|
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
|
|
|
FORM
11-K
|
|
|
(Mark
One)
|
|
|
[X]
|
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the fiscal year ended December 31, 2009
|
|
OR
|
|
|
[ ]
|
TRANSITION
REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the transition period from __________ to __________.
|
|
Commission
File No. 1-768
|
|
|
CATERPILLAR
401(K) PLAN
(Full title
of the Plan)
|
|
|
CATERPILLAR
INC.
(Name of
issuer of the securities held pursuant to the Plan)
|
|
|
100
NE Adams Street, Peoria, Illinois 61629
(Address of
principal executive offices)
|
|
|
SIGNATURES
|
||||
|
Pursuant to
the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Company has duly caused this annual report to be signed on its
behalf by the undersigned, hereunto duly authorized.
|
||||
|
CATERPILLAR
401(K) PLAN
|
||||
|
CATERPILLAR
INC. (Issuer)
|
||||
|
June 25,
2010
|
By:
|
/s/ Edward J. Rapp | ||
|
Name:
|
Edward J.
Rapp
|
|||
|
Title:
|
Group
President and Chief Financial
Officer
|
|||
|
Caterpillar
Inc.
|
|
|
Caterpillar
401(k) Plan
Index
|
|
Page(s)
|
||
|
Report
of Independent Registered Public Accounting Firm
|
|
|
|
Financial
Statements
|
||
|
Statements of
Net Assets Available for Benefits December 31,
2009 and 2008
|
1
|
|
|
Statements of
Changes in Net Assets Available for Benefits Years Ended
December 31, 2009 and 2008
|
2
|
|
|
Notes to
Financial Statements December 31,
2009 and 2008
|
3–13
|
|
|
Supplemental
Schedule
|
||
|
Schedule H,
Line 4i - Schedule of Assets (Held at End of Year) December 31,
2009
|
15
|
|
| Note: |
Other
schedules required by 29 CFR 2520.103-10 of the Department of Labor’s
Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974 have been omitted because they are
not applicable.
|
|
|
Exhibit
A
|
|||||||||
|
Caterpillar
401(k) Plan
|
|||||||||
|
Statements
of Net Assets Available for Benefits
December
31, 2009 and 2008
|
|||||||||
|
(in
thousands of dollars)
|
2009
|
2008
|
|||||||
|
Investments
|
|||||||||
|
Interest in
the Caterpillar Investment Trust
|
$
|
4,509,782
|
$
|
3,465,803
|
|||||
|
Participant
loans receivable
|
68,081
|
63,636
|
|||||||
|
Other
investments – participant directed brokerage accounts
|
153,534
|
119,802
|
|||||||
|
Total
investments
|
4,731,397
|
3,649,241
|
|||||||
|
Receivables
|
|||||||||
|
Participant
contributions receivable
|
9,445
|
10,560
|
|||||||
|
Employer
contributions receivable
|
7,845
|
9,575
|
|||||||
|
Total
receivables
|
17,290
|
20,135
|
|||||||
|
Net assets
available for benefits, at fair value
|
4,748,687
|
3,669,376
|
|||||||
|
Adjustment
from fair value to contract value for synthetic
guaranteed investment contracts |
42,634
|
87,916
|
|||||||
|
Net assets
available for benefits
|
$
|
4,791,321
|
$
|
3,757,292
|
|||||
|
The
accompanying notes are an integral part of these financial
statements.
|
|||||||||
|
Exhibit
B
|
|||||||||
|
Caterpillar
401(k) Plan
|
|||||||||
|
Statements
of Changes in Net Assets Available for Benefits
Years
Ended December 31, 2009 and 2008
|
|||||||||
|
(in
thousands of dollars)
|
2009
|
2008
|
|||||||
|
Investment
income (loss)
|
|||||||||
|
Plan interest
in net investment income (loss) of
Caterpillar Investment Trust |
$
|
927,223
|
$
|
(1,493,535
|
)
|
||||
|
Interest on
participant loans receivable
|
3,682
|
4,585
|
|||||||
|
Net
investment income (loss) from participant directed
brokerage accounts |
32,999
|
(63,055
|
)
|
||||||
|
Net
investment income (loss)
|
963,904
|
(1,552,005
|
)
|
||||||
|
Contributions
|
|||||||||
|
Participant
|
216,609
|
235,469
|
|||||||
|
Employer
|
137,892
|
152,843
|
|||||||
|
Total
contributions
|
354,501
|
388,312
|
|||||||
|
Deductions
|
|||||||||
|
Withdrawals
|
(282,073
|
)
|
(235,598
|
)
|
|||||
|
Administrative
expenses
|
(2,303
|
)
|
(2,721
|
)
|
|||||
|
Total
deductions
|
(284,376
|
)
|
(238,319
|
)
|
|||||
|
Increase
(decrease) in net assets available for benefits
|
1,034,029
|
(1,402,012
|
)
|
||||||
|
Transfers
|
|||||||||
|
Transfers
from (to) other plans, net
|
–
|
8,369
|
|||||||
|
Net increase
(decrease) in net assets available for benefits
|
1,034,029
|
(1,393,643
|
)
|
||||||
|
Net
assets available for benefits
|
|||||||||
|
Beginning of
year
|
3,757,292
|
5,150,935
|
|||||||
|
End of
year
|
$
|
4,791,321
|
$
|
3,757,292
|
|||||
|
The
accompanying notes are an integral part of these financial
statements.
|
|||||||||
|
Caterpillar
401(k) Plan
|
|
Notes
to Financial Statements
December
31, 2009 and 2008
|
|
1.
|
Plan
Description
|
|
The following
description of the Caterpillar 401(k) Plan (the “Plan”) provides only
general information. Participants should refer to the Plan
agreement for a more complete description of the Plan's
provisions.
|
|
|
General
|
|
|
The Plan is a
contributory defined contribution plan established by Caterpillar Inc.
(the “Company”) effective January 1, 2003 to enable eligible employees of
the Company and its subsidiaries (the “participating employers”), which
adopt the Plan to accumulate funds for retirement. The Plan is
subject to the provisions of the Employee Retirement Income Security Act,
as amended (“ERISA”).
|
|
|
Participation
|
|
|
Management,
salaried and non-bargained hourly employees who meet certain age and
service requirements are eligible to participate in the
Plan. Participating eligible employees (the “participants”)
elect to defer a portion of their compensation until retirement through
pre-tax contributions.
|
|
|
Participant
Accounts
|
|
|
Accounts are
separately maintained for each participant. The participant's
account is credited with the participant's contribution as defined below,
employer contributions and an allocation of Plan
earnings. Allocations of earnings are based on participant
account balances, as defined. Participant benefits are limited
to their vested account balance.
|
|
|
Contributions
|
|
|
Participant
contributions are made through a pre-tax compensation deferral as elected
by the participants. Participants who are at least 50 years old
by the end of the calendar year are allowed by the Plan to make a catch-up
contribution for that year. Contributions are subject to
certain limitations set by the Internal Revenue Code.
Employer
matching contributions are 100 percent of participant 401(k) contributions
up to a maximum of 6 percent of compensation. The Company may
change the match percentage or the limit on matching contributions from
time to time. Beginning June 2009, the Company began making
employer matching contributions in Caterpillar stock.
Participants
direct the investment of their contributions and employer matching
contributions into various investment options offered by the Plan as
discussed in Note 3. Participants may change their contribution
elections and prospective investment elections on a daily basis and
reallocate the investment of their existing account balance either daily
or every seven business days depending on the investment.
Newly
eligible employees are subject to an automatic enrollment
process. Unless electing otherwise, employees who become newly
eligible will be enrolled with a default 6 percent deferral of their base
eligible pay and their default investment election is to the Model
Portfolio – Moderately Aggressive fund.
|
|
|
Vesting
and Distribution Provisions
|
|
|
Participants
are fully vested in their participant contributions and earnings
thereon. Participants also vest immediately in the Company's
matching contributions and the earnings thereon. Upon
termination of employment for any reason, including death, retirement, or
upon Plan termination, the balance in participants' accounts is
distributable in a single lump sum cash payment unless the participant (or
beneficiary) elects to receive Company shares in kind up to the amount of
the participant’s balance in the Caterpillar Stock Fund. The
value of any full or fractional shares paid in cash will be based upon the
average price per share the Trustee receives from sales of Company shares
for the purpose of making the distribution. Participants also
have the option to leave their vested account balance in the Plan, subject
to certain limitations.
|
|
Participant
Loans
|
|
|
The Plan
provides for participant loans against eligible participants’ account
balances. Eligible participants obtain loans by filing a loan
application with the Plan’s record keeper and receiving all requisite
approvals. Loan amounts are generally limited to the lesser of
$50,000 or 50 percent of the individual participant’s vested account
balance, with certain regulatory restrictions. Each loan
specifies a repayment period that cannot extend beyond five
years. However, the five-year limit shall not apply to any loan
used to acquire any dwelling unit which within a reasonable time is to be
used (determined at the time the loan is made) as the principal residence
of the participant. Loans bear interest at the prime interest
rate plus 1 percent, as determined at the time of loan
origination. Repayments, including interest, are made through
after-tax payroll deductions and are credited to the individual
participant’s account balance. At December 31, 2009,
participant loans have various maturity dates through September 30, 2019,
with varying interest rates ranging from 4.25 to 11.0
percent.
|
|
|
Administration
|
|
|
The Plan is
administered by Caterpillar Inc., which is responsible for non-financial
matters, and the Benefit Funds Committee of Caterpillar Inc., which is
responsible for financial aspects of the Plan. Caterpillar Inc.
and the Benefit Funds Committee have entered into a trust agreement with
The Northern Trust Company (the “Trustee”) to receive contributions,
administer the assets of the Plan and distribute withdrawals pursuant to
the Plan.
|
|
|
Plan
Termination
|
|
|
Although it
has not expressed any intent to do so, the Company has the right under the
Plan at any time to terminate the Plan subject to provisions of
ERISA. In the event of Plan termination, Plan assets will be
distributed in accordance with the provisions of the
Plan.
|
|
|
Plan
Qualification
|
|
|
The Plan
obtained its latest determination letter on October 16, 2008, in which the
Internal Revenue Service stated that the Plan, as then designed, was in
compliance with the applicable requirements of the Internal Revenue
Code. Although the Plan has been amended subsequent to the
period covered by the determination letter, the Plan Administrator and the
Plan’s tax counsel believe that the Plan is designed and is currently
being operated in compliance with the applicable requirements of the
Internal Revenue Code. Therefore, no provision for income taxes
has been included in the Plan’s financial
statements.
|
|
2.
|
Summary
of Significant Accounting Policies
|
|
New
Accounting Guidance
|
|
|
Disclosures about derivative
instruments and hedging activities – In March 2008, the Financial
Accounting Standards Board (the “FASB”) issued accounting guidance on
disclosures about derivative instruments and hedging activities. This
guidance expands disclosures for derivative instruments by requiring
entities to disclose the fair value of derivative instruments and their
gains or losses in tabular format. It also requires disclosure of
information about credit risk-related contingent features in derivative
agreements, counterparty credit risk, and strategies and objectives for
using derivative instruments. The Plan adopted this new guidance on
January 1, 2009. The adoption of this guidance did not have a material
impact on the Plan’s financial statements.
Subsequent events – In
May 2009, the FASB issued accounting guidance on subsequent events that
establishes standards of accounting for and disclosure of subsequent
events. The guidance requires evaluation of subsequent events
through the date of financial statement issuance. The Plan
adopted the guidance for the plan year ending December 31,
2009. The adoption of this guidance did not have a material
impact on the Plan’s financial
statements.
|
|
Basis
of Accounting
|
|
|
The Plan’s
accounts are maintained on the accrual basis of
accounting.
|
|
|
Investments
|
|
|
The Plan’s
interest in the Caterpillar Investment Trust is valued as described in
Note 4. Investments included in the participant directed
brokerage account are valued at quoted market prices, which, for
registered investment companies, represent the net asset value of shares
held by the Plan at year-end. Participant loans are valued at
estimated fair value consisting of principal and any accrued
interest. Interest on investments is recorded as
earned. Dividends are recorded on the ex-dividend
date. Purchases and sales of securities are recorded on a
trade-date basis.
|
|
|
Administrative
Expenses
|
|
|
The Plan
accrues 6 basis points annually of the fair value of the assets of each
investment fund, which is transferred monthly from the Caterpillar
Investment Trust into a holding account to pay expenses as they come
due. The amount accumulated in the holding account is used to
pay certain administrative expenses that have been approved by the Benefit
Funds Committee including recordkeeping fees, trustee fees, plan education
and audit fees. The Company pays any expenses which exceed
amounts accrued annually by the Plan.
|
|
|
Withdrawals
|
|
|
Withdrawals
are recorded when paid.
|
|
|
Transfers
|
|
|
Transfers
to/from other plans generally represent account balance transfers for
participants who transfer from one plan to another plan primarily due to
employment status changes.
|
|
|
Use
of Estimates in the Preparation of Financial Statements
|
|
|
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets, liabilities and changes therein. Actual
results could differ from those estimates. The Company believes
the techniques and assumptions used in establishing these amounts are
appropriate.
|
|
|
Risks
and Uncertainties
|
|
|
The Plan
provides for various investment options in any combination of stocks,
bonds, fixed income securities, mutual funds and other investment
securities. Investment securities are exposed to various risks,
such as interest rate, market and credit risks. Due to the
level of risk associated with certain investment securities, it is at
least reasonably possible that changes in the values of investment
securities could occur in the near term and that such changes could
materially affect participants' account balances and the amounts reported
in the Statements of Net Assets Available for Benefits. At
December 31, 2009, approximately 46 percent of the Plan’s investments were
invested in Caterpillar Inc. common
stock.
|
|
3.
|
Investment
Programs
|
|
The majority
of the Plan’s assets are invested in the Caterpillar Investment Trust as
discussed in Note 4, except for the participant directed brokerage account
and participant loans receivable.
|
|
|
The
investment options available to participants consist of four main
categories: core investments, model portfolios, Caterpillar stock and a
brokerage account.
The core
options consist of nine investment choices, each representing a different
asset class but collectively offering a broad range of investment
alternatives with varying levels of risk and potential
returns.
The model
portfolios contain a specific mix of the Plan’s core
investments. Each portfolio’s mix of stocks and bonds is
automatically rebalanced on the last business day of each calendar
quarter. The targeted percentage of stocks and bonds in each of
the model portfolios is as follows:
|
|
*
|
Conservative
|
20% stocks
and 80% bonds
|
||
|
*
|
Moderately
Conservative
|
40% stocks
and 60% bonds
|
||
|
*
|
Moderately
Aggressive
|
60% stocks
and 40% bonds
|
||
|
*
|
Aggressive
|
80% stocks
and 20% bonds
|
|
The
Caterpillar Stock Fund consists of Caterpillar Inc. common stock and a
small amount of cash equivalents.
The brokerage
account option allows participants to invest in various other investments
outside of the standard Plan options. Hewitt Financial Services
is the custodian for funds invested through this participant directed
option. Investments in the participant directed brokerage
account consist of registered investment companies. The net
investment income (loss) for the participant directed brokerage account
consists of net appreciation (depreciation) in the fair value of
investments in registered investment
companies.
|
|
4.
|
Master
Trust
|
|
A portion of
the Plan’s investments are in the Caterpillar Investment Trust (the
"Master Trust"), which was established for the investment of the Plan and
other Company sponsored retirement plans. These plans pool
their investments in the Master Trust in exchange for a percentage of
participation in the Trust. The assets of the Master Trust are
held by The Northern Trust Company (the "Trustee").
The
percentage of the Plan's participation in the Master Trust was determined
based on the December 31, 2009 and 2008 net asset values for the
investment fund options chosen by participants of each plan. At
December 31, 2009 and 2008, the Plan's interest in the net assets of the
Master Trust was 89.96 percent and 89.61 percent,
respectively.
The following
investments represent 5 percent or more of the net assets of the Master
Trust as of December 31, 2009 and
2008:
|
|
(in
thousands of dollars)
|
2009
|
2008
|
|||||||
|
Caterpillar
Inc. common stock, at fair value
|
$
|
2,374,970
|
$
|
1,793,050
|
|||||
|
Synthetic
guaranteed investment contracts, at contract value:
|
|||||||||
|
Aegon
|
289,193
|
281,869
|
|||||||
|
AIG
|
289,193
|
281,870
|
|||||||
|
State
Street
|
289,233
|
281,909
|
|||||||
|
The net
assets of the Master Trust as of December 31, 2009 and 2008 are as
follows:
|
|
(in
thousands of dollars)
|
2009
|
2008
|
||||||
|
ASSETS
|
||||||||
|
Investments,
at fair value
|
||||||||
|
Caterpillar
Inc. common stock
|
$
|
2,374,970
|
$
|
1,793,050
|
||||
|
Common
stocks
|
1,095,623
|
691,655
|
||||||
|
Preferred
stocks
|
3,200
|
2,268
|
||||||
|
Preferred
corporate bonds and notes
|
33,151
|
32,589
|
||||||
|
Other
corporate bonds and notes
|
58,770
|
38,590
|
||||||
|
U.S.
government securities
|
117,242
|
92,120
|
||||||
|
Synthetic
guaranteed investment contracts
|
818,331
|
744,251
|
||||||
|
Common
collective trusts
|
396,113
|
299,731
|
||||||
|
Registered
investment companies
|
–
|
579
|
||||||
|
Interest
bearing cash
|
20,626
|
25,347
|
||||||
|
Other
investments, net
|
16,920
|
2,407
|
||||||
|
4,934,946
|
3,722,587
|
|||||||
|
Securities
on loan, at fair value
|
||||||||
|
Common
stocks
|
68,332
|
130,568
|
||||||
|
Corporate
bonds and notes
|
1,121
|
6,167
|
||||||
|
U.S.
government securities
|
6,127
|
8,732
|
||||||
|
75,580
|
145,467
|
|||||||
|
Cash
collateral held under securities loan agreements,
at fair value |
||||||||
|
Caterpillar
Investment Trust Custom Collateral Fund
|
78,809
|
154,865
|
||||||
|
Other
assets
|
||||||||
|
Cash
|
477
|
1,277
|
||||||
|
Receivables
for securities sold
|
79,311
|
30,031
|
||||||
|
Accrued
income
|
4,277
|
4,077
|
||||||
|
84,065
|
35,385
|
|||||||
|
Total Master
Trust assets
|
5,173,400
|
4,058,304
|
||||||
|
LIABILITIES
|
||||||||
|
Obligation
under securities loan agreements
|
(78,137
|
)
|
(148,387
|
)
|
||||
|
Payables for
securities purchased
|
(84,341
|
)
|
(45,502
|
)
|
||||
|
Total Master
Trust liabilities
|
(162,478
|
)
|
(193,889
|
)
|
||||
|
Adjustment
from fair value to contract value for synthetic
guaranteed investment contracts |
49,288
|
101,397
|
||||||
|
Master Trust
assets, net
|
$
|
5,060,210
|
$
|
3,965,812
|
||||
|
Plan’s
interest in the net Master Trust assets
|
$
|
4,552,416
|
$
|
3,553,719
|
||||
|
Investments
are stated at fair value. Investments in common stock,
preferred stock, corporate bonds and notes, U.S. government securities and
other assets are primarily valued at quoted market
prices. Common collective trusts are stated at unit value,
which represents the fair value of the underlying
investments. Registered investment companies are valued at
quoted market prices that represent the net asset value of shares held by
the Master Trust at year-end.
|
|
|
Net
investment income (loss) of the Master Trust for the years ended December
31, 2009 and 2008 is as follows:
|
|
|
(in
thousands of dollars)
|
2009
|
2008
|
|||||||
|
Interest
|
$
|
31,726
|
$
|
53,644
|
|||||
|
Dividends
|
90,661
|
85,270
|
|||||||
|
Net
appreciation (depreciation) of the fair value of
investments:
|
|||||||||
|
Caterpillar
Inc. common stock
|
569,453
|
(1,034,715
|
)
|
||||||
|
Common
stocks
|
262,969
|
(627,379
|
)
|
||||||
|
Preferred
stocks
|
1,849
|
(5,012
|
)
|
||||||
|
Preferred
corporate bonds and notes
|
3,398
|
(8,700
|
)
|
||||||
|
Other
corporate bonds and notes
|
12,027
|
(15,379
|
)
|
||||||
|
U.S.
government securities
|
869
|
2,081
|
|||||||
|
Common
collective trusts
|
41,902
|
(65,936
|
)
|
||||||
|
Registered
investment companies
|
(8
|
)
|
(178
|
)
|
|||||
|
Other
investments
|
9,704
|
(33,586
|
)
|
||||||
|
Net Master
Trust investment income (loss)
|
$
|
1,024,550
|
$
|
(1,649,890
|
)
|
||||
|
Plan’s
interest in net Master Trust investment income (loss)
|
$
|
927,223
|
$
|
(1,493,535
|
)
|
||||
|
Dividend
income is recorded as of the ex-dividend date. Interest income
is recorded daily as earned. The Master Trust presents in net
investment income (loss), the net appreciation (depreciation) in the fair
value of its investments which consists of the realized gains (losses) and
the unrealized appreciation (depreciation) on those
investments.
|
|
|
Investment
Contracts
|
|
|
The Master
Trust holds fixed income benefit responsive investment contracts, referred
to as synthetic guaranteed investment contracts (“synthetic GICs”), in
which an investment contract is issued by an insurance company or a
financial services institution. The synthetic GICs, designed to
help preserve principal and provide a stable crediting rate of interest,
are fully benefit responsive and provide that plan participant initiated
withdrawals will be paid at contract value. The synthetic GICs
are backed by a portfolio of fixed income investments which are
effectively owned by the Plan. The assets underlying the
synthetic GICs are maintained by a third party custodian, separate from
the contract issuer's general assets. The synthetic GICs are
obligated to provide an interest rate not less than zero. These
contracts provide that realized and unrealized gains and losses of the
underlying assets are not reflected immediately in the assets of the fund,
but rather are amortized, usually over the duration of the underlying
assets, through adjustments to the future interest crediting
rate. The future interest crediting rate can be adjusted
periodically and is primarily based on the current yield-to-maturity of
the covered investments, plus or minus amortization of the difference
between the market value and contract value of the covered investments
over the duration of the covered investments at the time of
computation. The issuers guarantee that all qualified
participant withdrawals will occur at contract value.
Employer
initiated events, if material, may affect the underlying economics of the
investment contracts. These events include plant closings,
layoffs, plan termination, bankruptcy or reorganization, merger, early
retirement incentive programs, tax disqualification of a trust or other
events. The occurrence of one or more employer initiated events
could limit the Plan’s ability to transact at contract value with plan
participants. As of December 31, 2009, the Company believes the
occurrence of an event that would limit the ability of the Plan to
transact at contract value with the participants in the Plan is
remote.
|
|
A summary of
the average yields for the synthetic GICs are as
follows:
|
|
Average
Yields
|
December
31, 2009
|
December
31, 2008
|
|||
|
Based on
actual income
|
3.88%
|
6.33%
|
|||
|
Based on
interest rate credited to participants
|
2.16%
|
3.48%
|
|
The guidance
on reporting of fully benefit-responsive investment contracts held by
defined contribution plans requires the Statements of Net Assets Available
for Benefits to present the fair value of the synthetic GICs, as well as
an adjustment of the fully benefit-responsive synthetic GICs from fair
value to contract value.
|
|
|
Derivatives
|
|
|
Within the
Master Trust, a number of investment managers use derivative financial
instruments to meet fund objectives and manage exposure to foreign
currency, interest rate and market fluctuations. The fair value of these
derivative contracts and related appreciation (depreciation) are included
in Other investments in the Net assets and Investment income (loss) of the
Master Trust. All derivative financial instruments are
undesignated.
|
|
|
Credit Contracts
Investment
managers use credit default swaps to reduce, increase or manage exposure
to credit risk. A credit default swap is a contract in which,
for a fee, a protection seller agrees to pay a protection buyer an amount
resulting from a credit event on a reference entity. If there
is no credit default event or settlement trigger, as defined by the
specific derivative contract, then the protection seller makes no payments
to the protection buyer and receives only the contractually specified fee.
However, if a credit event occurs as defined in the specific derivative
contract sold, the protection seller will be required to make a payment to
the protection buyer. The Master Trust holds credit default
swaps both as a protection seller and protection buyer.
The following
table summarizes the credit default swaps held by the Master Trust as a
protection seller. The maximum potential amount of future
payments under credit derivative contracts presented below is the notional
value of the derivatives.
|
|
(in
thousands of dollars)
|
December
31, 2009
|
|||||||||
|
Credit
Default Swaps
|
||||||||||
|
Protection
Seller Contract Type
|
Notional
|
Fair
|
||||||||
|
Value
|
Value
|
|||||||||
|
Single
issuer
|
$
|
1,620
|
$
|
(113
|
)
|
|||||
|
Index of
North American issuers
|
||||||||||
|
Investment
grade
|
2,827
|
(72
|
)
|
|||||||
|
Investment
grade high volatility
|
8,406
|
(204
|
)
|
|||||||
|
High
yield
|
2,800
|
(104
|
)
|
|||||||
|
Index of
mortgage securities
|
3,086
|
(914
|
)
|
|||||||
|
Total
protection seller credit default swaps
|
$
|
18,739
|
$
|
(1,407
|
)
|
|||||
|
The Master
Trust holds credit default swaps as a protection buyer that have identical
reference entities as swaps held as protection seller. The
notional value of the credit default swaps held as protection buyer, which
would reduce the potential amount of future payments as protection seller,
was $0.3 million at December 31, 2009. The Master Trust also
held $3.8 million notional value of credit default swaps as a protection
buyer which did not offset swaps held as protection seller at December 31,
2009.
|
|
Equity Contracts
Equity index
futures contracts are used by investment managers to invest excess cash
into equity benchmarks, including the S&P 500 and Russell
2000. The notional value of long equity futures held was $38.7
million at December 31, 2009. Investment managers also invest
in a small amount of equity rights and
warrants.
|
|
Foreign Exchange Contracts
Foreign
currency exchange rate movements create a degree of risk by affecting the
U.S. dollar value of instruments denominated in foreign
currencies. Forward contracts are used by investment managers
to manage foreign exchange rate risks associated with certain
investments.
|
|
Interest Rate Contracts
Interest rate
movements create a degree of risk by affecting the amount of interest
payments and the value of debt instruments. Investment managers
use interest rate swaps, futures contracts, options and swaptions to
manage interest rate risk. The notional value of interest rate
swaps held at December 31, 2009 was $8.2 million. The notional
value of long and short interest rate futures held at December 31, 2009
was $23.8 million and ($9.1) million, respectively. The
notional value of swaptions held at December 31, 2009 was $6.5
million.
|
|
The following
table summarizes the location and fair value of derivative instruments
reported in the Net assets of the Master
Trust:
|
|
(in
thousands of dollars)
|
December
31, 2009
|
||||||||||
|
Undesignated
|
Master
Trust
|
Fair
Value
|
|||||||||
|
Contracts
|
Classification
|
Asset
|
Liability
|
||||||||
|
Credit
contracts
|
Other
investments
|
$
|
193
|
$
|
(1,507
|
)
|
|||||
|
Equity
contracts
|
Other
investments
|
2
|
–
|
||||||||
|
Foreign
exchange contracts
|
Receivables
for securities sold, Payables for securities purchased *
|
428
|
(568
|
)
|
|||||||
|
Interest rate
contracts
|
Other
investments
|
162
|
(239
|
)
|
|||||||
|
Total fair
value of derivative instruments
|
$
|
785
|
$
|
(2,314
|
)
|
||||||
|
*Forward
contracts are presented gross (buy side of the contract as a receivable,
sell side of the contract as a payable) in the net assets of the Master
Trust. The above table shows the net position of each forward
contract as an asset or liability.
The effect of
derivatives on the Net investment income (loss) of the Master Trust is as
follows:
|
|
(in
thousands of dollars)
|
Year
ended
|
||||||||
|
December
31, 2009
|
|||||||||
|
Undesignated
|
Master
Trust
|
Income
(loss)
|
|||||||
|
Contracts
|
Classification
|
on
Derivatives
|
|||||||
|
Credit
contracts
|
Other
investments
|
$
|
2,309
|
||||||
|
Equity
contracts
|
Other
investments
|
9,363
|
|||||||
|
Foreign
exchange contracts
|
Other
investments
|
94
|
|||||||
|
Interest rate
contracts
|
Other
investments
|
1,201
|
|||||||
|
Total income
(loss) of derivative instruments
|
$
|
12,967
|
|||||||
|
The Master
Trust continually monitors its positions with, and the credit quality of,
the major financial institutions which are counterparties to its financial
instruments, and does not anticipate nonperformance by these
counterparties. To mitigate the credit risk of certain
derivative financial instruments, investment managers use International
Swaps and Derivatives Association (ISDA) agreements with the
counterparties. These agreements include provisions that permit
netting exposures within similar derivative types and posting collateral
if required.
|
|
Fair
Value Measurements
|
||
|
In September
2006, the FASB issued accounting guidance on fair value measurements,
which provides a common definition of fair value and a framework for
measuring assets and liabilities at fair values when a particular standard
prescribes it. In addition, this guidance expands disclosures
about fair value measurements. The Plan adopted the provisions
of this guidance as of January 1, 2008. The adoption of this
guidance did not have a material impact on the Plan’s financial
statements.
The guidance
on fair value measurements defines fair value as the exchange price that
would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market
participants. The guidance also specifies a fair value
hierarchy based upon the observability of inputs used in valuation
techniques. Observable inputs (highest level) reflect market
data obtained from independent sources, while unobservable inputs (lowest
level) reflect internally-developed market assumptions. In
accordance with this guidance, fair value measurements are classified
under the following hierarchy:
|
||
|
|
Level 1 –
Quoted prices for identical instruments in active markets.
|
|
|
|
Level 2 –
Quoted prices for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active; and
model-derived valuations in which all significant inputs or significant
value-drivers are observable in active markets.
|
|
|
|
Level 3 –
Model-derived valuations in which one or more significant inputs or
significant value-drivers are unobservable.
|
|
|
When
available, quoted market prices are used to determine fair value and such
measurements are classified within Level 1. In some cases where
market prices are not available, observable market based inputs are used
to calculate fair value, in which case the measurements are classified
within Level 2. If quoted or observable market prices are not
available, fair value is based upon internally developed models that use,
where possible, current market-based parameters such as interest rates,
yield curves and currency rates. These measurements are
classified within Level 3.
Fair value
measurements are classified according to the lowest level input or
value-driver that is significant to the valuation. A
measurement may therefore be classified within Level 3 even though there
may be significant inputs that are readily observable.
Master Trust
assets and liabilities that are measured at fair value as of December 31,
2009 and 2008 are summarized below:
|
||
|
Fair
Value Measurements as of December 31, 2009
|
||||||||||||||||
|
(in
thousands of dollars)
|
Level
1
|
Level
2
|
Level
3
|
Total
|
||||||||||||
|
Stocks
|
$
|
3,541,034
|
$
|
1,091
|
$
|
–
|
$
|
3,542,125
|
||||||||
|
Corporate
bonds and notes
|
–
|
93,042
|
–
|
93,042
|
||||||||||||
|
U.S.
government securities
|
–
|
123,369
|
–
|
123,369
|
||||||||||||
|
Synthetic
guaranteed investment contracts
|
–
|
818,331
|
–
|
818,331
|
||||||||||||
|
Common
collective trusts
|
–
|
396,113
|
–
|
396,113
|
||||||||||||
|
Interest
bearing cash
|
20,626
|
–
|
–
|
20,626
|
||||||||||||
|
Caterpillar
Investment Trust Custom Collateral Fund
|
–
|
78,809
|
–
|
78,809
|
||||||||||||
|
Other
investments, net
|
14,002
|
2,918
|
–
|
16,920
|
||||||||||||
|
Total assets
and liabilities
|
$
|
3,575,662
|
$
|
1,513,673
|
$
|
–
|
$
|
5,089,335
|
||||||||
|
Fair
Value Measurements as of December 31, 2008
|
||||||||||||||||
|
(in
thousands of dollars)
|
Level
1
|
Level
2
|
Level
3
|
Total
|
||||||||||||
|
Stocks
|
$
|
2,614,694
|
$
|
2,847
|
$
|
–
|
$
|
2,617,541
|
||||||||
|
Corporate
bonds and notes
|
–
|
77,346
|
–
|
77,346
|
||||||||||||
|
U.S.
government securities
|
–
|
100,852
|
–
|
100,852
|
||||||||||||
|
Synthetic
guaranteed investment contracts
|
–
|
744,251
|
–
|
744,251
|
||||||||||||
|
Common
collective trusts
|
–
|
299,731
|
–
|
299,731
|
||||||||||||
|
Registered
investment companies
|
579
|
–
|
–
|
579
|
||||||||||||
|
Interest
bearing cash
|
25,347
|
–
|
–
|
25,347
|
||||||||||||
|
Caterpillar
Investment Trust Custom Collateral Fund
|
–
|
154,865
|
–
|
154,865
|
||||||||||||
|
Other
investments, net
|
6,529
|
(4,122
|
)
|
–
|
2,407
|
|||||||||||
|
Total assets
and liabilities
|
$
|
2,647,149
|
$
|
1,375,770
|
$
|
–
|
$
|
4,022,919
|
||||||||
|
Plan assets
not included in the Master Trust that are measured at fair value as of
December 31, 2009 and 2008 are summarized
below:
|
|
Fair
Value Measurements as of December 31, 2009
|
||||||||||||||||
|
(in
thousands of dollars)
|
Level
1
|
Level
2
|
Level
3
|
Total
|
||||||||||||
|
Participant
directed brokerage account
|
$
|
134,436
|
$
|
19,098
|
$
|
–
|
$
|
153,534
|
||||||||
|
Participant
loans receivable
|
–
|
–
|
68,081
|
68,081
|
||||||||||||
|
Total
assets
|
$
|
134,436
|
$
|
19,098
|
$
|
68,081
|
$
|
221,615
|
||||||||
|
Fair
Value Measurements as of December 31, 2008
|
||||||||||||||||
|
(in
thousands of dollars)
|
Level
1
|
Level
2
|
Level
3
|
Total
|
||||||||||||
|
Participant
directed brokerage account
|
$
|
95,730
|
$
|
24,072
|
$
|
–
|
$
|
119,802
|
||||||||
|
Participant
loans receivable
|
–
|
–
|
63,636
|
63,636
|
||||||||||||
|
Total
assets
|
$
|
95,730
|
$
|
24,072
|
$
|
63,636
|
$
|
183,438
|
||||||||
|
The following
is a roll-forward of assets measured at fair value using Level 3 inputs as
of December 31, 2009 and 2008:
|
|
Level
3 Assets
|
||||
|
(in
thousands of dollars)
|
Participant
Loans
|
|||
|
Balance at
December 31, 2007
|
$
|
56,226
|
||
|
Issuances and
settlements, net
|
7,410
|
|||
|
Balance at
December 31, 2008
|
63,636
|
|||
|
Issuances and
settlements, net
|
4,445
|
|||
|
Balance at
December 31, 2009
|
$
|
68,081
|
||
|
Securities
Lending
|
|
|
The Master
Trust participates in a securities lending program offered by the
Trustee. As a participating lender, the Master Trust receives
cash, U.S. government securities or letters of credit as collateral for
loans of securities to approved borrowers. The Trustee pools
the cash and non-cash collateral in the Caterpillar Investment Trust
Custom Collateral Fund, which invests primarily in short term investment
vehicles. Initial collateral levels are not less than 102
percent of the fair value of the borrowed securities, or not less than 105
percent if the borrowed securities and the collateral are denominated in
different currencies. The fair value of securities on loan was
approximately $76 million and $145 million at December 31, 2009 and 2008,
respectively. The collateral received in 2009 for these loaned
securities was approximately $78 million ($148 million in 2008), of which
approximately $78 million represented cash or other highly liquid
investments ($147 million in 2008). Net realized investment
income (loss) from securities lending was approximately $6.7 million and
($10.8) million
in 2009 and 2008, respectively, and is included in interest in the net
investment income (loss) of the Master Trust.
|
|
|
5.
|
Parties-in-Interest
|
|
The Trustee
is authorized, under contract provisions and by exemption under 29 CFR
408(b) of ERISA regulations, to invest in securities under its control and
in securities of the Company.
The
investment options available to the participants as summarized in Note 3
include the Caterpillar Stock Fund. The Master Trust also invests in the
U.S. Equity Broad Index Fund, which is sponsored and managed by The
Northern Trust Company, the Trustee for the Master Trust. The
Northern Trust Company also manages the cash equitization portion of each
of the investment options for liquidity
purposes.
|
|
6.
|
Reconciliation
of Financial Statements to Form 5500
|
|||||||||
|
The following
table reconciles the net assets available for benefits per the audited
financial statements to the Form 5500 Annual Report:
|
||||||||||
|
(in
thousands of dollars)
|
2009
|
2008
|
||||||||
|
Net assets
available for benefits per financial statements
|
$
|
4,791,321
|
$
|
3,757,292
|
||||||
|
Certain
deemed distributions of participant loans
|
(3,152
|
)
|
(2,519
|
)
|
||||||
|
Net assets
per Form 5500
|
$
|
4,788,169
|
$
|
3,754,773
|
||||||
|
Schedule
I
|
|||||||||||
|
Caterpillar
401(k) Plan
|
|||||||||||
|
EIN
37-0602744
Schedule
H, Line 4i – Schedule of Assets (Held at End of Year)
December
31, 2009
|
|||||||||||
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
|||||||
|
Identity of
issuer,
borrower,
lessor
or similar
party
|
Description of
investment, including
maturity date,
rate of interest,
collateral,
par or maturity value
|
Cost
|
Current
value
|
||||||||
|
*
|
Caterpillar
Inc.
|
Caterpillar
Investment Trust
|
**
|
$
|
4,509,781,989
|
||||||
|
Hewitt
Financial Services
|
Participant
directed brokerage account
|
**
|
153,534,049
|
||||||||
|
*
|
Participant
loans receivable
|
Participant
loans (various maturity dates through September 30, 2019, various interest
rates ranging from 4.25% to 11.0%)
|
–
|
68,081,530
|
|||||||
|
Total
Investments
|
$
|
4,731,397,568
|
|||||||||
|
* Denotes
party in interest.
|
|||||||||||
|
** Cost
information is not applicable for participant directed
investments.
|
|||||||||||