Integrated Company Analysis Wisconsin School of Business December 14, 2010 Team A9 Ryan Beal - Jay Frohne - Tiana Jia - Megan Johnson - Stuart Solomon On our honor, we have neither given nor received unauthorized aid in completing this academic work.
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Integrated Company Analysis Wisconsin School of Business
December 14, 2010
Team A9
Ryan Beal - Jay Frohne - Tiana Jia - Megan Johnson - Stuart Solomon
On our honor, we have neither given nor received unauthorized aid in completing this academic work.
Marketing Strategy Analysis for Caterpillar and the CAT Brand .................................................................4!Background of the CAT Brand................................................................................................................. 4!
Exhibits Exhibit 1 – Lines of Business ..................................................................................................................E1-1!
Exhibit 2 – Vision 2020, Strategic Goals ................................................................................................E2-1!Exhibit 3 – “Big 8” Imperatives for 2011 through 2015 .........................................................................E3-1!
Exhibit 4 – Competitor Overview............................................................................................................E4-1!CNH Global NV ..................................................................................................................................E4-1!
Volvo Group AB .................................................................................................................................E4-4!Exhibit 5 – Acquisitions ..........................................................................................................................E5-1!
Exhibit 6 – Caterpillar Family of Brands.................................................................................................E6-1!Exhibit 7 – Financial Metrics...................................................................................................................E7-1!
Weighted Average Cost of Capital ......................................................................................................E9-1!Projected Cash Flows ..........................................................................................................................E9-2!
Caterpillar Inc. Overview The Caterpillar Tractor Co. was created in 1925 as a result of the merger of the C.L. Best Gas Tractor
Company and the Holt Caterpillar Company.1 Reorganized as Caterpillar Inc. in 1986,2 the Company is
currently “one of the world’s largest manufacturers of construction and mining equipment, diesel and
natural gas engines and industrial gas turbines.”3 The Company currently has over 3 million machines in
use.4
The Company operates in three primary lines of business: Machinery, Engines, and Financial Products
(please see Exhibit 1 for a more information on the Company’s business lines). For the twelve months
ended September 30, 2010 the Company generated total revenues of $37.7 billion5 and earnings before
interest, taxes, depreciation, and amortization (EBITDA) of $4.7 billion.6 (Please see the Financial
Analysis section for more details regarding the revenues and earnings of the Company.)
Strategic Overview In order to continue to effectively grow the business and “win” against the competition, Caterpillar has
implemented Vision 2020; an enterprise strategy that focuses on the Company’s customers, employees,
and stockholders. Vision 2020 is built on Caterpillar’s strategic goals, operating principals, and core
values. The three primary strategic goals of Vision 20207 are to: 1) generate superior financial results; 2)
be a global industry leader; and 3) have the best team. (See Exhibit 2 for a more information on
Caterpillar’s Vision 2020 and strategic goals.) Included in Vision 2020 are Caterpillar’s “Big 8”
1 http://www.caterpillar.com/company/history 2 Caterpillar Inc. Form 10-K for the Fiscal Year Ended December 31, 2009. 3 http://www.cat.com/ar2009 4 Ibid. 5 Caterpillar Inc. Form 10-Q for the Quarterly Period Ended September 30, 2010 and Form 10-K for the Fiscal Year
Ended December 31, 2009 6 Ibid. 7 Caterpillar Inc. “2011 – 2015 Enterprise Strategy & Our Values in Action.” August 19, 2010 Analyst Meeting.
imperatives for 2011 through 2015. The “Big 8” imperatives (which can be found in Exhibit 3) focus on
how Caterpillar will “win” and maintain and improve its leadership position.
Through Vision 2020, Caterpillar expects to “win by delivering valued, quality products, services and
solutions to [their] customers that provide the lowest total owning and operating lifecycle costs. This
value proposition, enabled by [Caterpillar’s] unmatched customer support, creates the largest global field
population, highest customer loyalty and attractive profitability through the business cycle.”8
Competitive Environment Broadly speaking, Caterpillar operates in the Farm and Construction Machinery Industry. However, as
outlined in Exhibit 1, Caterpillar’s primary businesses provide solutions in industries as diverse as
agriculture, construction, mining, forestry, rail, marine, petroleum, and power generation.
Due to the breadth, scope, and worldwide nature of its operations, Caterpillar competes against numerous
global competitors as well as many regional and specialized local competitors.9 Across all segments, the
Company competes “on the basis of product performance, customer service, quality and price.”10 For this
project, we have focused on the following six global competitors: Deere and Company (Deere), Komatsu
Limited (Komatsu), Terex Corporation (Terex), Volvo Group AB (Volvo), Cummins Inc. (Cummins),
and CNH Global NV (CNH). Further detail on each competitor can be found in Exhibit 4.
Acquisitions Caterpillar has made several key acquisitions in 2010, summarized below11. See Exhibit 5 for additional
information.
8 Ibid. 9 Caterpillar Inc. Form 10-K for the Fiscal Year Ended December 31, 2009. 10 Ibid. 11 Capital IQ: Transaction Details: Bucyrus International Inc., announced Nov-14-2010; MWMGmbH, announced Oct 22-2010; Underground Imaging Technologies, LLC, dated Jul-01-2010; CleanAirSystems, Inc. (nka:Clean Air Systems, Inc.), dated Jun-29-2010.
• Bucyrus International Inc. (Bucyrus) – Caterpillar entered an agreement to purchase Bucyrus on
November 14, 2010 for $7.5 billion in cash. Bucyrus designs and manufactures mining
equipment primarily for coal, copper, oil sands, iron ore, and other mineral mining.
• MWM GmbH (MWM) – On October 22, 2010, Caterpillar signed an agreement to acquire MWM
for !580M. MWM develops and produces technologies, engines, and systems for decentralized
energy production. This includes development and optimization of combustion engines for
natural gas and diesel.
• Underground Imaging Technologies, LLC (UIT) – Caterpillar entered an agreement to purchase
UIT on July 1, 2010 for an undisclosed amount. UIT develops and integrates hardware and
software systems for mapping and investigating underground infrastructure.
• CleanAIR Systems Inc. (CleanAir) – Caterpillar entered an agreement to purchase CleanAir on
June 29, 2010. Financial terms of the deal were not disclosed. CleanAir designs, manufactures,
and distributes emissions control systems for on- and off-road vehicles, machinery, and stationary
generators.
Marketing Strategy Analysis for Caterpillar and the CAT Brand Background of the CAT Brand12 Until the 1950s, the CAT and Caterpillar names were synonymous. In the 1950s, CAT emerged as a
distinct brand under the Caterpillar Inc. umbrella. Today the CAT Brand represents the largest and most
respected family of products and services in earth-moving industries worldwide. (Note: throughout the
remainder of this section, CAT refers specifically to the CAT Brand whereas Caterpillar will continue to
refer the Caterpillar Inc. company and family of brands and products as a whole. Please refer to Exhibit 6
Recommendation In order to counteract this backfire potential, CAT must act decisively in order to cement its relationship
with its current endorser and in turn the strength of his association with their company in the mind of their
customers.
The solution is to embark on a truly co-branded initiative. Mike Rowe has a large presence on the CAT
website (www.cat.com), but at this time, Caterpillar has a very small presence on MikeRoweworks.com.
In order to capitalize on their relationship, Caterpillar must establish higher visibility on Mike Rowe’s
site. This will strengthen the link between CAT and Mike Rowe and minimize the risk of brand
confusion.
Next, Caterpillar should leverage the popularity of Dirty Jobs and find creative solutions for CAT brand
placement on the show that will leverage the recognizable CAT logo to strengthen its brand equity with
its target base.
Financial Analysis15 Caterpillar’s fiscal year end is on December 31. For this analysis we have analyzed Caterpillar’s results
as of each year-end 2005 through 2009 and for the twelve month period ended September 30, 2010.
Going forward, and in the exhibits, this period is referred to as the Historical Period and a year refers to
the latest twelve-month period ended in that year (e.g., 2009 refers to the twelve months ended December
31, 2009 whereas 2010 refers to the twelve months ended September 30, 2010).
15 All data and figures contained in this section are sourced from financial statements filed with the Securities and Exchange Commission and CapitalIQ. Calculations have been sourced from CapitalIQ and computed manually.
To access a telephone replay of this call, please dial 800-332-6854 (for domestic
callers) and 973-528-0005 (for international callers) and enter 56211 as the conference ID.
The call can also be accessed in real-time through http://www.CAT.com/IRwebcast.
Listeners should go to the website at least 15 minutes before the live event to
download and install any necessary audio software. The transcript from the conference
call and slides used in the call will be made available on http://www.CAT.com/IRwebcast.
About Caterpillar: For more than 85 years, Caterpillar Inc. has been making progress possible and driving positive and sustainable change on every continent. With 2009 sales and revenues of $32.396 billion, Caterpillar is the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The company also is a leading services provider through Caterpillar Financial Services, Caterpillar Remanufacturing Services, Caterpillar Logistics Services and Progress Rail Services. More information is available at: http://www.cat.com. About Bucyrus International, Inc. Bucyrus is a world leader in the design and manufacture of high productivity mining equipment for the surface and underground mining industries. Bucyrus' surface mining equipment is used for mining coal, copper, iron ore, oil sands and other minerals. Bucyrus' underground mining equipment is used primarily for mining coal and also used in mining minerals such as potash and trona. In addition to machine manufacturing, Bucyrus manufactures high quality OE parts and provides world-class support services for their machines. Bucyrus' corporate headquarters is located in South Milwaukee, Wisconsin, USA. Caterpillar Forward-Looking Statements Certain statements in this presentation relate to future events and expectations and, as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to known and unknown factors that may cause actual results of Caterpillar Inc. to be different from those expressed or implied in the forward-looking statements. Words such as “believe,” “estimate,” “will be,” “will,” “would,” “expect,” “anticipate,” “plan,” “project,” “intend,” “could,” “should” or other similar words or expressions often identify forward-looking statements. All statements
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other than statements of historical fact are forward-looking statements, including, without limitation, statements regarding our outlook, projections, forecasts or trend descriptions. These statements do not guarantee future performance, and Caterpillar does not undertake to update its forward-looking statements. It is important to note that actual results of the company may differ materially from those described or implied in such forward-looking statements based on a number of factors, including, but not limited to: (i) the possibility that the proposed transaction with Bucyrus does not close for any reason, including, but not limited to, a failure to obtain required regulatory approvals, (ii) inability to successfully integrate or achieve expected benefits, including synergies of the Bucyrus transaction (iii) economic volatility in the global economy generally and in capital and credit markets; (iv) Caterpillar’s ability to generate cash from operations, secure external funding for operations and manage liquidity needs; (v) adverse changes in the economic conditions of the industries or markets Caterpillar serves; (vi) government regulations or policies, including those affecting interest rates, liquidity, access to capital and government spending on infrastructure development; (vii) commodity price increases and/or limited availability of raw materials and component products, including steel; (viii) compliance costs associated with environmental laws and regulations; (ix) Caterpillar’s and Cat Financial’s ability to maintain their respective credit ratings, material increases in either company’s cost of borrowing or an inability of either company to access capital markets; (x) financial condition and credit worthiness of Cat Financial’s customers; (xi) material adverse changes in our customers’ access to liquidity and capital; (xii) market acceptance of Caterpillar’s products and services; (xiii) effects of changes in the competitive environment, which may include decreased market share, lack of acceptance of price increases, and/or negative changes to our geographic and product mix of sales; (xiv) Caterpillar’s ability to successfully implement Caterpillar Production System or other productivity initiatives; (xv) international trade and investment policies, such as import quotas, capital controls or tariffs; (xvi) failure of Caterpillar or Cat Financial to comply with financial covenants in their respective credit facilities; (xvii) adverse changes in sourcing practices for our dealers or original equipment manufacturers; (xviii) additional tax expense or exposure; (xix) political and economic risks associated with our global operations, including changes in laws, regulations or government policies, currency restrictions, restrictions on repatriation of earnings, burdensome tariffs or quotas, national and international conflict, including terrorist acts and political and economic instability or civil unrest in the countries in which Caterpillar operates; (xx) currency fluctuations, particularly increases and decreases in the U.S. dollar against other currencies; (xxi) increased payment obligations under our pension plans; (xxii) inability to successfully integrate and realize expected benefits from acquisitions; (xxiii) significant legal proceedings, claims, lawsuits or investigations; (xxiv) imposition of significant costs or restrictions due to the enactment and implementation of health care reform legislation and financial regulation legislation; (xxv) changes in accounting standards or adoption of new accounting standards; (xxvi) adverse effects of natural disasters; and (xxvii) other factors described in more detail under “Item 1A. Risk Factors” in Part I of our Form 10-K filed with the SEC on February 19, 2010 for the year ended December 31, 2009 and in Part II of our Form 10-Q filed with the SEC on May 3, 2010 for the quarter ended March 31, 2010. These filings are available on our website at www.cat.com/sec_filings. Additional Information Relating to Bucyrus and Where to Find It This communication may be deemed to be solicitation material in respect of the proposed acquisition of Bucyrus by Caterpillar. In connection with the proposed merger, Bucyrus intends to file relevant materials with the Securities and Exchange Commission (the “SEC”), including a proxy statement on Schedule 14A, which will be mailed to stockholders of Bucyrus. Bucyrus stockholders are urged to read all relevant documents filed with the SEC, including the proxy statement, because they will contain important information about the proposed transaction. Investors and security holders will be able to obtain free copies of the proxy statement (when available), as well as other filed documents, without charge, at the SEC’s website (http://www.sec.gov). Free copies of Bucyrus’s filings may be obtained by directing a request to Bucyrus’s Investor Relations by telephone to (414)768-4000, in writing to Bucyrus, Attention: Investor Relations, 1100 Milwaukee Avenue, South Milwaukee, WI 53172, by email to [email protected] or at Bucyrus’s website (http://www.bucyrus.com). Bucyrus and its directors and executive officers may be deemed, under SEC rules, to be participants in the solicitation of proxies from the stockholders of Bucyrus with respect to the proposed transaction. More detailed information regarding the identity of the potential participants, and their direct or indirect interests,
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Caterpillar Public Release #
by securities holdings or otherwise, will be set forth in the proxy statement and other materials to be filed with the SEC in connection with the proposed transaction. Information regarding Bucyrus’s directors and executive officers is also available in Bucyrus’s definitive proxy statement for its 2010 Annual Meeting of Stockholders filed with the SEC on March 12, 2010. These documents are available free of charge at the SEC’s web site at http://www.sec.gov and from Investor Relations at Bucyrus. Caution Concerning Forward-Looking Statements Relating to Bucyrus Statements in this communication that relate to Bucyrus’s future plans, objectives, expectations, performance, events and the like may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Future events, risks and uncertainties, individually or in the aggregate, could cause our actual results to differ materially from those expressed or implied in these forward-looking statements. These forward-looking statements may be identified by the use of predictive, future tense or forward-looking terminology, such as “believes,” “anticipates,” “expects,” “estimates,” “intends,” “may,” “will” or similar terms. The material factors and assumptions that could cause actual results to differ materially from current expectations include, without limitation, the following: (1) the inability to close the merger in a timely manner; (2) the inability to complete the merger due to the failure to obtain stockholder approval and adoption of the merger agreement and approval of the merger or the failure to satisfy other conditions to completion of the merger, including required regulatory approvals; (3) the failure of the transaction to close for any other reason; (4) the effect of the announcement of the transaction on Bucyrus’s business relationships, operating results and business generally; (5) the possibility that the anticipated synergies and cost savings of the merger will not be realized, or will not be realized within the expected time period; (6) the possibility that the merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events; (7) diversion of management’s attention from ongoing business concerns; (8) general competitive, economic, political and market conditions and fluctuations; (9) actions taken or conditions imposed by the governmental or regulatory authorities; (10) adverse outcomes of pending or threatened litigation or government investigations; (11) the impact of competition in the industries and in the specific markets in which Bucyrus operates; and (12) other factors that may affect future results of the combined company described in the section entitled “Risk Factors” in the proxy statement to be mailed to Bucyrus’s stockholders Bucyrus’s filings with the SEC that are available on the SEC’s web site located at http://www.sec.gov, including the section entitled “Risk Factors” in Bucyrus’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009. Readers are strongly urged to read the full cautionary statements contained in those materials. All forward-looking statements attributable to Bucyrus are expressly qualified in their entirety by the foregoing cautionary statements. We assume no obligation to update any forward-looking statements to reflect events that occur or circumstances that exist after the date on which they were made.
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October 22, 2010
Caterpillar contact – Europe: 3i contact – Germany, Austria: Switzerland: Simon Steiner Eric Amstutz Office: + 49 69 921874 65 Public Affairs, Geneva Mobile: +49 172 30 68 688 Office: +41 22 849 4466 [email protected] Mobile: +41 78 833 44 66 [email protected] Caterpillar contact – North America: 3i contact – United Kingdom: Jim Dugan Isabel Unsworth Corporate Public Affairs Office: +44 207 975 3190 Office: 309-494-4100 [email protected] Mobile: 309-360-7311 [email protected] FOR IMMEDIATE RELEASE
Caterpillar to Buy 3i-Backed MWM Significantly Expanding Customer Options for Sustainable Power Generation Solutions
PEORIA, Ill. / LONDON, U.K. – Caterpillar Inc. (NYSE: CAT) has signed an
agreement to acquire MWM Holding GmbH (“MWM” or the “Company”) from 3i and
funds managed by 3i. Headquartered in Mannheim, Germany, MWM is a leading global
supplier of highly sustainable alternative engines.
With the acquisition of MWM, Caterpillar will significantly expand customer
options for sustainable power generation solutions. The total transaction value amounts to
!580 million (approximately $810 million) and will be paid in cash.
MWM, which stands for Motoren-Werke Mannheim, can draw on more than 135
years of experience in the development and optimization of combustion engines for
natural gas, special gases and diesel.
“MWM is recognized for its leading technology and product strength, particularly
for its highly efficient range of engines, combined heat and power and trigeneration
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solutions capable of operating on a wide range of gaseous fuels including natural gas,
biogas, mine gas and industrial waste gas,” said Caterpillar CEO Doug Oberhelman.
“This is a natural complement to Caterpillar’s existing diesel and gas power generation
business and demonstrates our commitment to continued investment in sustainable
products and industries,” Oberhelman added.
“We are very pleased about the development MWM experienced over the last
three years. In close collaboration with the MWM management and its employees, we
developed and implemented a broad number of strategic and operational improvement
initiatives. We also made significant investments in the Company’s production facilities,
research and development platform and distribution network. Today, MWM has a highly
skilled and motivated workforce, best-in-class products as well as a very efficient sales
organization and production facilities,” said Peter Wirtz, partner and managing director
of 3i Germany. “Beyond our accomplished mission of transforming MWM’s positioning,
we strongly believe in the long-term success of the Company under Caterpillar’s
ownership,” Wirtz continued.
Following the repositioning of MWM over the three years since 3i’s investment in
the company, 3i will recognize an internal rate of return in excess of 25 percent and
generate a 2.2x return on its investment.
“We highly appreciate 3i’s support and believe that Caterpillar provides the best
prospects for the next step of our development, given its worldwide network which will
open up new distribution and growth opportunities to us,” said Peter Grosch, chairman of
MWM.
MWM will become part of Caterpillar’s Electric Power Division (EPD), which
supplies natural gas and diesel generator sets and integrated power systems involved in
the generation, control and supply of electricity. EPD operates in more than 50 locations
around the world.
The integration of MWM will result in important synergies leveraging the two
companies’ existing product ranges, advanced engine technologies, research and
development resources, manufacturing, distribution and customer support capabilities.
“The gas engines industry is a great fit for Caterpillar’s energy and electric power
systems business. Together with the two companies’ premium products, technology and
global distribution network, our comprehensive offerings will deliver sustainable power
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system solutions for our global customers,” said Bill Rohner, Caterpillar vice president
with responsibility for Electric Power.
The acquisition is expected to close in the coming months, pending final
regulatory approvals.
About Caterpillar: For more than 85 years, Caterpillar Inc. has been making progress possible and driving positive and sustainable change on every continent. With 2009 sales and revenues of $32.396 billion, Caterpillar is the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The company also is a leading services provider through Caterpillar Financial Services, Caterpillar Remanufacturing Services, Caterpillar Logistics Services and Progress Rail Services. More information is available at: http://www.cat.com. About 3i: 3i is an international investor focused on Private Equity, Infrastructure and Debt Management, investing in Europe, Asia and North America. Our competitive advantage comes from our international network and the strength and breadth of our business relationships. These underpin the value that we deliver to our portfolio, shareholders and fund investors. More information is available at: http://www.3i.com.
About MWM: MWM GmbH is one of the world’s leading providers of highly efficient and sustainable energy generation plants. Based in Mannheim, Germany, the enterprise can look back on more than 135 years of experience in the development and optimization of combustion engines for natural gas, special gases and diesel fuel. Understanding of the value chain, engineering competence and innovative drive make MWM a reliable partner who develops and produces solutions tailored to the individual needs of its customers. With over 1,100 employees across 11 subsidiary companies worldwide, the company has focused on ecologically progressive solutions for producing "renewable energy". More information is available at: http://www.mwm.net. Forward-Looking Statements Certain statements in this press release relate to future events and expectations and, as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to known and unknown factors that may cause actual results of Caterpillar Inc. to be different from those expressed or implied in the forward-looking statements. Words such as “believe,” “estimate,” “will be,” “will,” “would,” “expect,” “anticipate,” “plan,” “project,” “intend,” “could,” “should” or other similar words or expressions often identify forward-looking statements. All statements other than statements of historical fact are forward-looking statements, including, without limitation, statements regarding our outlook, projections, forecasts or trend descriptions. These statements do not guarantee future performance, and Caterpillar does not undertake to update its forward-looking statements. It is important to note that actual results of the company may differ materially from those described or implied in such forward-looking statements based on a number of factors, including, but not limited to: (i) economic volatility in the global economy generally and in capital and credit markets; (ii) Caterpillar’s ability to generate cash from operations, secure external funding for operations and manage liquidity needs; (iii) adverse changes in the economic conditions of the industries or markets Caterpillar serves;
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Caterpillar Public Release #
(iv) government regulations or policies, including those affecting interest rates, liquidity, access to capital and government spending on infrastructure development; (v) commodity price increases and/or limited availability of raw materials and component products, including steel; (vi) compliance costs associated with environmental laws and regulations; (vii) Caterpillar’s and Cat Financial’s ability to maintain their respective credit ratings, material increases in either company’s cost of borrowing or an inability of either company to access capital markets; (viii) financial condition and credit worthiness of Cat Financial’s customers; (ix) material adverse changes in our customers’ access to liquidity and capital; (x) market acceptance of Caterpillar’s products and services; (xi) effects of changes in the competitive environment, which may include decreased market share, lack of acceptance of price increases, and/or negative changes to our geographic and product mix of sales; (xii) Caterpillar’s ability to successfully implement Caterpillar Production System or other productivity initiatives; (xiii) international trade and investment policies, such as import quotas, capital controls or tariffs; (xiv) failure of Caterpillar or Cat Financial to comply with financial covenants in their respective credit facilities; (xv) adverse changes in sourcing practices for our dealers or original equipment manufacturers; (xvi) additional tax expense or exposure; (xvii) political and economic risks associated with our global operations, including changes in laws, regulations or government policies, currency restrictions, restrictions on repatriation of earnings, burdensome tariffs or quotas, national and international conflict, including terrorist acts and political and economic instability or civil unrest in the countries in which Caterpillar operates; (xviii) currency fluctuations, particularly increases and decreases in the U.S. dollar against other currencies; (xix) increased payment obligations under our pension plans; (xx) inability to successfully integrate and realize expected benefits from acquisitions; (xxi) significant legal proceedings, claims, lawsuits or investigations; (xxii) imposition of significant costs or restrictions due to the enactment and implementation of health care reform legislation and proposed financial regulation legislation; (xxiii) changes in accounting standards or adoption of new accounting standards; (xxiv) adverse effects of natural disasters; and (xxv) other factors described in more detail under “Item 1A. Risk Factors” in Part I of our Form 10-K filed with the SEC on February 19, 2010 for the year ended December 31, 2009 and in Part II of our Form 10-Q filed with the SEC on May 3, 2010 for the quarter ended March 31, 2010. These filings are available on our website at www.cat.com/sec_filings.
For North American Release: July 2010 Release Number: 09PR10 Acquisition Positions Caterpillar to Deliver Subsurface Imaging and Mapping Services Caterpillar Inc. has acquired all assets of Underground Imaging Technologies, Inc. (UIT)
through its majority owned affiliate, Underground Imaging Technologies LLC. UIT is an
advanced geophysical services company and technology developer based in Latham, N.Y. The
acquisition will give Caterpillar the capability to provide geophysical services, specializing in
providing three-dimensional representations of underground utilities and other targets.
“UIT’s geophysical expertise and advanced technologies will add dynamic new subsurface
infrastructure capabilities to our Connected Worksite offerings,” said Hans Haefeli, vice
president with responsibility for the Caterpillar Advanced Systems Division. “But most
important, this service provides detailed information that enables design engineers and
contractors to proceed on underground projects with a clearer picture of the subsurface
environment, contributing to both project cost savings and increased safety on the worksite.”
“The use of advanced near-surface geophysical tools provides highly accurate three-
dimensional images and digital maps of subsurface utilities and unknown objects,” said Mark
R. Wallbom, CEO of UIT. “Our portfolio of proprietary software and geophysical means and
methods has high value for both design and construction projects. Identifying underground
impediments—before design and construction begin—speeds the work, saves money and
enhances safety. The technology also has potential applications in road building quality
control, site evaluation, environmental surveys, and mapping geologic layers for mining
applications.”
In business since 2002, UIT has been instrumental in developing many advancements in three-
dimensional mapping by integrating geophysical and geospatial hardware and custom
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software. UIT is the owner of a number of patents and proprietary geophysical technologies.
UIT also has demonstrated expertise in using those geophysical tools, such as their multi-
channel 14-antenna ground penetrating radar system called TerraVision II and their time
domain electromagnetic induction (TDEMI) system called MetaVision II.
The extensive data from multiple geophysical and geospatial inputs are processed using a suite
of UIT’s proprietary software that effectively integrates the acquisition, processing and
analysis of these dissimilar datasets. The process is best defined as geomatic engineering, a
modern engineering discipline that integrates acquisition, modeling, analysis and management
of spatially referenced data that when fused into common information systems, provides a
well-defined and accurate representation of the subsurface that is geo-referenced and tied to
control points.
All of UIT’s subsurface mapping activities are tied to an extremely accurate global positioning
system (GPS) or a robotic total station that provides the required spatial information and has
the capability to provide the actual elevation—not just the depth of cover—of all targets.
Extensive post processing and interpretation of the developed datasets, acquired from favorable
soils, result in a foot-by-foot map with accurate three-dimensional target locations formatted
for computer aided design (CAD) or other geographical information system (GIS)
compatibility.
Currently, Underground Imaging Technologies LLC is focusing on working with customers in
North America, but plans call for offering imaging services in many other parts of the world.
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About Caterpillar: For more than 80 years, Caterpillar Inc. has been making progress possible and driving positive and sustainable change on every continent. Caterpillar is the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. The company also is a leading services provider through Caterpillar Financial Services, Caterpillar Remanufacturing Services, Caterpillar Logistics Services and Progress Rail Services. More information is available at http://www.cat.com. About UIT: Underground Imaging Technologies (UIT) originally was formed as a joint venture of Vermeer Manufacturing Company and El Dorado Investment Company, a subsidiary of Pinnacle West Capital Corp. The objective of the joint venture was to
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develop geophysical tools used to better locate underground utilities in a wide range of soils and to be able to map the utilities in three dimensions. UIT was founded on the principle that no single geophysical tool would be effective in every environment or for every application. Because of this, UIT has developed new tools to further the art and science of subsurface utility mapping using multi-sensor technologies. For more information about UIT, visit http://www.uit-systems.com.
For North American Release: June 2010 Release Number: 116PR10
Caterpillar Emissions Solutions Expands Capabilities Through Acquisition of CleanAIR Systems !
Caterpillar Emissions Solutions has signed a definitive agreement to purchase CleanAIR
Systems, Inc. Upon completion of the transaction, CleanAIR Systems will become a wholly
owned subsidiary of Caterpillar Inc. within the Customer Services Support Division.
CleanAIR Systems is a privately owned company in Santa Fe, New Mexico, and is a leader in
designing and manufacturing customized stationary aftertreatment solutions for internal
combustion engines. The broad product line includes California Air Resources Board (CARB)
verified particulate filters, oxidation catalysts and silencers as well as an innovative hybrid
selective-catalytic-reduction/particulate-filter/silencer system. These products and CleanAIR’s
engineering expertise have seen especially strong use in retrofitting engine-powered generators,
and they have application in diverse industries.
“Lowering the emissions output of our legacy equipment is one of the most significant steps we
can take to help our customers do their work in a more sustainable manner. The CleanAIR
products add significantly to our ability to accomplish emissions reductions for our electric
power, petroleum and marine customers,” said Terry Sears, Manager, Caterpillar Emissions
Solutions. "Our goal is to be the leader and the preferred provider of emissions reduction
technologies for the existing population of Cat products around the globe."
In 2008, Caterpillar Emissions Solutions signed an Allied Vendor Agreement with CleanAIR
Systems to strengthen the stationary aftertreatment business. The acquisition will build on the
success of the vendor agreement and the working relationships developed with Cat® dealers.
About 70 percent of CleanAIR products were going to Cat dealers under the agreement.
Press Release
2
“We are extremely pleased that CleanAIR Systems has joined the Caterpillar family. After
working together for several years as an allied vendor of Caterpillar, we feel this is a natural
progression,” said Michael Roach, President, CleanAIR Systems, Inc. “My staff and I are
looking forward to an exciting future helping the worldwide Cat Dealer Network and their
customers meet air quality regulations.”
Caterpillar Emissions Solutions will provide marketing and engineering support to CleanAIR
Systems, assist with CARB and EPA Verification, and jointly develop next-generation products
for Caterpillar customers.
The acquisition is expected to close by July 1, 2010, pending final regulatory approvals.
CleanAIR Systems will remain headquartered in Santa Fe and will be known as CleanAIR
Systems, Inc.- A Caterpillar Company.
# # #
CAT, CATERPILLAR, their respective logos, “Caterpillar Yellow” and the “Power Edge” trade dress, as well as corporate and product identity used herein, are trademarks of Caterpillar and
Exhibit 7 – Financial Metrics26 Caterpillar’s financial statements are audited by PricewaterhouseCoopers LLP (PWC). Throughout the
Historical Period, PWC found all “consolidated financial position(s) and the related consolidated
statements of results of operations, changes in stockholders' equity, and cash flow… to present fairly, in
all material respects, the financial position of [Caterpillar], and the results of their operations and their
cash flows... [Additionally, PWC found the Company to be] in conformity with accounting principles
generally accepted in the U.S. [Furthermore, PWC found] the Company maintained, in all material
respects, effective internal control over financial reporting...”27
(Note: industry averages, and how Caterpillar compares to the industry averages, have been analyzed for
a number of metrics contained in this Exhibit. The industry is defined as the six global competitors we
have examined.)
Revenue Metrics
26 All data sourced through individual company filings (quarterly and annually) with the Securities and Exchange Commission. 27 Caterpillar Inc. Form 10-K for the Fiscal Year Ended December 31, 2009 and Caterpillar Inc. Form 10-K for the Fiscal Year Ended December 31, 2007.
Weighted Average Cost of Capital Projected cash flows were discounted at a weighted average cost of capital (WACC) that incorporates the
inherent riskiness of Caterpillar’s operations. A WACC of 8.8% was applied to cash flows generated in
2011 and beyond. Caterpillar’s WACC was calculated as follows:
Cost of Debt = rf + credit spread
Cost of Equity = rf + !* (rm - rf)
WACC = (Debt weight * cost of debt) + (Equity weight * cost of equity)
• Cost of debt: The cost of debt was calculated using the following inputs:
o rf : The risk free rate used in our analysis was calculated using the 30-year treasury rate.
On December 3, 2010 the quoted rate was 4.32%31. We chose a 30-year treasury rate
because we felt that a long time horizon was most appropriate as a metric for the
economic life of Caterpillar.
o Credit spread: A credit spread of 2.2% was added to the risk free rate to account for
higher risk of Caterpillar as compared to U.S. Treasury bonds. The value of 2.2% is
based on Morningstar Equity Research32.
• Cost of equity: The cost of equity was calculated using the following inputs:
o !: The beta value used in our calculations is based on a regression of five years of
historical monthly stock returns for Caterpillar as compared to monthly returns for the
S&P 500 from December 4, 2005 through December 1, 2010. We performed the same
31 http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield on 12/5/2010 32 Morningstar Equity Research as of November 15, 2010.
Strengths Dealership Network Caterpillar’s greatest asset is their commitment to their customers through its dealership network. The
worldwide Caterpillar network has over 500 facilities and markets its products in over 200 countries.
Preventing machine downtime is critical for Caterpillar’s customers, accordingly the Company’s service
network helps it maintain and expand its market share. “Given CAT's sizable market share and breadth of
geographic coverage, we don't think this dealer base is replicable over the near term.”35 The company's
wide dealer network creates a sizable competitive advantage.
Research and Development As competitor product quality has increased in the past decade, Caterpillar has spent heavily on research
and development (R&D) and maintained spending levels (5% of sales in 2009) throughout the recent
economic downturn. In 2010, R&D expense is forecasted to be $1.8 billion. The Company is unlikely to
concede this advantage, as its R&D budget dwarfs competitors’ spending.36 Comparatively, Komatsu’s
R&D budget for the year ended March 31, 2010 was $499 million.37
U.S. Manufacturing Caterpillar is the world leader in construction- and mining-equipment manufacturing because it produces
superior American made products sold both in the U.S. and abroad. Over 43,000 Caterpillar workers
manufacture products in 50 U.S. facilities (with three more facilities under construction). In 2010, over
60% of the machine and engine products produced in these factories were sold to markets outside of the
U.S.
35 Morningstar Equity Research. “Cat to Purchase Bucyrus in $8.6 Billion Acquisition”. 25 Oct 10. 36 Ibid. 37 Komatsu Ltd. Form 20-F for the Fiscal Year Ended March 31, 2010.