Exhibit
10.2
Caterpillar
Inc.
2006
Long-Term Incentive Plan
(Amended
and
Restated through First Amendment)
Caterpillar
Inc.
2006
Long-Term Incentive Plan
(Amended
and Restated through First
Amendment)
Section
1.
Establishment,
Objectives and Duration
1.1.
Establishment
.
Subject to the
approval of the stockholders of Caterpillar Inc., a Delaware corporation (the
“Company”), the Company has established the Caterpillar Inc. 2006 Long-Term
Incentive Plan (the “Plan”), as set forth herein. The Plan supersedes and
replaces all prior equity and non-equity long-term incentive compensation plans
or programs maintained by the Company; provided that, any prior plans of the
Company shall remain in effect until all awards granted under such prior plans
have been exercised, forfeited, canceled, expired or otherwise terminated in
accordance with the terms of such grants.
1.2.
Purpose
.
The Plan is
intended to provide certain present and future employees and Directors
cash-based incentives, stock-based incentives and other equity interests in
the
Company thereby giving them a stake in the growth and prosperity of the Company
and encouraging the continuance of their services with the Company or its
Subsidiaries.
1.3.
Effective
Date
.
The Plan is
effective as of the later of (a) the date the Plan is adopted by the Board
or
(b) the date the Company’s stockholders approve the Plan (the “Effective Date”).
The Plan will be deemed to be approved by the stockholders if it receives the
affirmative vote of the holders of a majority of the shares of stock of the
Company present or represented and entitled to vote at a meeting duly held
in
accordance with the applicable provisions of the Certificate of Incorporation
or
Bylaws of the Company.
1.4.
Duration
.
The Plan shall
remain in effect, subject to the right of the Company’s Board of Directors to
amend or terminate the Plan at any time pursuant to Section 16, until all Shares
subject to the Plan shall have been purchased or granted according to the Plan’s
provisions. However, in no event may an Award be granted under the Plan on
or
after the tenth anniversary of the Effective Date.
Upon termination
of the Plan, no Awards may be granted but Awards previously granted shall remain
outstanding in accordance with the terms of the Plan and the applicable Award
Document.
Section
2.
Definitions
and
Construction
When
a word or
phrase appears in the Plan with the initial letter capitalized, and the word
or
phrase does not commence a sentence, the word or phrase shall generally be
given
the meaning ascribed to it in this Section unless a clearly different meaning
is
required by the context. The following words and phrases shall have the
following meanings:
2.1.
“
Award
”
means,
individually or collectively, a grant under the Plan of Nonqualified Stock
Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock,
Performance Shares or Performance Units.
2.2.
“
Award
Document
”
means any
agreement, contract, or other written instrument that evidences an Award granted
to the Participant under the Plan and sets forth the terms and provisions
applicable to such Award.
Page
1
2.3.
“
Award
Gain
”
means
(a)
with respect to
a given Option exercise, the product of (X) the excess of the Fair Market Value
of a Share on the date of exercise over the Option Price times (Y) the number
of
shares as to which the Option was exercised at that date, and (b) with respect
to any other settlement of an Award granted to the Participant, the Fair Market
Value of the cash or Shares paid or payable to the Participant (regardless
of
any elective deferral pursuant to Section 13) less any cash or the Fair Market
Value of any Shares or property (other than an Award that would have itself
then
been forfeitable hereunder and excluding any payment of tax withholding) paid
by
the Participant to the Company as a condition of or in connection such
settlement.
2.4.
“
Board
”
.
means the Board of
Directors of the Company.
2.5.
“
Cause
”
.
means,
except as
otherwise provided in an Award Document, a willful engaging in gross misconduct
materially and demonstrably injurious to the Company. For this purpose,
“willful” means an act or omission in bad faith and without reasonable belief
that such act or omission was in or not opposed to the best interests of the
Company.
2.6.
“
Change
of Control
”
.
means the
occurrence of any of the following events: (a) any person becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 15 percent or more
of
the combined voting power of the Company’s then outstanding common stock, unless
the Board by resolution negates the effect of this provision in a particular
circumstance, deeming that resolution to be in the best interests of Company
stockholders; (b) during any period of two consecutive years, there shall cease
to be a majority of the Board comprised of individuals who at the beginning
of
such period constituted the Board; (c) the stockholders of the Company approve
a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto representing (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) less than fifty percent of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after
such merger or consolidation; or (d) Company stockholders approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of its assets.
2.7.
“
Code
”
.
means the Internal
Revenue Code of 1986, as amended from time to time, or any successor legislation
thereto.
2.8.
“
Committee
”
.
means the
Compensation Committee of the Board, appointed to administer the Plan, as
provided in Section 3.
2.9.
“
Company
”
.
means Caterpillar
Inc., a Delaware corporation, and any successor to such entity as provided
in
Section 18.
2.10.
“
Director
”
.
means any
individual who is a member of the Board.
2.11.
“
Disability
”
.
means, unless
otherwise provided for in an employment, change of control or similar agreement
in effect between the Participant and the Company or a Subsidiary or in an
Award
Document, (a) in the case of an Employee, the Employee qualifying for long-term
disability benefits under any long-term disability program sponsored by the
Company or Subsidiary in which the Employee participates, and (b) in the case
of
a Director, the inability of the Director to engage in any substantial gainful
business activity by reason of any medically determinable physical or mental
impairment that can be expected to result in death, or which has lasted or
can
be expected to last for a continuous period of not less than 12 months, as
determined by the Committee, based upon medical evidence.
2.12.
“
Effective
Date
”
.
means the date
specified in Section 1.3.
2.13.
“
Employee
”
.
means any employee
of the Company or any Subsidiary.
2.14.
“
Exchange
Act
”
.
means the
Securities Exchange Act of 1934, as amended from time to time, or any successor
act thereto.
2.15.
“
Fair
Market Value
”
.
means, as of any
given date, the fair market value of a Share on a particular date determined
by
such methods or procedures as may be established from time to time by the
Committee. Unless otherwise determined by the Committee, the Fair Market Value
of a Share as of any date shall be the mean between the high and low prices
at
which the Share is traded on the New York Stock Exchange for that date or,
if no
prices are reported for that date, the prices on the next preceding date for
which prices were reported. Notwithstanding the foregoing, unless otherwise
determined by the Committee, for purposes of Section 6.5(d) of the Plan, Fair
Market Value means the actual price at which the Shares used to acquire Shares
are sold.
2.16.
“
Family
Member
”
means any (a)
child; (b) stepchild; (c) grandchild; (d) parent; (e) stepparent; (f)
grandparent; (g) spouse; (h) former spouse; (i) sibling; (j) niece; (k) nephew;
(l) mother-in-law; (m) father-in-law; (n) son-in-law; (o) daughter-in-law;
(p)
brother-in-law; or (q) sister-in-law of the Participant (including adoptive
relationships). Family Member also shall mean any person sharing in the
Participant’s household (other than a tenant or an employee).
2.17.
“
Good
Reason
”
.
means,
except as
otherwise provided in an Award Document, the occurrence of any of the following
circumstances (unless such circumstances are fully corrected by the Company
before a Participant’s termination of employment):
(a)
the
Company’s
assignment of any duties materially inconsistent with the Participant’s position
within the Company, or which have a significant adverse alteration in the nature
or status of the responsibilities of the Participant’s employment;
or
(b)
a
material
reduction by the Company in the Participant’s annual base salary, unless such
reduction is part of a compensation reduction program affecting all similarly
situated management employees.
2.18.
“
Incentive
Stock Option
”
.
or
“
ISO
”
means the right to
purchase Shares pursuant terms and conditions that provide that such right
will
be treated as an incentive stock option within the meaning of Code Section
422,
as described in Section 6.
2.19.
“
Long
Service Separation
”
means, except as
otherwise provided in an Award Document, a termination of employment with the
Company or a Subsidiary after the attainment of age 55 and the completion of
ten
or more years of service with the Company and/or its Subsidiaries.
2.20.
“
Named
Executive Office
r”
.
means a
Participant who is one of the group of covered employees as defined in the
regulations promulgated under Code Section 162(m), or any successor provision
or
statute.
2.21.
“
Nonqualified
Stock Option
”
.
or
“
NQSO
”
.
means the right to
purchase Shares pursuant to terms and conditions that provide that such right
will not be treated as an Incentive Stock Option, as described in Section
6.
2.22.
“
Option
”
.
means an Incentive
Stock Option or a Nonqualified Stock Option, as described in Section
6.
2.23.
“
Option
Price
”
.
means the per
share price of a Share available for purchase pursuant to an
Option.
2.24.
“
Participant
”
.
means an Employee,
prospective Employee, Director, beneficiary or any other person who has
outstanding an Award granted under the Plan, and includes those former Employees
and Directors who have certain post-termination rights under the terms of an
Award granted under the Plan.
2.25.
“
Performance-Based
Exception
”
.
means the
exception for performance-based compensation from the tax deductibility
limitations of Code Section 162(m).
2.26.
“
Performance
Period
”
.
means the time
period during which performance goals must be achieved with respect to an Award,
as determined by the Committee.
2.27.
“
Performance
Share
”
.
means an Award
granted to a Participant, as described in Section 9.
2.28.
“
Performance
Unit
”
.
means an Award
granted to a Participant, as described in Section 9.
2.29.
“
Period
of Restriction
”
.
means the period
during which the transfer of Shares of Restricted Stock is limited in some
way,
and the Shares are subject to a substantial risk of forfeiture, as provided
in
Section 8.
2.30.
“
Permitted
Transferee
”
means any one or
more of the following: (a) Family Members; (b) a trust in which the Participant
and/or Family Members have more than fifty percent of the beneficial interest;
(c) a foundation in which the Participant and/or Family Members control the
management of the assets; or (d) any other entity in which the Participant
and/or Family Members own more than fifty percent of the voting
interests.
2.31.
“
Plan
”
.
means the
Caterpillar Inc. 2006 Long-Term Incentive Plan, as set forth
herein.
2.32.
“
Restricted
Stock
”
.
means an Award
granted to a Participant pursuant to Section 8.
2.33.
“
Section
16 Officer
”
means any Employee
who is considered an officer of the Company for purposes of Section 16 of the
Exchange Act.
2.34.
“
Share
”
or
“
Shares
”
.
means shares of
common stock of the Company.
2.35.
“
Stock
Appreciation Right
”
or
“
SAR
”
.
means an Award,
granted alone or in connection with a related Option, designated as an SAR,
pursuant to the terms of Section 7.
2.36.
“
Subsidiary
”
.
means
any
corporation,
partnership, joint venture, affiliate, or other entity in which the Company
is
at least a majority-owner of all issued and outstanding equity interests or
has
a controlling interest.
2.37.
“
Tandem
SAR
”
.
means a SAR that
is granted in connection with a related Option pursuant to Section 7, the
exercise of which shall require forfeiture of the right to purchase a Share
under the related Option (and when a Share is purchased under the Option, the
Tandem SAR shall similarly be forfeited).
2.38.
“
Non-Tandem
SAR
”
.
means a SAR that
is granted independently of any Options, as described in Section 7.
Section
3.
Administration
3.1.
Plan
Administration
.
The
Committee, or
any other committee appointed by the Board, shall administer the Plan. The
Committee or other committee appointed to administer the Plan shall consist
of
not less than two non-Employee Directors of the Company, within the meaning
of
Rule 16b-3 of the Exchange Act and not less than two outside directors, within
the meaning of Code Section 162(m). The Board may, from time to time, remove
members from, or add members to, the Committee. Members of the Board shall
fill
any vacancies on the Committee. Acts of a majority of the Committee at a meeting
at which a quorum is present, or acts reduced to or approved in writing by
unanimous consent of the members of the Committee, shall be valid acts of the
Committee.
3.2.
Authority
of the Committee
.
Except as limited
by law or by the Certificate of Incorporation or Bylaws of the Company, and
subject to the provisions herein, the Committee shall have full power to select
Employees, prospective Employees and Directors who shall participate in the
Plan; determine the sizes and types of Awards; determine the terms and
conditions of Awards in a manner consistent with the Plan; construe and
interpret the Plan and any agreement or instrument entered into under the Plan;
establish, amend, or waive rules and regulations for the Plan’s administration;
and amend the terms and conditions of any outstanding Award to the extent such
terms and conditions are within the sole discretion of the Committee as provided
in the Plan and subject to Section 16. Further, the Committee shall make all
other determinations, which may be necessary or advisable for the administration
of the Plan. As permitted by law, the Committee may delegate the authority
granted to it herein.
3.3.
Electronic
Administration
.
The Committee
may, in its discretion, utilize a system for complete or partial electronic
administration of the Plan and may replace any written documents described
in
the Plan with electronic counterparts, as appropriate.
3.4.
Decisions
Binding
.
All determinations
and decisions made by the Committee pursuant to the provisions of the Plan
and
all related orders and resolutions of the Board shall be final, conclusive
and
binding on all persons, including the Company, its stockholders, Employees,
Participants, and their estates and beneficiaries.
Section
4.
Shares
Subject to the Plan and Maximum Awards
4.1.
Shares
Available for Awards
.
(a)
The
Shares
available for Awards may be either authorized and unissued Shares or Shares
held
in or acquired for the treasury of the Company. The aggregate number of Shares
that may be issued or used for reference purposes under the Plan or with respect
to which Awards may be granted shall not exceed twenty million (20,000,000)
Shares, subject to adjustment as provided in Section 4.3. In addition, seventeen
million six hundred thousand (17,600,000) Shares authorized but unissued
pursuant to the Caterpillar Inc. 1996 Stock Option and Long-Term Incentive
Plan
shall be reserved and available for grant under the Plan. Notwithstanding the
foregoing, the aggregate number of Shares with respect to which ISOs may be
granted shall not exceed the number specified above, and provided further,
that
up to an aggregate of twenty percent (20%) of the authorized Shares under the
Plan may be issued with respect to Awards of Restricted Stock and up to an
aggregate of twenty percent (20%) of the authorized Shares under the Plan may
be
issued with respect to Awards of Performance Shares.
(b)
Upon:
(i)
a
payout of a
Non-Tandem SAR or Tandem SAR in the form of cash;
(ii)
a
cancellation,
termination, expiration, forfeiture, or lapse for any reason (with the exception
of the termination of a Tandem SAR upon exercise of the related Options, or
the
termination of a related Option upon exercise of the corresponding Tandem SAR)
of any Award; or
(iii)
payment
of an
Option Price or payout of any Award with previously acquired Shares or by
withholding Shares which otherwise would be acquired on exercise or issued
upon
such payout,
the
number of
Shares underlying any such Award that were not issued as a result of any of
the
foregoing actions shall again be available for the purposes of Awards under
the
Plan. In addition, in the case of any Award granted in substitution for an
award
of a company or business acquired by the Company or a Subsidiary, Shares issued
or issuable in connection with such substitute Award shall not be counted
against the number of Shares reserved under the Plan, but shall be available
under the Plan by virtue of the Company’s assumption of the plan or arrangement
of the acquired company or business.
4.2.
Individual
Participant Limitations
.
Unless and until
the Committee determines that an Award to a Named Executive Officer shall not
be
designed to comply with the Performance-Based Exception, the following rules
shall apply to grants of such Awards under the Plan:
(a)
Subject
to
adjustment as provided in Section 4.3, the maximum aggregate number of Shares
(including Options, SARs, Restricted Stock and Performance Shares to be paid
out
in Shares) that may be granted in any one fiscal year to a Participant shall
be
800,000 Shares.
(b)
Except
as otherwise
provided in Section 7.5(b) regarding SAR exercise, the maximum aggregate cash
payout (including Performance Units and Performance Shares paid out in cash)
with respect to Awards granted in any one fiscal year that may be made to any
Participant shall be $5 million.
4.3.
Adjustments
in Authorized Shares
.
In the event of
any change in corporate capitalization, such as a stock split, or a corporate
transaction, such as any merger, consolidation, separation, including a
spin-off, or other distribution of stock or property of the Company, any
reorganization (whether or not such reorganization comes within the definition
of such term in Code Section 368) or any partial or complete liquidation of
the
Company, an adjustment shall be made in the number and class of Shares available
for Awards, the number and class of and/or price of Shares subject to
outstanding Awards granted under the Plan and the number of Shares set forth
in
Sections 4.1 and 4.2, to prevent dilution or enlargement of rights. Such
adjustment shall be made in a manner determined by the Committee, in its sole
discretion, to be appropriate and equitable; provided, however, that (a) no
such
adjustment shall cause an increase in the fair value of an Award for purposes
of
Statement of Financial Accounting Standards No. 123 (revised 2004) or any
successor thereto; and (b) the number of Shares subject to any Award shall
always be a whole number by rounding any fractional Share (up or down) to the
nearest whole Share.
Section
5.
Eligibility
and Participation
5.1.
Eligibility
.
Persons eligible
to participate in the Plan include all current and future Employees (including
officers), persons who have been offered employment by the Company or a
Subsidiary (provided that such prospective Employee may not receive any payment
or exercise any right relating to an Award until such person begins employment
with the Company or Subsidiary), and Directors, as determined by the
Committee.
5.2.
Participation
.
Subject to the
provisions of the Plan, the Committee shall determine and designate, from time
to time, the Employees, prospective Employees, and Directors to whom Awards
shall be granted, the terms of such Awards, and the number of Shares subject
to
such Award.
5.3.
Foreign
Participants
.
In order to
assure the viability of Awards granted to Participants employed in foreign
countries, the Committee may provide for such special terms as it may consider
necessary or appropriate to accommodate differences in local law, tax policy,
or
custom. Moreover, the Committee may approve such supplements to, or amendments,
restatements, or alternative versions of the Plan as it may consider necessary
or appropriate for such purposes without thereby affecting the terms of the
Plan
as in effect for any other purpose; provided, however, that no such supplements,
amendments, restatements, or alternative versions shall increase the share
limitations contained in Section 4 of the Plan.
Section
6.
Stock
Options
6.1.
Grant
of Options
.
(a)
Option
Grant
.
Subject
to the
terms and provisions of the Plan, Options may be granted to one or more
Participants in such number, upon such terms and provisions, and at any time
and
from time to time, as determined by the Committee, in its sole discretion.
The
Committee may grant either Nonqualified Stock Options or (in the case of Options
granted to Employees) Incentive Stock Options, and shall have complete
discretion in determining the number of Options of each granted to each
Participant, subject to the limitations of Section 4. Each Option grant shall
be
evidenced by a resolution of the Committee approving the Option
grant.
(b)
Award
Document
.
All
Options shall
be evidenced by an Award Document. The Award Document shall specify the Option
Price, the term of the Option, the number of Shares subject to the Option,
and
such other provisions as the Committee shall determine, and which are not
inconsistent with the terms and provisions of the Plan. The Award Document
shall
also specify whether the Option is to be treated as an ISO within the meaning
of
Code Section 422. If such Option is not designated as an ISO, such Option shall
be a NQSO.
6.2.
Option
Price
.
The Committee
shall designate the Option Price for each Share subject to an Option under
the
Plan, provided that such Option Price shall not be less than 100% of the Fair
Market Value of Shares subject to an Option on the date the Option is granted,
and which Option Price may not be subsequently changed by the Committee except
pursuant to Section 4.3. With respect to a Participant who owns, directly or
indirectly, more than 10% of the total combined voting power of all classes
of
the stock of the Company or any Subsidiary, the Option Price of Shares subject
to an ISO shall be at least 110% of the Fair Market Value of such Shares on
the
ISO’s grant date.
6.3.
Term
of Options
.
Each Option
granted to a Participant shall expire at such time as the Committee shall
determine at the time of grant, but in no event shall be exercisable later
than
the 10th anniversary of the grant date. Notwithstanding the foregoing, with
respect to ISOs, in the case of a Participant who owns, directly or indirectly,
more than 10% of the total combined voting power of all classes of the stock
of
the Company or any Subsidiary, no such ISO shall be exercisable
later
than the
fifth anniversary of the grant date.
6.4.
Exercise
of Options
.
Options
granted
under this Section 6 shall be exercisable at such times and be subject to such
restrictions and conditions as the Committee shall in each instance approve,
which need not be the same for each grant or for each Participant, and shall
be
set forth in the applicable Award Document. Notwithstanding the preceding
sentence, the Fair Market Value of Shares to which ISOs are exercisable for
the
first time by any Participant during any calendar year (under all plans of
the
Company and its Subsidiaries) may not exceed $100,000. Any ISOs that become
exercisable in excess of such amount shall be deemed NQSOs to the extent of
such
excess. If the Award Document does not specify the time or times at which the
Option shall first become exercisable, such an Option shall become fully vested
and exercisable by the Participant on the third anniversary of the grant
date.
6.5.
Payment
.
Options
granted
under this Section 6 shall be exercised by the delivery of a notice of exercise
to the Company (or its designated agent(s)), setting forth the number of Shares
with respect to which the Option is to be exercised, accompanied by full payment
for the Shares. The Option Price upon exercise of any Option shall be payable
to
the Company in full either:
(a)
in
cash or its
equivalent, or
(b)
by
tendering
previously acquired Shares having an aggregate Fair Market Value at the time
of
exercise equal to the total Option Price, or
(c)
by
cashless
exercise through delivery of irrevocable instructions to a broker to promptly
deliver to the Company the amount of proceeds from a sale of shares having
a
Fair Market Value equal to the purchase price.
6.6.
Termination
of Employment or Service as a Director
.
The Committee, in
its sole discretion, shall set forth in the applicable Award Document the extent
to which a Participant shall have the right to exercise the Option or Options
following termination of his or her employment with the Company or any
Subsidiary or following termination of his or her service as a Director. Such
provisions need not be uniform among all Options issued pursuant to the Plan,
and may reflect distinctions based on the reasons for such termination,
including, but not limited to, termination for Cause or for Good Reason, or
reasons relating to the breach or threatened breach of restrictive covenants.
Subject to Section 15, in the event that a Participant’s Award Document
does not set forth such provisions, the following provisions shall
apply:
(a)
Long
Service Separation, Death or Disability
.
If
a Participant’s
employment with the Company and/or any Subsidiary or service as a Director
terminates by reason of Long Service Separation, death or Disability, to the
extent that the Option is not exercisable, all Shares covered by his or her
Options shall immediately become fully vested and shall remain exercisable
until
the earlier of (i) the remainder of the term of the Option, or (ii) 60 months
from the date of such termination. In the case of the Participant’s death, the
Participant’s beneficiary or estate may exercise the Option.
(b)
Termination
for Cause
.
If
a Participant’s
employment with the Company and/or any Subsidiary or service as a Director
terminates for Cause, all Options granted to such Participant shall expire
immediately and all rights to purchase Shares (vested or nonvested) under the
Options shall cease upon such termination.
(c)
Other
Termination
.
If
a Participant’s
employment with the Company and/or any Subsidiary or service as a Director
terminates for any reason other than Long Service Separation, death, Disability,
or for Cause, all Options shall remain exercisable until the earlier of (i)
the
remainder of the term of the Option, or (ii) 60 days from the date of such
termination. In such circumstance, the Option shall only be exercisable to
the
extent that it was exercisable as of such termination date and shall not be
exercisable with respect to any additional Shares.
6.7.
Restrictions
on Shares
.
The
Committee may
impose such restrictions on any Shares acquired pursuant to the exercise of
an
Option granted under this Section 6 as it may deem advisable, including, without
limitation, restrictions under applicable Federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, and under any blue sky or state or foreign securities
laws
applicable to such Shares.
6.8.
Transferability
of Options
.
(a)
Incentive
Stock Options
.
No
ISO granted
under the Plan may be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, other than by will or by the laws of descent and
distribution. Further, all ISOs granted to a Participant under the Plan shall
be
exercisable during his or her lifetime only by such Participant.
(b)
Nonqualified
Stock Options
.
NQSOs
may only be
transferred in accordance with this Section 6.8(b).
(i)
Except
as otherwise
provided in paragraph (ii) below or in an Award Document, no NQSO shall be
assignable or transferable by a Participant other than by will, by the laws
of
descent and distribution or pursuant to a Domestic Relations Order (as such
term
is defined in Section 414(p)(1)(B) of the Code).
(ii)
NQSOs
(whether
vested or unvested) held by (A) Participants who are Section 16 Officers; (B)
Participants who are Directors; or (C) any Participants who previously held
the
positions in clauses (A) and (B) may be transferred by gift or by domestic
relations order to one or more Permitted Transferees. NQSOs (whether vested
or
unvested) held by all other Participants and by Permitted Transferees may be
transferred by gift or by domestic relations order only to Permitted Transferees
upon the prior written approval of the Company’s Director of Compensation +
Benefits.
Section
7.
Stock
Appreciation Rights
7.1.
Grant
of SARs
.
(a)
SAR
Grant
.
Subject
to the
terms and provisions of the Plan, SARs may be granted to Participants in such
number, upon such terms and provisions, and at any time and from time to time,
as determined by the Committee in its sole discretion. The Committee may grant
Non-Tandem SARs, Tandem SARs, or any combination of these forms of SARs. The
Committee shall have complete discretion in determining the number of SARs
granted to each Participant (subject to Section 4) and, consistent with the
provisions of the Plan, in determining the terms and conditions pertaining
to
such SARs. The Committee shall designate, at the time of grant, the grant price
of a Non-Tandem SAR, which grant price shall not be less than 100% of the Fair
Market Value of a Share on the grant date of the SAR. The grant price of Tandem
SARs shall equal the Option Price of the related Option. Grant prices of SARs
shall not subsequently be changed by the Committee, except pursuant to
Section 4.3.
(b)
Award
Document
.
All
SARs shall be
evidenced by an Award Document. The Award Document shall specify the grant
price, the term of the SAR, and such other provisions as the Committee shall
determine, and which are not inconsistent with the terms and provisions of
the
Plan.
7.2.
Term
of SARs
.
The term of a SAR
granted under the Plan shall be determined by the Committee, in its sole
discretion; provided, however, that unless otherwise designated by the
Committee, such term shall not exceed ten years from the grant
date.
7.3.
Exercise
of Tandem SARs
.
Tandem
SARs may be
exercised for all or part of the Shares subject to the related Option upon
the
surrender of the right to exercise the equivalent portion of the related Option.
A Tandem SAR may be exercised only with respect to the Shares for which its
related Option is then exercisable. Notwithstanding any other provision of
the
Plan to the contrary, with respect to a Tandem SAR granted in connection with
an
ISO: (i) the Tandem SAR will expire no later than the expiration of the
underlying ISO; (ii) the value of the payout with respect to the Tandem SAR
may
be for no more than 100% of the difference between the Option Price of the
underlying ISO and the Fair Market Value of the Shares subject to the underlying
ISO at the time the Tandem SAR is exercised; and (iii) the Tandem SAR may be
exercised only when the Fair Market Value of the Shares subject to the ISO
exceeds the Option Price of the ISO.
7.4.
Exercise
of Non-Tandem SARs
.
Non-Tandem SARs
may be exercised upon whatever terms and conditions the Committee, in its sole
discretion, imposes upon them.
7.5.
Payment
of SAR Amount
.
(a)
Upon
exercise of a
SAR, a Participant shall be entitled to receive payment from the Company in
an
amount determined by multiplying:
(i)
The
excess of the
Fair Market Value of a Share on the date of exercise over the grant price;
by
(ii)
The
number of
Shares with respect to which the SAR is exercised.
(b)
Unless
otherwise
provided in the Award Document, the payment upon SAR exercise may be in cash,
in
Shares of equivalent value, or in some combination thereof. If, and to the
extent that the payment upon SAR exercise is made in cash, such cash payment
shall not be subject to the limitation of Section 4.2(b).
7.6.
Termination
of Employment or Service as a Director
.
The
Committee, in
its sole discretion, shall set forth in the applicable Award Document the extent
to which a Participant shall have the right to exercise the SAR or SARs
following termination of his or her employment with the Company or any
Subsidiary or following termination of his or her service as a Director. Such
provisions need not be uniform among all SARs issued pursuant to the Plan,
and
may reflect distinctions based on the reasons for such termination, including,
but not limited to, termination for Cause or for Good Reason, or reasons
relating to the breach or threatened breach of restrictive covenants. Subject
to
Section 15, in the event that a Participant’s Award Document does not set forth
such provisions, the following provisions shall apply:
(a)
Long
Service Separation, Death or Disability
.
If
a Participant’s
employment with the Company and/or any Subsidiary or service as a Director
terminates by reason of Long Service Separation, death or Disability, to the
extent that the SARs are not exercisable, all of his or her SARs shall
immediately become fully vested and shall remain exercisable until the earlier
of (i) the remainder of the term of the SAR, or (ii) 60 months from the date
of
such termination. In the case of the Participant’s death, the Participant’s
beneficiary or estate may exercise the SAR.
(b)
Termination
for Cause
.
If
a Participant’s
employment with the Company and/or any Subsidiary or service as a Director
terminates for Cause, all SARs shall expire immediately and all rights
thereunder shall cease upon such termination.
(c)
Other
Termination
.
If
a Participant’s
employment with the Company and/or any Subsidiary or service as a Director
terminates for any reason other than Long Service Separation, death, Disability,
or for Cause, all SARs shall remain exerciseable until the earlier of (i) the
remainder of the term of the SAR, or (ii) 60 days from the date of such
termination. In such circumstance, the SAR shall only be exercisable to the
extent it was exercisable as of such termination date and shall not be
exercisable with respect to any additional SARs.
7.7.
Transferability
of SARs
.
SARs
may only be
transferred in accordance with this Section 7.7.
(a)
Except
as otherwise
provided in paragraph (b) below or in an Award Document, no SAR shall be
assignable or transferable by a Participant other than by will, by the laws
of
descent and distribution or pursuant to a Domestic Relations Order (as such
term
is defined in Section 414(p)(1)(B) of the Code).
(b)
SARs
held by (i)
Participants who are Section 16 Officers; (ii) Participants who are Directors;
or (iii) any Participants who previously held the positions in clauses (i)
and
(ii) may be transferred by gift or by domestic relations order to one or
more
Permitted Transferees. SARs held by all other Participants and by Permitted
Transferees may be transferred by gift or by domestic relations order to
Permitted Transferees only upon the prior written approval of the Company’s
Director of Compensation and Benefits.
(c)
Notwithstanding
the
foregoing, with respect to a Tandem SAR granted in connection with an ISO,
no
such Tandem SAR may be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, other than by will or by the laws of descent and
distribution.
Section
8.
Restricted
Stock
8.1.
Grant
of
Restricted Stock
.
(a)
Grant
of
Restricted Stock
.
Subject
to the
terms and provisions of the Plan, the Committee, at any time and from time
to
time, may grant Shares of Restricted Stock to Participants in such amounts
as
the Committee shall determine.
(b)
Award
Document
.
All
shares of
Restricted Stock shall be evidenced by an Award Document. The Award Document
shall specify the Period or Periods of Restriction (consistent with the next
sentence), the number of Shares of Restricted Stock granted, and such other
provisions as the Committee shall determine pursuant to Section 8.3 or
otherwise, and which shall not be inconsistent with the terms and provisions
of
the Plan. Shares of Restricted Stock not in excess of five percent of the number
of shares that may be issued with respect to Awards of Restricted Stock, as
provided in Section 4.1, may have a Period or Periods of Restriction as
determined by the Committee in its sole discretion, and any other shares of
Restricted Stock shall have a Period of Restriction, as determined by the
Committee, that shall not lapse in any respect until on or after the third
anniversary of the grant date. If no Period of Restriction is set forth in
the
Award Document, the transfer and any other restrictions shall lapse (i) to
the
extent of one-third of the Shares (rounded to the nearest whole) covered by
the
Restricted Stock Award on the third anniversary of the grant date, (ii) to
the
extent of two-thirds of the Shares (rounded to the nearest whole) covered by
the
Restricted Stock Award on the fourth anniversary of the grant date, and (iii)
to
the extent of 100% of the Shares covered by the Restricted Stock Award on the
fifth anniversary of the grant date.
8.2.
Other
Restrictions
.
Subject
to Section
10 herein, the Committee may impose such other conditions and/or restrictions
on
any Shares of Restricted Stock granted pursuant to the Plan as it may deem
advisable including without limitation, a requirement that Shares will not
be
issued until the end of the applicable Period of Restriction, a requirement
that
Participants pay a stipulated purchase price for each Share of Restricted Stock,
restrictions based upon the achievement of specific performance goals
(Company-wide, Subsidiary-wide, divisional, and/or individual), time-based
restrictions on vesting, which may or may not be following the attainment of
the
performance goals, sales restrictions under applicable shareholder agreements
or
similar agreements, and/or restrictions under applicable Federal or state
securities laws. The Company shall retain the certificates representing Shares
of Restricted Stock in the Company’s possession until such time as all
conditions and/or restrictions applicable to such Shares have been satisfied.
Except as otherwise provided in this Section 8 or in any Award Document, Shares
of Restricted Stock covered by each Restricted Stock grant made under the Plan
shall become freely transferable by the Participant after the last day of the
applicable Period of Restriction.
8.3.
Voting
Rights
.
Unless otherwise
designated by the Committee at the time of grant, Participants to whom Shares
of
Restricted Stock have been granted hereunder may exercise full voting rights
with respect to those Shares during the Period of Restriction.
8.4.
Dividends
and Other Distributions
.
Unless otherwise
designated by the Committee at the time of grant, Participants holding Shares
of
Restricted Stock granted hereunder shall be credited with regular cash dividends
paid with respect to the underlying Shares while they are so held during the
Period of Restriction. The Committee may apply any restrictions to the dividends
that the Committee deems appropriate. Without limiting the generality of the
preceding sentence, if the grant or vesting of Shares of Restricted Stock
granted to a Named Executive Officer is designed to comply with the requirements
of the Performance-Based Exception, the Committee may apply any restrictions
it
deems appropriate to the payment of dividends declared with respect to such
Shares of Restricted Stock, such that the dividends and/or the Shares of
Restricted Stock maintain eligibility for the Performance-Based Exception.
In
the event that any dividend constitutes a derivative security or an equity
security pursuant to the rules under Section 16 of the Exchange Act, such
dividend shall be subject to a vesting period equal to the remaining vesting
period of the Shares of Restricted Stock with respect to which the dividend
is
paid.
8.5.
Termination
of Employment or Service as a Director
.
The
Committee, in
its sole discretion, shall set forth in the applicable Award Document the extent
to which the Participant shall have the right to receive unvested Shares of
Restricted Stock following termination of the Participant’s employment with the
Company and/or its Subsidiaries or termination of service as a Director. Such
provisions need not be uniform among all Shares of Restricted Stock issued
pursuant to the Plan, and may reflect distinctions based on the reasons for
termination of employment including; but not limited to, termination of
employment for Cause or for Good Reason, or reasons relating to the breach
or
threatened breach of restrictive covenants; provided, however that, except
in
the cases of terminations connected with a Change of Control and terminations
by
reason of death or Disability, the vesting of Shares of Restricted Stock that
qualify for the Performance-Based Exception and that are held by Named Executive
Officers shall not occur before the time they otherwise would have, but for
the
employment termination. Subject to Section 15, in the event that a Participant’s
Award Document does not set forth such termination provisions, the following
termination provisions shall apply:
(a)
Death
and Disability
.
Unless
the Award
qualifies for the Performance-Based Exception, if a Participant’s employment
with the Company and/or any Subsidiary or service as a Director is terminated
due to death or Disability, all Shares of Restricted Stock of such Participant
shall immediately become fully vested on the date of such termination and any
restrictions shall lapse.
(b)
Other
Termination
.
If
a Participant’s
employment with the Company and/or any Subsidiary or service as a Director
is
terminated for any reason other than death or Disability all Shares of
Restricted Stock that are unvested at the date of termination shall be forfeited
to the Company.
8.6.
Acceleration
of Vesting
.
Notwithstanding
anything in this Section 8 to the contrary, the Committee, in its sole
discretion, shall have the authority to accelerate the vesting of Shares of
Restricted Stock at any time.
8.7.
Transferability
.
Except as provided
in this Section 8, the Shares of Restricted Stock granted herein may not be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
voluntarily or involuntarily, until the end of the applicable Period of
Restriction established by the Committee and specified in the Award Document,
or
upon earlier satisfaction of any other conditions, as specified by the Committee
in its sole discretion and set forth in the Award Document. All rights with
respect to the Restricted Stock granted to a Participant under the Plan shall
be
available during his or her lifetime only to such Participant.
Section
9.
Performance
Units and Performance Shares
9.1.
Grant
of
Performance Units/Shares
.
(a)
Grant
of
Performance Unit/Shares
.
Subject
to the
terms of the Plan, Performance Units and/or Performance Shares may be granted
to
Participants in such amounts and upon such terms, and at any time and from
time
to time, as shall be determined by the Committee, which shall not be
inconsistent with the terms and provisions of the Plan and shall be set forth
in
an Award Document.
(b)
Award
Document
.
All
Performance
Units and Performance Shares shall be evidenced by an Award Document. The Award
Document shall specify the initial value of the Award, the performance goals
and
the Performance Period, as the Committee shall determine, and which are not
inconsistent with the terms and provisions of the Plan.
9.2.
Value
of
Performance Units/Shares
.
Each
Performance
Unit shall have an initial value (which may be $0) that is established by the
Committee at the time of grant. Each Performance Share shall have an initial
value equal to the Fair Market Value of a Share on the grant date. The Committee
shall set performance goals in its sole discretion which, depending on the
extent to which they are met will determine the number and/or value of
Performance Units and/or Performance Shares that will be paid out to the
Participant. For purposes of this Section 9, the time period during which the
performance goals must be met shall be called a Performance Period. Performance
Shares not in excess of five percent of the number of shares that may be issued
with respect to Awards of Performance Shares, as provided in Section 4.1, may
have a Performance Period as determined by the Committee in its sole discretion,
and any other Performance Shares shall have a Performance Period, as determined
by the Committee, of not less than one year.
9.3.
Earning
of Performance Units/Shares
.
Subject to the
terms of the Plan, after the applicable Performance Period has ended, the holder
of Performance Units and/or Performance Shares shall be entitled to receive
payout on the number and value of Performance Units and/or Performance Shares
earned by the Participant over the Performance Period, to be determined as
a
function of the extent to which the corresponding performance goals have been
achieved, as established by the Committee.
9.4.
Form
and
Timing of Payment of Performance Units/Shares
.
Except as provided
below, payment of earned Performance Units and/or Performance Shares shall
be
made in a single lump sum as soon as reasonably practicable following the close
of the applicable Performance Period. Subject to the terms of the Plan, the
Committee, in its sole discretion, may pay earned Performance Units and/or
Performance Shares in the form of cash or in Shares (or in a combination
thereof) which have an aggregate Fair Market Value equal to the value of the
earned Performance Units and/or Performance Shares at the close of the
applicable Performance Period. Such Shares may be granted subject to any
restrictions deemed appropriate by the Committee.
At the sole
discretion of the Committee, Participants may be entitled to receive any
dividends declared with respect to Shares which have been earned in connection
with grants of Performance Units and/or Performance Shares which have been
earned, but not yet distributed to Participants.
9.5.
Termination
of Employment or Service as a Director
.
The
Committee, in
its sole discretion, shall set forth in the applicable Award Document the extent
to which the Participant shall have the right to receive payment for Performance
Units and/or Performance Shares following termination of the Participant’s
employment with the Company and/or its Subsidiaries or termination of service
as
a Director. Such provisions need not be uniform among all Performance Units
and/or Performance Shares granted pursuant to the Plan, and may reflect
distinctions based on the reasons for such termination including; but not
limited to, termination for Cause or for Good Reason, or reasons relating to
the
breach or threatened breach of restrictive covenants. Subject to Section 15,
in
the event that a Participant’s Award Document does not set forth such
termination provisions, the following termination provisions shall
apply:
(a)
Long
Service Separation, Death or Disability
.
Subject
to Section
15, if a Participant’s employment with the Company and/or any Subsidiary or
service as a Director is terminated during a Performance Period due to Long
Service Termination, death or Disability, the Participant shall receive a
prorated payout of the Performance Units and/or Performance Shares, unless
the
Committee determines otherwise. The prorated payout shall be determined by
the
Committee, shall be based upon the length of time that the Participant held
the
Performance Units and/or Performance Shares during the Performance Period,
and
shall further be adjusted based on the achievement of the preestablished
performance goals. Unless the Committee determines otherwise in the event of
a
termination due to death, Disability or Long Service Separation, payment of
earned Performance Units and/or Performance Shares shall be made at the same
time as payments are made to Participants who did not terminate employment
during the applicable Performance Period.
(b)
Other
Termination
.
If
a Participant’s
employment with the Company and/or any Subsidiary or service as a Director
is
terminated during a Performance Period for any reason other than Long Service
Termination, death or Disability all Performance Units and/or Performance Shares
shall be forfeited by the Participant to the Company.
9.6.
Nontransferability
.
Except as
otherwise provided in a Participant’s Award Document, Performance Units and/or
Performance Shares may not be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, other than by will or by the laws of descent and
distribution. Further, except as otherwise provided in a Participant’s Award
Document, a Participant’s rights under the Plan shall be exercisable during the
Participant’s lifetime only by the Participant or the Participant’s legal
representative.
Section
10.
Performance
Measures
10.1.
Performance
Measures
.
Unless and until
the Committee proposes for stockholder vote and stockholders approve a change
in
the general performance measures set forth in this Section 10, the attainment
of
which may determine the degree of payout and/or vesting with respect to Awards
to Named Executive Officers that are designed to qualify for the
Performance-Based Exception, the performance goals to be used for purposes
of
such grants shall be established by the Committee in writing and stated in
terms
of the attainment of specified levels of or percentage changes in any one or
more of the following measurements: (a) revenue; (b) primary or fully-diluted
earnings per Share; (c) earnings before interest, taxes, depreciation, and/or
amortization; (d) pretax income; (d) cash flow from operations; (e) total cash
flow; (f) return on equity; (g) return on invested capital; (h) return on
assets; (i) net operating profits after taxes; (j) economic value added; (k)
total stockholder return; (l) return on sales; or (m) any individual performance
objective which is measured solely in terms of quantifiable targets related
to
the Company or the Company’s business; or any combination thereof. In addition,
such performance goals may be based in whole or in part upon the performance
of
the Company, a Subsidiary, division and/or other operational unit under one
or
more of such measures.
10.2.
Performance
Procedures
.
The degree of
payout and/or vesting of such Awards designed to qualify for the
Performance-Based Exception shall be determined based upon the written
certification of the Committee as to the extent to which the performance goals
and any other material terms and conditions precedent to such payment and/or
vesting have been satisfied. The Committee shall have the sole discretion to
adjust the determinations of the degree of attainment of the preestablished
performance goals; provided, however, that the performance goals applicable
to
Awards which are designed to qualify for the Performance-Based Exception, and
which are held by Named Executive Officers, may not be adjusted so as to
increase the payment under the Award (the Committee shall retain the sole
discretion to adjust such performance goals upward, or to otherwise reduce
the
amount of the payment and/or vesting of the Award relative to the
pre-established performance goals). In the event that applicable tax and/or
securities laws change to permit Committee sole discretion to alter the
governing performance measures without obtaining stockholder approval of such
changes, the Committee shall have sole discretion to make such changes without
obtaining stockholder approval. In addition, in the event that the Committee
determines that it is advisable to grant Awards which shall not qualify for
the
Performance-Based Exception, the Committee may make such grants without
satisfying the requirements of Code Section 162(m) and, thus, which use
performance measures other than those specified above.
Section
11.
Award
Forfeitures
11.1.
Forfeiture
of Options and Other Awards
.
Each Award granted
hereunder shall be subject to the following additional forfeiture conditions,
to
which the Participant, by accepting an Award hereunder, agrees. If any of the
events specified in Section 11.2 occurs (a “Forfeiture Event”), all of the
following forfeitures will result:
(a)
The
unexercised
portion of any Option, whether or not vested, and any other Award not then
settled (except for an Award that has not been settled solely due to an elective
deferral pursuant to Section 13 by the Participant and otherwise is not
forfeitable in the event of any termination of service of the Participant)
will
be immediately forfeited and canceled upon the occurrence of the Forfeiture
Event; and
(b)
The
Participant
will be obligated to repay to the Company, in cash, within five business days
after demand is made therefor by the Company, the total amount of Award Gain
(as
defined herein) realized by the Participant upon each exercise of an Option
or
settlement of an Award (regardless of any elective deferral pursuant to Section
13) that occurred on or after (i) the date that is six months before the
occurrence of the Forfeiture Event, if the Forfeiture Event occurred while
the
Participant was employed by the Company or a Subsidiary, or (ii) the date that
is six months before the date the Participant’s employment by, or service as a
Director with the Company or a Subsidiary terminated, if the Forfeiture Event
occurred after the Participant ceased to be so employed.
11.2.
Events
Triggering Forfeiture
.
The
forfeitures
specified in Section 11.1 will be triggered upon the occurrence of any one
of
the following Forfeiture Events at any time during the Participant’s employment
by or service as a Director with the Company or a Subsidiary or during the
one-year period following termination of such employment or
service:
(a)
Non-Solicitation
.
The
Participant,
for his or her own benefit or for the benefit of any other person, company
or
entity, directly or indirectly, (i) induces or attempts to induce or hires
or
otherwise counsels, induces or attempts to induce or hire or otherwise counsel,
advise, encourage or solicit any person to leave the employment of or the
service for the Company or any Subsidiary, (ii) hires or in any manner employs
or retains the services of any individual employed by or providing services
to
the Company or any Subsidiary as of the date of his or her termination of
employment, or employed by or providing services to the Company or any
Subsidiary subsequent to such termination, (iii) solicits, pursues, calls upon
or takes away, any of the customers of the Company or any Subsidiary, (iv)
solicits, pursues, calls upon or takes away, any potential customer of the
Company or any Subsidiary that has been the subject of a bid, offer or proposal
by the Company or any Subsidiary, or of substantial preparation with a view
to
making such a bid, proposal or offer, within six months before such
Participant’s termination of employment with the Company or any Subsidiary, or
(v) otherwise interferes with the business or accounts of the Company or any
Subsidiary.
(b)
Confidential
Information
.
The
Participant
discloses to any person or entity or makes use of any “confidential or
proprietary information” (as defined below in this subparagraph (b)) for his or
her own purpose or for the benefit of any person or entity, except as may be
necessary in the ordinary course of employment with or other service to the
Company or any Subsidiary. Such “confidential or proprietary information” of the
Company or any Subsidiary, includes, but is not limited to, the design,
development, operation, building or manufacturing of products manufactured
and
supplied by the Company and its Subsidiaries, the identity of the Company’s or
any Subsidiary’s customers, the identity of representatives of customers with
whom the Company or any Subsidiary has dealt, the kinds of services provided
by
the Company or any Subsidiary to customers and offered to be performed for
potential customers, the manner in which such services are performed or offered
to be performed, the service needs of actual or prospective customers, pricing
information, information concerning the creation, acquisition or disposition
of
products and services, customer maintenance listings, computer software and
hardware
applications
and
other programs, personnel information, information identifying, relating to
or
concerning investors in the Company or any Subsidiary, joint venture partners
of
the Company or any Subsidiary, business partners of the Company or any
Subsidiary or other entities providing financing to the Company or any
Subsidiary, real estate and leasing opportunities, communications and
telecommunications operations and processes, zoning and licensing matters,
relationships with, or matters involving, landlords and/or property owners,
and
other trade secrets.
11.3.
Agreement
Does Not Prohibit Competition or Other Participant
Activities
.
Although the
conditions set forth in this Section 11 shall be deemed to be incorporated
into
an Award, the Plan does not thereby prohibit the Participant from engaging
in
any activity, including but not limited to competition with the Company and
its
Subsidiaries. Rather, the non-occurrence of the Forfeiture Events set forth
in
Section 11.2 is a condition to the Participant’s right to realize and retain
value from his or her compensatory Awards, and the consequence under the Plan
if
the Participant engages in an activity giving rise to any such Forfeiture Event
are the forfeitures specified herein. This provision shall not preclude the
Company and the Participant from entering into other written agreements
concerning the subject matter of Sections 11.1 and 11.2 and, to the extent
any terms of this Section 11 are inconsistent with any express terms of such
agreement, this Section 11 shall not be deemed to modify or amend such
terms.
11.4.
Committee
Discretion
.
The Committee may,
in its sole discretion, waive in whole or in part the Company’s right to
forfeiture under this Section 11, but no such waiver shall be effective unless
evidenced by a writing signed by a duly authorized officer of the Company.
In
addition, the Committee may impose additional conditions on Awards, by inclusion
of appropriate provisions in the Award Document.
Nothing contained
herein shall require the Committee to enforce the forfeiture provisions of
this
Section 11. Failure to enforce these forfeiture provisions against any
individual shall not be construed as a waiver of the Company’s right to
forfeiture under this Section 11.
Section
12.
Beneficiary
Designation
12.1.
Beneficiary
Designations
.
Each Participant
under the Plan may, from time to time, name any beneficiary or beneficiaries
(who may be named contingently or successively) to whom any benefit under the
Plan is to be paid in case of his or her death before he or she receives any
or
all of such benefit. Each such designation shall revoke all prior designations
by the same Participant, shall be in a form prescribed by the Company, and
will
be effective only when filed by the Participant in writing with the Company
during the Participant’s lifetime. In the absence of any such designation,
benefits remaining unpaid at the Participant’s death shall be paid to the
Participant’s estate.
Section
13.
Deferrals
13.1.
Deferrals
.
The Committee may
permit a Participant to defer such Participant’s receipt of the payment of cash
or the delivery of Shares that would otherwise be due to such Participant upon
the exercise of any Option or by virtue of the lapse or waiver of restrictions
with respect to Restricted Stock, or the satisfaction of any requirements or
goals with respect to Performance Units/Shares. If any such deferral election
is
required or permitted, the Committee shall, in its sole discretion, establish
rules and procedures for such payment deferrals. All such deferrals (and rules
and procedures) shall be consistent with Code Section 409A and any other
applicable law.
Section
14.
Rights
and
Obligations of Parties
14.1.
No
Guarantee of Employment or Service Rights
.
Nothing in the
Plan shall interfere with or limit in any way the right of the Company to
terminate any Participant’s employment at any time, nor confer upon any
Participant any right to continue in the employ of the Company or any
Subsidiary.
14.2.
Temporary
Absence.
For purposes of
the Plan, temporary absence from employment because of illness, vacation,
approved leaves of absence, and transfers of employment among the Company and
its Subsidiaries, shall not be considered to terminate employment or to
interrupt continuous employment.
14.3.
Participation
.
No
Employee or
Director shall have the right to be selected to receive an Award under the
Plan,
or, having been so selected, to be selected to receive a future
Award.
14.4.
Right
of
Setoff
.
The Company or any
Subsidiary may, to the extent permitted by applicable law, deduct from and
set
off against any amounts the Company or Subsidiary may owe to the Participant
from time to time, including amounts payable in connection with any Award,
owed
as wages, fringe benefits, or other compensation owed to the Participant, such
amounts as may be owed by the Participant to the Company, although the
Participant shall remain liable for any part of the Participant’s payment
obligation not satisfied through such deduction and setoff. By accepting any
Award granted hereunder, the Participant agrees to any deduction or setoff
under
this Section 14.
14.5.
Section
83(b) Election
.
No
election
under
Section 83(b) of the Code (to include in gross income in the year of transfer
the amounts specified in Code Section 83(b)) or under a similar provision of
the
laws of a jurisdiction outside the United States may be made, unless expressly
permitted by the terms of the Award Document or by action of the Committee
in
writing before the making of such election. In any case in which a Participant
is permitted to make such an election in connection with an Award, the
Participant shall notify the Company of such election within ten days of filing
notice of the election with the Internal Revenue Service or other governmental
authority, in addition to any filing and notification required pursuant to
regulations issued under Code Section 83(b) or other applicable
provision.
14.6.
Disqualifying
Disposition Notification
.
If any Participant
shall make any disposition of Shares delivered pursuant to the exercise of
an
Incentive Stock Option under the circumstances described in Code Section 421(b)
(relating to certain disqualifying dispositions), such Participant shall notify
the Company of such disposition within ten days thereof.
Section
15.
Change
of
Control
15.1.
Change
of Control
.
If a
Participant’s employment or service with the Company and/or any Subsidiary
terminates either without Cause or for Good Reason within the 12 month period
following a Change of Control, unless otherwise specifically prohibited under
applicable laws, or by the rules and regulations of any governing governmental
agencies or national securities exchanges:
(a)
Any
and all Options
and SARs granted hereunder shall become immediately exercisable, and shall
remain exercisable throughout their entire term;
(b)
Any
Period of
Restriction and other restrictions imposed on Restricted Stock shall lapse;
and
(c)
Unless
otherwise
specified in an Award Document, the maximum payout opportunities attainable
under all outstanding Awards of Performance Units and Performance Shares shall
be deemed to have been fully earned for the entire Performance Period(s) as
of
the effective date of the Change of Control. The vesting of all such Awards
shall be accelerated as of the effective date of the Change of Control, and
in
full settlement of such Awards, there shall be paid out in cash to Participants
within 30 days following the effective date of the Change of Control the maximum
of payout opportunities associated with such outstanding Awards.
Section
16.
Amendment,
Modification, and Termination
16.1.
Amendment,
Modification, and Termination
.
The Board may
amend, suspend or terminate the Plan or the Committee’s authority to grant
Awards under the Plan without the consent of stockholders or Participants;
provided, however, that any amendment to the Plan shall be submitted to the
Company’s stockholders for approval not later than the earliest annual meeting
for which the record date is after the date of such Board action if such
stockholder approval is required by any federal or state law or regulation
or
the rules of any stock exchange or automated quotation system on which the
Shares may then be listed or quoted and the Board may otherwise, in its sole
discretion, determine to submit other amendments to the Plan to stockholders
for
approval; and provided further, that, without the written consent of an affected
Participant, no such Board action may materially and adversely affect the rights
of such Participant under any outstanding Award. The Committee shall have no
authority to waive or modify any other Award term after the Award has been
granted to the extent that the waived or modified term was mandatory under
the
Plan.
Section
17.
Withholding
17.1.
Tax
Withholding
.
The Company shall
have the power and the right to deduct or withhold, or require a Participant
to
remit to the Company, an amount sufficient to satisfy Federal, state, and local
taxes, domestic or foreign, required by law or regulation to be withheld with
respect to any taxable event arising as a result of the Plan.
17.2.
Share
Withholding
.
With respect to
withholding required upon the exercise of Options or SARs, upon the lapse of
restrictions on Restricted Stock, or upon any other taxable event arising as
a
result of Awards granted hereunder, the withholding requirement shall be
satisfied by the Company withholding Shares having a Fair Market Value on the
date the tax is to be determined equal to the minimum statutory total tax which
would be imposed on the transaction.
Section
18.
Miscellaneous
18.1.
Unfunded
Plan
.
The Plan is
intended to constitute an “unfunded” plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant or
obligation to deliver Shares pursuant to an Award, nothing contained in the
Plan
or any Award shall give any such Participant any rights that are greater than
those of a general creditor of the Company; provided that the Committee may
authorize the creation of trusts and deposit therein cash, Shares, other Awards
or other property, or make other arrangements to meet the Company’s obligations
under the Plan. Such trusts or other arrangements shall be consistent with
the
“unfunded” status of the Plan unless the Committee otherwise determines with the
consent of each affected Participant.
No such funding
shall be established that would cause an amount to be taxable under Code Section
409A before it is received by a Participant or cause an amount to be subject
to
additional tax under such Section.
18.2.
Forfeitures;
Fractional Shares
.
Unless otherwise
determined by the Committee, in the event of a forfeiture of an Award with
respect to which a Participant paid cash consideration, the Participant shall
be
repaid the amount of such cash consideration. No fractional Shares shall be
issued or delivered pursuant to the Plan or any Award. The Committee shall
determine whether cash, other Awards or other property shall be issued or paid
in lieu of such fractional Shares or whether such fractional Shares or any
rights thereto shall be forfeited or otherwise eliminated.
18.3.
Compliance
with Code Section 162(m)
.
The Company
intends that Options and SARs granted to Named Executive Officers and other
Awards designated as Awards to Named Executive Officers shall constitute
qualified “performance-based compensation” within the meaning of Code Section
162(m) and regulations thereunder, unless otherwise determined by the Committee
at the time of allocation of an Award. Accordingly, the terms of Sections 4.2,
6, 7, 8.5, 8.6, 9 and 10, including the definitions of Named Executive Officer
and other terms used therein, shall be interpreted in a manner consistent with
Code Section 162(m) and regulations thereunder. The foregoing notwithstanding,
because the Committee cannot determine with certainty whether a given
Participant will be a Named Executive Officer with respect to a fiscal year
that
has not yet been completed, the Committee may, in its discretion, extend the
terms of such Sections to any Participant that the Committee deems appropriate.
If any provision of the Plan or any Award Document relating to a Performance
Award that is designated as intended to comply with Code Section 162(m) does
not
comply or is inconsistent with the requirements of Code Section 162(m) or
regulations thereunder, such provision shall be construed or deemed amended
to
the extent necessary to conform to such requirements, and no provision shall
be
deemed to confer upon the Committee or any other person sole discretion to
increase the amount of compensation otherwise payable in connection with any
such Award upon attainment of the applicable performance
objectives.
18.4.
Gender
and Number; Headings
.
Except where
otherwise indicated by the context, any masculine term used herein also shall
include the feminine; the plural shall include the singular and the singular
shall include the plural. Headings are included for the convenience of reference
only and shall not be used in the interpretation or construction of any such
provision contained in the Plan.
18.5.
Severability
.
In the event any
provision of the Plan shall be held illegal or invalid for any reason, the
illegality or invalidity shall not affect the remaining parts of the Plan,
and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
18.6.
Successors
.
All obligations
of the Company under the Plan with respect to Awards granted hereunder shall
be
binding on any successor to the Company, whether the existence of such successor
is the result of a direct or indirect merger, consolidation, purchase of all
or
substantially all of the business and/or assets of the Company or
otherwise.
18.7.
Requirements
of Law
.
The granting of
Awards and the issuance of Shares under the Plan shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be
required.
18.8.
Securities
Law Compliance
.
With
respect to
“insiders,” transactions under the Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the Exchange Act.
To
the extent any provision of the Plan or action by the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Committee. An “insider” includes any individual who is,
on the relevant date, an officer, Director or more than 10% beneficial owner
of
any class of the Company’s equity securities that is registered pursuant to
Section 12 of the Exchange Act, all as defined under Section 16 of the Exchange
Act.
18.9.
Governing
Law
.
To
the extent not
preempted by Federal law, the Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Illinois
without regard to the conflict of law provisions thereof.
Exhibit
10.6
CATERPILLAR
INC.
DIRECTORS’
DEFERRED COMPENSATION PLAN
(Amended
and
Restated as of January 1, 2005)
CATERPILLAR
INC.
DIRECTORS’
DEFERRED COMPENSATION PLAN
(Amended
and
Restated as of January 1, 2005)
PREAMBLE
Previously,
Caterpillar Inc. (the “Company”) adopted the Caterpillar Inc. Directors’
Deferred Compensation Plan (the “Plan”) to provide members of its Board of
Directors with an opportunity to defer the payment of compensation. The Plan
has
been amended and/or restated on a number of occasions with the most recent
amendment and restatement being effective as of April 12, 1999. By execution
of
this document, the Company amends and restates the Plan effective as of January
1, 2005 to comply with the requirements of Section 409A of the Internal Revenue
Code of 1986, as amended.
ARTICLE
I
DEFINITIONS
1.1
General
.
When a word or
phrase appears in the Plan with the initial letter capitalized, and the word
or
phrase does not begin a sentence, the word or phrase shall generally be a term
defined in this Article I. The following words and phrases used in the Plan
with the initial letter capitalized shall have the meanings set forth in this
Article I, unless a clearly different meaning is required by the context in
which the word or phrase is used or the word or phrase is defined for a limited
purpose elsewhere in the Plan document:
(a)
“
Board
”
means the Board of
Directors of the Company, or any authorized committee of the Board.
(b)
“
C+B
Officer
”
means
the
Company’s Director of Compensation + Benefits.
(c)
“
Code
”
means the Internal
Revenue Code of 1986, as amended from time to time, and any regulations
promulgated thereunder.
(d)
“
Company
”
means Caterpillar
Inc., and, to the extent provided in Section 9.7 (
Successors
)
below, any
successor corporation or other entity resulting from a merger or consolidation
into or with the Company or a transfer or sale of substantially all of the
assets of the Company.
(e)
“
Company
Share Equivalent Account
”
means the
hypothetical investment fund described in Section 5.4 (
Special
Company
Share Equivalent Account Provisions
).
(f)
“
Company
Stock
”
means common stock
issued by the Company.
(g)
“
Compensation
”
means the cash
remuneration payable from time to time to a Director for services as a Director.
Compensation shall include such remuneration attributable to annual fees, fees
payable for attendance at meetings and fees payable for other services performed
for or on behalf of the Company. Compensation shall not include expense
reimbursements. Compensation also shall not include equity and equity-equivalent
grants or gains realized on the sale of shares, the exercise or other
disposition of options, or similar transactions related to equity equivalents.
Page
1
(h)
“
Deferral
Account
”
means
the
bookkeeping account maintained under the Plan to record amounts deferred under
Section 3.3 (
Deferrals
).
(i)
“
Deferral
Agreement
”
means the deferral
agreement(s) described in Section 3.1 (
Deferral
Agreement
)
that are entered
into by a Participant pursuant to the Plan.
(j)
“
Deferrals
”
means the
deferrals made by a Participant in accordance with Section 3.3 (
Deferrals
).
(k)
“
Director
”
means a member of
the Board.
(l)
“
Disability”
or “Disabled
”
means that a
Participant (1) is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment which can
be
expected to result in death or can be expected to last for a continuous period
of not less than 12 months, or (2) is, by reason of any medically determinable
physical or mental impairment which can be expected to result in death or can
be
expected to last for a continuous period of not less than 12 months, receiving
income replacement benefits for a period of not less than three months under
an
accident and health plan covering employees of the Participant’s
employer.
(m)
“
Distribution
Election Form
”
means
the
election form by which a Participant elects the manner in which his accounts
shall be distributed pursuant to Section 6.3 (
Form
of
Distribution
).
(n)
“
Effective
Date
”
means January 1,
2005.
(o)
“
Interest
Fund
”
means the
hypothetical investment fund described in Section 5.3 (Special Interest Fund
Provisions).
(p)
“
Investment
Funds
”
means the Interest
Fund and the Caterpillar Share Equivalent Account.
(q)
“
Key
Employee
”
means a “key
employee” as defined in Section 416(i) of the Code without regard to
Section 416(i)(5).
(r)
“
Participant
”
means a Director
who affirmatively elects to participate in the Plan pursuant to Section 2.1
(
Eligibility
).
(s)
“
Plan
”
means the
Caterpillar Inc. Directors’ Deferred Compensation Plan, as set forth
herein.
(t)
“
Plan
Administrator
”
means
the C+B
Officer. The Plan Administrator may delegate his authority hereunder in his
sole
and absolute discretion.
(u)
“
Plan
Year
”
means the calendar
year.
(v)
“
Separation
from Service
”
means
separation
from service as determined in accordance with any regulations, rulings or other
guidance issued by the Department of the Treasury pursuant to Section
409A(a)(2)(A)(i) of the Code, as it may be amended or replaced from time to
time.
(w)
“
Unforeseeable
Emergency
”
means a severe
financial hardship to the Participant resulting from an illness or accident
of
the Participant, the Participant’s spouse, or a dependent (as defined in section
152(a) of the Code) of the Participant, loss of the Participant’s property due
to casualty, or other similar extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the Participant. For
purposes of the Plan, an “Unforeseeable Emergency” shall not include a
Participant’s need to send his or her child to college or a Participant’s desire
to purchase a home.
(x)
“
Valuation
Date
”
means,
except as
otherwise provided herein, the last day of each month of the Plan
Year.
1.2
Construction
.
The
masculine
gender, when appearing in the Plan, shall include the feminine gender (and
vice
versa), and the singular shall include the plural, unless the Plan clearly
states to the contrary. Headings and subheadings are for the purpose of
reference only and are not to be considered in the construction of the Plan.
If
any provision of the Plan is determined to be for any reason invalid or
unenforceable, the remaining provisions shall continue in full force and effect.
All of the provisions of the Plan shall be construed and enforced according
to
the laws of the State of Illinois and shall be administered according to the
laws of such state, except as otherwise required by ERISA, the Code, or other
Federal law.
ARTICLE
II
ELIGIBILITY
2.1
Eligibility
.
Any Director who
is not an Employee of the Company or any of its affiliates is eligible to
participate in the Plan. An eligible Director shall elect to participate in
the
Plan by completing a Deferral Agreement as provided in Section 3.1 (
Deferral
Agreement
).
ARTICLE
III
DEFERRALS
3.1
Deferral
Agreement
.
In order to make
Deferrals, a Participant must complete a Deferral Agreement in the form
prescribed by the Plan Administrator. In the Deferral Agreement, the Participant
shall agree to reduce his Compensation in exchange for Deferrals. The Deferral
Agreement shall be delivered to the Plan Administrator (or his designee) by
the
time specified in Section 3.2 (
Timing
of
Deferral Elections
).
An election made
by a Participant pursuant to a Deferral Agreement shall be irrevocable with
respect to the Plan Year covered by the election. Notwithstanding the foregoing,
the Plan Administrator may permit a Participant to revoke an election if the
Participant has experienced an Unforeseeable Emergency, but only to the extent
that revoking the election would help the Participant meet the related emergency
need.
3.2
Timing
of Deferral Elections
.
(a)
General
Rule
.
Deferral
Agreements shall be completed by the Director and delivered to the Plan
Administrator prior to the beginning of the Plan Year in which the Compensation
to be deferred is otherwise payable to the Director. The Deferral Agreement
will
remain in effect from year-to-year until changed by the Participant in
accordance with the preceding sentence. The Plan Administrator, in his
discretion, may require an earlier time by which the election to defer
Compensation must be completed.
(b)
Initial
Deferral Election
.
For the Plan Year
in which a Director first becomes eligible to participate in the Plan (but
only
if the Director has never been eligible to participate in another “account
balance plan,” other than a separation pay plan, of the Company or an affiliate
that is aggregated with the Plan under Section 409A of the Code), the Director
may elect to make Deferrals and with respect to services to be performed
subsequent to the date of the election by completing and delivering a Deferral
Agreement within 30 days after the date the Director becomes eligible to
participate in the Plan.
3.3
Amount
of Deferrals
.
Any Participant
may elect to defer, pursuant to a Deferral Agreement, the receipt of 50% to
100%
(designated in whole percentages) of the Compensation otherwise payable to
the
Participant by the Company in any Plan Year. The amount deferred pursuant to
this Section 3.3 shall be allocated to the Deferral Account maintained for
the
Participant.
ARTICLE
IV
VESTING
4.1
Vesting
.
Subject to
Section 9.1 (
Participant’s
Rights Unsecured
),
each Participant
shall at all times be fully vested in all amounts credited to or allocable
to
his Deferral Account and his rights and interest therein shall not be
forfeitable for any reason.
ARTICLE
V
INVESTMENT
OF ACCOUNTS
5.1
Adjustment
of Accounts
.
Except as
otherwise provided elsewhere in the Plan, as of each Valuation Date, each
Participant’s Accounts will be adjusted to reflect deferrals under
Article III (
Deferrals
)
and the positive
or negative rate of return on the Investment Funds selected by the Participant
pursuant to Section 5.2(b) (
Investment
Direction - Participant Directions
).
The rate of
return will be credited or charged in accordance with policies applied uniformly
to all Participants.
5.2
Investment
Direction
.
(a)
Investment
Funds
.
Each Participant
may direct the hypothetical investment of amounts credited to his Plan accounts
in the Investment Funds.
(b)
Participant
Directions
.
Each Participant
may direct that all of the amounts attributable to his accounts be invested
in
either the Company Share Equivalent Account or Interest Fund or may direct
that
fractional (percentage) increments of his accounts be invested in the Company
Share Equivalent Account and Interest Fund as he shall desire in accordance
with
such procedures as may be established by the Plan Administrator.
(c)
Changes
and Intra-Fund Transfers
.
Participant
investment directions may be changed, and amounts may be transferred between
the
Investment Funds, in accordance with the procedures established by the Plan
Administrator. The designation will remain in effect until changed by the timely
submission of a new designation.
(d)
Default
Selection
.
In the absence of
any designation, a Participant will be deemed to have directed the investment
of
his accounts in the Interest Fund.
(e)
Impact
of Election
.
The Participant’s
selection of Investment Funds shall serve only as a measurement of the value
of
the Participant’s Accounts pursuant to Section 5.1 (
Adjustment
of
Accounts
)
and this
Section 5.2. Neither the Company nor the Plan Administrator is required to
actually invest a Participant’s accounts in accordance with the Participant’s
selections.
(f)
Investment
Performance
.
Accounts shall be
adjusted on each Valuation Date to reflect investment gains and losses as if
the
accounts were invested in the hypothetical Investment Funds selected by the
Participants in accordance with this Section 5.2 and charged with any and
all reasonable expenses as provided in paragraph (g) below. The earnings and
losses determined by the Plan Administrator in good faith and in his discretion
pursuant to this Section shall be binding and conclusive on the Participant,
the
Participant’s beneficiary and all parties claiming through them.
(g)
Charges
.
The Plan
Administrator may (but is not required to) charge Participants’ accounts for the
reasonable expenses of administration including, but not limited to, carrying
out and/or accounting for investment instructions directly related to such
accounts.
5.3
Special
Interest Fund Provisions
.
(a)
General
.
The Interest Fund
shall accrue interest at a rate equal to (i) prior to January 1, 2007, the
base
corporate lending rate (sometimes referred to as the “prime rate”) applicable to
commercial lending customers of Citibank, N.A., New York, New York (or any
successor thereto); or (ii) from and after January 1, 2007, the rate on U.S.
Treasury Notes with a maturity of ten years. Such interest shall accrue and
compound quarterly and be determined as of the last business day of each
calendar quarter.
(b)
Installment
Distributions Commencing Prior to January 1, 2007
.
Notwithstanding
the provisions of Section 5.3(a) (
Special
Interest
Fund Provisions - General
)
to the contrary,
if a Participant elected to receive installment distributions pursuant to
Section 6.3 (
Form
of
Distribution
)
and such
distributions commenced on or before December 31, 2006, interest shall accrue
to
such Participants’ accounts at a rate equal to the base corporate lending rate
(sometimes referred to as the “prime rate”) applicable to commercial lending
customers of Citibank, N.A., New York, New York (or any successor
thereto).
5.4
Special
Company Share Equivalent Account Provisions
.
(a)
General
.
A Participant’s
interest in the Company Share Equivalent Account shall be expressed in whole
and
fractional hypothetical units of the Company Share Equivalent Account. As a
general matter, the Company Share Equivalent Account shall track an investment
in Company Stock and shall generally reflect share ownership for events such
as
stock splits. Dividend equivalents will accrue to the Company Share Equivalent
Account quarterly and will be reinvested. Because investment in the Company
Share Equivalent Account is investment in a hypothetical account, there shall
be
no voting or similar rights associated therewith. The units shall be determined
by dividing the amount of deferred into the Company Share Equivalent Account
(or
dividends credited) by the average of the high and low prices of Company Stock
on the New York Stock Exchange on the date of such deferral or dividend credit
(or the next succeeding trading day if there is no trading on that
date).
Page
5
(b)
Investment
Directions
.
A Participant’s
ability to direct investments into or out of the Company Share Equivalent
Account shall be subject to such procedures as the Plan Administrator may
prescribe from time to time to assure compliance with Rule 16b-3 promulgated
under Section 16(b) of the Securities Exchange Act of 1934, as amended, and
other applicable requirements. Such procedures also may limit or restrict
a
Participant’s ability to make (or modify previously made) deferral and
distribution elections pursuant to Articles III and VI, respectively. In
furtherance, and not in limitation, of the foregoing, to the extent a
Participant acquires any interest in an equity security under the Plan for
purposes of Section 16(b), the Participant shall not dispose of that interest
within six months, unless specifically exempted by Section 16(b) or any rules
or
regulations promulgated thereunder.
(c)
Compliance
with Securities Laws
.
Any election by a
Participant to hypothetically invest any amount in the Company Share Equivalent
Account, and any elections to transfer amounts from or to the Company Share
Equivalent Account to or from any other Investment Fund, shall be subject to
all
applicable securities law requirements, including but not limited to the last
sentence of paragraph (b) next above and Rule 16b-3 promulgated by the
Securities Exchange Commission. To the extent that any election violates any
securities law requirement, or the Company’s stock trading policies and
procedures, the election shall be void.
(d)
Compliance
with Company Trading Policies and Procedures
.
Any election by a
Participant to hypothetically invest any amount in the Company Share Equivalent
Account, and any elections to transfer amounts from or to the Company Share
Equivalent Account to or from the other Investment Fund, shall be subject to
all
Company Stock trading policies promulgated by the Company. To the extent that
any election violates any such trading policy or procedures, the election shall
be void.
ARTICLE
VI
DISTRIBUTIONS
6.1
Limitation
on Right to Receive Distribution
.
A
Participant (or
the Participant’s beneficiary in the case of the Participant’s death) shall not
be entitled to receive a distribution prior to the first to occur of the
following events:
(a)
The
Participant’s
Separation from Service, or, in the case of a Participant who is a Key Employee,
the date which is six months after the Participant’s Separation from
Service;
(b)
The
date the
Participant becomes Disabled;
(c)
The
Participant’s
death;
(d)
A
specified time
(or pursuant to a fixed schedule) specified at the date of deferral of
compensation;
(e)
An
Unforeseeable
Emergency; or
(f)
To
the extent
provided by the Secretary of the Treasury, a change in the ownership or
effective control of the Company or in the ownership of a substantial portion
of
the assets of the Company.
The
provisions of
this Section 6.1 are intended to impose restrictions on distributions. This
Section 6.1 does not describe the instances in which distributions will be
made. Rather, distributions will be made only if and when permitted both by
this
Section 6.1 and another provision of the Plan.
6.2
General
Right to Receive Distribution
.
Following
a
Participant’s Separation from Service or Disability, the Participant’s Plan
accounts will be distributed to the Participant at the time and in the manner
provided in Sections 6.5 (
Timing
of
Distribution
)
and 6.3
(
Form
of
Distribution
).
6.3
Form
of
Distribution
.
Accounts shall be
distributed in cash in a single lump sum payment or in up to ten annual
installments. Distributions shall be subject to such uniform rules and
procedures as may be adopted by the Plan Administrator from time to time. The
method of payment shall be selected by the Participant in the initial
Distribution Election Form (which may be contained in and be a part of a
Deferral Agreement) submitted by the Participant to the Plan Administrator
on
entry into the Plan.
6.4
Amount
of Distribution
.
The amount
distributed to a Participant shall equal the sum of the vested amounts credited
to the Participant’s accounts as of the Valuation Date immediately preceding the
date of the distribution. Amounts invested in the Company Share Equivalent
Account shall be based on the fair market value of the Company Stock on the
relevant Valuation Date determined pursuant to uniform and non-discriminatory
rules established by the Plan Administrator.
6.5
Timing
of Distribution
.
Funds will be
distributed (or in the case of installment distributions, such installments
shall commence) as soon as practicable after the January 1 coincident with
or
next following the Participant’s Separation from Service (but not sooner than
the six-month anniversary of such Separation in the case of a Key Employee).
Notwithstanding the foregoing, in the event that Separation from Service occurs
due to death or Disability, funds may be distributed in a lump sum as soon
as
practicable after Separation from Service.
6.6
Payment
Upon Death
.
(a)
If
a Participant
should die before receiving a full distribution of his Plan accounts,
distribution shall be made to the beneficiary designated by the Participant.
If
a Participant has not designated a beneficiary, or if no designated beneficiary
is living on the date of distribution, such amounts shall be distributed to
the
Participant’s estate.
(b)
Timing
and Form of Payment to Beneficiary
.
(i)
Payments
Commenced at Time of Death
.
If,
at the time of
the Participant’s death, installment payments of the Participant’s accounts has
commenced pursuant to this Article VI,
such payments
shall continue to the Participant’s beneficiary in the same time and the same
form as if the Participant has remained alive until the last installment payment
was scheduled to be made.
(ii)
Payments
Not Commenced at Time of Death
.
If, at the time
of the Participant’s death, payments of the Participant’s accounts has not
commenced pursuant to this Article VI, the distributions made pursuant to this
Section 6.7 shall be made to the Participant’s beneficiary in accordance with
the then current and valid distribution election made by the Participant (or,
in
the absence of such a distribution election, in accordance with the “default”
provisions of Section 6.3 (Form of Distribution)).
6.7
Payment
Upon Unforeseeable Emergency
.
Notwithstanding
any provision of the Plan to the contrary, if a Participant incurs an
Unforeseeable Emergency, the Participant may elect to make a withdrawal from
the
adjusted balance of the Participant’s account. Distribution shall only be made
on account of Unforeseeable Emergency if, as determined under regulations of
the
Secretary of the Treasury, the amounts distributed with respect to an emergency
do not exceed the amounts necessary to satisfy such emergency plus amounts
necessary to pay taxes reasonably anticipated as a result of the distribution,
after taking into account the extent to which such hardship is or may be
relieved:
(a)
through
reimbursement or compensation by insurance or otherwise;
(b)
by
liquidation of
the Participant’s assets, to the extent the liquidation of such assets would not
itself cause severe financial hardship; or
(c)
by
cessation of
deferrals under the Plan.
A
Participant who
wishes to receive a distribution pursuant to this Section 6.8 shall apply for
such distribution to the Plan Administrator and shall provide information to
the
Plan Administrator reasonably necessary to permit the Plan Administrator to
determine whether an Unforeseeable Emergency exists and the amount of the
distribution reasonably needed to satisfy the emergency need.
6.8
De
Minimis Distribution
.
Subject to
Section 6.5 (
Timing
of
Distribution
)
regarding Key
Employees, if a Participant incurs a Separation from Service and as of the
“payment date,” the value of the Participant’s accounts is $10,000.00 or less,
the Participant’s accounts shall be distributed to the Participant in a single
lump sum regardless of any elections made by the Participant pursuant to Section
6.3 (
Form
of
Distribution
).
For purposes of
this Section 6.9, the “payment date” shall be the date on which the
Participant’s accounts are distributed pursuant to this Section 6.9. In no event
shall the “payment date” be later than the later of (a) December 31 of the Plan
Year in which the Participant’s Separation of Service occurs and (b) the date
which is two and one-half months immediately following the Participant’s
Separation from Service.
6.9
Withholding
.
All distributions
will be subject to all applicable tax and withholding requirements.
6.10
Ban
on
Acceleration of Benefits
.
Notwithstanding
any other provision of the Plan to the contrary, neither the time nor the
schedule of any payment under the Plan may be accelerated except as provided
in
regulations or other guidance issued by the Internal Revenue Service or the
Department of the Treasury.
ARTICLE
VII
ADMINISTRATION
OF THE PLAN
7.1
General
Powers and Duties
.
(a)
General
.
The Plan
Administrator shall perform the duties and exercise the powers and discretion
given to him in the Plan document and by applicable law and his decisions and
actions shall be final and conclusive as to all persons affected thereby. The
Company and the Adopting Affiliates shall furnish the Plan Administrator with
all data and information that the Plan Administrator may reasonably require
in
order to perform his functions. The Plan Administrator may rely without question
upon any such data or information.
(b)
Disputes
.
Any and all
disputes that may arise involving Participants or beneficiaries shall be
referred to the Plan Administrator and his decision shall be final. Furthermore,
if any question arises as to the meaning, interpretation or application of
any
provisions of the Plan, the decision of the Plan Administrator shall be
final.
(c)
Agents
.
The Plan
Administrator may engage agents, including recordkeepers, to assist him and
he
may engage legal counsel who may be counsel for the Company. The Plan
Administrator shall not be responsible for any action taken or omitted to be
taken on the advice of such counsel, including written opinions or certificates
of any agent, counsel, actuary or physician.
(d)
Insurance
.
At the C+B
Officer’s request, the Company shall purchase liability insurance to cover the
C+B Officer in his activities as the Plan Administrator.
(e)
Allocations
.
The Plan
Administrator is given specific authority to allocate responsibilities to others
and to revoke such allocations. When the Plan Administrator has allocated
authority pursuant to this paragraph, the Plan Administrator is not to be liable
for the acts or omissions of the party to whom such responsibility has been
allocated.
(f)
Records
.
The Plan
Administrator shall supervise the establishment and maintenance of records
by
its agents, the Company and each Adopting Affiliate containing all relevant
data
pertaining to any person affected hereby and his or her rights under the Plan.
In addition, the Plan Administrator may, in its discretion, establish a system
for complete or partial electronic administration of the Plan and may replace
any written documents described in the Plan with electronic counterparts as
it
deems appropriate.
(g)
Interpretations
.
The Plan
Administrator, in his sole discretion, shall interpret and construe the
provisions of the Plan (and any underlying documents or policies).
(h)
Electronic
Administration
.
The Plan
Administrator shall have the authority to employ alternative means (including,
but not limited to, electronic, internet, intranet, voice response or
telephonic) by which Participants may submit elections, directions and forms
required for participation in, and the administration of, the Plan. If the
Plan
Administrator chooses to use these alternative means, any elections, directions
or forms submitted in accordance with the rules and procedures promulgated
by
the Plan Administrator will be deemed to satisfy any provision of the Plan
calling for the submission of a written election, direction or
form.
(i)
Accounts
.
The Plan
Administrator shall combine the various accounts of a Participant if he deems
such action appropriate. Furthermore, the Plan Administrator shall divide a
Participant’s accounts into sub-accounts if he deems such action
appropriate.
The
foregoing list
of powers and duties is not intended to be exhaustive, and the Plan
Administrator shall, in addition, exercise such other powers and perform such
other duties as he may deem advisable in the administration of the Plan, unless
such powers or duties are expressly assigned to another pursuant to the
provisions of the Plan.
ARTICLE
VIII
AMENDMENT
8.1
Amendment
.
The Company
reserves the right to amend the Plan when, in the sole discretion of the
Company, such amendment is advisable.
8.2
Effect
of Amendment
.
Any amendment of
the Plan shall apply prospectively only and shall not directly or indirectly
reduce the balance of any Plan account as of the effective date of such
amendment.
8.3
Termination
.
The Company
expressly reserves the right to terminate the Plan. In the event of termination,
the Company shall specify whether termination will change the time at which
distributions are made; provided that any acceleration of a distribution is
consistent with Section 409A of the Code. In the absence of such
specification, the timing of distributions shall be unaffected by
termination.
ARTICLE
IX
GENERAL
PROVISIONS
9.1
Participant’s
Rights Unsecured
.
The Plan at all
times shall be entirely unfunded and no provision shall at any time be made
with
respect to segregating any assets of the Company for payment of any
distributions hereunder. The right of a Participant or his or her designated
beneficiary to receive a distribution hereunder shall be an unsecured claim
against the general assets of the Company, and neither the Participant nor
a
designated beneficiary shall have any rights in or against any specific assets
of the Company. All amounts credited to a Participant’s accounts hereunder shall
constitute general assets of the Company and may be disposed of by the Company
at such time and for such purposes as it may deem appropriate. Nothing in this
Section shall preclude the Company from establishing a “Rabbi Trust,” but the
assets in the Rabbi Trust must be available to pay the claims of the Company’s
general creditors in the event of the Company’s insolvency.
9.2
No
Guaranty of Benefits
.
Nothing contained
in the Plan shall constitute a guaranty by the Company or any other person
or
entity that the assets of the Company will be sufficient to pay any benefit
hereunder.
9.3
Section
409A Compliance
.
The Company
intends that the Plan meet the requirements of Section 409A of the Code and
the
guidance issued thereunder. The Plan shall be construed and interpreted in
a
manner consistent with that intention.
9.4
Spendthrift
Provision
.
No interest of
any person or entity in, or right to receive a distribution under, the Plan
shall be subject in any manner to sale, transfer, assignment, pledge,
attachment, garnishment, or other alienation or encumbrance of any kind; nor
shall any such interest or right to receive a distribution be taken, either
voluntarily or involuntarily, for the satisfaction of the debts of, or other
obligations or claims against, such person or entity, including claims in
bankruptcy proceedings. This Section shall not preclude arrangements for the
withholding of taxes from deferrals, credits, or benefit payments, arrangements
for the recovery of benefit overpayments, arrangements for the transfer of
benefit rights to another plan, or arrangements for direct deposit of benefit
payments to an account in a bank, savings and loan association or credit union
(provided that such arrangement is not part of an arrangement constituting
an
assignment or alienation).
9.5
Domestic
Relations Orders
.
Notwithstanding
the provisions of Section 9.4 (
Spendthrift
Provision
)
to the contrary
and to the extent permitted by law, the amounts payable pursuant to the Plan
may
be assigned or alienated pursuant to a “Domestic Relations Order” (as such term
is defined in Section 414(p)(1)(B) of the Code).
9.6
Incapacity
of Recipient
.
If the Plan
Administrator is served with a court order holding that a person entitled to
a
distribution under the Plan is incapable of personally receiving and giving
a
valid receipt for such distribution, the Plan Administrator shall postpone
payment until such time as a claim therefore shall have been made by a duly
appointed guardian or other legal representative of such person. The Plan
Administrator is under no obligation to inquire or investigate as to the
competency of any person entitled to a distribution. Any payment to an appointed
guardian or other legal representative under this Section shall be a payment
for
the account of the incapacitated person and a complete discharge of any
liability of the Company and the Plan therefore.
9.7
Successors
.
The Plan shall be
binding upon the successors and assigns of the Company and upon the heirs,
beneficiaries and personal representatives of the individuals who become
Participants hereunder.
9.8
Limitations
on Liability
.
Notwithstanding
any of the preceding provisions of the Plan, neither the Plan Administrator,
the
Company, nor any individual acting as the Plan Administrator’s, or the Company’s
employee, agent, or representative shall be liable to any Participant, former
Participant, beneficiary or other person for any claim, loss, liability or
expense incurred in connection with the Plan.
EXHIBIT
13
CATERPILLAR INC.
GENERAL
AND
FINANCIAL INFORMATION
2006
A-1
|
INTERNAL
CONTROL OVER FINANCIAL REPORTING
|
|
|
The
management of
Caterpillar Inc. (company) 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.
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 3% and
2%,
respectively, of the related consolidated financial statement amounts 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.
Their report appears on page A-4.
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|
/s/
James W. Owens
|
|
|
|
|
|
|
|
James
W.
Owens
Chairman
of
the Board and
Chief Executive Officer
|
|
|
|
|
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|
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|
|
/s/
David B. Burritt
|
|
|
|
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|
|
David
B.
Burritt
Vice
President and
Chief Financial Officer
|
|
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|
February 22,
2007
|
|
|
To
the Board of Directors and Stockholders of Caterpillar Inc.:
We
have completed
integrated audits of Caterpillar Inc.’
s
consolidated
financial
statements and of
its internal control over financial reporting as of December 31, 2006, in
accordance with the standards of the Public Company Accounting Oversight Board
(United States).
Our
opinions, based
on our audits, are presented below.
Consolidated
financial s
tatements
In
our opinion, the
accompanying
consolidated statement
of financial position and the related statements of consolidated results of
operations, changes in stockholders' equity, and cash flow, including pages
A-5
through A-38, present fairly, in all material respects, the financial
position of Caterpillar Inc. and its subsidiaries at December 31, 2006, 2005
and
2004, and the results of their operations and their
cash
flows for each
of the three years in the period ended December 31, 2006 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements
based
on our audits. We
conducted our audits of these statements in accordance with the standards of
the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
of
financial statements includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As
discussed in
Note 1L to the consolidated financial statements, the Company changed the
manner in which it accounts for stock-based compensation and the manner in
which
it accounts for defined benefit pension and other postretirement plans in
2006.
Internal
control
over financial reporting
Also,
in our
opinion, management’s assessment, included in Management’s Report on Internal
Control Over Financial Reporting appearing on page A-3, that the Company
maintained effective internal control over financial reporting as of December
31, 2006
based
on criteria
established in
Internal
Control - Integrated Framework
issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), is
fairly stated, in all material respects, based on those criteria. Furthermore,
in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2006, based on
criteria established in
Internal
Control - Integrated Framework
issued by the
COSO. The Company’s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness
of
internal control over financial reporting. Our responsibility is to express
opinions on management’s assessment and on the effectiveness of the
Company’s internal control over financial reporting based on our audit. We
conducted our audit of internal control over financial reporting in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. An audit of internal control
over financial reporting includes obtaining an understanding of internal control
over financial reporting, evaluating management’s assessment, testing and
evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we consider necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinions.
A
company’s
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s 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.
As
described in
Management’s Report on Internal Control Over Financial Reporting, management has
excluded Progress Rail Services from its assessment of internal control over
financial reporting as of December 31, 2006 because Progress Rail Services
was
acquired by Caterpillar Inc. in a purchase business combination during 2006.
We
have also excluded Progress Rail Services from our audit of internal control
over financial reporting. Progress Rail Services is a wholly owned subsidiary
of
Caterpillar Inc. whose total assets and total revenues represent 3% and 2%,
respectively, of the related consolidated financial statement amounts as of
and
for the year ended December 31, 2006.
/s/
PricewaterhouseCoopers LLP
PricewaterhouseCoopers
LLP
Peoria,
Illinois
February
22,
2007
|
|
Caterpillar
Inc.
|
|
Consolidated
Results of Operations for the Years Ended
December 31
(Dollars
in
millions except per share data)
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Sales
and revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
of
Machinery and Engines
|
$
|
38,869
|
|
|
$
|
34,006
|
|
|
$
|
28,336
|
|
|
|
Revenues
of
Financial Products
|
|
2,648
|
|
|
|
2,333
|
|
|
|
1,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
sales
and revenues
|
|
41,517
|
|
|
|
36,339
|
|
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|
30,306
|
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|
Operating
costs:
|
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|
|
|
|
|
|
|
|
Cost
of goods
sold
|
|
29,549
|
|
|
|
26,558
|
|
|
|
22,497
|
|
|
|
Selling,
general and administrative expenses
|
|
3,706
|
|
|
|
3,190
|
|
|
|
2,926
|
|
|
|
Research
and
development expenses
|
|
1,347
|
|
|
|
1,084
|
|
|
|
928
|
|
|
|
Interest
expense of Financial Products
|
|
1,023
|
|
|
|
768
|
|
|
|
524
|
|
|
|
Other
operating expenses
|
|
971
|
|
|
|
955
|
|
|
|
747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating costs
|
|
36,596
|
|
|
|
32,555
|
|
|
|
27,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
|
4,921
|
|
|
|
3,784
|
|
|
|
2,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense excluding Financial Products
|
|
274
|
|
|
|
260
|
|
|
|
230
|
|
|
|
Other
income
(expense)
|
|
214
|
|
|
|
377
|
|
|
|
253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
profit before taxes
|
|
4,861
|
|
|
|
3,901
|
|
|
|
2,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for
income taxes
|
|
1,405
|
|
|
|
1,120
|
|
|
|
731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
of
consolidated companies
|
|
3,456
|
|
|
|
2,781
|
|
|
|
1,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in
profit (loss) of unconsolidated affiliated companies
|
|
81
|
|
|
|
73
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
|
$
|
3,537
|
|
|
$
|
2,854
|
|
|
$
|
2,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Profit
per common share
|
$
|
5.37
|
|
|
$
|
4.21
|
|
|
$
|
2.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
per common share - diluted
1
|
$
|
5.17
|
|
|
$
|
4.04
|
|
|
$
|
2.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding (millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Basic
|
|
658.7
|
|
|
|
678.4
|
|
|
|
684.5
|
|
|
|
-
Diluted
1
|
|
683.8
|
|
|
|
705.8
|
|
|
|
707.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared per common share
|
$
|
1.15
|
|
|
$
|
.96
|
|
|
$
|
.80
|
|
|
|
|
|
1
|
Diluted
by
assumed exercise of stock options and SARs, using the treasury stock
method.
|
|
|
|
|
See
accompanying notes to Consolidated Financial
Statements.
|
|
|
|
STATEMENT
2
|
Caterpillar
Inc.
|
|
Consolidated
Financial Position at December 31
(Dollars
in
millions)
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and
short-term investments
|
$
|
530
|
|
|
$
|
1,108
|
|
|
$
|
445
|
|
|
|
|
Receivables
-
trade and other
|
|
8,168
|
|
|
|
7,526
|
|
|
|
7,463
|
|
|
|
|
Receivables
-
finance
|
|
6,804
|
|
|
|
6,442
|
|
|
|
5,182
|
|
|
|
|
Deferred
and
refundable income taxes
|
|
733
|
|
|
|
255
|
|
|
|
330
|
|
|
|
|
Prepaid
expenses and other current assets
|
|
507
|
|
|
|
2,146
|
|
|
|
1,369
|
|
|
|
|
Inventories
|
|
6,351
|
|
|
|
5,224
|
|
|
|
4,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current
assets
|
|
23,093
|
|
|
|
22,701
|
|
|
|
19,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment - net
|
|
8,851
|
|
|
|
7,988
|
|
|
|
7,682
|
|
|
|
Long-term
receivables - trade and other
|
|
860
|
|
|
|
1,037
|
|
|
|
764
|
|
|
|
Long-term
receivables - finance
|
|
11,531
|
|
|
|
10,301
|
|
|
|
9,903
|
|
|
|
Investments
in
unconsolidated affiliated companies
|
|
562
|
|
|
|
565
|
|
|
|
517
|
|
|
|
Deferred
income taxes
|
|
1,949
|
|
|
|
857
|
|
|
|
742
|
|
|
|
Intangible
assets
|
|
387
|
|
|
|
424
|
|
|
|
315
|
|
|
|
Goodwill
|
|
1,904
|
|
|
|
1,451
|
|
|
|
1,450
|
|
|
|
Other
assets
|
|
1,742
|
|
|
|
1,745
|
|
|
|
2,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
50,879
|
|
|
$
|
47,069
|
|
|
$
|
43,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
and
Engines
|
$
|
165
|
|
|
$
|
871
|
|
|
$
|
93
|
|
|
|
|
|
Financial
Products
|
|
4,990
|
|
|
|
4,698
|
|
|
|
4,064
|
|
|
|
|
Accounts
payable
|
|
4,085
|
|
|
|
3,412
|
|
|
|
3,524
|
|
|
|
|
Accrued
expenses
|
|
2,923
|
|
|
|
2,617
|
|
|
|
2,261
|
|
|
|
|
Accrued
wages,
salaries and employee benefits
|
|
938
|
|
|
|
1,601
|
|
|
|
1,543
|
|
|
|
|
Customer
advances
|
|
921
|
|
|
|
454
|
|
|
|
503
|
|
|
|
|
Dividends
payable
|
|
194
|
|
|
|
168
|
|
|
|
141
|
|
|
|
|
Deferred
and
current income taxes payable
|
|
575
|
|
|
|
528
|
|
|
|
259
|
|
|
|
|
Long-term
debt
due within one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
and
Engines
|
|
418
|
|
|
|
340
|
|
|
|
6
|
|
|
|
|
|
Financial
Products
|
|
4,043
|
|
|
|
4,159
|
|
|
|
3,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current
liabilities
|
|
19,252
|
|
|
|
18,848
|
|
|
|
15,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
due after one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
and
Engines
|
|
3,694
|
|
|
|
2,717
|
|
|
|
3,663
|
|
|
|
|
Financial
Products
|
|
13,986
|
|
|
|
12,960
|
|
|
|
12,174
|
|
|
|
Liability
for
postemployment benefits
|
|
5,879
|
|
|
|
3,161
|
|
|
|
3,126
|
|
|
|
Deferred
income taxes and other liabilities
|
|
1,209
|
|
|
|
951
|
|
|
|
746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
44,020
|
|
|
|
38,637
|
|
|
|
35,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Notes 22 and 23)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
of $1.00 par:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized
shares: 900,000,000
Issued
shares:
(2006, 2005 and 2004 - 814,894,624) at paid-in amount
|
|
2,465
|
|
|
|
1,859
|
|
|
|
1,231
|
|
|
|
Treasury
stock
(2006 - 169,086,448 shares; 2005 - 144,027,405 shares
and
2004 -
129,020,726 shares) at cost
|
|
(7,352
|
)
|
|
|
(4,637
|
)
|
|
|
(3,277
|
)
|
|
|
Profit
employed in the business
|
|
14,593
|
|
|
|
11,808
|
|
|
|
9,937
|
|
|
|
Accumulated
other comprehensive income
|
|
(2,847
|
)
|
|
|
(598
|
)
|
|
|
(424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
6,859
|
|
|
|
8,432
|
|
|
|
7,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
$
|
50,879
|
|
|
$
|
47,069
|
|
|
$
|
43,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to Consolidated Financial
Statements.
|
|
|
|
STATEMENT
3
|
Caterpillar
Inc.
|
|
Changes
in Consolidated Stockholders’ Equity for the Years Ended December
31
(Dollars
in
millions)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
Treasury
stock
|
|
Profit
employed in the business
|
|
Foreign
currency translation
|
|
Pension
&
other post- retirement
benefits
1
|
|
Derivative
financial instruments
|
|
Available-for-sale
securities
|
|
Total
|
|
Balance
at December 31, 2003
|
$
|
1,059
|
|
|
$
|
(2,914
|
)
|
|
$
|
8,450
|
|
|
$
|
348
|
|
|
$
|
(982
|
)
|
|
$
|
104
|
|
|
$
|
13
|
|
|
$
|
6,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
|
|
|
|
|
|
|
|
|
|
2,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,035
|
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141
|
|
|
Minimum
pension liability adjustment,
net
of tax of
$25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
(59
|
)
|
|
Derivative
financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
(losses)
deferred, net of tax of $60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
111
|
|
|
|
(Gains)
losses
reclassified to earnings,
net
of tax of
$56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(105
|
)
|
|
|
|
|
|
|
(105
|
)
|
|
Available-for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
(losses)
deferred, net of tax of $3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
|
|
(Gains)
losses
reclassified to earnings,
net
of tax of
$1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared
|
|
|
|
|
|
|
|
|
|
(548
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(548
|
)
|
|
Common
shares
issued from treasury stock
for
stock-based compensation: 12,216,618
|
|
94
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
270
|
|
|
Tax
benefits
from stock-based compensation
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
|
|
|
Shares
repurchased: 13,866,800
|
|
|
|
|
|
(539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2004
|
|
1,231
|
|
|
|
(3,277
|
)
|
|
|
9,937
|
|
|
|
489
|
|
|
|
(1,041
|
)
|
|
|
110
|
|
|
|
18
|
|
|
|
7,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
|
|
|
|
|
|
|
|
|
|
2,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,854
|
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(187
|
)
|
|
Minimum
pension liability adjustment,
net
of tax of
$36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
107
|
|
|
Derivative
financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
(losses)
deferred, net of tax of $1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
(Gains)
losses
reclassified to earnings,
net
of tax of
$46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(89
|
)
|
|
|
|
|
|
|
(89
|
)
|
|
Available-for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
(losses)
deferred, net of tax of $3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
(Gains)
losses
reclassified to earnings,
net
of tax of
$1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared
|
|
|
|
|
|
|
|
|
|
(645
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(645
|
)
|
|
Common
shares
issued from treasury stock for
stock-based
compensation: 18,912,521
|
|
156
|
|
|
|
324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
480
|
|
|
Tax
benefits
from stock-based compensation
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134
|
|
|
Shares
repurchased: 33,919,200
|
|
|
|
|
|
(1,684
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,684
|
)
|
|
Impact
of 2 -
for - 1 stock split
|
|
338
|
|
|
|
|
|
|
|
(338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
1,859
|
|
|
|
(4,637
|
)
|
|
|
11,808
|
|
|
|
302
|
|
|
|
(934)
|
|
|
|
18
|
|
|
|
16
|
|
|
|
8,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
|
|
|
|
|
|
|
|
|
|
3,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,537
|
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169
|
|
|
Minimum
pension liability adjustment,
net
of tax of
$97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
|
229
|
|
|
Derivative
financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
(losses)
deferred, net of tax of $40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
73
|
|
|
|
(Gains)
losses
reclassified to earnings,
net
of tax of
$26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
(43
|
)
|
|
Available-for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
(losses)
deferred, net of tax of $8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
17
|
|
|
|
(Gains)
losses
reclassified to earnings,
net
of tax of
$12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental
adjustment to adopt SFAS 158,
net
of tax of
$1,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,671
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,671
|
)
|
|
Dividends
declared
|
|
|
|
|
|
|
|
|
|
(752
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(752
|
)
|
|
Common
shares
issued from treasury stock
for
stock-based compensation: 15,207,055
|
|
73
|
|
|
|
341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
414
|
|
|
Stock-based
compensation expense
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137
|
|
|
Tax
benefits
from stock-based compensation
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170
|
|
|
Shares
repurchased: 45,608,000
|
|
|
|
|
|
(3,208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,208
|
)
|
|
Shares
issued
for Progress Rail Services, Inc.
acquisition:
5,341,902
|
|
226
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
$
|
2,465
|
|
|
$
|
(7,352
|
)
|
|
$
|
14,593
|
|
|
$
|
471
|
|
|
$
|
(3,376
|
)
|
|
$
|
48
|
|
|
$
|
10
|
|
|
$
|
6,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Pension
and
other postretirement benefits includes the aggregate adjustment
for
minimum pension liability for unconsolidated companies of $(6)
million,
$11 million and $0 million and the ending balances of $(43) million,
$(37)
million and $(48) million for the years 2006, 2005 and 2004, respectively.
|
|
See
accompanying notes to Consolidated Financial
Statements.
|
|
|
|
STATEMENT
4
|
Caterpillar
Inc.
|
|
Consolidated
Statement of Cash Flow for the Years Ended
December 31
(Millions
of
dollars)
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Cash
flow from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
|
$
|
3,537
|
|
|
$
|
2,854
|
|
|
$
|
2,035
|
|
|
|
|
Adjustments
for non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
1,602
|
|
|
|
1,477
|
|
|
|
1,397
|
|
|
|
|
|
|
Other
|
|
197
|
|
|
|
(20
|
)
|
|
|
(113
|
)
|
|
|
|
Changes
in
assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
-
trade and other
|
|
(89
|
)
|
|
|
(908
|
)
|
|
|
(7,616
|
)
|
|
|
|
|
|
Inventories
|
|
(827
|
)
|
|
|
(568
|
)
|
|
|
(1,391
|
)
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
670
|
|
|
|
532
|
|
|
|
1,457
|
|
|
|
|
|
|
Other
assets -
net
|
|
(235
|
)
|
|
|
(866
|
)
|
|
|
337
|
|
|
|
|
|
|
Other
liabilities - net
|
|
944
|
|
|
|
612
|
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash
provided by (used for) operating activities
|
|
5,799
|
|
|
|
3,113
|
|
|
|
(3,991
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures - excluding equipment leased to others
|
|
(1,593
|
)
|
|
|
(1,201
|
)
|
|
|
(926
|
)
|
|
|
|
Expenditures
for equipment leased to others
|
|
(1,082
|
)
|
|
|
(1,214
|
)
|
|
|
(1,188
|
)
|
|
|
|
Proceeds
from
disposals of property, plant and equipment
|
|
572
|
|
|
|
637
|
|
|
|
486
|
|
|
|
|
Additions
to
finance receivables
|
|
(10,522
|
)
|
|
|
(10,334
|
)
|
|
|
(8,930
|
)
|
|
|
|
Collections
of
finance receivables
|
|
8,094
|
|
|
|
7,057
|
|
|
|
6,216
|
|
|
|
|
Proceeds
from sale of finance receivables
|
|
1,067
|
|
|
|
900
|
|
|
|
700
|
|
|
|
|
Collections
of
retained interests in securitized trade receivables
|
|
—
|
|
|
|
—
|
|
|
|
5,722
|
|
|
|
|
Investments
and acquisitions (net of cash acquired)
|
|
(513
|
)
|
|
|
(13
|
)
|
|
|
(290
|
)
|
|
|
|
Proceeds
from
sale of partnership investment
|
|
—
|
|
|
|
—
|
|
|
|
290
|
|
|
|
|
Proceeds
from
release of security deposit
|
|
—
|
|
|
|
530
|
|
|
|
—
|
|
|
|
|
Proceeds
from
sale of available-for-sale securities
|
|
539
|
|
|
|
257
|
|
|
|
408
|
|
|
|
|
Investments
in
available-for-sale securities
|
|
(681
|
)
|
|
|
(338
|
)
|
|
|
(609
|
)
|
|
|
|
Other
- net
|
|
323
|
|
|
|
194
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash
provided by (used for) investing activities
|
|
(3,796
|
)
|
|
|
(3,525
|
)
|
|
|
2,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid
|
|
(726
|
)
|
|
|
(618
|
)
|
|
|
(534
|
)
|
|
|
|
Common
stock
issued, including treasury shares reissued
|
|
414
|
|
|
|
482
|
|
|
|
317
|
|
|
|
|
Treasury
shares purchased
|
|
(3,208
|
)
|
|
|
(1,684
|
)
|
|
|
(539
|
)
|
|
|
|
Excess
tax
benefit from stock-based compensation
|
|
169
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Proceeds
from
debt issued (original maturities greater than three
months):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
Machinery
and Engines
|
|
1,445
|
|
|
|
574
|
|
|
|
55
|
|
|
|
|
|
—
Financial
Products
|
|
9,824
|
|
|
|
14,000
|
|
|
|
10,435
|
|
|
|
|
Payments
on
debt (original maturities greater than three months):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
Machinery
and Engines
|
|
(839
|
)
|
|
|
(654
|
)
|
|
|
(78
|
)
|
|
|
|
|
—
Financial
Products
|
|
(9,536
|
)
|
|
|
(10,966
|
)
|
|
|
(8,612
|
)
|
|
|
|
Short-term
borrowings (original maturities three months or less) -
net
|
|
(136
|
)
|
|
|
19
|
|
|
|
830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash
provided by (used for) financing activities
|
|
(2,593
|
)
|
|
|
1,153
|
|
|
|
1,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of
exchange rate changes on cash
|
|
12
|
|
|
|
(78
|
)
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and short-term
investments
|
|
(578
|
)
|
|
|
663
|
|
|
|
103
|
|
|
Cash
and
short-term investments at beginning of period
|
|
1,108
|
|
|
|
445
|
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and
short-term investments at end of period
|
$
|
530
|
|
|
$
|
1,108
|
|
|
$
|
445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
short-term investments, which consist primarily of highly liquid
investments with original maturities of three months or less, are
considered to be cash equivalents.
|
|
Non-cash
activities:
|
|
|
On
June 19,
2006, Caterpillar acquired 100 percent of the equity in Progress
Rail
Services, Inc. A portion of the acquisition was financed with 5.3
million
shares of Caterpillar stock with a fair value of $379 million as
of the
acquisition date. See Note 25 for further discussion.
|
|
|
In
2005, $116
million of 9.375% debentures due in 2021 and $117 million of 8.00%
debentures due in 2023 were exchanged for $307 million of 5.300%
debentures due in 2035 and $23 million of cash. The $23 million of
cash is
included in payments on debt.
|
|
|
Trade
receivables of $6,786 million were exchanged for retained interests
in
securitized trade receivables in 2004. See Note 6 for further
discussion.
|
|
See
accompanying notes to Consolidated Financial
Statements.
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|
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|
1.
|
Operations
and summary of significant accounting
policies
|
|
A.
|
Nature
of Operations
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|
|
We
operate in
three principal lines of business:
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|
(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.
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|
|
(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).
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(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.
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|
Our
Machinery
and Engines operations are highly integrated. Throughout the Notes,
Machinery and Engines represents the aggregate total of these principal
lines of business.
Our
products
are sold primarily under the brands "Caterpillar," "Cat," "Solar
Turbines," "MaK," "Perkins," "FG Wilson" and "Olympian."
We
conduct
operations in our Machinery and Engines lines of business under highly
competitive conditions, including intense price competition. We place
great emphasis on the high quality and performance of our products
and our
dealers' service support. Although no one competitor is believed
to
produce all of the same types of machines and engines that we do,
there
are numerous companies, large and small, which compete with us in
the sale
of each of our products.
Machines
are
distributed principally through a worldwide organization of 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 products manufactured by them.
Some of
the reciprocating engines manufactured by Perkins are also sold through
a
worldwide network of 132 distributors located in 181 countries along
with
3,500 supporting dealers. Most of the electric power generation systems
manufactured by FG Wilson are sold through a worldwide network of
200
dealers located in 180 countries. Our dealers do not deal exclusively
with
our products; however, in most cases sales and servicing of our products
are the dealers' principal business. Turbines and large marine
reciprocating engines are sold through sales forces employed by the
company. At times, these employees are assisted by independent sales
representatives.
Manufacturing
activities of the Machinery and Engines lines of business are conducted
in
74 plants in the United States; twelve in the United Kingdom; nine
in
Italy; eight in Mexico; seven in China; four each in Canada and
France;
three each in Australia, Brazil, India, Northern Ireland, and Poland;
two
each in Germany, Indonesia, Japan, and The Netherlands; and one
each in
Belgium, Hungary, Malaysia, Nigeria, Russia, Scotland, South Africa,
Switzerland and Tunisia. Thirteen parts distribution centers are
located
in the United States and 14 are located outside the United
States.
The
Financial
Products line of business also conducts operations under highly
competitive conditions. Financing for users of Caterpillar products
is
available through a variety of competitive sources, principally commercial
banks and finance and leasing companies. We emphasize prompt and
responsive service to meet customer requirements and offer various
financing plans designed to increase the opportunity for sales of
our
products and generate financing income for our company. Financial
Products
activity is conducted primarily in the United States, with additional
offices in Asia, Australia, Canada, Europe and Latin America.
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B.
|
Basis
of consolidation
|
|
|
The
financial
statements include the accounts of Caterpillar Inc. and its
subsidiaries. Investments in companies that are owned 20% to 50%
or are
less than 20% owned and for which we have significant influence are
accounted for by the equity method (see Note 11). We consolidate all
variable interest entities where Caterpillar Inc. is the primary
beneficiary.
Certain
amounts for prior years have been reclassified to conform with the
current-year financial statement presentation.
Shipping
and
handling costs are included in Cost of goods sold in Statement 1.
Other operating expense primarily includes Cat Financial's depreciation
of
equipment leased to others, Cat Insurance’s underwriting expenses, gains
(losses) on disposal of long-lived assets and long-lived asset impairment
charges.
Prepaid
expenses and other current assets in Statement 2 include prepaid
rent,
prepaid insurance and other prepaid items. In addition, at December
31,
2006, this line includes a security deposit of $249 million related
to a
deposit obligation due in 2007 (see Note 16 for further discussion.)
At
December 31, 2005 and 2004 prepaid expenses related to our pension
plans
of $1.95 billion and $1.13 billion, respectively, were also included
in
this line. No such prepaid pension asset existed at December 31,
2006 as a
result of our adoption of SFAS 158, "Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans" (See Notes 1L and
14 for
further discussion).
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C.
|
Sales
and revenue recognition
|
|
|
Sales
of
Machinery and Engines are generally recognized when title transfers
and
the risks and rewards of ownership have passed to customers or
independently owned and operated dealers. Typically, where product
is
produced and sold in the same country, title and risk of ownership
transfer when the product is shipped. Products that are exported
from a
country for sale typically pass title and risk of ownership at the
border
of the destination country.
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|
|
No
right of
return exists on sales of equipment. Replacement part returns are
estimable and accrued at the time a sale is recognized.
We
provide
discounts to dealers and original equipment manufacturers (OEM) through
merchandising programs that are administered by our marketing profit
centers. We have numerous programs that are designed to promote the
sale
of our products. The most common dealer programs provide a discount
when
the dealer sells a product to a targeted end user. OEM programs provide
discounts designed to encourage the use of our engines. The cost
of these
discounts is estimated based on historical experience and known changes
in
merchandising programs and is reported as a reduction to sales when
the
product sale is recognized.
Our
standard
invoice terms are established by marketing region. When a sale is
made to
a dealer, the dealer is responsible for payment even if the product
is not
sold to an end customer and must make payment within the standard
terms to
avoid interest costs. Interest at or above prevailing market rates
is
charged on any past due balance. Our policy is to not forgive this
interest. In 2006, 2005 and 2004, terms were extended to not more
than one
year for
$49
million,
$287 million and $15 million of receivables, respectively. For
2006, 2005 and 2004, these amounts represent less than 1% of consolidated
sales.
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|
Sales
with
payment terms of two months or more were as follows:
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|
|
|
|
(Dollars
in
millions)
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Payment
Terms
(months)
|
|
Sales
|
|
Percent
of
Sales
|
|
Sales
|
|
Percent
of
Sales
|
|
Sales
|
|
Percent
of
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
$
|
1,481
|
|
|
|
3.8
|
%
|
|
$
|
261
|
|
|
|
0.8
|
%
|
|
$
|
96
|
|
|
|
0.3
|
%
|
|
|
3
|
|
|
636
|
|
|
|
1.6
|
%
|
|
|
548
|
|
|
|
1.6
|
%
|
|
|
175
|
|
|
|
0.6
|
%
|
|
|
4
|
|
|
336
|
|
|
|
0.9
|
%
|
|
|
262
|
|
|
|
0.8
|
%
|
|
|
117
|
|
|
|
0.4
|
%
|
|
|
5
|
|
|
1,228
|
|
|
|
3.2
|
%
|
|
|
916
|
|
|
|
2.7
|
%
|
|
|
750
|
|
|
|
2.6
|
%
|
|
|
6
|
|
|
8,516
|
|
|
|
21.9
|
%
|
|
|
8,147
|
|
|
|
23.9
|
%
|
|
|
6,172
|
|
|
|
21.9
|
%
|
|
|
7-12
|
|
|
272
|
|
|
|
0.7
|
%
|
|
|
345
|
|
|
|
1.0
|
%
|
|
|
831
|
|
|
|
2.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,469
|
|
|
|
32.1
|
%
|
|
$
|
10,479
|
|
|
|
30.8
|
%
|
|
$
|
8,141
|
|
|
|
28.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
establish
a bad debt allowance for Machinery and Engines receivables when
it becomes
probable that the receivable will not be collected. Our allowance
for bad
debts is not significant. In 2006, we wrote off approximately $70
million
of receivables in conjunction with settlement of various legal
disputes
with Navistar International Corporation. No significant write-offs
of
Machinery and Engines receivables were made during 2005 or 2004.
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|
|
Revenues
of
Financial Products primarily represent the following Cat Financial
revenues:
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|
|
·
Retail
finance revenue on finance leases and installment sale contracts
is
recognized over the term of the contract at a constant rate of
return on
the scheduled outstanding principal balance. Revenue on retail
notes is
recognized based on the daily balance of retail receivables outstanding
and the applicable interest rate.
·
Operating
lease revenue is recorded on a straight-line basis in the period
earned
over the life of the contract.
·
Wholesale
finance revenue on installment contracts and finance leases is
recognized
over the term of the contract at a constant rate of return on the
scheduled outstanding principal balance. Revenue on wholesale notes
is
recognized based on the daily balance of wholesale receivables
outstanding
and the applicable effective interest rate.
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|
|
Recognition
of income is suspended when collection of future income is not
probable.
Accrual is resumed, and previously suspended income is recognized,
when
the receivable becomes contractually current and/or collection
doubts are
removed. Cat Financial provides wholesale inventory financing to
dealers.
See Notes 7 and 8 for more information.
Sales
and
revenue recognition items are presented net of sales and other
related
taxes.
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|
D.
|
Inventories
|
|
|
Inventories
are stated at the lower of cost or market. Cost is principally
determined
using the last-in, first-out (LIFO) method. The value of inventories
on
the LIFO basis represented about 75% of total inventories at
December 31, 2006 and about 80% of total inventories at December 31,
2005 and 2004.
If
the FIFO
(first-in, first-out) method had been in use, inventories would
have been
$2,403 million, $2,345 million and $2,124 million higher than
reported at December 31, 2006, 2005 and 2004, respectively.
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|
E.
|
Securitized
receivables
|
|
|
We
periodically sell finance receivables in securitization transactions.
When
finance receivables are securitized, we retain interests in the
receivables in the form of interest-only strips, servicing rights,
cash
reserve accounts and subordinated certificates. The retained interests
are
recorded in “Other assets” at fair value. We estimate fair value based on
the present value of future expected cash flows using key assumptions
for
credit losses, prepayment speeds and discount rates. See Note 8 for
more information.
Prior
to
June 2005, we securitized trade receivables. We retained interests in
the receivables in the form of certificates. The fair value of
the
certificated retained interests approximated carrying value due
to their
short-term nature. See Note 6 for more information.
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|
F.
|
Depreciation
and amortization
|
|
|
Depreciation
of plant and equipment is computed principally using accelerated
methods.
Depreciation on equipment leased to others, primarily for Financial
Products, is computed using the straight-line method over the term
of the
lease. The depreciable basis is the original cost of the equipment
less
the estimated residual value of the equipment at the end of the
lease
term. In 2006, 2005 and 2004, Cat Financial depreciation on equipment
leased to others was $631 million, $615 million and
$575 million, respectively, and was included in "Other operating
expenses" in Statement 1. In 2006, 2005 and 2004 consolidated depreciation
expense was $1,554 million, $1,444 million and $1,366 million,
respectively. Amortization of purchased intangibles is computed
using the
straight-line method, generally not to exceed a period of 20 years.
Accumulated amortization was $139 million, $107 million and
$91 million at December 31, 2006, 2005 and 2004, respectively.
|
|
G.
|
Foreign
currency translation
|
|
|
The
functional currency for most of our Machinery and Engines consolidated
companies is the U.S. dollar. The functional currency for most
of our
Financial Products and equity basis companies is the respective
local
currency. Gains and losses resulting from the translation of foreign
currency amounts to the functional currency are included in "Other
income
(expense)" in Statement 1. Gains and losses resulting from translating
assets and liabilities from the functional currency to U.S. dollars
are
included in "Accumulated other comprehensive income" in Statement
2.
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|
H.
|
Derivative
financial instruments
|
|
|
Our
earnings
and cash flow are subject to fluctuations due to changes in foreign
currency exchange rates, interest rates and commodity prices. Our
Risk
Management Policy (policy) allows for the use of derivative financial
instruments to prudently manage foreign currency exchange rate,
interest
rate and commodity price exposure. Our policy specifies that derivatives
are not to be used for speculative purposes. Derivatives that we
use are
primarily foreign currency forward and option contracts, interest
rate
swaps and commodity forward and option contracts. Our derivative
activities are subject to the management, direction and control
of our
financial officers. Risk management practices, including the use
of
financial derivative instruments, are presented to the Audit Committee
of
the Board of Directors at least annually.
All
derivatives are recognized on the Consolidated Financial Position
at their
fair value. On the date the derivative contract is entered, we
designate
the derivative as (1) a hedge of the fair value of a recognized
liability ("fair value" hedge), (2) a hedge of a forecasted
transaction or the variability of cash flow to be paid ("cash flow"
hedge), or (3) an "undesignated" instrument. Changes in the fair
value of a derivative that is qualified, designated and highly
effective
as a fair value hedge, along with the gain or loss on the hedged
liability
that is attributable to the hedged risk, are recorded in current
earnings.
Changes in the fair value of a derivative that is qualified, designated
and highly effective as a cash flow hedge are recorded in other
comprehensive income until earnings are affected by the forecasted
transaction or the variability of cash flow and are then reported
in
current earnings. Changes in the fair value of undesignated derivative
instruments and the ineffective portion of designated derivative
instruments are reported in current earnings. Cash flows from designated
derivative financial instruments are classified within the same
category
as the item being hedged on the Consolidated Statement of Cash
Flow. Cash
flows from undesignated derivative financial instruments are included
in
the investing category on the Consolidated Statement of Cash Flow.
We
formally
document all relationships between hedging instruments and hedged
items,
as well as the risk-management objective and strategy for undertaking
various hedge transactions. This process includes linking all derivatives
that are designated as fair value hedges to specific liabilities
on the
Consolidated Financial Position and linking cash flow hedges to
specific
forecasted transactions or variability of cash flow.
We
also
formally assess, both at the hedge's inception and on an ongoing
basis,
whether the derivatives that are used in hedging transactions are
highly
effective in offsetting changes in fair values or cash flow of
hedged
items. When it is determined that a derivative is not highly effective
as
a hedge or that it has ceased to be a highly effective hedge, we
discontinue hedge accounting prospectively, in accordance with
Statement
of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging Activities." See Note 3 for more
information.
|
|
I.
|
Impairment
of available-for-sale securities
|
|
|
Available-for-sale
securities are reviewed monthly to identify market values below
cost of
20% or more. If a decline for a debt security is in excess of 20%
for six
months, the investment is evaluated to determine if the decline
is due to
general declines in the marketplace or if the investment has been
impaired
and should be written down to market value pursuant to Statement
of
Financial Accounting Standards No. 115 (SFAS 115), "Accounting
for Certain Investments in Debt and Equity Securities." After the
six-month period, debt securities with declines from cost in excess
of 20%
are evaluated monthly for impairment. For equity securities, if
a decline
from cost of 20% or more continues for a 12-month period, an other
than
temporary impairment is recognized without continued analysis.
|
|
J.
|
Income
taxes
|
|
|
The
provision
for income taxes is determined using the asset and liability approach
for
accounting for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes." Tax laws require items to be included in tax filings at
different
times than the items are reflected in the financial statements.
A current
liability is recognized for the estimated taxes payable for the
current
year. Deferred taxes represent the future tax consequences expected
to
occur when the reported amounts of assets and liabilities are recovered
or
paid. Deferred taxes are adjusted for enacted changes in tax rates
and tax
laws. Valuation allowances are recorded to reduce deferred tax
assets when
it is more likely than not that a tax benefit will not be realized.
|
|
K.
|
Estimates
in financial statements
|
|
|
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect reported
amounts.
The more significant estimates include: residual values for leased
assets,
fair market values for goodwill impairment tests, warranty liability,
stock-based compensation and reserves for product liability and
insurance
losses, postemployment benefits, post-sale discounts, credit losses
and
income taxes.
|
|
L.
|
New
accounting standards
|
|
|
SFAS 151
-
In
November 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 151 (SFAS 151),
“Inventory Costs—an amendment of ARB No. 43, Chapter 4.”
SFAS 151 discusses the general principles applicable to the pricing
of inventory. Paragraph 5 of ARB 43, Chapter 4 provides guidance on
allocating certain costs to inventory. This Statement amends ARB
43,
Chapter 4, to clarify that abnormal amount of idle facility expense,
freight, handling costs, and wasted materials (spoilage) should
be
recognized as current-period charges. In addition, this Statement
requires
that allocation of
fixed
production overheads to the costs of conversion be based on the
normal
capacity of production facilities. As required by SFAS 151, we
adopted this new accounting standard on January 1, 2006. The adoption
of SFAS 151 did not have a material impact on our financial
statements.
SFAS
123R
-
In December
2004, the FASB issued Statement of Financial Accounting Standards
No. 123
(revised 2004), (SFAS 123R) “Share-Based Payment.” SFAS 123R requires
that the cost resulting from all share-based payment transactions
be
recognized in the financial statements. SFAS 123R also establishes
fair
value as the measurement method in accounting for share-based payments.
The FASB required the provisions of SFAS 123R be adopted for interim
or
annual periods beginning after June 15, 2005. In April 2005, the
SEC
adopted a new rule amending the compliance dates for SFAS 123R
for public
companies. In accordance with this rule, we adopted SFAS 123R effective
January 1, 2006 using the modified prospective transition method.
We did
not modify the terms of any previously granted options in anticipation
of
the adoption of SFAS 123R.
|
|
|
The
application of the expensing provisions of SFAS 123R resulted in
pretax
expense of $137 million in 2006. As a result of the vesting decisions
discussed in Note 2, a full complement of expense related to stock-based
compensation will not be recognized in our results of operations
until
2009.
See
Notes 2
and 1N for additional information regarding stock-based
compensation.
SFAS
154
-
In June
2005, the FASB issued Statement of Financial Accounting Standards
No. 154
(SFAS 154), “Accounting Changes and Error Corrections - a replacement of
APB Opinion No. 20 and FASB Statement No. 3.” SFAS 154 changes the
requirements for the accounting for and reporting of a change in
accounting principle. This Statement requires retrospective applications
to prior periods’ financial statements of a voluntary change in accounting
principle unless it is impracticable. In addition, this Statement
requires
that a change in depreciation, amortization or depletion for long-lived,
non-financial assets be accounted for as a change in accounting
estimate
effected by a change in accounting principle. This new accounting
standard
was effective January 1, 2006. The adoption of SFAS 154 did not
have a
material impact on our financial statements.
SFAS
155
-
In February
2006, the FASB issued Statement of Financial Accounting Standards
No. 155
(SFAS 155), “Accounting for Certain Hybrid Financial Instruments - an
amendment of FASB Statements No. 133 and 140.” SFAS 155 allows financial
instruments that have embedded derivatives to be accounted for
as a whole,
eliminating the need to separate the derivative from its host,
if the
holder elects to account for the whole instrument on a fair value
basis.
This new accounting standard is effective January 1, 2007. The
adoption of
SFAS 155 is not expected to have a material impact on our financial
statements.
SFAS
156
-
In March
2006, the FASB issued Statement of Financial Accounting Standards
No. 156
(SFAS 156), “Accounting for Servicing of Financial Assets - an amendment
of FASB Statement No. 140.” SFAS 156 requires that all separately
recognized servicing rights be initially measured at fair value,
if
practicable. In addition, this Statement permits an entity to choose
between two measurement methods (amortization method or fair value
measurement method) for each class of separately recognized servicing
assets and liabilities. This new accounting standard is effective
January
1, 2007. The adoption of SFAS 156 is not expected to have a material
impact on our financial statements.
FIN
48
-
In
July 2006,
the FASB issued FIN 48 “Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109” to create a single model to
address accounting for uncertainty in tax positions. FIN 48 clarifies
that
a tax position must be more likely than not of being sustained
before
being recognized in the financial statements. As required, we will
adopt
FIN 48 effective January 1, 2007. The cumulative effect of adopting
FIN 48
will be recorded in profit employed and will also result in various
reclassifications on the statement of financial position. We do
not expect
that the adoption of FIN 48 will have a material impact on our
financial
position
.
SFAS
157
-
In
September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157 (SFAS 157), “Fair Value Measurements.” SFAS 157 provides
a common definition of fair value and a framework for measuring
assets and
liabilities at fair values when a particular standard prescribes
it. In
addition, the Statement expands disclosures about fair value measurements.
As required by SFAS 157, we will adopt this new accounting standard
effective January 1, 2008. We are currently reviewing the impact
of SFAS
157 on our financial statements. We expect to complete this evaluation
in
2007.
|
|
|
SFAS
158
-
In
September
2006, the FASB issued Statement of Financial Accounting Standards
No. 158
(SFAS 158), “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans - an amendment of FASB Statements No. 87,
88, 106 and
132R.” SFAS 158 requires recognition of the overfunded or underfunded
status of pension and other postretirement benefit plans on the
balance
sheet. Under SFAS 158, gains and losses, prior service costs and
credits
and any remaining transition amounts under SFAS 87 and SFAS 106
that have
not yet been recognized through net periodic benefit cost will
be
recognized in accumulated other comprehensive income, net of tax
effects,
until they are amortized as a component of net periodic cost. Also,
the
measurement date - the date at which the benefit obligation and
plan
assets are measured - is required to be the company’s fiscal year-end. As
required by SFAS 158, we adopted the balance sheet recognition
provisions
at December 31, 2006 and will adopt the year-end measurement date
in 2008.
Additionally SFAS 87 required the recognition of an additional
minimum
liability (AML) if the market value of plan assets was less than
the
accumulated benefit obligation at the end of the measurement date.
The AML
was eliminated upon the adoption of SFAS 158. The following summarizes
the
effect of the required changes in the AML, as well as the impact
of the
initial adoption of SFAS 158, as of December 31, 2006 (See Note
14 for
additional information regarding postemployment
benefits).
|
|
|
Initial
adoption of SFAS 158:
|
|
|
(Millions
of dollars)
|
December
31,
2006
Prior
to AML
and SFAS 158 Adjustments
|
|
AML
Adjustment
per
SFAS
87
|
|
SFAS
158
Adjustment
|
|
December
31,
2006
Post
AML and
SFAS 158 Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses and other current assets
|
$
|
2,336
|
|
|
$
|
—
|
|
|
$
|
(1,829
|
)
|
|
$
|
507
|
|
|
|
Investments
in
unconsolidated affiliated companies
|
|
568
|
|
|
|
—
|
|
|
|
(6
|
)
|
|
|
562
|
|
|
|
Deferred
income taxes
|
|
552
|
|
|
|
(97
|
)
|
|
|
1,494
|
|
|
|
1,949
|
|
|
|
Intangible
assets
|
|
639
|
|
|
|
(60
|
)
|
|
|
(192
|
)
|
|
|
387
|
|
|
|
Accrued
wages,
salaries and employee
benefits
|
|
1,440
|
|
|
|
—
|
|
|
|
(502
|
)
|
|
|
938
|
|
|
|
Liability
for
postemployment benefits
|
|
3,625
|
|
|
|
(386
|
)
|
|
|
2,640
|
|
|
|
5,879
|
|
|
|
Accumulated
other comprehensive income
|
|
(405
|
)
|
|
|
229
|
|
|
|
(2,671
|
)
|
|
|
(2,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-12
|
|
SFAS
15
9
-
In February
2007, the FASB issued Statement of Financial Accounting Standards
No. 159
(SFAS 159), “The Fair Value Option for Financial Assets and Financial
Liabilities - Including an Amendment of FASB Statement No. 115.” SFAS 159
allows companies the choice to measure many financial instruments
and
certain other items at fair value. This gives a company the opportunity
to
mitigate volatility in reported earnings caused by measuring
related
assets and liabilities differently without having to apply complex
hedge
accounting provisions. The Statement is effective January 1,
2008. We are
currently reviewing the impact of SFAS 159 on our financial statements
and
expect to complete this evaluation in
2007.
|
|
M.
|
Goodwill
|
|
|
Goodwill
represents the excess of the cost of an acquisition over the fair
value of
the net assets acquired. We account for goodwill in accordance with
Statement of Financial Accounting Standards No. 142 "Goodwill and
Other
Intangible Assets," which requires that we test goodwill for impairment
annually and when events or circumstances indicate the fair value
of a
reporting unit may be below its carrying value. We perform our annual
goodwill impairment testing in September. Goodwill is reviewed for
impairment utilizing a two-step process. The first step requires
us to
identify the reporting units and compare the fair value of each reporting
unit, which we compute using a discounted cash flow analysis, to
the
respective carrying value, which includes goodwill. If the carrying
value
is higher than the fair value, there is an indication that an impairment
may exist. In step two, the implied fair value of goodwill is calculated
as the excess of the fair value of a reporting unit over the fair
values
assigned to its assets and liabilities. If the implied fair value
of
goodwill is less than the carrying value of the reporting unit’s goodwill,
the difference is recognized as an impairment loss.
|
|
|
|
|
N.
|
Stock-based
compensation
|
|
|
On
January 1,
2006, we adopted SFAS 123R using the modified prospective transition
method. SFAS 123R requires all stock-based payments to be recognized
in
the financial statements based on the grant date fair value of the
award.
Under the modified prospective transition method, we are required
to
record stock-based compensation expense for all awards granted after
the
date of adoption and for the unvested portion of previously granted
awards
outstanding as of the date of adoption. In accordance with the modified
prospective transition method, our Consolidated Financial Statements
for
prior periods have not been restated to reflect, and do not include,
the
impact of SFAS 123R. See Note 2 for additional information regarding
stock-based compensation.
|
|
|
Prior
to the
adoption of SFAS 123R, we used the intrinsic value method of accounting
for stock-based employee compensation in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Under the intrinsic value method no compensation expense
was
recognized in association with our stock awards. The following table
illustrates the effect on profit and profit per share if we had applied
SFAS 123R for 2005 and 2004 grants using the lattice-based option-pricing
model:
|
|
|
|
Years
ended
December 31,
|
|
|
(Dollars
in millions except per share data)
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Profit,
as
reported
|
$
|
2,854
|
|
|
$
|
2,035
|
|
|
|
Deduct:
Total
stock-based compensation expense determined
under
fair
value based method for all awards, net of related tax
effects
|
|
(135
|
)
|
|
|
(161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
forma
profit
|
$
|
2,719
|
|
|
$
|
1,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
per
share of common stock:
|
|
|
|
|
|
|
|
|
|
|
As
reported:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
4.21
|
|
|
$
|
2.97
|
|
|
|
|
|
Diluted
|
$
|
4.04
|
|
|
$
|
2.88
|
|
|
|
|
Pro
forma:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
4.01
|
|
|
$
|
2.74
|
|
|
|
|
|
Diluted
|
$
|
3.85
|
|
|
$
|
2.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.
|
Stock-based
compensation
|
|
|
Stock
Incentive Plans
In
1996,
stockholders approved the Stock Option and Long-Term Incentive
Plan (the
1996 Plan), which expired in April of 2006. The 1996 Plan reserved
144
million shares of common stock for issuance (128 million under
this plan
and 16 million under prior plans). On June 14, 2006, stockholders
approved
the 2006 Caterpillar Long-Term Incentive Plan (the 2006 Plan).
The 2006
non-employee Directors’ grant was issued from this plan. The 2006 Plan
reserves 37.6 million shares for issuance (20 million under the
2006 Plan
and 17.6 million transferred from the 1996 Plan). The plans primarily
provide for the granting of stock options and stock-settled stock
appreciation rights (SARs) to Officers and other key employees,
as well as
non-employee Directors. Stock options permit a holder to buy Caterpillar
stock at the stock's price when the option was granted. SARs permit
a
holder the right to receive the value in shares of the appreciation
in
Caterpillar stock that occurred from the date the right was granted
up to
the date of exercise.
|
|
|
Our
long-standing practices and policies specify all stock option and
SAR
awards are approved by the Compensation Committee (the Committee)
of the
Board of Directors on the date of grant. The stock-based award
approval
process specifies the number of awards granted, the terms of the
award and
the grant date. The same terms and conditions are consistently
applied to
all employee grants, including Officers. The Committee approves
all
individual Officer grants. The number of stock options and SARs
included
in an individual’s award is determined based on the methodology approved
by the Committee. The stockholder approved plan provides for the
exercise
price methodology to be the average of the high and low price of
our stock
on the date of grant.
Common
stock
issued from Treasury stock under the plans totaled 15,207,055 for
2006,
18,912,521 for 2005 and 12,216,618 for 2004, respectively.
Options
granted prior to 2004 vested at the rate of one-third per year
over the
three-year period following the date of grant. In anticipation
of delaying
vesting until three years after the grant date for future grants,
the 2004
grant was vested on December 31, 2004. In order to better align
our
employee stock option program with the overall market, the number
of
options granted in 2005 was significantly reduced from the previous
year.
In response to this decrease, we elected to immediately vest the
2005
grant. In order to further align our stock award program with the
overall
market, we adjusted our 2006 grant by reducing the overall number
of
employee awards granted and utilizing a mix of SARs and option
awards. The
2006 awards generally vest three years after the date of grant.
At grant,
all awards have a term life of ten years. Upon retirement, the
term life
is reduced to a maximum of five remaining
years.
|
|
|
Our
stock-based compensation plans allow for the immediate vesting
upon
retirement for employees who are 55 years old or older with more
than ten
years of service and who have fulfilled the requisite service period
of
six months. Prior to the adoption of SFAS 123R, compensation expense
for
awards associated with these employees had been recognized in the
pro
forma net profit over the nominal vesting period. With the adoption
of
SFAS 123R, compensation expense is now recognized over the period
from the
grant date to the end date of the requisite service period for
employees
who meet the immediate vesting upon retirement requirements. For
those
employees who become eligible for immediate vesting upon retirement
subsequent to the requisite service period and prior to the completion
of
the vesting period, compensation expense is recognized over the
period
from grant date to the date eligibility is achieved. Application
of the
nominal vesting period for these employees for the years ended
December
31, 2005 and 2004 decreased pro forma profit by $13 million and
$16
million, respectively.
SFAS
123R
requires companies to estimate the fair value of share-based payment
awards on the date of grant using an option-pricing model. In 2006,
2005
and 2004, the fair value of the grant was estimated using a lattice-based
option-pricing model. The lattice-based option-pricing model considers
a
range of assumptions related to volatility, risk-free interest rate
and
historical employee behavior. Expected volatility was based on historical
and current implied volatilities from traded options on our stock.
The
risk-free rate was based on U.S. Treasury security yields at the
time of
grant. The dividend yield was based on historical information. The
expected life was determined from the lattice-based model. The
lattice-based model incorporated exercise and post vesting forfeiture
assumptions based on analysis of historical data. The following table
provides the assumptions used in determining the fair value of the
stock-based awards for the years ended December 31, 2006, 2005 and
2004,
respectively.
|
|
|
|
Grant Year
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
dividend yield
|
|
1.79
|
%
|
|
|
2.11
|
%
|
|
|
1.89
|
%
|
|
|
Weighted-average
volatility
|
|
26.79
|
%
|
|
|
26.48
|
%
|
|
|
25.98
|
%
|
|
|
Range
of
volatilities
|
|
26.56-26.79
|
%
|
|
|
21.99-26.65
|
%
|
|
|
25.80-28.10
|
%
|
|
|
Range
of
risk-free interest rates
|
|
4.34-4.64
|
%
|
|
|
2.38-4.29
|
%
|
|
|
1.90-5.76
|
%
|
|
|
Weighted-average
expected lives
|
|
8
years
|
|
|
7
years
|
|
|
6
years
|
|
|
|
|
|
The
amount of
stock-based compensation expense capitalized for the year ended December
31, 2006 did not have a significant impact on our financial statements.
Prior to our adoption of SFAS 123R, stock-based compensation was
not
capitalized in our pro forma disclosure.
At
December
31, 2006, there was $102 million of total unrecognized compensation
cost
from stock-based compensation arrangements granted under the plans,
which
is related to non-vested stock-based awards. The compensation expense
is
expected to be recognized over a weighted-average period of approximately
2.2 years.
|
|
|
Please
refer
to Tables I and II on page A-15 for additional information on
our stock-based awards.
|
|
|
The
impact
related to stock-based compensation for the year ended December
31, 2006
is shown below:
|
|
|
(Dollars
in millions except per share data)
|
2006
|
|
|
|
|
|
|
Stock-based
compensation expense, before tax
|
$
|
137
|
|
|
|
Stock-based
compensation expense, after tax
|
$
|
92
|
|
|
|
Income
tax
benefit recognized in net income
|
$
|
45
|
|
|
|
Decrease
in
profit per share of common stock, basic
|
$
|
.14
|
|
|
|
Decrease
in
profit per share of common stock, diluted
|
$
|
.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
accordance
with Staff Accounting Bulletin No. 107 “Share-based payment,” we
classified stock-based compensation within cost of goods sold, selling,
general and administrative expenses and research and development
expenses
corresponding to the same line item as the cash compensation paid
to
respective employees, officers and non-employee directors. We do
not
allocate stock-based compensation to reportable segments.
We
currently
use shares that have been repurchased through our stock repurchase
program
to satisfy share award exercises.
In
November
2005, the FASB issued FASB Staff Position No. FAS 123R-3 “Transition
Election Related to Accounting for Tax Effects of Share-Based Payment
Awards.” In the third quarter of 2006, we elected to adopt the alternative
transition method provided in the FASB Staff Position for calculating
the
tax effects of stock-based compensation. The alternative transition
method
includes simplified methods to determine the beginning balance of
the
additional paid-in capital (APIC) pool related to the tax effects
of
stock-based compensation, and to determine the subsequent impact
on the
APIC pool and the Statement of Cash Flow of the tax effects of stock-based
awards that were fully vested and outstanding upon the adoption of
SFAS
123R. In accordance with SFAS 154 “Accounting Changes and Error
Corrections,” this change in accounting principle has been applied
retrospectively to the 2006 Consolidated Statement of Cash Flow.
The
impact on the Consolidated Statement of Cash Flow was a decrease
in
operating cash flow and an offsetting increase in financing cash
flow of
$20 million for the three months ended March 31, 2006 and $27 million
for
the six months ended June 30, 2006.
We
use the
direct only method and tax law ordering approach to calculate the
tax
effects of stock-based compensation. In jurisdictions with net operating
loss carryforwards, tax deductions for 2006 exercises of stock-based
awards did not generate a cash benefit. Approximately $50 million
of tax
deductions will be recorded in APIC when realized in these
jurisdictions.
|
|
3.
|
Derivative
financial instruments and risk
management
|
|
A.
|
Foreign
currency exchange rate risk
|
|
|
Foreign
currency exchange rate movements create a degree of risk by affecting
the
U.S. dollar value of sales made and costs incurred in foreign currencies.
Movements in foreign currency rates also affect our competitive position
as these changes may affect business practices and/or pricing strategies
of non-U.S.-based competitors. Additionally, we have balance sheet
positions denominated in foreign currency, thereby creating exposure
to
movements in exchange rates.
Our
Machinery
and Engines operations purchase, manufacture and sell products in
many
locations around the world. As we have a diversified revenue and
cost
base, we manage our future foreign currency cash flow exposure on
a net
basis. We use foreign currency forward and option contracts to manage
unmatched foreign currency cash inflow and outflow. Our objective
is to
minimize the risk of exchange rate movements that would reduce the
U.S.
dollar value of our foreign currency cash flow. Our policy allows
for
managing anticipated foreign currency cash flow for up to four years.
|
|
|
TABLE
I—Financial Information Related to Capital Stock
|
|
|
Stock
Options/SARs activity:
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-Average
Exercise Price
|
|
Shares
|
|
Weighted-Average
Exercise Price
|
|
Shares
|
|
Weighted-Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at
beginning of year
|
|
74,860,582
|
|
|
$
|
32.23
|
|
|
|
82,448,348
|
|
|
$
|
28.80
|
|
|
|
78,999,344
|
|
|
$
|
25.69
|
|
|
|
|
Granted
to
officers and key employees
|
|
9,720,340
|
|
|
$
|
72.05
|
|
|
|
12,565,872
|
|
|
$
|
45.64
|
|
|
|
17,781,466
|
|
|
$
|
38.63
|
|
|
|
|
Granted
to
outside directors
|
|
91,000
|
|
|
$
|
66.77
|
|
|
|
104,000
|
|
|
$
|
44.90
|
|
|
|
104,000
|
|
|
$
|
40.64
|
|
|
|
|
Exercised
|
|
(15,491,627
|
)
|
|
$
|
28.66
|
|
|
|
(20,086,770
|
)
|
|
$
|
26.68
|
|
|
|
(13,651,840
|
)
|
|
$
|
23.86
|
|
|
|
|
Lapsed
|
|
(299,628
|
)
|
|
$
|
54.13
|
|
|
|
(170,868
|
)
|
|
$
|
24.31
|
|
|
|
(784,622
|
)
|
|
$
|
25.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at
end of year
|
|
68,880,667
|
|
|
$
|
38.60
|
|
|
|
74,860,582
|
|
|
$
|
32.23
|
|
|
|
82,448,348
|
|
|
$
|
28.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at
year-end
|
|
59,374,295
|
|
|
$
|
33.27
|
|
|
|
69,848,250
|
|
|
$
|
32.58
|
|
|
|
67,241,232
|
|
|
$
|
29.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options/SARs outstanding and exercisable:
|
|
|
|
|
Outstanding
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
Exercise
Prices
|
|
#
Outstanding
at
12/31/06
|
|
Weighted-
Average
Remaining
Contractual
Life
(Years)
|
|
Weighted-
Average
Exercise
Price
|
|
Aggregate
Intrinsic
Value
1
|
|
#
Outstanding
at
12/31/06
|
|
Weighted-
Average
Remaining
Contractual
Life
(Years)
|
|
Weighted-
Average
Exercise
Price
|
|
Aggregate
Intrinsic
Value
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19.20
-
22.76
|
|
2,938,388
|
|
3.43
|
|
$
|
19.38
|
|
$
|
123
|
|
2,938,388
|
|
3.43
|
|
$
|
19.38
|
|
$
|
123
|
|
|
$
|
25.36
-
26.77
|
|
12,507,410
|
|
4.85
|
|
$
|
25.94
|
|
|
443
|
|
12,507,410
|
|
4.85
|
|
$
|
25.94
|
|
|
443
|
|
|
$
|
27.14
-
29.43
|
|
14,267,972
|
|
5.81
|
|
$
|
27.25
|
|
|
487
|
|
14,267,972
|
|
5.81
|
|
$
|
27.25
|
|
|
487
|
|
|
$
|
31.17
-
45.64
|
|
29,539,957
|
|
7.12
|
|
$
|
40.48
|
|
|
617
|
|
29,507,965
|
|
7.12
|
|
$
|
40.48
|
|
|
616
|
|
|
$
|
66.77
-
72.05
|
|
9,626,940
|
|
9.15
|
|
$
|
72.00
|
|
|
-
|
|
152,560
|
|
9.15
|
|
$
|
71.81
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,880,667
|
|
|
|
$
|
38.60
|
|
$
|
1,670
|
|
59,374,295
|
|
|
|
$
|
33.27
|
|
$
|
1,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
The
difference
between a stock award's exercise price and the underlying stock's
market
price at December 31, 2006, for awards with market price greater
than the
exercise price. Amounts are in millions of dollars.
|
|
|
|
|
|
|
Of
the
9,811,340 awards granted during the year ended December 31, 2006,
9,479,534 were SARs.
|
|
|
TABLE
II—
Additional
Stock-based Award information
|
|
|
(Dollars
in millions except per share data)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
fair value per share of stock awards granted
|
$
|
23.44
|
|
|
$
|
11.95
|
|
|
$
|
9.03
|
|
|
|
Intrinsic
value of stock awards exercised
|
$
|
637
|
|
|
$
|
501
|
|
|
$
|
247
|
|
|
|
Fair
value of
shares vested
|
$
|
40
|
|
|
$
|
228
|
|
|
$
|
274
|
|
|
|
Cash
received
from stock awards exercised
|
$
|
411
|
|
|
$
|
478
|
|
|
$
|
269
|
|
|
|
Tax
benefit
realized from stock awards exercised
|
$
|
170
|
|
|
$
|
134
|
|
|
$
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
generally
designate as cash flow hedges at inception of the contract any
Australian
dollar, Brazilian real, British pound, Canadian dollar, euro, Japanese
yen, Mexican peso, Singapore dollar, New Zealand dollar or Swiss
franc
forward or option contracts that meet the requirements for hedge
accounting. Designation is performed on a specific exposure basis
to
support hedge accounting. The remainder of Machinery and Engines
foreign
currency contracts are undesignated. We designate as fair value
hedges
specific euro forward contracts used to hedge firm commitments.
|
|
|
As
of
December 31, 2006, $24 million of deferred net gains (net of tax)
included in equity (“Accumulated other comprehensive income” in Statement
2), are expected to be reclassified to current earnings (“Other income
(expense)” in Statement 1) over the next twelve months when earnings are
affected by the hedged transactions. The actual amount recorded
in “Other
income (expense)” will vary based on exchange rates at the time the hedged
transactions impact earnings.
In
managing
foreign currency risk for our Financial Products operations, our
objective
is to minimize earnings volatility resulting from conversion and
the
remeasurement of net foreign currency balance sheet positions.
Our policy
allows the use of foreign currency forward and option contracts
to offset
the risk of currency mismatch between our receivables and debt.
All such
foreign currency forward and option contracts are
undesignated.
|
|
|
Gains
(losses) included in current earnings [Other income (expense)] on
undesignated contracts:
|
|
|
(Millions
of dollars)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Machinery
and
Engines:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On
undesignated contracts
|
$
|
23
|
|
|
$
|
25
|
|
|
$
|
(9
|
)
|
|
|
Financial
Products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On
undesignated contracts
|
|
(19
|
)
|
|
|
58
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4
|
|
|
$
|
83
|
|
|
$
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
and
losses on the Financial Products contracts above are substantially
offset
by balance sheet translation gains and losses.
|
|
B.
|
Interest
rate risk
|
|
|
Interest
rate
movements create a degree of risk by affecting the amount of our
interest
payments and the value of our fixed rate debt. Our practice is to
use
interest rate swap agreements to manage our exposure to interest
rate
changes and, in some cases, lower the cost of borrowed funds.
Machinery
and
Engines operations generally use fixed rate debt as a source of funding.
Our objective is to minimize the cost of borrowed funds. Our policy
allows
us to enter into fixed-to-floating interest rate swaps and forward
rate
agreements to meet that objective with the intent to designate as
fair
value hedges at inception of the contract all fixed-to-floating interest
rate swaps. Designation as a hedge of the fair value of our fixed
rate
debt is performed to support hedge accounting. In conjunction with
our
bond issuance in 2006 (See Note 16), we entered into $200 million
of
interest rate swaps designated as fair value hedges of our fixed-rate
debt. During 2001, our Machinery and Engines operations liquidated
all
existing fixed-to-floating interest rate swaps. The gain ($7 million
as of December 31, 2006) is being amortized to earnings ratably over
the remaining life of the hedged debt.
Financial
Products operations have a match funding policy that addresses interest
rate risk by aligning the interest rate profile (fixed or floating
rate)
of their debt portfolio with the interest rate profile of their
receivables portfolio within predetermined ranges on an on-going
basis. In
connection with that policy, we use interest rate derivative instruments
to modify the debt structure to match assets within the receivables
portfolio. This match funding reduces the volatility of margins between
interest-bearing assets and interest-bearing liabilities, regardless
of
which direction interest rates move.
Our
policy
allows us to use floating-to-fixed, fixed-to-floating and
floating-to-floating interest rate swaps to meet the match funding
objective. To support hedge accounting, we designate fixed-to-floating
interest rate swaps as fair value hedges of the fair value of our
fixed
rate debt at the inception of the contract. Financial Products' practice
is to designate most floating-to-fixed interest rate swaps as cash
flow
hedges of the variability of future cash flows at the inception of
the
swap contract. Designation as a hedge of the variability of cash
flow is
performed to support hedge accounting. Financial Products liquidated
fixed-to-floating interest rate swaps during 2006, 2005 and 2004.
The
gains ($7 million remaining as of December 31, 2006) are being
amortized to earnings ratably over the remaining life of the hedged
debt.
|
|
|
Gains
(losses) included in current earnings [Other income
(expense)]:
|
|
|
(Millions
of dollars)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Fixed-to-floating
interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
and
Engines:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss) on
designated interest rate derivatives
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Gain
(loss) on
hedged debt
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Gain
(loss)
amortization on liquidated swaps—included in interest
expense
|
|
3
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss) on
designated interest rate derivatives
|
|
(44
|
)
|
|
|
(71
|
)
|
|
|
(28
|
)
|
|
|
|
|
Gain
(loss) on
hedged debt
|
|
44
|
|
|
|
71
|
|
|
|
28
|
|
|
|
|
|
Gain
(loss)
amortization on liquidated swaps—included in interest
expense
|
|
6
|
|
|
|
5
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10
|
|
|
$
|
10
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of
December 31, 2006, $12 million of deferred net gains included in
equity ("Accumulated other comprehensive income" in Statement 2),
related to Financial Products floating-to-fixed interest rate swaps,
are
expected to be reclassified to current earnings ("Interest expense
of
Financial Products" in Statement 1) over the next twelve months.
|
|
C.
|
Commodity
price risk
|
|
|
Commodity
price movements create a degree of risk by affecting the price we
must pay
for certain raw material. Our policy is to use commodity forward
and
option contracts to manage the commodity risk and reduce the cost
of
purchased materials.
Our
Machinery
and Engines operations purchase aluminum, copper and nickel embedded
in
the components we purchase from suppliers. Our suppliers pass on
to us
price changes in the commodity portion of the component cost. In
addition,
we are also subjected to price changes on natural gas purchased for
operational use.
Our
objective
is to minimize volatility in the price of these commodities. Our
policy
allows us to enter into commodity forward and option contracts to
lock in
the purchase price of a portion of these commodities within a four-year
horizon. All such commodity forward and option contracts are undesignated.
Gains on the undesignated contracts of $1 million, $7 million and
$15 million were recorded in current earnings ("Other income
(expense)" in Statement 1) in 2006, 2005 and 2004,
respectively.
|
|
4.
|
Other
income (expense)
|
|
|
|
Years
ended
December 31,
|
|
|
|
|
|
|
(Millions
of dollars)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Investment
and
interest income
|
$
|
83
|
|
|
$
|
97
|
|
|
$
|
77
|
|
|
|
Foreign
exchange gains
|
|
9
|
|
|
|
148
|
|
|
|
96
|
|
|
|
License
fee
income
|
|
61
|
|
|
|
59
|
|
|
|
54
|
|
|
|
Miscellaneous
income (loss)
|
|
61
|
|
|
|
73
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
214
|
|
|
$
|
377
|
|
|
$
|
253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
components of profit before taxes were:
|
|
|
|
Years
ended
December 31,
|
|
|
|
|
|
|
(Millions
of dollars)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
$
|
2,642
|
|
|
$
|
2,254
|
|
|
$
|
1,106
|
|
|
|
Non-U.S.
|
|
2,219
|
|
|
|
1,647
|
|
|
|
1,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,861
|
|
|
$
|
3,901
|
|
|
$
|
2,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
before
taxes, as shown above, is based on the location of the entity to
which
such earnings are attributable. However, since such earnings are
subject
to taxation in more than one country, the income tax provision shown
below
as U.S. or non-U.S. may not correspond to the earnings shown
above.
|
|
|
The
components of the provision for income taxes were:
|
|
|
|
Years
ended
December 31,
|
|
|
|
|
|
|
(Millions
of dollars)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Current
tax
provision (credit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
$
|
1,342
|
|
|
$
|
683
|
|
|
$
|
136
|
|
|
|
|
Non-U.S.
|
|
373
|
|
|
|
365
|
|
|
|
308
|
|
|
|
|
State
(U.S.)
|
|
49
|
|
|
|
31
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,764
|
|
|
|
1,079
|
|
|
|
457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax
provision (credit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
(381
|
)
|
|
|
(5
|
)
|
|
|
301
|
|
|
|
|
Non-U.S.
|
|
23
|
|
|
|
31
|
|
|
|
(24
|
)
|
|
|
|
State
(U.S.)
|
|
(1
|
)
|
|
|
15
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(359
|
)
|
|
|
41
|
|
|
|
274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
provision for income taxes
|
$
|
1,405
|
|
|
$
|
1,120
|
|
|
$
|
731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
paid
income taxes of $1,465 million, $731 million and $326 million in
2006, 2005 and 2004, respectively.
|
|
|
Reconciliation
of the U.S. federal statutory rate to effective
rate:
|
|
|
|
Years
ended
December 31,
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
U.S.
statutory
rate
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
(Decreases)
increases in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
of
extraterritorial income exclusion
|
|
(2.1)
|
%
|
|
|
(2.7
|
)%
|
|
|
(4.9
|
)%
|
|
|
|
Non-U.S.
subsidiaries taxed at other than 35%
|
|
(3.5)
|
%
|
|
|
(3.2
|
)%
|
|
|
(3.7
|
)%
|
|
|
|
Other—net
|
|
(0.4)
|
%
|
|
|
0.4
|
%
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29.0
|
%
|
|
|
29.5
|
%
|
|
|
27.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discrete
items
|
|
(0.1)
|
%
|
|
|
(0.8
|
)%
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for
income taxes
|
|
28.9
|
%
|
|
|
28.7
|
%
|
|
|
27.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
2006
provision for income taxes includes a benefit of $5 million for net
changes in tax reserves. Favorable settlement of a non-U.S. tax issue
resulted in a $25 million decrease in reserves. This was partially
offset
by a $20 million increase in tax reserves for an expected IRS assessment,
related to transfer pricing adjustments for tax years 1992 to 1994,
which
we plan to continue to dispute.
Excluding
these discrete items, the effective tax rate for 2006 was 29.0%.
The
net
impact of repatriation planning and favorable tax settlements resulted
in
a $31 million decrease to our 2005 provision for income taxes. We
recognized a provision for income taxes of $33 million in 2005 under
the provisions of the American Jobs Creation Act allowing favorable
tax
treatment of repatriated earnings. We recognized a benefit of $38
million
by reversing a deferred tax liability related to the undistributed
profits
of a few selected non-U.S. subsidiaries. Favorable tax settlements
primarily related to non-U.S. tax jurisdictions reduced the provision
by
$26 million. Excluding these discrete items, the effective tax rate
for
2005 was 29.5%.
We
have
recorded income tax expense at U.S. tax rates on all profits, except
for
undistributed profits of non-U.S. companies which are considered
indefinitely reinvested. Determination of the amount of unrecognized
deferred tax liability related to indefinitely reinvested profits
is not
feasible. A deferred tax asset is recognized only if we have definite
plans to generate a U.S. tax benefit by repatriating earnings in
the
foreseeable future.
|
|
|
Deferred
income tax assets and liabilities:
|
|
|
|
|
December
31,
|
|
|
|
|
|
|
(Millions
of dollars)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Deferred
income tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postemployment
benefits other than pensions
|
$
|
1,593
|
|
|
$
|
1,034
|
|
|
$
|
1,092
|
|
|
|
|
Warranty
reserves
|
|
234
|
|
|
|
216
|
|
|
|
212
|
|
|
|
|
Unrealized
profit excluded from inventories
|
|
192
|
|
|
|
176
|
|
|
|
153
|
|
|
|
|
Tax
carryforwards
|
|
646
|
|
|
|
523
|
|
|
|
498
|
|
|
|
|
Deferred
compensation
|
|
83
|
|
|
|
70
|
|
|
|
57
|
|
|
|
|
Allowance
for
credit losses
|
|
83
|
|
|
|
86
|
|
|
|
73
|
|
|
|
|
Pension
|
|
577
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Post
sale
discounts
|
|
103
|
|
|
|
62
|
|
|
|
51
|
|
|
|
|
Other—net
|
|
270
|
|
|
|
106
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,781
|
|
|
|
2,273
|
|
|
|
2,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
income tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
and
intangible assets
|
|
(906
|
)
|
|
|
(787
|
)
|
|
|
(903
|
)
|
|
|
|
Pension
|
|
—
|
|
|
|
(359
|
)
|
|
|
(216
|
)
|
|
|
|
Unremitted
earnings of non-U.S. subs
|
|
(65
|
)
|
|
|
(52
|
)
|
|
|
(131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(971
|
)
|
|
|
(1,198
|
)
|
|
|
(1,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
allowance for deferred tax assets
|
|
(192
|
)
|
|
|
(79
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes—net
|
$
|
2,618
|
|
|
$
|
996
|
|
|
$
|
1,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred
tax assets increased approximately $1.40 billion in 2006 related
to items
reported in accumulated other comprehensive income primarily related
to
adoption of SFAS 158 as discussed in Notes 1L and 14.
SFAS 109
requires that individual tax-paying entities of the company offset
all
current deferred tax liabilities and assets within each particular
tax
jurisdiction and present them as a single amount in the Consolidated
Financial Position. A similar procedure is followed for all noncurrent
deferred tax liabilities and assets. Amounts in different tax
jurisdictions cannot be offset against each other. The amount of
deferred
income taxes at December 31, included on the following lines in
Statement 2, are as follows:
|
|
|
|
December
31,
|
|
|
|
|
|
|
(Millions
of dollars)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
and
refundable income taxes
|
$
|
733
|
|
|
$
|
255
|
|
|
$
|
329
|
|
|
|
|
Deferred
income taxes
|
|
1,949
|
|
|
|
857
|
|
|
|
742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,682
|
|
|
|
1,112
|
|
|
|
1,071
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
and
current income taxes payable
|
|
9
|
|
|
|
89
|
|
|
|
20
|
|
|
|
|
Deferred
income taxes and other liabilities
|
|
55
|
|
|
|
27
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes—net
|
$
|
2,618
|
|
|
$
|
996
|
|
|
$
|
1,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of
December 31, 2006, amounts and expiration dates of U.S. foreign tax
credits available to carry forward
were:
|
|
|
(Millions
of dollars)
|
|
|
2007-2012
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
94
|
|
|
$
|
74
|
|
|
$
|
18
|
|
|
$
|
117
|
|
|
$
|
303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of
December 31, 2006, amounts and expiration dates of net operating loss
carryforwards in various non-U.S. taxing jurisdictions
were:
|
|
|
(Millions
of dollars)
|
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011-2016
|
|
Unlimited
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
4
|
|
|
$
|
34
|
|
|
$
|
86
|
|
|
$
|
707
|
|
|
$
|
834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
valuation
allowance has been recorded at certain non-U.S. subsidiaries that
have not
yet demonstrated consistent and/or sustainable profitability to support
the recognition of net deferred tax assets.
As
of
December 31, 2006, approximately $400 million of state tax net
operating losses (NOLs) and $74 million of state tax credit carryforwards
were available. Of the NOLs, approximately two-thirds expire after
2016.
The state tax credit carryforwards expire over the next ten years.
We
established a valuation allowance for those NOLs and credit carryforwards
likely to expire prior to utilization.
In
2005, the
Internal Revenue Service (IRS) completed its field examination of
our 1995
through 1999 U.S. tax returns. The examination is now at the appellate
level of the IRS. In connection with this examination, we received
notices
of certain adjustments proposed by the IRS, primarily related to
foreign
sales corporation commissions, foreign tax credit calculations and
research and development credits. We disagree with these proposed
adjustments and are continuing to work toward resolution through
applicable IRS procedures. We anticipate that this matter could be
resolved by the end of 2007. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect
on
our consolidated financial position, liquidity or results of operations.
The
IRS is
currently conducting a field examination of our 2000 to 2004 U.S.
tax
returns. It is reasonably possible that this audit could be completed
by
the end of 2007. In the opinion of management, the ultimate disposition
of
the audit will not have a material adverse effect on our consolidated
financial position, liquidity or results of operations.
|
|
6.
|
Sales
and servicing of trade
receivables
|
|
|
Our
Machinery
and Engines operations generate trade receivables from the sale of
inventory to dealers and customers. Certain of these receivables
are sold
to Cat Financial.
|
|
A.
|
Prior
to
June 2005, Cat Financial periodically securitized a portion of the
dealer receivables using a revolving securitization structure. We
used a
trust which issued a collateralized trust obligation (CTO) certificate
to
third party purchasers for their portion of these receivables. The
trust
also issued a transferor certificate (certificated retained interests)
to
Cat Financial for the portion not represented by the CTO.
Through
August of 2004, the trust was a qualifying special purpose entity
(QSPE)
and thus, in accordance with Statement of Financial Accounting Standards
No. 140 (SFAS 140), "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities - a replacement of FASB
Statement 125," was not consolidated. The outstanding principal balance
of
the CTO was not included in our Consolidated Financial Position during
these periods.
From
September 2004 through May 2005, because of a significant
increase in Machinery and Engines' sales and subsequent sale of the
receivables to Cat Financial, our certificated retained interests
in the
trust exceeded 90% of the fair value of trust assets. Thus, during
this
period, the trust did not qualify as a QSPE as defined by SFAS 140.
We therefore consolidated the trust in accordance with FIN 46R,
"Consolidation of Variable Interest Entities (revised December 2003),
an
interpretation of ARB No. 51" as it represents a variable interest
entity
for which Cat Financial is the primary beneficiary. As of
December 31, 2004, assets of the trust of $2,587 million were
included in "Receivables—trade and other" in Statement 2 and the CTO of
$240 million was included in "Short-term borrowings." Please refer to
Note 15.
Cat
Financial
serviced the dealer receivables and received an annual servicing
fee of
approximately 0.5% of the average outstanding principal balance of
the
securitized trade receivables transferred to third party purchasers.
Consolidated expenses of $7 million related to the securitized
receivables were recognized during 2004 and are included in "Other
income
(expense)" in Statement 1. Expected credit losses were assumed to
be 0%
because dealer receivables have historically had no losses and none
were
expected. The carrying value of the certificated retained interests
approximated fair value due to their short-term nature. Other than
the
certificated retained interests (assets of the trust when consolidated),
the investors and the securitization facilities had no recourse to
Cat
Financial's assets for failure of debtors to pay when
due.
|
|
|
(Millions
of dollars)
|
2004
|
|
|
|
|
|
|
Cash
flow from securitizations:
|
|
|
|
|
|
Proceeds
from
collections reinvested in revolving
securitization
1
|
$
|
663
|
|
|
|
Servicing
fees
received
1
|
|
2
|
|
|
|
Characteristics
of securitized receivables:
|
|
|
|
|
|
Average
balance for the year ended December 31
1
:
|
|
|
|
|
|
|
Certificated
retained interests
|
$
|
1,936
|
|
|
|
|
Collateralized
trust obligation
|
|
240
|
|
|
|
|
|
|
|
|
|
1
For
2004, proceeds, servicing fees and average balances include only
the
periods the trust was a QSPE.
|
|
|
|
|
|
In
June 2005, Cat Financial terminated the trade receivable
securitization trust and no longer securitizes trade receivables.
Upon
termination, receivables held by the trust were transferred back
to Cat
Financial.
|
|
B.
|
In
June 2005, Cat Financial transferred an undivided interest of
$240 million in trade receivables to third party purchasers. In
accordance with SFAS 140, the transfer to third party purchasers is
accounted for as a sale. Cat Financial services the transferred trade
receivables and receives an annual servicing fee of approximately
0.5% of
the average outstanding principal balance. Consolidated expenses
of $15
million and $8 million related to the sale of trade receivables were
recognized during 2006 and 2005, respectively, and are included in
"Other
income (expense)" in Statement 1. As of December 31, 2006 and 2005,
the
outstanding principal balance of the sold trade receivables was $240
million.
The
remaining
interest as of December 31, 2006 and 2005 of $2,718 million and
$3,028 million, respectively, are included in "Receivables—trade and
other" in Statement 2. The cash collections from these receivables
held by
Cat Financial, including those attributable to the third party purchasers,
are first applied to satisfy any obligations of Cat Financial to
those
purchasers. The third party purchasers have no recourse to Cat Financial's
assets, other than the remaining interest, for failure of debtors
to pay
when due. For Cat Financial's remaining interest in trade receivables,
carrying amount approximated fair value due to the short-term nature
of
these receivables.
|
|
7.
|
Wholesale
inventory receivables
|
|
|
Wholesale
inventory receivables are receivables of Cat Financial that arise
when Cat
Financial provides financing for a dealer's purchase of inventory.
These
receivables are included in "Receivables—trade and other" and "Long-term
receivables—trade and other" in Statement 2 and were $1,215 million,
$1,282 million and $991 million at December 31, 2006, 2005
and 2004, respectively. Please refer to Note 19 and Table IV for
fair value information.
|
|
|
Contractual
maturities of outstanding wholesale inventory
receivables:
|
|
|
(Millions
of dollars)
|
|
|
|
|
December
31,
2006
|
|
|
|
|
|
|
|
Amounts
Due
In
|
|
Wholesale
Installment
Contracts
|
|
Wholesale
Finance
Leases
|
|
Wholesale
Notes
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$
|
88
|
|
|
$
|
76
|
|
|
$
|
343
|
|
|
$
|
507
|
|
|
|
2008
|
|
|
21
|
|
|
|
51
|
|
|
|
353
|
|
|
|
425
|
|
|
|
2009
|
|
|
18
|
|
|
|
37
|
|
|
|
117
|
|
|
|
172
|
|
|
|
2010
|
|
|
14
|
|
|
|
14
|
|
|
|
16
|
|
|
|
44
|
|
|
|
2011
|
|
|
8
|
|
|
|
1
|
|
|
|
1
|
|
|
|
10
|
|
|
|
Thereafter
|
|
|
—
|
|
|
|
1
|
|
|
|
7
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149
|
|
|
|
180
|
|
|
|
837
|
|
|
|
1,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed
residual value
|
|
|
—
|
|
|
|
91
|
|
|
|
—
|
|
|
|
91
|
|
|
|
Less:
Unearned
income
|
|
|
(7
|
)
|
|
|
(14
|
)
|
|
|
(21
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
142
|
|
|
$
|
257
|
|
|
$
|
816
|
|
|
$
|
1,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
receivables are receivables of Cat Financial, which generally can
be
repaid or refinanced without penalty prior to contractual maturity.
Total
finance receivables reported in Statement 2 are net of an allowance
for credit losses.
During
2006,
2005 and 2004, Cat Financial securitized retail installment sale
contracts
and finance leases into public asset backed securitization facilities.
The
securitization facilities are qualifying special purpose entities
and
thus, in accordance with SFAS 140, are not consolidated. These
finance receivables, which are being held in securitization trusts,
are
secured by new and used equipment. Cat Financial retained servicing
responsibilities and subordinated interests related to these
securitizations. For 2006, subordinated interests included subordinated
certificates with an initial fair value of $4 million, an interest
in
certain future cash flow (excess) with an initial fair value of $3
million
and a reserve account with an initial fair value of $10 million.
For 2005,
subordinated interests included subordinated certificates with an
initial
fair value of $8 million, an interest in certain future cash flow
(excess) with an initial fair value of $1 million and a reserve
account with an initial fair value of $12 million. For 2004,
subordinated interests included subordinated certificates with an
initial
fair value of $8 million, an interest in certain future cash flow
(excess) with an initial fair value of $2 million and a reserve
account with an initial fair value of $10 million. The company's
retained interests generally are subordinate to the investors' interests.
Net gains of $7 million, $12 million and $13 million were
recognized on these transactions in 2006, 2005 and 2004,
respectively.
|
|
|
Significant
assumptions used to estimate the fair value of the retained interests
and
subordinated certificates at the time of the transaction were:
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
11.2
|
%
|
|
10.8
|
%
|
|
10.7
|
%
|
|
|
Weighted-average
prepayment rate
|
14.0
|
%
|
|
14.0
|
%
|
|
14.0
|
%
|
|
|
Expected
credit losses
|
1.0
|
%
|
|
1.0
|
%
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These
assumptions are based on our historical experience, market trends
and
anticipated performance relative to the particular assets securitized.
The
company
receives annual servicing fees of approximately 1% of the unpaid
note
value.
As
of
December 31, 2006, 2005 and 2004, the subordinated retained interests
in the public securitizations totaled $68 million, $72 million and
$73 million, respectively. Key assumptions used to determine the fair
value of the retained interests
were:
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Cash
flow
discount rates on retained interests and subordinated
tranches
|
7.33
|
%
|
|
10.7
|
%
|
|
10.7
|
%
|
|
|
Weighted-average
maturity
|
31
months
|
|
30
months
|
|
28
months
|
|
|
Average
prepayment rate
|
14.0
|
%
|
|
14.0
|
%
|
|
14.0
|
%
|
|
|
Expected
credit losses
|
1.0
|
%
|
|
1.0
|
%
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
The
investors
and the securitization trusts have no recourse to Cat Financial's
other
assets for failure of debtors to pay when due.
We
estimated
the impact of individual 10% and 20% changes to the key economic
assumptions used to determine the fair value of residual cash flow
in
retained interests on our income. An independent, adverse change
to each
key assumption had an immaterial impact on the fair value of residual
cash
flow.
We
consider
an account past due if any portion of an installment is due and unpaid
for
more than 30 days. Recognition of income is suspended when management
determines that collection of future income is not probable (generally
after 120 days past due). Accrual is resumed, and previously
suspended income is recognized, when the receivable becomes contractually
current and/or collection doubts are removed. Cash receipts on impaired
loans or finance leases are recorded against the receivable and then
to
any unrecognized income. Investment in loans/finance leases on nonaccrual
status were $190 million, $175 million and $176 million and past
due over 90 days and still accruing were $18 million,
$31 million and $11 million as of December 31, 2006, 2005
and 2004, respectively.
|
|
|
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 intended use of equipment. Cat Financial typically
maintains
a security interest in retail financed equipment and requires physical
damage insurance coverage on financed equipment.
Please
refer
to Table III for additional finance receivables information and
Note 19 and Table IV for fair value
information.
|
|
|
TABLE
III—Finance Receivables Information (Millions of dollars)
|
|
|
Contractual
maturities of outstanding finance receivables:
|
|
|
|
|
December
31,
2006
|
|
|
|
|
|
|
|
Amounts
Due
In
|
|
Retail
Installment
Contracts
|
|
Retail
Finance
Leases
|
|
Retail
Notes
|
|
Wholesale
Notes
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$
|
3,046
|
|
|
$
|
2,535
|
|
|
$
|
1,749
|
|
|
$
|
15
|
|
|
$
|
7,345
|
|
|
|
2008
|
|
|
2,186
|
|
|
|
1,810
|
|
|
|
1,031
|
|
|
|
13
|
|
|
|
5,040
|
|
|
|
2009
|
|
|
1,373
|
|
|
|
1,149
|
|
|
|
663
|
|
|
|
6
|
|
|
|
3,191
|
|
|
|
2010
|
|
|
679
|
|
|
|
585
|
|
|
|
465
|
|
|
|
—
|
|
|
|
1,729
|
|
|
|
2011
|
|
|
220
|
|
|
|
232
|
|
|
|
318
|
|
|
|
—
|
|
|
|
770
|
|
|
|
Thereafter
|
|
|
31
|
|
|
|
266
|
|
|
|
795
|
|
|
|
—
|
|
|
|
1,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,535
|
|
|
|
6,577
|
|
|
|
5,021
|
|
|
|
34
|
|
|
|
19,167
|
|
|
|
Residual
value
|
|
|
—
|
|
|
|
1,157
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,157
|
|
|
|
Less:
Unearned
income
|
|
|
(783
|
)
|
|
|
(806
|
)
|
|
|
(85
|
)
|
|
|
—
|
|
|
|
(1,674
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,752
|
|
|
$
|
6,928
|
|
|
$
|
4,936
|
|
|
$
|
34
|
|
|
$
|
18,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans and leases:
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Average
recorded investment
|
$
|
168
|
|
|
$
|
233
|
|
|
$
|
380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December
31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
investment
|
$
|
193
|
|
|
$
|
171
|
|
|
$
|
260
|
|
|
|
|
Impaired
loans/finance leases for which there is a related allowance for credit
losses
|
$
|
133
|
|
|
$
|
98
|
|
|
$
|
180
|
|
|
|
|
Related
allowance for credit losses on impaired loans/finance leases
|
$
|
26
|
|
|
$
|
20
|
|
|
$
|
52
|
|
|
|
|
Impaired
loans/finance leases for which there is no related allowance for
credit
losses
|
$
|
60
|
|
|
$
|
73
|
|
|
$
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for credit loss activity:
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Balance
at
beginning of year
|
$
|
302
|
|
|
$
|
278
|
|
|
$
|
241
|
|
|
|
Provision
for
credit losses
|
|
68
|
|
|
|
92
|
|
|
|
105
|
|
|
|
Receivables
written off
|
|
(63
|
)
|
|
|
(62
|
)
|
|
|
(88
|
)
|
|
|
Recoveries
on
receivables previously written off
|
|
16
|
|
|
|
17
|
|
|
|
16
|
|
|
|
Other—net
|
|
(8
|
)
|
|
|
(23
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at end
of year
|
$
|
315
|
|
|
$
|
302
|
|
|
$
|
278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
estimating
the allowance for credit losses, we review accounts that are past
due,
non-performing or in bankruptcy.
|
|
|
Cat
Financial's net retail finance leases:
|
|
|
|
|
December
31,
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Total
minimum
lease payments receivable
|
$
|
6,577
|
|
|
$
|
5,440
|
|
|
$
|
4,876
|
|
|
|
Estimated
residual value of leased assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed
|
|
483
|
|
|
|
384
|
|
|
|
379
|
|
|
|
|
Unguaranteed
|
|
674
|
|
|
|
554
|
|
|
|
540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,734
|
|
|
|
6,378
|
|
|
|
5,795
|
|
|
|
Less:
Unearned
income
|
|
(806
|
)
|
|
|
(623
|
)
|
|
|
(550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
retail
finance leases
|
$
|
6,928
|
|
|
$
|
5,755
|
|
|
$
|
5,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from securitizations:
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from
initial sales of receivables
|
$
|
947
|
|
|
$
|
829
|
|
|
$
|
639
|
|
|
|
Servicing
fees
received
|
|
12
|
|
|
|
11
|
|
|
|
9
|
|
|
|
Cash
flows
received on retained interests
|
|
41
|
|
|
|
38
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Characteristics
of securitized receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December
31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
securitized principal balance
|
$
|
1,227
|
|
|
$
|
980
|
|
|
$
|
815
|
|
|
|
|
Loans
more
than 30 days past due
|
|
34
|
|
|
|
23
|
|
|
|
26
|
|
|
|
|
Weighted-average
maturity (in months)
|
|
31
|
|
|
|
30
|
|
|
|
28
|
|
|
|
For
the year
ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
securitized principal balance
|
$
|
1,162
|
|
|
$
|
1,085
|
|
|
$
|
873
|
|
|
|
|
Net
credit
losses
|
|
5
|
|
|
|
3
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
|
|
|
|
(Millions
of dollars)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
$
|
2,182
|
|
|
$
|
1,689
|
|
|
$
|
1,592
|
|
|
|
Work-in-process
|
|
977
|
|
|
|
814
|
|
|
|
664
|
|
|
|
Finished
goods
|
|
2,915
|
|
|
|
2,493
|
|
|
|
2,209
|
|
|
|
Supplies
|
|
277
|
|
|
|
228
|
|
|
|
210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
inventories
|
$
|
6,351
|
|
|
$
|
5,224
|
|
|
$
|
4,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
had
long-term material purchase obligations of approximately $231 million
at December 31, 2006.
|
|
10.
|
Property,
plant and equipment
|
|
|
|
December
31,
|
|
|
|
|
|
|
(Millions
of dollars)
|
Useful
Lives
(Years)
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
—
|
|
|
$
|
184
|
|
|
$
|
154
|
|
|
$
|
152
|
|
|
|
Buildings
and
land improvements
|
|
20-45
|
|
|
|
3,407
|
|
|
|
3,195
|
|
|
|
3,089
|
|
|
|
Machinery,
equipment and other
|
|
3-10
|
|
|
|
8,694
|
|
|
|
7,829
|
|
|
|
7,361
|
|
|
|
Equipment
leased to others
|
|
1-10
|
|
|
|
3,957
|
|
|
|
3,988
|
|
|
|
3,975
|
|
|
|
Construction-in-process
|
|
—
|
|
|
|
1,036
|
|
|
|
696
|
|
|
|
587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
property, plant and equipment, at cost
|
|
|
|
|
|
17,278
|
|
|
|
15,862
|
|
|
|
15,164
|
|
|
|
Less:
Accumulated depreciation
|
|
|
|
|
|
8,427
|
|
|
|
7,874
|
|
|
|
7,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment—net
|
|
|
|
|
$
|
8,851
|
|
|
$
|
7,988
|
|
|
$
|
7,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
had
commitments for the purchase or construction of capital assets of
approximately $587 million at December 31, 2006. Software assets
with a carrying value of $50 million, primarily related to our dealer
distribution support system, were abandoned in 2005. The write-off
of
these assets is included in "Other operating expense" in
Statement 1.
|
|
|
Assets
recorded under capital leases
1
:
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
|
|
|
|
(Millions
of dollars)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Gross
capital
leases
2
|
$
|
96
|
|
|
$
|
91
|
|
|
$
|
326
|
|
|
|
Less:
Accumulated depreciation
|
|
65
|
|
|
|
55
|
|
|
|
220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
capital
leases
|
$
|
31
|
|
|
$
|
36
|
|
|
$
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Included
in
Property, plant and equipment table above.
|
|
|
2
|
Consists
primarily of machinery and equipment.
|
|
|
|
|
|
|
The
decrease
in capital leases from 2004 to 2005 was due to termination of certain
leases in the fourth quarter of 2005. See Note 16 for additional
information.
|
|
|
Equipment
leased to others (primarily by Cat Financial):
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
|
|
|
|
(Millions
of dollars)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Equipment
leased to others—at original cost
|
$
|
3,957
|
|
|
$
|
3,988
|
|
|
$
|
3,975
|
|
|
|
Less:
Accumulated depreciation
|
|
1,299
|
|
|
|
1,201
|
|
|
|
1,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
leased to others—net
|
$
|
2,658
|
|
|
$
|
2,787
|
|
|
$
|
2,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2006, scheduled minimum rental payments to be received
for equipment leased to others were:
|
|
|
(Millions
of dollars)
|
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
After
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
575
|
|
|
$
|
463
|
|
|
$
|
258
|
|
|
$
|
132
|
|
|
$
|
43
|
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.
|
Investments
in unconsolidated affiliated
companies
|
|
|
Our
investments in affiliated companies accounted for by the equity method
consist primarily of a 50% interest in Shin Caterpillar
Mitsubishi Ltd. (SCM) located in Japan. Combined financial
information of the unconsolidated affiliated companies accounted
for by
the equity method (generally on a three-month lag, e.g., SCM results
reflect the periods ending September 30) was as
follows:
|
|
|
|
Years
ended
December 31,
|
|
|
|
|
|
|
(Millions
of dollars)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Results
of
Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
4,420
|
|
|
$
|
4,140
|
|
|
$
|
3,628
|
|
|
|
|
Cost
of
sales
|
|
3,526
|
|
|
|
3,257
|
|
|
|
2,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
894
|
|
|
|
883
|
|
|
|
840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
(loss)
|
$
|
187
|
|
|
$
|
161
|
|
|
$
|
129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caterpillar's
profit (loss)
|
$
|
81
|
|
|
$
|
73
|
|
|
$
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
from
SCM to Caterpillar of approximately $1.81 billion, $1.73 billion
and $1.48
billion in 2006, 2005 and 2004 respectively, are included in the
affiliated company sales. In addition, SCM purchased $273 million,
$282
million and $210 million of products from Caterpillar in 2006, 2005
and
2004, respectively. (See Note 27 for subsequent event regarding
SCM.)
|
|
|
|
December
31,
|
|
|
|
|
|
|
(Millions
of dollars)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Financial
Position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
$
|
1,807
|
|
|
$
|
1,714
|
|
|
$
|
1,540
|
|
|
|
|
|
Property,
plant and equipment—net
|
|
1,119
|
|
|
|
1,120
|
|
|
|
1,048
|
|
|
|
|
|
Other
assets
|
|
176
|
|
|
|
194
|
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,102
|
|
|
|
3,028
|
|
|
|
2,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
1,394
|
|
|
|
1,348
|
|
|
|
1,325
|
|
|
|
|
|
Long-term
debt
due after one year
|
|
309
|
|
|
|
318
|
|
|
|
273
|
|
|
|
|
|
Other
liabilities
|
|
145
|
|
|
|
188
|
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,848
|
|
|
|
1,854
|
|
|
|
1,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership
|
$
|
1,254
|
|
|
$
|
1,174
|
|
|
$
|
971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caterpillar's
investments in unconsolidated affiliated
companies:
|
|
|
|
December
31,
|
|
|
|
|
|
|
(Millions
of dollars)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Investments
in
equity method companies
|
$
|
542
|
|
|
$
|
540
|
|
|
$
|
487
|
|
|
|
Plus:
Investments in cost method companies
|
|
20
|
|
|
|
25
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investments in unconsolidated affiliated companies
|
$
|
562
|
|
|
$
|
565
|
|
|
$
|
517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2006, consolidated "Profit employed in the business" in
Statement 2 included $262 million representing undistributed profit
of the unconsolidated affiliated companies.
Certain
investments in unconsolidated affiliated companies are accounted
for using
the cost method. During first quarter 2001, Cat Financial invested
for a
limited partnership interest in a venture financing structure associated
with Caterpillar's rental strategy in the United Kingdom. In the
fourth
quarter 2004, we sold our investment in this limited partnership.
This
sale had no impact on earnings.
|
|
12.
|
Intangible
assets and goodwill
|
|
A.
|
Intangible
assets
|
|
|
Intangible
assets are comprised of the following:
|
|
|
|
|
|
December
31,
|
|
|
|
Weighted
Amortizable
|
|
|
|
|
(Millions
of dollars)
|
Life
(Years)
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships
|
|
20
|
|
|
$
|
242
|
|
|
$
|
40
|
|
|
$
|
40
|
|
|
|
Intellectual
property
|
|
11
|
|
|
|
211
|
|
|
|
206
|
|
|
|
213
|
|
|
|
Other
|
|
13
|
|
|
|
73
|
|
|
|
33
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
finite-lived intangible assets—gross
|
|
15
|
|
|
|
526
|
|
|
|
279
|
|
|
|
286
|
|
|
|
Less:
Accumulated amortization
|
|
|
|
|
|
139
|
|
|
|
107
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
387
|
|
|
|
172
|
|
|
|
195
|
|
|
|
Pension-related
|
|
|
|
|
|
—
|
|
|
|
252
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets—net
|
|
|
|
|
$
|
387
|
|
|
$
|
424
|
|
|
$
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
2006
we acquired finite-lived intangible assets of $223 million due to
the
purchase of Progress Rail Services, Inc. (Progress Rail). During
2004 we
acquired finite-lived intangible assets of $130 million (See Note 25
for details on the acquisition of these assets.) Amortization expense
related to intangible assets was $34 million, $22 million and
$18 million for 2006, 2005 and 2004, respectively. In 2006, pension
related intangible assets were eliminated due to the adoption of
SFAS 158.
For further discussion on SFAS 158, see Notes 1L and
14.
|
|
|
Amortization
expense related to intangible assets is expected to
be:
|
|
|
(Millions
of dollars)
|
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35
|
|
|
$
|
35
|
|
|
$
|
35
|
|
|
$
|
34
|
|
|
$
|
31
|
|
|
$
|
217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B.
|
Goodwill
|
|
|
During
2006,
we acquired assets with related goodwill of $431 million as part
of the
purchase of Progress Rail. We also acquired assets with related goodwill
of $39 million as part of the purchase of the large components business
of
Royal Oak Industries, Inc. During 2004 we acquired assets with related
goodwill of $55 million (See Note 25 for details on the acquisition
of these assets). No goodwill was acquired during the year ended
December
31, 2005.
|
|
|
During
the
first quarter of 2006, we determined that the business outlook for
the
parts and accessories distribution business of MG Rover, acquired
in 2004,
required a specific impairment evaluation. The declining outlook
of this
business resulted from MG Rover’s cessation of vehicle production and
warranties resulting from their bankruptcy in 2005. Although the
MG Rover
parts business continues to provide parts to the existing population
of
vehicles, the unit’s sales will continue to decline in the future as
production of new vehicles has ceased. In determining if there was
impairment, we first compared the fair value of the reporting unit
(calculated by discounting projected cash flows) to the carrying
value.
Because the carrying value exceeded the fair value, we then allocated
the
fair value to the assets and liabilities of the unit and determined
the
fair value of the implied goodwill was zero. Accordingly, a goodwill
impairment charge of $18 million, representing the entire goodwill
associated with the MG Rover parts and accessories business at that
date,
was included in “Other operating expenses” in Statement 1 and reported in
the “All Other” category in Note 24. No goodwill was impaired or disposed
of during the years ended December 31, 2005 and 2004.
|
|
|
The
changes
in carrying amount of goodwill by reportable segment for the years
ended
December 31, 2006, 2005 and 2004 were as
follows:
|
|
|
(Millions
of Dollars)
|
Construction
&
Mining
Products
|
|
Electric
Power
|
|
Large
Power
Products
|
|
All
Other
1
|
|
Consolidated
Total
|
|
|
Balance
at
January 1, 2004
|
$
|
45
|
|
|
$
|
204
|
|
|
$
|
592
|
|
|
$
|
557
|
|
|
$
|
1,398
|
|
|
|
Acquisitions
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
55
|
|
|
|
55
|
|
|
|
Other
adjustments
|
|
—
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at
December 31, 2004
|
|
45
|
|
|
|
204
|
|
|
|
589
|
|
|
|
612
|
|
|
|
1,450
|
|
|
|
Other
adjustments
|
|
—
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at
December 31, 2005
|
|
45
|
|
|
|
203
|
|
|
|
589
|
|
|
|
614
|
|
|
|
1,451
|
|
|
|
Acquisitions
|
|
—
|
|
|
|
—
|
|
|
|
39
|
|
|
|
432
|
|
|
|
471
|
|
|
|
Impairments
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(18
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at
December 31, 2006
|
$
|
45
|
|
|
$
|
203
|
|
|
$
|
628
|
|
|
$
|
1,028
|
|
|
$
|
1,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
All Other includes operating segments included in “All Other”
category (See Note 24).
|
|
|
|
|
13.
|
Available-for-sale
securities
|
|
|
Financial
Products, primarily Cat Insurance, has investments in certain debt
and
equity securities at December 31, 2006, 2005 and 2004, that have been
classified as available-for-sale in accordance with SFAS 115 and
recorded at fair value based upon quoted market prices. These fair
values
are included in "Other assets" in Statement 2. Unrealized gains and
losses
arising from the revaluation of available-for-sale securities are
included, net of applicable deferred income taxes, in equity ("Accumulated
other comprehensive income" in Statement 2). Realized gains and losses
on
sales of investments are generally determined using the FIFO method
for
debt instruments and the specific identification method for equity
securities. Realized gains and losses are included in "Other income
(expense)" in Statement 1.
|
|
|
|
December
31,
2006
|
|
|
|
|
|
|
(Millions
of dollars)
|
Cost
Basis
|
|
Unrealized
Pre-Tax
Net
Gains (Losses)
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
Government
debt
|
$
|
355
|
|
|
$
|
(5
|
)
|
|
$
|
350
|
|
|
|
Corporate
bonds
|
|
541
|
|
|
|
(6
|
)
|
|
|
535
|
|
|
|
Equity
securities
|
|
154
|
|
|
|
26
|
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,050
|
|
|
$
|
15
|
|
|
$
|
1,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
2005
|
|
|
|
|
|
|
(Millions
of dollars)
|
Cost
Basis
|
|
Unrealized
Pre-Tax
Net
Gains (Losses)
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
Government
debt
|
$
|
305
|
|
|
$
|
(6
|
)
|
|
$
|
299
|
|
|
|
Corporate
bonds
|
|
422
|
|
|
|
(7
|
)
|
|
|
415
|
|
|
|
Equity
securities
|
|
146
|
|
|
|
38
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
873
|
|
|
$
|
25
|
|
|
$
|
898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
2004
|
|
|
|
|
|
|
(Millions
of dollars)
|
Cost
Basis
|
|
Unrealized
Pre-Tax
Net
Gains (Losses)
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
Government
debt
|
$
|
239
|
|
|
$
|
(1
|
)
|
|
$
|
238
|
|
|
|
Corporate
bonds
|
|
342
|
|
|
|
—
|
|
|
|
342
|
|
|
|
Equity
securities
|
|
204
|
|
|
|
26
|
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
785
|
|
|
$
|
25
|
|
|
$
|
810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in an unrealized loss position that are not other-than-temporarily
impaired:
|
|
|
|
December
31,
2006
|
|
|
|
|
|
|
|
Less
than 12
months
1
|
|
12
months or
more
1
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
(Millions
of dollars)
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
debt
|
$
|
116
|
|
|
$
|
—
|
|
|
$
|
199
|
|
|
$
|
4
|
|
|
$
|
315
|
|
|
$
|
4
|
|
|
|
Corporate
bonds
|
|
198
|
|
|
|
1
|
|
|
|
233
|
|
|
|
5
|
|
|
|
431
|
|
|
|
6
|
|
|
|
Equity
securities
|
|
22
|
|
|
|
1
|
|
|
|
1
|
|
|
|
—
|
|
|
|
23
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
336
|
|
|
$
|
2
|
|
|
$
|
433
|
|
|
$
|
9
|
|
|
$
|
769
|
|
|
$
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
2005
|
|
|
|
|
|
|
|
Less
than 12
months
1
|
|
12
months or
more
1
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
(Millions
of dollars)
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
debt
|
$
|
155
|
|
|
$
|
2
|
|
|
$
|
113
|
|
|
$
|
3
|
|
|
$
|
268
|
|
|
$
|
5
|
|
|
|
Corporate
bonds
|
|
220
|
|
|
|
3
|
|
|
|
136
|
|
|
|
4
|
|
|
|
356
|
|
|
|
7
|
|
|
|
Equity
securities
|
|
31
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
406
|
|
|
$
|
7
|
|
|
$
|
249
|
|
|
$
|
7
|
|
|
$
|
655
|
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
2004
|
|
|
|
|
|
|
|
Less
than 12
months
1
|
|
12
months or
more
1
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
(Millions
of dollars)
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
debt
|
$
|
166
|
|
|
$
|
1
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
175
|
|
|
$
|
1
|
|
|
|
Corporate
bonds
|
|
156
|
|
|
|
2
|
|
|
|
35
|
|
|
|
1
|
|
|
|
191
|
|
|
|
3
|
|
|
|
Equity
securities
|
|
46
|
|
|
|
1
|
|
|
|
2
|
|
|
|
—
|
|
|
|
48
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
368
|
|
|
$
|
4
|
|
|
$
|
46
|
|
|
$
|
1
|
|
|
$
|
414
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Indicates
length of time that individual securities have been in a continuous
unrealized loss position.
|
|
|
|
|
|
|
Government
Debt.
The
unrealized losses on our investments in U.S. Treasury obligations,
direct
obligations of U.S. governmental agencies and federal agency
mortgage-backed securities are the result of an increase in interest
rates. There are no credit related events on any of these securities.
We
intend to and have the ability to hold these investments that are
less
than book value until recovery to fair value or maturity. We do not
consider these investments to be other-than-temporarily impaired
as of
December 31, 2006.
Corporate
Bonds.
The
unrealized losses on our investments in corporate bonds relate primarily
to an increase in interest rates. Individual companies subject to
buyouts
have seen the yield spreads on the debt widen. We currently believe
it is
probable that we will be able to collect all amounts due according
to the
contractual terms of our investments in corporate debt securities.
We
intend to and have the ability to hold these investments that are
less
than book value, for the aforementioned reasons, until recovery to
fair
value or maturity. We do not consider these investments to be
other-than-temporarily impaired as of December 31, 2006.
Equity
Securities.
Cat
Insurance maintains a well-diversified portfolio consisting of three
specific mandates: large cap value stocks, small and mid cap growth
stocks
and international growth and income stocks. The individual securities
held
in these portfolios support cash flow, asset allocation and investment
objectives. Currently, we have no holdings in mutual funds. In each
case
where unrealized losses occur in the individual stocks, company management
is taking corrective action to increase shareholder value. We currently
believe it is probable that we will be able to recover all amounts
due and
do not consider these investments to be other-than-temporarily impaired
as
of December 31, 2006.
The
fair
value of available-for-sale debt securities at December 31, 2006, by
contractual maturity, is shown below. Expected maturities will differ
from
contractual maturities because borrowers may have the right to prepay
and
creditors may have the right to call obligations.
|
|
|
(Millions
of dollars)
|
Fair
Value
|
|
|
|
|
|
|
Due
in one
year or less
|
$
|
106
|
|
|
|
Due
after one
year through five years
|
$
|
250
|
|
|
|
Due
after five
years through ten years
|
$
|
111
|
|
|
|
Due
after ten
years
|
$
|
418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from
sales of investments in debt and equity securities during 2006, 2005
and
2004 were $539 million, $257 million and $408 million,
respectively. Gross gains of $43 million, $14 million and
$8 million and gross losses of $8 million, $6 million and
$6 million have been included in current earnings as a result of
these sales for 2006, 2005 and 2004, respectively.
During
2006,
2005 and 2004, there were no charges for "other than temporary" declines
in the market value of securities.
|
|
14.
|
Postemployment
benefit plans
|
|
|
We
have both
U.S. and non-U.S. pension plans covering substantially all of our
U.S.
employees and a portion of our non-U.S. employees, primarily in our
European facilities. Our defined benefit plans provide a benefit
based on
years of service and/or the employee's average earnings near retirement.
Our defined contribution plans allow employees to contribute a portion
of
their salary to help save for retirement, and in certain cases, we
provide
a matching contribution. We also have defined-benefit retirement
health
care and life insurance plans covering substantially all of our U.S.
employees.
As
discussed
in Note 1L, on December 31, 2006, we adopted Statement of Financial
Accounting Standards No. 158 (SFAS 158), “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans.”
In
January 2005, amendments were made to both U.S. hourly pension and
other postretirement benefit plans due to the company and the United
Auto
Workers reaching a new six-year labor agreement that will expire
on
March 1, 2011. These plans were re-measured as of January 10,
2005 to account for the benefit changes. The result was a $29 million
increase in pension cost and a $69 million increase in other
postretirement benefit cost for 2005. In addition, the additional
minimum
pension liability increased $233 million as a result of the
re-measurement. The liability was offset by an increase in pension-related
intangible assets of $164 million and a decrease in other
comprehensive income (pre-tax) of $69 million.
In
April 2005, amendments were made to our U.S. salaried and management
other postretirement benefit plan. The plan was re-measured, resulting
in
a reduction of $18 million in other postretirement benefit cost for
2005.
We
use a
November 30th measurement date for our U.S. pension and other
postretirement benefit plans and a September 30th measurement date
for our non-U.S. pension plans. Year-end asset and obligation amounts
are
disclosed as of the plan measurement
dates.
|
|
A.
|
Benefit
Obligations
|
|
|
|
U.S.
Pension
Benefits
|
|
Non-U.S.
Pension Benefits
|
|
Other
Postretirement Benefits
|
|
|
|
|
|
|
|
|
|
|
(Millions
of dollars)
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation, beginning of year
|
$
|
10,679
|
|
|
$
|
9,593
|
|
|
$
|
8,993
|
|
|
$
|
2,361
|
|
|
$
|
2,097
|
|
|
$
|
1,836
|
|
|
$
|
5,818
|
|
|
$
|
4,926
|
|
|
$
|
5,004
|
|
|
|
|
Service
cost
|
|
160
|
|
|
|
150
|
|
|
|
143
|
|
|
|
67
|
|
|
|
58
|
|
|
|
53
|
|
|
|
95
|
|
|
|
86
|
|
|
|
66
|
|
|
|
|
Interest
cost
|
|
575
|
|
|
|
555
|
|
|
|
548
|
|
|
|
111
|
|
|
|
109
|
|
|
|
97
|
|
|
|
302
|
|
|
|
294
|
|
|
|
265
|
|
|
|
|
Plan
amendments
|
|
4
|
|
|
|
204
|
|
|
|
—
|
|
|
|
(18
|
)
|
|
|
(8
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
412
|
|
|
|
—
|
|
|
|
|
Actuarial
losses (gains)
|
|
447
|
|
|
|
863
|
|
|
|
584
|
|
|
|
110
|
|
|
|
254
|
|
|
|
54
|
|
|
|
(224
|
)
|
|
|
458
|
|
|
|
(64
|
)
|
|
|
|
Foreign
currency exchange rates
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
121
|
|
|
|
(65
|
)
|
|
|
135
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
|
Participant
contributions
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
|
|
12
|
|
|
|
11
|
|
|
|
29
|
|
|
|
28
|
|
|
|
58
|
|
|
|
|
Benefits
paid
- Gross
|
|
(699
|
)
|
|
|
(686
|
)
|
|
|
(675
|
)
|
|
|
(103
|
)
|
|
|
(96
|
)
|
|
|
(89
|
)
|
|
|
(369
|
)
|
|
|
(384
|
)
|
|
|
(405
|
)
|
|
|
|
Less
federal
subsidy on benefits paid
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Acquisitions
/
Special termination benefits
|
|
8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
59
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation, end of year
|
$
|
11,174
|
|
|
$
|
10,679
|
|
|
$
|
9,593
|
|
|
$
|
2,719
|
|
|
$
|
2,361
|
|
|
$
|
2,097
|
|
|
$
|
5,661
|
|
|
$
|
5,818
|
|
|
$
|
4,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
benefit obligation, end of year
|
$
|
10,587
|
|
|
$
|
10,213
|
|
|
$
|
9,040
|
|
|
$
|
2,333
|
|
|
$
|
2,069
|
|
|
$
|
1,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
assumptions used to
determine
net cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
1
|
|
5.5
|
%
|
|
|
5.6
|
%
|
|
|
5.9
|
%
|
|
|
4.7
|
%
|
|
|
4.6
|
%
|
|
|
5.2
|
%
|
|
|
5.5
|
%
|
|
|
5.6
|
%
|
|
|
5.9
|
%
|
|
|
|
Rate
of
compensation increase
1
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
3.7
|
%
|
|
|
3.5
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
End
of year
rates are used to determine net periodic cost for the subsequent
year. See Note 14E.
|
|
|
|
|
|
Assumed
health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change
in
assumed health care cost trend rates would have the following
effects:
|
|
|
(Millions
of dollars)
|
One-percentage-
point
increase
|
|
One-percentage-
point
decrease
|
|
|
|
|
|
|
|
|
Effect
on 2006
service and interest cost components of other postretirement benefit
cost
|
$
|
35
|
|
|
$
|
(31
|
)
|
|
|
Effect
on
accumulated postretirement benefit obligation
|
$
|
444
|
|
|
$
|
(389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B.
|
Plan
Assets
|
|
|
|
U.S.
Pension
Benefits
|
|
Non-U.S.
Pension Benefits
|
|
Other
Postretirement Benefits
|
|
|
|
|
|
|
|
|
|
|
(Millions
of dollars
)
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of
plan assets,
beginning
of
year
|
$
|
9,441
|
|
|
$
|
8,725
|
|
|
$
|
7,728
|
|
|
$
|
2,024
|
|
|
$
|
1,503
|
|
|
$
|
1,262
|
|
|
$
|
1,311
|
|
|
$
|
994
|
|
|
$
|
867
|
|
|
|
|
Actual
return
on plan assets
|
|
1,329
|
|
|
|
860
|
|
|
|
1,106
|
|
|
|
238
|
|
|
|
272
|
|
|
|
124
|
|
|
|
207
|
|
|
|
100
|
|
|
|
118
|
|
|
|
|
Foreign
currency exchange
rates
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
100
|
|
|
|
(47
|
)
|
|
|
91
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Company
contributions
|
|
9
|
|
|
|
542
|
|
|
|
566
|
|
|
|
34
|
|
|
|
390
|
|
|
|
104
|
|
|
|
331
|
|
|
|
573
|
|
|
|
356
|
|
|
|
|
Participant
contributions
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
|
|
12
|
|
|
|
11
|
|
|
|
29
|
|
|
|
28
|
|
|
|
58
|
|
|
|
|
Benefits
paid
|
|
(699
|
)
|
|
|
(686
|
)
|
|
|
(675
|
)
|
|
|
(103
|
)
|
|
|
(96
|
)
|
|
|
(89
|
)
|
|
|
(369
|
)
|
|
|
(384
|
)
|
|
|
(405
|
)
|
|
|
|
Settlements
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(10
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Acquisitions
|
|
7
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of
plan assets,
end
of
year
|
$
|
10,087
|
|
|
$
|
9,441
|
|
|
$
|
8,725
|
|
|
$
|
2,304
|
|
|
$
|
2,024
|
|
|
$
|
1,503
|
|
|
$
|
1,509
|
|
|
$
|
1,311
|
|
|
$
|
994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
asset
allocation for our pension and other postretirement benefit plans
at the
end of 2006, 2005 and 2004, and the target allocation for 2007, by
asset
category, are as follows:
|
|
|
|
|
|
Percentage
of
Plan Assets
at
Year-end
|
|
|
|
Target
Allocation
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
pension:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
70
|
%
|
|
|
74
|
%
|
|
|
72
|
%
|
|
|
74
|
%
|
|
|
|
Debt
securities
|
|
30
|
%
|
|
|
26
|
%
|
|
|
28
|
%
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
pension:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
55
|
%
|
|
|
59
|
%
|
|
|
63
|
%
|
|
|
54
|
%
|
|
|
|
Debt
securities
|
|
33
|
%
|
|
|
30
|
%
|
|
|
30
|
%
|
|
|
38
|
%
|
|
|
|
Real
estate
|
|
8
|
%
|
|
|
8
|
%
|
|
|
5
|
%
|
|
|
6
|
%
|
|
|
|
Other
|
|
4
|
%
|
|
|
3
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
postretirement benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
80
|
%
|
|
|
84
|
%
|
|
|
84
|
%
|
|
|
84
|
%
|
|
|
|
Debt
securities
|
|
20
|
%
|
|
|
15
|
%
|
|
|
16
|
%
|
|
|
16
|
%
|
|
|
|
Cash
|
|
—
|
|
|
|
1
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our
target
asset allocations reflect our investment strategy of maximizing the
long-term rate of return on plan assets and the resulting funded
status,
within an appropriate level of risk. The U.S. plans are rebalanced
to plus
or minus five percentage points of the target asset allocation ranges
on a
monthly basis. The frequency of rebalancing for the non-U.S. plans
varies
depending on the plan.
The
use of
certain derivative instruments is permitted where appropriate and
necessary for achieving overall investment policy objectives. The
U.S.
plans currently utilize futures contracts to offset current equity
positions in order to rebalance the total portfolio to the target
asset
allocation. During 2006, approximately 10% of the U.S. pension plans’
assets were rebalanced from equity to fixed income positions through
the
use of futures contracts. The actual asset allocation percentages
above
represent this rebalancing effort. The plans do not engage in futures
contracts for speculative purposes.
Equity
securities within plan assets include Caterpillar Inc. common stock
in the amounts of:
|
|
|
(Millions
of dollars)
|
U.S.
Pension
Benefits
1
|
|
Non-U.S.
Pension Benefits
|
|
Other
Postretirement Benefits
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caterpillar
Inc. common stock
|
$
|
197
|
|
|
$
|
371
|
|
|
$
|
299
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
5
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Amounts
represent 2% of total plan assets for 2006, 4% for 2005 and 3%
for
2004.
|
|
|
|
|
|
C.
|
Funded
status
|
|
|
The
funded
status of the plans, reconciled to the amount reported on the Consolidated
Financial Position, is as
follows:
|
|
|
(Millions
of dollars)
|
U.S.
Pension
Benefits
|
|
Non-U.S.
Pension Benefits
|
|
Other
Postretirement Benefits
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of
plan assets
|
$
|
10,087
|
|
|
$
|
9,441
|
|
|
$
|
8,725
|
|
|
$
|
2,304
|
|
|
$
|
2,024
|
|
|
$
|
1,503
|
|
|
$
|
1,509
|
|
|
$
|
1,311
|
|
|
$
|
994
|
|
|
|
Benefit
obligations
|
|
11,174
|
|
|
|
10,679
|
|
|
|
9,593
|
|
|
|
2,719
|
|
|
|
2,361
|
|
|
|
2,097
|
|
|
|
5,661
|
|
|
|
5,818
|
|
|
|
4,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over
(under)
funded status
|
|
(1,087
|
)
|
|
|
(1,238
|
)
|
|
|
(868
|
)
|
|
|
(415
|
)
|
|
|
(337
|
)
|
|
|
(594
|
)
|
|
|
(4,152
|
)
|
|
|
(4,507
|
)
|
|
|
(3,932
|
)
|
|
|
Amounts
not
yet recognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized
prior service cost (benefit)
|
|
N/A
|
|
|
|
303
|
|
|
|
158
|
|
|
|
N/A
|
|
|
|
22
|
|
|
|
27
|
|
|
|
N/A
|
|
|
|
208
|
|
|
|
(232
|
)
|
|
|
|
Unrecognized
net actuarial loss
|
|
N/A
|
|
|
|
3,070
|
|
|
|
2,552
|
|
|
|
N/A
|
|
|
|
746
|
|
|
|
726
|
|
|
|
N/A
|
|
|
|
1,595
|
|
|
|
1,232
|
|
|
|
|
Unrecognized
net obligation
existing
at
adoption of
SFAS
87/106
|
|
N/A
|
|
|
|
—
|
|
|
|
—
|
|
|
|
N/A
|
|
|
|
2
|
|
|
|
3
|
|
|
|
N/A
|
|
|
|
14
|
|
|
|
16
|
|
|
|
|
Contributions
made after
measurement
date
|
|
2
|
|
|
|
1
|
|
|
|
—
|
|
|
|
2
|
|
|
|
1
|
|
|
|
22
|
|
|
|
20
|
|
|
|
28
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
amount
recognized in
financial
position
|
$
|
(1,085
|
)
|
|
$
|
2,136
|
|
|
$
|
1,842
|
|
|
$
|
(413
|
)
|
|
$
|
434
|
|
|
$
|
184
|
|
|
$
|
(4,132
|
)
|
|
$
|
(2,662
|
)
|
|
$
|
(2,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components
of net amount recognized in financial
position:
|
|
|
Accrued
benefit liabilities (current liability)
|
$
|
(9
|
)
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
$
|
(2
|
)
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
$
|
(13
|
)
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
|
Liability
for
postemployment benefits
(non-current liability)
|
|
(1,076
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(411
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(4,119
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
Prepaid
benefit costs
|
|
N/A
|
|
|
|
1,487
|
|
|
|
1,099
|
|
|
|
N/A
|
|
|
|
466
|
|
|
|
28
|
|
|
|
N/A
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Accrued
benefit liabilities
|
|
N/A
|
|
|
|
(71
|
)
|
|
|
(97
|
)
|
|
|
N/A
|
|
|
|
(59
|
)
|
|
|
(173
|
)
|
|
|
N/A
|
|
|
|
(599
|
)
|
|
|
(402
|
)
|
|
|
Intangible
assets
|
|
N/A
|
|
|
|
237
|
|
|
|
95
|
|
|
|
N/A
|
|
|
|
16
|
|
|
|
25
|
|
|
|
N/A
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Liability
for
postemployment
benefits
|
|
N/A
|
|
|
|
(760
|
)
|
|
|
(248
|
)
|
|
|
N/A
|
|
|
|
(92
|
)
|
|
|
(181
|
)
|
|
|
N/A
|
|
|
|
(2,063
|
)
|
|
|
(2,487
|
)
|
|
|
Accumulated
other comprehensive
income
(pre-tax)
|
|
N/A
|
|
|
|
1,243
|
|
|
|
993
|
|
|
|
N/A
|
|
|
|
103
|
|
|
|
485
|
|
|
|
N/A
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset
(liability) recognized
|
$
|
(1,085
|
)
|
|
$
|
2,136
|
|
|
$
|
1,842
|
|
|
$
|
(413
|
)
|
|
$
|
434
|
|
|
$
|
184
|
|
|
$
|
(4,132
|
)
|
|
$
|
(2,662
|
)
|
|
$
|
(2,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recognized in accumulated other comprehensive income (pre-tax)
consist
of:
|
|
|
Net
actuarial
loss (gain)
|
$
|
2,754
|
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
$
|
742
|
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
$
|
1,159
|
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
|
Prior
service
cost (credit)
|
|
249
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
16
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
244
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
Transition
obligation (asset)
|
|
—
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
1
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
13
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
3,003
|
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
$
|
759
|
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
$
|
1,416
|
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A
(Not
Applicable): The adoption of SFAS 158 (see Note 1L) resulted in
recognition of previously unrecognized prior service cost and actuarial
loss on our consolidated financial position. Overall, the prepaid
asset
was eliminated and a liability recognized through an adjustment
to
accumulated other comprehensive income.
|
|
|
|
|
|
The
estimated
amounts that will be amortized from “Accumulated other comprehensive
income" at December 31, 2006 into net periodic benefit cost in 2007
are as
follows:
|
|
|
(Millions
of dollars)
|
U.S.
Pension
|
|
Non-U.S.
Pension
|
|
Other
Postretirement Benefits
|
|
|
|
|
|
|
|
|
|
|
Actuarial
(gain) loss
|
$
|
214
|
|
|
$
|
52
|
|
|
$
|
79
|
|
|
|
Prior
service
(credit) cost
|
|
58
|
|
|
|
5
|
|
|
|
(36
|
)
|
|
|
Transition
(asset) obligation
|
|
—
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
272
|
|
|
$
|
58
|
|
|
$
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following
amounts relate to our pension plans with projected benefit obligations
in
excess of plan assets:
|
|
|
|
U.S.
Pension
Benefits
|
|
Non-U.S.
Pension Benefits
|
|
|
|
at
Year-end
|
|
at
Year-end
|
|
|
|
|
|
|
|
|
(Millions
of dollars)
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected
benefit obligation
|
$
|
(11,174
|
)
|
|
$
|
(10,679
|
)
|
|
$
|
(9,593
|
)
|
|
$
|
(2,719
|
)
|
|
$
|
(2,319
|
)
|
|
$
|
(2,059
|
)
|
|
|
Accumulated
benefit obligation
|
$
|
(10,587
|
)
|
|
$
|
(10,213
|
)
|
|
$
|
(9,040
|
)
|
|
$
|
(2,333
|
)
|
|
$
|
(2,034
|
)
|
|
$
|
(1,813
|
)
|
|
|
Fair
value of
plan assets
|
$
|
10,087
|
|
|
$
|
9,441
|
|
|
$
|
8,725
|
|
|
$
|
2,304
|
|
|
$
|
1,973
|
|
|
$
|
1,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following
amounts relate to our pension plans with accumulated benefit obligations
in excess of plan assets:
|
|
|
|
U.S.
Pension
Benefits
|
|
Non-U.S.
Pension Benefits
|
|
|
|
at
Year-end
|
|
at
Year-end
|
|
|
|
|
|
|
|
|
(Millions
of dollars)
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected
benefit obligation
|
$
|
(4,491
|
)
|
|
$
|
(4,594
|
)
|
|
$
|
(3,975
|
)
|
|
$
|
(121
|
)
|
|
$
|
(556
|
)
|
|
$
|
(2,003
|
)
|
|
|
Accumulated
benefit obligation
|
$
|
(4,460
|
)
|
|
$
|
(4,564
|
)
|
|
$
|
(3,959
|
)
|
|
$
|
(106
|
)
|
|
$
|
(506
|
)
|
|
$
|
(1,767
|
)
|
|
|
Fair
value of
plan assets
|
$
|
3,805
|
|
|
$
|
3,733
|
|
|
$
|
3,614
|
|
|
$
|
19
|
|
|
$
|
382
|
|
|
$
|
1,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accumulated postretirement benefit obligation exceeds plan assets
for all
of our other postretirement benefit
plans.
|
|
D.
|
Expected
cash flow
|
|
|
Information
about the expected cash flow for the pension and other postretirement
benefit plans follows:
|
|
|
(
Millions
of dollars)
|
U.S.
Pension
Benefits
|
|
Non-U.S.
Pension
Benefits
|
|
Other
Postretirement
Benefits
|
|
|
|
|
|
|
|
|
|
|
Employer
contributions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
(expected)
|
$
|
10
|
|
|
$
|
40
|
|
|
$
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
benefit payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
$
|
720
|
|
|
$
|
80
|
|
|
$
|
400
|
|
|
|
|
2008
|
|
730
|
|
|
|
80
|
|
|
|
400
|
|
|
|
|
2009
|
|
740
|
|
|
|
80
|
|
|
|
420
|
|
|
|
|
2010
|
|
760
|
|
|
|
90
|
|
|
|
430
|
|
|
|
|
2011
|
|
770
|
|
|
|
90
|
|
|
|
450
|
|
|
|
|
2012-2016
|
|
4,000
|
|
|
|
550
|
|
|
|
2,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
7,720
|
|
|
$
|
970
|
|
|
$
|
4,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
above
table reflects the total employer contributions and benefits expected
to
be paid from the plan or from company assets and does not include
the
participants' share of the cost. The expected benefit payments for
our
other postretirement benefits include payments for prescription drug
benefits. Medicare Part D subsidy amounts expected to be received by
the company which will offset other postretirement benefit payments
are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions
of dollars)
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012-2016
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
postretirement benefits
|
$
|
20
|
|
|
$
|
20
|
|
|
$
|
30
|
|
|
$
|
30
|
|
|
$
|
30
|
|
|
$
|
190
|
|
|
$
|
320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E.
|
Net
periodic cost
|
|
|
(Millions
of dollars)
|
U.S.
Pension
Benefits
|
|
Non-U.S.
Pension Benefits
|
|
Other
Postretirement Benefits
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components
of net periodic
benefit
cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
$
|
160
|
|
|
$
|
150
|
|
|
$
|
143
|
|
|
$
|
67
|
|
|
$
|
58
|
|
|
$
|
53
|
|
|
$
|
95
|
|
|
$
|
86
|
|
|
$
|
66
|
|
|
|
|
Interest
cost
|
|
575
|
|
|
|
555
|
|
|
|
548
|
|
|
|
111
|
|
|
|
109
|
|
|
|
97
|
|
|
|
302
|
|
|
|
294
|
|
|
|
265
|
|
|
|
|
Expected
return on plan assets
|
|
(798
|
)
|
|
|
(712
|
)
|
|
|
(697
|
)
|
|
|
(142
|
)
|
|
|
(111
|
)
|
|
|
(103
|
)
|
|
|
(116
|
)
|
|
|
(91
|
)
|
|
|
(74
|
)
|
|
|
|
Settlement
loss
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Termination
benefits
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset
existing at adoption
of
SFAS
87/106
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
1
|
|
|
|
3
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
Prior
service
cost
1
|
|
58
|
|
|
|
59
|
|
|
|
44
|
|
|
|
5
|
|
|
|
7
|
|
|
|
6
|
|
|
|
(33
|
)
|
|
|
(29
|
)
|
|
|
(48
|
)
|
|
|
|
|
Net
actuarial
loss
|
|
232
|
|
|
|
197
|
|
|
|
142
|
|
|
|
56
|
|
|
|
50
|
|
|
|
38
|
|
|
|
113
|
|
|
|
85
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
cost
included in
operating
profit
|
$
|
227
|
|
|
$
|
249
|
|
|
$
|
180
|
|
|
$
|
99
|
|
|
$
|
117
|
|
|
$
|
94
|
|
|
$
|
363
|
|
|
$
|
347
|
|
|
$
|
256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
assumptions
used
to determine net cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
2
|
|
5.6
|
%
|
|
|
5.9
|
%
|
|
|
6.2
|
%
|
|
|
4.6
|
%
|
|
|
5.2
|
%
|
|
|
5.1
|
%
|
|
|
5.6
|
%
|
|
|
5.8
|
%
|
|
|
6.1
|
%
|
|
|
|
Expected
return on plan assets
3
|
|
9.0
|
%
|
|
|
9.0
|
%
|
|
|
9.0
|
%
|
|
|
7.5
|
%
|
|
|
7.1
|
%
|
|
|
7.4
|
%
|
|
|
9.0
|
%
|
|
|
9.0
|
%
|
|
|
9.0
|
%
|
|
|
|
Rate
of
compensation increase
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
3.5
|
%
|
|
|
3.5
|
%
|
|
|
3.2
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Prior
service
costs for both pension and other postretirement benefits are generally
amortized using the straight-line method over the average remaining
service period to the full retirement eligibility date of employees
expected to receive benefits from the plan amendment. For other
postretirement benefit plans in which all or almost all of the plan's
participants are fully eligible for benefits under the plan, prior
service
costs are amortized using the straight-line method over the remaining
life
expectancy of those participants.
|
|
|
2
|
For
U.S. plans
impacted by the January 2005 plan amendments, a 5.8% discount rate
was utilized for valuing the plan re-measurement. For the April 2005
other postretirement benefit plan amendment, a 5.7% discount rate
was
utilized for valuing the plan re-measurement.
|
|
|
3
|
The
weighted-average rates for 2007 are 9.0% and 7.7% for U.S. and non-U.S.
plans, respectively.
|
|
|
|
|
|
|
The
assumed
discount rate is used to discount future benefit obligations back
to
today's dollars. The U.S. discount rate is based on the Moody's Aa
bond
yield as of our measurement date, November 30, and represents the
rate at which our benefit obligations could effectively be settled.
To
validate the discount rate, a detailed analysis of the individual
plans'
expected cash flows is made annually. This involves analyzing
Caterpillar's projected cash flows against a high quality bond yield
curve, calculated using a wide population of corporate Aa bonds.
The
modeled discount rate that results from matching the aggregate expected
future cash flows from the Caterpillar benefit plans to the yield
curve of
high quality corporate bonds is consistent with the annualized Moody's
Aa
rate. A comprehensive process is also used to determine the assumed
discount rate for our non-U.S. plans. This rate is sensitive to changes
in
interest rates. A decrease in the discount rate would increase our
obligation and future expense.
Our
U.S.
expected long-term rate of return on plan assets is based on our
estimate
of long-term passive returns for equities and fixed income securities
weighted by the allocation of our pension assets. Based on historical
performance, we increase the passive returns due to our active management
of the plan assets. To arrive at our expected long-term return, the
amount
added for active management was 1% for 2006, 2005 and 2004. A similar
process is used to determine this rate for our non-U.S. plans.
The
assumed
health care trend rate represents the rate at which health care costs
are
assumed to increase. To calculate the 2006 benefit expense, we assumed
an
increase of 8.5% for 2006. We expect an increase of 7.5% during 2007.
The
2006 and 2007 rates are assumed to decrease gradually to the ultimate
health care trend rate of 5.0% in 2013. This rate represents 3.0%
general
inflation plus 2.0% additional health care inflation.
We
determined
that most of our U.S. retiree health care plans are at least actuarially
equivalent to Medicare Part D and will qualify for the federal
subsidy. In the third quarter of 2004, we adopted FSP 106-2 retroactive
to
December 31, 2003 (the period end that includes the date of the Act's
enactment) as permitted by the FSP. The impact was a reduction in
our
accumulated postretirement benefit obligation of $284 million related
to benefits attributed to past service. The reduction in the components
of
2004 net periodic postretirement benefits expense was $51
million.
|
|
F.
|
Other
postemployment benefit plans
|
|
|
We
offer
long-term disability benefits, continued health care for disabled
employees, survivor income benefit insurance and supplemental unemployment
benefits to substantially all eligible U.S.
employees.
|
|
G.
|
Defined
contribution plans
|
|
|
We
have both
U.S. and non-U.S. employee defined contribution plans to help employees
save for retirement. Our U.S. 401(k) plan allows eligible employees
to
contribute a portion of their salary to the plan on a tax-deferred
basis,
and we provide a matching contribution equal to 100% of employee
contributions to the plan up to 6% of their compensation. Various
other
U.S. and non-U.S. defined contribution plans allow eligible employees
to
contribute a portion of their salary to the plans, and in some cases,
we
provide a matching contribution to the funds.
Total
company
costs related to U.S. and non-U.S. defined contribution plans were
the
following:
|
|
|
|
|
|
|
(Millions
of dollars)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
U.S.
plans
|
$
|
157
|
|
|
$
|
135
|
|
|
$
|
110
|
|
|
|
Non-U.S.
plans
|
|
23
|
|
|
|
18
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
180
|
|
|
$
|
153
|
|
|
$
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H.
|
Summary
of long-term liability:
|
|
|
|
December
31,
|
|
|
|
|
|
|
(Millions
of dollars)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Pensions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
pensions
|
$
|
1,076
|
|
|
$
|
760
|
|
|
$
|
248
|
|
|
|
|
Non-U.S.
pensions
|
|
411
|
|
|
|
92
|
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
pensions
|
|
1,487
|
|
|
|
852
|
|
|
|
429
|
|
|
|
Postretirement
benefits other than pensions
|
|
4,119
|
|
|
|
2,063
|
|
|
|
2,487
|
|
|
|
Other
postemployment benefits
|
|
73
|
|
|
|
76
|
|
|
|
70
|
|
|
|
Defined
contribution
|
|
200
|
|
|
|
170
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,879
|
|
|
$
|
3,161
|
|
|
$
|
3,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.
|
Short-term
borrowings
|
|
|
|
December
31,
|
|
|
|
|
|
|
(Millions
of dollars)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Machinery
and
Engines:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable
to banks
|
$
|
77
|
|
|
$
|
543
|
|
|
$
|
93
|
|
|
|
|
Commercial
paper
|
|
88
|
|
|
|
328
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165
|
|
|
|
871
|
|
|
|
93
|
|
|
|
Financial
Products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable
to banks
|
|
251
|
|
|
|
257
|
|
|
|
370
|
|
|
|
|
Commercial
paper
|
|
4,149
|
|
|
|
3,936
|
|
|
|
2,972
|
|
|
|
|
Collateralized
trust obligation
|
|
—
|
|
|
|
—
|
|
|
|
240
|
|
|
|
|
Demand
notes
|
|
590
|
|
|
|
505
|
|
|
|
482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,990
|
|
|
|
4,698
|
|
|
|
4,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
short-term borrowings
|
$
|
5,155
|
|
|
$
|
5,569
|
|
|
$
|
4,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
Note 6 for further discussion of the collateralized trust obligation.
|
|
|
The
weighted-average interest rates on short-term borrowings outstanding
were:
|
|
|
|
December
31,
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Notes
payable
to banks
|
|
6.2
|
%
|
|
|
5.4
|
%
|
|
|
5.9
|
%
|
|
|
Commercial
paper
|
|
4.5
|
%
|
|
|
3.4
|
%
|
|
|
2.5
|
%
|
|
|
Collateralized
trust obligation
|
|
—
|
|
|
|
—
|
|
|
|
2.3
|
%
|
|
|
Demand
notes
|
|
5.4
|
%
|
|
|
4.2
|
%
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
Please
refer
to Note 19 and Table IV for fair value information on short-term
borrowings.
|
|
|
|
December
31,
|
|
|
|
|
|
|
(Millions
of dollars)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Machinery
and
Engines:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes—6.550%
due 2011
|
$
|
250
|
|
|
$
|
250
|
|
|
$
|
250
|
|
|
|
|
Notes—5.700%
due 2016
|
|
500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Debentures—9.000%
due 2006
|
|
—
|
|
|
|
—
|
|
|
|
206
|
|
|
|
|
Debentures—7.250%
due 2009
|
|
307
|
|
|
|
310
|
|
|
|
313
|
|
|
|
|
Debentures—9.375%
due 2011
|
|
123
|
|
|
|
123
|
|
|
|
123
|
|
|
|
|
Debentures—9.375%
due 2021
|
|
120
|
|
|
|
120
|
|
|
|
236
|
|
|
|
|
Debentures—8.000%
due 2023
|
|
82
|
|
|
|
82
|
|
|
|
199
|
|
|
|
|
Debentures—6.625%
due 2028
|
|
299
|
|
|
|
299
|
|
|
|
299
|
|
|
|
|
Debentures—7.300%
due 2031
|
|
348
|
|
|
|
348
|
|
|
|
348
|
|
|
|
|
Debentures—5.300%
due 2035
|
|
201
|
|
|
|
200
|
|
|
|
—
|
|
|
|
|
Debentures—6.050%
due 2036
|
|
747
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Debentures—6.950%
due 2042
|
|
249
|
|
|
|
249
|
|
|
|
249
|
|
|
|
|
Debentures—7.375%
due 2097
|
|
297
|
|
|
|
297
|
|
|
|
297
|
|
|
|
|
Capital
lease
obligations
|
|
72
|
|
|
|
66
|
|
|
|
665
|
|
|
|
|
Commercial
paper
|
|
—
|
|
|
|
—
|
|
|
|
40
|
|
|
|
|
Deposit
obligations
|
|
—
|
|
|
|
231
|
|
|
|
245
|
|
|
|
|
Other
|
|
99
|
|
|
|
142
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Machinery and Engines
|
$
|
3,694
|
|
|
$
|
2,717
|
|
|
$
|
3,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
paper
|
|
408
|
|
|
|
299
|
|
|
|
1,400
|
|
|
|
|
Medium-term
notes
|
|
12,857
|
|
|
|
12,187
|
|
|
|
10,468
|
|
|
|
|
Deposit
obligations
|
|
232
|
|
|
|
232
|
|
|
|
232
|
|
|
|
|
Other
|
|
489
|
|
|
|
242
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Financial Products
|
|
13,986
|
|
|
|
12,960
|
|
|
|
12,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
long-term debt due after one year
|
$
|
17,680
|
|
|
$
|
15,677
|
|
|
$
|
15,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
outstanding notes and debentures are unsecured. Certain capital lease
obligations which were collateralized by leased manufacturing equipment
and/or security deposits, were terminated in the fourth quarter of
2005.
This resulted in the fulfillment of the capital lease obligation
and
conversion of the associated security deposits into cash. The deposit
obligations have corresponding security deposits, which are included
in
"Other assets" in Statement 2. These deposit obligations and corresponding
security deposits relate to two finance arrangements which provide
us a
return. These finance arrangements require that we commit to certain
long-term obligations and provide security deposits which will fulfill
these obligations when they become due. At December 31, 2006, the
Machinery and Engines deposit obligations are included in “Long-term debt
due within one year”, and the corresponding security deposit is included
in “Prepaid expenses and other current assets” in Statement 2.
On
August 8,
2006, Caterpillar Inc. issued $500 million of 5.70% notes due in
2016 and
$750 million of 6.05% debentures due in 2036.
On
September 13, 2005, $116 million of 9.375% debentures due in
2021 and $117 million of 8.00% debentures due in 2023 were exchanged
for $307 million of 5.30% debentures due in 2035 and $23 million
of cash. The book value of the 5.30% debentures due in 2035 was
$201 million at December 31, 2006 and $200 million at December
31, 2005, which results in an effective yield of 8.55%.
We
may redeem
the 6.55% and 5.70% notes and the 5.30%, 7.25%, 6.625%, 7.3%, 6.05%,
6.95%
and 7.375% debentures in whole or in part at our option at any time
at a
redemption price equal to the greater of 100% of the principal amount
of
the debentures to be redeemed or the sum of the present value of
the
remaining scheduled payments.
The
terms of
other notes and debentures do not specify a redemption option prior
to
maturity.
Based
on
long-term credit agreements, $408 million, $299 million and
$1,440 million of commercial paper outstanding at December 31,
2006, 2005 and 2004, respectively, was classified as long-term debt
due
after one year.
Medium-term
notes are offered by prospectus and are issued through agents at
fixed and
floating rates. These notes have a weighted average interest rate
of 4.6%
with remaining maturities up to 20 years at December 31, 2006.
The
aggregate
amounts of maturities of long-term debt during each of the years
2007
through 2011, including amounts due within one year and classified
as
current, are:
|
|
|
|
December
31,
|
|
|
|
|
|
|
(Millions
of dollars)
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
and
Engines
|
$
|
418
|
|
|
$
|
59
|
|
|
$
|
321
|
|
|
$
|
3
|
|
|
$
|
376
|
|
|
|
Financial
Products
|
|
4,043
|
|
|
|
3,913
|
|
|
|
4,011
|
|
|
|
2,258
|
|
|
|
1,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,461
|
|
|
$
|
3,972
|
|
|
$
|
4,332
|
|
|
$
|
2,261
|
|
|
$
|
1,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
above
table includes $969 million of medium-term notes that can be called
at par.
Interest
paid
on short-term and long-term borrowings for 2006, 2005 and 2004 was
$1,256 million, $1,030 million and $766 million,
respectively.
Please
refer
to Note 19 and Table IV for fair value information on long-term
debt.
|
|
|
|
December
31,
2006
|
|
|
|
|
|
|
(Millions
of dollars)
|
Consolidated
|
|
Machinery
and
Engines
|
|
Financial
Products
|
|
|
|
|
|
|
|
|
|
|
Credit
lines
available:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
credit
facilities
|
$
|
6,450
|
1
|
|
$
|
1,000
|
|
|
$
|
5,450
|
1
|
|
|
|
Other
external
|
|
2,573
|
|
|
|
1,070
|
|
|
|
1,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
credit
lines available
|
|
9,023
|
|
|
|
2,070
|
|
|
|
6,953
|
|
|
|
Less:
Global
credit facilities supporting commercial paper
|
|
(4,645
|
)
|
|
|
(88
|
)
|
|
|
(4,557
|
)
|
|
|
Less:
Utilized
credit
|
|
(750
|
)
|
|
|
(77
|
)
|
|
|
(673
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
credit
|
$
|
3,628
|
|
|
$
|
1,905
|
|
|
$
|
1,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
We
have three
global credit facilities with a syndicate of banks totaling
$6,450 million available in the aggregate to both Machinery and
Engines and Financial Products to support commercial paper programs.
Based
on management's allocation decision, which can be revised at any
time
during the year, the portion of the facility available to Cat Financial
at
December 31, 2006 was $5,450 million. The five-year facility of $1.63
billion, which expires in September 2010, has not changed from
December 2005. The five-year facility, which was previously $2.50
billion and scheduled to expire in 2009, has been increased to $2.98
billion and now expires in 2011. The 364-day facility of $1.63 billion
that expired in September 2006 was increased to $1.85 billion and
now
expires in September 2007. The facility expiring in September 2007
has a
provision that allows Caterpillar or Cat Financial to obtain a one-year
loan in September 2007 that would mature in September 2008.
|
|
|
|
|
|
|
At
December 31, 2006, there were no borrowings under these
lines.
|
|
|
Computations
of profit per share:
|
|
|
(Dollars
in millions except per share data)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Profit
for the
period (A)
|
$
|
3,537
|
|
|
$
|
2,854
|
|
|
$
|
2,035
|
|
|
|
Determination
of shares (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding (B)
|
|
658.7
|
|
|
|
678.4
|
|
|
|
684.5
|
|
|
|
|
Shares
issuable on exercise of stock awards, net of shares assumed to be
purchased out of proceeds at average market price
|
|
25.1
|
|
|
|
27.4
|
|
|
|
22.9
|
|
|
|
|
Average
common
shares outstanding for fully diluted computation (C)
|
|
683.8
|
|
|
|
705.8
|
|
|
|
707.4
|
|
|
|
Profit
per
share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assuming
no
dilution (A/B)
|
$
|
5.37
|
|
|
$
|
4.21
|
|
|
$
|
2.97
|
|
|
|
|
Assuming
full
dilution (A/C)
|
$
|
5.17
|
|
|
$
|
4.04
|
|
|
$
|
2.88
|
|
|
|
Shares
outstanding as of December 31 (in millions)
|
|
645.8
|
|
|
|
670.9
|
|
|
|
685.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SARs
and
stock options to purchase 9,626,940 and 104,000 common shares were
outstanding in 2006 and 2004, respectively, but were not included
in the
computation of diluted earnings per share because the effect would
have
been antidilutive. There were no antidilutive stock options outstanding
at
December 31, 2005.
On
June 8,
2005, Caterpillar’s Board of Directors approved a 2-for-1 stock split in
the form of a 100 percent stock dividend. The stock split shares
were
distributed on July 13, 2005 to stockholders of record at the close
of
business on June 22, 2005. Capital accounts, share data and profit
per
share data reflect the stock split, applied retroactively, to all
periods
presented.
|
|
19
.
|
Fair
values of financial
instruments
|
|
|
We
used the
following methods and assumptions to estimate the fair value of our
financial instruments:
Cash
and short-term investments—
carrying
amount approximated fair value.
Long-term
investments (other than investments in unconsolidated affiliated
companies)—
fair
value
for available-for-sale securities was estimated based on quoted market
prices. Fair value for security deposits approximated carrying value.
Foreign
currency forward and option contracts—
fair
value of
forward contracts was determined by discounting the future cash flow
resulting from the differential between the contract price and the
forward
rate. Fair value of option contracts was determined by using the
Black-Scholes model.
Finance
receivables—
fair
value
was estimated by discounting the future cash flow using current rates,
representative of receivables with similar remaining maturities.
Historical bad debt experience also was considered.
Wholesale
inventory receivables—
fair
value
was estimated by discounting the future cash flow using current rates,
representative of receivables with similar remaining maturities.
Short-term
borrowings—
carrying
amount approximated fair value.
|
|
|
Long-term
debt—
for
Machinery
and Engines notes and debentures, fair value was estimated based
on quoted
market prices. For Financial Products, fair value was estimated by
discounting the future cash flow using our current borrowing rates
for
similar types and maturities of debt, except for floating rate notes
and
commercial paper supported by long-term credit agreements for which
the
carrying amounts were considered a reasonable estimate of fair value.
For
deposit obligations carrying value approximated fair value.
Interest
rate swaps—
fair
value
was estimated based on the amount that we would receive or pay to
terminate our agreements as of year-end.
Guarantees—
fair
value is
estimated based on the premium we would require to issue the same
guarantee in a stand alone arm's-length transaction with an unrelated
party.
Please
refer
to Table IV on the next page for the fair values of our financial
instruments.
|
|
20.
|
Concentration
of credit risk
|
|
|
Financial
instruments with potential credit risk consist primarily of trade
and
finance receivables and short-term and long-term investments.
Additionally, to a lesser extent, we have a potential credit risk
associated with counterparties to derivative contracts.
Trade
receivables are primarily short-term receivables from independently
owned
and operated dealers and customers which arise in the normal course
of
business. We perform regular credit evaluations of our dealers
and
customers. Collateral generally is not required, and the majority
of our
trade receivables are unsecured. We do, however, when deemed necessary,
make use of various devices such as security agreements and letters
of
credit to protect our interests. No single dealer or customer represents
a
significant concentration of credit risk.
Finance
receivables and wholesale inventory receivables primarily represent
receivables under installment sales contracts, receivables arising
from
leasing transactions and notes receivable. We generally maintain
a secured
interest in the equipment financed. No single customer or dealer
represents a significant concentration of credit risk.
Short-term
and long-term investments are held with high quality institutions
and, by
policy, the amount of credit exposure to any one institution is
limited.
Long-term investments, included in "Other assets" in Statement
2, are
comprised primarily of investments which collateralize deposit
obligations
and investments of Cat Insurance supporting insurance reserve
requirements. At December 31, 2004 long-term investments also
included investments which collateralized capital lease obligations
(see
Note 16).
For
derivatives contracts, collateral is generally not required of
the
counterparties or of our company. We do not anticipate nonperformance
by
any of the counterparties. Our exposure to credit loss in the event
of
nonperformance by the counterparties is limited to only those gains
that
we have recorded, but have not yet received cash payment. At
December 31, 2006, 2005 and 2004, the exposure to credit loss was
$149 million, $141 million and $312 million, respectively.
Please
refer
to Note 19 and Table IV above for fair value information.
|
|
|
We
lease
certain computer and communications equipment, transportation equipment
and other property through operating leases. Total rental expense
for
operating leases was $319 million, $257 million and $224 million
for 2006, 2005 and 2004, respectively.
|
|
|
TABLE
IV—Fair Values of Financial Instruments
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions
of dollars)
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Reference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
(liability) at December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and
short-term investments
|
$
|
530
|
|
|
$
|
530
|
|
|
$
|
1,108
|
|
|
$
|
1,108
|
|
|
$
|
445
|
|
|
$
|
445
|
|
|
Statement
2
|
|
|
|
Long-term
investments
|
|
1,296
|
|
|
|
1,296
|
|
|
|
1,356
|
|
|
|
1,356
|
|
|
|
1,852
|
|
|
|
1,852
|
|
|
Notes 13 and 20
|
|
|
|
Foreign
currency contracts
|
|
56
|
|
|
|
56
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
176
|
|
|
|
176
|
|
|
Note
20
|
|
|
|
Finance
receivables—net (excluding tax leases
1
)
|
|
16,469
|
|
|
|
16,468
|
|
|
|
15,214
|
|
|
|
15,210
|
|
|
|
13,457
|
|
|
|
13,445
|
|
|
Note
8
|
|
|
|
Wholesale
inventory receivables—net
(excluding finance type
leases
1
)
|
|
1,027
|
|
|
|
992
|
|
|
|
1,089
|
|
|
|
1,085
|
|
|
|
882
|
|
|
|
857
|
|
|
Note 7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
(5,155
|
)
|
|
|
(5,155
|
)
|
|
|
(5,569
|
)
|
|
|
(5,569
|
)
|
|
|
(4,157
|
)
|
|
|
(4,157
|
)
|
|
Note
15
|
|
|
|
Long-term
debt
(including amounts due within one year)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
and
Engines
|
|
(4,112
|
)
|
|
|
(4,397
|
)
|
|
|
(3,057
|
)
|
|
|
(3,465
|
)
|
|
|
(3,669
|
)
|
|
|
(4,186
|
)
|
|
Note
16
|
|
|
|
|
Financial
Products
|
|
(18,029
|
)
|
|
|
(17,911
|
)
|
|
|
(17,119
|
)
|
|
|
(17,176
|
)
|
|
|
(15,699
|
)
|
|
|
(15,843
|
)
|
|
Note
16
|
|
|
Interest
rate
swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
and
Engines—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
a net
receivable position
|
|
2
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Note
3
|
|
|
|
Financial
Products—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
a net
receivable position
|
|
52
|
|
|
|
52
|
|
|
|
94
|
|
|
|
94
|
|
|
|
75
|
|
|
|
75
|
|
|
Note
3
|
|
|
|
|
in
a net
payable position
|
|
(99
|
)
|
|
|
(99
|
)
|
|
|
(114
|
)
|
|
|
(114
|
)
|
|
|
(69
|
)
|
|
|
(69
|
)
|
|
Note
3
|
|
|
Guarantees
2
|
|
(10
|
)
|
|
|
(10
|
)
|
|
|
(9
|
)
|
|
|
(10
|
)
|
|
|
(10
|
)
|
|
|
(10
|
)
|
|
Note
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Total
excluded
items have a net carrying value at December 31, 2006, 2005 and 2004
of $2,050 million, $1,719 million and $1,737 million,
respectively.
|
|
|
2
|
The
carrying
amount provisions of FASB Interpretation No. 45 related to guarantees
are effective for guarantees issued or modified subsequent to
December 31, 2002 only, whereas the fair value amount is for all
guarantees.
|
|
|
|
|
|
|
Minimum
payments for operating leases having initial or remaining non-cancelable
terms in excess of one year are:
|
|
|
Years
ended
December 31,
|
|
|
(Millions
of
dollars)
|
|
|
|
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
After
2011
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
230
|
|
|
$
|
195
|
|
|
$
|
163
|
|
|
$
|
134
|
|
|
$
|
87
|
|
|
$
|
460
|
|
|
$
|
1,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22.
|
Guarantees
and product warranty
|
|
|
We
have
guaranteed to repurchase loans of certain Caterpillar dealers from
third
party lenders in the event of default. These guarantees arose in
conjunction with Cat Financial's relationship with third party dealers
who
sell Caterpillar equipment. These guarantees generally have one-year
terms
and are secured, primarily by dealer assets.
Additionally,
we have provided an indemnity to a third party insurance company
for
potential losses related to performance bonds issued on behalf of
Caterpillar dealers. The bonds are issued to insure governmental
agencies
against nonperformance by certain Caterpillar dealers.
We
provide
loan guarantees to third party lenders for financing associated with
machinery purchased by customers. The loan guarantees are for the
remote
chance that the customers will become insolvent. These guarantees
have
varying terms and are secured by the machinery.
Cat
Financial
has provided a limited indemnity to a third party bank for
$35 million resulting from the assignment of certain leases to that
bank. The indemnity is for the remote chance that the insurers of
these
leases would become insolvent. The indemnity expires December 15,
2012 and is unsecured.
|
|
|
No
loss has
been experienced or is anticipated under any of these guarantees.
At
December 31, 2006, 2005 and 2004, the related liability was $10
million, $9 million and $10 million, respectively. The maximum
potential amount of future payments (undiscounted and without reduction
for any amounts that may possibly be recovered under recourse or
collateralized provisions) we could be required to make under the
guarantees at December 31 are as follows:
|
|
|
(
Millions
of dollars)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Guarantees
with Caterpillar dealers
|
$
|
527
|
|
|
$
|
520
|
|
|
$
|
468
|
|
|
|
Guarantees
with customers
|
|
48
|
|
|
|
64
|
|
|
|
29
|
|
|
|
Limited
Indemnity
|
|
35
|
|
|
|
40
|
|
|
|
45
|
|
|
|
Guarantees—other
|
|
21
|
|
|
|
16
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
guarantees
|
$
|
631
|
|
|
$
|
640
|
|
|
$
|
559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cat
Financial
is party to agreements in the normal course of business with selected
customers and Caterpillar dealers in which we commit to provide a
set
dollar amount of financing on a pre-approved basis. We also provide
lines
of credit to selected customers and Caterpillar dealers, of which
a
portion remains unused as of the end of the period. Commitments and
lines
of credit generally have fixed expiration dates or other termination
clauses. It has been our experience that not all commitments and
lines of
credit will be used. Management applies the same credit policies
when
making commitments and granting lines of credit as it does for any
other
financing. We do not require collateral for these commitments/lines,
but
if credit is extended, collateral may be required upon funding. The
amount
of the unused commitments and lines of credit for dealers as of
December 31, 2006 was $6,587 million compared to $4,729 million
at December 31, 2005 and $5,019 million at December 31,
2004. The amount of the unused commitments and lines of credit for
customers as of December 31, 2006 was $2,279 million compared to
$1,972 million at December 31, 2005 and $1,499 million at
December 31, 2004.
|
|
|
Our
product
warranty liability is determined by applying historical claim rate
experience to the current field population and dealer inventory.
Historical claim rates are developed using a rolling average of
actual
warranty payments.
|
|
|
(Millions
of dollars)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Warranty
liability, January 1
|
$
|
879
|
|
|
$
|
785
|
|
|
$
|
624
|
|
|
|
Reduction
in
liability (payments)
|
|
(745
|
)
|
|
|
(712
|
)
|
|
|
(571
|
)
|
|
|
Increase
in
liability (new warranties)
|
|
819
|
|
|
|
806
|
|
|
|
732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty
liability, December 31
|
$
|
953
|
|
|
$
|
879
|
|
|
$
|
785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.
|
Environmental
and legal matters
|
|
|
The
company
is regulated by federal, state and international environmental laws
governing our use 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 through 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
cleaning up contamination at a number of locations, often with other
companies, pursuant to federal and state laws. When it is probable
we will
pay cleanup costs at a site and those costs can be estimated, the
costs
are charged against our earnings. In formulating that estimate, we
do not
consider amounts expected to be recovered from insurance companies
and
others.
The
amount
recorded for environmental cleanup is not material and is included
in
"Accrued expenses" in Statement 2. Currently, we have several sites
in the
very early stages of cleanup, and there is no more than a remote
chance
that a material amount for cleanup at any individual site or at all
sites
in the aggregate will be required.
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 actions
involve disputes related to product design, manufacture and performance
liability (including claimed asbestos and welding fumes exposure),
contracts, employment issues and intellectual property rights. Although
it
is not possible to predict with certainty the outcome of these legal
actions or the range of probable loss, we believe that these legal
actions
will not individually or in the aggregate have a material impact
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 has 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
now
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
Internal
Revenue Service (IRS) completed its field examination of our 1995
through
1999 U.S. tax returns during the second quarter of 2005. In connection
with this examination, we received notices of certain adjustments
proposed
by the IRS, primarily related to foreign sales corporation commissions,
foreign tax credit calculations and research and development credits.
We
disagree with these proposed adjustments and are continuing to work
toward
resolution through applicable IRS procedures. In the opinion of our
management, the ultimate disposition of these matters will not have
a
material adverse effect on our consolidated financial position, liquidity
or results of operations.
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.
|
|
A.
|
Basis
for segment information
|
|
|
Caterpillar
is organized based on a decentralized structure that has established
accountabilities to continually improve business focus and increase
our
ability to react quickly to changes in both the global business cycle
and
competitors' actions. Our current structure uses a product, geographic
matrix organization comprised of multiple profit center and service
center
divisions.
Caterpillar
is a highly integrated company. The majority of our profit centers
are
product focused. They are primarily responsible for the design,
manufacture and ongoing support of their products. However, some
of these
product focused profit centers also have marketing responsibilities.
We
also have geographically-based profit centers that are focused primarily
on marketing. However, one of these profit centers also has some
manufacturing responsibilities. One of our profit centers provides
various
financial services to our customers and dealers. The service center
divisions perform corporate functions and provide centralized services.
We
have
developed an internal measurement system to evaluate performance
and to
drive continuous improvement. This measurement system, which is not
based
on generally accepted accounting principles (GAAP), is intended to
motivate desired behavior of employees and drive performance. It
is not
intended to measure a division's contribution to enterprise results.
The
sales and cost information used for internal purposes varies significantly
from our consolidated externally reported information, resulting
in
substantial reconciling items. Each division has specific performance
targets and is evaluated and compensated based on achieving those
targets.
Performance targets differ from division to division; therefore,
meaningful comparisons cannot be made among the profit or service
center
divisions. It is the comparison of actual results to budgeted results
that
makes our internal reporting valuable to management. Consequently,
we feel
that the financial information required by Statement of Financial
Accounting Standards No. 131 (SFAS 131), "Disclosures about
Segments of an Enterprise and Related Information" has limited value
for
our external readers.
Due
to
Caterpillar's high level of integration and our concern that segment
disclosures based on SFAS 131 requirements have limited value to
external readers, we are continuing to disclose financial results
for our
three principal lines of business (Machinery, Engines and Financial
Products) in our Management's Discussion and Analysis beginning on
page
A-40.
|
|
B.
|
Description
of segments
|
|
|
The
profit
center divisions meet the SFAS 131 definition of "operating
segments;" however, the service center divisions do not. The following
is
a brief description of our nine reportable segments and the business
activities included in the “All Other” category.
Asia/Pacific
Marketing:
Primarily
responsible for marketing machinery through dealers in Australia,
Asia
(excluding Japan) and the Pacific Rim.
Construction &
Mining Products:
Primarily
responsible for the design, manufacture and ongoing support of medium
and
large machinery used in a variety of construction and mining applications.
This reportable segment represents the aggregation of three profit
centers, Mining and Construction Equipment Division, Track-Type Tractors
Division and Wheel Loaders and Excavators Division.
EAME
Marketing:
Primarily
responsible for marketing machinery through dealers in Europe, Africa,
the
Middle East and the Commonwealth of Independent States.
Electric
Power:
Primarily
responsible for the design, manufacture and ongoing support of natural
gas
and diesel powered generator sets as well as integrated systems used
in
the electric power generation industry. Also includes marketing through
dealers worldwide.
Financing &
Insurance Services:
Provides
financing to customers and dealers for the purchase and lease of
Caterpillar and other equipment, as well as some financing for Caterpillar
sales to dealers. Financing plans include operating and finance leases,
installment sale contracts, working capital loans and wholesale financing
plans. The division also provides various forms of insurance to customers
and dealers to help support the purchase and lease of our equipment.
Large
Power Products:
Primarily
responsible for the design, manufacture and ongoing support of C7
and
larger reciprocating engines. These engines are used in various industries
and applications including on-highway truck, electric power,
industrial/rail, marine, petroleum and Caterpillar machinery.
Latin
America:
Primarily
responsible for marketing machinery and engines through dealers in
Latin
America. Also includes the manufacturing of machinery and components
used
in a variety of construction and mining applications.
North
America Marketing:
Primarily
responsible for marketing machinery through dealers in the United
States
and Canada.
Power
Systems Marketing:
Primarily
responsible for marketing and ongoing support of reciprocating engines
sold into on-highway truck, marine and petroleum industry applications.
All
Other:
Primarily
includes activities such as: service support and parts distribution
to
Caterpillar dealers worldwide; logistics services for Caterpillar
and
other companies; remanufacturing of Caterpillar engines and components
and
remanufacturing services for other companies; design, manufacture
and
ongoing support for reciprocating engines used in industrial applications;
design, manufacture, marketing and ongoing support of turbines; regional
manufacturing of construction and mining machinery and components
in
Europe, Asia and Australia; design, manufacture and ongoing support
of
building construction, paving and forestry machinery and related
components and control systems; and rail-related products and services.
|
|
C.
|
Segment
measurement and reconciliations
|
|
|
Please
refer
to Table V on pages A-34 to A-36 for financial information regarding
our
segments. There are several accounting differences between our segment
reporting and our external reporting. Our segments are measured on
an
accountable basis; therefore, only those items for which divisional
management is directly responsible are included in the determination
of
segment profit/(loss) and assets. In 2006, we began charging business
segments certain costs that previously were reconciling items. No
individual segment was materially impacted as a result of the changes.
In
addition, we made several organizational changes that impacted our
segment
reporting. The information for 2005 and 2004 has been reclassified to
conform to the 2006 presentation.
|
|
|
The
following
is a list of the more significant accounting differences:
|
|
|
·
Generally,
liabilities are managed at the corporate level and are not included
in
segment operations. Segment accountable assets generally include
inventories, receivables and property, plant and equipment.
·
We
account
for intersegment transfers using a system of market-based prices.
With
minor exceptions, each of the profit centers either sells or purchases
virtually all of its products to or from other profit centers within
the
company. Our high level of integration results in our internally
reported
sales being approximately double that of our consolidated, externally
reported sales.
·
Segment
inventories and cost of sales are valued using a current cost methodology.
·
Postretirement
benefit expenses are split; segments are generally responsible for
service
and prior services costs, with the remaining elements of net periodic
benefit cost included as a methodology difference.
·
Interest
expense is imputed (i.e., charged) to profit centers based on their
level
of accountable assets.
·
Accountable
profit is determined on a pretax basis.
|
|
|
Reconciling
items are created based on accounting differences between segment
reporting and our consolidated, external reporting. Please refer
to Table
V on pages A-34 to A-36 for financial information regarding significant
reconciling items. Most of our reconciling items are self-explanatory
given the above explanations of accounting differences. However,
for the
reconciliation of profit, we have grouped the reconciling items as
follows:
|
|
|
·
Corporate
costs:
Certain corporate costs are not charged to our segments. These costs
are
related to corporate requirements and strategies that are considered
to be
for the benefit of the entire organization.
·
Timing:
Timing
differences in the recognition of costs between segment reporting
and
consolidated external reporting.
·
Methodology
differences:
See previous
discussion of significant accounting differences between segment
reporting
and consolidated external reporting.
|
|
TABLE
V—Segment Information
(Millions
of dollars)
|
|
|
|
Business
Segments
|
Machinery
and Engines
|
|
Financing
|
|
|
|
|
Asia/
Pacific
Marketing
|
|
Construction
&
Mining
Products
|
|
EAME
Marketing
|
|
Electric
Power
|
|
Large
Power
Products
|
|
Latin
America
|
|
North
America
Marketing
|
|
Power
Systems
Marketing
|
|
All
Other
|
|
Total
|
|
&
Insurance
Services
|
|
Consolidated
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
sales
and revenues
|
$
|
2,683
|
|
$
|
(52
|
)
|
$
|
5,282
|
|
$
|
2,569
|
|
$
|
(172
|
)
|
$
|
2,796
|
|
$
|
11,801
|
|
$
|
5,564
|
|
$
|
8,140
|
|
$
|
38,611
|
|
$
|
3,359
|
|
$
|
41,970
|
|
|
Inter-segment
sales and revenues
|
|
(1
|
)
|
|
11,332
|
|
|
5
|
|
|
228
|
|
|
8,517
|
|
|
1,921
|
|
|
317
|
|
|
27
|
|
|
17,101
|
|
|
39,447
|
|
|
1
|
|
|
39,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
sales
and revenues
|
$
|
2,682
|
|
$
|
11,280
|
|
$
|
5,287
|
|
$
|
2,797
|
|
$
|
8,345
|
|
$
|
4,717
|
|
$
|
12,118
|
|
$
|
5,591
|
|
$
|
25,241
|
|
$
|
78,058
|
|
$
|
3,360
|
|
$
|
81,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
$
|
2
|
|
$
|
103
|
|
$
|
1
|
|
$
|
21
|
|
$
|
162
|
|
$
|
46
|
|
$
|
1
|
|
$
|
9
|
|
$
|
460
|
|
$
|
805
|
|
$
|
642
|
|
$
|
1,447
|
|
|
Imputed
interest expense
|
$
|
8
|
|
$
|
51
|
|
$
|
6
|
|
$
|
19
|
|
$
|
54
|
|
$
|
29
|
|
$
|
4
|
|
$
|
2
|
|
$
|
284
|
|
$
|
457
|
|
$
|
1,044
|
|
$
|
1,501
|
|
|
Accountable
profit (loss)
|
$
|
80
|
|
$
|
1,617
|
|
$
|
170
|
|
$
|
177
|
|
$
|
724
|
|
$
|
367
|
|
$
|
363
|
|
$
|
141
|
|
$
|
2,307
|
|
$
|
5,946
|
|
$
|
718
|
|
$
|
6,664
|
|
|
Accountable
assets at
December
31
|
$
|
352
|
|
$
|
1,844
|
|
$
|
285
|
|
$
|
682
|
|
$
|
2,041
|
|
$
|
941
|
|
$
|
(196
|
)
|
$
|
131
|
|
$
|
10,573
|
|
$
|
16,653
|
|
$
|
28,406
|
|
$
|
45,059
|
|
|
Capital
expenditures
|
$
|
3
|
|
$
|
233
|
|
$
|
1
|
|
$
|
39
|
|
$
|
277
|
|
$
|
56
|
|
$
|
5
|
|
$
|
4
|
|
$
|
666
|
|
$
|
1,284
|
|
$
|
1,183
|
|
$
|
2,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
sales
and revenues
|
$
|
2,462
|
|
$
|
3
|
|
$
|
4,397
|
|
$
|
2,136
|
|
$
|
(128
|
)
|
$
|
2,275
|
|
$
|
10,988
|
|
$
|
4,696
|
|
$
|
6,980
|
|
$
|
33,809
|
|
$
|
2,867
|
|
$
|
36,676
|
|
|
Inter-segment
sales and revenues
|
|
3
|
|
|
9,925
|
|
|
5
|
|
|
188
|
|
|
7,259
|
|
|
1,670
|
|
|
385
|
|
|
27
|
|
|
15,160
|
|
|
34,622
|
|
|
1
|
|
|
34,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
sales
and revenues
|
$
|
2,465
|
|
$
|
9,928
|
|
$
|
4,402
|
|
$
|
2,324
|
|
$
|
7,131
|
|
$
|
3,945
|
|
$
|
11,373
|
|
$
|
4,723
|
|
$
|
22,140
|
|
$
|
68,431
|
|
$
|
2,868
|
|
$
|
71,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
$
|
2
|
|
$
|
89
|
|
$
|
1
|
|
$
|
18
|
|
$
|
154
|
|
$
|
44
|
|
$
|
2
|
|
$
|
8
|
|
$
|
377
|
|
$
|
695
|
|
$
|
646
|
|
$
|
1,341
|
|
|
Imputed
interest expense
|
$
|
7
|
|
$
|
44
|
|
$
|
3
|
|
$
|
18
|
|
$
|
48
|
|
$
|
26
|
|
$
|
4
|
|
$
|
3
|
|
$
|
248
|
|
$
|
401
|
|
$
|
798
|
|
$
|
1,199
|
|
|
Accountable
profit (loss)
|
$
|
94
|
|
$
|
1,452
|
|
$
|
71
|
|
$
|
109
|
|
$
|
464
|
|
$
|
202
|
|
$
|
278
|
|
$
|
116
|
|
$
|
1,863
|
|
$
|
4,649
|
|
$
|
566
|
|
$
|
5,215
|
|
|
Accountable
assets at
December
31
|
$
|
257
|
|
$
|
1,579
|
|
$
|
93
|
|
$
|
595
|
|
$
|
1,675
|
|
$
|
878
|
|
$
|
31
|
|
$
|
47
|
|
$
|
8,598
|
|
$
|
13,753
|
|
$
|
26,815
|
|
$
|
40,568
|
|
|
Capital
expenditures
|
$
|
2
|
|
$
|
172
|
|
$
|
1
|
|
$
|
27
|
|
$
|
186
|
|
$
|
51
|
|
$
|
5
|
|
$
|
5
|
|
$
|
529
|
|
$
|
978
|
|
$
|
1,232
|
|
$
|
2,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
sales
and revenues
|
$
|
2,105
|
|
$
|
(46
|
)
|
$
|
3,848
|
|
$
|
1,764
|
|
$
|
(79
|
)
|
$
|
1,728
|
|
$
|
8,881
|
|
$
|
3,953
|
|
$
|
5,969
|
|
$
|
28,123
|
|
$
|
2,439
|
|
$
|
30,562
|
|
|
Inter-segment
sales and revenues
|
|
-
|
|
|
7,562
|
|
|
6
|
|
|
141
|
|
|
6,208
|
|
|
1,260
|
|
|
322
|
|
|
46
|
|
|
12,451
|
|
|
27,996
|
|
|
1
|
|
|
27,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
sales
and revenues
|
$
|
2,105
|
|
$
|
7,516
|
|
$
|
3,854
|
|
$
|
1,905
|
|
$
|
6,129
|
|
$
|
2,988
|
|
$
|
9,203
|
|
$
|
3,999
|
|
$
|
18,420
|
|
$
|
56,119
|
|
$
|
2,440
|
|
$
|
58,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
$
|
1
|
|
$
|
82
|
|
$
|
1
|
|
$
|
35
|
|
$
|
157
|
|
$
|
46
|
|
$
|
1
|
|
$
|
(6
|
)
|
$
|
364
|
|
$
|
681
|
|
$
|
604
|
|
$
|
1,285
|
|
|
Imputed
interest expense
|
$
|
9
|
|
$
|
34
|
|
$
|
3
|
|
$
|
17
|
|
$
|
50
|
|
$
|
20
|
|
$
|
1
|
|
$
|
4
|
|
$
|
213
|
|
$
|
351
|
|
$
|
543
|
|
$
|
894
|
|
|
Accountable
profit (loss)
|
$
|
137
|
|
$
|
846
|
|
$
|
83
|
|
$
|
(40
|
)
|
$
|
190
|
|
$
|
250
|
|
$
|
395
|
|
$
|
16
|
|
$
|
1,285
|
|
$
|
3,162
|
|
$
|
460
|
|
$
|
3,622
|
|
|
Accountable
assets at December 31
|
$
|
258
|
|
$
|
1,352
|
|
$
|
94
|
|
$
|
622
|
|
$
|
1,586
|
|
$
|
775
|
|
$
|
(61
|
)
|
$
|
133
|
|
$
|
8,089
|
|
$
|
12,848
|
|
$
|
24,450
|
|
$
|
37,298
|
|
|
Capital
expenditures
|
$
|
-
|
|
$
|
113
|
|
$
|
-
|
|
$
|
19
|
|
$
|
108
|
|
$
|
41
|
|
$
|
6
|
|
$
|
-
|
|
$
|
444
|
|
$
|
731
|
|
$
|
1,327
|
|
$
|
2,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliations:
|
|
|
Sales
& Revenues
|
Machinery
and
Engines
|
|
Financing
&
Insurance
Services
|
|
Consolidating
Adjustments
|
|
Consolidated
Total
|
|
|
|
|
|
|
|
|
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
external
sales and revenues from business segments
|
$
|
38,611
|
|
|
$
|
3,359
|
|
|
$
|
—
|
|
|
$
|
41,970
|
|
|
Other
|
|
258
|
|
|
|
(245
|
)
|
|
|
(466
|
)
1
|
|
|
(453
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
sales
and revenues
|
$
|
38,869
|
|
|
$
|
3,114
|
|
|
$
|
(466
|
)
|
|
$
|
41,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
external
sales and revenues from business segments
|
$
|
33,809
|
|
|
$
|
2,867
|
|
|
$
|
—
|
|
|
$
|
36,676
|
|
|
Other
|
|
197
|
|
|
|
(217
|
)
|
|
|
(317
|
)
1
|
|
|
(337
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
sales
and revenues
|
$
|
34,006
|
|
|
$
|
2,650
|
|
|
$
|
(317
|
)
|
|
$
|
36,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
external
sales and revenues from business segments
|
$
|
28,123
|
|
|
$
|
2,439
|
|
|
$
|
—
|
|
|
$
|
30,562
|
|
|
Other
|
|
213
|
|
|
|
(270
|
)
|
|
|
(199
|
)
1
|
|
|
(256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
sales
and revenues
|
$
|
28,336
|
|
|
$
|
2,169
|
|
|
$
|
(199
|
)
|
|
$
|
30,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Elimination
of
Financial Products revenues from Machinery and Engines.
|
|
|
|
|
Reconciliations:
|
|
|
Profit
before taxes
|
Machinery
and
Engines
|
|
Financing
&
Insurance
Services
|
|
Consolidated
Total
|
|
|
|
|
|
|
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
accountable profit from business segments
|
$
|
5,946
|
|
|
$
|
718
|
|
|
$
|
6,664
|
|
|
Corporate
costs
|
|
(888
|
)
|
|
|
—
|
|
|
|
(888
|
)
|
|
Timing
|
|
(114
|
)
|
|
|
—
|
|
|
|
(114
|
)
|
|
Methodology
differences:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory/cost
of sales
|
|
(60
|
)
|
|
|
—
|
|
|
|
(60
|
)
|
|
|
Postretirement
benefit expense
|
|
(331
|
)
|
|
|
—
|
|
|
|
(331
|
)
|
|
|
Financing
costs
|
|
(131
|
)
|
|
|
—
|
|
|
|
(131
|
)
|
|
|
Equity
in
profit of unconsolidated affiliated companies
|
|
(79
|
)
|
|
|
(2
|
)
|
|
|
(81
|
)
|
|
|
Currency
|
|
15
|
|
|
|
—
|
|
|
|
15
|
|
|
|
Legal
disputes
|
|
(77
|
)
|
|
|
—
|
|
|
|
(77
|
)
|
|
|
Other
methodology differences
|
|
(67
|
)
|
|
|
29
|
|
|
|
(38
|
)
|
|
Other
|
|
(98
|
)
|
|
|
—
|
|
|
|
(98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
profit
before taxes
|
$
|
4,116
|
|
|
$
|
745
|
|
|
$
|
4,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
accountable profit from business segments
|
$
|
4,649
|
|
|
$
|
566
|
|
|
$
|
5,215
|
|
|
Corporate
costs
|
|
(728
|
)
|
|
|
—
|
|
|
|
(728
|
)
|
|
Timing
|
|
(66
|
)
|
|
|
—
|
|
|
|
(66
|
)
|
|
Methodology
differences:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory/cost
of sales
|
|
14
|
|
|
|
—
|
|
|
|
14
|
|
|
|
Postretirement
benefit expense
|
|
(386
|
)
|
|
|
—
|
|
|
|
(386
|
)
|
|
|
Financing
costs
|
|
(14
|
)
|
|
|
—
|
|
|
|
(14
|
)
|
|
|
Equity
in
profit of unconsolidated affiliated companies
|
|
(64
|
)
|
|
|
(9
|
)
|
|
|
(73
|
)
|
|
|
Currency
|
|
(21
|
)
|
|
|
—
|
|
|
|
(21
|
)
|
|
|
Other
methodology differences
|
|
(14
|
)
|
|
|
23
|
|
|
|
9
|
|
|
Other
|
|
(49
|
)
|
|
|
—
|
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
profit
before taxes
|
$
|
3,321
|
|
|
$
|
580
|
|
|
$
|
3,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
accountable profit from business segments
|
$
|
3,162
|
|
|
$
|
460
|
|
|
$
|
3,622
|
|
|
Corporate
costs
|
|
(601
|
)
|
|
|
—
|
|
|
|
(601
|
)
|
|
Timing
|
|
30
|
|
|
|
—
|
|
|
|
30
|
|
|
Methodology
differences:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory/cost
of sales
|
|
(62
|
)
|
|
|
—
|
|
|
|
(62
|
)
|
|
|
Postretirement
benefit expense
|
|
(270
|
)
|
|
|
—
|
|
|
|
(270
|
)
|
|
|
Financing
costs
|
|
52
|
|
|
|
—
|
|
|
|
52
|
|
|
|
Equity
in
profit of unconsolidated affiliated companies
|
|
(56
|
)
|
|
|
(3
|
)
|
|
|
(59
|
)
|
|
|
Currency
|
|
35
|
|
|
|
—
|
|
|
|
35
|
|
|
|
Other
methodology differences
|
|
(52
|
)
|
|
|
48
|
|
|
|
(4
|
)
|
|
Other
|
|
(36
|
)
|
|
|
—
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
profit
before taxes
|
$
|
2,202
|
|
|
$
|
505
|
|
|
$
|
2,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliations:
|
|
|
Assets
|
Machinery
and
Engines
|
|
Financing
&
Insurance
Services
|
|
Consolidating
Adjustments
|
|
Consolidated
Total
|
|
|
|
|
|
|
|
|
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
accountable assets from business segments
|
$
|
16,653
|
|
|
$
|
28,406
|
|
|
$
|
—
|
|
|
$
|
45,059
|
|
|
Items
not
included in segment assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and
short-term investments
|
|
319
|
|
|
|
211
|
|
|
|
—
|
|
|
|
530
|
|
|
|
Intercompany
receivables
|
|
205
|
|
|
|
85
|
|
|
|
(290
|
)
|
|
|
—
|
|
|
|
Trade
and
other receivables
|
|
324
|
|
|
|
—
|
|
|
|
—
|
|
|
|
324
|
|
|
|
Investments
in
unconsolidated affiliated companies
|
|
439
|
|
|
|
—
|
|
|
|
(9
|
)
|
|
|
430
|
|
|
|
Investment
in
Financial Products
|
|
3,513
|
|
|
|
—
|
|
|
|
(3,513
|
)
|
|
|
—
|
|
|
|
Deferred
income taxes and prepaids
|
|
3,167
|
|
|
|
116
|
|
|
|
(327
|
)
|
|
|
2,956
|
|
|
|
Intangible
assets and other assets
|
|
1,283
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
1,282
|
|
|
|
Service
center
assets
|
|
1,008
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,008
|
|
|
Liabilities
included in segment assets
|
|
1,767
|
|
|
|
21
|
|
|
|
—
|
|
|
|
1,788
|
|
|
Inventory
methodology differences
|
|
(2,503
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,503
|
)
|
|
Other
|
|
250
|
|
|
|
(245
|
)
|
|
|
—
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
26,425
|
|
|
$
|
28,593
|
|
|
$
|
(4,139
|
)
|
|
$
|
50,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
accountable assets from business segments
|
$
|
13,753
|
|
|
$
|
26,815
|
|
|
$
|
—
|
|
|
$
|
40,568
|
|
|
Items
not
included in segment assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and
short-term investments
|
|
951
|
|
|
|
157
|
|
|
|
—
|
|
|
|
1,108
|
|
|
|
Intercompany
receivables
|
|
310
|
|
|
|
67
|
|
|
|
(377
|
)
|
|
|
—
|
|
|
|
Trade
and
other receivables
|
|
332
|
|
|
|
—
|
|
|
|
—
|
|
|
|
332
|
|
|
|
Investments
in
unconsolidated affiliated companies
|
|
407
|
|
|
|
—
|
|
|
|
—
|
|
|
|
407
|
|
|
|
Investment
in
Financial Products
|
|
3,253
|
|
|
|
—
|
|
|
|
(3,253
|
)
|
|
|
—
|
|
|
|
Deferred
income taxes and prepaids
|
|
3,282
|
|
|
|
100
|
|
|
|
(340
|
)
|
|
|
3,042
|
|
|
|
Intangible
assets and other assets
|
|
1,692
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,692
|
|
|
|
Service
center
assets
|
|
892
|
|
|
|
—
|
|
|
|
—
|
|
|
|
892
|
|
|
Liabilities
included in segment assets
|
|
1,242
|
|
|
|
14
|
|
|
|
—
|
|
|
|
1,256
|
|
|
Inventory
methodology differences
|
|
(2,300
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,300
|
)
|
|
Other
|
|
173
|
|
|
|
(101
|
)
|
|
|
—
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
23,987
|
|
|
$
|
27,052
|
|
|
$
|
(3,970
|
)
|
|
$
|
47,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
accountable assets from business segments
|
$
|
12,848
|
|
|
$
|
24,450
|
|
|
$
|
—
|
|
|
$
|
37,298
|
|
|
Items
not
included in segment assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and
short-term investments
|
|
270
|
|
|
|
175
|
|
|
|
—
|
|
|
|
445
|
|
|
|
Intercompany
receivables
|
|
443
|
|
|
|
18
|
|
|
|
(461
|
)
|
|
|
—
|
|
|
|
Trade
and
other receivables
|
|
547
|
|
|
|
—
|
|
|
|
—
|
|
|
|
547
|
|
|
|
Investments
in
unconsolidated affiliated companies
|
|
367
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
366
|
|
|
|
Investment
in
Financial Products
|
|
3,012
|
|
|
|
—
|
|
|
|
(3,012
|
)
|
|
|
—
|
|
|
|
Deferred
income taxes and prepaids
|
|
2,477
|
|
|
|
92
|
|
|
|
(317
|
)
|
|
|
2,252
|
|
|
|
Intangible
assets and other assets
|
|
2,158
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,158
|
|
|
|
Service
center
assets
|
|
890
|
|
|
|
—
|
|
|
|
—
|
|
|
|
890
|
|
|
Liabilities
included in segment assets
|
|
1,346
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,346
|
|
|
Inventory
methodology differences
|
|
(2,235
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,235
|
)
|
|
Other
|
|
146
|
|
|
|
(123
|
)
|
|
|
5
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
22,269
|
|
|
$
|
24,612
|
|
|
$
|
(3,786
|
)
|
|
$
|
43,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise-wide
Disclosures:
|
|
|
|
|
|
External
sales and revenues from products and services:
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Machinery
|
$
|
26,062
|
|
|
$
|
22,931
|
|
|
$
|
18,844
|
|
|
Engines
|
|
12,807
|
|
|
|
11,075
|
|
|
|
9,492
|
|
|
Financial
Products
|
|
2,648
|
|
|
|
2,333
|
|
|
|
1,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
consolidated
|
$
|
41,517
|
|
|
$
|
36,339
|
|
|
$
|
30,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information
about Geographic Areas:
|
|
|
|
|
Net
property,
plant and equipment
|
|
|
|
|
|
|
|
External
Sales
& Revenues
1
|
|
December
31,
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inside
United
States
|
$
|
19,636
|
|
|
$
|
17,348
|
|
|
$
|
14,198
|
|
|
$
|
5,424
|
|
|
$
|
4,725
|
|
|
$
|
4,424
|
|
|
Outside
United
States
|
|
21,881
|
|
|
|
18,991
|
|
|
|
16,108
|
|
|
|
3,427
|
2
|
|
|
3,263
|
2
|
|
|
3,258
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
41,517
|
|
|
$
|
36,339
|
|
|
$
|
30,306
|
|
|
$
|
8,851
|
|
|
$
|
7,988
|
|
|
$
|
7,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Sales
of
machinery and engines are based on dealer or customer location. Revenues
from services provided are based on where service is
rendered.
|
|
2
|
Amount
includes $725 million, $692 million and $681 million of net
property, plant and equipment located in the United Kingdom as of
December 31, 2006, 2005 and 2004, respectively.
|
|
|
|
|
25.
|
Alliances
and Acquisitions
|
|
|
Large
Components Business of Royal Oak Industries, Inc.
In
August
2006, we acquired the large components business of Royal Oak Industries,
Inc. (Royal Oak), a supplier to our engines business, for $97 million,
consisting of $92 million at closing and $5 million plus accrued
interest
to be paid in 2009.
The
business
acquired provides machining of engine cylinder blocks, heads, manifolds
and bearing caps. This acquisition expands our machining operations
in our
engine manufacturing business.
The
transaction was financed with available cash and commercial paper
borrowings. Net tangible assets acquired of $58 million, consisting
of
property, plant and equipment, accounts receivable and inventory,
were
recorded at their fair values. No intangible assets were acquired.
Goodwill of $39 million,
deductible
for income tax purposes,
represents
the excess of cost over the fair value of the acquired net tangible
assets. The results of the acquired business for the period from
the
acquisition date are included in the accompanying consolidated financial
statements and reported in the “Large Power Products” segment. Assuming
this transaction had been made at January 1, 2006, the consolidated
pro
forma results for the year would not be materially different from
reported
results.
Progress
Rail Services, Inc.
In
June 2006,
Caterpillar acquired 100 percent of the equity in Progress Rail Services,
Inc. (Progress Rail) for approximately $1 billion, including the
assumption of $200 million in debt. A privately held company based
in
Albertville, Alabama, Progress Rail is a leading provider of
remanufactured locomotive, railcar and track products and services
to the
North American railroad industry. With 2005 sales of $1.2 billion,
the
company has one of the most extensive rail service and supply networks
in
North America. It operates more than 90 facilities in 29 states in
the
United States, Canada and Mexico, with about 3,700 employees. Expansion
into the railroad aftermarket business is a strong fit with our strategic
direction and will leverage Caterpillar's remanufacturing
capabilities.
The
transaction was financed with available cash and commercial paper
borrowings of $427 million and Caterpillar stock of $379 million
(5.3
million shares). Net tangible assets acquired, recorded at their
fair
values, primarily were inventories of $257 million, receivables of
$169
million and property, plant and equipment of $260 million. Liabilities
acquired, recorded at their fair values, primarily consisted of assumed
debt of $200 million, accounts payable of $148 million and net deferred
tax liabilities of $115 million. Finite-lived intangible assets acquired
of $223 million related primarily to customer relationships are being
amortized on a straight-line basis over 20 years. Goodwill of $431
million, non-deductible for income tax purposes, represents the excess
of
cost over the fair value of net tangible and finite-lived intangible
assets acquired. The results of the acquired business for the period
from
the acquisition date are included in the accompanying consolidated
financial statements and reported in the “All Other” category. Assuming
this transaction had been made at January 1, 2006, the consolidated
pro
forma results for the year would not be materially different from
reported
results.
Global
Alliance with JLG Industries, Inc.
In
November 2005, we entered into a global alliance agreement with JLG
Industries, Inc. (JLG) to produce a full line of Caterpillar branded
telehandlers. The alliance is a strategic fit for both companies
and will
give Caterpillar dealers and customers greater access to a quality
range
of Caterpillar branded telehandler products. Caterpillar will supply
components to JLG and JLG will benefit by distributing through the
Caterpillar dealer network and utilizing our parts distribution
capabilities. Under the 20 year alliance agreement, telehandler
production shifted from Caterpillar's manufacturing facility in Desford,
United Kingdom to JLG's manufacturing facilities.
In
accordance
with the alliance agreement, JLG paid Caterpillar $46 million at
closing
and $5 million in September 2006. The book value of assets acquired
by JLG
was $10 million. The resulting $41 million gain was deferred and
is being
recognized over the alliance agreement.
As
part of
the telehandler production shift, Caterpillar's Building Construction
Products Division, part of Caterpillar's "All Other" category, began
a
strategic restructuring to better position its European manufacturing
operations. This restructuring resulted in approximately $8 million
in severance costs, charged to "Other operating expenses" in Statement
1.
The severance costs relate to approximately 400 voluntary and involuntary
employee separations.
Williams
Technologies, Inc.
In
September 2004, we acquired Williams Technologies, Inc., a
wholly owned subsidiary of Remy International, Inc., for
$105 million. Williams Technologies, Inc. is a leading
remanufacturer of automatic transmissions, torque converters and
engines
for automotive and medium and heavy-duty truck applications. This
acquisition represents an expansion of our remanufacturing operations
into
the automotive powertrain remanufacturing business.
The
transaction was financed with available cash and commercial paper
borrowings. The results of the acquired business for the period from
the
acquisition date are included in the accompanying consolidated financial
statements and reported in the "All Other" category. Net tangible
assets
acquired and liabilities assumed of $25 million were recorded at
their fair values. Finite-lived intangible assets acquired of
$43 million relate primarily to customer relationships, and are being
amortized on a straight-line basis over 20 years. Goodwill of
$37 million represents the excess of cost over the fair value of net
tangible and finite-lived intangible assets acquired. Assuming this
transaction had been made at January 1, 2004, the consolidated pro
forma results for the year would not be materially different from
reported
results.
Parts
and Accessories Distribution Business of MG Rover Ltd.
In
August 2004, we acquired the global parts and accessories business of
U.K. auto manufacturer MG Rover, a wholly owned subsidiary of Phoenix
Venture Holdings Limited, for $178 million, including
$169 million at closing and a $9 million promissory note. The
business acquired includes the sourcing, marketing, distribution
and sale
of automotive service parts and accessories to MG Rover dealers,
distributors, importers and other related customers worldwide.
|
|
|
The
transaction was financed with available cash and commercial paper
borrowings. The results of the acquired business for the period from
the
acquisition date are included in the accompanying consolidated financial
statements and reported in the "All Other" category. Net tangible
assets
acquired and liabilities assumed of $73 million were recorded at
their fair values. Finite-lived intangible assets acquired of
$87 million relate primarily to technology and trademark rights,
which are being amortized on a straight-line basis over 8 years.
Goodwill of $18 million represents the excess of cost over the fair
value of net tangible and finite-lived intangible assets acquired.
During
the first quarter of 2006, we determined that the business outlook
for the
parts and accessories distribution business of MG Rover required
a
specific impairment evaluation, which resulted in a goodwill impairment
charge of $18 million (see Note 12 for additional information). Assuming
this transaction had been made at January 1, 2004, the consolidated
pro forma results for the year would not be materially different
from
reported results.
Turbomach
S.A.
In
June 2004, we acquired Turbomach S.A. from Borsig Energy Gmbh for
$41 million. Turbomach S.A. is a Swiss corporation that has packaged,
distributed and provided aftermarket services for Solar brand gas
turbine
engines since 1985 for the industrial power generation market. Turbomach
also provides integrated systems for power projects, including balance
of
plant design, procurement and site construction. The acquisition
expands
our participation within the global power generation market, particularly
in the expanding markets of Europe, Africa and Asia.
The
transaction was financed with available cash and commercial paper
borrowings. The results of the acquired business for the period from
the
acquisition date are included in the accompanying consolidated financial
statements and reported in the "All Other" category. Net tangible
assets
acquired and liabilities assumed of $41 million were recorded at
their fair values. No significant intangible assets were acquired.
Assuming this transaction had been made at January 1, 2004, the
consolidated pro forma results for the year would not be materially
different from reported results.
|
|
26.
|
Selected
quarterly financial results
(unaudited)
|
|
|
|
2006
Quarter
|
|
|
|
|
|
|
(Dollars
in millions except per share data)
|
1
st
|
|
2
nd
|
|
3
rd
|
|
4
th
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and
revenues
|
$
|
9,392
|
|
|
$
|
10,605
|
|
|
$
|
10,517
|
|
|
$
|
11,003
|
|
|
|
Less:
Revenues
|
|
649
|
|
|
|
649
|
|
|
|
675
|
|
|
|
675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
8,743
|
|
|
|
9,956
|
|
|
|
9,842
|
|
|
|
10,328
|
|
|
|
Cost
of goods
sold
|
|
6,552
|
|
|
|
7,416
|
|
|
|
7,610
|
|
|
|
7,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
|
2,191
|
|
|
|
2,540
|
|
|
|
2,232
|
|
|
|
2,357
|
|
|
|
Profit
|
$
|
840
|
|
|
$
|
1,046
|
|
|
$
|
769
|
|
|
$
|
882
|
|
|
|
Profit
per
common share
|
$
|
1.25
|
|
|
$
|
1.58
|
|
|
$
|
1.18
|
|
|
$
|
1.36
|
|
|
|
Profit
per
common share—diluted
|
$
|
1.20
|
|
|
$
|
1.52
|
|
|
$
|
1.14
|
|
|
$
|
1.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
Quarter
|
|
|
|
|
|
|
|
1
st
|
|
2
nd
|
|
3
rd
|
|
4
th
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and
revenues
|
$
|
8,339
|
|
|
$
|
9,360
|
|
|
$
|
8,977
|
|
|
$
|
9,663
|
|
|
|
Less:
Revenues
|
|
550
|
|
|
|
576
|
|
|
|
585
|
|
|
|
622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
7,789
|
|
|
|
8,784
|
|
|
|
8,392
|
|
|
|
9,041
|
|
|
|
Cost
of goods
sold
|
|
6,215
|
|
|
|
6,890
|
|
|
|
6,547
|
|
|
|
6,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
|
1,574
|
|
|
|
1,894
|
|
|
|
1,845
|
|
|
|
2,135
|
|
|
|
Profit
|
$
|
581
|
|
|
$
|
760
|
|
|
$
|
667
|
|
|
$
|
846
|
|
|
|
Profit
per
common share
|
$
|
0.85
|
|
|
$
|
1.12
|
|
|
$
|
0.98
|
|
|
$
|
1.26
|
|
|
|
Profit
per
common share—diluted
|
$
|
0.81
|
|
|
$
|
1.08
|
|
|
$
|
0.94
|
|
|
$
|
1.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27.
|
Subsequent
event
|
|
|
Shin
Caterpillar Mitsubishi Ltd. (SCM)
|
|
|
On
February
15, 2007, we signed a nonbinding memorandum of understanding with
Mitsubishi Heavy Industries Ltd. (MHI) and SCM to conclude a plan
that
would result in a new ownership structure for SCM. The companies
are in
discussions with the intention of reaching definitive agreements
for the
plan where we would own the majority of the outstanding shares
of SCM,
with MHI owning the remaining shares. In conjunction with the plan,
we
agreed to discuss with MHI the creation of a new comprehensive
joint
venture agreement as well as certain definitive agreements for
implementation of the plan. These definitive agreements would be
subject
to applicable regulatory approvals.
|
|
|
|
|
|
Acquisition
of Franklin Power Products
|
|
|
On
February
5, 2007, we acquired certain assets and assumed certain liabilities
of
Franklin Power Products, Inc. (FPP) and International Fuel Systems,
Inc.
(IFS), subsidiaries of Remy International. FPP is a remanufacturer
of
on-highway light and medium duty truck diesel engines and engine
components. IFS provides remanufactured diesel engine components
such as
high-pressure fuel pumps, fuel injectors and turbochargers. The
aggregate
purchase price is approximately $150 million, financed with available
cash
and short-term borrowings. This acquisition represents a strategic
expansion of our engine and engine component remanufacturing operations.
We are in the process of obtaining third-party valuations of certain
tangible and intangible assets, thus the allocation of the purchase
price
to the acquired assets and liabilities will be completed in the
first
quarter of 2007.
|
|
(Dollars
in millions except per share data)
|
|
|
|
|
2006
|
|
2005
|
|
2004
4
|
|
2003
4
|
|
2002
4
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and
revenues
|
$
|
41,517
|
|
|
$
|
36,339
|
|
|
$
|
30,306
|
|
|
$
|
22,807
|
|
|
$
|
20,185
|
|
|
|
Sales
|
$
|
38,869
|
|
|
$
|
34,006
|
|
|
$
|
28,336
|
|
|
$
|
21,048
|
|
|
$
|
18,648
|
|
|
|
|
Percent
inside
the United States
|
|
46
|
%
|
|
|
47
|
%
|
|
|
46
|
%
|
|
|
44
|
%
|
|
|
45
|
%
|
|
|
|
Percent
outside the United States
|
|
54
|
%
|
|
|
53
|
%
|
|
|
54
|
%
|
|
|
56
|
%
|
|
|
55
|
%
|
|
|
Revenues
|
$
|
2,648
|
|
|
$
|
2,333
|
|
|
$
|
1,970
|
|
|
$
|
1,759
|
|
|
$
|
1,537
|
|
|
Profit
6
|
$
|
3,537
|
|
|
$
|
2,854
|
|
|
$
|
2,035
|
|
|
$
|
1,099
|
|
|
$
|
798
|
|
|
Profit
per
common share
1, 6
|
$
|
5.37
|
|
|
$
|
4.21
|
|
|
$
|
2.97
|
|
|
$
|
1.59
|
|
|
$
|
1.16
|
|
|
Profit
per
common share—diluted
2, 6
|
$
|
5.17
|
|
|
$
|
4.04
|
|
|
$
|
2.88
|
|
|
$
|
1.56
|
|
|
$
|
1.15
|
|
|
Dividends
declared per share of common stock
|
$
|
1.150
|
|
|
$
|
0.955
|
|
|
$
|
0.800
|
|
|
$
|
0.720
|
|
|
$
|
0.700
|
|
|
Return
on
average common stockholders' equity
3, 5
|
|
46.3
|
%
|
|
|
35.9
|
%
|
|
|
30.0
|
%
|
|
|
19.0
|
%
|
|
|
14.4
|
%
|
|
Capital
expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
$
|
1,593
|
|
|
$
|
1,201
|
|
|
$
|
926
|
|
|
$
|
682
|
|
|
$
|
728
|
|
|
|
Equipment
leased to others
|
$
|
1,082
|
|
|
$
|
1,214
|
|
|
$
|
1,188
|
|
|
$
|
1,083
|
|
|
$
|
1,045
|
|
|
Depreciation
and amortization
|
$
|
1,602
|
|
|
$
|
1,477
|
|
|
$
|
1,397
|
|
|
$
|
1,347
|
|
|
$
|
1,220
|
|
|
Research
and
development expenses
|
$
|
1,347
|
|
|
$
|
1,084
|
|
|
$
|
928
|
|
|
$
|
669
|
|
|
$
|
656
|
|
|
|
As
a percent
of sales and revenues
|
|
3.2
|
%
|
|
|
3.0
|
%
|
|
|
3.1
|
%
|
|
|
2.9
|
%
|
|
|
3.3
|
%
|
|
Wages,
salaries and employee benefits
|
$
|
7,512
|
|
|
$
|
6,928
|
|
|
$
|
6,025
|
|
|
$
|
4,980
|
|
|
$
|
4,360
|
|
|
Average
number
of employees
|
|
90,160
|
|
|
|
81,673
|
|
|
|
73,033
|
|
|
|
67,828
|
|
|
|
70,973
|
|
|
December
31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
5
|
$
|
50,879
|
|
|
$
|
47,069
|
|
|
$
|
43,095
|
|
|
$
|
36,711
|
|
|
$
|
32,705
|
|
|
Long-term
debt
due after one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
$
|
17,680
|
|
|
$
|
15,677
|
|
|
$
|
15,837
|
|
|
$
|
14,546
|
|
|
$
|
11,774
|
|
|
|
Machinery
and
Engines
|
$
|
3,694
|
|
|
$
|
2,717
|
|
|
$
|
3,663
|
|
|
$
|
3,603
|
|
|
$
|
3,581
|
|
|
|
Financial
Products
|
$
|
13,986
|
|
|
$
|
12,960
|
|
|
$
|
12,174
|
|
|
$
|
10,943
|
|
|
$
|
8,193
|
|
|
Total
debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
$
|
27,296
|
|
|
$
|
25,745
|
|
|
$
|
23,525
|
|
|
$
|
20,284
|
|
|
$
|
17,861
|
|
|
|
Machinery
and
Engines
|
$
|
4,277
|
|
|
$
|
3,928
|
|
|
$
|
3,762
|
|
|
$
|
3,707
|
|
|
$
|
3,903
|
|
|
|
Financial
Products
|
$
|
23,019
|
|
|
$
|
21,817
|
|
|
$
|
19,763
|
|
|
$
|
16,577
|
|
|
$
|
13,958
|
|
|
1
|
Computed
on
weighted-average number of shares outstanding.
|
|
2
|
Computed
on
weighted-average number of shares outstanding diluted by assumed
exercise
of stock options and SARs, using the treasury stock
method.
|
|
3
|
Represents
profit divided by average stockholders' equity (beginning of year
stockholders' equity plus end of year stockholders' equity divided
by
two).
|
|
4
|
The
per share
data reflects the 2005 2-for-1 stock split.
|
|
5
|
As
discussed
in Note 1L, in 2006 we changed the manner in which we account for
postemployment benefits upon the adoption of SFAS 158.
|
|
6
|
As
discussed
in Note 1L, in 2006 we changed the manner in which we account for
stock-based compensation upon the adoption of SFAS
123R.
|
|
|
2006
marked a
fourth straight year of double-digit profit growth and the third consecutive
year of record sales and profit. We reported sales and revenues of $41.517
billion and profit of $3.537 billion, or $5.17 per share, up 28 percent from
a
year ago. We also reported a record fourth quarter with sales and revenues
of
$11.003 billion and profit of $882 million, or $1.32 per share, up 10 percent
from last year.
2006
was an
extraordinary year for Caterpillar. It was the best ever in terms of top-line
sales and revenues and profit. The commitment of our employees, dealers and
suppliers allowed us to achieve these financial results.
For
the year, sales
and revenues increased $5.178 billion—$3.321 billion from higher
sales
volume
,
$1.464 billion
from improved
price
realization
,
$315 million from
higher
Financial
Products
revenues and $78
million from the effects of
currency
.
2006
profit
increased $683 million from 2005. The increase was largely due to improved
price
realization and higher sales volume, partially offset by higher
core
operating costs
.
For
the fourth
quarter, sales and revenues increased $1.340 billion—$951 million from higher
sales volume, $190 million from improved price realization, $146 million from
the effects of currency and $53 million from higher Financial Products revenues.
Fourth-quarter
profit increased $36 million from 2005. The increase was due to improved price
realization and higher sales volume despite an unfavorable geographic/product
mix of sales and was largely offset by higher core operating costs.
What
we were able
to accomplish in 2006 is a reflection of the diversity of the industries we
serve, the global need for our products and services and the strength of our
partnership with our dealers and suppliers. We took advantage of our financial
success—including strong cash flow—to fund growth in capacity, continue
aggressive new product development, complete the strategic acquisition of
Progress Rail, increase the dividend rate by 20 percent and buy back more than
$3 billion in stock. These actions will deliver long-term benefits for our
customers, employees and stockholders.
It
is our objective
to provide the most meaningful disclosures in our Management's Discussion and
Analysis in order to explain significant changes in our company's results of
operations and liquidity and capital resources. As discussed in Note 24,
our segment financial information is not based on generally accepted accounting
principles and it is not intended to measure contributions to enterprise
results. Therefore, it is impractical for us to try to discuss our company's
results of operations and liquidity and capital resources solely based on
segment information. Where practical, we have linked our discussions to segment
information provided in Note 24 and Table V on pages A-32 to A-36 (see
"Reconciliation of
Machinery
and Engines
Sales
by Geographic
Region to External Sales by Marketing Segment" on page A-41). Our discussions
will focus on consolidated results and our three principal lines of business,
Machinery
,
Engines
and Financial
Products.
*Glossary
of terms
included on pages A-53 to A-54; first occurrence of terms shown in bold
italics.
|
Sales
and Revenues by Geographic Region
|
|
(
Millions
of dollars)
|
Total
|
|
%
Change
|
|
North
America
|
|
%
Change
|
|
EAME
|
|
%
Change
|
|
Latin
America
|
|
%
Change
|
|
Asia/
Pacific
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
|
$
|
26,062
|
|
|
14
|
%
|
|
$
|
14,215
|
|
|
11
|
%
|
|
$
|
6,223
|
|
|
19
|
%
|
|
$
|
2,544
|
|
|
28
|
%
|
|
$
|
3,080
|
|
|
6
|
%
|
|
Engines
1
|
|
12,807
|
|
|
16
|
%
|
|
|
5,940
|
|
|
22
|
%
|
|
|
4,064
|
|
|
11
|
%
|
|
|
1,102
|
|
|
8
|
%
|
|
|
1,701
|
|
|
13
|
%
|
|
Financial
Products
2
|
|
2,648
|
|
|
14
|
%
|
|
|
1,852
|
|
|
12
|
%
|
|
|
377
|
|
|
11
|
%
|
|
|
195
|
|
|
32
|
%
|
|
|
224
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,517
|
|
|
14
|
%
|
|
$
|
22,007
|
|
|
14
|
%
|
|
$
|
10,664
|
|
|
16
|
%
|
|
$
|
3,841
|
|
|
22
|
%
|
|
$
|
5,005
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
|
$
|
22,931
|
|
|
|
|
|
$
|
12,822
|
|
|
|
|
|
$
|
5,222
|
|
|
|
|
|
$
|
1,982
|
|
|
|
|
|
$
|
2,905
|
|
|
|
|
|
Engines
1
|
|
11,075
|
|
|
|
|
|
|
4,887
|
|
|
|
|
|
|
3,658
|
|
|
|
|
|
|
1,022
|
|
|
|
|
|
|
1,508
|
|
|
|
|
|
Financial
Products
2
|
|
2,333
|
|
|
|
|
|
|
1,659
|
|
|
|
|
|
|
341
|
|
|
|
|
|
|
148
|
|
|
|
|
|
|
185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
36,339
|
|
|
|
|
|
$
|
19,368
|
|
|
|
|
|
$
|
9,221
|
|
|
|
|
|
$
|
3,152
|
|
|
|
|
|
$
|
4,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Does
not
include internal engine transfers of $2,310 million and $2,065
million in
2006 and 2005, respectively. Internal engines transfers are valued
at
prices comparable to those for unrelated parties.
|
|
2
|
Does
not
include revenues earned from Machinery and Engines of $466 million
and
$317 million in 2006 and 2005, respectively.
|
|
|
|
|
Reconciliation
of Machinery and Engine Sales by Geographic Region to External Sales
by
Marketing Segment
|
|
(Millions
of dollars)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
North
America
Geographic Region
|
$
|
20,155
|
|
|
$
|
17,709
|
|
|
$
|
14,521
|
|
|
Sales
included
in the Power Systems Marketing segment
|
|
(4,040
|
)
|
|
|
(3,431
|
)
|
|
|
(2,896
|
)
|
|
Sales
included
in the Electric Power segment
|
|
(746
|
)
|
|
|
(603
|
)
|
|
|
(499
|
)
|
|
Company
owned
dealer sales included in the All Other category
|
|
(816
|
)
|
|
|
(878
|
)
|
|
|
(766
|
)
|
|
Other
1
|
|
(2,752
|
)
|
|
|
(1,809
|
)
|
|
|
(1,479
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
Marketing external sales
|
$
|
11,801
|
|
|
$
|
10,988
|
|
|
$
|
8,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EAME
Geographic Region
|
$
|
10,287
|
|
|
$
|
8,860
|
|
|
$
|
7,505
|
|
|
Sales
included
in the Power Systems Marketing segment
|
|
(761
|
)
|
|
|
(652
|
)
|
|
|
(538
|
)
|
|
Sales
included
in the Electric Power segment
|
|
(1,314
|
)
|
|
|
(1,104
|
)
|
|
|
(910
|
)
|
|
Other
1
|
|
(2,930
|
)
|
|
|
(2,707
|
)
|
|
|
(2,209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EAME
Marketing
external sales
|
$
|
5,282
|
|
|
$
|
4,397
|
|
|
$
|
3,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latin
America
Geographic Region
|
$
|
3,646
|
|
|
$
|
3,024
|
|
|
$
|
2,372
|
|
|
Sales
included
in the Power Systems Marketing segment
|
|
(195
|
)
|
|
|
(145
|
)
|
|
|
(153
|
)
|
|
Sales
included
in the Electric Power segment
|
|
(59
|
)
|
|
|
(25
|
)
|
|
|
(19
|
)
|
|
Other
1
|
|
(596
|
)
|
|
|
(579
|
)
|
|
|
(472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latin
America
Marketing external sales
|
$
|
2,796
|
|
|
$
|
2,275
|
|
|
$
|
1,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia/Pacific
Geographic Region
|
$
|
4,781
|
|
|
$
|
4,413
|
|
|
$
|
3,938
|
|
|
Sales
included
in the Power Systems Marketing segment
|
|
(568
|
)
|
|
|
(468
|
)
|
|
|
(366
|
)
|
|
Sales
included
in the Electric Power segment
|
|
(450
|
)
|
|
|
(404
|
)
|
|
|
(336
|
)
|
|
Other
1
|
|
(1,080
|
)
|
|
|
(1,079
|
)
|
|
|
(1,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia/Pacific
Marketing external sales
|
$
|
2,683
|
|
|
$
|
2,462
|
|
|
$
|
2,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Mostly
represents external sales of the All Other category.
|
|
|
|
SALES
AND
REVENUES
|
|
|
The
chart
above graphically illustrates reasons for the change in Consolidated
Sales
and Revenues between 2005 (at left) and 2006 (at right). Items favorably
impacting sales and revenues appear as upward stair steps with the
corresponding dollar amounts above each bar. The bar entitled Machinery
Volume includes Progress Rail sales. Caterpillar management utilizes
these
charts internally to visually communicate with the company’s Board of
Directors and employees.
|
Sales
and revenues
for 2006 were $41.517 billion, up $5.178 billion, or 14 percent, from 2005.
Machinery volume was up $2.081 billion, Engines volume was up $1.240 billion,
price realization improved $1.464 billion and Financial Products revenues
increased $315 million. In addition, currency had a positive impact on sales
of
$78 million.
Machinery
Sales
Sales
of $26.062
billion were an increase of $3.131 billion, or 14 percent, from
2005.
|
§
|
Sales
volume
increased $2.081 billion and increased in all geographic
regions.
|
|
§
|
Price
realization increased $996 million.
|
|
§
|
Currency
benefited sales by $54 million.
|
|
§
|
The
acquisition of Progress Rail added $766 million to sales volume in
North
America. Excluding Progress Rail, North America experienced stronger
growth in the first half, which was partially offset by the effects
of
higher interest rates and lower housing starts that caused sales
volume to
weaken during the second half of the
year.
|
|
§
|
Outside
North
America, economic conditions improved as Europe turned in its best
economic growth since 2000. Construction and mining were strong in
all
regions.
|
|
§
|
Dealers
increased inventories in 2006, although at a slower rate than in
2005, to
support higher deliveries. Dealer inventories in months of supply
were
about even with 2005.
|
North
America
-
Sales increased
$1.393 billion, or 11 percent.
|
§
|
Sales
volume
increased $771 million, primarily due to Progress
Rail.
|
|
§
|
Price
realization increased $622 million.
|
|
§
|
Housing
starts in the United States dropped sharply in the second half, causing
lower sales of machines used in that sector. While lower mortgage
rates
revived new home sales late in the year, builders continued to cut
starts
in order to reduce inventories of unsold
homes.
|
|
§
|
The
significant increase in short-term interest rates over the past two
years
somewhat reduced the incentives for users to replace machines currently
operating in their fleets. As a result, trends in dealer deliveries
moderated in some still-growing applications such as nonresidential
construction. Dealers also added fewer machines to rental fleets.
Those
developments were more pronounced in the second
half.
|
|
§
|
Coal
mines
increased production to a record high in the second quarter but reduced
output in the second half of the year. Electric utilities cut coal
consumption, and coal stocks increased to cause a decline in spot
prices.
Lower coal prices and some reported delays in securing mine permits
caused
a decline in dealer-reported deliveries to coal
mines.
|
|
§
|
Metals
mines
increased exploration spending 38 percent in 2006 in response to
favorable
metals prices, and highway contracts awarded, net of inflation, increased
7 percent. As a result, dealer-reported deliveries of machines in
metal
mining and highway applications
increased.
|
|
§
|
Dealer-reported
inventories declined slightly in the last half of 2006, reversing
the
pattern of the past three years. However, dealer inventories in months
of
supply ended the year higher than at the end of
2005.
|
EAME
-
Sales increased
$1.001 billion, or 19 percent.
|
§
|
Sales
volume
increased $884 million.
|
|
§
|
Price
realization increased $102 million.
|
|
§
|
Currency
benefited sales by $15 million.
|
|
§
|
Volume
improved in Europe, Africa/Middle East and the Commonwealth of Independent
States (CIS). Dealers reported higher deliveries and increased their
inventories to support that growth. Reported inventories in months
of
supply were lower than at the end of
2005.
|
|
§
|
Sales
in the
CIS increased for the sixth consecutive year, reaching a record
high.
|
|
§
|
Sales
in
Europe benefited from better economic growth in the Euro-zone economies
and a recovery in construction. Higher home prices and readily available
credit led to an increase in building permits. Sales increased in
the
central European countries in response to rapid growth in construction.
|
|
§
|
Sales
increased significantly in Africa/Middle East for the third consecutive
year. High energy and metals prices have driven increased investment
in
those industries and contributed to construction booms. Construction
increased more than 10 percent in both Turkey and South
Africa.
|
Latin
America
-
Sales increased
$562 million, or 28 percent.
|
§
|
Sales
volume
increased $365 million.
|
|
§
|
Price
realization increased $165 million.
|
|
§
|
Currency
benefited sales by $32 million.
|
|
§
|
Dealers
reported higher deliveries to end users and increased inventories
to
support that growth. Reported inventories in months of supply were
lower
than a year earlier.
|
|
§
|
Sales
increased in most countries in the region, the result of higher commodity
prices, increased mine production and rapid growth in
construction.
|
|
§
|
Interest
rates in Brazil declined 475 basis points during the year, reaching
the
lowest levels in at least 20 years. Lower rates helped improve the
economy, leading to an increase in
sales.
|
Asia/Pacific
- Sales increased
$175 million, or 6 percent.
|
§
|
Sales
volume
increased $61 million.
|
|
§
|
Price
realization increased $107 million.
|
|
§
|
Currency
benefited sales by $7 million.
|
|
§
|
Dealers
reported increased deliveries but reduced their inventories. As a
result,
inventories in months of supply were well below a year
earlier.
|
|
§
|
The
largest
sales gain occurred in China, the result of significant increases
in
construction and mining.
|
|
§
|
Sales
also
increased sharply in Australia, benefiting from an increase in
construction spending. While mine production declined, exploration
expenditures increased 26 percent.
|
|
§
|
Sales
in
India continued to grow for the fifth consecutive year due to increases
in
construction and mining.
|
|
§
|
Sales
in
Indonesia were down significantly in 2006, although the rate of decline
diminished as the year progressed.
|
Engines
Sales
Sales
of $12.807
billion were an increase of $1.732 billion, or 16 percent, from
2005.
|
§
|
Sales
volume
increased $1.240 billion.
|
|
§
|
Price
realization increased $468 million.
|
|
§
|
Currency
impact benefited sales by $24
million.
|
|
§
|
Worldwide,
and for most geographic regions and industries, dealer-reported
inventories were up. Inventories in months of supply decreased
slightly.
|
|
§
|
Sales
benefited particularly from widespread strength in petroleum applications
for reciprocating engines, turbines and turbine-related services
as strong
demand and limited reserve capacity drove continued industry
investment.
|
North
America
- Sales increased
$1.053 billion, or 22 percent.
|
§
|
Sales
volume
increased $841 million.
|
|
§
|
Price
realization increased $212 million.
|
|
§
|
Sales
for
petroleum applications increased 44 percent with continued strong
demand
for reciprocating engines for drilling and compression as well as
turbines
and turbine-related services for
pipelines.
|
|
§
|
Sales
for
on-highway truck applications increased 16 percent as industry demand
strengthened in advance of the 2007 emissions
change.
|
|
§
|
Sales
for
electric power applications increased 13 percent supported by technology
applications and nonresidential
construction.
|
|
§
|
Sales
for
industrial applications increased 22 percent with widespread strong
demand
for various types of industrial Original Equipment Manufacturer (OEM)
equipment.
|
|
§
|
Sales
for
marine applications remained about flat with increased workboat
sales
mostly offset by reduced pleasure craft
demand.
|
EAME
-
Sales increased
$406 million, or 11 percent.
|
§
|
Sales
volume
increased $237 million.
|
|
§
|
Price
realization increased $149 million.
|
|
§
|
Currency
impact benefited sales by $20 million.
|
|
§
|
Sales
for
electric power applications increased 8 percent supported by developing
region demand from high commodity prices.
|
|
§
|
Sales
for
marine applications increased 21 percent with continued strength
in
shipbuilding.
|
|
§
|
Sales
for
petroleum applications increased 16 percent, primarily from turbine
demand
for oil production and gas
transmission.
|
|
§
|
Sales
for
industrial applications remained about flat.
|
Latin
America
- Sales increased
$80 million, or 8 percent.
|
§
|
Sales
volume
increased $46 million.
|
|
§
|
Price
realization increased $34 million.
|
|
§
|
Sales
for
electric power engines increased 25 percent from growth in commercial
development and increased investment in standby generator sets to
support
business operations.
|
|
§
|
Sales
for
petroleum engines declined 10 percent with all of the decline driven
by
nonrecurring projects to support increased oil
production.
|
|
§
|
Sales
for
industrial engines increased 55 percent with increased demand for
agricultural equipment.
|
|
§
|
Sales
for
on-highway truck engines increased 30 percent with continued increased
demand for trucks and strong market acceptance of Caterpillar
engines.
|
|
§
|
Sales
for
marine engines increased 50 percent from ongoing strength in workboat
demand.
|
Asia/Pacific
-
Sales increased
$193 million, or 13 percent.
|
§
|
Sales
volume
increased $116 million.
|
|
§
|
Price
realization increased $73 million.
|
|
§
|
Currency
impact benefited sales by $4
million.
|
|
§
|
Sales
for
petroleum applications increased 22 percent with continued growth
in
demand for drill rigs as well as turbines and turbine-related services
in
Southeast Asia.
|
|
§
|
Sales
for
electric power applications increased 10 percent from demand for
manufacturing support.
|
|
§
|
Sales
for
marine applications increased 15 percent with continued growth in demand
for oceangoing and workboat
vessels.
|
|
§
|
Sales
for
industrial applications increased 6 percent with increased demand
for
various types of industrial OEM
equipment.
|
Financial
Products
Revenues
of $2.648
billion were an increase of $315 million, or 14 percent, from 2005.
|
§
|
Growth
in
average
earning
assets
increased
revenues $178 million.
|
|
§
|
The
impact of
higher interest rates on new and existing finance receivables at
Cat
Financial added $123 million.
|
|
§
|
There
was a
$14 million increase in other revenues, primarily due to an increase
in
earned premiums at Cat Insurance.
|
OPERATING
PROFIT
|
|
|
The
chart
above graphically illustrates reasons for the change in Consolidated
Operating Profit between 2005 (at left) and 2006 (at right). Items
favorably impacting operating profit appear as upward stair steps
with the
corresponding dollar amounts above each bar, while items negatively
impacting operating profit appear as downward stair steps with dollar
amounts reflected in parentheses above each bar. Caterpillar management
utilizes these charts internally to visually communicate with the
company’s Board of Directors and employees. The bar entitled Consolidating
Adjustments/
M&E Other Operating Expense
includes the operating profit impact of Progress
Rail.
|
Operating
Profit
Operating
profit in
2006 improved $1.137 billion, or 30 percent from last year, driven by higher
price realization and sales volume, partially offset by higher core operating
costs.
Core
operating
costs rose $1.261 billion from 2005. Of this increase, $650 million was
attributable to higher
manufacturing
costs
.
Manufacturing
costs include both period and variable costs associated with building our
products. The increase in manufacturing costs was split about evenly between
period
costs
and variable
costs. The increase in period manufacturing costs was primarily attributable
to
costs to support increased volume. This includes capacity increases, machine
tool repair and maintenance, facility support and growth of our Logistics
business. The increase in variable manufacturing costs was due to variable
inefficiencies and higher material costs. Non-manufacturing core operating
costs
were up $611 million as a result of higher Selling, General and Administrative
(SG&A) and Research and Development (R&D) expenses to support
significant new product programs as well as order fulfillment/velocity
initiatives. 2006 SG&A expense includes approximately $70 million related to
a settlement of various legal disputes with Navistar.
|
Operating
Profit by Principal Line of Business
|
|
(Millions
of dollars)
|
2006
|
|
2005
|
|
$
Change
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Machinery
1
|
$
|
3,027
|
|
|
$
|
2,431
|
|
|
$
|
596
|
|
|
|
25
|
%
|
|
Engines
1
|
|
1,630
|
|
|
|
1,071
|
|
|
|
559
|
|
|
|
52
|
%
|
|
Financial
Products
|
|
670
|
|
|
|
531
|
|
|
|
139
|
|
|
|
26
|
%
|
|
Consolidating
Adjustments
|
|
(406
|
)
|
|
|
(249
|
)
|
|
|
(157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Operating Profit
|
$
|
4,921
|
|
|
$
|
3,784
|
|
|
$
|
1,137
|
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Caterpillar
operations are highly integrated; therefore, the company uses a number
of
allocations to determine lines of business operating profit for Machinery
and Engines.
|
|
|
|
|
§
|
Machinery
operating
profit of $3.027 billion was up $596 million, or 25 percent, from
2005.
The favorable impact of improved price realization and higher sales
volume
was largely offset by higher core operating
costs.
|
|
§
|
Engines
operating
profit of $1.630 billion was up $559 million, or 52 percent, from
2005.
The favorable impact of improved price realization and higher sales
volume
was partially offset by higher core operating costs, which included
expense related to a settlement of various legal disputes with
Navistar.
|
|
§
|
Financial
Products
operating
profit of $670 million was up $139 million, or 26 percent, from 2005.
The
increase was primarily due to $86 million from continued growth of
average
earning assets and a $77 million impact from improved net yield on
average
earning assets at Cat Financial.
|
OTHER
PROFIT/LOSS ITEMS
|
§
|
Other
income/expense
was
income of
$214 million compared with income of $377 million in 2005. The decrease
was primarily due to the unfavorable impact of
currency.
|
|
§
|
The
provision for income taxes
in 2006
reflects an annual tax rate of 29 percent compared to 29.5 percent
in 2005
(excluding discrete items discussed below). The decrease is primarily
due
to a change in our geographic mix of profits and increased benefits
recognized for the research and development credit and domestic production
activities deduction more than offsetting the impact of the phase-out
provision of the American Jobs Creation Act permitting only 60 percent
of
Extraterritorial Income Exclusion (ETI) benefits in
2006.
|
The
provision for
income taxes for 2006 also includes a discrete benefit of $5 million for net
changes in tax reserves. Favorable settlement of a non-U.S. tax issue resulted
in a $25 million decrease in reserves. This was partially offset by a $20
million increase in tax reserves for an expected IRS assessment, related to
transfer pricing adjustments for tax years 1992 to 1994, which we plan to
continue to dispute. The provision for income taxes for 2005 included a $31
million discrete benefit.
|
Supplemental
Information
|
|
|
(Millions
of dollars)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Identifiable
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
|
$
|
16,364
|
|
|
$
|
14,877
|
|
|
$
|
13,717
|
|
|
|
Engines
|
|
10,061
|
|
|
|
9,110
|
|
|
|
8,552
|
|
|
|
Financial
Products
|
|
28,593
|
|
|
|
27,052
|
|
|
|
24,612
|
|
|
|
Consolidating
Adjustments
|
|
(4,139
|
)
|
|
|
(3,970
|
)
|
|
|
(3,786
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
50,879
|
|
|
$
|
47,069
|
|
|
$
|
43,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
|
$
|
906
|
|
|
$
|
685
|
|
|
$
|
546
|
|
|
|
Engines
|
|
617
|
|
|
|
426
|
|
|
|
297
|
|
|
|
Financial
Products
|
|
1,152
|
|
|
|
1,304
|
|
|
|
1,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
2,675
|
|
|
$
|
2,415
|
|
|
$
|
2,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
|
$
|
550
|
|
|
$
|
476
|
|
|
$
|
442
|
|
|
|
Engines
|
|
393
|
|
|
|
359
|
|
|
|
353
|
|
|
|
Financial
Products
|
|
659
|
|
|
|
642
|
|
|
|
602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
1,602
|
|
|
$
|
1,477
|
|
|
$
|
1,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caterpillar
operations are highly integrated; therefore, the company uses a number
of
allocations to determine lines of business financial
data.
|
|
|
Stock-Based
Compensation
On
January 1, 2006,
we adopted the provisions of Statement of Financial Accounting Standards No.
123
(revised 2004), "Share-Based Payment," (SFAS 123R) using the modified
prospective transition method. The modified prospective transition method
requires compensation expense to be recognized in the financial statements
for
all awards granted after the date of adoption as well as for the unvested
portion of previously granted awards outstanding as of the date of adoption.
Prior to the date of adoption of SFAS 123R, we used the intrinsic-value based
method, as described in Accounting Principles Board No. 25, to account for
stock
options and no compensation expense was recognized in association with our
stock
awards. Pro forma profit and profit per share as if we had applied the fair
value method were previously disclosed in the footnotes in accordance with
SFAS
148, “Accounting for Stock-Based Compensation - Transition and
Disclosures.”
In
anticipation of
the adoption of SFAS 123R, we did not modify the terms of any previously granted
options. Our stock incentive plans provide for the granting of nonqualified
options and stock-settled stock appreciation rights (SARs) to officers,
directors and key employees of the company. Options granted prior to 2004 vested
at the rate of one-third per year over the three-year period following the
date
of grant. In anticipation of delaying vesting until three years after the grant
date for future grants, the 2004 grant was vested on December 31, 2004. In
order
to better align our employee stock option program with the overall market,
the
number of options granted in 2005 was significantly reduced from the previous
year. In response to this decrease, we elected to immediately vest the 2005
grant. To further align our stock award program with the overall market, we
adjusted our 2006 grant by reducing the overall number of employee awards
granted in the first quarter of 2006 and utilizing a mix of SARs and option
awards. The 2006 grant is generally exercisable three years after the date
of
grant. At grant, all awards have a term life of ten years. Upon retirement,
the
term life is reduced to a maximum of five remaining years.
We
use a
lattice-based option-pricing model to estimate the fair value of options and
SARs granted. The adoption of SFAS 123R reduced operating profit for the year
ended December 31, 2006 by $137 million and reduced profit after-tax by $92
million ($.14 per share basic and $.09 per share diluted). At December 31,
2006,
$102 million of expense with respect to unvested stock-based awards has yet
to
be recognized and will be expensed over a weighted-average period of
approximately 2.2 years.
As
a result of our
vesting decisions discussed above, a full complement of expense related to
stock-based compensation will not be recognized in our results of operations
until 2009. Based on the same assumptions used to value our 2006 compensation
expense, we estimate our pretax expense associated with our stock-based
compensation plans will range from approximately $170 million in 2007 to
approximately $220 million in 2009.
Progress
Rail Services, Inc.
On
June 19, 2006,
Caterpillar acquired 100 percent of the equity in Progress Rail Services, Inc.
(Progress Rail) for approximately $1 billion, including the assumption of $200
million in debt. A privately held company based in Albertville, Alabama,
Progress Rail is a leading provider of remanufactured locomotive, railcar
and track products and services to the North American railroad industry.
With 2005 sales of $1.2 billion, the company has one of the most extensive
rail
service and supply networks in North America. It operates more than 90
facilities in 29 states in the United States, Canada and Mexico, with about
3,700 employees. Expansion into the railroad aftermarket business is a strong
fit with our strategic direction and will leverage Caterpillar's remanufacturing
capabilities.
A-45
The
transaction was
financed with available cash and commercial paper borrowings of $427 million
and
Caterpillar stock of $379 million (5.3 million shares). Net tangible assets
acquired, recorded at their fair values, primarily were inventories of $257
million, receivables of $169 million and property, plant and equipment of $260
million. Liabilities acquired, recorded at their fair values, primarily
consisted of assumed debt of $200 million, accounts payable of $148 million
and
net deferred tax liabilities of $115 million. Finite-lived intangible assets
acquired of $223 million related primarily to customer relationships are being
amortized on a straight-line basis over 20 years. Goodwill of $431 million,
non-deductible for income tax purposes, represents the excess of cost over
the
fair value of net tangible and finite-lived intangible assets acquired. The
results of the acquired business for the period from the acquisition date are
included in the accompanying consolidated financial statements and reported
in
the “All Other” category. Assuming this transaction had been made at January 1,
2006, the consolidated pro forma results would not be materially different
from
reported results.
|
Sales
and Revenues by Geographic Region
|
|
(Millions
of dollars)
|
Total
|
|
%
Change
|
|
North
America
|
|
%
Change
|
|
EAME
|
|
%
Change
|
|
Latin
America
|
|
%
Change
|
|
Asia/
Pacific
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
|
$
|
6,603
|
|
|
|
13
|
%
|
|
$
|
3,353
|
|
|
|
(1
|
%)
|
|
$
|
1,753
|
|
|
|
42
|
%
|
|
$
|
645
|
|
|
|
39
|
%
|
|
$
|
852
|
|
|
|
9
|
%
|
|
Engines
1
|
|
3,725
|
|
|
|
17
|
%
|
|
|
1,650
|
|
|
|
42
|
%
|
|
|
1,193
|
|
|
|
4
|
%
|
|
|
384
|
|
|
|
(1
|
%)
|
|
|
498
|
|
|
|
3
|
%
|
|
Financial
Products
2
|
|
675
|
|
|
|
9
|
%
|
|
|
468
|
|
|
|
5
|
%
|
|
|
97
|
|
|
|
14
|
%
|
|
|
53
|
|
|
|
23
|
%
|
|
|
57
|
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,003
|
|
|
|
14
|
%
|
|
$
|
5,471
|
|
|
|
10
|
%
|
|
$
|
3,043
|
|
|
|
23
|
%
|
|
$
|
1,082
|
|
|
|
21
|
%
|
|
$
|
1,407
|
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
|
$
|
5,857
|
|
|
|
|
|
|
$
|
3,375
|
|
|
|
|
|
|
$
|
1,238
|
|
|
|
|
|
|
$
|
465
|
|
|
|
|
|
|
$
|
779
|
|
|
|
|
|
|
Engines
1
|
|
3,184
|
|
|
|
|
|
|
|
1,162
|
|
|
|
|
|
|
|
1,150
|
|
|
|
|
|
|
|
387
|
|
|
|
|
|
|
|
485
|
|
|
|
|
|
|
Financial
Products
2
|
|
622
|
|
|
|
|
|
|
|
447
|
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,663
|
|
|
|
|
|
|
$
|
4,984
|
|
|
|
|
|
|
$
|
2,473
|
|
|
|
|
|
|
$
|
895
|
|
|
|
|
|
|
$
|
1,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Does
not
include internal engine transfers of $577 million and
$512 million in fourth quarter 2006 and 2005, respectively. Internal
engines transfers are valued at prices comparable to those for unrelated
parties.
|
|
2
|
Does
not
include revenues earned from Machinery and Engines of $124 million
and $93 million in forth quarter 2006 and 2005,
respectively.
|
|
|
|
SALES
AND
REVENUES
|
|
|
The
chart
above graphically illustrates reasons for the change in Consolidated
Sales
and Revenues between fourth quarter 2005 (at left) and fourth quarter 2006
(at right). Items favorably impacting sales and revenues appear as
upward
stair steps with the corresponding dollar amounts above each bar.
The bar
entitled Machinery Volume includes Progress Rail sales. Caterpillar
management utilizes these charts internally to visually communicate
with
the company’s Board of Directors and
employees.
|
Sales
and revenues
for fourth quarter 2006 were $11.003 billion, up $1.340 billion, or 14 percent,
from fourth quarter 2005. Machinery volume was up $628 million, Engines volume
was up $323 million, price realization improved $190 million and currency had
a
positive impact on sales of $146 million. In addition, Financial Products
revenues increased $53 million.
Machinery
Sales
Sales
of $6.603
billion were an increase of $746 million, or 13 percent, from fourth quarter
2005.
|
§
|
Sales
volume
increased $628 million, of which $328 million was from the acquisition
of
Progress Rail.
|
|
§
|
Price
realization increased $30 million.
|
|
§
|
Currency
benefited sales $88 million.
|
|
§
|
Sales
volume
declined in North America and increased outside North America.
|
|
§
|
The
decline
in North America resulted from lower reported dealer deliveries into
most
construction applications and a much smaller inventory build than
in
2005.
|
|
§
|
Sales
volume
growth in EAME more than offset the decline in North America. The
Euro-zone economic recovery and continuing economic booms in both
Africa/Middle East and the CIS led to significant sales growth in
all
three regions.
|
|
§
|
Sales
volume
increased in both Latin America and Asia/Pacific, the result of good
growth in both construction and
mining.
|
|
§
|
Dealer
reported inventories in months of supply were about even with fourth
quarter 2005.
|
North
America
-
Sales decreased
$22 million, or 1 percent.
|
§
|
Sales
volume
decreased $26 million.
|
|
§
|
Price
realization increased $4 million.
|
|
§
|
The
acquisition of Progress Rail added $328 million in sales
volume.
|
|
§
|
Lower
machine
volume resulted from a decline in dealer-reported deliveries to end
users,
a much lower dealer inventory build than 2005 and some shipment delays
associated with new product
introductions.
|
|
§
|
Fourth-quarter
housing starts in the United States were 24 percent lower than fourth
quarter 2005, which caused significant declines in sales of machines
used
in housing construction.
|
|
§
|
Interest
rates averaged higher than 2005, which reduced incentives for users
to
replace machines. Dealers also added fewer machines to rental
fleets.
|
|
§
|
A
sharp drop
in spot coal prices and slower growth in mine production caused coal
mining companies to cut back on machine
purchases.
|
|
§
|
Metals
mining
remained a source of strength, the combination of sharply higher
metals
prices and increased investment in the United States. Metals mining
also
rebounded in Canada in the fourth
quarter.
|
|
§
|
Inventories
in months of supply ended the year higher than a year
earlier.
|
EAME
-
Sales increased
$515 million, or 42 percent.
|
§
|
Sales
volume
increased $432 million.
|
|
§
|
Price
realization increased $6 million.
|
|
§
|
Currency
benefited sales by $77 million.
|
|
§
|
Sales
volume
gains occurred in Europe, Africa/Middle East and the CIS. Dealers
reported
higher deliveries to end users and increased their inventories to
support
that growth. Reported inventories in months of supply were lower
than at
the end of 2005.
|
|
§
|
Construction
activity in Europe increased about 5 percent, the result of better
economic growth, higher home prices, increased office rents and favorable
financing conditions. Good sales growth occurred in most countries.
|
|
§
|
Africa/Middle
East is experiencing the best economic growth since the early 1970s.
High
oil prices have led to construction booms in the Middle East, and
African
countries are benefiting from increased commodity prices, growth
in
exports and more capital inflows.
|
|
§
|
Sales
nearly
doubled in the CIS. Russia is now the world’s largest oil producer and has
also increased production of
metals.
|
Latin
America
-
Sales increased
$180 million, or 39 percent.
|
§
|
Sales
volume
increased $165 million.
|
|
§
|
Price
realization increased $13 million.
|
|
§
|
Currency
benefited sales by $2 million.
|
|
§
|
Most
economies were healthy as the year ended, the result of high commodity
prices, increased exports and large foreign exchange
reserves.
|
|
§
|
Sales
volume
growth in the quarter resulted from a large increase in dealer-reported
inventories. Much of that increase was in larger machines, which
are not
typically inventoried, and reflects the transit time needed to move
machines to customers. However, inventories in months of supply were
lower
than a year earlier.
|
Asia/Pacific
- Sales increased
$73 million, or 9 percent.
|
§
|
Sales
volume
increased $57 million.
|
|
§
|
Price
realization increased $7 million.
|
|
§
|
Currency
benefited sales by $9 million.
|
|
§
|
Sales
volume
growth resulted largely from a surge in dealer-reported deliveries
in the
quarter.
Robust
growth
continued in Australia, China and India, and activity in Indonesia
rebounded.
|
|
§
|
Rapid
economic growth boosted construction, and mining benefited from higher
coal and metals prices.
|
Engines
Sales
Sales
of $3.725
billion were an increase of $541 million, or 17 percent, from fourth quarter
2005.
|
§
|
Sales
volume
increased $323 million.
|
|
§
|
Price
realization increased $160 million.
|
|
§
|
Currency
benefited sales by $58 million.
|
|
§
|
Worldwide,
and for most geographic regions and industries, dealer-reported
inventories were up. Inventories in months of supply decreased
slightly.
|
North
America
- Sales increased
$488 million, or 42 percent.
|
§
|
Sales
volume
increased $411 million.
|
|
§
|
Price
realization increased $77 million.
|
|
§
|
Sales
for
on-highway truck applications increased 48 percent as industry demand
strengthened in advance of the 2007 emissions
changes.
|
|
§
|
Sales
for
petroleum applications increased 30 percent with continued strong
demand
for reciprocating engines for drilling, compression and well servicing
and
turbines and turbine-related services for
pipelines.
|
|
§
|
Sales
for
electric power applications increased 39 percent supported by technology
applications and nonresidential
construction.
|
|
§
|
Sales
for
industrial applications increased 29 percent with widespread strong
demand
for various types of industrial OEM
equipment.
|
|
§
|
Sales
for
marine applications declined 6 percent due to reduced sales into
pleasure
craft applications.
|
EAME
-
Sales increased
$43 million, or 4 percent.
|
§
|
Sales
volume
decreased $52 million.
|
|
§
|
Price
realization increased $47 million.
|
|
§
|
Currency
benefited sales by $48 million.
|
|
§
|
Sales
for
petroleum applications increased 22 percent, primarily from demand
for
turbines and turbine-related services in oil production and gas
transmission applications.
|
|
§
|
Sales
for
marine applications increased 30 percent with continued strength
in
shipbuilding.
|
|
§
|
Sales
for
electric power applications declined 6 percent with lower demand
for power
plants.
|
|
§
|
Sales
for
industrial applications increased 14 percent as industry demand
strengthened in advance of 2007 emissions regulations.
|
Latin
America
- Sales declined
$3 million, or 1 percent.
|
§
|
Sales
volume
decreased $15 million.
|
|
§
|
Price
realization increased $12 million.
|
|
§
|
Sales
for
petroleum engines declined 31 percent due to the absence of a major
project to support increases in oil
production.
|
|
§
|
Sales
for
industrial engines increased due to a resurgence in demand for
agricultural equipment engines.
|
|
§
|
Sales
for
electric power engines increased 27 percent from growth in commercial
development and increased investment in standby generator sets to
support
business operations.
|
Asia/Pacific
-
Sales increased
$13 million, or 3 percent.
|
§
|
Sales
volume
decreased $21 million.
|
|
§
|
Price
realization increased $24 million.
|
|
§
|
Currency
benefited sales by $10 million.
|
|
§
|
Sales
for
electric power applications increased 35 percent from generator set
demand
to support manufacturing operations as well as power plant
installations.
|
|
§
|
Sales
for
marine applications increased 18 percent with continued growth in
demand
for oceangoing and offshore support
vessels.
|
|
§
|
Sales
for
petroleum applications declined 15 percent due to project timing
of
offshore applications.
|
Financial
Products
Revenues
of $675
million were an increase of $53 million, or 9 percent, from fourth quarter
2005.
|
§
|
Growth
in
average earning assets increased revenues $35
million.
|
|
§
|
The
impact of
higher interest rates on new and existing finance receivables at
Cat
Financial added $28 million.
|
|
§
|
There
was a
$10 million decrease in other revenues, primarily due to a decrease
in
earned premiums at Cat
Insurance.
|
OPERATING
PROFIT
|
|
|
The
chart
above graphically illustrates reasons for the change in Consolidated
Operating Profit between fourth quarter 2005 (at left) and fourth
quarter
2006 (at right). Items favorably impacting operating profit appear
as
upward stair steps with the corresponding dollar amounts above each
bar,
while items negatively impacting operating profit appear as downward
stair
steps with dollar amounts reflected in parentheses above each bar.
Caterpillar management utilizes these charts internally to visually
communicate with the company’s Board of Directors and employees. The bar
entitled Consolidating Adjustments/M&E Other Operating Expense
includes the operating profit impact of Progress
Rail.
|
Operating
profit in
fourth quarter 2006 improved $79 million, or 7 percent, from last year. The
increase was due to improved price realization and higher sales volume despite
an unfavorable geographic/product mix of sales, and was largely offset by higher
core operating costs.
Core
operating
costs rose $322 million from fourth quarter 2005. Of this increase, $153 million
was attributable to higher
manufacturing
costs
.
Manufacturing
costs include both period and variable costs associated with building our
products. Approximately 60 percent of the increase in manufacturing costs was
attributable to variable costs with the remainder resulting from higher period
manufacturing costs. The increase in variable manufacturing costs was the result
of higher material costs and variable operating inefficiencies.
Non-manufacturing core operating costs were up $169 million as a result of
higher Selling, General and Administrative (SG&A) expenses of $96 million
and higher Research and Development (R&D) expenses of $73 million to support
significant new product programs as well as order fulfillment/velocity
initiatives.
Other
operating
expense was favorably impacted due to the absence of approximately $70 million
of charges in 2005, which were related to changes in our dealer distribution
support software and the global telehandler alliance.
|
Operating
Profit by Principal Line of Business
|
|
(Millions
of dollars)
|
Fourth
Quarter
2006
|
|
Fourth
Quarter
2005
|
|
$
Change
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Machinery
1
|
$
|
579
|
|
|
$
|
644
|
|
|
$
|
(65
|
)
|
|
|
(10
|
%)
|
|
Engines
1
|
|
502
|
|
|
|
358
|
|
|
|
144
|
|
|
|
40
|
%
|
|
Financial
Products
|
|
172
|
|
|
|
142
|
|
|
|
30
|
|
|
|
21
|
%
|
|
Consolidating
Adjustments
|
|
(107
|
)
|
|
|
(77
|
)
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Operating Profit
|
$
|
1,146
|
|
|
$
|
1,067
|
|
|
$
|
79
|
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Caterpillar
operations are highly integrated; therefore, the company uses a number
of
allocations to determine lines of business operating profit for Machinery
and Engines.
|
|
|
|
|
§
|
Machinery
operating
profit of $579 million was down $65 million, or 10 percent, from
fourth
quarter 2005. The unfavorable impact of higher core operating costs
was
partially offset by higher sales volume and improved price realization.
The improvement in price realization included an unfavorable impact
due to
our geographic mix of sales, primarily the result of higher machinery
sales outside North America.
|
|
§
|
Engines
operating
profit of $502 million was up $144 million, or 40 percent, from fourth
quarter 2005. The favorable impact of improved price realization
and
higher sales volume was partially offset by higher core operating
costs
and an unfavorable product mix as sales of on-highway truck engines
increased as a percent of total engine sales.
|
|
§
|
Financial
Products
operating
profit of $172 million was up $30 million, or 21 percent, from fourth
quarter 2005. The increase was primarily due to a $19 million impact
from the continued growth of average earning assets and a $22 million
impact from improved net yield on average earning assets at Cat Financial,
partially offset by an increase in operating expenses.
|
OTHER
PROFIT/LOSS ITEMS
|
§
|
Other
income/expense
was
income of
$49 million compared with income of $99 million in fourth quarter
2005.
The decrease is primarily due to the absence of a favorable reserve
adjustment related to the termination of certain capital lease obligations
in the fourth quarter of 2005, the unfavorable impact of currency
and
lower interest income.
|
|
§
|
The
provision for income taxes
in
the fourth
quarter reflects an annual tax rate of 29 percent as compared to
a 29.5
percent rate in 2005 (excluding discrete items discussed below).
The
decrease is primarily due to changes in our geographic mix of
profits
and
increased
benefits recognized for the research and development credit and domestic
production activities deduction more than offsetting the impact of
the
phase-out provision of the American Jobs Creation Act permitting
only 60
percent of Extraterritorial Income Exclusion (ETI) benefits in
2006.
|
A
favorable
adjustment of $75 million was recorded this quarter related to the first nine
months of 2006 as a result of a decrease in the estimated annual tax rate from
31 to 29 percent, primarily due to changes in our geographic mix of profits
as
well as the impact of the recent renewal of the 2006 research and development
tax credit. This compares to a favorable adjustment of $56 million in the fourth
quarter of 2005 related to favorable discrete items and a decrease in the
estimated tax rate.
|
Sales
and Revenues by Geographic Region
|
|
(
Millions
of dollars)
|
Total
|
|
%
Change
|
|
North
America
|
|
%
Change
|
|
EAME
|
|
%
Change
|
|
Latin
America
|
|
%
Change
|
|
Asia/
Pacific
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
|
$
|
22,931
|
|
|
|
22
|
%
|
|
$
|
12,822
|
|
|
|
24
|
%
|
|
$
|
5,222
|
|
|
|
16
|
%
|
|
$
|
1,982
|
|
|
|
31
|
%
|
|
$
|
2,905
|
|
|
|
17
|
%
|
|
Engines
1
|
|
11,075
|
|
|
|
17
|
%
|
|
|
4,887
|
|
|
|
17
|
%
|
|
|
3,658
|
|
|
|
22
|
%
|
|
|
1,022
|
|
|
|
19
|
%
|
|
|
1,508
|
|
|
|
4
|
%
|
|
Financial
Products
2
|
|
2,333
|
|
|
|
18
|
%
|
|
|
1,659
|
|
|
|
20
|
%
|
|
|
341
|
|
|
|
1
|
%
|
|
|
148
|
|
|
|
25
|
%
|
|
|
185
|
|
|
|
42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
36,339
|
|
|
|
20
|
%
|
|
$
|
19,368
|
|
|
|
22
|
%
|
|
$
|
9,221
|
|
|
|
18
|
%
|
|
$
|
3,152
|
|
|
|
27
|
%
|
|
$
|
4,598
|
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
|
$
|
18,844
|
|
|
|
|
|
|
$
|
10,337
|
|
|
|
|
|
|
$
|
4,511
|
|
|
|
|
|
|
$
|
1,510
|
|
|
|
|
|
|
$
|
2,486
|
|
|
|
|
|
|
Engines
1
|
|
9,492
|
|
|
|
|
|
|
|
4,184
|
|
|
|
|
|
|
|
2,994
|
|
|
|
|
|
|
|
862
|
|
|
|
|
|
|
|
1,452
|
|
|
|
|
|
|
Financial
Products
2
|
|
1,970
|
|
|
|
|
|
|
|
1,384
|
|
|
|
|
|
|
|
338
|
|
|
|
|
|
|
|
118
|
|
|
|
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,306
|
|
|
|
|
|
|
$
|
15,905
|
|
|
|
|
|
|
$
|
7,843
|
|
|
|
|
|
|
$
|
2,490
|
|
|
|
|
|
|
$
|
4,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Does
not
include internal engine transfers of $2,065 million and
$1,738 million in 2005 and 2004, respectively. Internal engines
transfers are valued at prices comparable to those for unrelated
parties.
|
|
2
|
Does
not
include revenues earned from Machinery and Engines of $317 million
and $199 million in 2005 and 2004, respectively.
|
|
|
|
SALES
AND
REVENUES
|
|
|
The
chart above graphically illustrates reasons for the change in Consolidated
Sales and Revenues between 2004 (at left) and 2005 (at right). Items
favorably impacting sales and revenues appear as upward stair steps
with
the corresponding dollar amounts above each bar. Caterpillar management
utilizes these charts internally to visually communicate with its
Board
and employees.
|
Sales
and revenues
for 2005 were $36.339 billion, up $6.033 billion, or 20 percent,
from 2004. Machinery volume was up $2.637 billion, Engines volume was up
$1.078 billion, price realization improved $1.827 billion
and
currency
had a positive
impact on sales of $128 million. In addition, Financial Products revenues
increased $363 million.
Machinery
sales
in 2005 were
$22.931 billion, an increase of $4.087 billion, or 22 percent,
from 2004. Sales volume accounted for $2.637 billion of the increase, price
realization added $1.343 billion and the remaining $107 million was
due to currency.
Growth
in sales
volume resulted from increased shipments to dealers in response to broad-based
gains in reported dealer deliveries to end users. All regions and most
industries participated in this growth, which showed little sign of abating
as
the year ended. Worldwide, dealers reported increases to machine inventory
in
both 2004 and 2005. At the end of 2005, dealers reported lower machine
inventory, as measured by months of supply, than at the end of 2004.
|
·
|
North
America
sales were
up $2.485 billion, or 24 percent, from 2004; sales volume
increased $1.653 billion and price realization added
$832 million. Growth in sales volume resulted largely from increased
sales through our dealer network, the result of favorable metals
and
energy prices and increased construction spending. Dealers built
machine
inventories in line with deliveries so that inventories in months
of
deliveries were the same as at the end of 2004.
|
|
·
|
EAME
sales
increased 16 percent, or $711 million, compared to 2004. Sales
volume accounted for $421 million, improved price realization added
$253 million and the remaining $37 million came from the
favorable impact of currency. Volume growth occurred as a result
of
increased sales through our dealer network. Low interest rates benefited
housing construction in Europe, and higher metals and energy prices
supported both construction and mining in Africa/Middle East (AME).
Mining
and energy investment in the Commonwealth of Independent States (CIS)
increased and had a positive effect on Caterpillar sales.
|
|
·
|
Latin
America
sales rose
$472 million, or 31 percent, from the same period a year
ago—$304 million from increased volume, $120 million from
improved price realization and the remaining $48 million due to
currency, primarily related to a stronger Brazilian real. Increased
sales
through our dealer network into both construction and mining sectors
accounted for all the sales volume growth; dealer machine inventories
declined in both absolute amount and months of deliveries.
|
|
·
|
Asia/Pacific
sales were
up 17 percent, or $419 million, higher than last
year—$259 million from higher volume, $138 million from improved
price realization and the remaining $22 million due to currency.
Sales volume in most of the larger countries increased, a result
of very
strong mining activity and continued growth in construction. In China,
sales were down modestly for the year. Sales in China have been rising
since early in 2005 following a steep downturn in the second half
of 2004.
Dealers in the Asia/Pacific region added less to their inventories
than in
2004. Dealer machine inventories at December 2005, in months of
deliveries, were below 2004.
|
Engine
sales
were
$11.075 billion in 2005, up $1.583 billion, or 17 percent, from
2004. Volume accounted for $1.078 billion, price realization added
$484 million and currency added $21 million.
Dealer
engine
inventory increased during both full-year 2005 and full-year 2004. The 2005
inventory increase was less than the 2004 increase, which slightly reduced
the
company's year-over-year sales growth. Months of inventory relative to
deliveries declined in most regions and sectors compared to 2004.
|
·
|
North
America
sales were
up 17 percent. Sales of petroleum engines increased 50 percent,
primarily from increased sales of reciprocating engines for drilling
and
gas compression and turbines and related services for gas production
and
transmission. High oil and gas prices were a significant factor behind
the
increase in sales. Sales of on-highway truck engines were up
5 percent, primarily due to expansion and replacement of truck
fleets. Sales of electric power engines were up 21 percent, with
widespread demand for generator sets for communications, data center
and
standby applications. Marine engine sales were up 33 percent,
primarily from increased demand for workboats and petroleum support
vessels.
|
|
·
|
EAME
sales
increased 22 percent. Sales into the electric power sector were up
35 percent, with widespread growth in demand for reciprocating
generator sets, support from Middle East reconstruction efforts and
incremental revenue from the acquisition of Turbomach, a turbine
generator
set packager and service provider. Marine engine sales increased
20 percent, with strong demand for oceangoing and inland waterway
vessels. Sales of industrial engines were up 8 percent—a result of
increases in demand from a broad range of industrial equipment customers,
partially offset by lower demand from agricultural equipment
manufacturers. Petroleum engine sales dropped 4 percent for the year,
primarily from reduced shipments for turbines and turbine-related
services
for offshore oil platforms and gas transmission projects.
|
|
·
|
Latin
America
sales were
up 19 percent. Sales of petroleum engines increased 49 percent,
with nearly all of the increase from sales of turbines and turbine-related
services to support increased investment in oil production. Sales
of
electric power engines increased 44 percent, benefiting from
investments in generator sets for electricity reliability and disaster
preparedness as well as demand for rental fleets. Sales of industrial
engines decreased 34 percent, with reduced demand for engines for
agricultural equipment. Sales of marine engines declined 37 percent,
impacted by limited shipyard capacity and comparison with a high
2004
base.
|
|
·
|
Asia/Pacific
sales were
up 4 percent. Sales of marine engines were up 26 percent, with
increased demand for oceangoing and petroleum support vessels due
to
strong freight and petroleum demand. Petroleum engine sales increased
12 percent, with widespread demand for reciprocating engines for
petroleum site power, drilling and well support as well as demand
for
turbines and related services to support production. Electric power
engine
sales declined 19 percent, with most of the decline due to
centralized electrical demand management actions and improved electricity
reliability in China that drove reduced demand for generator sets.
|
Financial
Products revenues
were
$2.333 billion, up $363 million, or 18 percent, from 2004. The
increase was due primarily to a $211 million favorable impact from
continued growth of
Earning
Assets
and an $89 million impact of higher interest rates on new and existing
finance receivables at Cat Financial. Also, there was a $47 million
increase in revenues at Cat Insurance, primarily due to an increase in earned
premiums.
OPERATING
PROFIT
|
|
|
The
chart above graphically illustrates reasons for the change in Consolidated
Operating Profit between 2004 (at left) and 2005 (at right). Items
favorably impacting operating profit appear as upward stair steps
with the
corresponding dollar amounts above each bar, while items negatively
impacting operating profit appear as downward stair steps with dollar
amounts reflected in parentheses above each bar. Caterpillar management
utilizes these charts internally to visually communicate with its
Board
and employees.
|
Operating
profit in
2005 improved $1.100 billion, or 41 percent, from last year, driven by
higher price realization and sales volume, partially offset by higher core
operating costs and
retirement
benefits
.
Core
operating
costs rose $1.668 billion from 2004, primarily due to a $1.296 billion
increase in
manufacturing
costs
.
Approximately two-thirds of the manufacturing cost increase was attributable
to
variable costs—primarily higher material costs and supply chain-related
inefficiencies. The remainder of the manufacturing cost increase was due to
higher period manufacturing costs; the significant increase in
Machinery
and
Engines
sales volume was a
key driver. For the year, period manufacturing costs increased 13 percent
on a sales increase of 20 percent.
Non-manufacturing-related
core operating costs were up $372 million—primarily the result of higher
SG&A and R&D expenses to support new product programs and growth.
Full-year Machinery and Engines SG&A as a percent of sales declined from
9.0 percent to 8.2 percent but was up $176 million in 2005 versus
2004, excluding the impact of currency and retirement benefits. Full-year
Machinery and Engines R&D as a percent of sales declined from
3.3 percent to 3.2 percent but was up $138 million in 2005 versus
2004, excluding the impact of currency and retirement benefits.
Full-year
Machinery
and Engines Other Operating Costs were up $58 million. This was due
primarily to about $70 million in charges related to our dealer
distribution support software and the global telehandler alliance that was
announced in the fourth quarter of 2005.
|
Operating
Profit by Principal Line of Business
|
|
(Millions
of dollars)
|
2005
|
|
2004
|
|
$
Change
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Machinery
1
|
$
|
2,431
|
|
|
$
|
1,756
|
|
|
$
|
675
|
|
|
|
38
|
%
|
|
Engines
1
|
|
1,071
|
|
|
|
589
|
|
|
|
482
|
|
|
|
82
|
%
|
|
Financial
Products
|
|
531
|
|
|
|
470
|
|
|
|
61
|
|
|
|
13
|
%
|
|
Consolidating
Adjustments
|
|
(249
|
)
|
|
|
(131
|
)
|
|
|
(118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Operating Profit
|
$
|
3,784
|
|
|
$
|
2,684
|
|
|
$
|
1,100
|
|
|
|
41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Caterpillar
operations are highly integrated; therefore, the company uses a number
of
allocations to determine lines of business operating profit for Machinery
and Engines.
|
|
|
|
Machinery
operating
profit of
$2.431 billion was up $675 million, or 38 percent, from 2004. The favorable
impact of improved price realization and higher sales volume was partially
offset by higher core operating costs and higher retirement benefits.
Engines
operating
profit of
$1.071 billion was up $482 million, or 82 percent, from 2004. The favorable
impact of improved price realization and higher sales volume was partially
offset by higher core operating costs and higher retirement
benefits.
Financial
Products
operating
profit of
$531 million was up $61 million, or 13 percent, from 2004. The increase was
primarily due to $123 million favorable impact from the continued growth of
earning assets at Cat Financial. Partially offsetting this increase were $33
million in higher operating expenses, primarily related to growth at Cat
Financial and a $28 million decrease in operating profit at Cat Insurance,
primarily due to less favorable insurance reserve adjustments in 2005 than
in
2004.
OTHER
PROFIT/LOSS ITEMS
Other
income/expense
was
income of $377
million compared with income of $253 million in 2004. The improvement was due
to
the favorable impact of currency, higher interest income and the absence of
a
number of expense items incurred during 2004 that were individually not
significant.
The
provision for income taxes
in
2005 reflects an
annual tax rate of 29.5 percent, excluding the discrete items discussed below,
and compares to a 27 percent rate in 2004. The increase is primarily due to
a
reduction in our Extraterritorial Income Exclusion (ETI) benefits, partially
attributable to the impact of the American Jobs Creation Act (AJCA) permitting
only 80 percent of ETI benefits in 2005 and to a change in our geographic mix
of
profits. During 2005, we repatriated earnings of $1.4 billion, which includes
approximately $500 million subject to preferential tax treatment allowed by
the
AJCA. We recognized a charge of $33 million related to this repatriation. In
connection with our current repatriation plan, we changed our intention of
repatriating earnings for a few selected non-U.S. subsidiaries and recognized
an
income tax benefit of $38 million. In addition, we recognized an income tax
benefit of $26 million from the settlement of several non-U.S. tax issues.
The
net impact of these items is a $31 million discrete benefit to our 2005
provision for income taxes.
UAW
LABOR
AGREEMENT
In
January 2005 the company and about 9,000 employees represented by the
United Auto Workers reached a new six-year labor agreement that will expire
on
March 1, 2011. This agreement positions the company and all our employees
for long-term competitiveness. While the initial impact was about a
$100 million increase in retirement benefits in 2005, with the
establishment of a very competitive market-based new hire wage package, the
introduction of employee and retiree health care cost-sharing and other
operational effectiveness improvements, we believe we have a long-term cost
structure that enables us to compete from our traditional manufacturing and
logistics locations.
|
1.
|
Consolidating
Adjustments
-
Eliminations of transactions between Machinery and Engines and
Financial
Products.
|
|
|
|
|
2.
|
Core
Operating Costs
- Machinery
and Engines variable manufacturing cost change adjusted for volume
and
change in period costs. Excludes the impact of currency and stock-based
compensation.
|
|
|
|
|
3.
|
Currency
- With
respect to sales and revenues, currency represents the translation
impact
on sales resulting from changes in foreign currency exchange rates
versus
the U.S. dollar. With respect to operating profit, currency represents
the
net translation impact on sales and operating costs resulting from
changes
in foreign currency exchange rates versus the U.S. dollar. Currency
includes the impacts on sales and operating profit for the Machinery
and
Engines lines of business only; currency impacts on Financial Products
revenues and operating profit are included in the Financial Products
portions of the respective analyses. With respect to other income/expense,
currency represents the effects of forward and option contracts entered
into by the company to reduce the risk of fluctuations in exchange
rates
and the
net effect of changes in foreign currency exchange rates on our foreign
currency assets and liabilities for consolidated results.
|
|
|
|
|
4.
|
EAME
- Geographic
region including Europe, Africa, the Middle East and the Commonwealth
of
Independent States (CIS).
|
|
|
|
|
5.
|
Earning
Assets
-
These assets consist primarily of total finance receivables
net
of unearned income, plus equipment on operating leases, less accumulated
depreciation at Cat Financial.
|
|
|
|
|
6.
|
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).
|
|
|
|
|
7.
|
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.
|
|
|
|
|
8.
|
Latin
America
- Geographic
region including Central and South American countries and
Mexico.
|
|
|
|
|
9.
|
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.
|
|
|
|
|
10.
|
Machinery
and Engines (M&E)
-
Due to the
highly integrated nature of operations, it represents the aggregate
total
of the Machinery and Engines lines of business and includes primarily
our
manufacturing, marketing and parts distribution
operations.
|
|
|
|
|
11.
|
Manufacturing
Costs
-
Manufacturing costs represent the volume-adjusted change for variable
costs and the absolute dollar change for period manufacturing costs.
Variable manufacturing costs are defined as having a direct relationship
with the volume of production. This includes material costs, direct
labor
and other costs that vary directly with production volume such as
freight,
power to operate machines and supplies that are consumed in the
manufacturing process. Period manufacturing costs support production
but
are defined as generally not having a direct relationship to short-term
changes in volume. Examples include machine and equipment repair,
depreciation on manufacturing assets, facility support, procurement,
factory scheduling, manufacturing planning and operations management.
Excludes the impact of currency and stock-based
compensation.
|
|
|
|
|
12.
|
M&E
Other Operating Expenses
-
Comprised
primarily of gains (losses) on disposal of long-lived assets, long-lived
asset impairment charges and impairment of goodwill.
|
|
|
|
|
13.
|
Period
Costs
- Comprised
of Machinery and Engines period manufacturing costs, SG&A expense and
R&D expense. Excludes the impact of currency and stock-based
compensation.
|
|
|
|
|
14.
|
Price
Realization
- The impact
of net price changes excluding currency and new product introductions.
Includes the impact of changes in the relative weighting of sales
between
geographic regions.
|
|
|
|
|
15.
|
Sales
Volume
- With
respect to sales and revenues, sales volume represents the impact
of
changes in the quantities sold for machines, engines and parts as
well as
the incremental revenue impact of new product introductions. With
respect
to operating profit, sales volume represents the impact of changes
in the
quantities sold for machines, engines and parts combined with product
mix
-- the net operating profit impact of changes in the relative weighting
of
machines, engines and parts sales with respect to total
sales.
|
Sources
of
funds
We
generate our
capital resources primarily through operations. In 2006, operating cash flow
was
$5.80 billion. In 2005, operating cash flow was $3.11 billion. The
significant increase of $2.69 billion is primarily the result of a $1.12 billion
decrease in contributions to pension and other postretirement benefit plans,
an
$819 million improvement from receivables, and a $683 million increase in
profit. The receivable change is largely due to the timing of payments. See
further discussion under Machinery and Engines and Financial Products. We
anticipate that the majority of future capital resource requirements will be
funded by operating cash flow, which is largely sourced from profits. See our
Outlook on page A-66.
Total
debt as of
December 31, 2006, was $27.30 billion, an increase of
$1.55 billion from year-end 2005. On August 8, 2006, Caterpillar issued
$500 million of 5.70% notes due in 2016 and $750 million of 6.05% debentures
due
in 2036, which increased Machinery and Engine debt to $4.28 billion. The
additional debt was used primarily to reduce short-term borrowings. The increase
in total debt, along with cash provided by operating activities, was used to
fund capital expenditures, acquisitions (primarily Progress Rail), dividends
and
stock repurchase. Debt related to Financial Products increased
$1.20 billion due to growth at Cat Financial.
A-54
We
have three
global credit facilities with a syndicate of banks totaling $6.45 billion
available in the aggregate to both Machinery and Engines and Financial Products
to support commercial paper programs. Based on management's allocation decision,
which can be revised at any time, the portion of the facility available to
Cat
Financial at December 31, 2006 was $5.45 billion. In September 2006, we
increased the amounts and extended the expiration dates related to two of the
facilities. The five-year facility of $1.63 billion, which expires in September
2010, has not changed from
December
2005. The
five-year facility, which was previously $2.50 billion and expired in 2009,
has
been increased to $2.98 billion and now expires in 2011. The 364-day facility
of
$1.63 billion that expired in September 2006 was increased to $1.85 billion
and
now expires in September 2007. The facility expiring in September 2007 has
a
provision that allows Caterpillar or Cat Financial to obtain a one-year loan
in
September 2007 that would mature in September 2008. The overall increase of
$700
million to the global credit facilities was initiated in order to support the
growth in total sales and revenue. At December 31, 2006, there were no
borrowings under these lines and we were in compliance with all debt covenants.
Our total credit commitments as of December 31, 2006 were:
|
(Millions
of dollars)
|
Consolidated
|
|
Machinery
and
Engines
|
|
Financial
Products
|
|
|
|
|
|
|
|
|
Credit
lines
available:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
credit
facilities
|
$
|
6,450
|
|
|
$
|
1,000
|
|
|
$
|
5,450
|
|
|
|
Other
external
|
|
2,573
|
|
|
|
1,070
|
|
|
|
1,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
credit
lines available
|
|
9,023
|
|
|
|
2,070
|
|
|
|
6,953
|
|
|
Less:
Global
credit facilities supporting commercial paper
|
|
(4,645
|
)
|
|
|
(88
|
)
|
|
|
(4,557
|
)
|
|
Less:
Utilized
credit
|
|
(750
|
)
|
|
|
(77
|
)
|
|
|
(673
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
credit
|
$
|
3,628
|
|
|
$
|
1,905
|
|
|
$
|
1,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To
maintain an
alternative funding source, Cat Financial periodically (generally once a year)
securitizes retail (customer) installment sale contracts and finance leases.
In
this process, these finance receivables are sold into a public asset-backed
securitization trust. The trusts, bankruptcy remote qualified special purpose
entities (QSPEs) that are not consolidated in our financial statements, held
total assets of $1,227 million related to these securitizations at year-end
2006. We use QSPEs in a manner consistent with conventional practices in the
securitization industry to isolate these finance receivables, which are secured
by new and used equipment, for the benefit of securitization investors. Our
sensitivity analysis indicated that the impact of a 20 percent adverse
change to all individual assumptions used to calculate the fair value of all
our
retained interests at December 31, 2006 would be $3 million or less.
The
use of the
QSPEs enables us to access the U.S. securitization market for the sale of these
types of financial assets. The amounts of funding from securitizations reflect
such factors as capital market accessibility, relative costs of funding sources
and assets available for securitization. We had total proceeds from initial
sales of these receivables of $964 million and $850 million, and
recognized a pre-tax gain of $7 million and $12 million for 2006 and
2005, respectively. Subordinated retained interests in the public
securitizations totaled $68 million and $72 million at
December 31, 2006 and 2005, respectively.
Machinery
and Engines
Operating
cash
flows increased to $4.61 billion in 2006 from $2.81 billion in 2005. The
favorable change is mainly due to higher profit and lower pension and other
postretirement benefit plan contributions. Operating cash flow also benefited
from increased dividends of $350 million paid to Caterpillar Inc. by Cat
Financial. This dividend is eliminated in the Consolidated Statement of Cash
Flow. Other significant operating items in 2006 include an increase in customer
advances, which was due to both higher 2007 turbine orders and a large
percentage of turbine customers issuing advances. The increases in operating
cash flows were partially offset by increases in taxes paid and record demand
in
our products resulting in increased inventory. This demand has resulted in
longer delivery times for many of our products. We are expecting improved
inventory performance in 2007.
Our
priorities for
the use of cash are to maintain a strong financial position, fund profitable
growth, maintain well-funded pension plans, consistently increase dividends
and
repurchase common stock.
Maintain
a strong financial position
-
A key measure of
Machinery and Engines financial strength used by both management and our credit
rating agencies is Machinery and Engines’ debt to debt plus equity. Debt to debt
plus equity is defined as short-term borrowings, long-term debt due within
one
year, and long-term debt due after one year (debt) divided by the sum of debt
and stockholders’ equity. Debt also includes borrowings from Financial Products.
At December 31, 2006, Machinery and Engines debt to debt plus equity was 38.6
percent compared to 32.0 percent at December 31, 2005. The change was due to
the
adoption of SFAS 158, which reduced Caterpillar’s stockholders’ equity at
December 31, 2006 by approximately $2.70 billion. The debt to debt plus equity
ratio without the SFAS 158 adjustment would have been 31.1 percent, comparable
to the 2005 ratio. With the adoption of SFAS 158, the target debt to debt plus
equity ratio has increased from 30 to 40 percent to 35 to 45 percent. As
previously discussed, we issued $1.25 billion of notes and debentures which
were
primarily used to reduce short-term borrowings.
Fund
profitable growth
-
Capital
expenditures during 2006 were $1.58 billion, an increase of $418 million
compared to 2005. The increase is primarily to support new product programs
and
additional capacity.
Cash
used for
acquisitions (net of cash acquired) was $513 million, primarily for the purchase
of Progress Rail during the second quarter.
Maintain
well-funded pension plans
-
Pension
plans
remain well funded and we have adequate liquidity to fund both U.S. and non-U.S.
plans. In 2006, we contributed $45 million to our pension plans compared to
$912
million in 2005. In 2006, we also contributed $323 million to our other
postretirement benefits, which represents our funding of ongoing cash benefit
payments. In 2005, we contributed $574 million, of which $200 million was in
addition to ongoing cash benefits. Required contributions to our pension plans
over the next three years are expected to be very low.
Consistently
increase dividends
-
Dividends
paid
totaled $726 million for 2006, representing 25 cents per share paid in the
first
two quarters and 30 cents per share paid in the third and fourth quarters.
2006
marks the thirteenth consecutive year our annual dividend per share has
increased.
Repurchase
common stock
-
Pursuant to the stock repurchase
program authorized by the Board of Directors in October 2003,
$3.21 billion was spent to purchase 46 million shares in 2006. The
goal of the stock repurchase program, which expires in October 2008, is to
reduce the company's outstanding shares to 640 million. We expect to
complete this repurchase program in 2007. There were 646 million shares
outstanding at the end of 2006. 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.
Financial
Products
Financial
Products
2006 operating cash flow was $1.01 billion, about the same as 2005. Cash used
to
purchase equipment leased to others was $1.11 billion in 2006 compared to
$1.27 billion in 2005. In addition, net cash used for finance receivables and
proceeds from sales of finance receivables was $781 million in 2006, compared
to
$3.08 billion in 2005. Although Cat Financial’s receivable portfolio continued
to grow, collections in 2006 offset a greater portion of the additions to the
portfolio than in 2005.
Financial
Products
total borrowings were $23.02 billion at December 31, 2006, an increase
of $1.20 billion from December 31, 2005 due to financing a higher
amount of assets. However, this increase was less than the increase of $2.05
billion in 2005. Debt repayment in Financial Products depends primarily on
timely repayment and collectibility of the receivables portfolio. At
December 31, 2006, finance receivables past due over 30 days were
1.71 percent, compared with 1.42 percent at December 31,
2005. The allowance for credit losses was 1.33 percent of finance
receivables, net of unearned income, at December 31, 2006, compared to
1.35 percent at December 31, 2005. Receivables written off due to
uncollectibility, net of recoveries on receivables previously written off,
were
$47 million and $45 million for 2006 and 2005, respectively. Net cash
provided by financing activities was also lower in 2006 due to a dividend of
$350 million from Cat Financial to Caterpillar Inc. Cat Financial provides
a
reliable and stable source of earnings and was able to pay this dividend while
remaining within their targeted debt to equity range.
|
Dividends
paid per common share
1
|
|
|
|
|
|
|
Quarter
|
2006
|
|
2005
1
|
|
2004
1
|
|
|
|
|
|
|
|
|
First
|
$
|
.250
|
|
|
$
|
.205
|
|
|
$
|
.185
|
|
|
Second
|
|
.250
|
|
|
|
.205
|
|
|
|
.185
|
|
|
Third
|
|
.300
|
|
|
|
.250
|
|
|
|
.205
|
|
|
Fourth
|
|
.300
|
|
|
|
.250
|
|
|
|
.205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.100
|
|
|
$
|
0.910
|
|
|
$
|
0.780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Per
share data
reflects the July 2005 2-for-1 stock split.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
obligations
|
|
The
company
has committed cash outflow related to long-term debt, operating
lease
agreements, purchase obligations and other contractual obligations.
Minimum payments for these long-term obligations are:
|
|
(Millions
of dollars)
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
After
2011
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
and
Engines (excluding capital leases)
|
$
|
416
|
|
|
$
|
57
|
|
|
$
|
319
|
|
|
$
|
1
|
|
|
$
|
374
|
|
|
$
|
2,871
|
|
|
$
|
4,038
|
|
|
|
Machinery
and
Engines-capital leases
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
64
|
|
|
|
74
|
|
|
|
Financial
Products
|
|
4,043
|
|
|
|
3,913
|
|
|
|
4,011
|
|
|
|
2,258
|
|
|
|
1,367
|
|
|
|
2,437
|
|
|
|
18,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
long-term debt
|
|
4,461
|
|
|
|
3,972
|
|
|
|
4,332
|
|
|
|
2,261
|
|
|
|
1,743
|
|
|
|
5,372
|
|
|
|
22,141
|
|
|
Operating
leases
|
|
230
|
|
|
|
195
|
|
|
|
163
|
|
|
|
134
|
|
|
|
87
|
|
|
|
460
|
|
|
|
1,269
|
|
|
Postretirement
obligations
1
|
|
430
|
|
|
|
410
|
|
|
|
420
|
|
|
|
430
|
|
|
|
450
|
|
|
|
2,900
|
|
|
|
5,040
|
|
|
Purchase
obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
2
|
|
4,085
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,085
|
|
|
|
Purchase
orders
3
|
|
5,074
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,074
|
|
|
|
Other
contractual obligations
4
|
|
172
|
|
|
|
23
|
|
|
|
18
|
|
|
|
18
|
|
|
|
—
|
|
|
|
—
|
|
|
|
231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
purchase
obligations
|
|
9,331
|
|
|
|
23
|
|
|
|
18
|
|
|
|
18
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,390
|
|
|
Other
long-term obligations
5
|
|
137
|
|
|
|
90
|
|
|
|
74
|
|
|
|
65
|
|
|
|
59
|
|
|
|
—
|
|
|
|
425
|
|
|
Interest
on
long-term debt
6
|
|
994
|
|
|
|
825
|
|
|
|
616
|
|
|
|
470
|
|
|
|
375
|
|
|
|
5,711
|
|
|
|
8,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
contractual obligations
|
$
|
15,583
|
|
|
$
|
5,515
|
|
|
$
|
5,623
|
|
|
$
|
3,378
|
|
|
$
|
2,714
|
|
|
$
|
14,443
|
|
|
$
|
47,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Amounts
represent expected contributions to our pension and other postretirement
benefit plans through 2016, offset by expected Medicare Part D
subsidy receipts.
|
|
2
|
Amount
represents invoices received and recorded as liabilities in 2006,
but
scheduled for payment in 2007. These represent short-term obligations
made
in the ordinary course of business.
|
|
3
|
Amount
represents contractual obligations for material and services on
order at
December 31, 2006 but not yet delivered. These represent short-term
obligations made in the ordinary course of business.
|
|
4
|
Amounts
represent long-term commitments entered into with key suppliers
for
minimum purchases quantities.
|
|
5
|
Amounts
represent contractual obligations primarily related to software
license
contracts, IT consulting contracts and outsourcing contracts for
benefit
plan administration and software system support.
|
|
6
|
Amounts
represent estimated contractual interest payments on long-term
debt.
|
|
|
The
preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect reported
amounts. The more significant estimates include: residual values for leased
assets, fair market values for goodwill impairment tests, warranty liability,
stock-based compensation and reserves for product liability and insurance
losses, postretirement benefits, post-sale discounts, credit losses and income
taxes. We have incorporated many years of data into the determination of each
of
these estimates and we have not historically experienced significant
adjustments. These assumptions are reviewed at least annually with the Audit
Committee of the Board of Directors. Following are the methods and assumptions
used in determining our estimates and an indication of the risks inherent in
each.
Residual
values for leased assets
—Determined
based
on the product, specifications, application and hours of usage. Each product
has
its own model for evaluation that includes market value cycles and forecasts.
Consideration is also given to the amount of assets that will be returned from
lease during a given time frame. Residual values could decline due to economic
factors, obsolescence or other adverse circumstances.
Fair
market
values for goodwill impairment tests
—Determined
for
each reporting unit by discounting projected cash flow for five years and adding
a year-five residual value based upon a market Earnings Before Interest, Taxes,
Depreciation and Amortization (EBITDA) multiple. The estimated fair value could
be impacted by changes in interest rates, growth rates, costs, capital
expenditures and market conditions.
Warranty
liability
—
Our
product
warranty liability is determined by applying historical claim rate experience
to
the current field population and dealer inventory. Historical claim rates are
developed using a rolling average of actual warranty payments.
Stock-based
compensation
—
We
use a
lattice-based option-pricing model to calculate the fair value of our stock
awards. The calculation of the fair value of the awards using the lattice-based
option-pricing model is affected by our stock price on the date of grant as
well
as assumptions regarding the following:
|
·
|
Volatility
is
a measure of the amount by which the stock price is expected to fluctuate
each year during the expected life of the award and is based on historical
and current implied volatilities from traded options on Caterpillar
stock.
The implied volatilities from traded options are impacted by changes
in
market conditions. An increase in the volatility would result in
an
increase in our expense.
|
|
·
|
The
expected
term represents the period of time that awards granted are expected
to be
outstanding and is an output of the lattice-based option-pricing
model. In
determining the expected term of the award, future exercise and forfeiture
patterns are estimated from Caterpillar employee historical exercise
behavior. These patterns are also affected by the vesting conditions
of
the award. Changes in the future exercise behavior of employees or
in the
vesting period of the award could result in a change in the expected
term.
An increase in the expected term would result in an increase to our
expense.
|
|
·
|
The
dividend
yield is based on Caterpillar's historical dividend yields. As holders
of
stock-based awards do not receive dividend payments, this could result
in
employees retaining the award for a longer period of time if dividend
yields decrease or exercising the award sooner if dividend yields
increase. A decrease in the dividend yield would result in an increase
in
our expense.
|
|
·
|
The
risk-free
interest rate is based on the U.S. Treasury yield curve in effect
at time
of grant. As the risk-free interest rate increases, the expected
term
increases, resulting in an increase in our
expense.
|
Stock-based
compensation expense recognized during the period is based on the value of
the
number of awards that are expected to vest. In determining the stock-based
compensation expense to be recognized, a forfeiture rate is applied to the
fair
value of the award. This rate represents the number of awards that are expected
to be forfeited prior to vesting and is based on Caterpillar employee historical
behavior. Changes in the future behavior of employees could impact this rate.
A
decrease in this rate would result in an increase in our expense.
Product
liability and insurance loss reserve
—Determined
based
upon reported claims in process of settlement and actuarial estimates for losses
incurred but not reported. Loss reserves, including incurred but not reported
reserves, are based on estimates and ultimate settlements may vary significantly
from such estimates due to increased claims frequency or severity over
historical levels.
Postretirement
benefits
—Primary
actuarial
assumptions were determined as follows:
|
·
|
The
U.S.
expected long-term rate of return on plan assets is based on our
estimate
of long-term passive returns for equities and fixed income securities
weighted by the allocation of our plan assets. Based on historical
performance, we increase the passive returns due to our active management
of the plan assets. A similar process is used to determine the rate
for
our non-U.S. pension plans. This rate is impacted by changes in general
market conditions, but because it represents a long-term rate, it
is not
significantly impacted by short-term market swings. Changes in our
allocation of plan assets would also impact this rate. For example,
a
shift to more fixed income securities would lower the rate. A decrease
in
the rate would increase our expense.
|
|
·
|
The
assumed
discount rate is used to discount future benefit obligations back
to
today's dollars. The U.S. discount rate is based on the Moody's Aa
bond
yield as of our measurement date, November 30, and represents the
rate at which our benefit obligations could effectively be settled.
To
validate the discount rate, a detailed analysis of the individual
plans'
expected cash flows is made annually. This involves analyzing
Caterpillar's projected cash flows against a high quality bond yield
curve, calculated using a wide population of corporate Aa bonds.
The
modeled discount rate that results from matching the aggregate expected
future cash flow from the Caterpillar benefit plans to the yield
curve of
high quality corporate bonds is consistent with the annualized Moody's
Aa
rate. A comprehensive process is also used to determine the assumed
discount rate for our non-U.S. plans. This rate is sensitive to changes
in
interest rates. A decrease in the discount rate would increase our
obligation and expense.
|
|
·
|
The
expected
rate of compensation increase is used to develop benefit obligations
using
projected pay at retirement. It represents average long-term salary
increases. This rate is influenced by our long-term compensation
policies.
An increase in the rate would increase our obligation and expense.
|
|
·
|
The
assumed
health care trend rate represents the rate at which health care
costs are
assumed to increase and is based on historical and expected experience.
Changes in our projections of future health care costs due to general
economic conditions and those specific to health care (e.g. technology
driven cost changes) will impact this trend rate. An increase in
the trend
rate would increase our obligation and expense.
|
Post-sale
discount reserve
—We
provide
discounts to dealers and original equipment manufacturers (OEM) through
merchandising programs that are administered by our marketing profit centers.
We
have numerous programs that are designed to promote the sale of our products.
The most common dealer programs provide a discount when the dealer sells a
product to a targeted end user. OEM programs provide discounts designed to
encourage the use of our engines. The cost of discounts is estimated based
on
historical experience and planned changes in merchandising programs and is
reported as a reduction to sales when the product sale is recognized. The amount
of accrued post-sale discounts was $726 million, $616 million and $437 million
as of December 31, 2006, 2005 and 2004, respectively. The reserve represents
discounts that we expect to pay on previously sold units and is reviewed at
least quarterly. The reserve is adjusted if discounts paid differ from those
estimated. Historically, those adjustments have not been material.
Credit
loss
reserve
—Management's
ongoing evaluation of the adequacy of the allowance for credit losses considers
both impaired and unimpaired finance receivables and takes into consideration
past loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, estimated value
of
underlying collateral and current economic conditions. In estimating probable
losses we review accounts that are past due, non-performing, in bankruptcy
or
otherwise identified as at risk for potential credit loss. Accounts are
identified as at risk for potential credit loss using information available
about the customer, such as financial statements, news reports, and published
credit ratings as well as general information regarding industry trends and
the
general economic environment.
The
allowance for
credit losses attributable to specific accounts is based on the most probable
source of repayment, which is normally the liquidation of collateral. In
determining collateral value we estimate current fair market value of collateral
and factor in credit enhancements such as additional collateral and third party
guarantees. The allowance for credit losses attributable to the remaining
accounts is a general allowance based upon the risk in the portfolio, primarily
using probabilities of default and an estimate of associated losses. In addition
qualitative factors not able to be fully captured in previous analysis including
industry trends, macroeconomic factors and model imprecision are considered
in
the evaluation of the adequacy of the allowance for credit losses. These
qualitative factors are subjective and require a degree of management judgment.
While
management
believes it has exercised prudent judgment and applied reasonable assumptions
which have resulted in an allowance presented in accordance with generally
accepted accounting principles, there can be no assurance that in the future,
changes in economic conditions or other factors might cause changes in the
financial health of our customers which could change the timing and level of
payments received thus necessitating a change to our estimated losses.
Income
tax
reserve
—Despite
our belief
that our tax return positions are consistent with applicable tax laws, we expect
that certain positions are likely to be challenged by taxing authorities.
Settlement of any challenge can result in no change, a complete disallowance,
or
some partial adjustment reached through negotiations or litigation. Significant
judgment is required in evaluating our tax reserves. Our reserves are adjusted
in light of changing facts and circumstances, such as the progress of our tax
audits. Our income tax expense includes the impact of reserve provisions and
changes to reserves that we consider appropriate, as well as related interest
and penalties. Unfavorable adjustments to our tax filing position for issues
included in our tax reserves would require use of our cash. Favorable resolution
would be recognized as a reduction to income tax expense.
Caterpillar’s
worldwide employment was 94,593 in 2006, up 9,477 from 85,116 in 2005. Of the
increase, about 5,100 employees were added via acquisitions, and about 2,000
hourly and 2,400 salaried and management employees were added to support higher
volume and new product introductions. The increase related to acquisitions
was
primarily due to Progress Rail and a logistics business in Europe.
|
Full-Time
Employees at Year-End
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Inside
U.S.
|
|
48,709
|
|
|
|
43,878
|
|
|
|
38,128
|
|
|
Outside
U.S.
|
|
45,884
|
|
|
|
41,238
|
|
|
|
38,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
94,593
|
|
|
|
85,116
|
|
|
|
76,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
49,018
|
|
|
|
43,933
|
|
|
|
38,396
|
|
|
|
EAME
|
|
24,845
|
|
|
|
23,137
|
|
|
|
22,169
|
|
|
|
Latin
America
|
|
13,231
|
|
|
|
11,688
|
|
|
|
10,733
|
|
|
|
Asia/Pacific
|
|
7,499
|
|
|
|
6,358
|
|
|
|
5,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
94,593
|
|
|
|
85,116
|
|
|
|
76,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Environmental
and Legal Matters
The
company is
regulated by federal, state and international environmental laws governing
our
use 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 through 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 cleaning up
contamination at a number of locations, often with other companies, pursuant
to
federal and state laws. When it is probable we will pay cleanup costs at a
site
and those costs can be estimated, the costs are charged against our earnings.
In
formulating that estimate, we do not consider amounts expected to be recovered
from insurance companies and others.
The
amount recorded
for environmental cleanup is not material and is included in "Accrued expenses"
in Statement 2. Currently, we have several sites in the very early stages of
cleanup, and there is no more than a remote chance that a material amount for
cleanup at any individual site or at all sites in the aggregate will be
required.
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 actions involve disputes related to
product design, manufacture and performance liability (including claimed
asbestos and welding fumes exposure), contracts, employment issues and
intellectual property rights. Although it is not possible to predict with
certainty the outcome of these legal actions or the range of probable loss,
we
believe that these legal actions will not individually or in the aggregate have
a material impact 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 has 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 now 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
Internal
Revenue Service (IRS) completed its field examination of our 1995 through 1999
U.S. tax returns during the second quarter of 2005. In connection with this
examination, we received notices of certain adjustments proposed by the IRS,
primarily related to foreign sales corporation commissions, foreign tax credit
calculations and research and development credits. We disagree with these
proposed adjustments and are continuing to work toward resolution through
applicable IRS procedures. In the opinion of our management, the ultimate
disposition of these matters will not have a material adverse effect on our
consolidated financial position, liquidity or results of
operations.
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.
RETIREMENT
BENEFITS
In
September 2006,
the FASB issued Statement of Financial Accounting Standards No. 158 (SFAS 158),
"Employers' Accounting for Defined Benefit Pension and Other Postretirement
Plans - an amendment of FASB Statements No. 87, 88, 106 and 132(R)." SFAS
158 requires recognition of the overfunded or underfunded status of pension
and
other postretirement benefit plans on the balance sheet. Under SFAS 158, gains
and losses, prior service costs and credits and any remaining transition amounts
under SFAS 87 and SFAS 106 that have not yet been recognized through net
periodic benefit cost are recognized in accumulated other comprehensive income,
net of tax effects, until they are amortized as a component of net periodic
cost. Also, the measurement date -- the date at which the benefit obligation
and
plan assets are measured -- is required to be the company's fiscal year-end.
As
required by SFAS 158, we adopted the balance sheet recognition provisions at
December 31, 2006 and will adopt the year-end measurement date in 2008 using
the
prospective method. The adoption of SFAS 158 reduced December 31, 2006 assets
by
approximately $500 million, increased liabilities by approximately $2.20 billion
and reduced stockholders' equity by approximately $2.70 billion. Also, we
reclassified approximately $500 million from current liabilities to long-term
liabilities based on the classification guidelines provided in SFAS 158. We
did
not incur any violation of debt covenant agreements as a result of the reduction
in stockholders' equity. The adoption of this Statement did not affect our
results of operations.
Additionally,
SFAS
87 required the recognition of an Additional Minimum Liability if the market
value of plan assets was less than the accumulated benefit obligation at the
end
of the measurement date. The Additional Minimum Liability was eliminated upon
the adoption of SFAS 158.
We
recognized
pension expense of $326 million in 2006 as compared to $366 million in
2005. The decrease in expense was primarily a result of the impact of expected
asset returns on plan assets, partially offset by the amortization of actuarial
losses resulting largely from a declining discount rate. SFAS 87, "Employers'
Accounting for Pensions," as amended by SFAS 158, requires companies to discount
future benefit obligations back to today's dollars using a discount rate that
is
based on high-quality fixed-income investments. A decrease in the discount
rate
increases the pension benefit obligation. This increase is amortized into
earnings as an actuarial loss. SFAS 87 also requires companies to use an
expected long-term rate of return on plan assets for computing current year
pension expense. Differences between the actual and expected asset returns
are
also amortized into earnings as actuarial gains and losses. At the end of 2006,
total actuarial losses (recognized in accumulated other comprehensive income
upon the adoption of SFAS 158) were $3.50 billion, as compared to
$3.82 billion (unrecognized) in 2005. The majority of the actuarial losses
are due to declining discount rates, slightly offset by asset gains in recent
years. The $320 million decrease during 2006 was the result of better than
expected asset returns and amortization of net unrecognized losses during 2006,
slightly offset by demographic losses.
In
2006, we
recognized other postretirement benefit expense of $363 million compared to
$347 million in 2005. The increase in expense is primarily the result of a
declining discount rate and an increase in expected health care inflation,
partially offset by the impact of expected asset returns on plan assets.
Actuarial losses (recognized in accumulated other comprehensive income upon
the
adoption of SFAS 158) for other postretirement benefit plans were
$1.16 billion at the end of 2006. These losses mainly reflect a declining
discount rate and an increase in expected health care inflation. The losses
were
$436 million lower than at the end of 2005 due to lower than expected
health care claims experience, higher than expected asset returns and
amortization of net unrecognized losses during 2006, slightly offset by a lower
discount rate in 2006.
Actuarial
losses
for both pensions and other postretirement benefits will be impacted in future
periods by actual asset returns, actual health care inflation, discount rate
changes, actual demographic experience and other factors that impact these
expenses. These losses, now recorded as a component of accumulated other
comprehensive income upon the adoption of SFAS 158, will be amortized as a
component of net periodic benefit cost on a straight-line basis over the average
remaining service period of active employees expected to receive benefits under
the benefit plans. At the end of 2006, the average remaining service period
of
active employees was 10 years for our U.S. pension plans, 12 years for
our non-U.S. pension plans and 7 years for other postretirement benefit
plans. We expect our amortization of net actuarial losses to decrease
approximately $60 million in 2007 as compared to 2006, primarily due to
favorable asset returns.
For
our U.S.
pension plans, our 2006 asset allocation is 74 percent equity securities
and 26 percent debt securities, and our target allocation for 2007 is
70 percent equity securities and 30 percent debt securities. The 2006
asset allocation for our non-U.S. pension plans is 59 percent equity
securities, 30 percent debt securities, 8 percent real estate and 3
percent other. The target allocation for 2007 for our non-U.S. pension plans
is
55 percent equity securities, 33 percent debt securities,
8 percent real estate and 4 percent other. Our target asset
allocations reflect our investment strategy of maximizing the rate of return
on
plan assets and the resulting funded status, within an appropriate level of
risk. The U.S. plans are rebalanced to plus or minus five percentage points
of
the target asset allocation ranges on a monthly basis. The frequency of
rebalancing for the non-U.S. plans varies depending on the plan.
The
use of certain
derivative instruments is permitted where appropriate and necessary for
achieving overall investment policy objectives. The U.S. plans currently utilize
futures contracts to offset current equity positions in order to rebalance
the
total portfolio to the target asset allocation. During 2006, approximately
10
percent of the U.S. pension plans’ assets were rebalanced from equity
to fixed income positions through the use of futures contracts. The actual
asset allocation percentages above represent this rebalancing effort. The plans
do not engage in futures contracts for speculative purposes.
During
2006, we
made cash contributions of $10 million to our U.S. defined benefit pension
plans and $35 million to our non-U.S. pension plans.
The
agreement
reached with the UAW in January 2005 included changes to both pension and
other postretirement benefits. Pension plan changes included increases in basic
benefit payments, increases in the allowance provided to employees who retire
before age 62 as well as annual lump-sum payments to retirees during the first
three years of the contract. Other postretirement benefit changes included
several changes to our retiree medical plan design that resulted in a net
increase in company cost sharing with retirees.
Changes
to the
pension plan in 2005 resulted in an increase in the pension obligation of
approximately $230 million. This reflected a discount rate of
5.8 percent. The increase will be amortized into earnings on a
straight-line basis over 10 years, the average remaining service period of
active employees impacted by the plan change. In addition, there will be an
ongoing increase in expense as a result of the benefit changes. In total, full
year 2005 pension expense (and annual expense until the plan change is fully
amortized) increased $29 million.
Changes
to the
other postretirement plan in 2005 resulted in an increase in the benefit
obligation of approximately $620 million. This also reflected a discount
rate of 5.8 percent. The increase will be amortized into earnings on a
straight-line basis over 16 years, the average remaining life expectancy of
plan participants that are fully eligible for benefits (as they comprise almost
all of the plan). In addition, there will be an ongoing increase in expense
as a
result of the benefit changes. In total, full year 2005 other postretirement
benefit expense (and annual expense until the plan change is fully amortized)
increased $69 million.
A-60
In
April 2005, amendments were made to our U.S. salaried and management other
postretirement benefit plan that increase employee cost sharing and resulted
in
a decrease in the benefit obligation of approximately $190 million. This
reflected a discount rate of 5.7 percent. The decrease will be amortized
into earnings on a straight-line basis over nine years, the average remaining
service period of active employees impacted by the plan change. In addition,
there will be an ongoing decrease in expense as a result of the benefit
changes.
2005 other postretirement benefit expense decreased $18 million. After
2005, the annual expense (until the plan change is fully amortized) will
decrease approximately $24 million.
Although
we have no
ERISA funding requirements in 2007, we expect to make approximately
$50 million of contributions during the year. We have adequate liquidity
resources to fund both U.S. and non-U.S. pension plans.
Actuarial
assumptions have a significant impact on both pension and other postretirement
benefit expenses. The effects of a one percentage point change in our primary
actuarial assumptions on 2006 benefit costs and year-end obligations are
included in the table on page A-62.
SENSITIVITY
Foreign
Exchange Rate Sensitivity
Machinery
and
Engines use foreign currency forward and option contracts to manage unmatched
foreign currency cash inflow and outflow. Our objective is to minimize the
risk
of exchange rate movements that would reduce the U.S. dollar value of our
foreign currency cash flow. Our policy allows for managing anticipated foreign
currency cash flow for up to four years. Based on the anticipated and firmly
committed cash inflow and outflow for our Machinery and Engines operations
for
the next 12 months and the foreign currency derivative instruments in place
at year-end, a hypothetical 10 percent weakening of the U.S. dollar
relative to all other currencies would adversely affect our expected 2007 cash
flow for our Machinery and Engines operations by approximately
$175 million. Last year similar assumptions and calculations yielded a
potential $178 million adverse impact on 2006 cash flow. We determine our
net exposures by calculating the difference in cash inflow and outflow by
currency and adding or subtracting outstanding foreign currency derivative
instruments. We multiply these net amounts by 10 percent to determine the
sensitivity.
Since
our policy
for Financial Products operations is to hedge the foreign exchange risk when
the
currency of our debt portfolio does not match the currency of our receivable
portfolio, a 10 percent change in the value of the U.S. dollar relative to
all other currencies would not have a material effect on our Consolidated
Financial Position, results of operations or cash flow. Neither our policy
nor
the effect of a 10 percent change in the value of the U.S. dollar has
changed from that reported at the end of last year.
The
effect of the
hypothetical change in exchange rates ignores the effect this movement may
have
on other variables, including competitive risk. If it were possible to quantify
this competitive impact, the results would probably be different from the
sensitivity effects shown above. In addition, it is unlikely that all currencies
would uniformly strengthen or weaken relative to the U.S. dollar. In reality,
some currencies may weaken while others may strengthen. Our primary exposure
(excluding competitive risk) is to exchange rate movements in the British pound
and Japanese yen.
Interest
Rate Sensitivity
For
our Machinery
and Engines operations, we have the option to use interest rate swaps to lower
the cost of borrowed funds by attaching fixed-to-floating interest rate swaps
to
fixed-rate debt. A hypothetical 100 basis point adverse move (increase) in
interest rates along the entire interest rate yield curve would adversely affect
2007 pretax earnings of Machinery and Engines by $9 million. Last year,
similar assumptions and calculations yielded a potential $15 million
adverse impact on 2006 pretax earnings. This effect is caused by the interest
rate fluctuations on our short-term debt.
For
our Financial
Products operations, we use interest rate derivative instruments primarily
to
meet our match funding objectives and strategies. We have a match funding policy
whereby the interest rate profile (fixed or floating rate) of our debt portfolio
is matched to the interest rate profile of our earning asset portfolio (finance
receivables and operating leases) within certain parameters. In connection
with
that policy, we use interest rate swap agreements to modify the debt structure.
Match funding assists us in maintaining our interest rate spreads, regardless
of
the direction interest rates move.
In
order to
properly manage our sensitivity to changes in interest rates, we measure the
potential impact of different interest rate assumptions on pretax earnings.
All
on-balance sheet positions, including derivative financial instruments, are
included in the analysis. The primary assumptions included in the analysis
are
that there are no new fixed rate assets or liabilities, the proportion of fixed
rate debt to fixed rate assets remains unchanged and the level of floating
rate
assets and debt remain constant. Based on the December 31, 2006 balance
sheet under these assumptions, the analysis estimates the impact of a 100 basis
point immediate and sustained parallel rise in interest rates to be a
$27 million decrease to pretax earnings for 2007. Last year, similar
assumptions and calculations yielded a potential $9 million adverse impact
on
2006 pretax earnings.
This
analysis does
not necessarily represent our current outlook of future market interest rate
movement, nor does it consider any actions management could undertake in
response to changes in interest rates. Accordingly, no assurance can be given
that actual results would be consistent with the results of our estimate.
|
Postretirement
Benefit Plan Actuarial Assumptions Sensitivity
|
|
Following
are
the effects of a one percentage-point change in our primary pension
and
other postretirement benefit actuarial assumptions (included in the
following table) on 2006 pension and other postretirement benefits
costs
and obligations:
|
|
|
2006
Benefit Cost
|
|
Year-end
Benefit Obligation
|
|
|
|
|
|
|
(Millions
of dollars)
|
One
percentage-
point
increase
|
|
One
percentage-
point
decrease
|
|
One
percentage-
point
increase
|
|
One
percentage-
point
decrease
|
|
|
|
|
|
|
|
|
|
|
Pension
benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed
discount rate
|
$
|
(144
|
)
|
|
$
|
149
|
|
|
$
|
(1,622
|
)
|
|
$
|
1,847
|
|
|
|
Expected
rate
of compensation increase
|
|
48
|
|
|
|
(45
|
)
|
|
|
244
|
|
|
|
(236
|
)
|
|
|
Expected
long-term rate of return on plan assets
|
|
(108
|
)
|
|
|
108
|
|
|
|
—
|
|
|
|
—
|
|
|
Other
postretirement benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed
discount rate
|
|
(53
|
)
|
|
|
80
|
|
|
|
(572
|
)
|
|
|
638
|
|
|
|
Expected
rate
of compensation increase
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
Expected
long-term rate of return on plan assets
|
|
(13
|
)
|
|
|
13
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Assumed
health
care cost trend rate
|
|
92
|
|
|
|
(75
|
)
|
|
|
428
|
|
|
|
(377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary
Actuarial Assumptions
|
|
|
U.S.
Pension
Benefits
|
|
Non-U.S.
Pension Benefits
|
|
Other
Postretirement Benefits
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
assumptions used to
determine benefit obligations, end of
year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
5.5
|
%
|
|
|
5.6
|
%
|
|
|
5.9
|
%
|
|
|
4.7
|
%
|
|
|
4.6
|
%
|
|
|
5.2
|
%
|
|
|
5.5
|
%
|
|
|
5.6
|
%
|
|
|
5.9
|
%
|
|
|
Rate
of
compensation increase
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
3.7
|
%
|
|
|
3.5
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
|
Weighted-average
assumptions used to
determine net cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
5.6
|
%
|
|
|
5.9
|
%
|
|
|
6.2
|
%
|
|
|
4.6
|
%
|
|
|
5.2
|
%
|
|
|
5.1
|
%
|
|
|
5.6
|
%
|
|
|
5.8
|
%
|
|
|
6.1
|
%
|
|
|
Expected
return on plan assets
|
|
9.0
|
%
|
|
|
9.0
|
%
|
|
|
9.0
|
%
|
|
|
7.5
|
%
|
|
|
7.1
|
%
|
|
|
7.4
|
%
|
|
|
9.0
|
%
|
|
|
9.0
|
%
|
|
|
9.0
|
%
|
|
|
Rate
of
compensation increase
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
3.5
|
%
|
|
|
3.5
|
%
|
|
|
3.2
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
Health
care cost trend rates at year-end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health
care
trend rate assumed for next year
|
|
7.5
|
%
|
|
|
8.5
|
%
|
|
|
8.4
|
%
|
|
|
Rate
that the
cost trend rate gradually declines to
|
|
5.0
|
%
|
|
|
5.0
|
%
|
|
|
5.0
|
%
|
|
|
Year
that the
cost trend rate reaches ultimate rate
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
are providing
supplemental consolidating data for the purpose of additional analysis.
The data has been grouped as follows:
Consolidated
—Caterpillar Inc.
and its subsidiaries.
Machinery
and Engines
—The
Machinery and
Engines data contained in the schedules on pages A-63 to A-65 are "non-GAAP
financial measures" as defined by the Securities and Exchange Commission in
Regulation G. These non-GAAP financial measures have no standardized
meaning prescribed by U.S. GAAP, and therefore, are unlikely to be comparable
with the calculation of similar measures for other companies. Management does
not intend these items to be considered in isolation or as a substitute for
the
related GAAP measures. Caterpillar defines Machinery and Engines as it is
presented in the supplemental data as Caterpillar Inc. and its subsidiaries
with Financial Products accounted for on the equity basis. Machinery and Engines
information relates to our design, manufacturing, marketing and parts
distribution operations. Financial Products information relates to the financing
to customers and dealers for the purchase and lease of Caterpillar and other
equipment. The nature of these businesses is different, especially with regard
to the financial position and cash flow items. Caterpillar management utilizes
this presentation internally to highlight these differences. We also believe
this presentation will assist readers in understanding our business.
Financial
Products
—
primarily
our
finance and insurance subsidiaries, Cat Financial and Cat Insurance.
Consolidating
Adjustments
—eliminations
of
transactions between Machinery and Engines and Financial Products.
Pages
A-63 to A-65
reconcile Machinery and Engines with Financial Products on the Equity Basis
to
Caterpillar Inc. Consolidated financial information.
|
Supplemental
Data for Results of Operations
For
The Years Ended December 31
|
|
|
|
|
Supplemental
consolidating data
|
|
|
|
|
|
|
(Millions
of dollars)
|
Consolidated
|
|
Machinery
& Engines
1
|
|
Financial
Products
|
|
Consolidating
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
of
Machinery and Engines
|
$
|
38,869
|
|
|
$
|
34,006
|
|
|
$
|
28,336
|
|
|
$
|
38,869
|
|
|
$
|
34,006
|
|
|
$
|
28,336
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
|
Revenues
of
Financial Products
|
|
2,648
|
|
|
|
2,333
|
|
|
|
1,970
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,114
|
|
|
|
2,650
|
|
|
|
2,169
|
|
|
|
(466
|
)
|
2
|
|
|
(317
|
)
|
2
|
|
|
(199
|
)
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
sales
and revenues
|
|
41,517
|
|
|
|
36,339
|
|
|
|
30,306
|
|
|
|
38,869
|
|
|
|
34,006
|
|
|
|
28,336
|
|
|
|
3,114
|
|
|
|
2,650
|
|
|
|
2,169
|
|
|
|
(466
|
)
|
|
|
|
(317
|
)
|
|
|
|
(199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods
sold
|
|
29,549
|
|
|
|
26,558
|
|
|
|
22,497
|
|
|
|
29,549
|
|
|
|
26,558
|
|
|
|
22,497
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
Selling,
general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses
|
|
3,706
|
|
|
|
3,190
|
|
|
|
2,926
|
|
|
|
3,294
|
|
|
|
2,786
|
|
|
|
2,548
|
|
|
|
446
|
|
|
|
446
|
|
|
|
441
|
|
|
|
(34
|
)
|
3
|
|
|
(42
|
)
|
3
|
|
|
(63
|
)
|
3
|
|
|
Research
and
development expenses
|
|
1,347
|
|
|
|
1,084
|
|
|
|
928
|
|
|
|
1,347
|
|
|
|
1,084
|
|
|
|
928
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
Interest
expense of Financial Products
|
|
1,023
|
|
|
|
768
|
|
|
|
524
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,033
|
|
|
|
786
|
|
|
|
536
|
|
|
|
(10
|
)
|
4
|
|
|
(18
|
)
|
4
|
|
|
(12
|
)
|
4
|
|
|
Other
operating expenses
|
|
971
|
|
|
|
955
|
|
|
|
747
|
|
|
|
22
|
|
|
|
76
|
|
|
|
18
|
|
|
|
965
|
|
|
|
887
|
|
|
|
722
|
|
|
|
(16
|
)
|
3
|
|
|
(8
|
)
|
3
|
|
|
7
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating costs
|
|
36,596
|
|
|
|
32,555
|
|
|
|
27,622
|
|
|
|
34,212
|
|
|
|
30,504
|
|
|
|
25,991
|
|
|
|
2,444
|
|
|
|
2,119
|
|
|
|
1,699
|
|
|
|
(60
|
)
|
|
|
|
(68
|
)
|
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
|
4,921
|
|
|
|
3,784
|
|
|
|
2,684
|
|
|
|
4,657
|
|
|
|
3,502
|
|
|
|
2,345
|
|
|
|
670
|
|
|
|
531
|
|
|
|
470
|
|
|
|
(406
|
)
|
|
|
|
(249
|
)
|
|
|
|
(131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense excluding Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
274
|
|
|
|
260
|
|
|
|
230
|
|
|
|
285
|
|
|
|
266
|
|
|
|
235
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(11
|
)
|
4
|
|
|
(6
|
)
|
4
|
|
|
(5
|
)
|
4
|
|
|
Other
income
(expense)
|
|
214
|
|
|
|
377
|
|
|
|
253
|
|
|
|
(256
|
)
|
|
|
85
|
|
|
|
92
|
|
|
|
75
|
|
|
|
49
|
|
|
|
35
|
|
|
|
395
|
|
5
|
|
|
243
|
|
5
|
|
|
126
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
profit before taxes
|
|
4,861
|
|
|
|
3,901
|
|
|
|
2,707
|
|
|
|
4,116
|
|
|
|
3,321
|
|
|
|
2,202
|
|
|
|
745
|
|
|
|
580
|
|
|
|
505
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
Provision
for
income taxes
|
|
1,405
|
|
|
|
1,120
|
|
|
|
731
|
|
|
|
1,158
|
|
|
|
926
|
|
|
|
566
|
|
|
|
247
|
|
|
|
194
|
|
|
|
165
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
of
consolidated companies
|
|
3,456
|
|
|
|
2,781
|
|
|
|
1,976
|
|
|
|
2,958
|
|
|
|
2,395
|
|
|
|
1,636
|
|
|
|
498
|
|
|
|
386
|
|
|
|
340
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
Equity
in
profit (loss) of unconsolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
affiliated companies
|
|
81
|
|
|
|
73
|
|
|
|
59
|
|
|
|
79
|
|
|
|
64
|
|
|
|
56
|
|
|
|
2
|
|
|
|
9
|
|
|
|
3
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
Equity
in
profit of Financial Products'
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subsidiaries
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
500
|
|
|
|
395
|
|
|
|
343
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(500
|
)
|
6
|
|
|
(395
|
)
|
6
|
|
|
(343
|
)
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
|
$
|
3,537
|
|
|
$
|
2,854
|
|
|
$
|
2,035
|
|
|
$
|
3,537
|
|
|
$
|
2,854
|
|
|
$
|
2,035
|
|
|
$
|
500
|
|
|
$
|
395
|
|
|
$
|
343
|
|
|
$
|
(500
|
)
|
|
|
$
|
(395
|
)
|
|
|
$
|
(343
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Represents
Caterpillar Inc. and its subsidiaries with Financial Products accounted
for on the equity basis.
|
|
2
|
Elimination
of
Financial Products’ revenues earned from Machinery and
Engines.
|
|
3
|
Elimination
of
net expenses recorded by Machinery and Engines paid to Financial
Products.
|
|
4
|
Elimination
of
interest expense recorded between Financial Products and Machinery
and
Engines.
|
|
5
|
Elimination
of
discount recorded by Machinery and Engines on receivables sold to
Financial Products and of interest earned between Machinery and Engines
and Financial Products.
|
|
6
|
Elimination
of
Financial Products’ profit due to equity method of
accounting.
|
|
|
|
|
Supplemental
Data for Financial Position
At
December 31
|
|
|
|
|
Supplemental
consolidating data
|
|
|
|
|
|
|
(Millions
of dollars)
|
Consolidated
|
|
Machinery
& Engines
1
|
|
Financial
Products
|
|
Consolidating
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and
short-term investments
|
$
|
530
|
|
|
$
|
1,108
|
|
|
$
|
319
|
|
|
$
|
951
|
|
|
$
|
211
|
|
|
$
|
157
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
|
|
Receivables
-
trade and other
|
|
8,168
|
|
|
|
7,526
|
|
|
|
3,485
|
|
|
|
2,833
|
|
|
|
368
|
|
|
|
419
|
|
|
|
4,315
|
|
2,3
|
|
|
4,274
|
|
2,3
|
|
|
|
Receivables
-
finance
|
|
6,804
|
|
|
|
6,442
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,379
|
|
|
|
11,058
|
|
|
|
(4,575
|
)
|
3
|
|
|
(4,616
|
)
|
3
|
|
|
|
Deferred
and
refundable income taxes
|
|
733
|
|
|
|
255
|
|
|
|
656
|
|
|
|
187
|
|
|
|
77
|
|
|
|
68
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
Prepaid
expenses and other current assets
|
|
507
|
|
|
|
2,146
|
|
|
|
485
|
|
|
|
2,139
|
|
|
|
41
|
|
|
|
26
|
|
|
|
(19
|
)
|
4
|
|
|
(19
|
)
|
4
|
|
|
|
Inventories
|
|
6,351
|
|
|
|
5,224
|
|
|
|
6,351
|
|
|
|
5,224
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current
assets
|
|
23,093
|
|
|
|
22,701
|
|
|
|
11,296
|
|
|
|
11,334
|
|
|
|
12,076
|
|
|
|
11,728
|
|
|
|
(279
|
)
|
|
|
|
(361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment - net
|
|
8,851
|
|
|
|
7,988
|
|
|
|
6,046
|
|
|
|
5,067
|
|
|
|
2,805
|
|
|
|
2,921
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
Long-term
receivables - trade and other
|
|
860
|
|
|
|
1,037
|
|
|
|
155
|
|
|
|
301
|
|
|
|
30
|
|
|
|
36
|
|
|
|
675
|
|
2,3
|
|
|
700
|
|
2,3
|
|
|
Long-term
receivables - finance
|
|
11,531
|
|
|
|
10,301
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,236
|
|
|
|
11,036
|
|
|
|
(705
|
)
|
3
|
|
|
(735
|
)
|
3
|
|
|
Investments
in
unconsolidated
affiliated
companies
|
|
562
|
|
|
|
565
|
|
|
|
559
|
|
|
|
526
|
|
|
|
12
|
|
|
|
39
|
|
|
|
(9
|
)
|
5
|
|
|
—
|
|
|
|
|
Investments
in
Financial Products subsidiaries
|
|
—
|
|
|
|
—
|
|
|
|
3,513
|
|
|
|
3,253
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,513
|
)
|
6
|
|
|
(3,253
|
)
|
6
|
|
|
Deferred
income taxes
|
|
1,949
|
|
|
|
857
|
|
|
|
2,218
|
|
|
|
1,146
|
|
|
|
39
|
|
|
|
32
|
|
|
|
(308
|
)
|
7
|
|
|
(321
|
)
|
7
|
|
|
Intangible
assets
|
|
387
|
|
|
|
424
|
|
|
|
382
|
|
|
|
418
|
|
|
|
5
|
|
|
|
6
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
Goodwill
|
|
1,904
|
|
|
|
1,451
|
|
|
|
1,904
|
|
|
|
1,451
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
Other
assets
|
|
1,742
|
|
|
|
1,745
|
|
|
|
352
|
|
|
|
491
|
|
|
|
1,390
|
|
|
|
1,254
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
50,879
|
|
|
$
|
47,069
|
|
|
$
|
26,425
|
|
|
$
|
23,987
|
|
|
$
|
28,593
|
|
|
$
|
27,052
|
|
|
$
|
(4,139
|
)
|
|
|
$
|
(3,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
$
|
5,155
|
|
|
$
|
5,569
|
|
|
$
|
165
|
|
|
$
|
871
|
|
|
$
|
5,077
|
|
|
$
|
4,897
|
|
|
$
|
(87
|
)
|
8
|
|
$
|
(199
|
)
|
8
|
|
|
|
Accounts
payable
|
|
4,085
|
|
|
|
3,412
|
|
|
|
3,907
|
|
|
|
3,288
|
|
|
|
344
|
|
|
|
261
|
|
|
|
(166
|
)
|
9
|
|
|
(137
|
)
|
9
|
|
|
|
Accrued
expenses
|
|
2,923
|
|
|
|
2,617
|
|
|
|
1,848
|
|
|
|
1,605
|
|
|
|
1,101
|
|
|
|
1,038
|
|
|
|
(26
|
)
|
10
|
|
|
(26
|
)
|
10
|
|
|
|
Accrued
wages,
salaries and
employee
benefits
|
|
938
|
|
|
|
1,601
|
|
|
|
922
|
|
|
|
1,582
|
|
|
|
16
|
|
|
|
19
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
Customer
advances
|
|
921
|
|
|
|
454
|
|
|
|
921
|
|
|
|
454
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
Dividends
payable
|
|
194
|
|
|
|
168
|
|
|
|
194
|
|
|
|
168
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
Deferred
and
current income taxes payable
|
|
575
|
|
|
|
528
|
|
|
|
456
|
|
|
|
448
|
|
|
|
127
|
|
|
|
84
|
|
|
|
(8
|
)
|
7
|
|
|
(4
|
)
|
7
|
|
|
|
Long-term
debt
due within one year
|
|
4,461
|
|
|
|
4,499
|
|
|
|
418
|
|
|
|
340
|
|
|
|
4,043
|
|
|
|
4,159
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current
liabilities
|
|
19,252
|
|
|
|
18,848
|
|
|
|
8,831
|
|
|
|
8,756
|
|
|
|
10,708
|
|
|
|
10,458
|
|
|
|
(287
|
)
|
|
|
|
(366
|
)
|
|
|
|
Long-term
debt
due after one year
|
|
17,680
|
|
|
|
15,677
|
|
|
|
3,724
|
|
|
|
2,752
|
|
|
|
13,986
|
|
|
|
12,960
|
|
|
|
(30
|
)
|
8
|
|
|
(35
|
)
|
8
|
|
|
Liability
for
postemployment benefits
|
|
5,879
|
|
|
|
3,161
|
|
|
|
5,879
|
|
|
|
3,161
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
Deferred
income taxes and other liabilities
|
|
1,209
|
|
|
|
951
|
|
|
|
1,132
|
|
|
|
886
|
|
|
|
386
|
|
|
|
381
|
|
|
|
(309
|
)
|
5,7
|
|
|
(316
|
)
|
5,7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
44,020
|
|
|
|
38,637
|
|
|
|
19,566
|
|
|
|
15,555
|
|
|
|
25,080
|
|
|
|
23,799
|
|
|
|
(626
|
)
|
|
|
|
(717
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
2,465
|
|
|
|
1,859
|
|
|
|
2,465
|
|
|
|
1,859
|
|
|
|
862
|
|
|
|
875
|
|
|
|
(862
|
)
|
6
|
|
|
(875
|
)
|
6
|
|
|
Treasury
stock
|
|
(7,352
|
)
|
|
|
(4,637
|
)
|
|
|
(7,352
|
)
|
|
|
(4,637
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
Profit
employed in the business
|
|
14,593
|
|
|
|
11,808
|
|
|
|
14,593
|
|
|
|
11,808
|
|
|
|
2,325
|
|
|
|
2,197
|
|
|
|
(2,325
|
)
|
6
|
|
|
(2,197
|
)
|
6
|
|
|
Accumulated
other comprehensive income
|
|
(2,847
|
)
|
|
|
(598
|
)
|
|
|
(2,847
|
)
|
|
|
(598
|
)
|
|
|
326
|
|
|
|
181
|
|
|
|
(326
|
)
|
6
|
|
|
(181
|
)
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
6,859
|
|
|
|
8,432
|
|
|
|
6,859
|
|
|
|
8,432
|
|
|
|
3,513
|
|
|
|
3,253
|
|
|
|
(3,513
|
)
|
|
|
|
(3,253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
$
|
50,879
|
|
|
$
|
47,069
|
|
|
$
|
26,425
|
|
|
$
|
23,987
|
|
|
$
|
28,593
|
|
|
$
|
27,052
|
|
|
$
|
(4,139
|
)
|
|
|
$
|
(3,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Represents
Caterpillar Inc. and its subsidiaries with Financial Products
accounted for on the equity basis.
|
|
2
|
Elimination
of
receivables between Machinery and Engines and Financial Products.
|
|
3
|
Reclassification
of Machinery and Engines’ trade receivables purchased by Cat Financial and
Cat Financial's wholesale inventory receivables.
|
|
4
|
Elimination
of
Machinery and Engines’ insurance premiums that are prepaid to Financial
Products.
|
|
5
|
Elimination
of
Machinery and Engines’ investment in Financial Products subsidiary.
|
|
6
|
Elimination
of
Financial Products’ equity which is accounted for on Machinery and Engines
on the equity basis.
|
|
7
|
Reclassification
reflecting required netting of deferred tax assets/liabilities
by taxing
jurisdiction.
|
|
8
|
Elimination
of
debt between Machinery and Engines and Financial Products.
|
|
9
|
Elimination
of
payables between Machinery and Engines and Financial Products.
|
|
10
|
Elimination
of
prepaid insurance in Financial Products' accrued expenses.
|
|
|
|
|
Supplemental
Data for Statement of Cash Flow
For
the Years
Ended December 31
|
|
|
|
|
Supplemental
consolidating data
|
|
|
|
|
|
|
(Millions
of dollars)
|
Consolidated
|
|
Machinery
& Engines
1
|
|
Financial
Products
|
|
Consolidating
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
|
$
|
3,537
|
|
|
$
|
2,854
|
|
|
$
|
3,537
|
|
|
$
|
2,854
|
|
|
$
|
500
|
|
|
$
|
395
|
|
|
$
|
(500
|
)
|
2
|
|
$
|
(395
|
)
|
2
|
|
|
Adjustments
for non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
1,602
|
|
|
|
1,477
|
|
|
|
943
|
|
|
|
835
|
|
|
|
659
|
|
|
|
642
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
Undistributed
profit of Financial Products
|
|
—
|
|
|
|
—
|
|
|
|
(128
|
)
|
|
|
(373
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
128
|
|
3
|
|
|
373
|
|
3
|
|
|
|
Other
|
|
197
|
|
|
|
(20
|
)
|
|
|
140
|
|
|
|
7
|
|
|
|
(330
|
)
|
|
|
(205
|
)
|
|
|
387
|
|
4
|
|
|
178
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in
assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
-
trade and other
|
|
(89
|
)
|
|
|
(908
|
)
|
|
|
(292
|
)
|
|
|
(39
|
)
|
|
|
6
|
|
|
|
7
|
|
|
|
197
|
|
4,5
|
|
|
(876
|
)
|
4,5
|
|
|
|
Inventories
|
|
(827
|
)
|
|
|
(568
|
)
|
|
|
(827
|
)
|
|
|
(568
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
670
|
|
|
|
532
|
|
|
|
507
|
|
|
|
353
|
|
|
|
185
|
|
|
|
238
|
|
|
|
(22
|
)
|
4
|
|
|
(59
|
)
|
4
|
|
|
|
Other
assets—net
|
|
(235
|
)
|
|
|
(866
|
)
|
|
|
(178
|
)
|
|
|
(854
|
)
|
|
|
(44
|
)
|
|
|
(34
|
)
|
|
|
(13
|
)
|
4
|
|
|
22
|
|
4
|
|
|
|
Other
liabilities—net
|
|
944
|
|
|
|
612
|
|
|
|
911
|
|
|
|
595
|
|
|
|
30
|
|
|
|
34
|
|
|
|
3
|
|
4
|
|
|
(17
|
)
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash
provided by (used for) operating activities
|
|
5,799
|
|
|
|
3,113
|
|
|
|
4,613
|
|
|
|
2,810
|
|
|
|
1,006
|
|
|
|
1,077
|
|
|
|
180
|
|
|
|
|
(774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures—excluding equipment leased to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
others
|
|
(1,593
|
)
|
|
|
(1,201
|
)
|
|
|
(1,580
|
)
|
|
|
(1,162
|
)
|
|
|
(41
|
)
|
|
|
(39
|
)
|
|
|
28
|
|
4
|
|
|
—
|
|
|
|
|
Expenditures
for equipment leased to others
|
|
(1,082
|
)
|
|
|
(1,214
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,111
|
)
|
|
|
(1,265
|
)
|
|
|
29
|
|
4
|
|
|
51
|
|
4
|
|
|
Proceeds
from
disposals of property, plant and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equipment
|
|
572
|
|
|
|
637
|
|
|
|
29
|
|
|
|
45
|
|
|
|
581
|
|
|
|
592
|
|
|
|
(38
|
)
|
4
|
|
|
—
|
|
|
|
|
Additions
to
finance receivables
|
|
(10,522
|
)
|
|
|
(10,334
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(35,561
|
)
|
|
|
(33,961
|
)
|
|
|
25,039
|
|
5
|
|
|
23,627
|
|
5
|
|
|
Collections
of
finance receivables
|
|
8,094
|
|
|
|
7,057
|
|
|
|
—
|
|
|
|
—
|
|
|
|
32,670
|
|
|
|
29,449
|
|
|
|
(24,576
|
)
|
5
|
|
|
(22,392
|
)
|
5
|
|
|
Proceeds
from
sale of finance receivables
|
|
1,067
|
|
|
|
900
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,110
|
|
|
|
1,430
|
|
|
|
(1,043
|
)
|
5
|
|
|
(530
|
)
|
5
|
|
|
Net
intercompany borrowings
|
|
—
|
|
|
|
—
|
|
|
|
123
|
|
|
|
111
|
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
(121
|
)
|
6
|
|
|
(111
|
)
|
6
|
|
|
Investments
and acquisitions (net of cash acquired)
|
|
(513
|
)
|
|
|
(13
|
)
|
|
|
(513
|
)
|
|
|
(13
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
Proceeds
from
release of security deposit
|
|
—
|
|
|
|
530
|
|
|
|
—
|
|
|
|
530
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
Proceeds
from
sale of available-for-sale securities
|
|
539
|
|
|
|
257
|
|
|
|
26
|
|
|
|
15
|
|
|
|
513
|
|
|
|
242
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
Investments
in
available-for-sale securities
|
|
(681
|
)
|
|
|
(338
|
)
|
|
|
(35
|
)
|
|
|
(20
|
)
|
|
|
(646
|
)
|
|
|
(318
|
)
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
Other—net
|
|
323
|
|
|
|
194
|
|
|
|
33
|
|
|
|
10
|
|
|
|
294
|
|
|
|
197
|
|
|
|
(4
|
)
|
8
|
|
|
(13
|
)
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash
provided by (used for) investing activities
|
|
(3,796
|
)
|
|
|
(3,525
|
)
|
|
|
(1,917
|
)
|
|
|
(484
|
)
|
|
|
(1,193
|
)
|
|
|
(3,673
|
)
|
|
|
(686
|
)
|
|
|
|
632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid
|
|
(726
|
)
|
|
|
(618
|
)
|
|
|
(726
|
)
|
|
|
(618
|
)
|
|
|
(372
|
)
|
|
|
(22
|
)
|
|
|
372
|
|
9
|
|
|
22
|
|
9
|
|
|
Common
stock
issued, including treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
reissued
|
|
414
|
|
|
|
482
|
|
|
|
414
|
|
|
|
482
|
|
|
|
(13
|
)
|
|
|
(14
|
)
|
|
|
13
|
|
8
|
|
|
14
|
|
8
|
|
|
Treasury
shares purchased
|
|
(3,208
|
)
|
|
|
(1,684
|
)
|
|
|
(3,208
|
)
|
|
|
(1,684
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
Excess
tax
benefit from stock-based compensation
|
|
169
|
|
|
|
—
|
|
|
|
169
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
Net
intercompany borrowings
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
(123
|
)
|
|
|
(111
|
)
|
|
|
121
|
|
6
|
|
|
111
|
|
6
|
|
|
Proceeds
from
debt issued (original maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
greater
than three months)
|
|
11,269
|
|
|
|
14,574
|
|
|
|
1,445
|
|
|
|
574
|
|
|
|
9,824
|
|
|
|
14,000
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
Payments
on
debt (original maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
greater than three months)
|
|
(10,375
|
)
|
|
|
(11,620
|
)
|
|
|
(839
|
)
|
|
|
(654
|
)
|
|
|
(9,536
|
)
|
|
|
(10,966
|
)
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
Short-term
borrowings (original maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
three months or less)—net
|
|
(136
|
)
|
|
|
19
|
|
|
|
(593
|
)
|
|
|
317
|
|
|
|
457
|
|
|
|
(298
|
)
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash
provided by (used for) financing activities
|
|
(2,593
|
)
|
|
|
1,153
|
|
|
|
(3,336
|
)
|
|
|
(1,583
|
)
|
|
|
237
|
|
|
|
2,589
|
|
|
|
506
|
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of
exchange rate changes on cash
|
|
12
|
|
|
|
(78
|
)
|
|
|
8
|
|
|
|
(62
|
)
|
|
|
4
|
|
|
|
(11
|
)
|
|
|
—
|
|
|
|
|
(5
|
)
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and short-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investments
|
|
(578
|
)
|
|
|
663
|
|
|
|
(632
|
)
|
|
|
681
|
|
|
|
54
|
|
|
|
(18
|
)
|
|
|
—
|
|
|
|
|
—
|
|
|
|
Cash
and
short-term investments at beginning of period
|
|
1,108
|
|
|
|
445
|
|
|
|
951
|
|
|
|
270
|
|
|
|
157
|
|
|
|
175
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and
short-term investments at end of period
|
$
|
530
|
|
|
$
|
1,108
|
|
|
$
|
319
|
|
|
$
|
951
|
|
|
$
|
211
|
|
|
$
|
157
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Represents
Caterpillar Inc. and its subsidiaries with Financial Products accounted
for on the equity basis.
|
|
2
|
Elimination
of
Financial Products’ profit after tax due to equity method of
accounting.
|
|
3
|
Non-cash
adjustment for the undistributed earnings from Financial Products.
|
|
4
|
Elimination
of
non-cash adjustments and changes in assets and liabilities related
to
consolidated reporting.
|
|
5
|
Reclassification
of Cat Financial's cash flow activity from investing to operating
for
receivables that arose from the sale of inventory.
|
|
6
|
Net
proceeds
and payments to/from Machinery and Engines and Financial Products.
|
|
7
|
Elimination
of
the effect of exchange on intercompany balances.
|
|
8
|
Change
in
investment and common stock related to Financial
Products.
|
|
9
|
Elimination
of
dividends from Financial Products to Machinery and Engines.
|
SALES
AND
REVENUES OUTLOOK
The
sales and
revenues outlook for 2007 is a range of $41.5 billion to $43.6 billion. The
midpoint of the 2007 range represents an increase of about $1.0 billion, or
2.5
percent. This expected increase is due to improved price realization, the impact
of Progress Rail for a full year and increased Financial Products revenues,
partially offset by a decline in Machinery and Engine volume of approximately
2
to 3 percent.
The
majority of the
decline in sales volume is a result of a sharp decline in sales of on-highway
truck engines, a large decline in sales of machines for U.S. housing
construction and expected declines in dealer inventories. These negative effects
on sales are expected to be largely offset by strength in industries like mining
and petroleum, volume growth outside of North America and a full year of
Progress Rail sales.
|
·
|
We
expect
global liquidity will tighten further in 2007 as European, Japanese
and
many developing country banks raise interest rates further. However,
increases will come from relatively low interest rate levels so the
impact
on economic growth in 2007 should be modest. Expected mid-year rate
cuts
in North America will not have much effect in
2007.
|
|
·
|
We
forecast
worldwide economic growth to slow from 4 percent in 2006 to 3.5 percent
in
2007. Growth should slow in all regions and will fall below trend
growth
in North America.
|
|
·
|
Europe
recovered from five years of weak growth in 2006, and prospects for
2007
continue to be positive. Continuing good performance in the European
economy should help compensate for slowing in the U.S.
economy.
|
|
·
|
Developing
countries should continue their best recovery in years. Exports are
doing
well, and many have improved their ability to withstand any tightening
in
world liquidity by accumulating sizable international reserves. Commodity
prices should remain high in 2007, a further aid to these
economies.
|
|
·
|
Housing
construction should drop further in the United States but will do
well in
other regions. Home prices are increasing, and credit terms are generally
attractive.
|
|
·
|
Nonresidential
construction should grow in most countries. High corporate profits,
rapid
growth in commercial borrowing and increased office rents should
encourage
businesses to invest more. Infrastructure construction should benefit
from
further improvements in government financing and good economic
growth.
|
|
·
|
Metals
prices
increased steadily over the course of 2006, peaking in December.
We expect
prices to ease over coming months but not much faster than they rose
in
2006. As a result, many metals prices in 2007 will average close
to 2006
average levels. Market fundamentals—growing demand, tight inventories and
the potential for supply problems—support a need for increased investment
in 2007.
|
|
·
|
West
Texas
Intermediate crude oil prices dropped sharply from the early July
2006
peak of $77 per barrel; we forecast prices will average around $58
per
barrel in 2007. A number of countries increased production capacity,
which
will likely reduce market concerns regarding supply disruptions.
However,
worldwide spare capacity remains below the historical average, and
prices
are still attractive for new investments. We expect further growth
in
exploration, drilling, pipeline expenditures and tar sands development
in
2007, which should benefit both machinery and engine sales.
|
|
·
|
International
spot prices for coal are trading above 2006 prices, and demand continues
to be strong. We expect increased investments in coal mines outside
North
America.
|
|
·
|
Demand
for
marine engines should continue strong. Ocean shipping rates are favorable.
The world’s fleet has a high percent of ships over 20 years old, and
shipyards have healthy order backlogs.
|
North
America
(United States and
Canada) - Machinery and Engines sales are expected to decrease 8 percent in
2007. For machinery, the most significant decline is expected for machines
used
in housing construction. In addition, we expect dealers to significantly reduce
machine inventories. For engines, the decline is primarily related to on-highway
engines.
|
·
|
The
initial
estimate of U.S. economic growth in fourth quarter 2006 was a 3.5
percent
annual rate, above what the Federal Reserve would consider trend
growth.
As a result, the Fed likely will not see a need to change interest
rates
in the near future.
|
|
·
|
We
believe
the fourth-quarter growth was a temporary improvement and that economic
growth for 2007 will be below trend at 2.5 percent. Housing, auto
sales
and freight activity are declining, and manufacturing slowed in the
fourth
quarter. Without interest rate relief, recoveries in those sectors
seem
unlikely, and other sectors could
weaken.
|
|
·
|
Our
forecast
assumes that a slow-growing economy and a further easing in inflation
will
eventually prompt the Fed to react. We look for two 25-basis points
cuts
in 2007, with the first coming around midyear—too late to have much impact
on economic growth in 2007.
|
|
·
|
Lower
mortgage interest rates and better wage growth stabilized new home
sales
late in 2006, but the inventory of unsold new homes has kept downward
pressure on new construction. Builders likely will take a good part
of
2007 to bring home inventories into better balance with sales. Our
forecast is that housing starts will decline to 1.7 million units
in 2007,
down from a little over 1.8 million in 2006.
|
|
·
|
Nonresidential
construction should increase in 2007 but at a slower rate than in
2006.
Federal highway funding will increase less rapidly, and the financial
incentives for businesses to invest in new facilities will likely
be less
attractive.
|
|
·
|
Lower
spot
coal prices, increased coal stockpiles and slower growth in electricity
usage should cause coal mine production to increase 2 percent in
2007,
down from 5 percent growth in 2006.
|
|
·
|
Metals
mines
output declined slightly in 2006, but we expect output to increase
3
percent in 2007. With metals prices averaging near those in 2006,
investment should increase again in
2007.
|
|
·
|
The
U.S.
government implemented new emissions standards for on-highway truck
diesel
engines at the start of 2007. The uncertainties associated with new
standards caused trucking firms to accelerate purchases and truck
dealers
to build inventories in 2006. As a result, we expect close to a 50
percent
decline in the North American on-highway truck industry in
2007.
|
|
·
|
Overall
economic conditions in Canada should closely mirror those in the
United
States. However, lower interest rates and the impact of mining and
energy
development should provide better support for machinery sales than
in the
United States.
|
EAME
-
Machinery
and
Engines sales are expected to increase 13 percent in 2007.
|
·
|
Recent
data
confirmed the European Union economy is growing above trend. Surveys
and
leading indicators suggest this strength should continue near
term.
|
|
·
|
The
European
Central Bank raised its interest rate to 3.5 percent in December
of 2006,
and we expect that rate will increase to 4 percent by year-end 2007.
The
Bank of England recently raised its interest rate to 5.25 percent,
which
we expect to be unchanged for 2007.
|
|
·
|
Interest
rate
increases in 2007 should not disrupt economic growth. Our forecast
is for
economic growth of about 2.25 percent in 2007, down from 2.75 percent
growth in 2006.
|
|
·
|
We
expect
both residential and nonresidential construction to increase again
in
2007. Home prices are up, mortgage rates remain attractive and lending
to
businesses has been increasing at a 12 percent rate. Good economic
growth
and increased business investment should boost demand for standby
electrical power.
|
|
·
|
Africa/Middle
East looks set to continue its three-year economic boom, which has
driven
large increases in machinery and engines sales. Regional economic
growth
should be about 5 percent in 2007, only slightly less than
2006.
|
|
·
|
Exports
are
sustaining economic growth in Turkey, which in turn is driving good
construction growth. African countries should continue to benefit
from
high commodity prices, increased oil production and more foreign
investment.
|
|
·
|
The
sharp
increase in oil prices contributed to significant construction booms
in
the Middle East. However, countries did not increase spending as
fast as
revenues grew. So these countries have the financial reserves to
continue
spending, even in the face of lower production and
prices.
|
|
·
|
The
CIS has
enjoyed more than 5 percent yearly economic growth since the 1998
Russian
debt crisis, and that trend should extend through 2007, with growth
of
almost 7 percent. High commodity prices have enabled the region to
run
large trade surpluses and accumulate sizable foreign exchange reserves.
Low internal interest rates have bolstered domestic
spending.
|
Latin
America
-
Machinery
and
Engines sales are expected to increase 1 percent in 2007.
|
·
|
We
expect
that regional growth will average almost 4.5 percent in 2007, down
from
over 5 percent in 2006. Construction should grow faster than the
overall
economy, and high metals prices should contribute to an expansion
in
mining.
|
|
·
|
Most
governments have reduced outstanding debt relative to the size of
their
economies, and several have shifted borrowings from U.S. dollars
to local
currencies. This means the expected tightening in world liquidity
should
not have much impact on the region.
|
|
·
|
Internally,
interest rates remain low, and the largest economy, Brazil, probably
will
cut interest rates further in 2007. Domestic spending should continue
to
be strong.
|
|
·
|
The
region is
running a current account surplus, which has allowed several countries
to
accumulate sizable foreign currency reserves. Overall, reserves exceed
short-term external financing requirements, providing more scope
to deal
with any weakening in exports.
|
|
·
|
Several
governments are putting more emphasis on public spending. While the
long-term impact of these changes likely will be inflationary, domestic
spending and construction should benefit in
2007.
|
Asia/Pacific
-
Machinery
and
Engines sales are expected to increase 17 percent in 2007.
|
·
|
We
project
regional growth to slow from almost 7.5 percent in 2006 to around
7
percent in 2007. Contributing to slower growth will be a slowing
in world
trade and some tightening in internal policies, particularly in China.
The
Chinese government announced it would like to slow economic growth
from
the 10 percent rate in 2006.
|
|
·
|
The
region is
running a sizable current account surplus, with over 70 percent
originating in China. Government efforts to resist currency appreciation
have resulted in international reserves far in excess of any short-term
financing needs and have complicated efforts to control domestic
credit
growth.
|
|
·
|
Favorable
credit conditions and rapid growth contributed to good growth in
construction in many countries in 2006, often in excess of 5 percent.
We
expect that construction will grow almost as fast in
2007.
|
|
·
|
In
2006, a
steep decline in sales into Indonesia offset a good part of the large
gains in other large economies. Indonesia reduced interest rates
in 2006,
and we expect sales into that country will improve in
2007.
|
|
·
|
Australia
raised interest rates to 6.25 percent in 2006, and we expect the
central
bank to maintain that rate for 2007. Economic growth should remain
sluggish at about 2.5 percent; however, good orders for nonresidential
construction and increased mining investment should allow those sectors
to
outperform the overall economy.
|
|
·
|
Increased
oil
exploration and development will drive sales growth in engines used
in
marine and petroleum applications. Increases in both infrastructure
spending and industrial production will benefit standby electrical
power.
|
Financial
Products Revenues
|
·
|
We
expect
continued growth in Financial Products for 2007. Revenues are expected
to
increase approximately 15 percent versus 2006, primarily due to higher
average earning assets in 2007.
|
PROFIT
OUTLOOK
We
expect profit
per share to be in the range of $5.20 to $5.70. 2007 is expected to benefit
from
improved price realization, partially offset by lower sales volume, higher
core
operating costs and a higher effective tax rate. Specifically, we expect
research and development costs to be relatively flat in 2007 as we continue
to
invest in new products. Material costs were up about 1 percent in 2006 but
are
not expected to increase in 2007. In addition, 2007 will benefit from the
absence of expense related to the settlement of various legal disputes with
Navistar. 2006 included costs related to quality and production problems
associated with a number of new product introduction programs and supply
chain
inefficiencies. We are not expecting that level of cost or disruption in
2007 as
we continue to make progress on the implementation of the Cat Production
System.
|
Sales
and Revenues Outlook - Midpoint of Range
1
|
|
(Millions
of
dollars)
|
2006
Actual
|
|
2007
Outlook
|
|
%
Change
|
|
|
|
|
|
|
|
|
Machinery
and
Engines
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
$
|
20,155
|
|
|
$
|
18,600
|
|
|
|
(8
|
%)
|
|
|
EAME
|
|
10,287
|
|
|
|
11,600
|
|
|
|
13
|
%
|
|
|
Latin
America
|
|
3,646
|
|
|
|
3,700
|
|
|
|
1
|
%
|
|
|
Asia/Pacific
|
|
4,781
|
|
|
|
5,600
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Machinery and Engines
|
|
38,869
|
|
|
|
39,500
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Products
2
|
|
2,648
|
|
|
|
3,050
|
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
41,517
|
|
|
$
|
42,550
|
|
|
|
2.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
The
Consolidated Operating Profit chart below reflects sales and revenues
at
the midpoint of the range.
|
|
2
|
Does
not
include revenues earned from Machinery and Engines of $400 million
and $466 million in 2007 and 2006, respectively.
|
|
|
|
|
|
1
The PPS
outlook is between $5.20 and $5.70. The above chart illustrates operating
profit at the midpoint of this profit range. Each of the stair steps
in
the chart may individually vary within the outlook
range.
|
|
2
Other
includes the impact of currency, consolidating adjustments, M&E other
operating expenses, operating profit of Progress Rail and the effects
of
rounding.
|
We
expect
on-highway truck engine units to decline approximately 50 percent in 2007.
We
expect a disproportionate share of the decline will occur in the first quarter.
The drop in U.S. housing will have a significant impact on our sales of small
and compact machines in North America. We estimate the combined impact of these
two factors will negatively impact first quarter 2007 operating profit by about
$200 million compared with first quarter 2006.
We
expect our
effective tax rate for 2007 will increase to 32 percent, approximately three
percentage points from the 2006 rate of 29 percent, primarily due to the phase
out of extraterritorial income exclusion (ETI). The American Jobs Creation
Act
provides for the phase out of ETI with 80 percent of the benefit in 2005, 60
percent of the benefit in 2006 and complete phase out in 2007.
Capital
expenditures (excluding equipment leased to others) are expected to be
approximately $1.80 billion, compared with approximately $1.60 billion in 2006
as we continue to invest in new product programs and add capacity.
*
* *
The
information
included in the Outlook section is forward looking and involves risks and
uncertainties that could significantly affect expected results. A discussion
of
these risks and uncertainties is contained in Item 1A of this
Form 10-K.
|
Stockholder
Services:
|
|
|
Registered
stockholders should contact:
|
|
Stock
Transfer Agent
|
|
Caterpillar
Assistant Secretary
|
|
Mellon
Investor Services
|
|
Laurie
J.
Huxtable
|
|
P.O.
Box
3315
|
|
Assistant
Secretary
|
|
South
Hackensack, NJ 07606-3315
|
|
Caterpillar
Inc.
|
|
|
Phone:
|
(866)
203-6622 (U.S. and Canada)
|
|
100
N.E.
Adams Street
|
|
|
|
(201)
680-6578 (Outside U.S. and Canada)
|
|
Peoria,
IL
61629-7310
|
|
|
Hearing
Impaired:
|
(800)
231-5469 (U.S. or Canada)
|
|
|
Phone:
|
(309)
675-4619
|
|
|
|
(201)
680-6610 (Outside U.S. or Canada)
|
|
|
Fax:
|
(309)
675-6620
|
|
|
Internet:
|
www.melloninvestor.com
|
|
|
E-mail:
|
CATshareservices@CAT.com
|
|
Shares
held in Street Position
|
|
|
|
Stockholders
that hold shares through a street position should contact their bank
or
broker with questions regarding those shares.
|
|
Stock
Purchase Plan:
|
|
|
Current
stockholders and other interested investors may purchase Caterpillar
Inc.
common stock directly through the Investor Services Program sponsored
and
administered by our Transfer Agent. Current stockholders can get
more
information on the program from our Transfer Agent using the contact
information provided above. Non-stockholders can request program
materials
by calling: (800) 842-7629 (U.S. and Canada) or (201) 680-6578 (outside
the U.S. and Canada). The Investor Services Program materials are
available on-line from Mellon's website or linked from
www.CAT.com/dspp.
|
|
Investor
Relations:
|
|
|
Institutional
analysts, portfolio managers, and representatives of financial
institutions seeking additional information about the Company should
contact:
|
|
Director
of Investor Relations
|
|
|
|
Mike
DeWalt
|
Phone:
|
(309)
675-4549
|
|
Caterpillar
Inc.
|
Fax:
|
(309)
675-4457
|
|
100
N.E.
Adams Street
|
E-mail:
|
CATir@CAT.com
|
|
Peoria,
IL
61629-5310
|
Internet:
|
www.CAT.com/investor
|
|
Common
Stock (NYSE: CAT)
|
|
|
Listing
Information:
Caterpillar
common stock is listed on the New York and Chicago stock exchanges
in the
United States, and on stock exchanges in Belgium, France, Germany,
Great
Britain and Switzerland. Caterpillar voluntarily delisted from the
NYSE
Arca Exchange (formerly Pacific Stock Exchange) in January
2007.
Compliance:
For 2006,
Caterpillar filed Annual CEO Certifications in compliance with New
York
and NYSE Arca stock exchange rules and CEO/CFO certifications in
compliance with Sections 302 and 906 of the Sarbanes-Oxley Act of
2002.
These certifications are included as exhibits to our Form 10-K filing
for
the relevant fiscal year.
|
|
Price
Ranges:
Quarterly
price ranges of Caterpillar common stock on the New York Stock
Exchange,
the principal market in which the stock is traded,
were:
|
|
|
|
|
|
2006
|
|
2005
1
|
|
|
|
|
|
|
|
Quarter
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
$
|
77.21
|
|
$
|
57.05
|
|
$
|
49.98
|
|
$
|
43.20
|
|
Second
|
|
$
|
82.03
|
|
$
|
64.41
|
|
$
|
51.49
|
|
$
|
41.31
|
|
Third
|
|
$
|
75.43
|
|
$
|
62.09
|
|
$
|
59.88
|
|
$
|
47.43
|
|
Fourth
|
|
$
|
70.92
|
|
$
|
58.82
|
|
$
|
59.84
|
|
$
|
48.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Price
ranges
reflect July 2005 2-for-1 stock split.
|
|
|
|
Number
of Stockholders:
Stockholders
of record at year-end totaled 39,075, compared with 38,329 at the
end of
2005. Approximately 63 percent of our issued shares are held by
institutions and banks, 30 percent by individuals, and 7 percent by
employees through company investment plans.
Caterpillar
qualified investment plans held 40,025,772 shares at year-end, including
5,087,149 shares acquired during 2006. Non-U.S. employee stock purchase
plans held an additional 4,848,066 shares at year-end, including
721,024
shares acquired during 2006.
|
|
Company
Information
|
|
|
Current
information -
Ø
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 fax or mail
Ø
request,
view, or download materials on-line or register for email alerts
by
visiting www.CAT.com/materialsrequest
Historical
information -
Ø
view/download
on-line at
www.CAT.com/historical
|
|
Annual
Meeting
|
|
|
On
Wednesday,
June 13, 2007, at 1:30 p.m., Central Time, the annual meeting of
stockholders will be held at the Q Center in St. Charles, Illinois.
Proxy materials are being sent to stockholders with this report on
or
about April 28, 2007.
|
|
Internet
|
|
|
Visit
us on
the Internet at www.CAT.com.
Information
contained on our website is not incorporated by reference into this
document.
|
|
Directors/Committee
Membership
(as
of
December 31, 2006)
|
|
|
Audit
|
Compensation
|
Governance
|
Public
Policy
|
|
W.
Frank
Blount
|
|
|
Ö
*
|
|
|
John
R.
Brazil
|
Ö
|
|
|
|
|
Daniel
M.
Dickinson
|
|
Ö
|
|
|
|
John
T.
Dillon
|
Ö
|
|
|
|
|
Eugene
V.
Fife
|
Ö
*
|
|
|
|
|
Gail
D.
Fosler
|
|
|
Ö
|
|
|
Juan
Gallardo
|
|
|
|
Ö
|
|
David
R.
Goode
|
Ö
|
|
|
|
|
Peter
A.
Magowan
|
|
|
Ö
|
|
|
William
A.
Osborn
|
|
Ö
*
|
|
|
|
James
W.
Owens
|
|
|
|
|
|
Charles
D.
Powell
|
|
|
|
Ö
*
|
|
Edward
B.
Rust, Jr.
|
|
Ö
|
|
|
|
Joshua
I.
Smith
|
|
Ö
|
|
Ö
|
|
*
Chairman of
Committee
|
|
OFFICERS
(
as
of
December 31, 2006, except as noted)
|
James
W.
Owens
|
Chairman
and
Chief Executive Officer
|
|
Stuart
L.
Levenick
|
Group
President
|
|
Douglas
R.
Oberhelman
|
Group
President
|
|
Gerald
L.
Shaheen
|
Group
President
|
|
Gérard
R.
Vittecoq
|
Group
President
|
|
Steven
H.
Wunning
|
Group
President
|
|
Kent
M.
Adams
|
Vice
President
|
|
William
P.
Ainsworth
|
Vice
President
|
|
Ali
M.
Bahaj
|
Vice
President
|
|
Sidney
C.
Banwart
|
Vice
President
|
|
Michael
J.
Baunton
|
Vice
President
|
|
Rodney
C.
Beeler
|
Vice
President
|
|
Mary
H.
Bell
|
Vice
President
|
|
James
B.
Buda
|
Vice
President, General Counsel and Secretary
|
|
David
B.
Burritt
|
Vice
President and Chief Financial Officer
|
|
Rodney
L.
Bussell
|
Vice
President
|
|
Christopher
C. Curfman
|
Vice
President
|
|
Paolo
Fellin
|
Vice
President
|
|
Steven
L.
Fisher
|
Vice
President
|
|
Thomas
A.
Gales
|
Vice
President
|
|
Stephen
A.
Gosselin
|
Vice
President
|
|
Hans
A.
Haefeli
|
Vice
President
|
|
John
S.
Heller
|
Vice
President
|
|
Richard
P.
Lavin
|
Vice
President
|
|
William
D.
Mayo
|
Vice
President
|
|
Daniel
M.
Murphy
|
Vice
President
|
|
Gerald
Palmer
1
|
Vice
President
|
|
James
J.
Parker
|
Vice
President
|
|
Mark
R.
Pflederer
|
Vice
President
|
|
Edward
J.
Rapp
|
Vice
President
|
|
William
J.
Rohner
|
Vice
President
|
|
Christiano
V.
Schena
|
Vice
President
|
|
William
F.
Springer
|
Vice
President
|
|
Gary
A.
Stampanato
|
Vice
President
|
|
Gary
A.
Stroup
|
Vice
President
|
|
James
D.
Waters
|
Vice
President
|
|
Robert
T.
Williams
|
Vice
President
|
|
Bradley
M.
Halverson
|
Controller
|
|
Kevin
E.
Colgan
|
Treasurer
|
|
Robin
D.
Beran
|
Assistant
Treasurer
|
|
Tinkie
E.
Demmin
|
Assistant
Secretary
|
|
Laurie
J.
Huxtable
|
Assistant
Secretary
|
|
1
Retired
effective December 31,
2006
|
