owners and Management
and
Related
Stockholder Matters
|
|
|
|
Certain
Relationships and Related Transactions, Director
Independence
|
|
|
|
Principal
Accountant Fees and Services
|
|
|
|
|
|
|
|
|
Exhibits
and
Financial Statement Schedules
|
|
|
|
|
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, telehandlers, skid steer loaders 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;
on-highway vehicles and 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
5 to
21,500 horsepower (4 to over 16 000 kilowatts). Turbines range from
1,600
to 20,500 horsepower (1 200 to 15 000 kilowatts).
|
|
3.
|
Financial
Products—
A principal
line of business consisting primarily of Caterpillar Financial Services
Corporation (Cat Financial), Caterpillar Insurance Holdings, Inc.
(Cat
Insurance), 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 investor in independent power projects using Caterpillar power
generation equipment and services.
|
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 nine 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 2006 and outlook for 2007, including risks associated
with foreign operations is incorporated by reference from - "Management's
Discussion and Analysis" 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.
and
Caterpillar Remanufacturing Services Inc. Annual sales and revenues are $41.517
billion, making Caterpillar the largest manufacturer in our industry.
Caterpillar is also a leading U.S. exporter. Through a global network of
independent dealers, Caterpillar builds long-term relationships with customers
around the world. For over 80 years, the Caterpillar name has been associated
with the highest level of quality products and services. More information is
available at www.CAT.com.
Page
1
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.
|
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., Hitachi
Construction Machinery Co., Terex Corporation, JCB and Ingersoll-Rand Company
Limited. Each have varying numbers of product lines that compete with
Caterpillar product lines, 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 Ingersoll-Rand, offer a limited range
of
products that compete against Caterpillar, but do compete globally.
During
2006, global
industry demand continued to be strong and most competitors experienced
increased sales and operating profit. Also in 2006, off-highway emissions
regulations in Europe, North America and Japan required Caterpillar and its
competitors to introduce products with emissions-compliant engines in a certain
horsepower range. In some cases, competitors also timed product upgrades to
coincide with these emissions requirements. The overall competitive environment
in the machinery business continues to be intense, and the overall financial
health of the industry continues to improve.
Caterpillar's
logistics business provides integrated supply chain services for Caterpillar
and
over 60 other companies worldwide. It competes with global, regional and local
competitors, including companies such as DHL and UPS. The unit has grown rapidly
since its inception in 1987, and the contract logistics industry is expected
to
continue to grow at rates above that of the global economy as a
whole.
Progress
Rail (a
newly acquired business) has achieved a leading market position in North America
as a provider of a broad range of products and services for both railroad
rolling stock and the railroad track infrastructure and a supplier of
reconditioned and remanufactured railroad freight car and locomotive components.
Progress Rail leverages its extensive network of plant and service facilities
to
provide customers high quality products and services with lower shipping costs
and faster turnaround times. These elements, along with Progress Rail’s ability
to source a substantial volume of reconditionable parts to its railcar and
locomotive remanufacturing operations, provide Progress Rail with a sustainable
cost advantage and competitive prices for its customers.
|
Engines
|
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 markets, and provides
industrial turbines and turbine related services for oil and gas and power
generation applications. Caterpillar designs, manufactures, assembles and
distributes electrical generator sets and compression packages that can be
customized with a wide range of ancillary equipment and performance options
to
create fully integrated electric power and compression systems.
Page
2
The
competitive
environment for off-highway engines/turbines and generator sets consists of
a
few global competitors who compete in a variety of Caterpillar’s markets, and a
larger set of companies who compete in a limited size range and/or application.
Principal global competitors include, but are not limited to, Cummins Inc.,
MTU
Friedrichshafen and MTU Detroit Diesel (both part of Tognum GmbH) and Wartsila
Corp. Other competitors, such as John Deere Power Systems (part of Deere &
Co.), Siemens Power Generation (part of Siemens AG), General Electric Company
and Volvo Penta (part of Volvo Group AB) compete in a portion of Caterpillar’s
markets. An additional set of competitors, including Generac Power Systems,
Inc., Kohler Co. and others, are packagers who source engines and/or other
components from domestic and international suppliers, and market products
regionally and internationally through a variety of distribution
channels.
In
the North
American on-highway heavy-duty and mid-range diesel engine markets, competitors
include, but are not limited to, Cummins Inc., Detroit
Diesel
Corp. and Mercedes-Benz (both part of DaimlerChrysler AG), Navistar
International Corp.
and
Volvo
Group AB.
On-highway
diesel
engine competitors in overseas markets include, but are not limited to,
Mercedes-Benz and Mitsubishi Fuso Truck & Bus Corp. (both part of Daimler
Chrysler AG), Iveco Motors (part of Fiat S.p.A), MAN AG, Scania AB and Volvo
Group AB. Some of these competitors are truck and/or bus manufacturers with
proprietary diesel engines who also offer engines from independent manufacturers
such as Caterpillar. During
2006,
on-highway engine competitors worked to meet strong global demand for their
products while, in North America, preparing to meet tightening January 1, 2007,
United States Environmental Protection Agency (EPA) emissions
requirements.
During
2006,
Caterpillar continued in its leadership position in the North American
on-highway truck market. Since the introduction of its five engine models with
ACERT® Technology beginning in 2003, the company has shipped over 450,000 ACERT
engines into the North American on-highway truck market and continued to
maintain its leadership position in this market. Customer acceptance of
Caterpillar ACERT engine performance, quality and reliability is strong, as
evidenced by an unprecedented sixth J.D. Power and Associates
Award.
Caterpillar
received EPA certification for the C7, C13 and C15 ACERT engines in November
2006. The C9 ACERT engine EPA application was recently submitted, and
certification is expected in early 2007.
Caterpillar
also
continued to focus investment and resources on leveraging ACERT Technology
into
off-road markets, as well as into more 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. From October 2004
through year-end 2006, the company has shipped over 30,000 Caterpillar machines
powered by engines with ACERT Technology. A line of ACERT industrial, electric
power and marine engines has been released to further leverage the technology
throughout Caterpillar’s businesses and engine platforms. Caterpillar was the
first company to offer a full line of Tier 3/Stage IIIA emissions compliant
off-highway engines.
Our
2007 on-highway
ACERT engines have been validated in the field to meet the new emissions
regulations while maintaining the fuel economy and durability characteristics
of
our current on-highway engines. The 2007 production engines began shipping
in
January with volumes to increase throughout the year. The ACERT Technologies
in
this product were expanded to include the aftertreatment system. Caterpillar
Environmental Technologies Mexico, S. de R.L. de C.V. was formed to design and
manufacture the diesel particulate filter (DPF).
We
believe ACERT
provides Caterpillar a valuable foundation now and in the future to meet
emissions and performance requirements, and we plan to continue investing in
developing and leveraging ACERT Technology systems and components.
Caterpillar’s
remanufacturing business provides services for a variety of products and
services to Caterpillar and other external clients. The remanufacturing business
competes on a regional basis with similarly sized or smaller companies. The
company launched the remanufacturing business in the 1970s with engines/turbines
and is now one of the world’s largest remanufacturers, processing more than two
million units annually and recycling more than 100 million pounds of
remanufactured products each year. The business continues to grow at rates
well
above that of the global economy as a whole.
Page
3
|
Financial
Products
|
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. 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.
For
25 years, Cat
Financial has been providing financing in the various markets in which it
participates, contributing to its knowledge of asset values, industry trends,
product structuring and customer needs.
In
certain
instances, Cat Financial's operations are subject to supervision and regulation
by state, federal and various foreign governmental 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.
Cat
Financial's
retail financing leases and installment sale contracts (totaling 60 percent*)
include:
| · |
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
(17
percent*).
|
| · |
Finance
(non-tax) leases where the lessee is considered the owner of the
equipment
during the term of the lease, and the agreement either requires or
allows
the customer to purchase the equipment for a fixed price at the end
of the
term (17 percent*).
|
| · |
Installment
sale contracts, which are equipment loans that enable customers to
purchase equipment with a down payment or trade-in and structured
payments
over time (25 percent*).
|
| · |
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
receivables include:
| · |
Loans
that
allow customers and dealers to use their Caterpillar equipment as
collateral to obtain financing (19
percent*).
|
Wholesale
notes
receivables, finance leases and installment sale contracts (totaling 21
percent*) include:
| · |
Inventory/rental
programs which provide assistance to dealers by financing their inventory,
rental fleets and rental facilities (5 percent*).
|
| · |
Short-term
dealer receivables that Cat Financial purchases from Caterpillar
and
subsidiaries at a discount (16
percent*).
|
*Indicates
the
percentage of Cat Financial's total portfolio at December 31, 2006. For more
information on the above and Cat Financial's concentration of credit risk,
please refer to Note 8 - “Finance Receivables” of Exhibit 13.
Page
4
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 Inc.; CitiCapital, a business unit of Citigroup; General
Electric Capital Corporation and local banks and finance companies. In addition,
many of our manufacturing competitors 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 respond to these competing 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. 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 that addresses interest rate risk by aligning the
interest rate profile (fixed rate or floating rate) of its debt portfolio with
the interest rate profile of its receivable portfolio (loans and leases with
customers and dealers) within predetermined ranges on an ongoing basis. In
connection with that policy, Cat Financial issues debt with a similar interest
rate profile to its receivables, and also uses interest rate swap agreements
to
manage its interest rate risk exposure to interest rate changes and in some
cases to lower its cost of borrowed funds. For more information regarding match
funding, please see Note 3 - “Derivative financial instruments and risk
management” of Exhibit 13.
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 and option contracts to address the risk of currency mismatch
between the receivable and debt portfolios. None of these foreign currency
forward and option contracts are designated as a hedge.
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 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 provides 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 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 49 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 24 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. The company also provides stop loss insurance protection to
a
Missouri VEBA trust used to fund medical claims of salaried retirees of
Caterpillar under the voluntary benefit plan.
Page
5
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 Cat Insurance, is a warranty
company domiciled in Missouri. It conducts a machine extended service contract
program in Italy, France and Germany and also provides machine extended warranty
reimbursement protection to dealers in those countries.
Caterpillar
Insurance Services Corporation, a wholly owned subsidiary of Cat Holdings,
is a
Tennessee insurance brokerage company licensed in all 50 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:
| · |
Contractual
Liability Insurance to Caterpillar dealers and Original Equipment
Manufacturers (OEMs) for extended service contracts (parts and labor)
offered by third party dealers and OEMs.
|
| · |
Reinsurance
for the worldwide cargo risks of Caterpillar products.
|
| · |
Contractors'
Equipment physical damage insurance for equipment manufactured by
Caterpillar which is leased, rented or sold by third party
dealers.
|
| · |
Insurance
for
Caterpillar general liability, employer's liability, auto liability
and
property insurance.
|
| · |
Brokerage
services for property and casualty and life and health
business.
|
Cat
Power Ventures,
a wholly owned subsidiary
of
Caterpillar, primarily invested equity and took ownership interests 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. Cat Power Ventures has investments in power projects in Poland,
the Dominican Republic and Tunisia and has created direct and indirect
subsidiaries and affiliates to hold these investments. In December 2005, the
company decided that it would no longer invest equity in power generation
projects. As a result, Cat Power Ventures will not make any new equity
investments in power generation projects and will sell its project investment
portfolio. We expect these sales to be completed and for Cat Power Ventures
to
have ceased operations by the end of 2007.
Business
Developments in 2006
In
2006, the
company
continued to focus
on execution of our Vision 2020 strategy that was introduced in 2005. Through
Vision 2020, we established key enterprise goals for 2010 grouped under the
“3Ps” of people, performance and profitable growth. Our people goals include a
highly engaged workforce and world-class safety. The performance goals are
related to improved quality and market leadership in every major product group
we serve. The profitable growth goals include a 2010 sales and revenues target.
Performance
and Strategy
2006
marked the
fourth straight year of double-digit profit growth and the third consecutive
year of record sales and profit for Caterpillar, including 2006 sales and
revenues of $41.517 billion and profit of $3.537 billion, or $5.17 per
share.
In
November 2006,
the company’s Chairman and CEO, Jim Owens, updated analysts and investors on
execution of the company’s strategy. Highlights of the update included: line of
sight to $50+ billion of sales and revenues by 2010; profit per share growth
in
a range of 15 to 20 percent through 2010; strong cash flow through the end
of
the decade to fund continued growth and reward stockholders with continued
dividend growth; strong internal focus on safety, quality and velocity with
implementation of the Caterpillar Production System; continued focus on
products, technology, and product support to deliver the best value to
customers; and continued growth in the company’s less cyclical service-related
businesses.
Page
6
In
October 2006,
the company announced plans to realign core manufacturing operations and to
focus product design expertise on key industry segments. To achieve these goals,
the company created three new divisions: the U.S. Operations Division; the
Heavy
Construction and Mining Division and the Infrastructure Development Division.
The new divisions resulted from restructuring what was known as Wheel Loaders
& Excavators Division, Track-Type Tractors Division, and Mining &
Construction Equipment Division. The new alignment will maximize the company's
manufacturing synergies and support the company's vision for unmatched quality,
velocity and safety.
Sustainability
In
2006, the
company released its first-ever Sustainability Report to highlight the company's
efforts in sustainable development and its commitment to make sustainable
development a "strategic area of improvement" in its new enterprise strategy.
The company was selected as a member of the Dow Jones Sustainability World
Index
(DJSI World) for the sixth consecutive year. DJSI uses a best-in-class approach
designed to identify best practices across the economic, social and
environmental dimensions of corporate sustainability.
In
November 2006,
the company received certification from the U.S. Environmental Protection Agency
(EPA) for the company’s C7, C13 and C15 engines equipped with ACERT Technology
for 2007. This technology positions the company to meet future EPA emissions
regulations and provides a long-term emissions solution for the global
on-highway engine market. ACERT Technology relies on four basic systems —
emissions air management, precision combustion, advanced electronics and
effective aftertreatment. These four systems work to decrease particulate
matter, oxides of nitrogen and hydrocarbon emissions, while preserving the
engine’s reliability and durability, which keep owning and operating costs low.
Customer
acceptance
of Cat engines is reflected in the company’s unprecedented sixth J.D. Power and
Associates Award, which the company received in 2006 for “Highest Customer
Satisfaction With Vocational Heavy Duty Diesel Engines.” No other engine
manufacturer has ever won this customer feedback award, which measures customer
satisfaction through J.D. Power’s annual survey of vehicle owners who operate in
typically rugged vocations and use vehicles such as dump trucks or garbage
trucks.
Growth
in
China
In
2006, the
company made progress toward its commitment
to
continue expansion of our business in China in support of our overall enterprise
strategy and Vision 2020. Caterpillar held “CONEXPO Asia 2006,” an international
trade show for the construction industry, at the China National Agricultural
Exhibition Center in Beijing. Also, the company relocated its Asia Pacific
Operations headquarters from Tokyo, Japan, to Beijing, China. These activities
support operational and sales success in China, which is a critical success
factor for the company's long-term growth and profitability.
The
company further
expanded its business in China by signing an investment agreement with the
Suzhou Industrial Park Administrative Committee to begin construction of a
new
wheel loader manufacturing facility in the Suzhou Industrial Park in China’s
Jiangsu province. The company
also signed a
letter of intent with China's National Development and Reform Commission (NDRC)
through
which
Caterpillar and NDRC will promote the development of China's remanufacturing
industry. As part of the letter of intent, the company will provide expertise
to
assist NDRC and Chinese research institutions in supporting the development
of
the remanufacturing industry in China. The company and NDRC also agreed to
form
a Joint Working Group on Remanufacturing Programs to discuss matters related
to
the remanufacturing cooperation program in detail and to coordinate and promote
further cooperation by both parties in sustainable manufacturing and other
areas.
Caterpillar
(China)
Machinery Components Co., Ltd. in Wuxi began shipping hose and coupling
assemblies in 2006, with valve production for SEM-built wheel loaders and
Xuzhou-built motor graders scheduled to begin in late 2007.
Cat
Logistics
opened a new China Distribution Center in the Lingang Industrial Area in
Shanghai. The distribution center provides parts for the company’s dealers in
China and expanded parts distribution to dealers in Korea and Mongolia.
Solar
Turbines and
China National Offshore Oil Corporation (CNOOC) signed a long-term strategic
agreement between the two companies. Under terms of the strategic agreement,
Solar Turbines will be a CNOOC preferred aftermarket supplier for goods and
services for Solar Gas Turbines equipment.
Page
7
Acquisitions/Alliances
In
2006, the
company continued its efforts to profitably grow its business. These efforts
include the following:
| · |
The
company
announced plans to significantly increase the number of Cat-branded
machines available to the Caterpillar dealer network for marketing
to the
forestry industry. Pursuant to the agreement with alliance partner
Blount
International, Inc. (Blount), the company is replacing the current
TimberkingTM
brand name
with the Caterpillar®
and
Cat®
brands. The
Timberking line includes products manufactured by both the company
and
Blount and sold exclusively through the company’s dealers.
|
| · |
The
company
acquired Progress Rail for $1.0 billion in cash, stock and assumption
of
debt. Progress Rail is based in Albertville, Alabama, and is a leading
provider of remanufactured locomotive and railcar products and services
to
the North American railroad industry. The rail aftermarket services
business is a strong fit with the company’s strategic direction and
leverages the company’s remanufacturing capability. The acquisition
provided excellent diversified growth to the company, enhancing its
ability to deliver attractive profitability throughout the business
cycles. Progress Rail offers a full range of reconditioned and
remanufactured railcar components, rail and track products, railcar
and
locomotive repair, rail welding, maintenance of way equipment and
railcar
dismantling.
|
| · |
As
part of
the company’s plan to improve operational excellence in Asia, the company
completed the acquisition of a former joint venture engine operation
in
India. The joint venture was originally formed in 1988 as Hindustan
PowerPlus Limited. It is now a wholly owned subsidiary of the company
and
has been renamed Caterpillar Power India Private Limited. The acquisition
aligns operations in India more closely with the other power systems
groups that are part of the global Caterpillar family.
|
Acquisitions
Information
related
to acquisitions appears in Note 25 - “Alliances
and
Acquisitions”
of Exhibit
13.
Order
Backlog
The
dollar amount
of backlog believed to be firm was approximately $14.5 billion at December
31,
2006, and $12.2 billion at December 31, 2005. Of the total backlog,
approximately $1.9 billion at December 31, 2006, and $1.7 billion at December
31, 2005, 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
independent dealers (dealer network),
54
located in the United States and 128 located outside the United States.
Worldwide, these dealers serve 182 countries and operate 3,576
places of business, including 1,639
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 Engines Company Limited (Perkins) also are sold through
a worldwide network of 132 distributors located in 181 countries. Most of the
electric power generation systems manufactured by FG Wilson are sold through
a
worldwide network of 200 dealers located in 180 countries.
These
dealers do
not deal exclusively with our products; however, in most cases sales and
servicing of our products are the dealers' principal businesses. Turbines and
large marine and large power generation reciprocating engines are sold through
sales forces employed by the company. At times, these employees are assisted
by
independent sales representatives.
The
company's
relationship with each of its independent dealers 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 service territory. 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 use the company's trademarks,
service marks and brand names. In some instances a separate trademark agreement
exists between the company and a dealer.
Page
8
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
service territory. 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 provide for termination automatically if the dealer files for
bankruptcy protection or upon the occurrence of comparable action seeking
protection from creditors.
Patents
and Trademarks
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.
Research
and Development
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
2006, 2005 and 2004, we spent $1,347
million,
$1,084 million and
$928 million, or 3.2 percent, 3.0 percent and 3.1 percent of our sales and
revenues, respectively, on our research and development programs.
Employment
As
of December 31,
2006, we employed 94,593 persons of whom 45,884 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 48,709 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,
2006, there were 14,315 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 12,085 Caterpillar employees under a six-year central labor agreement
that will expire March 1, 2011. The International Association of Machinists
(IAM) represents 2,036 employees under labor agreements that expire on April
30,
2012, and May 23, 2010.
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 2006,
53 percent
for
2005 and 54 percent for 2004.
Environmental
Matters
We
strive to be a
global leader in sustainability, and we promote enterprise-wide commitment
to
sustainable development consistent with our business goals, in line with our
Vision 2020 strategy.
Page 9
The
company is
regulated by federal, state and international environmental laws governing
our
use, transport and disposal of substances and control of emissions. In addition
to governing our manufacturing and other operations, these laws often impact
the
development of our products, including, but not limited to, required compliance
with air emissions standards applicable to internal combustion engines.
Compliance with these existing laws has not had a material impact on our capital
expenditures, earnings or competitive position.
We
are engaged in
remedial activities at a number of locations, often with other companies,
pursuant to federal and state laws. When it is probable we will pay remedial
costs at a site, and those costs can be reasonably estimated, the costs are
charged against our earnings. In formulating that estimate, we do not consider
amounts expected to be recovered from insurance companies or others. The amount
recorded for environmental remediation is not material and is
included in
Statement 2 - “Consolidated Financial Position at December 31 - Accrued
Expenses"
of Exhibit 13.
We
cannot
reasonably estimate costs at sites in the very early stages of remediation.
Currently, we have a few sites in the very early stages of remediation, and
there is no more than a remote chance that a material amount for remedial
activities at any individual site, or at all sites in the aggregate, will be
required.
Available
Information
The
company files
electronically with the Securities and Exchange Commission (SEC) required
reports on Form 8-K, Form 10-Q, Form 10-K and Form 11-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; and any other form or report as required. The public may read and
copy any materials the company has filed with the SEC at the SEC's Public
Reference Room at 100 F Street, N.E., 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 (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 or furnished 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 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
|
The
statements in
this section describe the most significant risks to our business and should
be
considered carefully in conjunction with the -
“Management’s
Discussion and Analysis” of
Exhibit 13.
In
addition, these statements constitute our cautionary statements under the
Private Securities Litigation Reform Act of 1995. The discussion and analysis
in
this Form 10-K and in our 2006 Annual Report to Stockholders that are
forward-looking and involve uncertainties that could significantly impact
results. From time to time, we also provide forward-looking statements in other
materials we issue to the public or in the form of oral presentation to the
public. Forward-looking statements give current expectations or forecasts of
future events about the company. You can identify these statements by the fact
they do not relate to historical or current facts and by the use of words such
as "believe," "expect," "estimate," "anticipate," "will be," "should," “plan,”
“project,” “intend,” and similar words or expressions that identify
forward-looking statements made on behalf of Caterpillar.
Page 10
In
particular,
these forward-looking statements include statements relating to future actions,
prospective products, products’ approvals, future performance or results of
current and anticipated products, sales efforts, expenses, interest rates,
foreign exchange rates, the outcome of contingencies and financial results.
The
statements are based on assumptions or on known or unknown risks and
uncertainties. Although, we believe we have been prudent in our assumptions,
we
cannot guarantee the realization of these statements. Achievement of future
results is subject to risks, uncertainties and potentially inaccurate
assumptions. Should known or unknown risks or uncertainties materialize or
underlying assumptions prove inaccurate, actual results could materially differ
from past results and those anticipated, estimated or projected. Uncertainties
include factors that affect international businesses, as well as matters
specific to the company and the markets it serves.
The
company
undertakes no obligation to publicly update forward-looking statements, whether
as a result of new information, future events or otherwise. You may however
consult any further related disclosures we make in our Form 10-Q or any Form
8-K
reports to the SEC.
The
following is a
cautionary discussion of risks, uncertainties and assumptions that we believe
are significant to our business. These are factors that, individually or in
the
aggregate, we believe could make our actual results differ materially from
expected and past results. You should note it is impossible to predict or
identify all such factors and, as a result, you should not consider the
following factors to be a complete discussion of risks and
uncertainties.
Changes
in Government Monetary and Fiscal Policies
Most
countries have
established central banks to regulate monetary systems and influence economic
activities, generally by adjusting interest rates. Interest rate changes affect
overall economic growth, which alter demand for residential and nonresidential
structures, energy and mined products, which in turn affect sales of our
products that serve these activities. Also, interest rates affect customers’
abilities to finance machine purchases and can change the optimal time to keep
machines in a fleet. Our outlooks typically include assumptions about interest
rates in a number of countries. Interest rates higher than those assumptions
could result in lower sales than anticipated.
Government
policies
on taxes and spending affect our businesses. Throughout the world, government
spending finances much infrastructure development, such as highways, airports,
sewer and water systems, and dams. Tax regulations determine depreciation lives
and the amount of money users can retain, both of which influence investment
decisions. Developments more unfavorable than anticipated, such as declines
in
government revenues, decisions to reduce public spending or increases in taxes,
could negatively impact our results.
Government
can also
impact international trade and investment through a variety of policies, such
as
import quotas, inspections, capital controls or tariffs. Developments worse
than
anticipated in the outlook, which could include lower import quotas, more
detailed inspections or higher tariffs, could negatively impact our
results.
Environmental
Regulations
Our
facilities and
operations are subject to increasingly stringent environmental laws and
regulations, including laws and regulations governing emissions to air,
discharges to water and the generation, handling, storage, transportation,
treatment and disposal of general, non-hazardous and hazardous waste materials.
While we believe we are in compliance in all material respects with these
environmental laws and regulations, we cannot ensure that we will not be
adversely affected by costs, liabilities or claims with respect to existing
or
subsequently acquired operations, under present laws and regulations or those
that may be adopted or imposed in the future. Compliance with all aforementioned
existing laws has not had a material impact on our capital expenditures,
earnings or competitive position.
Particularly
our
engines are subject to extensive statutory and regulatory requirements governing
emissions and noise, including standards imposed by the EPA, state regulatory
agencies in the U.S. and other various regulatory agencies around the world.
Although current compliance with all existing emissions and noise requirements
has not had a material effect on our capital expenditures, earnings or
competitive position, governments may set new standards that could impact our
operations in ways that are difficult to anticipate with accuracy. Thus,
significant changes in standards, or the adoption of new standards, have the
potential to impact our results negatively.
Page
11
Changes
in Economic Conditions of Industries We Serve
The
energy and
mining industries are major users of our machines and engines. Decisions to
purchase our machines and engines are dependent upon performance of these
industries. If demand of output in these industries increases, the demand
for our products would likely increase and vice versa. Prices of commodities
in
these industries are frequently volatile and change in response to economic
growth, commodity inventories and any disruptions in production. We assume
certain prices for key commodities in preparing our outlooks. Commodity prices
lower than those assumed have the potential to negatively impact our
sales.
The
rates of
infrastructure spending, housing starts, and commercial construction, play
a
significant role in our results. Our products are an integral component of
these
activities, and as these activities increase or decrease in the U.S. or abroad,
demand for our products may be significantly impacted.
Changes
in Price and Significant Shortages of Component Products
We
are a
significant user of steel and many commodities required for the manufacture
of
our products. So, increases in the prices of such commodities likely would
boost
costs higher than expected, negatively impacting profits.
We
rely on
suppliers to secure component products, particularly steel, required for the
manufacture of our products. A disruption in deliveries from our suppliers
or
decreased in availability of such components or commodities could have an
adverse affect on our ability to meet our commitments to customers or increase
our operating costs. We believe our source of supply of raw materials will
be
generally sufficient for our need in the foreseeable future. However, our
results of operations or financial condition could be negatively impacted should
the supply turn out to be insufficient for our operations.
Currency
Fluctuations
The
reporting
currency for our financial statements is the U.S. dollar. Certain of our assets,
liabilities, expenses and revenues, are denominated in currencies other than
the
U.S. dollar. To prepare our consolidated financial statements, we must translate
those assets, liabilities, expenses and revenues into U.S. dollars at the
applicable exchange rates. As a result, increases and decreases in the value
of
the U.S. dollar vis-à-vis other currencies or vice versa will affect the amount
of these items in our consolidated financial statements, even if their value
has
not changed in their original currency. This
could have
significant impact on our results if such increase or decrease in the value
of
the U.S. dollar or other currencies is substantial.
Dealer/Original
Equipment Manufacturers Sourcing Practices
We
sell finished
products through an independent dealer network or directly to OEMs. Both carry
inventories of finished products as part of ongoing operations and adjust those
inventories based on their assessments of future needs. Such adjustments can
impact our results either positively or negatively.
In
particular, some
of our engine customers are truck manufacturers or OEMs that manufacture or
could in the future manufacture engines for their own products. Despite their
engine manufacturing abilities, these customers have chosen to outsource certain
types of engine production to us due to the quality of our engine products
and
in order to reduce costs, eliminate production risks and maintain company focus.
However, we cannot assure that these customers will continue to outsource engine
manufacture in the future. Increased levels of production insourcing by these
customers could result from a number of factors, such as shifts in our
customers’ business strategies, acquisition by a customer of another engine
manufacturer, the inability of third-party suppliers to meet specifications
and
the emergence of low-cost production opportunities in foreign countries. A
significant reduction in the level of engine production outsourcing from our
truck manufacturers or OEM customers could significantly impact our revenues
and, accordingly, have a material adverse effect on our business, results of
operations and financial condition.
Disease
Epidemics
Historical
data
shows that major flu epidemics often caused sharp drops in economic output.
Such
epidemics are difficult to forecast, either in their occurrence or in their
impact. So, such an event would have the potential to impact our results more
unfavorably than we would assume in our outlooks.
Page 12
Impact
of Acquisitions
We
may from time to
time engage in acquisitions involving some potential risks, including failure
to
successfully integrate and realize the expected benefits of such acquisitions.
For example, with any past or future acquisitions, there is the possibility
that:
| · |
the
business
culture of the acquired business may not match well with our
culture;
|
| · |
technological
and product synergies, economies of scale and cost reductions
may not
occur as expected;
|
| · |
the
company
may acquire or assume unexpected
liabilities;
|
| · |
unforeseen
difficulties may arise in integrating operations and
systems;
|
| · |
the
company
may fail to retain and assimilate employees of the acquired
business;
|
| · |
higher
than
expected finance costs due to unforeseen changes in tax, trade,
environmental, labor, safety, payroll or pension policies in any
jurisdiction in which the acquired business conducts its operations;
and
|
| · |
the
company
may experience problems in retaining customers and integrating customer
bases.
|
Failure
to continue
implementing the company’s acquisition strategy, including successfully
integrating acquired businesses, could have a material adverse effect on our
business, financial condition and results of operations.
Competition
We
operate in a
highly competitive environment, and our outlook depends on a forecast of the
company's share of industry sales predicated on our ability to compete with
others in the marketplace. The company competes on the basis of product
performance, customer service, quality and price. There can be no assurance
that
our product will be able to compete successfully with these other companies.
Thus, our share of industry sales could be reduced due to aggressive pricing
or
product strategies pursued by competitors, unanticipated product or
manufacturing difficulties, our failure to price our products competitively
or
an unexpected buildup in competitors' new machine or dealer-owned rental fleets,
leading to severe downward pressure on machine rental rates and/or used
equipment prices.
The
environment
remains competitive from a pricing standpoint. Our 2007 sales outlook assumes
that the price increases announced for January 2007 hold in the marketplace.
While we expect that the environment will continue to absorb these price
actions, changes in marketplace acceptance would negatively impact our results.
Moreover, additional price discounting to maintain our competitive position
could result in lower than anticipated realization.
In
addition, our
results and ability to compete may be impacted positively or negatively by
changes in the sales mix. Our outlook assumes a certain geographic mix of sales
as well as a product mix of sales. If actual results vary from this projected
geographic and product mix of sales, our results could be negatively
impacted.
Litigation
and Contingency
We
face an inherent
business risk of exposure to various types of claims and lawsuits. We are
involved in various intellectual property, product liability, product warranty,
environmental claims and lawsuits, including other legal proceedings that arise
in the ordinary course of our business. Although, it is not possible to predict
with certainty the outcome of every claim and lawsuit and the range of probable
loss, we believe these lawsuits and claims will not individually or in the
aggregate have a material impact on our results. However, we could in the future
incur judgments or enter into settlements of lawsuits and claims that could
have
a material adverse effect on our results of operations in any particular period.
In addition, while we maintain insurance coverage with respect to certain
claims, we may not be able to obtain such insurance on acceptable terms in
the
future, if at all, and any such insurance may not provide adequate coverage
against any such claims.
As
required by U.S.
generally accepted accounting principles, we establish reserves based on our
assessment of such contingencies. Subsequent developments in legal proceedings,
may affect our assessment and estimates of the loss contingency recorded as
a
reserve requiring us to make additional materials payments, which could result
in an adverse effect on our results of operations.
Page 13
Risks
to Global Operations
Our
global
operations are dependent upon products manufactured, purchased and sold in
the
U.S. and internationally, including countries with political and economic
instability, exposing our business operations to certain political and economic
risks inherent in operating in some countries. These risks include:
| · |
changes
in
regulations; imposition of currency restrictions and other
restraints;
|
| · |
imposition
of
burdensome tariffs and quotas;
|
| · |
national
and
international conflict, including terrorist acts;
and
|
| · |
economic
downturns, political instability and war or civil unrest may severely
disrupt economic activity in affected countries.
|
As
a normal
practice, we do not assume such events in our outlooks unless already happening
when the outlook is issued. So the occurrence of one of these events has the
potential to negatively impact our results.
Risks
to Financial Services Segment
Inherent
in the
operation of Cat Financial is the credit risk associated with its customers.
The
creditworthiness of each customer, and the rate of delinquencies, repossessions
and net losses on customer obligations are directly impacted by several factors,
including, but not limited to, relevant industry and economic conditions, the
availability of capital, the experience and expertise of the customer's
management team, commodity prices, political events and the sustained value
of
the underlying collateral. Additionally, interest rate movements create a degree
of risk to our operations by affecting the amount of our interest payments
and
the value of our fixed rate debt. Our "match funding" policy addresses interest
rate risk by aligning the interest rate profile (fixed or floating rate) of
our
debt portfolio with the interest rate profile of our receivables portfolio
(loans and leases with customers and dealers) within pre-determined ranges
on an
ongoing basis. To achieve our match funding objectives, we issue debt with
a
similar interest rate profile to our receivables and also use interest rate
swap
agreements to manage our interest rate risk exposure to interest rate changes
and in some cases to lower our cost of borrowed funds. If interest rates move
upward more sharply than anticipated, our financial results could be negatively
impacted. With respect to our insurance and investment management operations,
changes in the equity and bond markets could cause an impairment of the value
of
our investment portfolio, thus requiring a negative adjustment to
earnings.
Market
Acceptance of Products
Our
business relies
on continued global demand for our brands and products. To achieve business
goals, we must develop and sell products that appeal to our dealers, OEMs and
customers. This is dependent on a number of factors including our ability to
manage and maintain key dealer relationships and our ability to develop
effective sales, advertising and marketing programs. In addition, our continued
success is dependent on leading-edge innovation, with respect to both products
and operations. This means we must be able to obtain patents that lead to the
development of products that appeal to our consumers across the world. Failure
to continue to deliver quality and competitive products to the marketplace,
or
to predict market demands for, or gain market acceptance of, our products,
could
have material impact on our business.
Not
applicable.
Page 14
|
Present
Caterpillar Inc.
position
and date of
initial
election
|
Principal
positions held during the
past
five years if other than
Caterpillar
Inc. position currently held
|
|
|
|
|
|
|
James
W. Owens
(60)
|
Chairman
and
Chief Executive Officer (2004)
|
· Group
President (1995-2003)
· Vice
Chairman (2003-2004)
|
|
Stuart
L.
Levenick (53)
|
Group
President (2004)
|
· Chairman,
Shin Caterpillar Mitsubishi Ltd. (2000-2004)
· Vice
President (2000-2004)
|
|
Douglas
R.
Oberhelman (53)
|
Group
President (2001)
|
|
|
Gerald
L.
Shaheen (62)
|
Group
President (1998)
|
|
|
Gérard
R.
Vittecoq (58)
|
Group
President (2004)
|
· Vice
President (2000-2004)
|
|
Steven
H.
Wunning (55)
|
Group
President (2004)
|
· Vice
President (1998-2004)
|
|
James
B. Buda
(59)
|
Vice
President, General Counsel and Secretary (2001)
|
|
|
David
B.
Burritt (51)
|
Vice
President
and Chief Financial Officer (2004)
|
· Corporate
6 Sigma Champion (2001-2002)
· Controller
(2002 - 2004)
|
|
Bradley
M.
Halverson (46)
|
Controller
(2004)
|
· Business
Resource Manager, Large Power Systems Division (2002)
· Corporate
Business Development Manager, Corporate Services Division
(2002-2004)
|
General
Information
Caterpillar's
operations are highly integrated. Although the majority of our plants are
involved primarily in the production of either machines or engines, several
plants are involved in the manufacturing of both. In addition, several plants
are involved in the manufacturing of components which are used in the assembly
of both machines and engines. Caterpillar's parts distribution centers are
involved in the storage and distribution of parts for machines and engines.
Also, the research and development activities carried on at our Technical Center
(as described below) involve both machines and engines.
Properties
we own
are believed to be generally well maintained and adequate for present use.
Through planned capital expenditures, we expect these properties to remain
adequate for future needs. Properties we lease are covered by leases expiring
over terms of generally one to ten years. We anticipate no difficulty in
retaining occupancy of any leased facilities, either by renewing leases prior
to
expiration or by replacing them with equivalent leased facilities.
Headquarters
and Other Key Offices
Our
corporate
headquarters are in Peoria, Illinois. Additional marketing headquarters are
located both inside and outside the United States. The Financial Products
Division is headquartered in leased offices located in Nashville, Tennessee.
Distribution
Distribution
of our
parts is conducted from parts distribution centers inside and outside the United
States. Cat Logistics distributes other companies' products, utilizing certain
of our distribution facilities as well as other non-Caterpillar facilities
located both inside and outside the United States. We also own or lease other
storage facilities that support distribution activities.
Page 15
Changes
in Fixed Assets
During
the five
years ended December 31, 2006, changes in our investment in property, plant
and
equipment were as follows (stated in millions of dollars):
|
Expenditures
|
Acquisitions
|
|
|
|||||||||||||||||||||||
|
|
|
Provision
for
|
Disposals
and
Other
|
Net
Increase(Decrease)
|
||||||||||||||||||||||
|
Year
|
U.S.
|
Outside
U.S.
|
U.S.
|
Outside
U.S.
|
Depreciation
|
Adjustments
|
During
Period
|
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
2002
|
$
|
1,030
|
$
|
743
|
$
|
15
|
$
|
0
|
$
|
(1,199)
|
$
|
(151)
|
$
|
438
|
||||||||||||
|
2003
|
$
|
1,000
|
$
|
765
|
$
|
0
|
$
|
0
|
$
|
(1,332)
|
$
|
(191)
|
$
|
242
|
||||||||||||
|
2004
|
$
|
1,212
|
$
|
902
|
$
|
10
|
$
|
44
|
$
|
(1,366)
|
$
|
(371)
|
$
|
431
|
||||||||||||
|
2005
|
$
|
1,383
|
$
|
1,032
|
$
|
0
|
$
|
0
|
$
|
(1,444)
|
$
|
(665)
|
$
|
306
|
||||||||||||
|
2006
|
$
|
1,621
|
$
|
1,054
|
$
|
298
|
$
|
0
|
$
|
(1,554)
|
$
|
(556)
|
$
|
863
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31,
2006, the net book value of properties located outside the United States
represented about 33.6 percent of the net book value of all properties reflected
in our consolidated financial position. Additional information about our
investment in property, plant and equipment appears in Note 1 - “Operations and
summary of significant accounting policies” and Note 10 - “Property, plant and
equipment” of Exhibit 13.
Technical
Center, Training Centers, Demonstration Areas, and Proving
Grounds
We
own a Technical
Center located in Mossville, Illinois, and various other training centers,
demonstration areas and proving grounds located both inside and outside the
United States.
Manufacturing,
Remanufacturing, and Overhaul
Manufacturing,
remanufacturing and overhaul of our products are conducted at the following
locations. These facilities are believed to be suitable for their intended
purposes with adequate capacities for current and projected needs for existing
products.
Page 16
|
Inside
the U.S.
|
Kentucky
|
Tennessee
|
· Stafford
|
· Reynosa
|
|||||
|
Alabama
|
· Corbin
|
· Knoxville
|
· Rushden
|
· Santa
Catarina
|
|||||
|
· Montgomery
|
· Danville
|
· Dyersburg
|
· Shrewsbury
|
· Saltillo
|
|||||
|
· Albertville3
|
· Decoursey
|
Texas
|
· Stockton
|
· Tijuana
|
|||||
|
California
|
· Louisville
|
· Channelview
|
· Wimborne
|
· Nuevo
Laredo
|
|||||
|
· Gardena
|
Louisiana
|
· De
Soto
|
· Wolverhampton
|
· Veracruz
|
|||||
|
· San
Diego
|
· New
Orleans
|
· Forth
Worth
|
France
|
· Torreon
|
|||||
|
· Mohave
|
Michigan
|
· Mabank
|
· Arras
|
The
Netherlands
|
|||||
|
· Rocklin
|
· Menominee
|
· San
Antonio
|
· Grenoble
|
· Almere
|
|||||
|
Colorado
|
Minnesota
|
· Sherman
|
· Rantigny
|
· s'-Hertogenbosch
|
|||||
|
· Pueblo
|
· Grand
Rapids1
|
· Waco
|
· Chaumont1
|
Nigeria
|
|||||
|
Florida
|
· Minneapolis
|
· Waskom
|
Germany
|
· Port
Harcourt2
|
|||||
|
· Jacksonville
|
· New
Ulm
|
Virginia
|
· Kiel
|
Northern
Ireland
|
|||||
|
Georgia
|
Mississippi
|
· Roanoke
|
· Rostock
|
· Larne
|
|||||
|
· Alpharetta
|
· Corinth
|
Wyoming
|
Hungary
|
· Monkstown
|
|||||
|
· Griffin
|
· Oxford
|
· Laramie
|
· Gödöllö
|
· Springvale
|
|||||
|
· Jefferson
|
· Prentiss
County
|
Outside
the U.S.
|
India
|
Peoples
Republic
|
|||||
|
· LaGrange
|
Missouri
|
Australia
|
· Bangalore2
|
of
China
|
|||||
|
· Patterson
|
· Boonville
|
· Burnie
|
· Pondicherry
|
· Erliban1
|
|||||
|
· Toccoa
|
· Kansas
City
|
· Melbourne
|
· Thiruvallur
|
· Guangzhou
|
|||||
|
· Thomasville
|
· West
Plains
|
· Wivenhoe
|
Indonesia
|
· Qingzhou1
|
|||||
|
Illinois
|
Nebraska
|
Belgium
|
· Bandung2
|
· Shunde
|
|||||
|
· Aurora
|
· Lincoln
|
· Gosselies
|
· Jakarta
|
· Tianjin2
|
|||||
|
· Champaign1
|
· Sidney
|
Brazil
|
Italy
|
· Wuxi
|
|||||
|
· Chicago
|
· South
Morrill
|
· Curitiba
|
· Anagni
|
· Xuzhou2
|
|||||
|
· Decatur
|
North
Carolina
|
· Parana
|
· Atessa
|
Poland
|
|||||
|
· Dixon
|
· Clayton
|
· Piracicaba
|
· Bazzano
|
· Janow
Lubelski
|
|||||
|
· East
Peoria
|
· Franklin
|
Canada
|
· Fano
|
· Radom1
|
|||||
|
· Joliet
|
· Morganton
|
· Edmonton
|
· Frosinone
|
· Sosnowiec
|
|||||
|
· Mapleton
|
· Sanford
|
· Montreal
|
· Jesi
|
Russia
|
|||||
|
· Mossville
|
Ohio
|
· Surrey
|
· Marignano
|
· Tosno
|
|||||
|
· Peoria
|
· Dayton1
|
· Winnipeg
|
· Milan
|
Scotland
|
|||||
|
· Pontiac
|
Pennsylvania
|
England
|
· Minerbio
|
· Aberdeen
|
|||||
|
· Sterling
|
· Steelton
|
· Barwell
|
Japan
|
South
Africa
|
|||||
|
· Woodridge1
|
South
Carolina
|
· Desford
|
· Akashi1
|
· Boksburg
|
|||||
|
Indiana
|
· Greenville
|
· Ferndown
|
· Sagamihara1
|
Switzerland
|
|||||
|
· East
Chicago
|
· Jackson
|
· Peterborough
|
Malaysia
|
· Riazzino
|
|||||
|
· Lafayette
|
· Lexington
|
· Peterlee
|
· Kuala
Lumpur1
|
Tunisia
|
|||||
|
Kansas
|
· Newberry
|
· Skinningrove
|
Mexico
|
· Sfax
|
|||||
|
· Lawrence
|
· Summerville
|
· Monterrey
|
|||||||
|
· Wamego
|
· Sumter
|
||||||||
|
1
Facility of affiliated company (50 percent or less
owned)
2
Facility of partially owned subsidiary (more than 50 percent,
less
than 100 percent)
3
Headquarters of Progress Rail. Other significant Progress
Rail
facilities are included in the above list
|
|
|
Page 17
We
have disclosed
certain individual legal proceedings in this filing. Additionally, we are
involved in other unresolved legal actions that arise in the normal course
of
business. The most prevalent of
these unresolved
actions
involve disputes
related to product design, manufacture and performance liability (including
claimed asbestos and welding fumes exposure), contracts, employment issues
or
intellectual property rights. Although it is not possible to predict with
certainty the outcome of these unresolved legal actions or the range of probable
loss, we believe that these unresolved legal actions will not individually
or in
the aggregate have a material adverse effect on our consolidated financial
position, liquidity or results of operations.
On
August 24, 2006,
Caterpillar announced the settlement of all current and pending litigation
between Navistar International Corporation (Navistar), the parent company of
International Truck and Engine Corporation, and Caterpillar. As part of the
litigation settlement, Caterpillar received an up-front cash payment and a
three-year promissory note from Navistar. Based on Caterpillar’s receivable
balances related to the Navistar litigation at the time of settlement, the
settlement resulted in a pre-tax charge to Caterpillar of approximately $70
million in the third quarter.
On
September 29,
2004, Kruse Technology Partnership (Kruse) filed a lawsuit against Caterpillar
in the United States District Court for the Central District of California
alleging that certain Caterpillar engines built from October 2002 to the present
infringe upon certain claims of three of Kruse's patents on engine fuel
injection timing and combustion strategies. Kruse seeks monetary damages,
injunctive relief and a finding that the alleged infringement by Caterpillar
was
willful. Caterpillar denies Kruse's allegations, believes they are without
merit
and filed a counterclaim seeking a declaration from the court that Caterpillar
is not infringing upon Kruse's patents and that the patents are invalid and
unenforceable. The counterclaim filed by Caterpillar is pending, and no trial
date is currently scheduled. In the opinion of management, the ultimate
disposition of this matter will not have a material adverse effect on our
consolidated financial position, liquidity or results of
operations.
In
November 2004,
the U.S. Environmental Protection Agency (EPA) alleged that Caterpillar had
constructed a facility in Emporia, Kansas, that failed to comply with Section
112(g)(2)(B) of the federal Clean Air Act. Caterpillar sold the Emporia, Kansas
facility in December 2002. This matter has been settled and terminated by
Consent Decree entered on June 12, 2006, in the United States District Court
for
the District of Kansas, and Caterpillar’s payment of a civil penalty of $300,000
on June 14, 2006. Accordingly, in the opinion of our management, this matter
is
closed and did not have a material adverse effect on our consolidated financial
position, liquidity or results of operations.
On
June 26, 2006,
the UK Environment Agency filed a claim against Caterpillar Logistics Services
(UK) Ltd. (CLS) before the Leicester & Rutland Magistrates Court in
Leicestershire, UK. The complaint alleged that CLS failed to follow UK
regulations in connection with the handling and disposal of special waste
(primarily batteries) from January through September 2005. On August 17, 2006,
CLS was fined £7,763 (approximately $15,000), thereby concluding the
matter.
The
World Trade
Organization (WTO) previously found that the transitional and grandfathering
provisions for extraterritorial income exclusion (ETI), under the American
Jobs
Creation Act of 2004, did not satisfy the United States' obligation to
"withdraw" prohibited export subsidies. The WTO result allowed the European
Union to impose already authorized sanctions on certain U.S. origin goods
beginning May 16, 2006. The Tax Increase Prevention and Reconciliation Act
of
2005, signed by President Bush on May 17, 2006, repealed the grandfathering
provisions for ETI. In response, the European Union Trade Commissioner announced
the cancellation of sanctions ending the dispute. We were not materially
impacted by this resolution.
Not applicable.
Page 18
Information
required by Item 5 is incorporated by reference from - “Management’s Discussion
and Analysis” and “Supplemental Stockholder Information” of Exhibit
13.
|
Performance
Graph
|
CATERPILLAR
INC.
Total
Cumulative Stockholder Return for
Five-Year
Period Ending December 31, 2006
The
graph below
shows the cumulative stockholder return assuming an investment of $100 on
December 31, 2001, and reinvestment of dividends issued
thereafter.
 |
|
2001
|
2002
|
2003
|
2004
|
2005
|
2006
|
|||||||||||||
|
|
|
|
|
|
|
|||||||||||||
|
Caterpillar
Inc.
|
$
|
100.00
|
$
|
90.13
|
$
|
167.78
|
$
|
201.07
|
$
|
242.73
|
$
|
261.80
|
||||||
|
S&P
500
|
$
|
100.00
|
$
|
77.92
|
$
|
100.25
|
$
|
111.14
|
$
|
116.59
|
$
|
135.00
|
||||||
|
S&P
500
Machinery
|
$
|
100.00
|
$
|
97.54
|
$
|
147.22
|
$
|
177.20
|
$
|
178.92
|
$
|
211.90
|
||||||
Page 19
Non-U.S.
Employee Stock Purchase Plans
We
have 30 employee
stock purchase plans administered outside the United States for our foreign
employees. As of December 31, 2006, those plans had approximately 12,700
participants in the aggregate. During the fourth quarter of 2006, approximately
90,500 shares of Caterpillar common stock or foreign denominated equivalents
were distributed under the plans. Participants in some foreign plans have the
option of receiving non-U.S. share certificates (foreign-denominated
equivalents) in lieu of U.S. shares of Caterpillar common stock upon withdrawal
from the plan. These equivalent certificates are tradable only on the local
stock market and are included in our determination of shares
outstanding.
Issuer
Purchases of Equity Securities
|
Period
|
Total
number
of
Shares
Purchased
|
Average
Price
Paid
per Share
|
Total
Number
of
Shares Purchased Under the Program
|
Maximum
Number
of
Shares that May
Yet
Be
Purchased
Under
the Program
|
|||||||||
|
|
|
|
|
|
|||||||||
|
October
1-31,
2006
|
2,433,000
|
$
|
61.64
|
2,433,000
|
8,634,518 1
|
||||||||
|
November
1-30,
2006
|
3,320,000
|
60.23
|
3,320,000
|
5,583,743 1
|
|||||||||
|
December
1-31,
2006
|
-
|
-
|
-
|
5,808,176 1
|
|||||||||
|
|
|
|
|
|
|
|
|||||||
|
Total
|
5,753,000
|
$
|
60.82
|
5,753,000
|
|||||||||
|
|
|
|
|
|
|
|
|||||||
|
|
|||||||||||||
|
1 On
October 8, 2003, the board of directors approved an extension of
the share
repurchase program (through October 2008) with the goal of reducing
the
company's outstanding shares to 320,000,000. The share repurchase
program
goal was adjusted for the stock split announced on June 8, 2005,
to
reflect an adjusted goal of 640,000,000 shares outstanding by October
2008. Amount represents the shares outstanding at the end of the
period
covered by this report less 640,000,000. In February 2007, the Board
of
Directors authorized a $7.50 billion stock repurchase program over
the
next five years, expiring on December 31, 2011.
|
|||||||||||||
|
|
|||||||||||||
Other
Purchases of Equity Securities
|
Period
|
Total
number
of
Shares
Purchased1
|
Average
Price
Paid
per Share
|
Total
Number
of
Shares Purchased Under the Program
|
Maximum
Number
of
Shares that May
Yet
Be
Purchased
Under
the Program
|
||||||||||
|
|
|
|
|
|
||||||||||
|
October
1-31,
2006
|
428
|
$
|
66.88
|
N/A
|
N/A
|
|||||||||
|
November
1-30,
2006
|
6,730
|
60.55
|
N/A
|
N/A
|
||||||||||
|
December
1-31,
2006
|
--
|
--
|
N/A
|
N/A
|
||||||||||
|
|
|
|
|
|
||||||||||
|
Total
|
7,158
|
$
|
60.93
|
|||||||||||
|
|
|
|
|
|
||||||||||
|
|
||||||||||||||
|
1 Represents
shares delivered back to issuer for the payment of taxes resulting
from
the exercise of stock options by employees and Directors.
|
||||||||||||||
|
|
||||||||||||||
Information required by Item 6 is incorporated by reference from the - "Five-year Financial Summary" and "Management’s Discussion and Analysis” of Exhibit 13.
Page 20
Information required by Item 7 is incorporated by reference from - “Management’s Discussion and Analysis” of Exhibit 13. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our discussion of cautionary statements and significant risks to the company’s business under Item 1A. (Risk Factors and Cautionary Factors That May Affect Future Results) of this Form 10-K.
Information
required by Item 7A appears in Note 1 - “Operations and summary of significant
accounting policies,” Note 3 - “Derivative financial instruments and risk
management,” Note 19 - “Fair values of financial instruments” and Note 20 -
“Concentration of credit risk” of Exhibit 13. Other information required by Item
7A is incorporated by reference from - “Management’s Discussion and Analysis” of
Exhibit 13.
Information
required by Item 8 is incorporated by reference from the - “Report of
Independent Registered Public Accounting Firm” and from the - “Financial
Statements and Notes to Consolidated Financial Statements” of Exhibit 13. Other
information required by Item 8 is included in "Computation of Ratios of Earnings
to Fixed Charges" filed as Exhibit 12 to this Form 10-K.
Not
Applicable
Disclosure Controls and Procedures
Under
the
supervision and with the participation of our management, including our chief
executive officer and our chief financial officer, we conducted an evaluation
of
our disclosure controls and procedures; as such term is defined under Exchange
Act Rule 13a-15(e). Based on this evaluation, our chief executive officer and
our chief financial officer concluded that our disclosure controls and
procedures were effective as of the end of the period covered by this annual
report.
Management’s
Report on Internal Control Over Financial
Reporting
The
management of
Caterpillar Inc. is responsible for establishing and maintaining adequate
internal control over financial reporting. Our internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles. Our internal control over financial reporting includes
those policies and procedures that (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions
and
dispositions of the assets of the company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and
that
receipts and expenditures of the company are being made only in accordance
with
authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.
Because
of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness
to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. Management assessed the effectiveness
of
the company's internal control over financial reporting as of December 31,
2006.
In making this assessment, we used the criteria set forth by the Committee
of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control — Integrated Framework.
Based on our
assessment we concluded that, as of December 31, 2006, the company's internal
control over financial reporting was effective based on those
criteria.
Page 21
Management
has
excluded Progress Rail Services from our assessment of internal control over
financial reporting as of December 31, 2006 because we acquired Progress Rail
Services on June 19, 2006. Progress Rail Services is a wholly owned subsidiary
of Caterpillar Inc. whose total assets and total revenues represent three
percent and two percent, respectively, of the related consolidated financial
statement amount as of and for the year ended December 31, 2006.
Our
management's
assessment of the effectiveness of the company's internal control over financial
reporting as of December 31, 2006, has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm. The report appears under
- “Report of Independent Registered Public Accounting Firm” of Exhibit
13.
Changes
in Internal Control over Financial Reporting
During
the last
fiscal quarter, there has been no significant change in the company's internal
controls over financial reporting that has materially affected, or is reasonably
likely to materially affect, the company's internal control over financial
reporting.
Identification of Directors and Business Experience
Information
required by this Item is incorporated by reference from the 2007 Proxy
Statement.
Identification
of Executive Officers and Business Experience
Information
required by this Item appears in Item 1C of this Form 10-K.
Family
Relationships
There
are no family
relationships between the officers and directors of the company. All officers
serve at the pleasure of the board of directors and are elected annually at
a
meeting of the board.
Legal
Proceedings Involving Officers and Directors
Information
required by this Item is incorporated by reference from the 2007 Proxy
Statement.
Audit
Committee Financial Expert
Information
required by this Item is incorporated by reference from the 2007 Proxy
Statement.
Identification
of Audit Committee
Information
required by this Item is incorporated by reference from the 2007 Proxy
Statement.
Stockholder
Recommendation of Board Nominees
Information
required by this Item is incorporated by reference from the 2007 Proxy
Statement.
Compliance
with Section 16(a) of the Exchange Act
Information
required by this Item relating to compliance with Section 16(a) of the
Securities Exchange Act of 1934 is incorporated by reference from the 2007
Proxy
Statement.
Page 22
Code
of Ethics
Our
Worldwide Code
of Conduct (Code), first published in 1974 and most recently amended in 2005,
sets a high standard for honesty and ethical behavior by every employee,
including the principal executive officer, principal financial officer and
principal accounting officer/controller. The Code is posted on our website
at
www.CAT.com/governance
and is
incorporated by reference as Exhibit 14 to this Form 10-K. To obtain a copy
of
the Code at no charge, submit a written request to the Corporate Secretary
at
100 NE Adams Street, Peoria, Illinois 61629-7310. We
will post on our
website any required amendments to or waivers granted under our Code pursuant
to
SEC or New York Stock Exchange disclosure rules.
Information required by this Item is incorporated by reference from the 2007 Proxy Statement.
Information
required by this Item relating to security ownership of certain beneficial
owners and management is incorporated by reference from the 2007 Proxy
Statement.
Information
required by this item relating to securities authorized for issuance under
equity compensation plans is included in the following table:
|
Equity
Compensation Plan Information
(as
of December 31, 2006)
|
||||||||||
|
|
||||||||||
|
(a)
|
(b)
|
(c)
|
||||||||
|
Plan
category
|
Number
of
securities to be issued upon exercise of outstanding options, warrants
and
rights1
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
Number
of
securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|||||||
|
|
|
|
|
|||||||
|
Equity
compensation plans
approved by security holders |
69,381,778
|
38.6046
|
37,354,150
|
|||||||
|
Equity
compensation plans
not approved by security holders |
n/a
|
n/a
|
n/a
|
|||||||
|
|
|
|
|
|
|
|||||
|
Total
|
69,381,778
|
38.6046
|
37,354,150
|
|||||||
|
|
|
|
|
|
|
|||||
|
|
||||||||||
|
1
Column (a) excludes any cash payments in-lieu-of
stock.
|
||||||||||
|
|
||||||||||
Information
required by this Item is incorporated by reference from the 2007 Proxy
Statement.
Information
required by this Item is incorporated by reference from the 2007 Proxy
Statement.
Page
23
(a)
The
following
documents are incorporated by reference from the indicated pages of Exhibit
13:
1.
Financial
Statements:
| · |
Report
of
Independent Registered Public Accounting Firm
|
| · |
Statement
1 -
Results of Operations
|
| · |
Statement
2 -
Financial Position
|
| · |
Statement
3 -
Changes in Consolidated Stockholders' Equity
|
| · |
Statement
4 -
Statement of Cash Flow
|
| · |
Notes
to
Consolidated Financial Statements
|
2.
Financial
Statement Schedules:
| · |
All
schedules are omitted because the required information is shown in
the
financial statements or the notes thereto incorporated by reference
from
Exhibit 13 or considered to be
immaterial.
|
Page 24
|
(b)
|
Exhibits:
|
|
|
|
3.1
|
Restated
Certificate of Incorporation (incorporated by reference from
Exhibit 3(i)
to the Form 10-Q filed for the quarter ended March 31, 1998).
|
|
|
3.2
|
Bylaws,
amended
and
restated as of February 11, 2004 (incorporated by reference from
Exhibit
3.3
to the Form 10-Q filed for the quarter ended March 31, 2004).
|
|
|
4.1
|
Indenture
dated as of May 1, 1987, between the Registrant and The First
National Bank of Chicago, as Trustee (incorporated by reference
from
Exhibit 4.1 to Form S-3 (Registration No. 333-22041) filed
February 19, 1997.
|
|
|
4.2
|
First
Supplemental Indenture, dated as of June 1, 1989, between Caterpillar
Inc. and The First National Bank of Chicago, as Trustee (incorporated
by
reference from Exhibit 4.2 to Form S-3 (Registration
No. 333-22041) filed February 19, 1997).
|
|
|
4.3
|
Appointment
of Citibank, N.A. as Successor Trustee, dated October 1, 1991, under
the Indenture, as supplemented, dated as of May 1, 1987 (incorporated
by reference from Exhibit 4.3 to Form S-3 (Registration
No. 333-22041) filed February 19, 1997).
|
|
|
4.4
|
Second
Supplemental Indenture, dated as of May 15, 1992, between Caterpillar
Inc. and Citibank, N.A., as Successor Trustee (incorporated by
reference
from Exhibit 4.4 to Form S-3 (Registration No. 333-22041)
filed February 19, 1997).
|
|
|
4.5
|
Third
Supplemental Indenture, dated as of December 16, 1996, between
Caterpillar Inc. and Citibank, N.A., as Successor Trustee (incorporated
by
reference from Exhibit 4.5 to Form S-3 (Registration
No. 333-22041) filed February 19, 1997).
|
|
|
4.6
|
Tri-Party
Agreement, dated as of November 2, 2006, between Caterpillar
Inc.,
Citibank, N.A. and U.S. Bank National Association appointing
U.S. Bank as
Successor Trustee under the Indenture dated as of May 1, 1987, as
amended and supplemented.
|
|
|
10.1
|
Caterpillar
Inc. 1996 Stock Option and Long-Term Incentive Plan, amended
and restated
as of August 18, 2004 (incorporated by reference from Exhibit
10.1 to Form
10-K for 2004 filed February 24, 2005).
|
|
|
10.2
|
Caterpillar
Inc. 2006 Long-Term Incentive Plan as amended and restated through
June
14, 2006.
|
|
|
10.3
|
Supplemental
Pension Benefit Plan, as amended and restated January 2003 (incorporated
by reference from Exhibit 10.3 to Form 10-K for 2004 filed February
24,
2005).
|
|
|
10.4
|
Supplemental
Employees' Investment Plan, as amended and restated through December
1,
2002 (incorporated
by reference from Exhibit 10.4 to
Form 10-K
for 2002).
|
|
|
10.5
|
Caterpillar
Inc. Executive Incentive Compensation Plan, effective as of January
1,
2002 (incorporated
by reference from Exhibit 10.5 to
the 2002
Form 10-K).
|
|
|
10.6
|
Directors'
Deferred Compensation Plan, as amended and restated through January
1,
2005.
|
|
|
10.7
|
Directors'
Charitable Award Program (incorporated by reference from Exhibit
10(h) to
the 1993 Form 10-K).
|
|
|
10.8
|
Deferred
Employees' Investment Plan, as amended and restated through February
16,
2005 (incorporated by reference as Exhibit 10.8 to the 2005 Form
10-K).
|
|
|
11
|
Computations
of Earnings per Share.
|
|
|
12
|
Computation
of Ratios of Earnings to Fixed Charges.
|
|
|
13
|
General
and
Financial Information for 2006 containing the information required
by SEC
Rule 14a-3 for an annual report to security holders.
|
|
|
14
|
Caterpillar
Worldwide Code of Conduct (incorporated by reference from Exhibit
14 to
the 2005 Form 10-K).
|
|
|
21
|
Subsidiaries
and Affiliates of the Registrant.
|
|
|
23
|
Consent
of
Independent Registered Public Accounting Firm.
|
|
|
31.1
|
Certification
of James W. Owens, Chairman and Chief Executive Officer of Caterpillar
Inc., as required pursuant to Section 302 of the Sarbanes-Oxley
Act of
2002.
|
|
|
31.2
|
Certification
of David B. Burritt, Vice President and Chief Financial Officer
of
Caterpillar Inc., as required pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
32
|
Certification
of James W. Owens, Chairman and Chief Executive Officer of Caterpillar
Inc. and David B. Burritt, Vice President and Chief Financial
Officer of
Caterpillar Inc., as required pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
99.1
|
Annual
CEO
certification to the New York Stock Exchange for 2006 fiscal
year.
|
|
|
99.2
|
Annual
CEO
certification for the NYSE Arca for 2006 fiscal year.
|
Page 25
|
Form
10-K
SIGNATURES
|
|||
|
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange
Act
of 1934, the company has duly caused this report to be signed on
its
behalf by the undersigned, thereunto duly
authorized.
|
|||
|
|
|
CATERPILLAR
INC.
(Registrant)
|
|
|
February 23, 2007
|
|
By:
|
/s/James
B. Buda
|
|
|
|||
|
|
James
B.
Buda, Secretary
|
||
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report
has been signed below by the following persons on behalf of the company
and in the capacities and on the dates
indicated.
|
|||
|
February
23, 2007
|
/s/James
W. Owens
|
Chairman
of
the Board, Director
and
Chief
Executive Officer
|
|
|
|
|||
|
(James
W.
Owens)
|
|||
|
February 23, 2007
|
/s/Stuart
L. Levenick
|
Group
President
|
|
|
|
|||
|
(Stuart
L.
Levenick)
|
|||
|
February
23, 2007
|
/s/Douglas
R. Oberhelman
|
Group
President
|
|
|
|
|||
|
(Douglas
R.
Oberhelman)
|
|||
|
February 23, 2007
|
/s/Gerald
L. Shaheen
|
Group
President
|
|
|
|
|||
|
(Gerald
L.
Shaheen)
|
|||
|
February
23, 2007
|
/s/Gerard
R. Vittecoq
|
Group
President
|
|
|
|
|||
|
(Gerard
R.
Vittecoq)
|
|||
|
February 23, 2007
|
/s/Steven
H. Wunning
|
Group
President
|
|
|
|
|||
|
(Steven
H.
Wunning)
|
|||
|
February 23, 2007
|
/s/David
B. Burritt
|
Vice
President and
Chief
Financial Officer
|
|
|
|
|||
|
(David
B.
Burritt)
|
|||
|
February 23, 2007
|
/s/Bradley
M. Halverson
|
Controller
and
Chief
Accounting Officer
|
|
|
|
|||
|
(Bradley
M.
Halverson)
|
|||
Page 26
|
February
23,
2007
|
/s/W.
Frank Blount
|
Director
|
|
|
|
|||
|
(W.
Frank
Blount)
|
|||
|
February
23, 2007
|
/s/John
R. Brazil
|
Director
|
|
|
|
|||
|
(John
R.
Brazil)
|
|||
|
February 23, 2007
|
/s/Daniel
M. Dickinson
|
Director
|
|
|
|
|||
|
(Daniel
M.
Dickinson)
|
|||
|
February
23, 2007
|
/s/John
T. Dillon
|
Director
|
|
|
|
|||
|
(John
T.
Dillon)
|
|||
|
February
23, 2007
|
/s/Eugene
V. Fife
|
Director
|
|
|
|
|||
|
(Eugene
V.
Fife)
|
|||
|
February
23, 2007
|
/s/Gail
D. Fosler
|
Director
|
|
|
|
|||
|
(Gail
D.
Fosler)
|
|||
|
February
23, 2007
|
/s/Juan
Gallardo
|
Director
|
|
|
|
|||
|
(Juan
Gallardo)
|
|||
|
February
23, 2007
|
/s/David
R. Goode
|
Director
|
|
|
|
|||
|
(David
R.
Goode)
|
|||
|
February
23, 2007
|
/s/Peter
A Magowan
|
Director
|
|
|
|
|||
|
(Peter
A.
Magowan)
|
|||
|
February
23,
2007
|
/s/William
A. Osborn
|
Director
|
|
|
|
|||
|
(William
A.
Osborn)
|
|||
|
February
23,
2007
|
/s/Charles
D. Powell
|
Director
|
|
|
|
|||
|
(Charles
D.
Powell)
|
|||
|
February
23,
2007
|
/s/Edward
B. Rust, Jr.
|
Director
|
|
|
|
|||
|
(Edward
B.
Rust, Jr.)
|
|||
|
February
23,
2007
|
/s/Joshua
I. Smith
|
Director
|
|
|
|
|||
|
(Joshua
I.
Smith)
|
Page 27