2015 YEAR IN REVIEW

90 BUILT.
WHAT WE’VE

YEARS

WHERE WE’RE

HEADED.

2015 YEAR IN REVIEWCONTENTS
A Message toShareholders....................................................... 6
Leadership............................................................ 9
Officers................................................................................................................ 9
Board of Directors........................................................................................... 10

Data and Innovation...................................... 12
Solar™ InSight System™ Turns Data Into Action....................................... 13
Safety Services Keep Customers Alert to Fatigue...................................... 15
Customer Input Shifts Cat® 994K Design Into High Gear............................ 16Cat® Command Steers Mining in a New Direction .................................... 17
Investing in R&D............................................................................................... 18

Customer Support ........................................ 19
Cat Financial Lends a Hand............................................................................ 20
Innovation Keeps Rail Business on Time and on Track............................. 21
Cat® GRADE With Slope Assist Makes the Grade...................................... 22
Homestead Dairy Turns Problem Into Profit................................................. 23
Innovation Made Simple – And Profitable with Job Site Solutions........ 25
Productivity Solutions That Promise to Wear Well.................................... 26

Efficiency ........................................................... 27
Shaving Weeks Off Delivery Time................................................................. 28
Our Lean Transformation................................................................................. 30
A Global Supply Network That Delivers Under Pressure......................... 31
600 Vending Machines. 100 Facilities. 1 Goal............................................. 32
Streamlining Customer & Dealer Support.................................................... 33

People .................................................................. 35
Breakthrough Workshop for Women Leaders............................................. 36
Marking Milestones at Both Ends of a Caterpillar Career........................ 37
Sculpture Contest Welds Team Relationships............................................ 39
40 Years of Building a Beautiful China......................................................... 40
Work That Matters............................................................................................ 42
A Good Deed in the Badlands......................................................................... 44
Teams Employ Lean and Agile to Deliver for Customers........................... 45
Caterpillar Foundation..................................................................................... 46

Business Review ............................................ 51
At-a-Glance....................................................................................................... 52
Performance...................................................................................................... 53
Segment/Division Review............................................................................... 57
Five-Year Financial Summary........................................................................ 71
Forward-Looking Statements......................................................................... 72

2

2015 YEAR IN REVIEWWHERE WE
STARTED
Holt Manufacturing
Company and the C.L.
Best Tractor Company
merge to form Caterpillar,
reflecting the movementof the company’s line oftrack-type tractors.

The 21st century world you see today has been builtwith the help of Caterpillar machines and solutions.
We’ve spent the past 90 years creating, building,problem solving, innovating, testing, servicing andimproving. In the process, we’ve built a global leader.

1925

1925

A WORLD IN CRISIS
About two months after“Black Tuesday,” which somesay signaled the start of theGreat Depression, Caterpillar
Tractor Company stock
became available for public
trading (NYSE: CAT).

Our formative years were spent growing in a global
economy marked by depression and world war.

1929

1931

Our manufacturing
headquarters move from
California to Illinois andwe change the standard
paint color of our machinesfrom gray to yellow.

Our strong legacy of innovation
begins with the introduction of
our first diesel tractor.

1931

1944

Came out with our firstbulldozer blade. This was
the first time making ourown attachments. Afterthe war, with new global
manufacturing, productline exploded.

First year sales were $13 million
for a product line of 5 tractors.

Cat® machines help start theconstruction of more than 70,000
miles of U.S. highways.

1946

3

2015 YEAR IN REVIEWGLOBAL GROWTH
We form our first overseas
subsidiary – Caterpillar
Tractor Co. Ltd. in England,
the start of building plants
outside the United States
to be closer to customers.

The post-war construction boom in Europe and Asiatranslated into rapid growth as Caterpillar expandedaround the globe.

1950

1963

Sales outside of theUnited States are greaterthan those inside theU.S. for the first time.

1970

1974

REINVENTION
A contract for the sale of
38 medium-sized pipelayers
launched China’s first oil
pipeline and Caterpillar’s
40-year history in China.

Setting forth the company’s beliefs
to guide the organization in all
aspects of its worldwide businessactivities, Caterpillar publishes
a Worldwide Code of Conduct.
Since then, the Code has been
updated five times to reflect thecompany’s culture and the everchanging business environment.

Business cycles have always been a part of our story.
Global recession in the early ‘80s and increased
competition caused a sharp downturn in productdemand that pushed us to the brink of bankruptcy.

1975

1981

A $1.8 billion facility
modernization program
streamlines manufacturing
processes and enhances
profitability.

Caterpillar and Mitsubishi
form one of the first joint
ventures in Japan to include
United States ownership.

Caterpillar acquires Solar
Turbines International fromInternational Harvester.

1986

1990

Business units reorganize
to become more accountable
for results.

4

2015 YEAR IN REVIEWDIVERSIFICATIONCat® engines with ACERT™
Technology were unveiled. The
technology represents a seriesof evolutionary and incremental
improvements developed byCaterpillar that dramaticallyreduced harmful pollutants andwaste emissions while maintaining
engine performance, efficiency
and durability.

Caterpillar introduces the Cat®
D7E in 2008 with a first-of-its-kindelectric drive system. Then in 2012,
we unveiled the Cat® 336E H – thefirst machine to use a novel hydraulichybrid technology developed byCaterpillar. In the same year, we
introduced the Cat® 966K XE
Wheel Loader – engineered todeliver superior efficiency by utilizing
an integrated Cat continuously
variable transmission system.

WHERE WE’RE
HEADED

Looking at how our customers can help meet theneeds of a global population expected to top 9 billion
by 2050, we execute a series of acquisitions to further
diversify our products and solutions offering.
2001

2006
TO
2013

Acquisitions of Progress
Rail, Electro-Motive Diesel,
Johan Walter Berg AB,
Bucyrus, MWM and Shandong
SEM Machinery Co., Ltd.

2008
TO
2012

We’re investing in the future and, as we always have,facing challenges head on and delivering the products
and services that will keep Caterpillar the industry
leader tomorrow, as it is today.

52015 YEAR IN REVIEWLEADERSHIPA MESSAGE TO SHAREHOLDERS

We will, as we always have, face the challenges
head on and deliver the products and services thatwill keep Caterpillar the industry leader tomorrow,as it is today.
DOUG OBERHELMAN
Chairman & CEO
Caterpillar Inc.

Dear Fellow Shareholders,Caterpillar faced a tough year in 2015, but we have successfully managed through many difficult economic cycles since ourfounding in 1925. This current cycle is particularly long – the external factors affecting us include weak economic growth,
especially in developing markets; depressed commodity prices; and mining, construction and infrastructure investments
down across much of the world.
Yet we remain financially strong and because of the actions we’re taking I believe we will,
as we have in the past, emerge stronger and always able to compete very effectively
around the world.
Our Response is Focused and Strong
Even in this environment, our market share for machines increased for the fifth year
in a row. I think that says a lot about what we’re getting done during this downturn,and what is possible when conditions recover. Our Enterprise Strategy was updated
in 2014, with full consultation and support of our board, and it continues to guide us
as we build on our strengths and shape our future.

“We’re restructuring
to remain strong
now and become
even stronger
tomorrow, because
this down cycle isnot permanent.”

Our product quality continues to improve and is as strong as I’ve ever seen it. Our safety record improved again in 2015,
with a 17 percent reduction in Recorded Injury Frequency (RIF), continuing the trend we’ve been on for many years. We
believe we’re achieving world-class levels of safety compared to those who have similar operations.
Why does safety matter to shareholders? Safety matters because it’s a solid indication of our employees’ and leadership’s
commitment to each other; it reduces costs and, in my opinion, indicates sound operational management.
Implementing Lean manufacturing from top to bottom in our operations – addressing the root cause of delays, defects andinefficiencies – is bringing these good results in quality and safety, and in gross margins and productivity. We’ve already seen
an up to 95 percent reduction in internal defects per unit and improvements in warranty, and we anticipate substantial
improvements as we further deploy Lean.
The capital expenditures we’ve made over the last few years mean our plants are modern, and our machinery and equipment
are up to date. These investments, coupled with Lean manufacturing improvements, also mean we’re prepared to handle morevolume and well positioned when recovery does come to our markets.
We continue to invest in new products and technologies, maintaining research and development spending throughout the
downturn. In fact, research and development spending as a percentage of sales is as high as it’s been in more than a decade.
6

2015 YEAR IN REVIEWA Message to Shareholders

DOUG OBERHELMAN Chairman & CEO, Caterpillar Inc. (continued)

We are aggressively moving through this tough business cycle focusing on cost management, innovation and producing
the highest quality products, including our Tier 4 emissions offerings, in the safest factories possible.
As a result of these efforts and ongoing restructuring, our balance sheet is strong. During 2015, we bought back $2 billionof shares and increased the quarterly dividend by 10 percent. We ended the year with a 39.1 percent Machine, Energy &Transportation (ME&T) debt-to-capital ratio and $6.5 billion of enterprise cash, which gives us the financial strength tomanage now and prepare for future opportunities. We have paid higher dividends for 22 consecutive years, and since2007 our cash dividend has more than doubled. Maintaining our dividend is a priority use of our cash.
One area that continues to frustrate us is inventory turnover. We have seen our top line decrease by $19 billion – almost
30 percent – since 2012. Our inventory declined $2.5 billion in 2015 and, while it’s difficult to improve efficiencies when
so many plants run on interim schedules, overall, it’s a favorable report on the status of our Lean journey. We’ll continue
to focus on this as we see more opportunity for upside in terms of inventory and asset turnover efficiency.
Our captive finance company, Cat Financial, is not only a great business, it’s also a great example of our integrated businessmodel. It’s been proven through several ups and downs, and its key metrics are in line with long-term averages. Past dues
actually improved last year and were down to 2.14 percent at the end of 2015, compared with 2.17 percent at the end of
2014. Cat Financial is healthy, well managed and risk is very much under control. It’s also proven to be a bit countercyclical.
In 2015, Cat Financial represented 6 percent of our sales and revenues; in the deep recession of 2009 it peaked at 9 percent.
It’s also important to know that we “stick to our knitting” with Cat Financial and provide financing only to Caterpillar
customers and Cat® dealers.
Continued Restructuring
We’ve continued to take costs out of our business to align with lower demand, including a painful but necessary major
restructuring announced in September 2015, which is in addition to significant restructuring that’s been occurring since2013. Our team moved quickly once we determined a recovery was unlikely in 2016. Our first step was a voluntary early
retirement program. We followed that with involuntary workforce reductions for a total workforce reduction of about 5,000
in 2015, and we plan a total reduction of 10,000 by the end of 2018. At the end of 2015, our workforce was down morethan 24,000, or about 17 percent, from its 2012 peak.
Through the end of 2015, we have already reduced about 4 percent of our manufacturing square footage. We plan further
closures and consolidations affecting about 20 facilities around the world, impacting more than 10 percent of our manufacturingsquare footage by the end of 2018. We anticipate approximately $1.5 billion of annual cost reductions through this major
restructuring and, because we acted quickly, we’ll recognize roughly half of that in 2016.
Where We’re Headed
Our board is an actively engaged, full partner reviewing and supporting our strategy and the actions we’re taking. We’rerestructuring to remain strong now and become even stronger tomorrow, because this down cycle is not permanent.
World population growth will continue to drive increased demand for energy, commodities, infrastructure and transportation –all of which require the power, endurance and sophistication of Cat® equipment. With our strategic focus on the long term,
and the prudent steps we’re taking now, we’ll be prepared to take full advantage of recovery when it comes.
You can read even more about our investments for the future in this report. I’ve already mentioned overall cost reductions, how
Lean manufacturing is improving our quality, safety and efficiency, and that we’re maintaining research and development spending.
You can also read about our sustainability accomplishments and goals in the Caterpillar 2015 Sustainability Report, What
We’ve Built. What We’re Solving. A few of the highlights in that report include how our products bring traditional, renewable
and alternative energy options to urban, rural and remote communities across the world. We do this, for example, throughdistributed power systems, which improve energy access while emitting fewer greenhouse gases than traditional power
grid systems. Additionally, we have been remanufacturing our products for more than 40 years, returning them to same-aswhen-new condition, and this conserves natural resources.

72015 YEAR IN REVIEWA Message to Shareholders

DOUG OBERHELMAN Chairman & CEO, Caterpillar Inc. (continued)

In 2015, we joined an effort to emphasize the vital role that restoration of natural infrastructure – forest, prairies, farmlands,
wetlands and coastal landscapes – plays in sustainable global development. Sustainability is an integral part of who we are,how we conduct our business and an essential commitment to our employees, customers and shareholders. Caterpillar also
supports the Caterpillar Foundation; and, since 1952, the Foundation has invested hundreds of millions of dollars to transform lives
through education, environmental stewardship and emergency relief. Today, the Foundation focuses on its mission to alleviate theroot causes of poverty by supporting microfinance and access to clean water and better sanitation worldwide.
We’re executing our strategy on several other fronts as well.
This was our second year implementing what we call Across the Table, named after the title of a book written by three
Caterpillar managers in 1926. That book defined then – and to a large extent still does today – the principles that have built
our unparalleled worldwide distribution network of 175 Cat® dealers with more than 160,000 employees and thousands oflocations serving 182 countries.
Our strong dealer distribution network thrives on the existing machine population. So when times are difficult, as they are
now, we’re able to add value for our customers by helping them achieve the lowest owning and operating costs throughour sales and service network that reaches every corner of the globe.
Through Across the Table, we’re strengthening our expectations of Cat dealers and the Caterpillar teams that support
them. We’re working with our dealers to improve their capabilities, governance and accountability. There are about a dozen
specific projects underway, everything from expanded e-business to digital technology solutions connecting our machines andengines to our customers.
And this leads me to our ongoing investments in digital technology. We talked a lot about that this year, including a joint
venture with a key partner and closer ties with other existing and traditional partners. Digital transformation is a reality for
the world and for our industry and while the investment is challenging given current business conditions, we are going tolead that transformation.
What we are aiming at is quite a bit different than others. We want our customers to get the most out of – not only their
Caterpillar equipment – but all the equipment in their fleet. We already have more than 350,000 Cat machines and 50,000
engines, turbines and locomotives actively connected worldwide, and a total installed base of three million machines andengines.
We’re going to enhance telematics and data analytics offerings across our equipment – and across other brands, too –because we want to help our customers succeed, just as we’ve been doing for 90 years.
We will continue to create even more value for our customers, reducing downtime and lowering owning and operating
costs by predicting failures and, for example, enabling them to take fewer passes across the dirt to get the job done.
Our customers will see even better fuel economy and efficiencies as we analyze the overwhelming amount of data
we receive and then send it back to them, to our dealers, and even to our factories in a way we’ve never been able to do
before. I’m pleased with how quickly we are growing our capabilities here – in a much shorter cycle than our traditional
iron-product development – and that’s what is needed.
In these difficult times, we’re investing in the future while managing what we can control today. We will, as we always have,face the challenges head on and deliver the products and services that will keep Caterpillar the industry leader tomorrow,as it is today.

Doug Oberhelman
Chairman and CEO
82015 YEAR IN REVIEWFROM LEFT TO RIGHT
Thomas A. Pellette, Edward J. Rapp, Denise Johnson, David P. Bozeman, Douglas R. Oberhelman, Robert B. Charter, D. James Umpleby III, Bradley M. Halverson, James. B. Buda

LEADERSHIP

OFFICERS
Chairman of the Board& Chief Executive Officer
Douglas R. Oberhelman

Group Presidents
Robert B. Charter
Thomas A. Pellette
Edward J. Rapp
D. James Umpleby III
Denise Johnson –effective 2016

Group President &Chief Financial Officer
Bradley M. Halverson

Executive Vice President,
Law and Public Policy &Chief Legal Officer
James B. Buda

Vice Presidents
Kent M. Adams
William P. Ainsworth
Mary H. Bell**Thomas J. Bluth
Wai Man (Raymond) Chan
Qihua Chen
Frank J. Crespo
Christopher C. Curfman**Bob De Lange
Michael L. DeWalt
Paolo Fellin
William E. Finerty**
Gregory S. Folley
Thomas G. Frake
Kimberly S. Hauer
Gwenne A. Henricks

Kenneth J. Hoefling*
Douglas O. Hoerr
Denise C. Johnson
Kathryn D. Karol
Philip G. Kelliher
Pablo M. Koziner
Julie A. Lagacy
Nigel A. Lewis

Steven W. Niehaus
E. Jean Savage
Mark E. Sweeney**
George H. Taylor, Jr.
Tana L. Utley
Karl E. Weiss
Ramin Younessi

Chief Accounting Officer
Jananne A. Copeland

Assistant Treasurer
Sally A. Stiles

Chief Ethics andCompliance Officer
Lance W. High

Assistant Secretary
Patrick G. Holcombe

Corporate Controller
Jill E. Daugherty

Chief Audit Officer
Kimberly R. Doe

Senior Vice President
David P. Bozeman

Corporate Secretary
Christopher M. Reitz

Assistant Secretary
Joni J. FunkTreasurer
Edward J. Scott*Appointed in 2015**Retired in 2015

9

2015 YEAR IN REVIEWFROM LEFT TO RIGHTDavid L. Calhoun, Dennis A. Muilenburg, William A. Osborn, Debra L. Reed,
Daniel M. Dickinson, Edward B. Rust, Jr., Miles D. White, Jesse J. Greene, Jr.,
Douglas R. Oberhelman, Jon M. Huntsman, Jr., Susan C. Schwab, Juan Gallardo

LEADERSHIPBOARD OF DIRECTORSDAVID L. CALHOUN, 58, is Senior Managing Director and Headof Private Equity Portfolio Operations of The Blackstone Group L.P.
(private equity firm). He was previously Executive Chair of Nielsen
Holdings N.V. (2014-2015). Prior to his position at Blackstone,
Mr. Calhoun served as Chairman of the Executive Board and Chief
Executive Officer of The Nielsen Company B.V. (2006-2013) andVice Chairman of General Electric Company and President andChief Executive Officer of GE Infrastructure (2005-2006). Other
current directorships: The Boeing Company and Nielsen Holding
PLC. Other directorships within the last five years: Medtronic,
Inc. Mr. Calhoun has been a director since 2011.
DANIEL M. DICKINSON, 54, is currently Managing Partner of
HCI Equity Partners (private equity investment). Other current
directorships: HCI Equity Partners. Other directorships within
the last five years: Mistras Group, Inc. and Progressive Waste
Solutions Ltd. Mr. Dickinson has been a director of the Company
since 2006.
JUAN GALLARDO, 68, is currently Chairman of the Board andCEO of Organización CULTIBA (holding company of Grupo Gepp
and Grupo Azucarero Mexico) and Chairman of Grupo GEPP
S.A.P.I. de C.V. (Pepsicola bottling group and its brands in Mexico).
Other current directorships: Grupo Financiero Santander S.A.B.
de C.V. Other directorships within the last five years: Lafarge SA.
Mr. Gallardo has been a director of the Company since 1998.

JESSE J. GREENE, JR., 70, is currently an instructor at Columbia
Business School in New York City where he teaches corporate
governance, risk management and other business topics at thegraduate and executive education levels. He was formerly Vice
President of Financial Management and Chief Financial Risk Officerof International Business Machines Corporation (computerand office equipment). Mr. Greene has been a director of theCompany since 2011.
JON M. HUNTSMAN, JR., 55, former United States Ambassador
to China (2009-2011) and former governor of Utah (2005-2009).
Other current directorships: Chevron Corporation, Ford Motor
Company and Hilton Worldwide. Other directorships within thelast five years: Huntsman Corporation.
DENNIS A. MUILENBURG, 51, has been President and Chief
Executive Officer of The Boeing Company (aerospace/defense
products and services) since July 2015. Prior to his current position,
Mr. Muilenburg was Vice Chairman, President and Chief Operating
Officer of The Boeing Company (2013-2015). Prior to that, he was
Executive Vice President of The Boeing Company and President
and Chief Executive Officer of Boeing Defense, Space & Security(2009-2013). Mr. Muilenburg has been a director since 2011.

10

2015 YEAR IN REVIEWLEADERSHIPBOARD OF DIRECTORSDOUGLAS R. OBERHELMAN, 62, is currently Chairman andChief Executive Officer of Caterpillar Inc. Prior to his current
position, Mr. Oberhelman served as Vice Chairman and Chief
Executive Officer-Elect and as a Group President of Caterpillar
Inc. Other current directorships: Exxon Mobil Corporation. Other
directorships within the last five years: Ameren Corporation andEli Lilly and Company. Mr. Oberhelman has been a director of
the Company since 2010.
WILLIAM A. OSBORN, 68, was formerly Chairman and CEO
of Northern Trust Corporation (multibank holding company) and
The Northern Trust Company (bank). Other current directorships:
Abbott and General Dynamics Corporation. Other directorships
within the last five years: Tribune Company. Mr. Osborn has
been a director of the Company since 2000.

EDWARD B. RUST, JR., 65, is currently Chairman of State Farm
Mutual Automobile Insurance Company (insurance). Previously
he served as CEO of State Farm Mutual Automobile Insurance
Company and as Chairman, President and CEO of State Farm
Fire and Casualty Company, State Farm Life Insurance Company
and other principal State Farm affiliates. He also previously served
as President of State Farm Mutual Automobile Insurance Company
and Trustee and President of State Farm Mutual Fund Trust andState Farm Variable Product Trust. Other current directorships:
Helmerich & Payne, Inc. and McGraw-Hill Financial, Inc. Mr. Rust
has been a director of the Company since 2003.

SUSAN C. SCHWAB, 60, is currently a Professor at the Universityof Maryland School of Public Policy and a Strategic Advisor for
Mayer Brown LLP. Prior to her current positions, Ambassador
Schwab held various positions including United States Trade
DEBRA L. REED, 59, has been Chairman of the Board of Directors Representative (member of the President’s cabinet) and Deputyof Sempra Energy (energy services holding company) since 2012 United States Trade Representative. Other current directorships:
and its Chief Executive Officer and a director since 2011. Prior to FedEx Corporation, Marriott International, Inc. and The Boeing
her current position, she was Executive Vice President of Sempra. Company. Ambassador Schwab has been a director of the
Other current directorships: Halliburton Co. Directorships within
Company since 2009.
the last five years: Avery Dennison Corporation. Ms. Reed has
been a director of the Company since 2015.
MILES D. WHITE, 60, is currently Chairman and Chief Executive
Officer of Abbott (pharmaceutical and medical products). Other
current directorships: Abbott and McDonald’s Corporation. Mr.
White has been a director of the Company since 2011.

11

2015 YEAR IN REVIEWDATA ANDINNOVATION
For 90 years, Caterpillar has delivered breakthrough innovation inside our machines and engines.
Today, that innovation is increasingly happening outside the machine. We’re going “beyond theyellow iron,” harnessing the power of big data to offer our customers insights that decrease
operating costs, increase uptime and maximize profitability. In the process, we’re shaping a
new era for Caterpillar in which we not only manufacture machines and engines, but also deliver
value-added solutions that take our customer relationships to an entirely new level.

IN THIS SECTION:• Solar™ InSight System™ Turns Data Into Action• Safety Services Keep Customers Alert to Fatigue• Customer Input Shifts Cat® 994K Design Into High Gear
• Cat® Command Steers Mining in a New Direction• Investing in R&D

122015 YEAR IN REVIEWDATA AND INNOVATIONSOLAR™ INSIGHT SYSTEM™
TURNS DATA INTO ACTION

Marco Leon pulls out his phone. In a matter of touches, Marco, Development Manager – Connected Product, isanalyzing the terabytes upon terabytes of data on Solar Turbines’ more than 1,500 connected units in 56 countries.
At Solar Turbines, a Caterpillar subsidiary and manufacturer of mid-sized industrial gas turbines, folks like Marco Leonare focused on the data that drives decision-making in machine health, product development and customer support.
They have to be, because it’s an important business for customers who operate some of the world’s largest oil
and gas companies: If the equipment isn’t working, then they’re not making money.
“The data is like gold,” said Leon. “If you just become a commodity provider, forget it, you’re out of the game.
You have to figure out how to turn the data into action.”
Helping customers succeed by turning data into action was Solar’s goal when creating the Solar™ InSight System™, apredictive analytics platform with 28 different capabilities. It was purposely built for equipment health management. Using
data collected since 2003, Solar™ InSight System™ provides a huge volume of information to design better equipment
and improve the ability to detect and solve customers’ operational and product issues faster. (Continued on page 14)

TRANSFORMATIVE TECHNOLOGIES
Caterpillar is challenging everyday processes throughout our
entire pipeline, from product design to service in the field, witha view to doing things better. Some of the emerging technologies
helping to differentiate Caterpillar and delight customers andemployees alike include:
3D Printing – If a part goes wrong on the line, a 3D Printing team
can quickly produce a temporary tool that keeps the line up andrunning and serves as a working prototype for a permanent solution.
Advancements in the technology will soon make it possible forCaterpillar to 3D print a part right on the job site as a permanent
solution or until a production part is available.
Augmented Reality (AR) – To help equipment owners maximize
utilization, Caterpillar engineers continue to explore emerging technologies, such as augmented reality. Like smart phones, AR glasses
are constantly evolving, becoming more advanced, smaller, lighter,faster and more affordable. These shifts have not gone unnoticed
by our engineers, who are looking at ways to equip customers withthese cutting-edge tools in the future to improve safety, speed andquality. Right now, our teams are testing AR technology with the aimof giving machine service technicians access to rapid, hands-freetechnical information, voice commands and even service specialists
while they conduct safety inspections, perform maintenance and orderparts. As platforms and connectivity evolve, Caterpillar’s solution

engineers are committed to leveraging today’s technology to boost
technician confidence and enhance customers’ bottom lines. Find out
more here.
Emerging technologies like AR and 3D Printing are part of Caterpillar’s
push to drive innovation and redefine what it means to be a relationshipbusiness in the digital age.
Big Data Analytics and Uptake – Caterpillar’s commitment to digitaltransformation includes an investment in big data and analytics. We
already have highly capable analytics teams working on solving ourcustomers’ most pressing problems. But we’re also working with external
experts, like Uptake Technologies – Forbes magazine’s hottest startup
of 2015. Customers use our sophisticated technology solutions today
to monitor their fleets, track fuel efficiency, idle times, location and toproactively predict required equipment maintenance prior to component
failure. Our existing solutions are effective, but we’re working to takethem to the next level, expanding what we’re known for to change thefortunes of our customers worldwide. Our relationship with Uptake
will combine Caterpillar’s world-class product engineering and design
capabilities with Uptake’s software, application and data analytics
expertise. As a result, Caterpillar will be able to transform the massive
amount of incoming data we receive every day into even more useful
information to feed back to our customers for on-the-spot decisions
and planning purposes to further reduce owning and operating costs.
13

2015 YEAR IN REVIEW

Solar™ Insight System™ (continued)
Solar™ InSight System™ helps customers better manage risk with predictive alerts before machine faults happen andprovides customers with real time access to their equipment via a mobile app. Customers don’t see problems
because Solar InSight, and the Fleet Manager, are anticipating them. The proof is in the numbers. Solar has
avoided more than 450,000 hours of unplanned downtime for its customers.
As Leon puts it, those results happen even faster when data is available and people – fromproduct support to design engineers to dedicated fleet managers – work in harmony.
“We’re providing the technology, but they’re the ones who are interfacing with thecustomer and know the site, the control system and the equipment,” Leon says.
“Having the data and information now in your pocket is kind of like having electricity inthe home – once you had it, you couldn’t figure out how you could ever live without it,”Leon said. “We are accelerating the development of new capabilities. It’s a race without
a finish line.”

Solar has avoided morethan 435,000 hours of
unplanned downtime
for its customers.

1966

Originally installed in 1966, these five
SATURN GAS TURBINES have been operatingin Centerville, Louisiana, for five decades. “I wantthem to run for another 50 years.” – Bobby Newsom,
Controls Technician and Electrician, Trunkline
Gas Company.

14

2015 YEAR IN REVIEWDATA AND INNOVATIONSAFETY SERVICES KEEPCUSTOMERS ALERTTO FATIGUE
For years, some of our customers have puzzled over what they call “unexplained incidents” – accidents where
there is no apparent fault in the machine, and the root cause can’t be identified. Upon investigation, many such
incidents are attributed to operator fatigue, one of the top risk factors in the industries Caterpillar serves. Caterpillar
Safety Services is responding to this challenge with a solution that combines technology and cultural change tohelp customers see, mitigate and manage fatigue on the job site.

Caterpillar’s Safety
Services is responding
to this challenge with asolution that combines
technology and culturaldevelopment to help
customers see, mitigate
and manage fatigue on
the job site.

Often, the first step to addressing fatigue is using the Fatigue Avoidance Scheduling
Tool (FAST) to identify areas of risk and develop optimal work schedules. One data point
into FAST can be the Cat® Smartband, a wearable technology that allows customer
employees to track their fatigue level in real time and provides longitudinal data about
sleep quantity and quality.
In addition, for equipment operators, the in-cab Driver Safety System (DSS) monitors
second-by-second fatigue and distraction data. Cameras watch the behavior of an
operator’s face and eyes and immediately alert them to signs of fatigue before an
incident occurs. The data is also viewed by Caterpillar safety advisors in our 24/7
fleet monitoring center, who classify potential fatigue events and can alert job sitemanagement if necessary.

Caterpillar safety advisors can correlate data fromthe DSS, Smartbands and FAST with data from monitoring solution softwareon the equipment itself to produce a detailed management report that clearly
outlines the scope of risk in operations. Customers can thus make practicaluse of information that was previously invisible, in order to create safer,
healthier conditions for their employees.
We find that the best results come from combining technology with people
solutions. So, along with on-site manager workshops that increase customers’
awareness of fatigue and distraction and help them build their overall safety
culture, Caterpillar uses digital analytics to pinpoint and quantify trouble areas,
empowering customers with data.

15

2015 YEAR IN REVIEWDATA AND INNOVATIONCUSTOMER INPUTSHIFTS CAT® 994K DESIGNINTO HIGH GEAR
When we look to design a new Cat® machine for optimal performance on the job site, we’ve learned that thecustomer knows best. That’s why we tapped into valuable customer input when designing the Cat® 994K wheel
loader. Continuously leveraging the voice of our customers every step of the way, the Cat 994K development teamreviewed the product design with 24 dealers and customers at critical junctures throughout the design process.
Utilizing their feedback ensured this machine would be a true representation of the field’s product needs. Modifications were then made to the design before any steel was cut.

Touted as “bigger on theoutside and better on theinside,” the Cat® 994K
increases payload by
29 percent and improves
cost per ton by 8 percent
over the previous model.

The development of the Cat 994K Large Wheel Loader has brought new meaning to
responding to the voice of our customers. A platform refined over five models and25 years, the 994 has been a mainstay in our line-up, helping our customers move
more. The fifth iteration and Caterpillar’s® largest wheel loader to date, the Cat 994K
was launched in January 2016 and was redesigned from the ground up, deliveringlarger payloads and greater efficiencies.

As a result, the Cat 994K is positioned to lead the industry in safety and serviceability,with improved machine access and visibility, along with a best-in-class operator
environment. With a complete suite of technology-enabled solutions, the Cat 994K
helps our customers manage productivity and efficiency. Touted as “bigger on theoutside and better on the inside,” the Cat 994K increases payload by 29 percent and improves cost per ton by
8 percent over the previous model. The resounding success of the Cat 994K design process is a true testament
to the power of collaboration between Caterpillar, our customers and dealers.

SIMULATION LEADS TO PRODUCTDESIGN OPTIMIZATION AND EFFICIENCY

1990

the CAT® 994 went into
production. Twenty-five years later webuilt the first CAT 994K on its brandnew platform.

The increased use of simulation in the development of everything from powersystems to machine structures has truly allowed Caterpillar to improve overall
product development efficiency, sharpening product quality and reducing time
to market. Simulation reduces or eliminates the need for prototypes to be usedin the design phase of development.
The large wheel loader team leverages the use of simulation in each new
product development program. In fact, the first full phase of the Cat 994K
product design, which is the largest wheel loader in Caterpillar history,
was done virtually, and simulation touched every area of this new centerline
machine at some point along the way.

16

2015 YEAR IN REVIEWDATA AND INNOVATIONCAT® COMMANDSTEERS MINING
IN A NEW DIRECTION
A fleet of gigantic Cat® 793 haul trucks rumbles along the dusty, red-sand haul roads of the Solomon mine in avast, arid region of Western Australia. Working continuously, 24/7, the trucks maneuver through mine site traffic,
back up into loading points and navigate to dump sites – all with minimal human intervention.
Iron is the reason Fortescue Metals Group (Fortescue) is there. At full operation, the new Solomon mine is projected
to deliver 70 million tonnes of ore annually. It’s a big job – and one that demands safety and maximized productivity.
That’s where Caterpillar’s deep understanding of the mining industry and our customers’ needs put us in the ideal
position to offer semi-autonomous and autonomous solutions such as Cat® Command for Hauling. The realizationof a longtime dream of the mining industry, Cat Command has improved safety and productivity.
Trucks operating with Cat Command for Hauling use sophisticated onboard intelligence and advanced guidancetechnology, so a small number of people can run the whole project and centralize the control. For job sites suchas underground mines, autonomous solutions are fast becoming a safety necessity.
Since its inception, Cat Command has gone through a progression of offerings. Semi-autonomous solutions suchas Command for Dozing, for instance, allow one operator to oversee up to three semi-autonomous Cat® D11s –Caterpillar’s largest dozers – by remote control. There’s even an option where the operator has no line of sight tothe dozers and uses cameras for feedback.
”Every mine takes a different journey to autonomy,” explains Sean McGinnis, product development manager.
“But that path always leads to a safer, more productive mine site. Cat Command reduces variations in the way themachine is operating, ensuring that it operates the same way, every time. It’s like having the mine’s best operator
at the controls, but he or she is located safely away from any potential hazards. It’s the best of both worlds:
increased productivity combined with increased safety.”
Today, the Cat Command concept continues tomeet customer needs in ways that we couldn’t
anticipate five years ago. That’s what makes
innovation exciting and what energizes us to keep
finding solutions that make a real difference.

17

2015 YEAR IN REVIEWDATA AND INNOVATIONINVESTING
IN R&D$2,165M
2015 R&D Spend

1,667

Total Patents
Granted in 2015

190

Completed New
Product Programs

15,953

Total Number ofPending and Granted
Patents Worldwide

33

New technologies
transferred from R&D to the
New Product Introduction
development pipeline18

2015 YEAR IN REVIEWCUSTOMERSUPPORT

Our business strategy is a simple one: make our customers more successful. We work with ourdealer network every day around the world to ensure that success – at construction sites andmining quarries and power plants. Our goal is to speed the delivery of customer support bybeing an agile organization positioned to respond efficiently and effectively to customer needs.
Because when our customers win, we win.

IN THIS SECTION:• Cat Financial Lends a Hand
• Innovation Keeps Rail Business on Time and on Track• Cat® GRADE With Slope Assist Makes the Grade• Homestead Dairy Turns Problem Into Profit• Innovation Made Simple – and Profitable with Job Site Solutions• Productivity Solutions That Promise to Wear Well

19

2015 YEAR IN REVIEWCUSTOMER SUPPORTCAT FINANCIALLENDS A HAND
When customers fall on hard times, Caterpillar Financial Services Corporation sees it as an opportunity todemonstrate that they are not a bank, but a partner who understands their customers’ needs and industry.
That’s exactly what happened when Customer Account Specialist Filecia Davis called to check on a logging
customer when his usual payment hadn’t arrived on time. She learned that a tree had fallen on the customer
and fractured his back in two places. He was obviously out of work and anticipating high medical bills on top of
his usual expenses. As Davis listened to his wife explain the situation and their needs, she knew Cat Financial
could help.

We can’t always anticipate
our customers’ challenges,
but when they arise, we
can demonstrate that weunderstand what’s mostimportant: their business,
employees and families.

When Davis hung up the phone, the Cat Financial team went to work. Davis, along with
Customer Account Manager Bill Schowalter, Customer Solutions Support Manager
Patrick Carnell and Territory Manager Reed Campbell, approved five months of skipped
payments and loan restructure documents in less than 48 hours.
“We understand things happen to our customers that they can’t control,” Carnell said.
“Modifications are a great way to show support for our customers and that we havean understanding of their industry that a bank may not demonstrate.”
Knowing that his business assets were secure, the customer could concentrate on
getting better and gradually coming back to work.

We can’t always anticipate our customers’ challenges,
but when they arise, we can demonstrate that weunderstand what’s most important: their business,
employees and families.

BLUEPRINTING 2.0
Caterpillar’s commitment to superior customer support
is behind a new Cat Financial exercise, Blueprinting 2.0,
that has been completed in several countries. Participants
are encouraged to walk through the business experiencefrom the customer’s point of view, determine customer
emotions at different parts of the process and identify
areas for improvement. After the exercise, action plans
are developed and implemented. It’s just another way
Cat Financial goes the extra distance to ensure we havecustomers for life.

20

2015 YEAR IN REVIEWCUSTOMER SUPPORTINNOVATION KEEPSRAIL BUSINESSON TIME AND ON TRACK
As long as there have been railroads, there has been someone glancing at a clock to see if the trains are running onschedule. For a railroad, reliability is everything, and the industry continually seeks better ways to get trains where
they need to go, safely and on time. Today, advances in technology and innovation are transforming global railtransport. And Caterpillar’s rail business is leading with innovative solutions that tackle some of the most challenging
problems facing the industry.

For a railroad,reliability is everything,
and the industry
continually seeks betterways to get trains where
they need to go, safely
and on time.

Analytic Solutions for EMD Locomotives
The advantages of condition-based, as opposed to time-based, maintenance are clear.
If customers can predict when a component needs to be changed before failure occurs,
unplanned downtime can be greatly reduced, or even eliminated. Progress Rail, alongwith Uptake – an analytics provider – are making this possible through an advanced
technology platform that allows customers to collect data from a variety of railroad
equipment and business systems. The data yields insights to enable customers toaddress problems before they happen, thereby maximizing asset utilization, efficiency,
performance and profitability.

Multi-Inspection Radar Appliance (MIRA)
Train crossings that use the same infrastructure as cars, trucks and other vehicles have always been potentiallyhazardous – often due to vehicles’ ignoring installed signals and/or barriers. MIRA includes the best features fromprevious level crossing protection solutions, plus enhancements based on customer experience, as well as new
European Union requirements. For example, MIRA can detect, from multiple vantage points, when an object isblocking the tracks and send a signal back to the train, so that it can immediately begin decelerating.

PowerView Event Recorder
When something does go wrong, rail customers need tools that provide deep insight into what contributed tothe event, so they can take steps to help prevent it from happening again. The new Progress Rail™ PowerView
Locomotive Event Recorder and Playback Software, along with Progress Rail’s inspection and information systems,
give customers access to the next generation of “black box” technology for the rail industry. With a focus on easeof use, all data is combined in a synchronized format, including video, data, GPS mapping and more, while a fullgraphical interface enables enhanced visualization of events.
Today’s railroad operators can be far more proactive in keeping their trains running efficiently and safely. Thanks to
Progress Rail and strategic alliances, there are more ways than ever for our rail customers to stay on time and on
track with their industry.

21

2015 YEAR IN REVIEWCUSTOMER SUPPORTCAT® GRADE WITH SLOPEASSIST MAKES THE GRADE
For an operator, grading a job site is no easy task. Achieving the correct slope and grade can require constantmanual adjustment, and rework is common. According to our customers, they need dozers that can help them bemore productive, more efficient and achieve a consistently higher quality of work. We’ve listened and answeredwith Cat® GRADE with Cat® Slope Assist, a truly game changing Cat® Connect Technology that helps operators
get more work done faster by automating blade adjustments, without requiring added investment in GPS systems.
Cat® Slope Assist is a factory-integrated blade control system for Track-Type Tractorsthat helps operators reach target slope fast by automatically maintaining the dozer
blade’s established blade angles. The operator can simply program the desired 2-D
slope from the cab without grade stakes or GPS equipment. Slope Assist automatically adjusts blade movements to maintain the precise blade angle throughout thecut. The operator can concentrate on machine speed and direction while Slope
Assist takes care of the precision blade work.
Cat Slope Assist enables operators to finish grades up to 39 percent faster, with bettersurface quality and significantly less operator effort.

Cat® Slope Assist enables
operators to finish grades
up to 39 percent faster,with better surface quality
and significantly lessoperator effort.

Differentiated technology like Cat Slope Assist comes from keeping the conversation with our customers robust
and relevant. That’s a formula for customer success and lasting, mutually profitable relationships between themand Caterpillar.

1977 CATERPILLAR

showcaseda new innovation, THE TRIANGULAR-TRACKELEVATED SPROCKET SYSTEM, on the Cat® D10.

22

2015 YEAR IN REVIEWCUSTOMER SUPPORTHOMESTEAD DAIRY TURNSPROBLEM INTO PROFIT

Based in Plymouth, Indiana, Homestead Dairy began as a modest family farm with only 110 cows. In 1979, brothers
Floyd and Dan Houin purchased the farm from their dad and turned it into the massive dairy operation that it istoday. The dairy now hosts 1,800 milking cows and 300 dry cows, while an additional 1,700 cows come in fromthree nearby facilities for milking. However, more cows means more manure, and the odor directly impacted
nearby residents.
The Houins saw the possibility to turn a problem into a profit. They decided to build a biomass waste-to-energy
facility that could convert the manure into electric power. Floyd knew that Homestead Dairy’s equipment would
need to run 24/7 with minimal downtime, so dependability was the deciding factor in choosing Caterpillar to
supply the power. In researching the project, Floyd Houin toured a farm with a renewable energy facility that ran
at peak efficiency, even with their older-model Cat® generator sets. That’s when the Houins knew they’d trust
their project to Caterpillar.
Homestead Dairy partnered with local Cat® dealer, Michigan Cat, to customize a power generation system forHomestead Green Energy, the energy-producing business within the dairy – two Cat® G3512A generator sets andancillary equipment. (Continued on page 24)

POWER TO PRESERVE THE PASTThe beautiful grounds and stunning architecture of Thomas Jefferson’s
historic residence, Monticello, functions today as an important U.S. landmark,world-class museum and academic think-tank, attracting more than 400,000
annual visitors.
Located outside of Charlottesville, Virginia, Monticello also houses one of thecountry’s oldest and largest collections of historic documents. To help preserveand protect those irreplaceable collections for future generations, Caterpillar
donated a 500kW Cat® C15 generator set, with local Cat dealer Carter Machinery
providing the technical support, commissioning and testing. This followed
a previous donation of a 350 kW Cat® C15 diesel generator set that provides
standby power for Monticello’s Robert H. Smith International Center for
Jefferson Studies.
The donations were part of the estate’s “Mountaintop Project,” a multiyear
effort to authentically restore the house and grounds to their appearance during
Jefferson’s retirement. We are proud to see these valuable assets entrusted tothe quality and reliability of Cat® products.

23

2015 YEAR IN REVIEW

1969

CAT® ENGINES supply
power for the APOLLO 11
MISSION to the moon.

Homestead Dairy (continued)
Homestead Green Energy has been in constant operation since October 2013, and the Cat® generator sets are
essential to the waste-to-energy process. The manure is collected in pools and piped 1,700 feet to a pair of mixing
tanks that empty into two anaerobic digesters. Once inside the tanks, the waste is heated and treated with microbesthat produce methane gas, which is used to fuel the gas generators. Generator exhaust heat and jacket water
heat are used to warm up the digesters as part of the fermentation process.
Beyond odor reduction and the financial return from producing electricity, Homestead Dairy uses the dewateredsolids from the digesters as clean bedding for the cows. Additionally, the liquid nutrient byproduct is held in lagoons
and used to fertilize the farm fields.
“By turning this abundant substance into an income stream, we’ve made the dairy more profitable,” said Ryan
Rogers, plant operator for Homestead Green Energy. “It also helps increase nutrient value, which is great for theenvironment. The crops absorb the manure better, and odor reduction for the community is a huge benefit.”
The Homestead Green Energy installation demonstrates the economic viability of smaller-scale, waste-to-energy
operations to create wins for business, the community and the environment.

24

2015 YEAR IN REVIEWCUSTOMER SUPPORTINNOVATION MADE SIMPLE –AND PROFITABLE
WITH JOB SITE SOLUTIONS
Near the end of his shift, a mine truck operator glances up at the dashboard mounted in his cab. The simple display
shows that he exceeded several production targets. However, according to the data, there’s room for improvement.
Payloads can be increased and load times reduced.
That’s valuable information with the potential to increase efficiency, productivity and asset utilization – all of which
contribute to the bottom line. But technology and data have little worth until the value is extracted and transformed
into actionable tasks. Caterpillar is uniquely positioned to do just that. We are forging ahead into areas of unprecedented collaboration with our customers and dealers to develop the capabilities and processes that put technology
and data to work, with bottom-line results for our customers, dealers and Caterpillar.
With Job Site Solutions, we’ve made it easier than ever for customers tocollect raw data from their machines, and we provide the technology tointerpret that data into tangible information that means something to them.
The next step is to analyze the data to better understand the customers’
unique challenges and opportunities. Simple, real-time data can show them
what went wrong (or right) on the last run, how they’re doing against theirproduction goals, whether they have the right number of trucks on theroute or need to reduce wait times – nearly every aspect of their operations
is factored in.
Once we’ve established a baseline, and it’s clear what needs to beaccomplished, Caterpillar becomes a trusted, hands-on partner in ourcustomers’ production and fleet management. Importantly, their costs
for these solutions are based solely on the actual value received from theimprovements we help them implement. It’s about pay for performance.
In very concrete terms, when the customer wins, we win.
Through these solutions, we are delivering on the performance and value premium of Cat products and extended
enterprise. Customers gain increased throughput and can invest more in their businesses. It’s a way in which
Caterpillar, our dealers and our customers can realize and share gains together, helping improve efficiency andprofitability, as well as sustainable, long-term relationships.

25

2015 YEAR IN REVIEWCUSTOMER SUPPORTPRODUCTIVITY SOLUTIONSTHAT PROMISE TO WEAR WELL

In the heavy equipment industry, time is money. If worn-out parts suddenly fail, costly shut downs could
be needed until the part is repaired or replaced. Caterpillar employees and Cat® dealers work hard every day
to make sure that doesn’t happen. And now, new digital technology is helping better equip customers anddealers to avoid failure before it happens. Specifically, the ability to better measure wear rates and manage
replacements could save customers hundreds of hours and millions of dollars. That’s the idea behind thedevelopment of a mobile tool that can collect wear measurement data from a part and sync that data withthe customer’s Cat dealer to receive an instant, reliable analysis.

AN INTERCHANGE THAT’S BUILT TO LAST

Seamless communication and execution is key for any
project to run efficiently and profitably. But, for some, it’sabsolutely vital. As customer Kiewit rebuilds the nearly
50-year-old Turcot Interchange in Montreal, Canada,Cat® dealer Hewitt using the latest connected worksite technology from Caterpillar is helping them optimize
and supplement over 60 pieces of machinery while
updating the intersection of 145 kilometers of road,
11 kilometers of highway and a railway line – all by 2020
and at the lowest cost per ton and per hour. See how
Hewitt is helping meet complex and unique challenges,
so their customer can focus on the job at hand.
VIEW HERE

In 2015, Caterpillar began working together with outside experts
to provide measurement tools for the heavy equipment industry –tools that make it easier for customers to measure wear inorder to optimize fleets. The goal is to bring customers simple
processes on web-based and mobile platforms that provide
accurate, immediate access to useful, real-time data while stillin the field. And that’s something Caterpillar customers like
Dale Losh, fleet manager for Gradex Inc., don’t take for granted.
“Being able to predict when that one major component isgoing to be at the end of its life cycle is pretty important to me
because then I can schedule my maintenance and downtime,”
explained Losh. “In turn, that really affects the bottom line, andthat’s what it’s all about.”
Caterpillar is committed to staying out in front as emerging
technologies revolutionize our industry. We have more opportunities than ever before to help our customers maintain acompetitive advantage and achieve new levels of equipment
productivity and profitability.

1920s CATERPILLAR’S

Undercarriage story started with the original
CAT® TRACK-TYPE TRACTOR, and it’s still an
integral part of our business today.

26

2015 YEAR IN REVIEWEFFICIENCYIn an insistent and urgent world, winning organizations make the most of every minute, resource
and opportunity. Caterpillar is going after that win by leveraging Lean, Engineered Value Chains andbuilding strong Foundational Capabilities throughout our value chain to fulfill our Customer Service
Promise, maximize Operating Profit After Capital Charge (OPACC) and create a competitive advantage.
We’re becoming a more disciplined, less complex organization that is committed to finding smarterand faster ways to work across the enterprise. This translates into a powerful competitive advantagethat helps Caterpillar improve market position and sustain long-term success.

IN THIS SECTION:• Shaving Weeks Off Delivery Time
• Our Lean Transformation• A Global Supply Network That Delivers Under Pressure• 600 Vending Machines. 100 Facilities. 1 Goal.
• Streamlining Customer & Dealer Support

27

2015 YEAR IN REVIEWEFFICIENCYSHAVING WEEKSOFF DELIVERY TIME
When an order for a new Cat® 777G off-highway truck comes in, a process begins that can take up to 20 weeks
to delivery – a span of time that doesn’t always work in today’s fast-paced and competitive business arena. That’s
where Caterpillar’s Engineered Value Chain approach comes in. It’s the innovative way Caterpillar is redesigningits end-to-end business to better understand market requirements and meet customer expectations.
Caterpillar’s off-highway truck team realized success with its Engineered Value Chain program when it launcheda finish to order (FTO) pilot build of the Cat 777G. The team’s goal: to maximize speed to the customer.
When the pilot was completed, the team had shaved eight weeks off delivery to the customer. At the same time,
Caterpillar reduced the number of configurations by over 80 percent without reducing customer choice.
With FTO, the chassis is pre-built with upgraded options, such as common fuel lines and extended-life brakes.
The chassis is held in strategic inventory so that when an order comes in, we can box the components and ship
the order to the dealer for final assembly, thereby driving simplicity, improving quality and stabilizing our supply.
Another Engineered Value Chain program leveraged a similar FTO build strategy to better meet customer needs.
Caterpillar’s wheel excavator team in Grenoble, France, delivered an Cat® M320F wheel excavator that perfectly
matched the configuration and application needs of the customer – while reducing lead time from an average of
12 weeks to four weeks – a 66 percent reduction.
The success of our Engineered Value Chain programs
demonstrates Caterpillar’s ability to use different build
strategies – in this case semi-finished machines – toreduce lead times and better meet customer needs.
We are improving our end-to-end business by simplifying
our product offerings and planning more efficient build
schedules. We can then deliver the product the way thecustomer wants it … when the customer wants it.

28

2015 YEAR IN REVIEWSTRONG 2015 LEAN RESULTS
East Peoria Transmission Team

$1M

Scrap and Inventory Reduction

Caterpillar Suzhou, China
Medium Wheel Loaders

0Missed Defects

98%

Reduction in Rework

12

Month Period

14Month Period

LEAN IS CRITICAL TO CATERPILLAR’S FUTURE BECAUSE IT WORKS
In 2015, Caterpillar Chairman and CEO Doug Oberhelman spoke about three
key initiatives critical to Caterpillar’s future – data analytics, Across the Table
and Lean. What exactly is Lean and why was it called out?
Lean is critical to our future because it works. Today, products flow throughour factories faster than ever, quality levels are at the highest in company
history and products are delivered to the customer more quickly, generating
cash flow.
Lean impacts every job – whether production or office environment – in someway. Lean is how Caterpillar eliminates waste and drives efficiencies. Bystanding up quality gates throughout our office and production processes,
we stop any defects to our internal and external customers – first by catchingthem at our quality gates, then by eliminating them.
Lean is built on a strong foundation of 6 Sigma and the Caterpillar Production
System (CPS). The methodology, first introduced at Caterpillar in 2013, pickedup momentum in 2014, and today has been deployed at more than 94 production
facilities and across multiple upstream processes – otherwise known assupport functions in the office environment – throughout the enterprise.

29

2015 YEAR IN REVIEWEFFICIENCYOUR LEAN
TRANSFORMATION
Since 2013, we have been committed to Lean to drive process and quality improvements at Caterpillar. Lean challenges
all employees to get closer to the customer so they can deliver products and services based on the customers’ true
expectations. Our Lean journey goes beyond manufacturing to include all functional areas that execute businessprocesses on a daily basis, including engineering, marketing, purchasing, accounting and human resources.

LEAN BENEFITS

Stabilizing
the Business

Enhancing
Product Quality

Improving
Velocity

Driving Valuefor Our
Shareholders

RESOURCE
INDUSTRIES
OFF-HIGHWAY TRUCKENERGY &TRANSPORTATION
MID-SIZE ENGINESCONSTRUCTION
INDUSTRIESMOTOR GRADER

45%

18%

65%

Reduction in field
assembly time

Increase inthroughput

Inventory reduction(days on hand)30

2015 YEAR IN REVIEWEFFICIENCYA GLOBAL SUPPLYNETWORK THAT DELIVERSUNDER PRESSURE
Nearly 40 percent of U.S. trade to and from Asia passes through West Coast ports in California. Keeping the flowof goods through these ports moving swiftly and efficiently is a priority for logistics and procurement networks
across countless companies, including Caterpillar.
When a three-month labor dispute at one of these ports resulted in significant terminal congestion, theexpertise of Caterpillar’s logistics team translated into millions of dollars in savings, as well as ensuringthat our supply flow remained resilient.
When business operations eventually returned to normal, many companies were left dealing with severe financial
impact. While Caterpillar experienced added costs and some slowing in our materials flow, these were a fractionof the impact on other companies. That’s how we know our Global Supply Network can deliver under pressure –not merely reacting to fluctuations in logistics, but truly taking charge of and managing our supply network.
Our staying power throughout the slowdown was due, in very large part, tothe collaboration and flexibility of our Global Supply Network. Using a winningcombination of procurement and logistics data and innovative thinking, a clearer
inventory picture emerged to help streamline and divert shipments.

1909

MANUFACTURING began
in the Peoria area – an advantageous
location in the Midwest that HOLTAND BEST recognized as having theability to reach the entire United States.

“We were able to see not only the best ports, but also the best terminals in
those ports,” explained Global Supply Network Director of Logistics Scott
Shepherd, “so we could react faster and accurately re-route shipments. This
allowed us to move material more quickly, while limiting added costs andoverall supply disruption.”31

2015 YEAR IN REVIEWEFFICIENCY

600 VENDING MACHINES.
100 FACILITIES. 1 GOAL.
Building Cat® equipment requires having a lot of “indirect inventory” on hand for our employees – things like safety
glasses, gloves, ear plugs and other necessities. Those items can be hard to keep track of, but through the use of
automated dispensing machines, Caterpillar can now manage this inventory with better data visibility, accuracy
and completeness than ever before.
In 2012, our Global Supply Network piloted its Automated Indirect Inventory
Management (AIIM) initiative at the company’s North Little Rock, Arkansas,
facility – using onsite vending machines to better manage and dispense
indirect supplies.
From there, the concept and results spread. To date, and in less than three
years, the Global Supply Network team has collaborated with multiple
Caterpillar locations to launch AIIM across the globe. Most recently in 2015,
the initiative reached a key milestone of deploying AIIM at 100 Caterpillar
facilities – with 600 vending machines globally connected and delivering
point-of-use value. As a result, the enterprise can use the analytics to leverage
its global scale to reduce consumption, indirect inventory and costs.

Most recently in 2015,
the initiative reached a
key milestone of deploying
AIIM at 100 Caterpillar
facilities – with 600
vending machines globallyconnected and delivering
point-of-use value.

AN INDUSTRY LEADER WITH WORLD CLASS RESULTS
Caterpillar continues to improve upon historical best safety
performance and we are an industry leader with world class
results. Beginning in 2003, we implemented an enterprise-wide
initiative to focus upon safety called Vision Zero. Today, we’re
proud that our Recordable Injury Frequency has improved 91%,
but there is more work to do. Breakthrough safety performanceis continuing with our Lean Transformation by focusing on standard
work, which means more folks are going safely home, every day.

32

2015 YEAR IN REVIEWEFFICIENCYSTREAMLINING CUSTOMER& DEALER SUPPORTThe speed of business in the digital age demands that lines of communication and support be as tight andefficient as possible. For Caterpillar, those lines run mainly among the company, our dealers and our customers.
After 90 years in the business, we know that to continue to thrive through change, we must periodically takea long, hard look at the way we work together and be willing to make adjustments that reflect changes in theindustry, environment and available technologies.
We begin by recognizing that our dealers are in the best position to anticipate and meet our customers’ needs.
The company’s role is to provide support and empower dealers to more efficiently service the end user. We
reorganized all six divisions within Customer & Dealer Support (C&DS) in 2015 with the following objectives: toimprove delivery of customer support, reduce complexity, capitalize on aftermarket opportunities, fully capitalize on our
digital initiatives and strengthen the Caterpillar/dealer relationship for future growth. The organizational changes include:
Distribution Services Divisions are our primary interfaces with our dealers. We’ve consolidated them from three
to two: Asia Pacific, CIS, Africa & Middle East Distribution Division and Americas & Europe Distribution
Division. The new split reflects the common needs of dealers and customers who operate with similar issues
and environments and enables them to work faster and better together.
Global Aftermarket Solutions Division combines sales and marketing into one strong team that works alongside
our dealers to accelerate aftermarket sales and service solutions growth.
Wear, Components & Aftermarket Distribution Division combines component design and manufacturingwith aftermarket distribution to improve component availability and inventory. This group works closely with the
Global Aftermarket Solutions Division to increase responsiveness to customer needs.
Marketing and Digital Division is charged with the digital transformation of
the dealer and customer experience. The team will establish a go-to-market
strategy for the integration of data analytics and innovation, as well as being
responsible for global brand management, marketing, rental services and retailsales development.

1926

three visionary

CATERPILLAR managers sat downin San Leandro, California, and wrote“ACROSS THE TABLE.” In it, theyoutlined the FOUNDATIONALPRINCIPLES that define the special
relationship between CATERPILLAR
and our DEALERS.

Sustainable Solutions Division at the heart of our sustainability drive froma product sense, brings together the sustainable businesses of Cat Reman andCaterpillar Safety Services with Caterpillar Work Tools, our machine attachment
business, OEM Solutions and Defense & Federal Products.
(Continued on page 34)

33

2015 YEAR IN REVIEWStreamlining Customer & Dealer Support (continued)
In addition to these organizational changes within C&DS, we’ve brought product, operations, sales and marketing
together in both surface and underground mining to better align with our customers and enable a more effective
cost structure in a challenging mining environment. Surface Mining & Technology Division now encompasses
Hauling & Extraction and surface mining sales and support teams, while underground mining and sales support
joins the Material Handling & Underground Division.
Finally, within Construction Industries, the Global Construction & Infrastructure Division will also assume
sales responsibilities for work tools, industrial and waste, paving and forestry products, as well as heavy rentals.
These organizational changes will help increase accountability at the divisional level, generate top line sales by
optimizing dealer performance and capability, grow marketing capabilities through data analytics and digitization,and help dealers reconnect with customers to ensure the delivery of our brand promise. With a leaner, more agile
business model, Caterpillar is driving toward operational excellence across all of our dealers with a better structure
to support future growth.

34

2015 YEAR IN REVIEWPEOPLEBest quality. Best reliability. Best endurance. The same attributes that define our products define
our people – more than 105,000 of them around the world. For 90 years, Caterpillar people
have been building the machines that have built our world. We’re confident that Caterpillar’slong-term future is secure thanks to our global team’s drive to perform at a superior level. It’s acommitment that extends beyond the workplace where Caterpillar employees contribute theirtime and talents to making the world around us a better one.

IN THIS SECTION:• Breakthrough Workshop for Women Leaders• Marking Milestones at Both Ends of a Caterpillar Career• Sculpture Contest Welds Team Relationships• 40 Years of Building a Beautiful China• Work That Matters• A Good Deed in the Badlands• Teams Employ Lean and Agile to Deliver for Customers• Caterpillar Foundation35

2015 YEAR IN REVIEWPEOPLEBREAKTHROUGHWORKSHOP FOR
WOMEN LEADERS“This was by far the best course I’ve taken at Caterpillar in the nine years I’ve been here. It made me learn about
myself, gave me confidence and made me really connect with women at work for the first time.”That’s the sort of feedback we’re receiving about our Breakthrough Leadership for Women workshops – thefirst leadership program created by a Caterpillar employee resource group – in this case the Women’s Initiatives
Network (WIN) – and the first gender-specific workshop designed for high-potential, high-performing women.
Research shows that companies perform better when they have more women in leadership positions. So it
makes sense to develop and retain female talent in order to help drive the greatest enterprise returns.
Designed by women, for women, the Breakthrough Leadership for Women workshop addresses specific challenges
faced by female leaders and aims to strengthen Caterpillar’s female leadership pipeline. Participants are chosen fromhigh-potential female talent with the ability and desire to fill higher positions of leadership.
Based on best practices for female leadership development, theworkshop confronts the reasons for perceived differentiations in
the workplace, while focusing on authentic leadership styles thatincorporate Caterpillar values. The objectives of the course are tohelp women manage gender bias challenges; negotiate conditions
for leadership success; align values, aspirations and actions in highstakes situations; network with other women leaders; and develop
a personal brand and vision for authentic leadership.
Breakthrough Leadership can help Caterpillar outperform competitors
by fully leveraging the talents and leadership potential of our entire
workforce. The impact to the business is a more inclusive, engaged
workforce, high-potential leaders with increased confidence andnegotiation skills, and hundreds of women who are exploring
personal authentic leadership and sharing it back with others.

BREAKTHROUGH LEADERSHIPFOR WOMEN: RESULTS TO DATE

250+

Participants

30

Caterpillar Divisions

14 Workshops

Peoria, Geneva, Singapore & Beijing

2006 WOMEN’S

INITIATIVE NETWORK
was established and now has morethan 3,000 MEMBERS participatingin 40 CHAPTERS worldwide.

92%

Participants who report increased
confidence after 6 months

36

2015 YEAR IN REVIEWPEOPLE

MARKING MILESTONESAT BOTH ENDS OF A
CATERPILLAR CAREER
In 2015, two Caterpillar employees marked career milestones in two very different journeys. Their stories illustrate
the satisfaction that comes at the end of a long career and the exhilaration that comes from being given the firstchance to give your all.
In early 2015, Ed Flesburg retired after 60 satisfying years of service with Caterpillar. As a 6 Sigma Black Belt
within the Global Supply Network Division (GSND), and over the course of his notable career, Ed achieved muchsuccess and delivered many outstanding results for the company.
Ed began his career in 1955, as a chip wheeler in East Peoria, Illinois. After returning from deployment to Korea, hespent the next 51 years in many different roles with the company, from janitor to drafting, designing and engineering.
Throughout his tenure, Ed achieved four company patents to his name, developed
14 major design changes, resolved 11 major design problems and generated morethan $55 million in cost reductions. In addition, he pioneered the development of theheat transfer coolant category, where his experience and expertise was priceless.
Ed’s manager, James Dryden, sums up Ed’s outstanding tenure, “Famous basketballcoach John Wooden once said ‘Who can ask more of a man than giving all within
his span? Giving all, it seems to me, is not so far from victory.’ I cannot think of abetter quote to describe Ed’s work ethic and outstanding accomplishments to makeCaterpillar the successful company it is today.”
As Ed was accepting well-wishes for the future from his grateful team, thousands ofmiles away 19-year-old Farooq Kahn was looking forward to the future for the firsttime in a long time. Farooq is training as an industrial mechanic at Caterpillar Mining in
Lünen, Germany. His arrival at Caterpillar marks a milestone in a remarkable journey.

Caterpillar employees
come to us in manydifferent ways, withmany different stories.
But we are humbled
by what they have incommon: the loyalty anddedication to put theirtalents and enthusiasm
to work to help us build
the world.

Farooq escaped from his home country of Afghanistan when he was only 15 years old, leaving his parents andsiblings and all he knew behind him. It took him five months to arrive in Germany. He spoke not one word ofGerman, had a very dangerous escape behind him and was completely on his own.
After his graduation from German elementary school, Farooq sent over 70 applications to companies, but only
Caterpillar in Lünen was willing to give him a chance. At the time his German language skills were limited, and,as a refugee, he only had a temporary residence permit.
According to a study conducted in Germany, only 15 percent of companies are ready to hire young people withforeign roots. Caterpillar in Lünen has been a part of this small group of companies for years, but Farooq, now
successfully integrated in the company, was the first refugee hired.
“We strongly believe it to be part of our social responsibility to give young people like Farooq the possibility toenjoy a good education.” (Continued on page 38)

37

2015 YEAR IN REVIEWMarking Milestones (continued)
Farooq’s aim is to successfully complete his industrial mechanic
training and then possibly continue his studies. His instructor isvery enthusiastic about his curiosity, ambition and commitment.
“All I want is to build a new life for me here,” said Farooq.
Caterpillar employees come to us in many different ways, with manydifferent stories. But we are humbled by what they have in common:
the loyalty and dedication to put their talents and enthusiasm to work
to help us build the world.

1933

After graduating from the apprenticeprogram in 1933, future CHAIRMAN OF THE BOARD
BILL NAUMANN started his rise throughthe ranks as an inspector at the East Peoria Plant.
Bill worked as a foreman, general foreman ofinspection, factory manager and vice president
before being named Chairman of the Board in 1975.

1925

In 1925 Caterpillar employed 2,537 people.
Today, our 100,000+ employees continue to change
the world. From bringing basic infrastructure like roads,
airports and power to developing societies, powering
space missions, widening the Panama Canal, to building
the world’s superhighways, these employees are
involved in the world’s most important projects.

382015 YEAR IN REVIEWPEOPLESCULPTURE CONTESTWELDS TEAMRELATIONSHIPSWe know how much talent and knowhow it takes to make the excellent welds on our Cat® machines, but mostof those welds will never be seen. In East Peoria, Illinois, our welders showcased their talent and skill by designingand manufacturing one-of-a-kind metal sculptures. The remarkable results included:

Over the course of five weeks, four teams of approximately 15 welders each were challenged to create a sculptureout of scrap metal that met Caterpillar quality criteria and safety requirements. Spending between 40 and 80+ hours
on each sculpture after their scheduled production work was complete, the teams designed and built one-of-a-kindworks of art that showcased their technical and artistic talent.
In daily work, welding is a solitary job, with each welder performing
different tasks at different stations. So, for most, this was the first timethey were able to work on a project alongside their fellow welders.
“We’re all a team here, but they get my end product,” said welder
Tom Wilson. “To get back there and work together was really a joy.”
The sculpture teams made that joy apparent in a very visual way. AcrossCaterpillar and the local community, people took notice of their pride andpassion for what we do every day, and also for our heritage.

1910

The first HOLT
TRACK-TYPE TRACTOR
is built at the newly purchased
plant in East Peoria, Illinois.

“The employees came to us with the idea of afabrication sculpture competition. They formed
teams and developed their own visions. All we
said was that the finished work had to use scrap
metal and fit on a pallet. Their final creations
were truly remarkable works of art.”– Tim Williams, the East Peoria facility manager

The sculptures went on display in the Caterpillar Visitors
Center in January 2016, and the fun and positive experience
continues to have an impact on the participants. Randy
Peters, a welder for 12 years, is grateful for the opportunity
and the camaraderie it inspired. “I’m just tickled that theseguys had a chance to really get out there and shine. I think
the company will talk about this for years to come.”

39

2015 YEAR IN REVIEWPEOPLE

40 YEARS OF BUILDINGA BEAUTIFUL CHINAThe Telex sent from Chinese officials to Caterpillar Vice President Delmar Lammers in 1975 was three simple
words: “SEND PIPELAYER EXPERTS.” Three weeks later, a signed contract for the sale of 38 medium-sized
pipelayers launched China’s first oil pipeline and Caterpillar’s 40-year history in China.
What happened next changed the world. In just 40 years, China
emerged as the world’s second-largest economy, and Caterpillar isproud to have been there every step of the way. Whether it’s energy,
agriculture, transportation, research, architecture, finance or tourism –we helped build the infrastructure and resources that helped make– Doug Oberhelman, Chairman and CEO
China’s prosperity possible today. In 2015, Caterpillar, along with
our Chinese dealers, suppliers and customers, marked our 40th
anniversary in the country with a yearlong campaign. The theme, “Building a Beautiful China,” highlighted
our many contributions to the country under the sub-themes of partnership, community and life.

“Twenty-five years ago, you could just feelsomething big was starting to happen in China.
It felt as if the country was on a mission.”

Partnership refers to Caterpillar’s support for Chinese customers, dealers, suppliers and other partners. A big partof our commitment is integrating local resources and fostering our relationships with Chinese suppliers to increase
the competitiveness of our global supply network. Additionally, our mature dealer model has earned an unparalleledlevel of trust. Dealers work closely with our customers, many of whom are small entrepreneurs who are building
their own businesses and continuing to transform the Chinese economy. And to support them, Cat Financial makes
projects possible by working with customers to get them the machines they need – when they need them.
Community refers to our contributions to the communities
where we live and work, and specifically to the sustainability
aspect of the contributions. Caterpillar has built prosperity in
China, improving the standard of living for hundreds of millions
of people. In turn, demand for energy, as well as demand on theenvironment, have increased. Addressing both issues, Caterpillar is
instrumental in China’s green energy production. Our machines
helped to build the world’s largest hydroelectric power stationand the largest water transfer project, plus a west-to-east natural
gas pipeline to support growing need.
Supporting needs on a grassroots level, our employees in
China are eager to give back to their communities and drive
positive change.

INTEGRATING CUBA INTO
THE GLOBAL ECONOMY
For nearly 20 years, Caterpillar has strongly advocated forUnited States engagement with Cuba. Our Government
Affairs and International Trade Legal Services teamencouraged the United States government to re-establish
diplomatic relations with Cuba. This past summer, theAmerican flag finally flew again over the United Statesembassy in Havana.
We encourage the President and Congress to work
together on the next step – ending the 55-year embargo
and travel restrictions against Cuba. The time is now tomove forward for the benefit of both our nations and tointegrate Cuba into the global economy.

Life refers to people, internally and externally, our investment
and efforts in training our 13,000 Chinese employees, customers
and partners in general. Throughout the year, with our events andpromotions, we delivered these messages through stories, videos
and speeches. To our Chinese suppliers, in particular, we offer vast opportunities for business training, technicalexchanges, joint research and development, and corporate culture development. The introduction of production
systems and advanced (Continued on page 41)40

2015 YEAR IN REVIEW

Beautiful China (continued)
management philosophies such as 6 Sigma has resulted
in a number of our Chinese suppliers’ emerging as leaders
in local industries. Some have expanded their businesses
beyond China, constructing facilities abroad and supplying
Caterpillar globally, using the skills they garnered from ourtraining efforts.

“In the first 18 months in Xuzhou, all I did waswork and sleep. But it paid off. The first 325
excavator built in Xuzhou came off the assemblyline in the new plant on July 4, 1997.”– Ed Gramme, first general manager for Caterpillar Xuzhou Ltd.

The yearlong anniversary celebration culminated in the final
event in Xuzhou, where we showcased our latest technology
and shared our long-term vision for Caterpillar and for China,
demonstrating our commitment to this market and pledging
another 40 years of mutual growth and success.

China Employees Give Back During Global Month of Service
China employees participated in the first Global Month of Service in September 2015. Over the past five years, more than 3,000 China employees, plus morethan 1,000 of their family members, friends and dealer employees, have volunteered across China.

Beijing: Twenty-three employee
volunteers, along with relatives andfriends, cared for trees in the Caterpillar
Foundation Charity Forest.

Qingzhou: Fourteen volunteers visited
rural Tuoshan Primary School witha psychological consultation teacher
to deliver donated books and freecounseling to help students meetchallenges with a positive attitude.

Suzhou: Fifteen volunteers and family
members accompanied 15 children
from the Wuzhong Welfare House forchildren with disabilities on a day triparound East Tai Lake. The day ended
with a birthday party for one of thestudents, six-year-old Yanjun Wu.

Shanghai: For many years, employees
from the Global Supply Network teamhave volunteered at the rural Watuo
Primary School in one of the poorest
areas of China. The Human Services
team joined them in making a donation
to purchase stationery for the students.

Tianjin: Employees from Asia Power
Systems and the Shared Services
Center, 70 in all, held a donation event
for Concentric Hope Home, which
provides community services for
migrant women and their families.
Employees donated more than
800 articles of clothing and shoes,
as well as other items.

Tongzhou: Ten volunteers joined “TinyWish,” an assistance program to grant
wishes for needy families. They visited
a boy who suffers from muscle atrophyand granted his simple wish for a new
set of clothes, as well as offering toteach him to read.

Wuxi: More than 50 volunteers from theCaterpillar Research & Development
Center donated about 600 children’sbooks, notebooks, puzzles, stuffed toys
and electronics to Zhangzhen Migrant
School. They later visited to delivercourses in English, safety awarenessand Chinese classic poetry.

Xuzhou: Thirty-one volunteers from
Paving Products and Undercarriage
visited students at the PengchengSpecial Education School for mentallydisabled children, whom they havesupported for more than 10 years.
They played basketball, helped withart projects and donated food forthe children.

41

2015 YEAR IN REVIEWPEOPLE

WORK THAT
MATTERSAs we reflect on a year of innovation and change, we are reminded of who make it all possible – our employees.
The core of Caterpillar has always been, and will always be, the men and women who work here. We are global
leaders because our services and products reflect the very essence of our employees – innovative, reliable andof the highest quality.
At Caterpillar, no task is small, no job is minor. Here, big ideas come to life step-by-step, piece-by-piece, personby-person. Team members come together to produce groundbreaking, world-changing innovations. What wecollectively achieve raises the standard in our industries and enables powerful work to be done all across theglobe. And it starts with the people who choose to work at Caterpillar. We know our employees power our
success and we are committed to empowering theirs.
We applaud our extended team for another year of doing hard work that matters.
To showcase the rich diversity, passion for life and strong work ethic present in our Caterpillar family, we began theReal Cat Folks project. Inspired by Humans of New York, the project highlights that Caterpillar employees are real
people – with real families, real pasts, real dreams and real stories.

HARRY – UNITED STATESMy family is my legacy. I’ve raised four daughters by myself since1999. The most important thing I’ve taught them is that they canachieve anything. Life is just a stepping stone and you have tolook at it in a good, positive way. Caterpillar gave me a chance
after being unemployed for five years. I never thought they’d hire
me because of my age. When my youngest was having a roughtime, I told her to fill out an application. The next thing I knew,
she was hired on full time after three months of being an agency
worker. Today she’s a team lead, going strong and learning as
much as she can. I’m very proud of her.

SUSHMA – INDIA

I am associated with a startup organization which organizes
lunch and outdoor treats for children who live in various
orphanages across Chennai. The treats are given on special
occasions like birthdays and anniversaries. I am part of thisteam and we are planning to expand more as we grow andget help from various people.

42

2015 YEAR IN REVIEWMICHAEL – UNITED STATES

I believe the keys to success are laughter, understanding,forgiveness and building relationships. I started a saucecompany about four years ago, Carolina Mikes Sauce Company.
I’m originally from South Carolina and I love to cook and feed
people, and make people feel good about who they are.

TALHA – UNITED ARAB EMIRATES

Growing up, I always saw my parents as positive and happy inboth good and bad times. They taught us two rules in life: One,the most important thing in life is family. If you have things sorted
out in your personal and family life, you will perform well at work.
Two, be happy with what you have today while you work for what
you want tomorrow.

YOUXIANG ZHANG – CHINA

I grew up on a cotton field on the coast and came to Suzhou for school.
Suzhou is a beautiful city with the combination of modern industry
and ancient history. I like to spend my spare time playing soccer andclimbing mountains in the neighborhood. I’ve always wanted to learn
to play guitar and want to play for my son in the future. He’s 14 months
old, and my biggest wish is to watch him grow up happily.
张友祥我从小成长在海岸边，小时候常常在棉花田里玩耍。长大后来到苏州求学，
并在这里工作。苏州是一个现代工业和古代历史结合的美丽城市。我喜欢在业余时间踢足球，在周边郊游、爬山。我一直想学弹吉它并且希望将来能弹给儿子听。他现在已经14个月大了，我最大的愿望就是看着他健康的长大。

Visit caterpillar.com/RealCatFolks to see dozens of published profiles,
and check back weekly for updates.

43

2015 YEAR IN REVIEWPEOPLEA GOOD DEEDIN THE BADLANDS

Each day, Caterpillar employees and dealers all over the world live Our Values in Action in tangible ways that makea real difference in people’s lives. To fully appreciate how this happens requires a trip to remote Oglala County,
South Dakota – one of the most impoverished counties in the United States – where the Chanku Waste ministry
is working to address the needs of at risk youth and their families.
There, one late afternoon, as Chanku Waste Ranch camp leader Matt Hadden was driving a bus full of kids home
for the day, Matt was astonished to see a brand-new Cat® 416 backhoe loader roll in – a much-needed donationthat is helping create better living conditions and opportunities for the community.
Chanku Waste Ranch is a summer camp for kids on the Pine Ridge Reservationin the South Dakota Badlands. Life on the reservation can be hard, with anestimated 60 percent of the homes severely substandard without one or morebasic necessities such as running water, electricity and operational sewage
systems. The camp’s outreach to Lakota families inspired Caterpillar employee
Brad Kough to start looking for a way to help. Soon, Brad, along with other
employees and their families, had raised donations for the ranch, but it
wasn’t until Brad was connected with a fellow employee, Todd Lange, thateverything came together. Through Todd and the contribution of Caterpillar’s
Building Construction Products Division, the group purchased a brand new
backhoe loader. Then Cat® dealer Butler Equipment stepped in to donate
delivery expenses and some pre-delivery work.
Kough recalls the enthusiasm that surrounded the machine’s arrival: “Thekids couldn’t believe that it was for them and the camp. Normally donations
tend to have seen better days, but this beauty was brand new! News spread
fast throughout the community and it was humbling to see the excitement
it brought.”
In addition to helping bring much needed repair and basic necessities to local homes, the camp is also using thebackhoe loader to train young people on the operation and maintenance of heavy machinery. For some, like Ilijah,
the first young man to receive this training, it is an eye-opening experience to learn about job opportunities aroundthe world for someone who knows how to operate a machine like the Cat 416. Kough said, “His eyes lit up as you
could see him begin to dream about the possibilities this might open up for his life. It was a very proud momentfor me and the other Caterpillar employees who were there. We feel blessed to be a part of this special project.”Find out more about Chanku Waste Ranch here.

44

2015 YEAR IN REVIEWPEOPLE

FROM DESIGN TO THE
FACTORY FLOOR, TEAMS EMPLOYLEAN AND AGILE TO DELIVER
FOR CUSTOMERSTo help customers take their businesses to the next level, teams from the Advanced Components and Systems
Division (ACSD) are collaborating to improve quality and efficiency.
In the office, software engineers are coming together in Agile teams to bring innovative solutions to our customers
faster than the competition. Agile is Lean for software development. But more specifically, Agile software development
is a set of principles for software development in which requirements and solutions evolve through collaboration
between self-organizing, cross-functional teams. These cross-functional teams learn from customers what featuresand solutions are needed and how they are valued. Then they leverage their diverse knowledge, experiences andskill sets to develop and deliver creative solutions. This flexible process helps teams mitigate project risks anddeliver value more rapidly.
“We’ve really seen the benefits of changing our mindset,” says Alex Kott, ACSD 6 Sigma Master Black Belt.
“High-performing teams are stronger than any one individual. Face-to-face collaboration, frequent feedback andknowledge sharing helps us develop better products.”
On the shop floor, production employees are embracing Lean principles like Built in Quality (BIQ) to find defects
before they reach customers. BIQ employs strategically placed “quality gates” to check for and find defects, stopthem from moving on and initiate a fix. When operators find defects at quality gates, the operators are part of the
problem solving process. Operators now have a more holistic view of their work: They know that their “customer”
is the next process downstream from them, and they are careful to send quality products down the line.
Leaders are encouraging employees to voice their concerns andbring up ideas for improvement. Production leaders then have a
responsibility to address those ideas and report back to employees
on what has been done. This Lean culture is making a difference.
“There’s no doubt that Lean has contributed to our improvements
in quality, velocity and safety,” states Steve Ferguson, ACSD
global operations general manager. “In 2015 alone, quality in ourfactories improved 27 percent; we achieved a committed shipping
performance of 99 percent; and we had a record-low recordable
injury frequency of 0.12.”“It’s the mindset of improving collaboration byknocking down walls. It’s amazing what can bedone when you get everyone in a room working
together, building off each other’s ideas.”– Alex Kott, Caterpillar 6 Sigma master black belt

1959

Caterpillar established the LOUIS B. NEUMILLER
SAFETY AWARD to recognize an outstanding achievement in safety.
The Decatur, Illinois, plant received the first Louis B. Neumiller Safety Award.
Elected president of the company in 1941 and Chairman of the Board in
1954, Neumiller had great concern for employee welfare and safety over
the years, often stating “SAFETY IS ALWAYS OUR NO. 1 BUSINESS.”
Our company’s oldest executive office recognition is now known as the
Chairman’s Health & Safety Award.
45

2015 YEAR IN REVIEWPEOPLECATERPILLAR FOUNDATION

Our mission is to eliminate poverty by placing people on a pathto prosperity.
This builds strong economies and communities.

ALLEVIATING
POVERTY

We focus our efforts on basic human needs, education andthe environment.
We accomplish our mission through an innovative approachthat addresses the root causes of poverty and facilitatescollaboration among the public, private and nonprofit sectors.

Together.Stronger.™

THE ONE CAMPAIGN & U.N. FOUNDATION ENERGY POLICYThis past year, the Caterpillar Foundation supported energy access policy work through investments with The ONE Campaign
and United Nations Foundation. The Foundation believes energy access in Africa plays a significant role in disrupting the spiralof poverty. The ONE Campaign’s advocacy work around the Electrify Africa Act, a bill unanimously passed in the U.S. Senate, theU.S. House of Representatives, and signed into law by President Obama in early 2016, will spur the U.S. government to create
investment opportunities to bring 50 million Africans power by 2020. Likewise, three billion people globally rely on solid fuels to
cook, causing serious environmental and health impacts, disproportionately affecting women and children. The U.N. Foundation’s
policy work is focused on promoting clean cooking solutions and universal adoption of clean cookstoves and fuels. The Foundation
also provided three grants in Kenya, Ghana and Uganda to help address the market barriers that impede the production, deployment
and use of clean and efficient cookstoves and fuels in developing countries. Together.Stronger.™

46

2015 YEAR IN REVIEWOPPORTUNITY INTERNATIONAL Opportunity International provides microfinancing
and education to help lift people out of poverty by giving disadvantaged populations a working chance. In support oftheir work, last year we invested in agricultural programs in Ghana, Rwanda and Uganda, and educational programsin Colombia, Ghana and Uganda. The agricultural programs provide banking services, financial education and training,
and agricultural inputs to smallholder African farmers to help put them on a level playing field with larger farmers.
The education programs are focused on providing loans and training to expand and improve schools, and ultimately,
improve access to high-quality education. Together.Stronger.™

HABITAT FOR HUMANITY In 2015, the Caterpillar Foundation supported Habitat for Humanity

through grants across nine communities in the United States (Tucson, Arizona; Hartford, Connecticut; Miami, Florida; Peoria,
Illinois; Franklin, Indiana; Raleigh, North Carolina; Houston, Texas; Victoria, Texas; and Menominee, Wisconsin) and in Thailand.
In addition, in a separate project, Caterpillar employees at the Morton, Illinois, facility sponsored a Habitat for Humanity
house for a deserving family in the local community. Approximately 500 employees across the facility volunteered theirtime and talents over a 10-week period to build the house. Together.Stronger.™

$46 MILLION INVESTEDIN OUR COMMUNITIESAREAS OF INVESTMENT

Total Investments by Region

50%
24%
14%
12%

United States& Canada46%

Basic Human Needs

30%
Education

EAME
Asia
Pacific
Latin
America

22%
Environment2%

Arts & Culture

EMPLOYEE DONATIONS+CATERPILLAR FOUNDATION DOLLAR-FOR-DOLLAR MATCH TO UNITED WAY=$13 million

47

2015 YEAR IN REVIEWPATH TO PROSPERITY

Basic Needs

The path to prosperity
results in active community
leaders who are able tohelp others.

Lack of Education

With Jobs
No Jobs

The spiral of poverty repeats
across generations.

With Education

Basic Needs

48

2015 YEAR IN REVIEW

HOW WE WILL GET THEREVIA OUR STRATEGIC INVESTMENTS AND PARTNERSHIPS
When we invest and partner strategically and effectively, basic needs are met,
education is attained, jobs are created and economies grow.

BASIC HUMAN NEEDSEDUCATION

ENVIRONMENT

Food
Water
Shelter
EnergyDisaster Relief

Numeracy & Literacy
Workforce Readiness
Mentoring & Leadership

Rebuilding Natural
Infrastructure49

2015 YEAR IN REVIEWOUR PARTNERS
Our philanthropic partners are making profound changes throughout the world.
Our investments enable them to scale their impact.

TM

Together.Stronger.™
STAY CONNECTED TO OUR PROGRESSTo learn more about the Caterpillar Foundation and our partners, please visit togetherstronger.com.

50

2015 YEAR IN REVIEW

BUSINESSREVIEW

For 90 years, Caterpillar Inc. has been making sustainable progress possible and driving positivechange on every continent. Customers turn to Caterpillar to help them develop infrastructure,energy and natural resource assets. With 2015 sales and revenues of $47.011 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 principally
operates through its three product segments – Construction Industries, Resource Industries andEnergy & Transportation, and also provides financing and related services through its Financial
Products segment.

IN THIS SECTION:• At-a-Glance• Performance• Segment/Division Review• Five-Year Financial Summary• Forward-Looking Statements51

2015 YEAR IN REVIEW

BUSINESS REVIEW

AT-A-GLANCE
Offices
Facilities **Facilities include principal locations where manufacturing, parts distribution, rail and remanufacturing
work take place. In certain geographic areas, the facility symbol may represent multiple facilities.

Product Line

Construction

MiningEquipment

3 Million+
Products at Work
Around the World

Diesel & Natural
Gas Engines

Industrial
Gas Turbines

105,700
Employees

Diesel-Electric
Locomotives

59%

Sales and Revenues
Outside the United States52

2015 YEAR IN REVIEW

BUSINESS REVIEWPERFORMANCEFINANCIAL PERFORMANCE
While sales and revenues remained under pressure from weak commodity prices and slowing economic growth in developing
countries, our financial performance was helped through cost management, restructuring actions and operational execution.
Our product quality remained at high levels; we gained market position for machines for the fifth year in a row; inventory levels
declined and our safety levels continued to be world class. We stayed focused in the right areas by delivering solid cash flow,
maintaining a strong balance sheet and credit rating and increasing the dividend.

CONSOLIDATED SALES AND REVENUESOPERATING PROFITCONSOLIDATED SALES AND REVENUESBY SEGMENT($ IN MILLIONS)($ IN MILLIONS)($ IN MILLIONS)$60,138$8,573$65,875$55,656$55,184$7,153$47,011$5,628$5,328$3,256

2011

2012

2013

2014

2015

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CAPITAL EXPENDITURES(EXCLUDES EQUIPMENT LEASED TO OTHERS)

2011

2012

$2,515

2011

2012

2013

2014

2015

($ IN MILLIONS)($ IN MILLIONS)$2,466$2,046$2,135$2,165$13.0B

2011

2012

2013

2014

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PROFIT PER SHAREDIVIDENDS DECLARED(DILUTED)(PER SHARE)

$8.48
$5.75

$5.88

$1.82

$2.02

$2.32

$2.70

• EAME / $4,897• Asia-Pacific / $3,538• Latin America / $2,668• Canada / $1,878

2015

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$7.40

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2015 EXPORTS FROM
U.S. BY REGION$2,522$1,3882015

RESEARCH AND DEVELOPMENT$2,297$1,5392014

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($ IN MILLIONS)$3,3502013$47.0B• Energy & Transportation / $17,938• Construction Industries / $16,568• Resource Industries / $7,551• Financial Products / $3,078• All Other / $1,876

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$3.01

$3.50

2011

2012

2013

2014

2015

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2011

2012

2013

2014

2015

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53

2015 YEAR IN REVIEW

MARKET PERFORMANCECAT vs. S&P MACHINERY INDEX

5-YEAR CLOSING STOCK PRICE(IN DOLLARS)$100$98.47$100.03 $103.48 $107.03$82.46$90.60$89.61$90.81$91.53$67.96

2010

2011

2012

2013

2014

2015
2011

— Caterpillar Inc.
— S&P 500 Index— S&P 500 Machinery Index (S5MACH)

2012

2013

2014

2015

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Cumulative stockholder return assuming an
investment of $100 on December 31, 2010 andreinvesting of dividends issued thereafter.

BUSINESS PERFORMANCEGLOBAL EMPLOYEESGLOBAL CAT® DEALERS(AT YEAR-END)
125.1

2011

125.3

2012

118.5

114.2

2013

2014

2011

189

2011

2012

178

177

175

2013

2014

2015

105.7

2015

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141.3

191

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DEALER EMPLOYEESDEALER NET WORTH(IN THOUSANDS)($ IN BILLIONS)

152.5

162.2

161.7

164.1

2012

2013

2014

2015

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$18.9

2011

$21.3

$22.3

$23.4

$23.4

2012

2013

2014

2015

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54

2015 YEAR IN REVIEW

2015 GLOBAL PERFORMANCE BY REGIONNORTH AMERICA
53

48,000Dealers

Caterpillar
Employees

2015 Sales and Revenues
by Segment($ in millions)$8,084$7,759$2,820Construction
Industries

Energy &Transportation

Resource
Industries$1,812$1,350Financial
Products

All Other

OFFICESFACILITIES**Facilities include principal locations where manufacturing, parts distribution, rail and remanufacturing
work takes place. In certain geographic areas, the facility symbol may represent multiple facilities.

EAME
47

21,300Dealers

Caterpillar
Employees

2015 Sales and Revenues
by Segment($ in millions)$5,270$3,808Energy &Construction
Transportation Industries$1,741
Resource
Industries

$408

$275

OFFICES

Financial
Products

All Other

FACILITIES**Facilities include principal locations where manufacturing, parts distribution, rail and remanufacturing
work takes place. In certain geographic areas, the facility symbol may represent multiple facilities.

55

2015 YEAR IN REVIEW

2015 GLOBAL PERFORMANCE BY REGIONASIA PACIFIC
43

24,100Dealers

Caterpillar
Employees

2015 Sales and Revenues
by Segment($ in millions)$3,275$3,227$1,774

Energy &Construction
Transportation Industries

$458

$148

Financial
Products

All Other

Resource
Industries

OFFICESFACILITIES**Facilities include principal locations where manufacturing, parts distribution, rail and remanufacturing
work takes place. In certain geographic areas, the facility symbol may represent multiple facilities.

LATIN AMERICA
32

12,300Dealers

Caterpillar
Employees

2015 Sales and Revenues
by Segment($ in millions)$1,634$1,449Energy &Construction
Transportation Industries

$400

$103

Financial
Products

All Other$1,216
Resource
Industries

OFFICESFACILITIES**Facilities include principal locations where manufacturing, parts distribution, rail and remanufacturing
work takes place. In certain geographic areas, the facility symbol may represent multiple facilities.

56

2015 YEAR IN REVIEW

BUSINESS REVIEWCONSTRUCTION INDUSTRIESA Conversation With

TOM PELLETTEGroup President, Construction Industries
Construction Industries is built to support customers using machinery in infrastructure andbuilding construction applications. The majority of machine sales in this segment are madein the heavy and general construction, rental, quarry and aggregates markets and mining.
Responsibilities include business strategy, product design, product management and development, manufacturing, marketing and sales, and product support. The product portfolio includes
backhoe loaders; compact, small and medium wheel loaders; small and medium track-type
tractors; skid steer loaders; multi-terrain loaders; compact track loaders; small, medium andlarge track excavators; mini excavators; wheel excavators; motor graders; select work tools;
pipelayers; track-type loaders; mid-tier soil compactors; telehandlers and related parts.
What are some examples of efficiency gains in your business?
We use constraints to make great things happen with fewer resources. Take the Last Mile Freight Program: We
got together with our dealers and instead of getting multiple groups involved with our products’ outbound freight,
Caterpillar handles that alone, and it’s driven a lot of cost out of the business.
Another example is how the Excavation Division is using the New Product Introduction process to emphasize
modularity and common platforms in their Next Generation excavators. This takes costs out of the product inboth the new equipment side and the aftermarket support side, lowering both the cost of our product and thecost of providing a service to our customers.

Why is big data and innovation so important to Caterpillar at this time in our history?
Data and technology will be core to serving our customers in the future. Equipment and technology are becoming
table stakes, but using that technology to add value and make our customers more successful will be the key to
who wins and who loses. Caterpillar does this through innovations Cat® GRADE with Cat® Slope Assist, VisionLink®,
Payload and all the other great offerings under Cat® Connect – that’s where data and technology add value forour customers.
57

2015 YEAR IN REVIEWA Conversation With
TOM PELLETTE Group President, Construction Industries (continued)

What is the strategic importance of this sector to Caterpillar’s long-term business prospects?
As the global population grows, the need for infrastructure will grow too. We often say that the road to progress
begins with a road, period. Construction is really at the heart of Caterpillar, and construction industries are right inthe middle of building roads, bridges, ports and airports that allow mankind to continue to improve lives aroundthe world.

SEGMENT PROFITSALES

SALES BY GEOGRAPHY($ IN MILLIONS)($ IN MILLIONS)($ IN MILLIONS)$2,207$18,532$19,362$16,568$1,925$1,3742013$16.6B

2014

2015

END MARKETS INCLUDE:
Building Construction
Roads and Highway Construction
Infrastructure Projects

2013

2014

• North America / $8,084• EAME / $3,808• Asia-Pacific / $3,227• Latin America / $1,449

2015

PRODUCTS
Backhoe LoadersCompact, Small and Medium Wheel Loaders
Small and Medium Track-type Tractors
Skid Steer Loaders
Multi-terrain LoadersCompact Track Loaders
Small, Medium and Large Track Excavators
Mini Excavators

Wheel Excavators
Motor Graders
Select Work Tools
Pipelayers
Track-type Loaders
Mid-tier Soil Compactors
Telehandlers

582015 YEAR IN REVIEW

BUSINESS REVIEWRESOURCE INDUSTRIESA Conversation WithED RAPPGroup President, Resource Industries
Resource Industries is built to support customers using machinery in mining and quarrying
applications. Responsibilities include business strategy, product design, product managementand development, manufacturing, marketing and sales and product support. The productportfolio includes large mining trucks, off-highway trucks, electric rope shovels, wheel
tractor scrapers, hydraulic shovels, large track-type tractors, large wheel loaders, track
and rotary drills, articulated trucks, hard rock vehicles, longwall miners, draglines, highwall
miners, wheel dozers, continuous miners, scoops and haulers, hardrock continuous mining
systems, machinery components, select work tools, electronic and control systems andrelated parts.
Why do you think Caterpillar’s business continues to stand the test of time?
It’s not the biggest or strongest companies that survive – it’s those that adapt, those that evolve their business toaddress changing economic environments and changing customer requirements. Customers today, for example,
demand higher levels of productivity, and we address that through our product development; or customers struggle
to find qualified operators and we’re bringing completely autonomous trucks or semi-autonomous tractors.

What are the most important qualities that our people possess?
As I travel the world and meet people new to the company, I ask about their experience since joining Caterpillar.
Consistently, I hear that for them, the best part is our values. We not only treat our employees based on our values,
but also extend them through our value chain out to our suppliers, dealers and customers. When people ask me
who I work for, I proudly say Caterpillar. The foundation of that is our values.

59

2015 YEAR IN REVIEWA Conversation WithED RAPP Group President, Resource Industries (continued)

What’s the message to employees as we manage through this business cycle?
In my 36-plus years with the company, you always find out who you are in the toughest of times. Anybody canmanage an upturn. But when you go through a decline in the industry, it does test you as a leader. We’re all going
to find out how we lead and how we motivate by managing through a challenging period.

When do you see a turnaround for Resource Industries?
There’s a lot of talk today about mining being depressed, but my standard line is, “Mining’s depressed, but I’m not.”It’s not about when mining’s going to turn around – it’s about all of the things we can do now to make sure that whenmining does turn around, we’re ready. Over the long haul, we serve great industries. As we see global population
growth and urbanization, these are industries that will provide the input to allow that growth to take place.

SEGMENT PROFIT/(LOSS)SALES

SALES BY GEOGRAPHY($ IN MILLIONS)($ IN MILLIONS)($ IN MILLIONS)$11,805$1,572$8,921$7,551

$7.6B

$404

2013

2014

$(88)
2015

END MARKETS INCLUDE:
MiningQuarrying

2013

2014

• North America / $2,820• Asia-Pacific / $1,774• EAME / $1,741• Latin America / $1,216

2015

PRODUCTS
Large Mining Trucks
Off-Highway Trucks
Electric Rope Shovels
Wheels Tractor Scrapers
Hydraulic Shovels
Large Track-Type Tractors
Large Wheel Loaders
Track and Rotary Drills
Articulated Trucks
Hard Rock Vehicles

Longwall Miners
Draglines
Highwall Miners
Wheel Dozers
Continuous Miners
Scoops and Haulers
Hardrock Continuous Mining Systems
Machinery Components, Select Work
Tools, Electronic and Control Systems

60

2015 YEAR IN REVIEW

BUSINESS REVIEWENERGY & TRANSPORTATIONA Conversation With

D. JAMES UMPLEBY III

Group President, Energy & Transportation
Energy & Transportation supports customers in oil & gas, power generation, marine, rail andindustrial applications, including Cat® machines. The product and services portfolio includes
reciprocating engines, generator sets, marine propulsion systems, gas turbines and turbinerelated services, diesel-electric locomotives and other rail-related products and services.

What is the strategic importance of the Energy & Transportation group to Caterpillar’s long-term success?
Energy & Transportation brings diversity and growth potential to Caterpillar by serving a number of different
industries, including oil and gas, power generation, marine, rail and general industrial applications. For example,
we provide a variety of different products and services across a wide portion of the natural gas value chain,including offshore and onshore gas drilling and exploration, gas production and pipeline compression. We also
use natural gas as a fuel in our reciprocating engines and gas turbines to produce electrical power.

With the continued low price of oil, what are some of the opportunities and challenges facing
our customers?
In this challenging environment, our customers are seeking ways to become more efficient. We continue to invest
in R&D to improve the efficiency of our engines and gas turbines. We are also expanding our offering of digitaltechnologies. For example, Solar™ Turbines’ Insight System™ helps customers maximize production and minimize
cost by preventing failures before they occur.

61

2015 YEAR IN REVIEWA Conversation With

D. JAMES UMPLEBY III Group President, Energy & Transportation (continued)
How are our Energy & Transportation businesses contributing to sustainable development aroundthe world?
Caterpillar and its dealers are working with our customers to meet the current and future energy needs of the global
population in an environmentally sustainable manner. There are many different examples of our commitment to theenvironment, including our continuing R&D investments to reduce emissions from our engines and gas turbines,
burning landfill and coke oven gasses in our engines and gas turbines to produce electricity, and our recent introductionof Cat branded solar panels, energy storage and controls for microgrids.

SEGMENT PROFITSALES

SALES BY GEOGRAPHY($ IN MILLIONS)($ IN MILLIONS)($ IN MILLIONS)$4,135$3,415

2013$20,155$21,727$17,938$3,2392014

2015

END MARKETS INCLUDE:
Oil & Gas
Power Generation
MarineRail
Industrial$17.9B2013

2014• North America / $7,759• EAME / $5,270• Asia-Pacific / $3,275• Latin America / $1,634

2015

PRODUCTS
Reciprocating Engines
Generator Sets
Marine Propulsion Systems
Gas Turbines
Turbine-Related Services
Diesel-Electric Locomotives

62

2015 YEAR IN REVIEW

BUSINESS REVIEWCUSTOMER & DEALER SUPPORTA Conversation WithROBERT B. CHARTER

Group President, Customer & Dealer Support
Customer & Dealer Support is built to strengthen Caterpillar’s product support excellence by bringing
a strong focus to Cat® equipment and customer service and delivering outstanding dealer development.
This group supports customers and dealers in a variety of ways, such as providing employee equipmenttraining on job sites, supplying aftermarket parts and service support and offering e-business and equipment
management solutions. The segment also includes the product portfolio for forestry, paving, industrial andwaste products, and global on-highway trucks. This group is also responsible for dealer development andadministration of a wholly-owned dealer in Japan. Key strengths are the ability to manufacture parts andcomponents, provide remanufacturing solutions and deliver unmatched parts availability to dealers andcustomers anywhere in the world.
You just completed your first year as a group president for Caterpillar. What did you learn inyour first year?
It was a challenging year in terms of the industries we serve, but despite the challenges, I was pleased to see
how focused our employees continued to be.

Where do you think that we excel?
I love our end-to-end structure. I think it’s one of the best things we’ve done in the many years that I’ve been
associated with Caterpillar. The art in our organization is managing the matrix well, using the synergy and thevolume across the organization, and then bringing that focus to meet the needs of our customers. Getting those
two things right really makes a difference. In this new role, I get a much broader look at how well we do when
we’re pulling in the same direction.

63

2015 YEAR IN REVIEWA Conversation WithROBERT B. CHARTER Group President, Customer & Dealer Support (continued)
How well have we executed Across the Table?
We really introduced the Across the Table concept to our dealers at the beginning of 2014 and spent most of thatyear aligning and understanding the initiatives in order to discover how we deliver consistent service that’s worldclass. We’ve made great progress. Our dealers are aligned and engaged as we work toward our 2018 goals. 2015
was our first year of real execution, but there’s more to do, so in 2016 and 2017 we want to continue those efforts
to stay on track.

What are the top concerns and opportunities for our dealers?
Dealers around the world see the same things as we do inside Caterpillar. They have the same concerns about
our cyclical end markets, particularly mining and oil. They’re really trying to resize their businesses to be efficientand deliver great service to their customers. It’s very, very similar to what we see inside Caterpillar.

64

2015 YEAR IN REVIEW

BUSINESS REVIEWFINANCIAL PRODUCTS & CORPORATE SERVICES

A Conversation With

BRADLEY M. HALVERSONGroup President, Financial Products & Corporate Services, Chief Financial Officer
Financial Products is built to provide financing to customers and dealers for the purchaseand lease of Cat® equipment, as well as financing for Cat®product sales to dealers. Financing
plans include operating and finance leases, installment sale contracts, working capitalloans and wholesale financing plans. Financial Products provides various forms of
insurance to customers and dealers to help support the purchase and lease of ourequipment. Corporate Services provides business and human resources, information
technology, accounting and finance services to Caterpillar, serving as the enterprise
resource for business-related activities.
What is different about the current downturn compared to others in our history?
In 2009, we had a 37 percent decline in our sales and revenues. It happened fast, and then we had a recovery.
This is different. As we look at 2016, we’re on the fourth year of a decline in sales, and it’s our job to manage at
the sales level that we have at this moment in time. We have a U.S. economy that is not showing great growth.
We have developing countries, such as Brazil and China, at very low levels in terms of our industry. Clearly, mining
companies, in terms of commodities, have suffered greatly. The good news is Caterpillar is in a strong position tohandle an increase in business. This downturn is the right opportunity to focus on critical initiatives like Digital,
Lean and Across the Table.

What provides you with the most confidence about our position?
We have the best people. We hire, develop and train the absolute best workforce in any industry, any company,
in my view. That’s clearly a differentiator. As a result, we have quality products and are gaining market position
for machines. Because of our good operational performance in this downturn, we have a very strong balance
sheet, which gives us flexibility to look for growth opportunities. Even in these tough times, we’ve continued tohave very high levels of research and development for new products and other initiatives, such as our digitalspend, Across the Table and Lean.
65

2015 YEAR IN REVIEWA Conversation With

BRADLEY M. HAVERSON Group President, Financial Products & Corporate Services, Chief Financial Officer (continued)
Caterpillar has multiple initiatives across the company related to technology, especially big data andanalytics. What role does our information technology team play on this front?
We want our customers to make more money with our products than they do with any of our competitors. Data isgoing to become a big piece of that value creation as we use the information from our products to create even morevalue for the customer. We have to be the best at that and we’re well positioned. Our information technology groupis an integral part of how we deliver the best value to the customers for our products.

How do you see technology improving the way we work internally?
We are a large company, and we’re very integrated. I think what we’re lacking a bit as we move forward is how we
can use technology today to pull all of us together around problems, around issues, around opportunities in a way
that’s much more efficient. We will see that change as we use true collaboration tools to solve business problems.

How is the work of the Human Services Division supporting Caterpillar’s growth?
Our human resource group is embedded in our business units. This means that all the issues around people anddevelopment are handled as close to the business as possible, such as how we can provide a better culture andenvironment so our people love to work here. People should feel their opinions and their ideas are listened to andacted on. There’s a lot of value and personal satisfaction when you know if you bring something up, it’ll be listened
to, and it’ll be a part of the solution.

What role is Cat Financial playing in supporting our customers?
We do a good (or excellent) job at making sure that our customers understand the value that Cat Financial has tooffer. As a result, the percent of dealer deliveries that we’ve financed has gone up significantly in the past four
years. That organization also runs extremely efficiently. They touch more customers in a day than you could everimagine. If you walk through Cat Financial’s customer service center, you can tell the only thing on our team’s mind
is “How do I help this customer?”

FINANCIAL PRODUCTS
SEGMENT PROFITREVENUESREVENUES BY GEOGRAPHY($ IN MILLIONS)($ IN MILLIONS)($ IN MILLIONS)

$990

$901

$3,224$3,313$809$3,078

$3.1B

2013

2014

2015

2013

2014

• North America / $1,812• Asia-Pacific / $458
• EAME / $408
• Latin America / $400

2015

66

2015 YEAR IN REVIEW

BUSINESS REVIEW

CATERPILLAR ENTERPRISE SYSTEM GROUP

A Conversation WithDAVID P. BOZEMAN

Senior Vice President, Caterpillar Enterprise System Group
Caterpillar Enterprise System Group (CESG) brings together critical processes and support groups withthe goal to further improve our holistic manufacturing and value chain capabilities worldwide. The groupis facilitating and supporting the strategy to achieve Enterprise Excellence by working deeply with thestrategic businesses to align the enterprise, drive action and deliver superior results.

What were the CESG’s biggest wins for 2015?
Implementing the three components of our overall integrated value chain strategy: 1) executing our lean methodology,
which drives stability within Caterpillar and back through our suppliers; 2) deploying an engineered value chain
approach that starts with the customer and really reimagines the way we design our overall supply chain; and3) building our foundational capabilities.

What are the most challenging aspects of the work done by CESG?
We have a very large, diverse and complex company, and CESG is involved in strong change-management work.
We’re a 90-year-old company and we’ve done things for a long time, so trying to fundamentally change how welook at our overall supply chain calls for major change across the entire company, which can be a challenge. And it’s
tough work, but that’s who we are as Caterpillar. We take on the tough challenges. We don’t run away from them.

672015 YEAR IN REVIEWA Conversation WithDAVID P. BOZEMAN Senior Vice President, Caterpillar Enterprise System Group (continued)
Why is it important to become more efficient as we manage through business cycles?
Companies that connect end-to-end and manage at the peak and at the bottom of cycles are the companies thatwin, and Caterpillar has a strategy to do that. CESG is taking out complexity and simplifying our products. This
will help us be more flexible and agile in our overall processes, especially as markets shift. We call it our braking
methodology: As the markets slow down, we can brake; as the market picks up, we can accelerate, not missing
sales on the topside and being more efficient in pulling through profit as the overall market slows down.

How are you helping the enterprise work smarter to drive efficiencies?
We are building a zero defect, zero rework mentality, building things right the first time and refusing to pass a defecton to the next phase of production. This allows us to track defects back to their source and eliminate them, never toreturn, letting us work faster, smarter and have better flow.

682015 YEAR IN REVIEW

BUSINESS REVIEWLAW AND PUBLIC POLICYA Conversation WithJAMES B. BUDA

Executive Vice President, Law & Public Policy and Chief Legal Officer
Law and Public Policy is built to sustain Caterpillar’s world-class reputation. The organization includes theLegal Services Division and the Global Government & Corporate Affairs Division. Responsibilities include
legal and compliance services; media relations; internal communications; government affairs advocacy;sustainability consulting; and global environmental, health and safety services. Support for the Caterpillar
Foundation is also provided by our group, making sustainable progress possible around the world. We area global team, focused on serving our customers, communities and countries.

What is Caterpillar doing well as it manages through very difficult market conditions?
If one sees what this great Caterpillar team around the world has done over the last three or four years, it isremarkable. We have a magnificent safety record. Our product quality is solid. Our balance sheet is strong.
Our iconic brand around the world continues to be impactful. I have lived through four economic downturns
at Caterpillar. During this recent one, we have done more to position the company for the long term than everbefore and that is why I am so excited about the future of this organization.

How do we ensure that our values remain relevant around the world?
Caterpillar has never been more global. We are doing business every single day in markets all around the world. In
many of those markets, unethical business practices, like corruption and bribery, poor environmental practices or
unsafe working conditions, are commonplace. But, in contrast to that, we are also seeing more and more customers
who are demanding to know that Caterpillar will adhere to business practices that are grounded in ethics andcompliance. We recognize that how we do business is paramount to protect our reputation, and every employee
shares the responsibility to protect it. That is why Caterpillar’s Code of Conduct is so important. The actions wetake and the decisions we make tell the world who we are. The Code of Conduct serves as a daily reminder ofthe standards that are expected of everyone at Caterpillar.
69

2015 YEAR IN REVIEWA Conversation WithJAMES B. BUDA Executive Vice President & Chief Legal Officer, Law and Public Policy (continued)
How is big data playing a role in areas such as law and public policy?
The Law and Public Policy organization is helping our internal clients be more efficient by streamlining our patent
processes. Many of our R&D projects turn into patents – Caterpillar owns over 15,000 patents right now. Somepatents are more valuable than others, while others give us a better return on investment than others. The Law
and Public Policy Organization is using big data and analytics to develop a value for each of our patents.

How do we use that valuation on patents?
We can use a particular valuation to decide whether it is important to renew a patent when it comes due and pay
the fees attributable to it. Or, we can decide whether to file a patent in another country or enforce a patent against
one of our competitors. It all depends on the patent’s value, and big data allows us to gauge that, and allows ourinternal clients to make better and more efficient decisions.

702015 YEAR IN REVIEW

BUSINESS REVIEW

FIVE-YEAR FINANCIAL SUMMARY

Dollars in millions except per share data
Years ended December 31,
Sales and revenues

$

2015

2014

2013

2012

2011

47,011$ 55,184$ 55,656$ 65,875$ 60,138		Percent inside the United States		

41%		 38%		

33%		

31%		

30%

		

Percent outside the United States		

59%		 62%		

67%		 69%		

70%

Sales

$ 44,147$	 52,142

Revenues

$

2,864

$

$

2,102

$

$

3.54

$
$

Profit 4
Profit per common share

1

Profit per common share – diluted

2

Dividends declared per share of common stock$ 52,694$ 63,068$ 57,392

3,042

$

2,962

$

2,807

$

2,746

3,695

$	 
3,789

$

5,681

$

4,928

$

5.99

$

5.87

$

8.71

$

7.64

3.50

$

5.88

$

5.75

$

8.48

$

7.40

3.01

$

2.70

$

2.32

$

2.02

$

1.82

Return on average common stockholders’ equity 3		 13.3%		 19.6%		 19.7%		 37.2%		 41.4%
Capital expenditures:
Property, plant and equipment

$

1,388

$

1,539

$

2,522

$

3,350

$

2,515

Equipment leased to others

$

1,873

$

1,840

$

1,924

$

1,726

$

1,409

Depreciation and amortization

$

3,046

$

3,163

$	 
3,087

$

2,813

$

2,527

Research and development expenses

$

2,165

$	 2,135$	 2,046$ 2,466$

2,297

As a percent of sales and revenues		Average number of employees

4.6%		 3.9%		 3.7%		 3.7%		 3.8%
110,800		
115,600		
122,500		
127,800		
113,600

December 31,
Total assets$ 78,497$ 84,681$ 84,896$ 88,970$ 81,218

Consolidated$ 25,247$ 27,784$	 26,719$ 27,752$ 24,944

Machinery, Energy & Transportation

$

9,004

$	 
9,493

$

$

$

Financial Products$ 16,243$ 18,291$ 18,720$ 19,086$ 16,529

Consolidated$ 38,093$ 39,285$	 37,750$ 40,143$ 34,592

Machinery, Energy & Transportation

$

9,530

$ 10,012$

8,775$ 10,415$

Financial Products$ 28,563$ 29,273$ 28,975$ 29,728$ 25,526

Long-term debt due after one year:
7,999

8,666

8,415

Total debt:
9,066

1 Computed on weighted-average number of shares outstanding.
2 Computed on weighted-average number of shares outstanding diluted by assumed exercise of stock-based compensation awards, using the treasury stock method.
3 Represents profit divided by average stockholders’ equity (beginning-of-year stockholders’ equity plus end-of-year stockholders’ equity divided by two).
4 Profit attributable to common stockholders.

712015 YEAR IN REVIEW

BUSINESS REVIEWFORWARD-LOOKING STATEMENTS
Certain statements in this 2015 Year in Review relate to future events and expectations and are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “believe,”“estimate,” “will be,” “will,” “would,” “expect,” “anticipate,” “plan,” “project,” “intend,” “could,” “should” or othersimilar words or expressions often identify forward-looking statements. All statements other than statements ofhistorical 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 we do
not undertake to update our forward-looking statements. .
Caterpillar’s actual results may differ materially from those described or implied in our forward-looking statements
based on a number of factors, including, but not limited to: (i) global and regional economic conditions and economic
conditions in the industries we serve; (ii) government monetary or fiscal policies and infrastructure spending;(iii) commodity price changes, component price increases, fluctuations in demand for our products or significant
shortages of component products; (iv) disruptions or volatility in global financial markets limiting our sources ofliquidity or the liquidity of our customers, dealers and suppliers; (v) political and economic risks, commercial
instability and events beyond our control in the countries in which we operate; (vi) failure to maintain our credit
ratings and potential resulting increases to our cost of borrowing and adverse effects on our cost of funds, liquidity,
competitive position and access to capital markets; (vii) our Financial Products segment’s risks associatedwith the financial services industry; (viii) changes in interest rates or market liquidity conditions; (ix) an increase indelinquencies, repossessions or net losses of Cat Financial’s customers; (x) new regulations or changes in financial
services regulations; (xi) a failure to realize, or a delay in realizing, all of the anticipated benefits of our acquisitions,joint ventures or divestitures; (xii) international trade policies and their impact on demand for our products and ourcompetitive position; (xiii) our ability to develop, produce and market quality products that meet our customers’ needs;(xiv) the impact of the highly competitive environment in which we operate on our sales and pricing; (xv) failure to
realize all of the anticipated benefits from initiatives to increase our productivity, efficiency and cash flow and to reduce
costs; (xvi) additional restructuring costs or a failure to realize anticipated savings or benefits from past or future
cost reduction actions; (xvii) inventory management decisions and sourcing practices of our dealers and our OEM
customers; (xviii) compliance with environmental laws and regulations; (xix) alleged or actual violations of trade oranti-corruption laws and regulations; (xx) additional tax expense or exposure; (xxi) currency fluctuations; (xxii) our or
Cat Financial’s compliance with financial covenants; (xxiii) increased pension plan funding obligations; (xxiv) union
disputes or other employee relations issues; (xxv) significant legal proceedings, claims, lawsuits or government
investigations; (xxvi) changes in accounting standards; (xxvii) failure or breach of IT security; (xxviii) adverse effects
of unexpected events including natural disasters; and (xxix) other factors described in more detail under “Item 1A.
Risk Factors” in our Form 10-K filed with the SEC on February 16, 2016, for the year ended December 31, 2015.

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