Caterpillar Inc. - Company Profile, Information, Business Description, History, Background Information on Caterpillar Inc.

100 Northeast Adams Street
Peoria, Illinois 61629-1425

Company Perspectives:

Mission: Caterpillar will be the leader in providing the best value in machines, engines and support services for customers dedicated to building the world's infrastructure and developing and transporting its resources. We provide the best value to customers.

History of Caterpillar Inc.

Caterpillar Inc. is the world's largest manufacturer of earthmoving machinery. In addition to its tractors, trucks, graders, excavators, scrapers, and other heavy machinery used in the construction, mining, and forestry industries, Caterpillar also makes diesel and gas engines used in Caterpillar machinery, electric power generation equipment, locomotives, and other industrial equipment. With 50 production facilities in the United States and another 60 overseas and more than 200 dealers serving customers in 178 countries, Caterpillar does about 44 percent of its business within the United States and 56 percent abroad. Through Caterpillar Financial Services Corporation and other subsidiaries, the company offers financing and insurance for its customers and dealers.

Roots in Late 19th-Century Endeavors of Best and Holt

In 1859 Daniel Best left his Iowa home for California. After about ten years of working at various jobs, Best observed that many farmers transported their grain to special cleaning stations to make it suitable for market. Best thought there was a way to clean grain by machine at the same time as it was being harvested to avoid the costly step of transporting to another site. By 1871 Best had patented his first grain cleaner, which he manufactured and sold with great success. By the 1880s Best owned manufacturing centers in Oregon and Oakland, California.

Meanwhile, Charles Henry Holt had arrived in California from New Hampshire in 1864. Intending to further the family business of selling hardwood products, Holt founded C.H. Holt and Company with his savings and eventually operated it with his brothers William Harrison and A. Frank, who came west from New Hampshire in 1871. In 1883 younger brother Benjamin Holt arrived in California as well, and the Holt brothers that year set up the Stockton Wheel Company to season woods in a way that would prepare them for use in the arid midlands of California and deserts of the West. This venture was based in Stockton, California, about 80 miles east of San Francisco. Charles and Benjamin soon bought out the other two brothers, and Charles assumed responsibility for the business side of the enterprise, while Benjamin headed up the development of products and their manufacture. As the inventive force behind Stockton Wheel and its successors, Benjamin Holt is most often cited as the founder of Caterpillar Inc.

The Holts poured $65,000 into Stockton Wheel, equipping their factory with the best machinery available. The company manufactured wooden wheels, paving the way for the firm's entrance into the vehicular product market. In the 1880s the combined harvester and thresher, known as the combine, revolutionized the farming industry because of its ability to cut and thresh, and later to clean and sack grain, in vast quantities, using far less time than previously needed for these individual operations. The Holt brothers produced their first combine in 1886. The Link Belt Combined Harvester advanced agricultural technology further by using flexible chain belts rather than gears to transmit power from the ground wheels to the working parts of the machine. This innovation cut down on machine breakage. Meantime, Daniel Best produced his first combine in 1885.

Near the end of the 19th century, the major drawback in large-scale agriculture was the need for animal power. The combine had made large farms profitable, but the cost of housing and feeding large horse teams and the men who drove them cut into earnings. Both the Holts and Daniel Best were interested in solving this problem by using steam-driven engines to supply tractive power.

The Holts built a steam-driven tractor that could haul 50 tons of freight at three miles per hour. The Stockton Wheel Company was then incorporated as Holt Manufacturing Company in 1892. Almost concurrently, Daniel Best refined his steam-engine tractor into one of the finest available during this period, and throughout the 1890s steam-powered tractors were used for hauling freight and plowing fields, as well as for harvesting grain.

In the early 1900s Benjamin Holt turned his ingenuity to another farming problem. The land around Stockton, California, was boggy and became impassable when wet. To overcome this limitation Holt, in 1904, produced the first commercially successful caterpillar-style tractor, or crawler. It was built on tracks instead of wheels, and the "Cat" could negotiate any terrain short of a swamp. It soon allowed planters to reclaim thousands of acres of land previously thought useless. Holt began selling his tractors under the Caterpillar brand; according to lore, the name came about during the first test run of the crawler, when an onlooker commented that the machine moved like a caterpillar. In 1906 a steam-powered crawler was perfected, and caught on quickly because of its ability to work on ground that all but swallowed other machines. In the meantime, Charles Holt had died in 1905, leaving Benjamin Holt firmly in control of the enterprise.

In 1908 Holt Manufacturing produced its first gas-powered crawlers, using gasoline engines made by a newly formed engine division. The engineers who were building the 230-mile Los Angeles Aqueduct used one of the new machines that year to transport materials across the Mojave Desert. The machine worked so well that 25 more tractors were purchased for further work on the aqueduct, thus giving the Holt tractor credibility with the public and a substantial boost to sales.

Also in 1908, after decades of individual success, Daniel Best sold his firm, Best Manufacturing Company of San Leandro, California, to Holt Manufacturing. Best's son, C.L. Best, was taken on as company superintendent, but after two years, he formed his own company, C.L. Best Gas Tractor Company, and advanced the state of tractor technology even further on his own.

In 1909 Benjamin Holt, who had been looking for a new manufacturing plant in the eastern half of the United States, bought the abandoned but relatively new plant of a tractor company that had failed. The new Peoria, Illinois, location offered Holt everything he needed in a manufacturing center, and despite the need to pour capital into retooling the plant, it proved so profitable that by 1911 the factory employed 625 people. At that time Holt Manufacturing began exporting its tractors to Argentina, Mexico, and Canada.

After the Peoria plant opened, Holt continued to improve his tractor and expand its range of applications. He experimented with several different materials for the body design to achieve a heavy-duty tractor that was not excessively heavy. Holt knew that his tractors could be used for even more rugged chores than agriculture or freighting, and fitted adjustable blades onto his tractors. He then hired them out to grade roads or move soil and rocks at construction sites.

Soon after World War I broke out in 1914, thousands of troops were caught in trench warfare. Observing such repeated attacks, a British lieutenant colonel, Ernest Swinton, sought an armored machine to resist automatic weapons that also would be able to negotiate the war-scarred terrain of the battlefield. His requirements resulted in the invention in 1916 of an experimental tank, based on the track-laying tractors designed by Holt and others. A year later the tank was used to such telling effect that it is credited with winning the Battle of Cambrai, in France, for the Allies. Some historians point to this battle as the turning point of the war. Germany had investigated the military applications of the track-laying vehicle well before anyone else and concluded that tractors were without military significance.

Holt tractors themselves served the war effort by hauling artillery and supplies. In all, more than 10,000 Holt vehicles served the Allied forces, and the international exposure that the Holt tractor received during the war did much to popularize the tracked vehicle.

In 1920 Benjamin Holt died at the age of 71. The bankers holding the company's large debt forced the board of directors to accept their candidate, Thomas A. Baxter, a former Boston banker who had joined Holt Manufacturing in 1913 as a business manager, as Benjamin Holt's successor.

In the early 1920s the Holt company faced the problem of going from wartime boom to peacetime bust. Almost overnight the military orders that kept the factories working at capacity seemed to vanish. Holt used this down period to increase efficiency, both mechanical and human; for example, studies were made to determine how to use space and personnel to the best advantage.

Creation of Caterpillar Tractor Company: 1925

In 1925 Holt Manufacturing and C.L. Best Gas Tractor Company merged, this time to form the Caterpillar Tractor Company (Cat). Baxter had been forced out earlier in the year, and C.L. Best was named chairman of Caterpillar, while Raymond C. Force, an attorney and board member, became president and CEO. Caterpillar's first problem was to choose the outlets that would represent the new concern from among the many solid dealerships that Best and Holt had established under their respective names. Caterpillar picked only the most successful sites and quickly began to expand by opening dealerships in Australia, the Netherlands, east Africa, and Tunisia. Caterpillar dealerships developed a reputation for keeping their machines running. The firm insisted that the dealers keep a large supply of spare parts available and employ a large service force. Another development in the immediate aftermath of the merger was the shifting of all tractor manufacturing to Peoria; combines continued to be made in Stockton.

In 1929 Caterpillar's sales were $52 million, and the Peoria plant alone employed more than 4,000 workers. The crash of 1929, however, hit Caterpillar hard, but not as hard as it might have, thanks to an increase in sales to the Soviet Union in the early 1930s. In the aftermath of the financial world's collapse, Caterpillar went from sales of $45 million in 1930 to $13 million in 1932, and the company suffered its first full-year loss the latter year, totaling $1.6 million. Salaries were cut, including those of executives, many factories went on a four-day workweek, and the remaining production in California was shifted to Peoria. Yet the company stayed profitable and rebounded in the late 1930s, primarily, again, because of Soviet purchases. The Soviets at that time were forming vast collective farms, some of which approached 400,000 acres in size. Caterpillar products helped make such farms manageable, and the Soviets ordered millions of dollars worth of tractors and combines from Caterpillar. In the early 1930s Caterpillar moved its main office to Peoria, for a more geographically central location.

By 1931, the diesel tractor engine, which had been used before but not widely, was finally perfected for common use by Caterpillar. Previously diesels had been too heavy and undependable for commercial use. The Diesel Sixty tractor, however, made the diesel the staple engine for heavy-duty vehicles. In 1933 Caterpillar's diesel production was double that of all other U.S. firms combined. This boon gave Cat the impetus to redesign many of its old models, making them more efficient and economical. Sales began to rise and continued to do so throughout the late 1930s, as Caterpillar benefited from the huge road-building projects of President Franklin D. Roosevelt's public works programs. Caterpillar's many innovations in rubber-tired tractors and diesel engines for trucks clearly contributed to revitalizing the firm.

Caterpillar's contributions to World War II were many and varied. Of substantial importance was the conversion of a gasoline airplane engine into a dependable diesel engine. In 1942 Caterpillar unveiled the new RD-1820 radial diesel engine, which was used to power the M-4 tank. The company manufactured other engines, as well, and even artillery shells for the war effort. It set up an aluminum foundry in Decatur, Illinois, to help ease the shortage of this vital material. Caterpillar engineers found that they could make a stronger metal with cheaper, more plentiful raw materials if they used high-frequency electrical induction to harden the steel used in tanks and personnel carriers.

Caterpillar tractors worked in battle zones repairing damaged roads, building new ones, bulldozing tank traps, and constructing pillboxes (gun emplacements). Because the Cat was usually seen doing such roadwork with a bulldozer blade attached, the term "bulldozer" came to be used for Caterpillar products. Caterpillar tractors and road-building equipment were used to build the Burma Road. The makeshift repair shop that was set up to service the machines working on that road by the 497th Heavy Shop Company was dubbed Little Peoria.

Enormous Postwar Growth

In the postwar period, Caterpillar experienced enormous growth rather than recession, because of the massive rebuilding campaigns begun both in Europe and Japan, with the use of Marshall Plan and other funds. In the United States itself, demand seemed limitless. Caterpillar could not get its products to its customers fast enough. Consequently, it launched an expansion program in 1949 that was the first step toward becoming a truly international firm with a major impact on world industry.

The new plant built in 1951 in Joliet, Illinois, was only the beginning of a program to establish manufacturing centers and subsidiaries around the globe. In 1950 Caterpillar announced the formation of its first overseas subsidiary, Caterpillar Tractor Company Ltd. of Great Britain. To further accommodate the postwar need for construction and road-building equipment, Caterpillar opened up subsidiaries in Brazil in 1954, Australia in 1955, and Scotland in 1956. In the 1950s, within the United States, Cat built new factories in Milwaukee, Wisconsin (1951); York, Pennsylvania (1953); Decatur, Illinois (1955); and Davenport, Iowa (1956), and parts distribution centers in Morton, Illinois; and Denver, Colorado.

In the 1960s the continuing boom in the construction of highways, dams, and mines kept sales increasing rapidly. By 1970 employment at Caterpillar was twice that of ten years prior. Caterpillar increased its exports, gaining a rival in the heavy construction industry, Komatsu Ltd. of Japan.

In 1961 Cat suffered the first of many labor conflicts with the United Auto Workers (UAW), when 12,600 workers in Peoria walked off their jobs in a wage dispute. An agreement was reached after only eight days, but this strike was the beginning of a series of increasingly bitter and complex battles between labor and management. Recognizing that industry abroad sometimes operates by rules different from those of the United States, Caterpillar in 1963 formed a joint venture in Japan with Mitsubishi Heavy Industries, Ltd. The venture, initially named Caterpillar Mitsubishi Ltd., began building Cat-designed vehicles in a factory just outside of Tokyo in 1965. It was renamed Shin Caterpillar Mitsubishi Ltd. in 1987.

After the three-year contract extension signed in 1961 was terminated, another strike began in Peoria. Announced as settled as early as February 1964, the strike was off and on until late October. In 1965 Caterpillar exceeded $1 billion in sales for the first time, announced that its stock would be sold on most of the major European stock exchanges, and started Caterpillar Belgium S.A. to build front-loading tractors there.

The year 1966 brought another confrontation with the UAW, this time in the form of a two-month walkout in Decatur. The lawsuit that Cat filed against the union, claiming an illegal strike, was settled out of court, in exchange for an agreement that stipulated that the union would settle all conflicts not relating to contract specifications before going out on strike. During this year Caterpillar of Canada Ltd. announced the construction of a 64,000-square-foot addition to its distribution warehouse.

In March 1968 the U.S. Justice Department moved to block a proposed merger between Cat and Chicago Pneumatic Tool Company, and the merger did not take place. In the same year, Caterpillar was the first company located outside of a major city to enlist in a government-sponsored program to hire and train people considered to be unemployable. This program was directed to persons who had been out of work for extended periods. The hirees would work half of the day at entry-level positions and spend the other half of the day learning job skills for better-paying jobs.

A contract with Ford in 1970 to supply small V-8 truck engines convinced Cat that manufacturing smaller diesels could make money, and the firm spent millions of dollars redesigning and retooling existing plants to build the new engines. Profits earned from an increase in state construction programs helped pay the cost of these investments. By 1972 Cat had announced plans to build a 900,000-square-foot plant in Belgium and a 1.25 million-square-foot production facility in Mossville, Illinois. Sales to the Soviet Union increased during this year.

In 1974 Caterpillar embarked on another dramatic expansion program, announcing plans to build a 650,000-square-foot addition to its Aurora, Illinois, plant, a 1.3 million-square-foot addition to its diesel engine shop in Mossville, a 720,000-square-foot addition to its Peoria plant, and a new 670,000-square-foot manufacturing center in Brazil. In 1975 Caterpillar allocated more funds than ever before for expansion and product development. The company expanded its foreign market at this time by selling pipe-laying equipment to China, cashing in on the thaw in relations between China and the United States.

By 1978 the Cat expansion program was paying off. Sales approached $6 billion and the new manufacturing plants were able to turn out thousands of vehicles. The product line had expanded to the point where Cat offered more heavy-duty agricultural, construction, and material-hauling machines than any other company. In 1978 plans were revealed to build more new plants in York, Pennsylvania; Lafayette, Indiana; and Pontiac, Illinois.

The longest UAW strike against Caterpillar (to that date) occurred in 1979. More than 23,000 workers in Illinois walked out of six of the company's major manufacturing plants. More than 3,500 workers were laid off because of the parts shortages that resulted from the strike. After almost three months of negotiations, a new three-year contract was forged, which offered better wages and a profit-sharing concession.

Deep Downturn in the 1980s

Caterpillar settled an involved lawsuit with Goodyear Tire & Rubber Company in 1981. Three years previously Goodyear had begun selling a radial earthmoving tire that infringed on Caterpillar's beadless-tire technology. The beadless tire lacked the beads, or edges, that attach the tire to wheel rims, and was more durable and economical than previous designs. In the out-of-court settlement Goodyear agreed to pay Caterpillar an amount mutually agreed upon, and become a licensee of Cat, paying the firm royalties for the use of beadless technology in the further manufacture of the tire.

In 1981 the firm won a political battle to be granted the right to sell $90 million in pipe-laying equipment to the Soviet Union, despite stiff opposition from the administration of President Ronald Reagan. That year the firm sold more machines than ever before, with sales in excess of $9 billion for the year. Caterpillar also became the leading supplier of industrial gas turbines that year through the $505 million acquisition of Solar Turbines Incorporated from International Harvester.

The recession of 1982 hit Caterpillar especially hard. The economic downturn caused sales to drop to $6.5 billion that year. Caterpillar laid off almost 12,000 employees at this time, and closed its plant in Mentor, Ohio. Trying to cut overhead, Cat proposed pay freezes and a cut in benefits, prompting a seven-month UAW strike, the firm's longest strike yet. To add to the company's problems, barely six weeks after the 37,500 UAW workers left their jobs, a jury awarded Kast Metals a $9.2 million settlement for Caterpillar's failure to live up to an oral agreement to buy steel castings from Kast if Kast were to build a new plant to make the castings.

Caterpillar began 1983 by announcing the first annual loss in earnings in half a century. Cat started laying off workers, and closed a plant in Newcastle-on-Tyne, England. Sales slumped to a recent history low of $5.4 billion. Yet after the new contract was signed with the UAW, Caterpillar acquired a new direction and strategy that made things look better. Despite the concession of a profit-sharing plan, the wage freeze that the firm won in the contract dispute helped stem rising costs. The anticipation of the bottled-up demand that would create a larger market after the recession made investors think that Cat stock might be a good buy. By committing itself to less expansion, more creative marketing techniques, and reduced costs, Caterpillar intended in late 1983 to ride out the economic slump and position itself to return to profitability in 1984.

Caterpillar's problems continued, however, in 1984. Despite this being the expected comeback year for the firm, the plant closings and layoffs continued. The Burlington, Iowa, parts plant locked its doors to workers and, despite optimistic projections of recalling around 3,200 workers in 1985, Cat actually laid off about 3,000 other workers during that year. Caterpillar continued to cut back operations at its factories, then eliminated cost-of-living allowances in wages, and delayed the completion of its Morton, Illinois, distribution center. The firm blamed its third straight losing year on high interest rates and stiff price competition from other companies; losses for 1992-94 totaled $953 million.

In February 1985 George A. Schaefer was named chairman and CEO of Caterpillar, and Donald V. Fites was named president. Despite a net loss of almost $430 million the year before, Schaefer confidently predicted that Cat would make a profit during his first year as company head. During this year Caterpillar made two key strategic moves, which, despite their controversial nature, would be credited with making the firm once again profitable. Caterpillar first shifted some of its production and purchasing functions overseas. This meant that jobs previously performed in Peoria were moved to Scotland or Japan. The high value of the dollar overseas made such a change necessary for company survival, management argued. Secondly, Caterpillar embarked on a $600 million factory-modernization program. It would reduce permanently the labor force needed to make tractors by automating as many manufacturing processes as possible. Approximately 2,300 workers were cut from the Caterpillar payroll during 1985. Company executives argued that the firm needed to compete with Komatsu, which had a much greater manufacturing efficiency than Cat because of its highly automated plants.

In 1986 Caterpillar Tractor Company became Caterpillar Inc. and announced that it had made a profit of almost $200 million in the previous year. The firm bounced back from its problems by marketing a new automated lift truck, which had the potential to secure part of a multibillion-dollar market for Caterpillar. The firm even directly challenged Komatsu by expanding Cat's partnership with Mitsubishi Heavy Industries to include the production of hydraulic equipment.

Caterpillar faced, however, another strike during this year. Workers in Joliet walked out for four weeks, but were brought back to work under terms much like those previously rejected. Caterpillar again won a wage freeze, but cash bonuses as well as the firm's promise to lay off other workers as long as the strike continued were enough to get the Joliet workers to settle their grievances.

The weakening of the dollar abroad raised production costs and cut into profits for Caterpillar in 1987. Though the firm improved its sales and earnings over 1986, Caterpillar was still forced to close three factories. Nevertheless, in 1988 Caterpillar again made the kind of large profits it had made in the past, reaping $616 million for the year. In early 1989 Caterpillar's stock took a sharp downturn. The modernization campaign had swelled to a cost of more than $1.8 billion and flattened profits for the year. The cost of the program continued to affect company profits through 1992, while the company also suffered from the effects of the recession of the early 1990s.

A decline in sales in 1991 contributed to Cat's first loss since 1984, $404 million--the worst loss in company history. Sales increased only marginally in 1992, while the firm suffered another loss, this time $218 million. Meanwhile, newly appointed CEO Fites initiated a corporate reorganization in 1990 which moved Cat away from a function-oriented structure to one revolving around product lines and geographic areas.

Bitter Labor Disputes in the 1990s

Labor strife returned to Peoria in late 1991 when Caterpillar tried to alter a pattern agreement that had been agreed to in October at John Deere. When the UAW and Cat workers refused to accept the company's offer, they struck two Cat plants with 2,400 workers in early November. Caterpillar responded by locking out 5,650 more workers. Over the next five months, Caterpillar used managers to fill in at the affected plants, then threatened to permanently replace 15,000 UAW workers. In April 1992 the workers returned to their jobs without a contract and eventually accepted a company-imposed contract. The striking workers, however, returned to what they believed was a hostile environment, where they faced suspension or dismissal for wearing union-supporting T-shirts or buttons. By mid-1994, more than 80 complaints against Caterpillar for such tactics were issued by the National Labor Relations Board.

In 1993 Caterpillar completed the factory modernization program and at the same time began to benefit from its results. The time to process a part from start to finish was reduced by 75 percent and in-process inventories were reduced by 60 percent. Coupled with an overhaul of the new product development process, vast improvements were made in new product introductions. Only 24 new or improved products were introduced in 1991; that figure doubled in 1992 and reached 53 in 1994. Such gains led to record sales of $11.62 billion in 1993 and record profits of $652 million. The next year brought more records: $955 million in profits on sales of $14.33 billion.

In the early 1990s Caterpillar looked to the east and south for its future growth. The company strongly supported both the North American Free Trade Agreement (NAFTA) and the General Agreement on Tariffs and Trade (GATT), concluding that the elimination of trade barriers could add $350 million in Cat sales a year by 2000. By 1994 Caterpillar had already reaped the benefits of NAFTA when it posted $239 million in sales in Mexico, an increase of 59 percent over 1993. Outside North America, Caterpillar formed several joint ventures in Japan (with Mitsubishi), Russia (with AMO-ZiL and with Kirovsky), and China (with Shanghai Diesel and with Xuzhou Construction Machinery Group). New dealerships were also established in Vietnam and the Shanghai region of China in 1994.

On the heels of the firm's improving results came the longest and most bitter strike to hit Caterpillar yet. After sporadic wildcat walkouts following the 1991-92 strike, a full-scale strike began in June 1994 with 10,500 UAW workers honoring picket lines while about 4,000 workers stayed on the job. The issue that precipitated the walkout was Caterpillar's firing of union workers, but the dispute quickly evolved into one concerning a new contract. As with the 1991-92 strike, Caterpillar again shifted managers onto the assembly lines but it also hired temporary workers to fill in. As the strike dragged on into 1995, it was beginning to affect Cat's inventories and operating efficiencies, but its impact was mitigated by the decreasing number of union workers at the company. Caterpillar had been locating its new plants in right-to-work states and foreign countries, and had shifted some production to other manufacturers through outsourcing. While UAW workers made up 45 percent of Cat's workforce in 1980, by 1995 UAW workers numbered only 28 percent.

In early 1995 the two sides agreed to federal mediation for a new round of contract talks. As Caterpillar continued to post record profits and revenues, the company clearly had the upper hand. Even though workers voted to reject a contract offer in early December, the UAW promptly called off the strike and sent the workers back to their jobs without a contract. The rejected contract terms began to be implemented by the company unilaterally, including a two-tier wage system and no overtime pay for days longer than eight hours. Similar to the aftermath of the 1991-92 strike, Cat placed restrictions on what workers could say or display, and by early 1996 at least 50 workers had been suspended or fired for violating what the company called its "standards of conduct." Meanwhile, Caterpillar's board voted to reward Fites for his handling of the strike and for the company's performance with a 1995 compensation package of $3.09 million, an increase of 75 percent over the $1.76 million he received in 1994.

The bitter strike behind it, Caterpillar announced more record results for 1995, with profits exceeding $1 billion for the first time ($1.14 billion) on sales of $16.07 billion. Sales would keep rising during the boom years of the late 1990s, hitting $20.98 billion in 1998, while profits peaked at $1.66 billion in 1997, when Caterpillar enjoyed a profit margin of 8.8 percent (compared to the 1994 figure of 6.7 percent). A key acquisition was completed during this period, the $1.3 billion purchase of LucasVarity plc's Perkins Engines unit in February 1998. Perkins provided Caterpillar a considerable position within the fast-growing market for small diesel engines, which were used in compact construction equipment, such as skid-steer loaders. This deal was well-timed in that Caterpillar was in the process of rolling out its own line of new, small-scale construction equipment. By 1998 engine sales accounted for about 30 percent of annual revenues, aided also by an earlier acquisition, that of MaK Motoren GmbH & Co. KG, a German producer of power generator engines acquired in December 1996.

In March 1998, meantime, Caterpillar and the UAW finally reached an agreement on a new six-year contract, ending the 61/2-year labor dispute. Most observers agreed that the company had come out clearly ahead, having largely met most of the goals it had set before the dispute began. The union, however, did manage to force the company to unconditionally recall 160 workers who had been fired for union-related activities during the prolonged and bitter period of strife. In February 1999 Fites, a man despised by many workers for his hardline stance and his threats to permanently replace his employees, retired from the firm. Glen A. Barton, who had been vice-chairman and group president in charge of Caterpillar's forest, mining, and construction equipment operations, was named the new chairman and CEO.

Maintaining Profitability Through the Early 2000s Downturn

Caterpillar began feeling the effects of the early 2000s economic downturn ahead of time, as its customers began cutting back on purchases as early as 1999 in anticipation of the troubled days ahead. Sales fell that year and then stagnated, amounting to only $20.15 billion in 2002. Unlike past recessions, however, Caterpillar remained in the black throughout thanks to its leaner and more diversified operations, which made the company less vulnerable to the cyclical ups and downs of the heavy machinery industry. Caterpillar's worst year came in 2002, when profits amounted to $798 million, which translated into a profit margin of just 4 percent. Barton also initiated additional cost-cutting measures to maintain the company's profitability, announcing in August 2000 a plan to cut annual expenses by more than $1 billion over the succeeding three to five years. He also aimed to increase revenues to $30 billion by mid-decade in part by continuing Caterpillar's diversification drive into engines, compact construction equipment, financial services--mainly loans to its large network of dealers--and rental equipment. Barton also made the difficult decision of exiting from the agricultural tractor business, offloading its tractor line to AGCO Corp. late in 2001. Although this was significant from a historic standpoint given the importance of tractors in Caterpillar's early history, by 2001 agricultural equipment generated only about 4 percent of Cat's total revenues.

Caterpillar rebounded strongly in 2003, posting record revenues of $22.76 billion and profits of $1.1 billion, a 38 percent jump over 2002. Sales were strong in its two largest manufacturing operations, heavy machinery and diesel truck engines. Machinery accounted for 50 percent of the revenues, engines 40 percent, and financial services the remaining 10 percent. During the year, Caterpillar launched its new line of low-emission ACERT engines that complied with U.S. Environmental Protection Agency (EPA) regulations slated to go into effect in 2004 (ACERT stood for Advanced Combustion Emissions Reduction Technology). In February 2003 the company entered into a five-year global alliance with mining company BHP Billiton to supply about $1.5 billion in mining machinery and other equipment.

On the heels of the stellar results for 2003, Barton retired in January 2004. James W. Owens was named his successor, having served as a group president, of various business units, since 1995. Under the new leader, Caterpillar was targeting emerging markets, particularly China, India, and Russia, for future growth. The company was hoping to reach its goal of $30 billion in revenues by 2006.

Principal Subsidiaries: Caterpillar Financial Services Corporation; Caterpillar Insurance Holdings, Inc.; Caterpillar Logistics Services, Inc.; Solar Turbines Incorporated; MaK Deutschland GmbH & Co. KG (Germany); Bitelli S.p.A. (Italy); Caterpillar Overseas S.A. (Switzerland); Perkins Engines Group Limited (U.K.); Turner Powertrain Systems Limited (U.K.).

Principal Divisions: Asia-Pacific Division; Building Construction Products Division; Compact Power Systems Division; Europe, Africa & Middle East Product Development & Operations Division; Global Mining Division; Large Power Systems Division; Latin America Division; Mining & Construction Equipment Division; North American Commercial Division; Track-Type Tractors Division; Wheel Loaders & Excavators Division.

Principal Competitors: Komatsu Ltd.; CNH Global N.V.; Deere & Company; Terex Corporation; Ingersoll-Rand Company Limited; AB Volvo; Hitachi Construction Machinery Co., Ltd.; J C Bamford Excavators Ltd.; Cummins, Inc.


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