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DOING MORE >>




CATERPILLAR 2004 ANNUAL REPORT
You know about the big yellow machines.
                                             You probably know about the big yellow engines.

But if that’s all you know about Caterpillar, then you’re only seeing part of who we really are.

           We are yellow iron and so much more. We are multiple brands and product lines.

We are services and technologies. We are innovators, recyclers and respecters of the planet.

           Most of all, we are people—teams of employees, dealers, distributors, suppliers,

  customers and community members—working every day to make our world more livable.

                       And never have we accomplished more together than we did in 2004.

       This report is a celebration of Caterpillar people and our never-ending commitment to


                                                            DOING MORE >>
                                                            [ on the cover ] Leaders from Abigroup,
                                                           one of Australia’s major civil contracting
                                                    firms, and Cat dealer WesTrac inspect the new
                                                       undercarriage system on this D6R track-type
                                                             tractor as they tour Building SS in East
                                                        Peoria, Illinois. The machine’s SystemOne™
                                                               undercarriage—introduced in 2004 as
                                                             the latest in a century of undercarriage
                                                          innovations—can double life expectancy
                                                               and virtually eliminates maintenance.
>        LETTER TO STAKEHOLDERS
           2



                MORE stories
       >   6



                MORE highlights
       >   26



                MORE about us
       >   30



       >        MANAGEMENT’S REVIEW
           32



       >        FINANCIAL INFORMATION
           36



       >        COMPANY INFORMATION
           38


2004
CHAIRMAN’S LETTER TO STAKEHOLDERS




2


    2004 was a great year to be a member of
    the worldwide Caterpillar family! We celebrated                       Caterpillar’s record profits have placed us in an even stronger
                                                                          financial position—great news for our employees and
    a series of impressive milestones—100 years since the invention
                                                                          stockholders. Our pension plans remain well-funded due to solid
    of the track-type tractor, 75 years on the New York Stock Exchange
                                                                          investment returns and more than $600 million in contributions
    and 50 years of operation in Brazil, as well as the introduction of
    ACERT® Technology into the earthmoving machine business—              for the second year in a row. Stockholders are benefiting from both
                                                                          higher dividends and share repurchases. In fact, we’ve increased
    and set all-time sales and revenues and profit per share records.
                                                                          our dividend 10 of the last 11 years and, in 2004, repurchased
    In a year of explosive growth and largely unanticipated global
                                                                          almost 7 million shares. Wall Street is celebrating with us.
    demand, our sales increased by over $7 billion as we surpassed
                                                                          Our share price of $97.51 on December 31 was our highest
    our $30 billion sales and revenues goal a full two years ahead of
                                                                          year-end price ever—up 17 percent from 2003 year-end.
    schedule. Through it all, we maintained product quality and grew
    our global leadership position. We ended the year with a record
    order backlog for our larger machines—indicating continuing
    market strength for 2005.


                                                    Stu Levenick             Doug Oberhelman                               Jim Owens
                                              GROUP PRESIDENT                  GROUP PRESIDENT                    CHAIRMAN AND CEO




    EXECUTIVE OFFICE




                                                 Gerry Shaheen                   Gérard Vittecoq                       Steve Wunning
                                              GROUP PRESIDENT                  GROUP PRESIDENT                      GROUP PRESIDENT
Our success in 2004 is a tribute to our people—a strong leadership     in technology each working day. Nowhere is that investment
team, more than 76,000 committed employees, the world’s best           paying off more than on the engine side of our business, where
dealer organization and many strategic suppliers who worked with       growth is being fueled in large part by the success of ACERT,
us to overcome difficult sourcing challenges. I’m truly grateful for   our revolutionary clean diesel technology. More than 170,000
all their efforts. Only because of Team Caterpillar’s tremendous       on-highway engines featuring ACERT Technology are on the road
creativity, passion and sweat were we able to achieve such             now. They’re accumulating 36 million miles a day, delivering
remarkable results. Together we rallied around a common                excellent performance and producing dramatically lower
objective—helping our customers be more successful working with        emissions—all with comparable fuel economy to previous models.
                                                                       In November, we introduced the first Cat® earthmoving machine
Caterpillar than they could be with anyone else—and positioned
ourselves to take advantage of a global economy that’s emerging        with ACERT Technology, and we’re confident this clean diesel
from a long slumber in the industries Caterpillar serves.              technology will set us apart in the off-road arena as well.

                                                                       On the machine side of our business, systems integration continues
MORE PREPARED FOR SUCCESS THAN EVER
                                                                       to differentiate Caterpillar® products from the competition.
Reflecting on Caterpillar today, I can’t think of another company in
                                                                       Electrohydraulic controls, integrated powertrain systems, global
any industry that’s better positioned to win in the global economy.
                                                                       positioning and wireless communications systems, sound reduction
Consider the key building blocks we have in place for the future:
                                                                       technology and more are coming together to improve productivity,
1. Established       strength with products and                        performance and operator comfort. These systems—and products
services. Our current line up is the strongest and broadest            like the SystemOne undercarriage featured on the cover of this
in our history. Our major product lines are recognized leaders         report—are helping our customers increase overall job site
worldwide— #1 or #2 on every continent—and everywhere I turn,          efficiency and lower cost per ton.
Caterpillar people are working to make them even better. On the
                                                                       3. Well-established           global footprint. Our products
services side of our business, Cat Financial and Cat Logistics are
                                                                       are sold in over 200 countries, with more than half of our sales
well-established growth subsidiaries. Cat Financial has provided
                                                                       outside the U.S. We operate nearly 300 facilities in 40 countries
diversification and earnings stability since its formation in 1981.
                                                                       on six continents, with a goal to be a cost-effective competitor in
Today it’s one of the largest captive finance companies in the world
                                                                       every major currency zone. Add our 198 Cat dealers, their 1,600-
with receivables of almost $20 billion. Cat Logistics has been
                                                                       plus branch stores, around 1,400 Cat Rental Stores and more than
generating growth of 25 percent annually in revenues from external
                                                                       400 FG Wilson™, MaK™, Perkins® and Solar® distributors, and we
customers, and massive opportunities remain for creative third-
                                                                       literally blanket the four corners of the Earth. Our dealer network
party logistics providers in this $170 billion industry. In 2004, we
                                                                       in particular gives us a local presence everywhere we do business.
also identified other adjacent growth areas where we plan to make
                                                                       Our after-sales support capabilities and coverage are unmatched
substantial investments, including Caterpillar Remanufacturing
                                                                       in our industry or, most likely, any industry. Ultimately, all business
Services and our OEM Solutions Group.
                                                                       is local—and we are positioned to compete with “local”
2. Technology        leadership in our industry.                       competitors the world over.
Caterpillar’s investment in research and engineering is unequaled
                                                                       4. Unique     set of market strengths. Caterpillar is
in our industry. With hundreds of Ph.D. scientists and researchers
                                                                       exceptionally well-positioned by virtue of the markets we serve—
on our team, we’ve received more than 2,500 patents in the
                                                                       global mining, global energy (oil/gas and coal), infrastructure
last five years, and we continue to invest more than $4 million
                                                                       development and distributed electric power, just to highlight some
CHAIRMAN’S LETTER TO STAKEHOLDERS




4




    of the largest. These industries were characterized by significant       outstanding working rapport with management. At Caterpillar,
    underinvestment in the post-Asian crisis period of 1998-2002.            we’ve always been conservative in our financial accounting, and
    Global economic growth returned to more robust trend levels in           we are proud of the strength of our balance sheet, investment
    late 2003, and we believe this worldwide recovery has legs. Real         grade credit rating, well-funded benefit plans and cash flow.
    economic growth at longer-term trend levels will require ongoing         Our compensation programs and stock ownership requirements
    heavy investment in these industries—a sweet spot for Caterpillar.       clearly align executive and stockholder interests. We continue to
                                                                             work diligently to provide all our stakeholders with the information
    5. Governance          and financial integrity.
                                                                             to make good decisions about our operations and the potential of
    Maintaining uncompromisingly high ethical standards has always
                                                                             our business.
    been a hallmark of Caterpillar—we’ve been guided by a strong
    Code of Worldwide Business Conduct since 1974. Our board has             MORE PASSION FOR PROCESS AND PEOPLE
    distinguished itself as a leader in corporate governance. Its
                                                                             In addition to these five key strengths, I believe our people and
    members are independent, highly qualified and diverse, with an
                                                                             world-class 6 Sigma deployment also distinguish Caterpillar from



    FINANCIAL HIGHLIGHTS                 YEARS ENDED DECEMBER 31


                                                                    2004          2003               2002               2001               2000
    [ Dollars in millions except per share data ]



    Sales and revenues                                        $     30,251    $    22,763        $    20,152        $    20,450        $     20,175
    Profit                                                    $      2,035    $      1,099       $       798        $       805        $      1,053
    Profit per common share                                   $       5.95    $       3.18       $       2.32       $      2.35        $         3.04
    Profit per common share–diluted                           $       5.75    $       3.13       $       2.30       $      2.32        $         3.02
    Dividends declared per common share                       $      1.600    $      1.440       $     1.400        $     1.390        $      1.345
    Capital expenditures–excluding equipment
                         leased to others                     $       926     $       682        $       728        $     1,100        $         928
    Research and development expenses                         $       928     $       669        $       656        $       696        $         649
    Year-end employment                                             76,920         69,169             68,990             72,004              68,440
    Return on average stockholders’ equity                          30.0%           19.0%             14.4%              14.4%               19.0%
    Closing stock price (December 31)                         $      97.51    $      83.02       $     45.72        $     52.25        $      47.31
the crowd. What an incredible success story 6 Sigma has been           realize profit per share growth that is stronger than other
for Caterpillar! It is the way we do business—how we manage            manufacturers’—and again, I believe we’re well-positioned to
quality, eliminate waste, reduce costs, create new products            realize this ambition.
and services, develop future leaders and help the company
                                                                       Looking to the future, I’m excited about the challenges our global
grow profitably. We continue to find new ways to apply the
                                                                       industries present because I know Caterpillar is ready! We’re
methodology to tackle business challenges. Our leadership team
                                                                       heading into 2005 with the right products and services, the right
is committed to encoding 6 Sigma into Caterpillar’s “DNA” and
                                                                       technology, the right strategy and, most important, the right people.
extending its deployment to our dealers and suppliers—more than
                                                                       Our talented team is working together to make Caterpillar a great
500 of whom have already embraced the 6 Sigma way of doing
                                                                       company for the future. We also thank our stockholders for their
business. Together we are creating the industry’s best supply chain,
                                                                       investments and the vote of confidence that represents. We’re
ready from top to bottom to meet the changing needs of those
                                                                       committed to being good stewards of your funds.
we serve.
                                                                       The idea of building a great company was the theme of our annual
At the heart of our business, of course, are our people. What is
                                                                       report in 2003. It’s what we aspire to be. That’s why I believe this
Caterpillar, ultimately? We are a corporation, but corporations
                                                                       year’s theme of “Doing More” is so appropriate—not just for this
by themselves don’t do anything. The more than 76,000 people
                                                                       year in which we all did so much more, but as a blueprint for
who work here do. Our goal is to capture the best ideas, energy,
                                                                       our future. To build a great company we must always do more—
enthusiasm and passion of each and every one of our employees
                                                                       accept more challenges, pursue more opportunities, work for
around the world—make sure they know they’re an integral part
                                                                       more results and deliver more value to all our stakeholders. We
of “Team Caterpillar”—and together drive both rewarding and
                                                                       must build on our positives and keep driving for excellence in each
profitable results. That’s why people-related issues continue to
                                                                       area of our business. Thanks to the efforts of Caterpillar people
be our number-one critical success factor, as we work to build
                                                                       around the world, we are working together to transform this very
a culture where everyone’s contribution is valued, focus on
                                                                       good company into a truly great one—a journey we realize is
diversity in our workforce, emphasize safety in all we do and
                                                                       never-ending.
maintain competitive wages and benefits.

MORE OPPORTUNITIES AND CHALLENGES AHEAD

With these building blocks for success in place, and with our
$30 billion sales and revenues goal accomplished, later this year
                                                                                                       Jim Owens, Chairman
we’ll roll out new vision and mission statements for the next
                                                                                                       January 27, 2005
decade, along with a set of critical success factors to drive their
realization. Our focus will be on profit per share growth, which
enables us to invest in research and development for leading-edge
products, make capital improvements for modern and productive
operations, offer competitive compensation and grow dividends
for our stockholders—everything that makes Caterpillar a great
employer, business partner and investment. Our goal is to
Dubai Municipality, the main provider of infrastructure support for the
        Emirate of Dubai, selected Caterpillar and Cat dealer Al-Bahar when the
    dealer sales team—using Caterpillar’s best-practice processes, 6 Sigma and
                         dealer business systems—demonstrated the solutions
                                 Caterpillar could bring to Dubai’s construction
                                        projects. These projects range from the
6                                       Burj Dubai tower to the massive resort
                                                 complex known as “The World”
                                                          off the city’s coastline.
Part of the overall plan for
   downtown Dubai includes the
        world’s largest mall, nine
residential towers, various parks
   and an “old town” with stalls,
  boutiques and restaurants. The
      Burj Dubai tower will be the
         tallest in the world when
completed in 2008—although its
    final height remains a secret.
 Rumors suggest the tower may
                                                                                                                     Jupiter Power Cambodia, a joint venture
                                                                                     Major Russian oil and gas
      top 2,950 feet (900 meters).
                                                                                                                     between Cat Power Ventures and Maxim
                                                                              companies rely on Cat machines
                                                                                                                         Power Corporation, generates about
                                                                                 and engines to deliver results
                                                                                                                      20 percent of Cambodia’s commercially
                                                                                  in varying climate conditions
                                                                                                                        distributed electric power. Employees
                                                                             across 11 time zones. Cat engines
                                                                                                                       there also lend their support to Tabitha
                                                                              serve as the main energy source
                                                                                                                     Cambodia, a nonprofit organization that
                                                                               for LUKOIL first Russian-made
                                                                                           ’s
                                                                                                                     funds family and community projects in
                                                                                  drilling rig working in severe
                                                                                                                         one of the world’s poorest countries.
                                                                                weather conditions offshore in
                                                                                                      the Baltic.




   MORE PROGRESS around the world >>
   >> In the poorest countries of Africa, Cat machines are building roads        transform an oil-dependent region into one that thrives on industry and
   that enable the sick to visit hospitals, children to attend schools and       tourism as well—supporting projects such as the Burj Dubai tower,
   farmers to transport crops to market—offering new hope to a                   the world’s tallest building, currently under construction in Dubai,
   continent plagued by hunger and poverty. In the newest democracies            United Arab Emirates. Part of massive development in the downtown
   of Europe and Asia, Caterpillar is constructing the power plants and          area, the luxury tower features hotel, office, residential and retail
   energy infrastructure that bring stability to millions of citizens.           space—and should bring an influx of tourists and investors to the city,
   And in the modern cities of the Middle East, we are helping to                already a financial and cultural hub for millions of people.
Thanks to the efforts                                                       Timken® bearings—like
                     of our employees                                                      these made in Asheboro,
           worldwide—including this                                                       North Carolina—and other
                    team in Mossville,                                                      steel products are found
             Illinois—Caterpillar built                                                           in just about every
                   a record number of                                                       Cat product, from diesel
8           products in 2004 to meet                                                      engines to tractors, trucks,
             high customer demand.                                                           loaders and excavators.




>> Few predicted 2004—an unprecedented economic recovery across          products into the hands of the customers who needed them, putting
every business and industry Caterpillar serves, the resulting dramatic   in long hours and overcoming major hurdles along the way. Using a
surge in demand and the frustrating shortage of materials needed         whole lot of manpower and the 6 Sigma methodology that engages
to build our products. And no one responded to these challenges          employees at all levels, we produced about 30 percent more machines
better than the employees, dealers and suppliers of Caterpillar. Those   and engines in 2004 than in the year before—all while maintaining
involved in producing our machines and engines deserve a special         Caterpillar quality standards and our industry leadership.
thank-you. In a remarkable team effort, they worked together to get
MORE RESPONSIVE to growing demand >>
                             Like other Cat suppliers
                              worldwide, The Timken
                        Company—one of our largest
                          global sources of steel and
                          bearings—worked hand in
                        hand with Caterpillar to meet
                            2004’s explosive growth,
                            strengthening an already
                           solid 30-year relationship.
10
>> The Caterpillar customers most people think of operate big                   its supply chain. Using a passion for 6 Sigma they both share, the
 machines. They lift, tunnel, scrape, trench, load and carry. But that’s         two companies developed plans to enhance customer service, lower
 not the extent of our customer base—not by a long shot. Some of our             distribution costs and minimize assets. Part of the solution is a long-
 customers build motorcycles, make cellular phones and sell sports cars.         term agreement for Cat Logistics to manage Bombardier’s component
 One is a leading manufacturer of business, regional and amphibious              distribution facilities based in Chicago, Illinois, and Frankfurt,
 aircraft—and when its parts performance didn’t meet customer needs,             Germany—bringing to more than 50 the number of leading corporations
 Bombardier Aerospace turned to Cat Logistics for help in re-engineering         that rely on Cat Logistics for world-class supply chain solutions.




                                                                                                                        In addition to its work with Bombardier
                                                                                                                        Aerospace, Cat Logistics also signed an
                                                                                                                       agreement with Cadillac Europe in 2004.




MORE CUSTOMERS you wouldn’t expect >>
                                                             After using 6 Sigma to build a business case,
                                                             Cat Financial became just the second foreign         The first specialized rental shop ever in Korea
                                                          company to receive approval to form a leasing             bears the Cat Rental Store brand. Cat dealer
                                                     entity in China. Caterpillar (China) Financial Leasing        Hae In grew its rental fleet from 13 machines
                                                             Co. , Ltd. , announced the signing of its first       in 2003 to more than 100 in 2004, delivering
                                                            customer contracts at Bauma China 2004, the              full rental services to Cat customers in this
                                                     country’s premier construction equipment trade fair.                      part of the world for the first time.
>> Is Caterpillar a product maker or a product recycler? Actually, as one      a growing business. With the acquisition of Wealdstone Engineering
     of the world’s largest remanufacturers, we’re both. Remanufacturing            and Williams Technologies Inc. in 2004, Caterpillar Remanufacturing
     is recycling—using advanced salvage and cleaning techniques                    Services is well-positioned to take advantage of the $100 billion reman
     to turn used parts into like-new components—and the benefits are               industry—not only recycling parts for Cat machines and engines, but
       numerous. One, remanufacturing keeps hundreds of millions of                 also offering our expertise to other manufacturers in the automotive,
12
       pounds of material out of the world’s landfills. Two, it lowers              industrial products and defense industries. It’s further proof that what’s
     customers’ repair costs without sacrificing quality. And three, it’s           good for the environment can be good for business as well.


                                               Cat Reman products support Cat
                                             dealer Component Rebuild Centers
                                         (CRC) worldwide, including Barloworld
                                         Equipment in South Africa. Caterpillar’s
                                          remanufacturing program, along with
                                            dealer investments in CRCs, provide
                                          our customers with a variety of repair
                                             options to lower their machine and
                                                         engine operating costs.
Reman employees in
   Nuevo Laredo recycle
     more than Cat parts.
       Used water is sent
       through this water
purification system, then
    used to irrigate green
areas and fill the facility’s
   ornamental fountains.




                                   Each year, employees at our
                                          Nuevo Laredo, Mexico,
                                    facility remanufacture more


   MORE PARTS with less waste >>    than 1 million fuel injectors,
                                        using 6 Sigma-managed
                                   salvage processes that allow
                                   injector bodies and cones to
                                   be rehoned, remachined and
                                      reused for multiple lives—
                                        thus reducing waste and
                                   providing customers off-the-
                                            shelf repair solutions.
14




                    MORE IDEAS
                    to change the industry >>




         More than 170,000
           engines featuring
     ACERT Technology are
     on the highway today,
        accumulating about
                                            Perkins Engines, a
     36 million miles a day.
                                  Caterpillar company based
              Caterpillar has
                                in the United Kingdom, also
      reduced emissions in
                                 is using ACERT Technology
         its North American
                                   in its products. More than
     truck and bus engines
                                          70 6 Sigma projects
           nearly 90 percent
                                     contributed to the 1100D
             since 1988 with
                                  engine introduction, which
         another 90 percent
                                    meets Europe’s Stage IIIa
         reduction to follow
                                         emissions standards.
                    by 2007.
>> Ingenuity and innovation run in Caterpillar’s yellow blood—from         in on-highway applications (where they are enjoying overwhelmingly
Benjamin Holt, who invented the first practical track-type tractor in      positive customer response), Cat engines with ACERT Technology
1904, to Jim Weber and Scott Leman, who were named National                are now powering off-road machines as well—the first of which was
Inventors of the Year by the Intellectual Property Owners Association in   appropriately a D8T track-type tractor. The machine was delivered to
2004. How are the two related? Weber, Leman and various 6 Sigma            a customer almost 100 years to the day after Benjamin Holt conducted
teams created and developed the breakthrough ACERT Technology,             the first field test of his revolutionary tractor—proving that a century
which significantly reduces diesel engine emissions. Originally used       later, Caterpillar people are still leading the way.
16




     >> The world’s top excavator salesperson is someone you may not       proud is driving down new roads built by the Cat equipment I sell,”
     expect—in a part of the world you may not picture Caterpillar as a    Madame Zhang says. “My long-term objective is to see Cat equipment
     leader. But we are, and so is Madame Zhang Li Ju of Cat dealer Lei    on every job site in China.” She made a good start—and with equally
     Shing Hong Machinery. Over the past seven years, she sold more than   dedicated team members throughout China and Southeast Asia,
     900 excavators in a growing China economy that becomes more           Caterpillar can’t help but succeed in that goal.
     and more important to Caterpillar every year. “What makes me most
More than 40 percent of                                     Shipbuilding is a booming industry in
          India’s population is expected                              China, and Cat engines are powering
          to live in urban areas by 2020,                             many of the vessels constructed there.
          and Cat machines are                                        This 51 ,000 dwt (dead weight
          building and rebuilding                                     tonnage) bulk carrier ship, one of the
          infrastructure in preparation—                              largest vessels in the world powered
          helping make over several of                                by Caterpillar main propulsion
          India’s largest cities.                                     engines,
                                                                      was built at the Zhejiang Shipbuilding
                                                                      Co. Ltd. for a Greek owner and
                                                                      financed by Cat Financial.




                                            Most of Madame Zhang’s
                                            customers own only one
                                            or two Cat excavators—
                                            making her sale of more
                                            than 400 in one year
                                            even more remarkable.




MORE OPPORTUNITIES for billions of people >>
18




     MORE HISTORY on which to build >>




                                         Employees at Caterpillar Brasil
                                          stay active in the community,
                                           participating in projects such
                                             as Piracicaba 2010 to make
                                          their city a better place to live
                                                                and work.
>> 2004 was a year of milestones for the Caterpillar family—and not              “ Piracicaba 2010,” a collaborative effort to plan the community’s
just the 100th anniversary of our signature product, the track-type               future. The project focuses on 19 areas, including education, industry,
tractor. We also celebrated 10 years of business in Xuzhou, China,                tourism, environment and culture—with a vision to make the city a
20 years in Indonesia and, most notably, 50 years in Brazil. While some           model of sustainable development and an excellent place to live. It’s a
companies are just discovering Brazil as a major market, we’ve been               great project for our employees, our company and our future—because
there for half a century, with a presence that extends far beyond our             good businesses need good communities, and good communities
facilities. In our Brazilian headquarters city, we’ve helped launch               attract good businesses. We’re proud to be playing a role in both.




                                                                                Cat Chairman and CEO                     Saying that Caterpillar “contributes
                                                                      Jim Owens rang the closing bell                 in an exemplary way to the growth of
                                                                      on the New York Stock Exchange                         our country, Brazilian President
                                                                                                                                        ”
                                                                              on December 2, marking                   Luiz Inácio Lula de Silva joined 4,500
                                                                          Caterpillar’s 75th year on the                  employees and guests celebrating
                                                                       world’s leading equities market.                 Caterpillar Brasil’s 50th anniversary.
>> Modern society couldn’t function without the products of mining.            sits in a barren land untouched by human development. Mine owners
     The computers we use every day, the televisions we watch, even the             have worked closely with the Canadian government to minimize
     eyeglasses we wear—they’re all made of minerals mined on job sites             environmental impact and maximize economic benefits—offering jobs
     where Cat equipment and services play major roles. And all of us in            and training to local aboriginal groups and career opportunities for
       the industry realize we must extract these essential resources in the        future generations. “It’s just good business,” says Ekati Diamond Mine
20
       most sustainable way. That’s why Caterpillar is proud to work with           President Wayne Isaacs. “We’re in this for the long term; we’re looking
     responsible miners the world over, including BHP Billiton Diamond              for good long-term relationships.” So are we at Caterpillar—especially
     Inc.’s Ekati Diamond Mine. Located just south of the Arctic Circle, Ekati      with those who share our commitment to building a sustainable world.




         During MINExpo 2004, the world’s         Cat dealer P Trakindo Utama has been
                                                              .T.
                 leading mining exposition,          supporting the high-altitude Freeport
                Cat Global Mining hosted a          McMoran mine in Indonesia for more
        sustainable development forum for       than 30 years. When a fleet of 793B trucks
           over 700 participants to address       needed to be replaced in 2004, Trakindo
          environmental, health, safety and        gave them a “second life”—rebuilding
                social responsibility topics.       and upgrading the equipment on site.




                                                  MORE FOCUS on a sustainable world >>
During a brief period in winter,
trucks can travel safely over a
two-lane ice road to Canada’s
Ekati Diamond Mine. Long
before this frozen highway
opens each year, a logistics
team at Cat dealer Finning
Canada forecasts demand
for parts—then trucks depart
for the mine 24 hours a day,
seven days a week, for
approximately 10 weeks to
amass a multimillion-dollar
parts inventory on site.
22




     MORE RESPECT for the environment we share >>
                                       The goal of the Great Rivers Partnership
                                   project is to restore and preserve large river
                                 systems—such as this area of the Mississippi
                                 River north of La Crosse, Wisconsin—that are
                                critical to the health of hundreds of millions of
                                  people and untold animal and plant species.
Mike Leavitt, U.S. Environmental                                           With the help of 6 Sigma, Solar
       Protection Agency Administrator,                                        Turbines recently launched its first
              gave a truck powered by a                                         ultra-low-emissions Mercury™ 50
         2007 prototype Cat engine with                                                 gas turbine, which delivers
          ACERT Technology the “white                                          unprecedented levels of efficiency
      handkerchief” test in May, holding                                         and environmental performance
         a piece of white fabric over the                                       in its size class. The first unit was
        exhaust pipe to demonstrate the                                            delivered for use in a veterans’
               low emissions produced.                                          hospital in San Diego, California.




>> Caterpillar has long shown respect for the planet we inhabit, both    Partnership” to provide funding for the transformation of large river
in our ongoing efforts to make our facilities and products cleaner and   systems on three continents—the Mississippi River in North America,
through our association with organizations such as the Tropical Forest   the Paraguay-Parana River in South America and the Upper Yangtze
Foundation, World Business Council for Sustainable Development and       River in Asia. Some have asked what this project has to do with
others. Now we’ve strengthened our resolve with a $12 million gift to    Caterpillar. The answer is nothing—and everything. We care and
The Nature Conservancy, which will establish “The Great Rivers           want to help simply because we live on this planet, too.
24




     >> Every year, we say thanks to Caterpillar people for a job well done.   many once thought was impossible—and we did it ahead of schedule,
     And every year, we mean it. But 2004 was a particularly special year.     with every employee playing an important role in helping us reach this
     We faced big challenges, overcame giant obstacles and accomplished        milestone. That’s a cause for celebrations and thank-yous—and we will
     great things together. We proved to ourselves and the world that as       do both. But we’re not done yet. We still see plenty of opportunities for
     one company and one team we can do anything, even achieving the           growth and improvement, well beyond $30 billion. As always with
     $30 billion (technically, $30,250,893,381) sales and revenues goal        Caterpillar people, there’s much more to come. Stay tuned.
MORE DESERVING of thanks than ever >>
2004 BY THE NUMBERS




                                                                           Two                              3 consecutive wins
                                   One National Women of Color
26                                                                                                  for Ton Verdam of the Netherlands
                                   Technology Leadership Award
                                                                          underground mines in
                                                                                                        in the Caterpillar Operator’s
                                       presented in 2004 by the               Australia using
                                        Career Communications              MINEGEM™ the first
                                                                                       ,             Challenge, which brings together
                                                                       sophisticated autonomous
                                      Group to Dr. Cathy Y. Choi,
                                                                                                      dozens of equipment operators
                                                                        loader navigation system
                                     an engineering and project
                                                                          that can operate at the       from throughout Europe for
                                     team leader and a 6 Sigma
                                                                            same skill level as
                                                                                                       what’s dubbed “the toughest
                                    Black Belt in our Technology        humans—eliminating the
                                            & Solutions Division           dangers to operators            competition on Earth”
                                                                               underground




          Ninecompani                 es honored with
       the Enterprise Value Award from CIO Magazine,

                                                                                                                     D11R
         including Caterpillar in the “Manufacturing”
         category for a suite of systems developed to                                                               track-type tractor
           deploy and provide ongoing process and                                                                        operated by
                                                                                                                            Australian
                 systems support of 6 Sigma
                                                                                                                         Ambassador
                                                                                                                    Michael Thawley
                                                                                                                      during his visit
                                                                                                                     to Caterpillar to
                                                                                                                   promote the new
        10 Cat Rental Power generators and air
                                                                                                                       U.S.-Australia
        conditioning units provided by Cat dealer                                                                           Free Trade
        Empire Power Systems for use during a                                                                             Agreement
            U.S. presidential debate in Arizona




           Twenty-nine Perkins                 36 venues constructed for the
       employees participating               2004 Olympic Games in Athens,
              in the London-to-                    along with a new airport,
      Brighton charity bike ride            120 miles of roads and 35 miles
         to raise money for the              of light rail, most with the help
       British Heart Foundation                       of Caterpillar machines
4th year in a row Caterpillar has                              Seven organizations
                                                                               receiving
been named to the Dow Jones Sustainability World
                                                                       Malcolm Baldrige
Index for a focus on social responsibility, sustaining
                                                                        National Quality
       the environment and strong financial results                        Awards from
                                                                          U.S. President
                                                                        George W. Bush,

           $5 milliongi                                             including Caterpillar
                                       ft from Caterpillar            Financial Services
                                                                      Corporation (Solar
     to Purdue University, which will go toward diversity
                                                                   Turbines received the
        programs, learning modules and other initiatives                  award in 1998)
          in the new Neil Armstrong Hall of Engineering




                                                                 17 Cat excavators working on a



     FIFTEEN                                                 3.3-mile (5.3-kilometer) racetrack in
                                                               Shanghai, China, that hosted the
                                                               Formula One Chinese Grand Prix

    Cat generator sets powering the
     music at Switzerland’s famous
    Fête de Genève and Lake Parade
                                                                                                               20 YEARS
                                                                                                                    that Solar gas
                                                                                                               turbines have been
    16 laps between refueling                                                                                         packaged by
      (compared with 10 to 12                                                                                     Turbomach S.A.,
     laps for gasoline-powered                                                                                   a Swiss company
     race cars) in the Le Mans                                                                                formally acquired by
       24-hour race for Taurus                                                                                  Caterpillar in 2004
     Sports—entering the first
        diesel-powered car in
      50 years with the help of

                                                                                                       MORE highlights >>
    Cat Electronics and Perkins




                                                                 60%of
                     50 consecutive years
                                                                                       generator set
                    Caterpillar has held a spot
                                                                  exports from the United Kingdom
                  on the Fortune 500 list, one of
                                                                         that come from FG Wilson,
                   only 71 companies to do so
                                                                             earning the Caterpillar
                       (1,877 have made an
                                                                        company Northern Ireland’s
                    appearance at least once)
                                                                         Exporter of the Year award
2004 BY THE NUMBERS




                                                                                                                        Seventy-three booths
      68 T H RANKING
28
                                                                                                                            on display at the
      for Caterpillar on                                                                                                   8 Annual Central
                                                                                                                            TH


     the BusinessWeek                                                                                                     Illinois Black Expo,
                                           72 female and minority high school                                        where Caterpillar board
      list of the world’s                   students designing, manufacturing
                                                                                                                       member Joshua Smith
                                          and launching a rocket as part of the

        most valuable                     Science, Technology and Engineering                                       spoke about successfully
                                           Preview Summer Camp (STEPS)—a
                                                                                                                         competing in today’s
                                             program sponsored by Caterpillar
            brands                                   that builds on Destination                                        business environment
                                              Technology®, a similar Caterpillar
                                           program for middle school students




                                                         600Cat
       250 Kilowatt Direct FuelCell®                                                    900 RUNNERS PARTICIPATING in the Leicester
                                                                        machines on
                                                                                                 Marathon, hosted by Caterpillar’s Building
         power plant brought on line in Ohio                 23 mine sites using the
                                                                                         Construction Products-Europe in Desford, England
       by Caterpillar and FuelCell Energy, Inc.—         award-winning MineStar®
         one of the first utility-scale fuel cell           Solutions, a production,
            power plants in North America                                                988 tons of used paper (the equivalent
                                                           monitoring and business
         that feeds power to consumers from                    system that improves         of 33 ,400 trees) collected and recycled
                      a substation                        efficiency and productivity                       by Cat Brasil employees




                                                                                                        45,000 students in the
                                                                                             United Kingdom participating in the programs of

          £10,000                                                                              the National Academy for Gifted and Talented
                                                                                                Youth, partially funded by Caterpillar through
          fundraising goal                                                                                the Cat Foundation in cities where
           for FG Wilson’s                                                                                      Cat employees work and live
              new charity
              partnership
           with the Royal
          Institute for the
           Blind: Northern
                  Ireland
75Cat                          “100 Best
                                                                        200 COMBINED
                                   Places to Work
                     erpillar
                                                                   PATENTS EARNED
       machines on display
                                      in IT” list,              by Caterpillar engineers
             at Bauma ’04,
                                    compiled by                             Denny Gibson,
         the world’s largest
                                   ComputerWorld                        Ron Shinogle and
      construction industry
                                                                        Al Stockner, all of
                                     magazine,
           trade show held
                                                                whom work at our Large
                                       including
          in Germany every
                                                                Power Systems Division
                three years
                                      Caterpillar


                                                                               MORE highlights >>
                                             3,630 Caterpillar
          2004 Corporate University
                                                                              5,000TH mining
                                                  employees with
        of the Year award earned by                                           truck produced
                                                                               at Caterpillar’s
      Caterpillar University at the sixth      6 Sigma Black Belt            Decatur, Illinois,
    annual Corporate University Week           experience—with               facility—just 20
                                                                               years after we
     (Cat U President Dave Vance was
                                              nearly 30,000 more                produced our
             also honored as Corporate                                            first mining
                                               directly involved in              truck in 1984
         University Leader of the Year)
                                                 6 Sigma projects




      $250,000 donation
from Caterpillar to the U.S. Environmental
                                                                                                              $11,000,000
    Protection Agency’s Clean School Bus
USA initiative, earmarked to lower diesel
                                                                                                                    Caterpillar pledge
    emissions from more than 240 school
                                                                                                                 to the Central Illinois
      buses in Illinois, Texas and Arizona
                                                                                                                    Regional Museum,
                                                                                                                  which together with
         300,000                                                                                                     a new Caterpillar
                               ton
           hull on the Bonga Hull,                                                                               worldwide corporate
       a gigantic seaborne vessel
                                                                                                              visitors’ center will form
                                                               $1 ,000,000 donated by Caterpillar to
       with enormous oil and gas
                                                                                                                  a “Museum Square”
                                                            three international relief organizations in the
       capacity that features nine                            wake of the tsunami that devastated south
                                                                                                                      in Peoria, Illinois
         Solar generator sets and                             Asia (the company also matched individual
                                                                        gifts made by employees, retirees
                mechanical drives                                                  and dealer employees)
COMPANY PROFILE




30




                                                   WORLDWIDE LOCATIONS

                                                         107 Manufacturing facilities
                                                        170 Office and other facilities
                                                                      198 Cat dealers
                                                          1,689 Dealer branch stores
                                                          1,437 Dealer rental outlets
                                400+ FG Wilson, MaK, Perkins and Solar distributors


                                                     CATERPILLAR DEALERS
           Caterpillar and
         our dealers and
                                           Employees        Inside U.S.        36,441
     distributors literally
                                                          Outside U.S.         62,907
            reach the four
            corners of the                                  Worldwide          99,348
          Earth—offering
                                  Estimated Net Worth       Inside U.S.    $4.1 billion
      unmatched global
       coverage to meet                                   Outside U.S.     $4.5 billion
     unique local needs.                                    Worldwide      $8.6 billion




                    CATERPILLAR BRANDS
MORE about us >>


Our products, services and technologies fall into three principal   ENGINES: Caterpillar reciprocating engines and engine
lines of business:                                                  systems provide power to the world. Our engines power our own
                                                                    construction and mining machines—plus trucks, ships and boats—
MACHINERY: Caterpillar machines do the world’s work.
                                                                    and much more. Electrical power systems supply both primary
From earthmoving, mining and construction projects to forestry,
                                                                    and standby power for a wide variety of uses. Solar industrial
waste, paving and any number of other applications, we have
                                                                    gas turbines power the production, processing and transporting
the right equipment—large and small—to help our customers
                                                                    of crude oil and natural gas and provide electrical power to
get the job done right. We also lead the industry in the
                                                                    many industries.
distribution of equipment and parts and offer that expertise
to others through Caterpillar Logistics Services, Inc., one of      FINANCIAL PRODUCTS: We help customers around the
the world’s largest integrated logistics organizations with more    globe purchase Cat and related equipment (new and used) through
than 50 third-party clients.                                        Caterpillar Financial Services Corporation and its subsidiaries.
                                                                    Customers can protect their Cat equipment by using various types
                                                                    of insurance offered by Caterpillar Insurance Holdings, Inc.
MANAGEMENT’S REVIEW OF OPERATIONS




     Team Caterpillar had an outstanding year in
     2004—without question, one of the best in
32
                                                                             to lag in 2004. We are focusing the expertise of hundreds of
     our long, proud history. Responding to an unprecedented                 6 Sigma teams to address these issues aggressively and improve
     recovery in nearly every market we serve, we enhanced our long-         our cost structure in 2005. We will continue to build on the value
     term strategic position by meeting record customer demand and           of 6 Sigma and the opportunities unleashed by an engaged global
     building substantial field population.                                  team to set new records in 2005, create long-term value for our
                                                                             customers and deliver exceptional returns to our stockholders.
     Specifically in 2004, sales and revenues reached $30.25 billion,
     up $7.49 billion or 33 percent compared to 2003. This increase was      MACHINERY
     driven by $6.26 billion of higher machinery and engines volume,
                                                                             Sales were $18.84 billion in 2004, an increase of 38 percent over
     a $515 million favorable impact of currency on sales due primarily
                                                                             2003. Record sales volume, up 33 percent from 2003, accounted for
     to the strengthening euro and British pound, $512 million of
                                                                             most of the gain. Improved price realization added about 3 percent,
     increased price realization and $200 million of higher Financial
                                                                             and the favorable impact of currency accounted for the remaining
     Products revenues.
                                                                             2 percent. In North America, sales were 41 percent higher than
     Profit of $2.03 billion, or $5.75 per share, was up 85 percent          in 2003, with volume increasing 37 percent, a record high.
     compared to 2003, mainly due to higher sales volume of                  Low interest rates, higher commodity prices and accelerated
     $1.81 billion, higher price realization of $512 million and the         depreciation provisions all encouraged users to replace existing
     absence of $153 million of non-conformance penalties that were          machines and increase fleet sizes.
     recorded in 2003. Partially offsetting these favorable items were
                                                                             Sales in Europe, Africa and the Middle East rose 25 percent, with
     $1.11 billion of higher core operating costs (about half of which
                                                                             about 16 percent coming from more volume, about 7 percent due
     were due to sharply higher steel-related and expediting costs),
                                                                             to the favorable impact of a stronger euro and the remainder due
     a $157 million impact of currency on profit and $139 million of
                                                                             to improved price realization. Half the volume growth occurred in
     higher retirement benefits.
                                                                             Europe, where low interest rates contributed to some recovery
     In addition to these record financial results, 2004 also delivered      in construction. Sales in Latin America increased 63 percent,
     solid improvement in cash flow, and we ended the year in an even        the fastest growth of any region. Volume surged about 55 percent,
     stronger financial position. After providing continued funding for      and improved price realization contributed about 7 percent, with
     growth opportunities and new product development, we were               the remainder due to currency. Dealers delivered 56 percent
     able to make significant contributions to pension plans, increase       more machines to end users and built inventories even faster to
     dividends to stockholders and repurchase Caterpillar shares.            accommodate the steep recovery in activity. The Asia/Pacific region
     Pension plans remain well-funded due to solid investment returns        had a 35 percent increase in sales in 2004. Volume declined in
     and over $600 million in contributions for the second year in a row.    China, but this was more than offset by large gains in Australia,
     We also have increased our dividend in 10 of the last 11 years and      Indonesia and India. Dealer deliveries into coal mining, benefiting
     repurchased almost 7 million shares during 2004. This financial         from higher prices, increased sharply in all three countries.
     strength positions Caterpillar well for the future.
                                                                             Operating profit of $1.83 billion was up 46 percent from 2003.
     While we are clearly pleased with these results, particularly the       The favorable impact of higher sales volume and improved price
     achievement of our $30 billion sales and revenues milestone,            realization was partially offset by higher core operating costs,
     we have not yet delivered bottom-line performance in line with          the unfavorable impact of currency and higher retirement benefits.
     our own expectations. We remain committed to satisfying our
                                                                             ENGINES
     customers, but are disappointed with our cost structure,
                                                                             Sales were $9.49 billion, up 29 percent from 2003, with
     particularly steel-related costs and supply chain inefficiencies due
                                                                             substantial increases in all regions. The North American gain of
     to a lack of material availability. That, coupled with a record order
                                                                             30 percent was driven primarily by a 37 percent increase in sales
     backlog that delayed price realization, caused incremental margins
of on-highway truck engines, as strong freight demand and              $60 million impact of lower interest rates on new and existing
improved industry financial health drove expansion and                 finance receivables. Earned premiums at Cat Insurance increased
replacement. Sales to the electric power, industrial and marine        by $19 million, and electric plant revenue at Cat Power Ventures
sectors also increased, while sales of petroleum engines were flat.    increased by $14 million. Operating profit of $437 million was up
In Europe, Africa and the Middle East, sales were up 27 percent        27 percent from 2003, primarily due to a $105 million impact from
with strong increases in all sectors. Electric power sales increased   the growth of earning assets and a $16 million improvement in
54 percent due to stronger demand for prime and cogeneration           gain/loss on the sale of used equipment at Cat Financial, as well
systems, Middle Eastern demand for large engines and power             as a $45 million increase in underwriting income at Cat Insurance.
modules and favorable currency versus euro-based competition.          These favorable items were partially offset by a $39 million
Sales increased 29 percent to the petroleum sector, 27 percent         increase in operating expenses at Cat Financial primarily related
to the marine sector and 10 percent to the industrial sector.          to increased labor costs to support growth in earning assets and
                                                                       a $34 million impact of lower interest spreads.
In Latin America, sales increased 9 percent with gains in most
sectors from an improved business investment climate. Sales of         2005 OUTLOOK
petroleum engines were up 16 percent with increased demand
                                                                       While global economic growth is expected to slow slightly
for turbines and turbine-related services for pipeline applications,
                                                                       compared to last year, indicators suggest our markets will continue
while electric power sales were down 27 percent, primarily due to
                                                                       to experience solid growth, resulting in another all-time record
the absence of a large turbine electric power project that occurred
                                                                       year. We expect 2005 sales and revenues to be up 12 to 15 percent
in 2003. In Asia/Pacific, widespread economic growth led to a
                                                                       and profit per share to be up about 25 percent from 2004. The year
45 percent increase in sales. Electric power sales nearly doubled
                                                                       will benefit from improved price realization, increased volume,
as strong growth drove increased demand for commercial standby
                                                                       manufacturing efficiencies and an intensified focus on our cost
and self-generation, as well as for generator sets to support
                                                                       structure. We expect material cost pressures to continue for the
ongoing demand from transmission shortages in China. Petroleum
                                                                       first half of 2005, with some relief in the last six months. As a
and marine engine sales also increased significantly.
                                                                       result, we expect the last half of 2005 to be stronger than the first.
Operating profit of $597 million was up 218 percent from 2003.
                                                                       North America: The U.S. economy is growing at more than a
The favorable impact of higher sales volume, the absence of
                                                                       3 percent rate; employment is increasing only slightly faster than
non-conformance penalties and improved price realization were
                                                                       the labor force, and core inflation measures are rising at near
partially offset by higher core operating costs, higher retirement
                                                                       2 percent rates. Interest rates should continue to support growth,
benefits and the unfavorable impact of currency.
                                                                       particularly in business investment, and the economy should grow
                                                                       more than 3.5 percent in 2005. The Canadian economy, benefiting
FINANCIAL PRODUCTS
                                                                       from low interest rates and high commodity prices, should grow
Revenues were $1.92 billion, an increase of 12 percent from 2003,
                                                                       about 3 percent in 2005. We estimate a 17 percent increase in
primarily due to a $228 million favorable impact at Cat Financial
                                                                       machinery and engine sales, with rapid growth in both mining and
from continued growth of earning assets, partially offset by a
                                                                       nonresidential construction sectors.      >>


MACHINERY AND ENGINES—SALES BY GEOGRAPHIC REGION
                                                                                    2004               2003               2002
[ millions of dollars ]


Asia/Pacific                                                                       $ 3,938            $ 2,843            $ 2,392
Europe, Africa & Middle East and Commonwealth of Independent States                $ 7,505            $ 5,952            $ 5,178
Latin America                                                                      $ 2,372            $ 1,721            $ 1,598
North America                                                                      $ 14,521           $ 10,532           $ 9,480
MANAGEMENT’S REVIEW OF OPERATIONS




34
     Europe, Africa & Middle East and                                                                        favorable commodity prices and increased production of materials
     Commonwealth of Independent States: The euro-                                                           and energy. We forecast that machinery and engines sales will
                                                                                                             increase about 10 percent this year.
     zone economy appeared to improve at the end of 2004, and the
     European Central Bank is expected to hold interest rates steady                                         Latin America: Economies here should grow more than
     through the middle of the year. Overall European growth is                                              3.5 percent in 2005, the result of favorable metals and energy
     expected to exceed 2 percent in 2005, somewhat better than                                              prices, increased capital inflows and a more favorable foreign
     in 2004, and construction spending should continue to recover.                                          debt profile. Both mining output and construction spending should
     We anticipate that economies in Africa and the Middle East will                                         increase again. We project sales of machinery and engines to
     grow about 4.5 percent, with the Commonwealth of Independent                                            increase about 13 percent in 2005.
     States up more than 6 percent. Both regions will benefit from
                                                                                                             Asia/Pacific: We expect regional growth to average about
                                                                                                             6 percent this year, with most countries slowing some from last
     FULL-TIME EMPLOYEES AT YEAR-END                                                                         year’s pace. Low interest rates should prolong recoveries in
                                                                  2004 2003 2002                             consumer spending and business investment, while competitive
                                                                                                             exchange rates likely will continue to boost exports. Coal mining
     Inside U.S.                                                    38,128          35,260     36,463
                                                                                                             should again be a major contributor to sales. Fast growth in the
     Outside U.S.                                                   38,792          33,909     32,527
                                                                                                             region, which has taxed infrastructure capacity, should prompt
                                                                    76,920          69,169     68,990
                                                  TOTAL                                                      governments to increase infrastructure spending. Reconstruction
                                                                                                             in areas hit by the tsunami likely will require additional machines
     [ by region ]
                                                                                                             and engines. In China, government administrative measures are
     North America                                                  38,396          35,486     36,667
                                                                                                             expected to continue, causing sales into that country to decline.
     Europe, Africa & Middle East
                                                                                                             Overall, we expect sales of machinery and engines to increase
     and Commonwealth of
                                                                                                             about 10 percent in 2005.
     Independent States                                             22,169          20,547     21,302
                                                                                                             Financial Products: We expect continued growth in
     Latin America                                                  10,733           8,533        7,143
                                                                                                             Financial Products for 2005, with revenues expected to increase
     Asia/Pacific                                                      5,622         4,603        3,878
                                                                                                             approximately 16 percent versus 2004, primarily due to higher
                                                                    76,920          69,169     68,990
                                                  TOTAL
                                                                                                             average earning assets in 2005.




                          N E W M AC H I N E RY
                                                                                   [%]
      D I ST R I B U T I O N TO E N D U S E R S
                                                                                   33 HEAVY CONSTRUCTION
              [ 2 0 0 4 w o r l d wi d e di s t ri b u ti o n of Ca terp il l ar
                                     ma chi n e s b y m a j o r e n d u s e ]
                                                                                   26 GENERAL CONSTRUCTION
                                                                                   16 MINING
                                                                                    8 QUARRY & AGGREGATES
                                                                                    5 INDUSTRIAL
                                                                                    3 FORESTRY
                                                                                    3 WASTE
                                                                                    6 PAVING / OTHER




                              NEW ENGINES
                                                                                   [%]
      D I ST R I B U T I O N TO E N D U S E R S
                                                                                   33 ON-HIGHWAY
              [ 2 0 0 4 w o r l d wi d e di s t ri b u ti o n of Ca terp il l ar
                                       e n gi n e s b y m a j o r e n d u s e ]
                                                                                   27 ELECTRIC POWER
                                                                                   22 OIL & GAS
                                                                                    10 INDUSTRIAL / OEM
                                                                                    8 MARINE
$18,844
                                                                                                             $13,678
                                                                                      $12,158

                                                                                                  $11,975
                                                                            $11,857




                                                                                                                                                                         $9,492
                                                                                                                                                                $7,370
                                                                                                                                  $7,056

                                                                                                                                            $6,869

                                                                                                                                                       $6,673




                                                                                                                                                                                                                              $1,915
                                                                                                                                                                                                                     $1,715
                                                                                                                                                                                                            $1,504
                                                                                                                                                                                                   $1,423
                                                                                                                                                                                          $1,262
                             SA L E S & R E V E N U E S
                                              [ MILLIONS OF DOLLARS ]

                                                                           00         01         02         03         04         00        01         02       03       04              00        01       02       03       04

                                                                                       MACHINERY                                                     ENGINES                                FINANCIAL PRODUCTS




                                                                                                                       $1,825
                                                                                                            $1,246
                                                                           $1,001



                                                                                                  $947
                                                                                      $854




                                                                                                                                  $667




                                                                                                                                                                         $597




                                                                                                                                                                                                                              $437
                                                                                                                                            $353




                                                                                                                                                                                                                     $345
                                                                                                                                                                                                            $284
                                                                                                                                                                                                   $247
                                                                                                                                                                $188




                                                                                                                                                                                          $182
                                                                                                                                                       $175
                             O P E R AT I N G P R O F I T*
                                              [ MILLIONS OF DOLLARS ]

                                                                           00         01         02         03         04         00        01        02        03       04              00        01       02       03       04

                                                                                       MACHINERY                                                   ENGINES                                   FINANCIAL PRODUCTS

                                                                                                                                             * Eliminations of ($113), ($143), ($82), ($91) and ($126) for 2000, 2001, 2002, 2003
                                                                                                                                               and 2004, respectively, are required to arrive at consolidated operating profit.

                                                                                                                                                                         $2,557
                                                                                                                                                                $2,151
                                                                                                                                            $1,996
                                                                                                                                   $1,961



                                                                                                                                                       $1,944
                                                                  $1,950




                                                                                                                                                                                                                              $1,602
                                                         $1,315




                                                                                                                                                                                                   $1,229




                                                                                                                                                                                                                     $1,269
                                                                                                                       $1,232
                                                $1,214
                           $1,161




                                                                                                                                                                                                            $1,114
                                                                                                                                                                                          $1,043
                                     $1,056




                                                                                                            $1,037
                                                                           $1,003



                                                                                                  $909
                                                                                      $888




E X P O RT S F R O M
          T H E U.S.
 [ MILLIONS OF DOLLARS ]

                           00       01          02       03       04       00         01         02         03         04         00        01         02       03       04              00        01       02       03       04

                                    ASIA / PACIFIC                                              CANADA                                                EAME                                         LATIN AMERICA
                                                                                                                                                                                                                              $17.2
                                                                           561




                                                                                                            534
                                                                                                  510
                                                                                      507




                                                                                                                                                                                                   $14.1
                                                                                                                                                                                          $13.4




                                                                                                                                                                                                                     $13.4
                                                                                                                                                                                                            $13.0
                                                                                                                       425




                                    PAT E NT S I S S U E D                                                                             C O R P O R AT E G I V I N G
                                                                                                                                                     [ MILLIONS OF DOLLARS ]

                                                                           00         01         02         03         04                                                                00        01       02       03       04
» • 2004 Caterpillar Inc. Annual Report
» • 2004 Caterpillar Inc. Annual Report
» • 2004 Caterpillar Inc. Annual Report
» • 2004 Caterpillar Inc. Annual Report
» • 2004 Caterpillar Inc. Annual Report
» • 2004 Caterpillar Inc. Annual Report
» • 2004 Caterpillar Inc. Annual Report

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» • 2004 Caterpillar Inc. Annual Report

  • 1. DOING MORE >> CATERPILLAR 2004 ANNUAL REPORT
  • 2. You know about the big yellow machines. You probably know about the big yellow engines. But if that’s all you know about Caterpillar, then you’re only seeing part of who we really are. We are yellow iron and so much more. We are multiple brands and product lines. We are services and technologies. We are innovators, recyclers and respecters of the planet. Most of all, we are people—teams of employees, dealers, distributors, suppliers, customers and community members—working every day to make our world more livable. And never have we accomplished more together than we did in 2004. This report is a celebration of Caterpillar people and our never-ending commitment to DOING MORE >> [ on the cover ] Leaders from Abigroup, one of Australia’s major civil contracting firms, and Cat dealer WesTrac inspect the new undercarriage system on this D6R track-type tractor as they tour Building SS in East Peoria, Illinois. The machine’s SystemOne™ undercarriage—introduced in 2004 as the latest in a century of undercarriage innovations—can double life expectancy and virtually eliminates maintenance.
  • 3. > LETTER TO STAKEHOLDERS 2 MORE stories > 6 MORE highlights > 26 MORE about us > 30 > MANAGEMENT’S REVIEW 32 > FINANCIAL INFORMATION 36 > COMPANY INFORMATION 38 2004
  • 4. CHAIRMAN’S LETTER TO STAKEHOLDERS 2 2004 was a great year to be a member of the worldwide Caterpillar family! We celebrated Caterpillar’s record profits have placed us in an even stronger financial position—great news for our employees and a series of impressive milestones—100 years since the invention stockholders. Our pension plans remain well-funded due to solid of the track-type tractor, 75 years on the New York Stock Exchange investment returns and more than $600 million in contributions and 50 years of operation in Brazil, as well as the introduction of ACERT® Technology into the earthmoving machine business— for the second year in a row. Stockholders are benefiting from both higher dividends and share repurchases. In fact, we’ve increased and set all-time sales and revenues and profit per share records. our dividend 10 of the last 11 years and, in 2004, repurchased In a year of explosive growth and largely unanticipated global almost 7 million shares. Wall Street is celebrating with us. demand, our sales increased by over $7 billion as we surpassed Our share price of $97.51 on December 31 was our highest our $30 billion sales and revenues goal a full two years ahead of year-end price ever—up 17 percent from 2003 year-end. schedule. Through it all, we maintained product quality and grew our global leadership position. We ended the year with a record order backlog for our larger machines—indicating continuing market strength for 2005. Stu Levenick Doug Oberhelman Jim Owens GROUP PRESIDENT GROUP PRESIDENT CHAIRMAN AND CEO EXECUTIVE OFFICE Gerry Shaheen Gérard Vittecoq Steve Wunning GROUP PRESIDENT GROUP PRESIDENT GROUP PRESIDENT
  • 5. Our success in 2004 is a tribute to our people—a strong leadership in technology each working day. Nowhere is that investment team, more than 76,000 committed employees, the world’s best paying off more than on the engine side of our business, where dealer organization and many strategic suppliers who worked with growth is being fueled in large part by the success of ACERT, us to overcome difficult sourcing challenges. I’m truly grateful for our revolutionary clean diesel technology. More than 170,000 all their efforts. Only because of Team Caterpillar’s tremendous on-highway engines featuring ACERT Technology are on the road creativity, passion and sweat were we able to achieve such now. They’re accumulating 36 million miles a day, delivering remarkable results. Together we rallied around a common excellent performance and producing dramatically lower objective—helping our customers be more successful working with emissions—all with comparable fuel economy to previous models. In November, we introduced the first Cat® earthmoving machine Caterpillar than they could be with anyone else—and positioned ourselves to take advantage of a global economy that’s emerging with ACERT Technology, and we’re confident this clean diesel from a long slumber in the industries Caterpillar serves. technology will set us apart in the off-road arena as well. On the machine side of our business, systems integration continues MORE PREPARED FOR SUCCESS THAN EVER to differentiate Caterpillar® products from the competition. Reflecting on Caterpillar today, I can’t think of another company in Electrohydraulic controls, integrated powertrain systems, global any industry that’s better positioned to win in the global economy. positioning and wireless communications systems, sound reduction Consider the key building blocks we have in place for the future: technology and more are coming together to improve productivity, 1. Established strength with products and performance and operator comfort. These systems—and products services. Our current line up is the strongest and broadest like the SystemOne undercarriage featured on the cover of this in our history. Our major product lines are recognized leaders report—are helping our customers increase overall job site worldwide— #1 or #2 on every continent—and everywhere I turn, efficiency and lower cost per ton. Caterpillar people are working to make them even better. On the 3. Well-established global footprint. Our products services side of our business, Cat Financial and Cat Logistics are are sold in over 200 countries, with more than half of our sales well-established growth subsidiaries. Cat Financial has provided outside the U.S. We operate nearly 300 facilities in 40 countries diversification and earnings stability since its formation in 1981. on six continents, with a goal to be a cost-effective competitor in Today it’s one of the largest captive finance companies in the world every major currency zone. Add our 198 Cat dealers, their 1,600- with receivables of almost $20 billion. Cat Logistics has been plus branch stores, around 1,400 Cat Rental Stores and more than generating growth of 25 percent annually in revenues from external 400 FG Wilson™, MaK™, Perkins® and Solar® distributors, and we customers, and massive opportunities remain for creative third- literally blanket the four corners of the Earth. Our dealer network party logistics providers in this $170 billion industry. In 2004, we in particular gives us a local presence everywhere we do business. also identified other adjacent growth areas where we plan to make Our after-sales support capabilities and coverage are unmatched substantial investments, including Caterpillar Remanufacturing in our industry or, most likely, any industry. Ultimately, all business Services and our OEM Solutions Group. is local—and we are positioned to compete with “local” 2. Technology leadership in our industry. competitors the world over. Caterpillar’s investment in research and engineering is unequaled 4. Unique set of market strengths. Caterpillar is in our industry. With hundreds of Ph.D. scientists and researchers exceptionally well-positioned by virtue of the markets we serve— on our team, we’ve received more than 2,500 patents in the global mining, global energy (oil/gas and coal), infrastructure last five years, and we continue to invest more than $4 million development and distributed electric power, just to highlight some
  • 6. CHAIRMAN’S LETTER TO STAKEHOLDERS 4 of the largest. These industries were characterized by significant outstanding working rapport with management. At Caterpillar, underinvestment in the post-Asian crisis period of 1998-2002. we’ve always been conservative in our financial accounting, and Global economic growth returned to more robust trend levels in we are proud of the strength of our balance sheet, investment late 2003, and we believe this worldwide recovery has legs. Real grade credit rating, well-funded benefit plans and cash flow. economic growth at longer-term trend levels will require ongoing Our compensation programs and stock ownership requirements heavy investment in these industries—a sweet spot for Caterpillar. clearly align executive and stockholder interests. We continue to work diligently to provide all our stakeholders with the information 5. Governance and financial integrity. to make good decisions about our operations and the potential of Maintaining uncompromisingly high ethical standards has always our business. been a hallmark of Caterpillar—we’ve been guided by a strong Code of Worldwide Business Conduct since 1974. Our board has MORE PASSION FOR PROCESS AND PEOPLE distinguished itself as a leader in corporate governance. Its In addition to these five key strengths, I believe our people and members are independent, highly qualified and diverse, with an world-class 6 Sigma deployment also distinguish Caterpillar from FINANCIAL HIGHLIGHTS YEARS ENDED DECEMBER 31 2004 2003 2002 2001 2000 [ Dollars in millions except per share data ] Sales and revenues $ 30,251 $ 22,763 $ 20,152 $ 20,450 $ 20,175 Profit $ 2,035 $ 1,099 $ 798 $ 805 $ 1,053 Profit per common share $ 5.95 $ 3.18 $ 2.32 $ 2.35 $ 3.04 Profit per common share–diluted $ 5.75 $ 3.13 $ 2.30 $ 2.32 $ 3.02 Dividends declared per common share $ 1.600 $ 1.440 $ 1.400 $ 1.390 $ 1.345 Capital expenditures–excluding equipment leased to others $ 926 $ 682 $ 728 $ 1,100 $ 928 Research and development expenses $ 928 $ 669 $ 656 $ 696 $ 649 Year-end employment 76,920 69,169 68,990 72,004 68,440 Return on average stockholders’ equity 30.0% 19.0% 14.4% 14.4% 19.0% Closing stock price (December 31) $ 97.51 $ 83.02 $ 45.72 $ 52.25 $ 47.31
  • 7. the crowd. What an incredible success story 6 Sigma has been realize profit per share growth that is stronger than other for Caterpillar! It is the way we do business—how we manage manufacturers’—and again, I believe we’re well-positioned to quality, eliminate waste, reduce costs, create new products realize this ambition. and services, develop future leaders and help the company Looking to the future, I’m excited about the challenges our global grow profitably. We continue to find new ways to apply the industries present because I know Caterpillar is ready! We’re methodology to tackle business challenges. Our leadership team heading into 2005 with the right products and services, the right is committed to encoding 6 Sigma into Caterpillar’s “DNA” and technology, the right strategy and, most important, the right people. extending its deployment to our dealers and suppliers—more than Our talented team is working together to make Caterpillar a great 500 of whom have already embraced the 6 Sigma way of doing company for the future. We also thank our stockholders for their business. Together we are creating the industry’s best supply chain, investments and the vote of confidence that represents. We’re ready from top to bottom to meet the changing needs of those committed to being good stewards of your funds. we serve. The idea of building a great company was the theme of our annual At the heart of our business, of course, are our people. What is report in 2003. It’s what we aspire to be. That’s why I believe this Caterpillar, ultimately? We are a corporation, but corporations year’s theme of “Doing More” is so appropriate—not just for this by themselves don’t do anything. The more than 76,000 people year in which we all did so much more, but as a blueprint for who work here do. Our goal is to capture the best ideas, energy, our future. To build a great company we must always do more— enthusiasm and passion of each and every one of our employees accept more challenges, pursue more opportunities, work for around the world—make sure they know they’re an integral part more results and deliver more value to all our stakeholders. We of “Team Caterpillar”—and together drive both rewarding and must build on our positives and keep driving for excellence in each profitable results. That’s why people-related issues continue to area of our business. Thanks to the efforts of Caterpillar people be our number-one critical success factor, as we work to build around the world, we are working together to transform this very a culture where everyone’s contribution is valued, focus on good company into a truly great one—a journey we realize is diversity in our workforce, emphasize safety in all we do and never-ending. maintain competitive wages and benefits. MORE OPPORTUNITIES AND CHALLENGES AHEAD With these building blocks for success in place, and with our $30 billion sales and revenues goal accomplished, later this year Jim Owens, Chairman we’ll roll out new vision and mission statements for the next January 27, 2005 decade, along with a set of critical success factors to drive their realization. Our focus will be on profit per share growth, which enables us to invest in research and development for leading-edge products, make capital improvements for modern and productive operations, offer competitive compensation and grow dividends for our stockholders—everything that makes Caterpillar a great employer, business partner and investment. Our goal is to
  • 8. Dubai Municipality, the main provider of infrastructure support for the Emirate of Dubai, selected Caterpillar and Cat dealer Al-Bahar when the dealer sales team—using Caterpillar’s best-practice processes, 6 Sigma and dealer business systems—demonstrated the solutions Caterpillar could bring to Dubai’s construction projects. These projects range from the 6 Burj Dubai tower to the massive resort complex known as “The World” off the city’s coastline.
  • 9. Part of the overall plan for downtown Dubai includes the world’s largest mall, nine residential towers, various parks and an “old town” with stalls, boutiques and restaurants. The Burj Dubai tower will be the tallest in the world when completed in 2008—although its final height remains a secret. Rumors suggest the tower may Jupiter Power Cambodia, a joint venture Major Russian oil and gas top 2,950 feet (900 meters). between Cat Power Ventures and Maxim companies rely on Cat machines Power Corporation, generates about and engines to deliver results 20 percent of Cambodia’s commercially in varying climate conditions distributed electric power. Employees across 11 time zones. Cat engines there also lend their support to Tabitha serve as the main energy source Cambodia, a nonprofit organization that for LUKOIL first Russian-made ’s funds family and community projects in drilling rig working in severe one of the world’s poorest countries. weather conditions offshore in the Baltic. MORE PROGRESS around the world >> >> In the poorest countries of Africa, Cat machines are building roads transform an oil-dependent region into one that thrives on industry and that enable the sick to visit hospitals, children to attend schools and tourism as well—supporting projects such as the Burj Dubai tower, farmers to transport crops to market—offering new hope to a the world’s tallest building, currently under construction in Dubai, continent plagued by hunger and poverty. In the newest democracies United Arab Emirates. Part of massive development in the downtown of Europe and Asia, Caterpillar is constructing the power plants and area, the luxury tower features hotel, office, residential and retail energy infrastructure that bring stability to millions of citizens. space—and should bring an influx of tourists and investors to the city, And in the modern cities of the Middle East, we are helping to already a financial and cultural hub for millions of people.
  • 10. Thanks to the efforts Timken® bearings—like of our employees these made in Asheboro, worldwide—including this North Carolina—and other team in Mossville, steel products are found Illinois—Caterpillar built in just about every a record number of Cat product, from diesel 8 products in 2004 to meet engines to tractors, trucks, high customer demand. loaders and excavators. >> Few predicted 2004—an unprecedented economic recovery across products into the hands of the customers who needed them, putting every business and industry Caterpillar serves, the resulting dramatic in long hours and overcoming major hurdles along the way. Using a surge in demand and the frustrating shortage of materials needed whole lot of manpower and the 6 Sigma methodology that engages to build our products. And no one responded to these challenges employees at all levels, we produced about 30 percent more machines better than the employees, dealers and suppliers of Caterpillar. Those and engines in 2004 than in the year before—all while maintaining involved in producing our machines and engines deserve a special Caterpillar quality standards and our industry leadership. thank-you. In a remarkable team effort, they worked together to get
  • 11. MORE RESPONSIVE to growing demand >> Like other Cat suppliers worldwide, The Timken Company—one of our largest global sources of steel and bearings—worked hand in hand with Caterpillar to meet 2004’s explosive growth, strengthening an already solid 30-year relationship.
  • 12. 10
  • 13. >> The Caterpillar customers most people think of operate big its supply chain. Using a passion for 6 Sigma they both share, the machines. They lift, tunnel, scrape, trench, load and carry. But that’s two companies developed plans to enhance customer service, lower not the extent of our customer base—not by a long shot. Some of our distribution costs and minimize assets. Part of the solution is a long- customers build motorcycles, make cellular phones and sell sports cars. term agreement for Cat Logistics to manage Bombardier’s component One is a leading manufacturer of business, regional and amphibious distribution facilities based in Chicago, Illinois, and Frankfurt, aircraft—and when its parts performance didn’t meet customer needs, Germany—bringing to more than 50 the number of leading corporations Bombardier Aerospace turned to Cat Logistics for help in re-engineering that rely on Cat Logistics for world-class supply chain solutions. In addition to its work with Bombardier Aerospace, Cat Logistics also signed an agreement with Cadillac Europe in 2004. MORE CUSTOMERS you wouldn’t expect >> After using 6 Sigma to build a business case, Cat Financial became just the second foreign The first specialized rental shop ever in Korea company to receive approval to form a leasing bears the Cat Rental Store brand. Cat dealer entity in China. Caterpillar (China) Financial Leasing Hae In grew its rental fleet from 13 machines Co. , Ltd. , announced the signing of its first in 2003 to more than 100 in 2004, delivering customer contracts at Bauma China 2004, the full rental services to Cat customers in this country’s premier construction equipment trade fair. part of the world for the first time.
  • 14. >> Is Caterpillar a product maker or a product recycler? Actually, as one a growing business. With the acquisition of Wealdstone Engineering of the world’s largest remanufacturers, we’re both. Remanufacturing and Williams Technologies Inc. in 2004, Caterpillar Remanufacturing is recycling—using advanced salvage and cleaning techniques Services is well-positioned to take advantage of the $100 billion reman to turn used parts into like-new components—and the benefits are industry—not only recycling parts for Cat machines and engines, but numerous. One, remanufacturing keeps hundreds of millions of also offering our expertise to other manufacturers in the automotive, 12 pounds of material out of the world’s landfills. Two, it lowers industrial products and defense industries. It’s further proof that what’s customers’ repair costs without sacrificing quality. And three, it’s good for the environment can be good for business as well. Cat Reman products support Cat dealer Component Rebuild Centers (CRC) worldwide, including Barloworld Equipment in South Africa. Caterpillar’s remanufacturing program, along with dealer investments in CRCs, provide our customers with a variety of repair options to lower their machine and engine operating costs.
  • 15. Reman employees in Nuevo Laredo recycle more than Cat parts. Used water is sent through this water purification system, then used to irrigate green areas and fill the facility’s ornamental fountains. Each year, employees at our Nuevo Laredo, Mexico, facility remanufacture more MORE PARTS with less waste >> than 1 million fuel injectors, using 6 Sigma-managed salvage processes that allow injector bodies and cones to be rehoned, remachined and reused for multiple lives— thus reducing waste and providing customers off-the- shelf repair solutions.
  • 16. 14 MORE IDEAS to change the industry >> More than 170,000 engines featuring ACERT Technology are on the highway today, accumulating about Perkins Engines, a 36 million miles a day. Caterpillar company based Caterpillar has in the United Kingdom, also reduced emissions in is using ACERT Technology its North American in its products. More than truck and bus engines 70 6 Sigma projects nearly 90 percent contributed to the 1100D since 1988 with engine introduction, which another 90 percent meets Europe’s Stage IIIa reduction to follow emissions standards. by 2007.
  • 17. >> Ingenuity and innovation run in Caterpillar’s yellow blood—from in on-highway applications (where they are enjoying overwhelmingly Benjamin Holt, who invented the first practical track-type tractor in positive customer response), Cat engines with ACERT Technology 1904, to Jim Weber and Scott Leman, who were named National are now powering off-road machines as well—the first of which was Inventors of the Year by the Intellectual Property Owners Association in appropriately a D8T track-type tractor. The machine was delivered to 2004. How are the two related? Weber, Leman and various 6 Sigma a customer almost 100 years to the day after Benjamin Holt conducted teams created and developed the breakthrough ACERT Technology, the first field test of his revolutionary tractor—proving that a century which significantly reduces diesel engine emissions. Originally used later, Caterpillar people are still leading the way.
  • 18. 16 >> The world’s top excavator salesperson is someone you may not proud is driving down new roads built by the Cat equipment I sell,” expect—in a part of the world you may not picture Caterpillar as a Madame Zhang says. “My long-term objective is to see Cat equipment leader. But we are, and so is Madame Zhang Li Ju of Cat dealer Lei on every job site in China.” She made a good start—and with equally Shing Hong Machinery. Over the past seven years, she sold more than dedicated team members throughout China and Southeast Asia, 900 excavators in a growing China economy that becomes more Caterpillar can’t help but succeed in that goal. and more important to Caterpillar every year. “What makes me most
  • 19. More than 40 percent of Shipbuilding is a booming industry in India’s population is expected China, and Cat engines are powering to live in urban areas by 2020, many of the vessels constructed there. and Cat machines are This 51 ,000 dwt (dead weight building and rebuilding tonnage) bulk carrier ship, one of the infrastructure in preparation— largest vessels in the world powered helping make over several of by Caterpillar main propulsion India’s largest cities. engines, was built at the Zhejiang Shipbuilding Co. Ltd. for a Greek owner and financed by Cat Financial. Most of Madame Zhang’s customers own only one or two Cat excavators— making her sale of more than 400 in one year even more remarkable. MORE OPPORTUNITIES for billions of people >>
  • 20. 18 MORE HISTORY on which to build >> Employees at Caterpillar Brasil stay active in the community, participating in projects such as Piracicaba 2010 to make their city a better place to live and work.
  • 21. >> 2004 was a year of milestones for the Caterpillar family—and not “ Piracicaba 2010,” a collaborative effort to plan the community’s just the 100th anniversary of our signature product, the track-type future. The project focuses on 19 areas, including education, industry, tractor. We also celebrated 10 years of business in Xuzhou, China, tourism, environment and culture—with a vision to make the city a 20 years in Indonesia and, most notably, 50 years in Brazil. While some model of sustainable development and an excellent place to live. It’s a companies are just discovering Brazil as a major market, we’ve been great project for our employees, our company and our future—because there for half a century, with a presence that extends far beyond our good businesses need good communities, and good communities facilities. In our Brazilian headquarters city, we’ve helped launch attract good businesses. We’re proud to be playing a role in both. Cat Chairman and CEO Saying that Caterpillar “contributes Jim Owens rang the closing bell in an exemplary way to the growth of on the New York Stock Exchange our country, Brazilian President ” on December 2, marking Luiz Inácio Lula de Silva joined 4,500 Caterpillar’s 75th year on the employees and guests celebrating world’s leading equities market. Caterpillar Brasil’s 50th anniversary.
  • 22. >> Modern society couldn’t function without the products of mining. sits in a barren land untouched by human development. Mine owners The computers we use every day, the televisions we watch, even the have worked closely with the Canadian government to minimize eyeglasses we wear—they’re all made of minerals mined on job sites environmental impact and maximize economic benefits—offering jobs where Cat equipment and services play major roles. And all of us in and training to local aboriginal groups and career opportunities for the industry realize we must extract these essential resources in the future generations. “It’s just good business,” says Ekati Diamond Mine 20 most sustainable way. That’s why Caterpillar is proud to work with President Wayne Isaacs. “We’re in this for the long term; we’re looking responsible miners the world over, including BHP Billiton Diamond for good long-term relationships.” So are we at Caterpillar—especially Inc.’s Ekati Diamond Mine. Located just south of the Arctic Circle, Ekati with those who share our commitment to building a sustainable world. During MINExpo 2004, the world’s Cat dealer P Trakindo Utama has been .T. leading mining exposition, supporting the high-altitude Freeport Cat Global Mining hosted a McMoran mine in Indonesia for more sustainable development forum for than 30 years. When a fleet of 793B trucks over 700 participants to address needed to be replaced in 2004, Trakindo environmental, health, safety and gave them a “second life”—rebuilding social responsibility topics. and upgrading the equipment on site. MORE FOCUS on a sustainable world >>
  • 23. During a brief period in winter, trucks can travel safely over a two-lane ice road to Canada’s Ekati Diamond Mine. Long before this frozen highway opens each year, a logistics team at Cat dealer Finning Canada forecasts demand for parts—then trucks depart for the mine 24 hours a day, seven days a week, for approximately 10 weeks to amass a multimillion-dollar parts inventory on site.
  • 24. 22 MORE RESPECT for the environment we share >> The goal of the Great Rivers Partnership project is to restore and preserve large river systems—such as this area of the Mississippi River north of La Crosse, Wisconsin—that are critical to the health of hundreds of millions of people and untold animal and plant species.
  • 25. Mike Leavitt, U.S. Environmental With the help of 6 Sigma, Solar Protection Agency Administrator, Turbines recently launched its first gave a truck powered by a ultra-low-emissions Mercury™ 50 2007 prototype Cat engine with gas turbine, which delivers ACERT Technology the “white unprecedented levels of efficiency handkerchief” test in May, holding and environmental performance a piece of white fabric over the in its size class. The first unit was exhaust pipe to demonstrate the delivered for use in a veterans’ low emissions produced. hospital in San Diego, California. >> Caterpillar has long shown respect for the planet we inhabit, both Partnership” to provide funding for the transformation of large river in our ongoing efforts to make our facilities and products cleaner and systems on three continents—the Mississippi River in North America, through our association with organizations such as the Tropical Forest the Paraguay-Parana River in South America and the Upper Yangtze Foundation, World Business Council for Sustainable Development and River in Asia. Some have asked what this project has to do with others. Now we’ve strengthened our resolve with a $12 million gift to Caterpillar. The answer is nothing—and everything. We care and The Nature Conservancy, which will establish “The Great Rivers want to help simply because we live on this planet, too.
  • 26. 24 >> Every year, we say thanks to Caterpillar people for a job well done. many once thought was impossible—and we did it ahead of schedule, And every year, we mean it. But 2004 was a particularly special year. with every employee playing an important role in helping us reach this We faced big challenges, overcame giant obstacles and accomplished milestone. That’s a cause for celebrations and thank-yous—and we will great things together. We proved to ourselves and the world that as do both. But we’re not done yet. We still see plenty of opportunities for one company and one team we can do anything, even achieving the growth and improvement, well beyond $30 billion. As always with $30 billion (technically, $30,250,893,381) sales and revenues goal Caterpillar people, there’s much more to come. Stay tuned.
  • 27. MORE DESERVING of thanks than ever >>
  • 28. 2004 BY THE NUMBERS Two 3 consecutive wins One National Women of Color 26 for Ton Verdam of the Netherlands Technology Leadership Award underground mines in in the Caterpillar Operator’s presented in 2004 by the Australia using Career Communications MINEGEM™ the first , Challenge, which brings together sophisticated autonomous Group to Dr. Cathy Y. Choi, dozens of equipment operators loader navigation system an engineering and project that can operate at the from throughout Europe for team leader and a 6 Sigma same skill level as what’s dubbed “the toughest Black Belt in our Technology humans—eliminating the & Solutions Division dangers to operators competition on Earth” underground Ninecompani es honored with the Enterprise Value Award from CIO Magazine, D11R including Caterpillar in the “Manufacturing” category for a suite of systems developed to track-type tractor deploy and provide ongoing process and operated by Australian systems support of 6 Sigma Ambassador Michael Thawley during his visit to Caterpillar to promote the new 10 Cat Rental Power generators and air U.S.-Australia conditioning units provided by Cat dealer Free Trade Empire Power Systems for use during a Agreement U.S. presidential debate in Arizona Twenty-nine Perkins 36 venues constructed for the employees participating 2004 Olympic Games in Athens, in the London-to- along with a new airport, Brighton charity bike ride 120 miles of roads and 35 miles to raise money for the of light rail, most with the help British Heart Foundation of Caterpillar machines
  • 29. 4th year in a row Caterpillar has Seven organizations receiving been named to the Dow Jones Sustainability World Malcolm Baldrige Index for a focus on social responsibility, sustaining National Quality the environment and strong financial results Awards from U.S. President George W. Bush, $5 milliongi including Caterpillar ft from Caterpillar Financial Services Corporation (Solar to Purdue University, which will go toward diversity Turbines received the programs, learning modules and other initiatives award in 1998) in the new Neil Armstrong Hall of Engineering 17 Cat excavators working on a FIFTEEN 3.3-mile (5.3-kilometer) racetrack in Shanghai, China, that hosted the Formula One Chinese Grand Prix Cat generator sets powering the music at Switzerland’s famous Fête de Genève and Lake Parade 20 YEARS that Solar gas turbines have been 16 laps between refueling packaged by (compared with 10 to 12 Turbomach S.A., laps for gasoline-powered a Swiss company race cars) in the Le Mans formally acquired by 24-hour race for Taurus Caterpillar in 2004 Sports—entering the first diesel-powered car in 50 years with the help of MORE highlights >> Cat Electronics and Perkins 60%of 50 consecutive years generator set Caterpillar has held a spot exports from the United Kingdom on the Fortune 500 list, one of that come from FG Wilson, only 71 companies to do so earning the Caterpillar (1,877 have made an company Northern Ireland’s appearance at least once) Exporter of the Year award
  • 30. 2004 BY THE NUMBERS Seventy-three booths 68 T H RANKING 28 on display at the for Caterpillar on 8 Annual Central TH the BusinessWeek Illinois Black Expo, 72 female and minority high school where Caterpillar board list of the world’s students designing, manufacturing member Joshua Smith and launching a rocket as part of the most valuable Science, Technology and Engineering spoke about successfully Preview Summer Camp (STEPS)—a competing in today’s program sponsored by Caterpillar brands that builds on Destination business environment Technology®, a similar Caterpillar program for middle school students 600Cat 250 Kilowatt Direct FuelCell® 900 RUNNERS PARTICIPATING in the Leicester machines on Marathon, hosted by Caterpillar’s Building power plant brought on line in Ohio 23 mine sites using the Construction Products-Europe in Desford, England by Caterpillar and FuelCell Energy, Inc.— award-winning MineStar® one of the first utility-scale fuel cell Solutions, a production, power plants in North America 988 tons of used paper (the equivalent monitoring and business that feeds power to consumers from system that improves of 33 ,400 trees) collected and recycled a substation efficiency and productivity by Cat Brasil employees 45,000 students in the United Kingdom participating in the programs of £10,000 the National Academy for Gifted and Talented Youth, partially funded by Caterpillar through fundraising goal the Cat Foundation in cities where for FG Wilson’s Cat employees work and live new charity partnership with the Royal Institute for the Blind: Northern Ireland
  • 31. 75Cat “100 Best 200 COMBINED Places to Work erpillar PATENTS EARNED machines on display in IT” list, by Caterpillar engineers at Bauma ’04, compiled by Denny Gibson, the world’s largest ComputerWorld Ron Shinogle and construction industry Al Stockner, all of magazine, trade show held whom work at our Large including in Germany every Power Systems Division three years Caterpillar MORE highlights >> 3,630 Caterpillar 2004 Corporate University 5,000TH mining employees with of the Year award earned by truck produced at Caterpillar’s Caterpillar University at the sixth 6 Sigma Black Belt Decatur, Illinois, annual Corporate University Week experience—with facility—just 20 years after we (Cat U President Dave Vance was nearly 30,000 more produced our also honored as Corporate first mining directly involved in truck in 1984 University Leader of the Year) 6 Sigma projects $250,000 donation from Caterpillar to the U.S. Environmental $11,000,000 Protection Agency’s Clean School Bus USA initiative, earmarked to lower diesel Caterpillar pledge emissions from more than 240 school to the Central Illinois buses in Illinois, Texas and Arizona Regional Museum, which together with 300,000 a new Caterpillar ton hull on the Bonga Hull, worldwide corporate a gigantic seaborne vessel visitors’ center will form $1 ,000,000 donated by Caterpillar to with enormous oil and gas a “Museum Square” three international relief organizations in the capacity that features nine wake of the tsunami that devastated south in Peoria, Illinois Solar generator sets and Asia (the company also matched individual gifts made by employees, retirees mechanical drives and dealer employees)
  • 32. COMPANY PROFILE 30 WORLDWIDE LOCATIONS 107 Manufacturing facilities 170 Office and other facilities 198 Cat dealers 1,689 Dealer branch stores 1,437 Dealer rental outlets 400+ FG Wilson, MaK, Perkins and Solar distributors CATERPILLAR DEALERS Caterpillar and our dealers and Employees Inside U.S. 36,441 distributors literally Outside U.S. 62,907 reach the four corners of the Worldwide 99,348 Earth—offering Estimated Net Worth Inside U.S. $4.1 billion unmatched global coverage to meet Outside U.S. $4.5 billion unique local needs. Worldwide $8.6 billion CATERPILLAR BRANDS
  • 33. MORE about us >> Our products, services and technologies fall into three principal ENGINES: Caterpillar reciprocating engines and engine lines of business: systems provide power to the world. Our engines power our own construction and mining machines—plus trucks, ships and boats— MACHINERY: Caterpillar machines do the world’s work. and much more. Electrical power systems supply both primary From earthmoving, mining and construction projects to forestry, and standby power for a wide variety of uses. Solar industrial waste, paving and any number of other applications, we have gas turbines power the production, processing and transporting the right equipment—large and small—to help our customers of crude oil and natural gas and provide electrical power to get the job done right. We also lead the industry in the many industries. distribution of equipment and parts and offer that expertise to others through Caterpillar Logistics Services, Inc., one of FINANCIAL PRODUCTS: We help customers around the the world’s largest integrated logistics organizations with more globe purchase Cat and related equipment (new and used) through than 50 third-party clients. Caterpillar Financial Services Corporation and its subsidiaries. Customers can protect their Cat equipment by using various types of insurance offered by Caterpillar Insurance Holdings, Inc.
  • 34. MANAGEMENT’S REVIEW OF OPERATIONS Team Caterpillar had an outstanding year in 2004—without question, one of the best in 32 to lag in 2004. We are focusing the expertise of hundreds of our long, proud history. Responding to an unprecedented 6 Sigma teams to address these issues aggressively and improve recovery in nearly every market we serve, we enhanced our long- our cost structure in 2005. We will continue to build on the value term strategic position by meeting record customer demand and of 6 Sigma and the opportunities unleashed by an engaged global building substantial field population. team to set new records in 2005, create long-term value for our customers and deliver exceptional returns to our stockholders. Specifically in 2004, sales and revenues reached $30.25 billion, up $7.49 billion or 33 percent compared to 2003. This increase was MACHINERY driven by $6.26 billion of higher machinery and engines volume, Sales were $18.84 billion in 2004, an increase of 38 percent over a $515 million favorable impact of currency on sales due primarily 2003. Record sales volume, up 33 percent from 2003, accounted for to the strengthening euro and British pound, $512 million of most of the gain. Improved price realization added about 3 percent, increased price realization and $200 million of higher Financial and the favorable impact of currency accounted for the remaining Products revenues. 2 percent. In North America, sales were 41 percent higher than Profit of $2.03 billion, or $5.75 per share, was up 85 percent in 2003, with volume increasing 37 percent, a record high. compared to 2003, mainly due to higher sales volume of Low interest rates, higher commodity prices and accelerated $1.81 billion, higher price realization of $512 million and the depreciation provisions all encouraged users to replace existing absence of $153 million of non-conformance penalties that were machines and increase fleet sizes. recorded in 2003. Partially offsetting these favorable items were Sales in Europe, Africa and the Middle East rose 25 percent, with $1.11 billion of higher core operating costs (about half of which about 16 percent coming from more volume, about 7 percent due were due to sharply higher steel-related and expediting costs), to the favorable impact of a stronger euro and the remainder due a $157 million impact of currency on profit and $139 million of to improved price realization. Half the volume growth occurred in higher retirement benefits. Europe, where low interest rates contributed to some recovery In addition to these record financial results, 2004 also delivered in construction. Sales in Latin America increased 63 percent, solid improvement in cash flow, and we ended the year in an even the fastest growth of any region. Volume surged about 55 percent, stronger financial position. After providing continued funding for and improved price realization contributed about 7 percent, with growth opportunities and new product development, we were the remainder due to currency. Dealers delivered 56 percent able to make significant contributions to pension plans, increase more machines to end users and built inventories even faster to dividends to stockholders and repurchase Caterpillar shares. accommodate the steep recovery in activity. The Asia/Pacific region Pension plans remain well-funded due to solid investment returns had a 35 percent increase in sales in 2004. Volume declined in and over $600 million in contributions for the second year in a row. China, but this was more than offset by large gains in Australia, We also have increased our dividend in 10 of the last 11 years and Indonesia and India. Dealer deliveries into coal mining, benefiting repurchased almost 7 million shares during 2004. This financial from higher prices, increased sharply in all three countries. strength positions Caterpillar well for the future. Operating profit of $1.83 billion was up 46 percent from 2003. While we are clearly pleased with these results, particularly the The favorable impact of higher sales volume and improved price achievement of our $30 billion sales and revenues milestone, realization was partially offset by higher core operating costs, we have not yet delivered bottom-line performance in line with the unfavorable impact of currency and higher retirement benefits. our own expectations. We remain committed to satisfying our ENGINES customers, but are disappointed with our cost structure, Sales were $9.49 billion, up 29 percent from 2003, with particularly steel-related costs and supply chain inefficiencies due substantial increases in all regions. The North American gain of to a lack of material availability. That, coupled with a record order 30 percent was driven primarily by a 37 percent increase in sales backlog that delayed price realization, caused incremental margins
  • 35. of on-highway truck engines, as strong freight demand and $60 million impact of lower interest rates on new and existing improved industry financial health drove expansion and finance receivables. Earned premiums at Cat Insurance increased replacement. Sales to the electric power, industrial and marine by $19 million, and electric plant revenue at Cat Power Ventures sectors also increased, while sales of petroleum engines were flat. increased by $14 million. Operating profit of $437 million was up In Europe, Africa and the Middle East, sales were up 27 percent 27 percent from 2003, primarily due to a $105 million impact from with strong increases in all sectors. Electric power sales increased the growth of earning assets and a $16 million improvement in 54 percent due to stronger demand for prime and cogeneration gain/loss on the sale of used equipment at Cat Financial, as well systems, Middle Eastern demand for large engines and power as a $45 million increase in underwriting income at Cat Insurance. modules and favorable currency versus euro-based competition. These favorable items were partially offset by a $39 million Sales increased 29 percent to the petroleum sector, 27 percent increase in operating expenses at Cat Financial primarily related to the marine sector and 10 percent to the industrial sector. to increased labor costs to support growth in earning assets and a $34 million impact of lower interest spreads. In Latin America, sales increased 9 percent with gains in most sectors from an improved business investment climate. Sales of 2005 OUTLOOK petroleum engines were up 16 percent with increased demand While global economic growth is expected to slow slightly for turbines and turbine-related services for pipeline applications, compared to last year, indicators suggest our markets will continue while electric power sales were down 27 percent, primarily due to to experience solid growth, resulting in another all-time record the absence of a large turbine electric power project that occurred year. We expect 2005 sales and revenues to be up 12 to 15 percent in 2003. In Asia/Pacific, widespread economic growth led to a and profit per share to be up about 25 percent from 2004. The year 45 percent increase in sales. Electric power sales nearly doubled will benefit from improved price realization, increased volume, as strong growth drove increased demand for commercial standby manufacturing efficiencies and an intensified focus on our cost and self-generation, as well as for generator sets to support structure. We expect material cost pressures to continue for the ongoing demand from transmission shortages in China. Petroleum first half of 2005, with some relief in the last six months. As a and marine engine sales also increased significantly. result, we expect the last half of 2005 to be stronger than the first. Operating profit of $597 million was up 218 percent from 2003. North America: The U.S. economy is growing at more than a The favorable impact of higher sales volume, the absence of 3 percent rate; employment is increasing only slightly faster than non-conformance penalties and improved price realization were the labor force, and core inflation measures are rising at near partially offset by higher core operating costs, higher retirement 2 percent rates. Interest rates should continue to support growth, benefits and the unfavorable impact of currency. particularly in business investment, and the economy should grow more than 3.5 percent in 2005. The Canadian economy, benefiting FINANCIAL PRODUCTS from low interest rates and high commodity prices, should grow Revenues were $1.92 billion, an increase of 12 percent from 2003, about 3 percent in 2005. We estimate a 17 percent increase in primarily due to a $228 million favorable impact at Cat Financial machinery and engine sales, with rapid growth in both mining and from continued growth of earning assets, partially offset by a nonresidential construction sectors. >> MACHINERY AND ENGINES—SALES BY GEOGRAPHIC REGION 2004 2003 2002 [ millions of dollars ] Asia/Pacific $ 3,938 $ 2,843 $ 2,392 Europe, Africa & Middle East and Commonwealth of Independent States $ 7,505 $ 5,952 $ 5,178 Latin America $ 2,372 $ 1,721 $ 1,598 North America $ 14,521 $ 10,532 $ 9,480
  • 36. MANAGEMENT’S REVIEW OF OPERATIONS 34 Europe, Africa & Middle East and favorable commodity prices and increased production of materials Commonwealth of Independent States: The euro- and energy. We forecast that machinery and engines sales will increase about 10 percent this year. zone economy appeared to improve at the end of 2004, and the European Central Bank is expected to hold interest rates steady Latin America: Economies here should grow more than through the middle of the year. Overall European growth is 3.5 percent in 2005, the result of favorable metals and energy expected to exceed 2 percent in 2005, somewhat better than prices, increased capital inflows and a more favorable foreign in 2004, and construction spending should continue to recover. debt profile. Both mining output and construction spending should We anticipate that economies in Africa and the Middle East will increase again. We project sales of machinery and engines to grow about 4.5 percent, with the Commonwealth of Independent increase about 13 percent in 2005. States up more than 6 percent. Both regions will benefit from Asia/Pacific: We expect regional growth to average about 6 percent this year, with most countries slowing some from last FULL-TIME EMPLOYEES AT YEAR-END year’s pace. Low interest rates should prolong recoveries in 2004 2003 2002 consumer spending and business investment, while competitive exchange rates likely will continue to boost exports. Coal mining Inside U.S. 38,128 35,260 36,463 should again be a major contributor to sales. Fast growth in the Outside U.S. 38,792 33,909 32,527 region, which has taxed infrastructure capacity, should prompt 76,920 69,169 68,990 TOTAL governments to increase infrastructure spending. Reconstruction in areas hit by the tsunami likely will require additional machines [ by region ] and engines. In China, government administrative measures are North America 38,396 35,486 36,667 expected to continue, causing sales into that country to decline. Europe, Africa & Middle East Overall, we expect sales of machinery and engines to increase and Commonwealth of about 10 percent in 2005. Independent States 22,169 20,547 21,302 Financial Products: We expect continued growth in Latin America 10,733 8,533 7,143 Financial Products for 2005, with revenues expected to increase Asia/Pacific 5,622 4,603 3,878 approximately 16 percent versus 2004, primarily due to higher 76,920 69,169 68,990 TOTAL average earning assets in 2005. N E W M AC H I N E RY [%] D I ST R I B U T I O N TO E N D U S E R S 33 HEAVY CONSTRUCTION [ 2 0 0 4 w o r l d wi d e di s t ri b u ti o n of Ca terp il l ar ma chi n e s b y m a j o r e n d u s e ] 26 GENERAL CONSTRUCTION 16 MINING 8 QUARRY & AGGREGATES 5 INDUSTRIAL 3 FORESTRY 3 WASTE 6 PAVING / OTHER NEW ENGINES [%] D I ST R I B U T I O N TO E N D U S E R S 33 ON-HIGHWAY [ 2 0 0 4 w o r l d wi d e di s t ri b u ti o n of Ca terp il l ar e n gi n e s b y m a j o r e n d u s e ] 27 ELECTRIC POWER 22 OIL & GAS 10 INDUSTRIAL / OEM 8 MARINE
  • 37. $18,844 $13,678 $12,158 $11,975 $11,857 $9,492 $7,370 $7,056 $6,869 $6,673 $1,915 $1,715 $1,504 $1,423 $1,262 SA L E S & R E V E N U E S [ MILLIONS OF DOLLARS ] 00 01 02 03 04 00 01 02 03 04 00 01 02 03 04 MACHINERY ENGINES FINANCIAL PRODUCTS $1,825 $1,246 $1,001 $947 $854 $667 $597 $437 $353 $345 $284 $247 $188 $182 $175 O P E R AT I N G P R O F I T* [ MILLIONS OF DOLLARS ] 00 01 02 03 04 00 01 02 03 04 00 01 02 03 04 MACHINERY ENGINES FINANCIAL PRODUCTS * Eliminations of ($113), ($143), ($82), ($91) and ($126) for 2000, 2001, 2002, 2003 and 2004, respectively, are required to arrive at consolidated operating profit. $2,557 $2,151 $1,996 $1,961 $1,944 $1,950 $1,602 $1,315 $1,229 $1,269 $1,232 $1,214 $1,161 $1,114 $1,043 $1,056 $1,037 $1,003 $909 $888 E X P O RT S F R O M T H E U.S. [ MILLIONS OF DOLLARS ] 00 01 02 03 04 00 01 02 03 04 00 01 02 03 04 00 01 02 03 04 ASIA / PACIFIC CANADA EAME LATIN AMERICA $17.2 561 534 510 507 $14.1 $13.4 $13.4 $13.0 425 PAT E NT S I S S U E D C O R P O R AT E G I V I N G [ MILLIONS OF DOLLARS ] 00 01 02 03 04 00 01 02 03 04