2016 EXECUTIVE SUMMARY

BUILDING BETTER

2016 EXECUTIVE SUMMARYABUILDING A BETTER FUTURE
IN THE COMING DECADES, THE WORLD WILL REQUIRE INVESTMENT IN CONSTRUCTION,
TRANSPORTATION AND NATURAL INFRASTRUCTURE TO MEET THE NEEDS OF A GROWINGPOPULATION, AN EMERGING MIDDLE CLASS AND A LARGELY URBANIZED SOCIETY.
CATERPILLAR IS POSITIONED TO MEET THIS DEMAND.

URBAN POPULATION3

GLOBAL POPULATION1

2030

2050

2050

66%

8.5B 9.7B
GLOBAL MIDDLE CLASS2

2020

2030

3.2B 4.9B
NATURAL INFRASTRUCTURE

2016 – 2030

$3.3 TRILLION

Soil restoration increases carbon storage capacityby 1 to 3 billion tons annually and eliminates

3.5-11 BILLION TONS

Annual global infrastructure investment
needed to keep pace with expected growth4of carbon emissions5WORLD ENERGY CONSUMPTION6

2012 – 2040

$1 SPENT ON ROAD, HIGHWAY& BRIDGE IMPROVEMENTS

RETURNS

UP

48%$5.20 TO THE ECONOMY7CONSTRUCTION$15
MARKET GROWTH
TRILLION BY 2025

63%

BY 2020

8

Sources:1
United Nations Department of Economic and Social Affairs
2OECD Observer – An Emerging Middle Class, 20123
United Nations – World Urbanization Prospects, 2014
4
McKinsey & Company – Bridging Global Infrastructure
Gaps, Our Insights

B

CATERPILLAR

EMERGING MARKETSAS A PERCENTAGE OF
GLOBAL CONSTRUCTION8

 hio State University’s Carbon Management
O
and Sequestration Center
6
U.S. Energy Information Administration72017 Infrastructure Report Card
8
PWC Global Construction 2025
5

Whether paving roads, mining essential commodities,
restoring natural infrastructure or extracting thefuels to satisfy global energy demand, Caterpillar’s
products are helping to build a better world.
And we’re doing the same for our business.
Though we operate in cyclical markets, we’re on ajourney of continuous improvement in critical areas
such as quality, safety, resource conservation anddigital technology – working to build better andgrow stronger every day. At Caterpillar, we’rebuilding better every day.

BUILDING A BETTER CATERPILLARTABLE OF CONTENTS

Letter to Stakeholders ................................................
Financial Performance At-A-Glance..........................
U.N. Sustainable Development Goals........................
Sustainability Goals & Progress.................................
Building Better............................................................
Technology..................................................................
Impact..........................................................................
Customers...................................................................
Natural Infrastructure.................................................
Women in Leadership................................................
Circular Economy.......................................................
Energy Access.............................................................
Corporate Governance...............................................

2016 EXECUTIVE SUMMARY

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4
5
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8
10
12
14
16
18
20
22
24

1

TO OURSTAKEHOLDERSDESPITE ANOTHER YEAR
OF CHALLENGING MARKETCONDITIONS, OUR 2016
PERFORMANCE WAS STRONG.
CATERPILLAR IS AS SOLID AS
THE IRON IN OUR MACHINES.
WE ARE COMMITTED TOHELPING OUR CUSTOMERSBUILD A BETTER WORLD.
JIM UMPLEBY
Chief Executive Officer

Reflecting weak commodity prices
and generally weak global economic
conditions, our 2016 sales and revenues declined 18 percent from 2015,
to $38.5 billion. Sales were lower inall segments and all regions. However,
we reduced variable manufacturing
and period costs by $2.3 billion in 2016,
which helped offset lower sales.
Our 2016 results included significant
restructuring costs and three large
non-cash items, which contributed toa loss per share of $0.11, compared to$4.18 profit per share in 2015. Excluding
the non-cash charges and restructuringcosts, 2016 adjusted profit was $3.42
per share, compared to an adjusted
profit per share of $5.35 in 2015.
Despite lower profits, our balance
sheet remained strong. Our Machinery,
Energy & Transportation debt-to-capitalratio was 41.0 percent at the end of
2016, within our targeted range. We
ended the year with a strong cash andliquidity position. Operating profit pullthrough was better than our target,and ME&T operating cash flow wasmore than enough to cover dividend
payments and capital expenditures.

2

CATERPILLAR

Our dividend has remained a highpriority throughout this difficult economic cycle. We’ve maintained ourdividend because of our balance
sheet strength and because we’vetaken the tough actions necessary
to reduce our cost structure andgenerate solid cash flow, including
closing or consolidating facilities
and reducing our workforce.

Developing the WorldOur customers use Cat® products tobuild the roads, dams, airports andschools that support local, regionaland national economies, and improveliving standards around the world.
We’re also a leader in developing
products that enable affordable anddependable energy, which is thefoundation for sustainable progress.
Our solutions include combined
heat and power, waste to energy,
landfill gas to energy, coal mine
methane to energy, and more. We
see great potential through ourinnovations in renewable energy
technologies for both developing
and developed regions.
Cat ® products are also at work
restoring natural infrastructure – forests,

prairies, farmlands, wetlands and coastal landscapes –that are essential for healthy economies, societies andenvironmental preservation.

Investing in Better

Thanks to our investments in digital technologies, data
analytics and automation, Caterpillar is providing ourcustomers with information to help them operate ourmachines, engines and locomotives more efficiently.
With 470,000 connected assets today, Caterpillar has
the largest connected fleet in the industry, and we’vebarely begun.
We’ll also see progress from continued significant
investment in research and development. Our global
R&D community, with more than 10,000 engineers andover 350 PhD-level scientists and technology experts,
is working to improve current offerings and design the
products of the future.
We’re also making progress on multiple internal fronts.
In 2016, we lowered our recordable injury frequency
rate to 0.50, a 92 percent improvement since 2003. We
reduced absolute greenhouse gas emissions from ouroperations by 7 percent from 2015 and set targets toincrease the number of women to nearly a third of ourworkforce and 25 percent of our leadership by 2022.
We also invested $36.8 million in global communities
through the Caterpillar Foundation. We’re proud of theseaccomplishments and look forward to further progressin the years ahead.

Laying Groundwork for the Future

We are also comprehensively reviewing our enterprisestrategy. A diverse, cross-functional team is reviewing
and updating our strategy with a primary focus on
profitable growth.
We’re also monitoring potential changes to trade,
infrastructure, tax and regulatory policies in the
United States and other countries. Our foremost
priority is to advocate for policies that could generate
economic growth, which would benefit our company
and stakeholders.
As we continue to evolve, our stakeholders can counton us and our customers to keep building a better world.
Our customers can also count on the 172 independent
Caterpillar dealers who sell and service our products
around the world, and provide our greatest competitive
advantage.
We see many opportunities ahead. I’m confident we are
well-positioned for the future due to our talented team of
employees, values-based culture and market leadership.

Jim Umpleby
Chief Executive Officer

In everything we do, we are guided by Our Values in
Action, our common principles for how we work together
and work with our customers, suppliers and officials.
2016 EXECUTIVE SUMMARY

3

FINANCIAL PERFORMANCE
AT-A-GLANCEPRODUCTSC onstruction Equipment

I ndustrial Gas Turbines

M ining Equipment

D iesel-Electric Locomotives

D iesel & Natural Gas Engines$38.5B

2016 Consolidated Sales
and Revenues

172

Global Cat Dealers®

PROFITPEPR
H AARREEP R O FI T
E RSSH

3M+

Products at Work Around
the World

470,000

95,400Connected Assets(Diluted)

Employees

5-Y5EAC LOSINGS I N G-YRE AR C LOS TOC K PR IC E

DIVIDENDS
ECL A
RA
ER
DE
P R O FITD PER
SH(diluted)(Diluted)

59%

Sales and Revenues
Outside U.S.

S TO C K P R I C E(in $ dollars)(per share)(in dollars)

$9.95
$8.06

$2.70
$2.02

$3.01 $3.08$92.74$89.61 $90.81 $91.53$2.32$3.90 $4.18$67.96$(0.11)2012

42013 2014

CATERPILLAR

2015

2016

2012

2013 2014

2015

2016

2012

2013 2014

2015

2016

HOW CATERPILLAR SUPPORTS THE
U.N. SUSTAINABLE DEVELOPMENT GOALSAs the world’s leading manufacturer of construction andmining equipment, diesel and natural gas engines, industrial
gas turbines and diesel-electric locomotives, at Caterpillar,
we support sustainable development around the world. That is
why we are working toward the 17 United Nations Sustainable
Development Goals (SDGs), put forth in September 2015,as a part of our corporate sustainability strategy.

• Support the Caterpillar
Foundation’s Together.
Stronger. campaign• Support the Caterpillar
Women in Leadershipinitiative• Work toward alleviating
extreme poverty throughthe Caterpillar Foundation• Help provide energy accessto the developing world• Champion programs
that support providing
all people with ‘Basic
Human Needs’ throughthe Caterpillar Foundation• Support programs
to restore Natural
Infrastructure• Champion programs that
support providing all people
with ‘Basic Human Needs’
through the Caterpillar
Foundation• Create alternative energy
infrastructure including
combined heat andpower (CHP) technology,
microgrids and biofuels• Provide clean cook stove
grants through theCaterpillar Foundation• Prepare for disaster
response efforts• Provide back-up power
for communities andhospitals• Champion programs that
support education throughthe Caterpillar Foundation• Encourage Caterpillar
employees to volunteer
as mentors through Junior
Achievement and otherschool programs• Maintain our core businessof fostering economic
development throughinfrastructure• Continue to focus on
Human Rights throughout
all aspects of our business• Support programs to restore• Advocate for immigration
Natural Infrastructure• Develop local workforces• Maintain our core businesses• Promote global trade
agreementsof Construction Industries,
Energy & Transportation
and Resource Industries• Invest in Research & Development• Engage in innovative partnerships
such as Uptake, XPRIZE andNASA Maker Faire• Support programs to restore
Natural Infrastructure• Offer remanufacturing andrebuild solutions• Continue to focus on
Human Rights throughout
all aspects of our business• Responsible sourcing ofconflict minerals used in
our products• Remove hazardous materials
from our supply chain• Help our customers achievefuel efficiency gains,
worksite efficiency andoperational productivity• Reduce our own operational
GHG emissions• Support programs
to restore Natural
Infrastructure• Implement our worldwide
Code of Conduct across allof our operations• Continue to focus on
Human Rights throughout
all aspects of our business• Engage with stakeholders
through global government
affairs• Support programs to restore
Natural Infrastructure2016 EXECUTIVE SUMMARY5

SUSTAINABILITY GOALS & PROGRESS
Caterpillar has set aspirational, long-term goals for our operations and product stewardship. We believe thesestandards affirm our determination to lead our industry to a more sustainable future. Intensity-based goals aremeasured against company sales and revenues, and a decline in sales and revenues in 2016 directly affected ourprogress toward these goals. Nevertheless, we continued to focus on efficiency improvements, and these efforts
contributed to year-over-year performance gains in these areas in 2016 when measured on an absolute basis.

2020 OPERATIONAL GOALSSAFETY GOAL

ENERGY GOAL

Reduce our recordable workplace injury rate to 0.6
and lost-time injury case rate to 0.15 by 2020.

Reduce energy intensity by
50 percent from 2006 to 2020.

Recordable
Recordable
InjuryInjuryFrequency
Frequency(RIF)(RIF)
5
EnergyIntensity
Recordable
Recordable
injuries
injuries
per per

Lost-Time
Lost-Time
Case
Case
Frequency
Frequency
RateRate(LTCFR)(LTCFR)
Total Electricity
Consumption
Work-relatedWork-related
injuries
injuries
resultingresultingin in

6.22 6.22
692

2.97 2.97
2.72

2.50

525

2.37

502

GHG EMISSIONS GOAL

Total Absolute GHG Emissions
Alternative/Renewable
Energy1,2,34

GHG Emissions Intensity4

Millionmetric tonsSumof alternativeand renewable electricalenergy use/total electrical use x 100

Absolute metric tons of CO2e/
million dollars of revenue

Reduce greenhouse gas emissions
intensity by 50 percent from 2006
to 2020.

9.8%

9.9%

10.1%

18.6%

17.6%

17.2%

17.8%

0.863 million metric tons Scope 1 GHG
emissions (direct emissions)1.265 million metric tons market-based
Scope 2 GHG emissions (indirect emissions
2013 2014 2015 2016
from purchased electricity, heat or steam)In 2016, 27.9 percent of our electrical energy
wasfrommillion
renewable
alternative
sources.
1.314
metricortonslocation-based
Scope 2 emissions56

CATERPILLAR

29%

44.7

48.8

2.13
48.9

Billion ga

64.9
50.5

57.1

44.3

44.7

38.2

36.0

2006 2013 2014 2015 2016 2020

GHG Emission
A
AbsoluteTotal
metricmillion dollars
WaterofC
72.1

76.3

44.3

Total electricity con
purchased and self
decreased 5 perce

Reduce water consumption
intensity by 50 percent from2006 to 2020.
Absolute thousand gallons of water/
million dollars of revenue

55.2

2013 2014 2015

WATER GOAL

Total Absolute GHG Emissions4
Watertons
Consumption Intensity5,6Million metric

72.1

28.0% 27.4% 27.1% 27.9%
9.4%

346

2006 2013 2014 2015 2016 20202003 20032013 20132014 20142015 20152016 20162020 20202013 2014 2015 2016
Operational energy intensity decreased
We have
We have
improved
improved
our Lost-Time
our Lost-Time
CaseCase
Frequency
Frequency
Rate
Rate
by 94bypercent
94 percent
from fromour
our both11 percent from 2006 to 2016. In addition,
Totalelectricity
consumption,
includingour absolute energy consumption decreased
2003 2003
base
baseyear year
andand5andpercent
5 percentfrom fromourelectricity,
ourpurchased
self-generated
4 percent from 2015 to 2016.
last reporting
lastdecreased
reportingperiod.
period.
5 percent from 2015 to 2016.

Use alternative/renewable sources
to meet 20 percent of our energy
needs by 2020.

2.13

496

2.50

525

17%

RENEWABLE ENERGY GOAL

Renewable

2.72

Absolute energy
0.29 0.29
0.23 0.23
0.20 0.20
reduction 2006-2016
0.19 0.19
0.15 0.15

0.78 0.78
0.71 0.71
0.60 0.60
0.59 0.59
0.50 0.50

Alternative

2.72
618

346

2003 20032013 20132014 20142015 20152016 20162020 20202006 2013 2014 2015 2016 2020
We have
We have
improved
improved
our Recordable
our Recordable
InjuryInjury
Operational
intensity
decreased
Frequency
Frequency
rate byrate
92energy
bypercent
92 percent
from fromour
our
11basepercent
2006
to 2016.
In addition,
2003 2003
baseyear year
andfrom
15
andpercent
15 percent
from fromour
our
absolute
energy consumption decreased
last reporting
lastourreportingperiod.
period.
4 percent from 2015 to 2016.

Sum of purchaseelectricity in mill

692
2.72

618
496

Total Electricit

Absolute gigajoules energy use/
million dollars of revenue
lost losttime
time
perof200,000
per
200,000
hours
hours
workedworkedSumpurchasedandself-generated
electricity in million MWh

200,000
200,000
hours
hours
workedworked energy use/
Absolute
gigajoules
million dollars of revenue

502

Energy Intensity5

0.863 million metric tons Scope 1 GHG
emissions (direct emissions)1.265 million metric tons market-based
2014(indirect
2015 emissions
2016 2020
Scope 2006
2 GHG 2013
emissionsfrom purchased
electricity,heatorsteam)
Through 2016, we have reduced
water

Through 2016, Caterpillar has reduced
consumption intensity at our facilities
GHG emissions intensity from our facilities 1.314 million
metric tons location-based
by a total of 15 percent from our 2006
by 23 percent compared with our 2006 base
Scope 2 emissions5base year.
year. From 2015 to 2016, our absolute GHG
emissions decreased 7 percent.

29%

2006 2013 2014

Through 2016, Cate
1.37 bill
GHG emissions intecoolingby 23 percent comp2.50 tobill2
year. From 2015
water cemissions decreas
non-co2020 OPERATIONALGOALS (Continued)

2020 PRODUCT STEWARDSHIP GOALS

BY-PRODUCT MATERIALS GOAL

SAFETY GOAL

Reduce by-product materials
intensity by 50 percent from2006 to 2020.

Provide leadership in the safety of people in, on and aroundour products.

By-Product Materials Intensity

By-Product Materials

Absolute metric tons of by-productmaterials/million dollars of revenue

Thousand metric tons

13.8

12.5

14.0

14.4

14.5

558
6.9

2006 2013 2014 2015 2016 2020
Our by-product materials intensity increased
5 percent from our 2006 base year to 2016.
However, we decreased our generation of
total absolute by-product materials by
17 percent from 2015 to 2016.

83% recycled
17% disposed (sent to landfill
or incinerated)

3%

Absolute waste generation
2006-20162020 PRODUCT STEWARDSHIP GOALS (Continued)
SYSTEMS OPTIMIZATION GOAL
Increase managed fleet hours by
100 percent from 2013 to 2020.

98%

REMAN & REBUILD GOAL

Increase remanufactured and rebuild business sales by 20 percent
from 2013 to 2020.
Reman End-of-Life“Take-Back” By Weight7

Reman End-of-Life“Take-Back” Percent7

Millions of pounds of end-of-lifematerial received

Actual end-of-life returns/eligible
returns x 100

Increasein chart
fleet hours
the pieis converted to art to punch a hole thru it.
174
managed by Caterpillar
171 need
166
there is a plot version hidden. if edits
to be154made,Job Site Solutions(2013 to 2016)

94%

93%

94%

93%

91%

125

126%
Increase in number ofmachines covered by service
agreements with Caterpillar
Job Site Solutions(2013 to 2016)2012 2013 2014 2015 20162012 2013 2014 2015 2016

Reman sales decreased 13 percent 2013-2016
Rebuild sales decreased 10 percent 2013-2016

2016 EXECUTIVE SUMMARY

7BUILDINGBETTER

8

Caterpillar makes the equipment
needed to build a better world. As
we do so, we’re also building a better
company. Our accomplishments thisyear are proof of our commitment.
See how Caterpillar continued tobuild better in 2016.

BUILDING SMARTER

BUILDING LEANER

With the largest connected
fleet in the industry togive our customers acompetitive edge.

By applying principles tomake our operations safer,more cost effective andmore efficient.

CATERPILLARBUILDING QUALITYBUILDING RESPONSIBLY

With products that are
dependable and built
to last.

With a focus on improving
safety and decreasing use
and production of energy,
water and waste.

BUILDING TOGETHER
By fostering inclusion andbuilding the capacity of ourglobal dealer network, so
we can protect our mostvaluable asset – our people.

2016 EXECUTIVE SUMMARY

9TECHNOLOGYCONSTRUCTION IN AN
AGE OF SMART

Machines are getting smarter – allowing our customers towork smarter, too. Cat® Connect Technology and Services
builds machines that speak the same “language”– enabling
operators to get more out of their job sites. In this “Ageof Smart Iron,” Cat Connect LINK technologies workin tandem, turning wireless data into essential insights
about the location, status and productivity of equipment.
They also provide immediate feedback about machine
performance and job progress. This helps operatorssolve issues and work more efficiently to minimize
service costs and slash downtime. Here’s how three
Cat Connect LINK technologies are helping customers
work smarter.
GRADE allows operators to get to grade accurately infewer passes. It combines digital design data, in-cab
guidance and automatic machine control to hit target

grade fast. Easy-to-read displays show real-time cut/filldata and arrows that indicate exactly which direction tomove the cutting edge. Customers using GRADE are
seeing efficiency gains of up to 50 percent and reduced
material, surveying and labor costs.
COMPACT is another solution for meeting specifications
and cutting material costs. It includes advanced sensors
on soil and asphalt compactors that help equipment
perform more consistently. This streamlines construction
processes from site prep and paving to landfill applications.
With PAYLOAD, customers can load and haul with
precision. This technology provides on-the-go load
weighing to help operators hit precise targets. Operators
can track daily productivity from the cab, with quick accessto payload weights, load and cycle counts and daily totals.
When combined with other LINK technologies, managers
can track daily production tonnage and cycle counts aswell as calculate tons per hour and tons per fuel burned.

CUSTOMER CONNECTIVITY: KEY TO COST EFFICIENCY$2 TO $4
TRILLION
ANNUALCONSTRUCTION
COST OVERRUNS60%OVERRUNSTHAT ARE
CONTROLLABLE

The connected worksite is a key to preventing overruns andunlocking trapped value. Cat Connect Services offer improved:• Equipment management – with telematics that allow
trucks to be loaded to a safe, but full, capacity• Productivity – when fewer, more efficient hauls leadto increased production• Safety – due to less traffic and more ergonomic features• Sustainability – thanks to more efficient fuel patterns
and less idle time

10

CATERPILLAR

A WHOLE NEW REALITY

Field technicians rely on technical information from
Caterpillar to make sense of customers’ machines inneed of repair. Their routine once went something like
this: pull up to a job site, identify the problem, review
how to make the repair on a computer, then make thefix. It was a time-consuming process. Dealer technicians
and Jason McIntyre, Technical Information Innovation
Manager at Caterpillar, knew there had to be another way.
Inspired by the collaborative feedback of dealer
technicians, McIntyre and his team are developing
Caterpillar’s service offerings in augmented reality(AR). “AR allows technicians to easily see where thecomponent causing the issue is, even if it’s their firsttime working on the machine,” McIntyre says.
And it could completely change how Cat equipment
is serviced. By superimposing visual information ona physical space, Caterpillar can simplify the overall
electrical complexity of a machine’s system. The proof
of concept, which was completed in just four months,
gives virtual step-by-step directions on how to performtasks like machine maintenance and safety checks.
The software can be used on a phone or tablet, even inremote locations without Wi-Fi. This technology gives
dealers the ability to reduce the downtime associatedwith troubleshooting, as well as improve dealer
technician availability.
®

If a dealer technician had to fix a complex electricalproblem on a track-type tractor, for example, theinterface would provide detailed, visual step-by-step
instructions. It would explain where the problem wasmost likely occurring, where to locate the failed part,how to remove it and, finally, how to replace it – allwithout the need to refer to a manual.
AR technology also provides an extra quality check,allowing users to take pictures of each step of themaintenance process and receive feedback. By investingin AR, Caterpillar will reduce costs, increase efficiency
and decrease errors. We’re excited to see where thisinnovation leads us.

2016 EXECUTIVE SUMMARY

11

IMPACT
CATERPILLAR- AND NASA-INSPIRED BUILDINGS AREOUT OF THIS WORLDFor more than 90 years, Caterpillar has been building
the world’s infrastructure. And we intend to do so forthe next 90 years – whether that’s in a great city,
a developing village or even beyond our planet.
That’s why we’re working with Bechtel, Brick andMortar Ventures and Bradley University to sponsor
NASA’s latest Centennial Challenge – the 3D-Printed
Habitat Challenge. The competition was created tomotivate the world’s most talented to dream ofinnovative ways to design and print habitats that
could be used for deep space exploration or on Earth.

The competition takes place in three phases. The first
AS TECHNOLOGY EVOLVES, SO DO OUR
phase, the design competition, was completed in
MACHINES. THE FUTURE OF CONSTRUCTION September 2015. The second phase is the structuralwhich focuses on the technologies needed
WILL LOOK VERY DIFFERENT THAN IT DOES competition,
to manufacture structural components from readily
available and recyclable materials. In fall 2017, teams
TODAY. BY EXPANDING OUR HORIZONS
will test their structural components and compete for
AND ENGAGING IN PROGRESSIVE
top honors at the Caterpillar Edwards Demonstration
Center. The competition will culminate with the third
OPPORTUNITIES LIKE THE CENTENNIAL
phase – the On-Site Habitat Competition – also held at
CHALLENGE, WE ARE BETTER EQUIPPED Caterpillar in fall 2018. There, teams will come together
and demonstrate their ability to fabricate full-scale
TO DEVELOP DISRUPTIVE TECHNOLOGIES habitats in front of judges and the public.
TO SOLVE OUR CUSTOMERS’ CURRENT
The competition is open to teams from universities
CHALLENGES, AS WELL AS PREPARE FOR and corporations, as well as individual citizens – anyone
with an idea and the motivation to bring that idea to life.
OUR MUTUAL LONG-TERM SUCCESS.
NASA is offering $1.1 million in prize money in phase
Justin Speichinger,
Advanced Engineering Manager for
the Caterpillar Excavation Division

12

CATERPILLAR

two of the competition.

INFRASTRUCTURE AND EDUCATION FOR AFRICA,
BUILT BY CATERPILLAR
Africa’s population is growing faster than anywhere elseon Earth. Its numbers are expected to double by 2050,
with an additional 122 million people added to its
workforce by 2020.
When population grows, demand for roads, buildings,
clean water and energy grows, too. Caterpillar intends
to be part of this transformation in Africa. In 2016,
Caterpillar, our independent dealers and the Caterpillar
Foundation announced plans to invest more than
$1 billion in African countries over the next five years.
The investment will include a major upgrade in customer
service capabilities, including enhanced parts distribution
capacity, state-of-the-art Certified Rebuild Centers andnew dealer branch locations to better serve our customers
throughout the continent. It will also help fund the
expansion of Technicians for Africa, Caterpillar’s online
skills development program that launched in 2015. The
e-learning website provides a broad, basic technicaleducation – free of cost.

The program initially launched in Nigeria, Mozambiqueand the Democratic Republic of the Congo, and quickly
expanded to 12 additional countries (Angola, Ethiopia,
Ghana, Ivory Coast, Kenya, Liberia, Senegal, Sierra Leone,
South Africa, Tanzania, Uganda and Zambia.) To date,
the program has about 5,000 users and has awarded
more than 100 certificates, and we expect to reachthousands more in the years ahead.
Perhaps most importantly, funding from Caterpillar andthe Caterpillar Foundation will support projects in Africa
that assist those living in poverty, specifically girls andwomen, through training, policy work, entrepreneurshipprograms and more. The Foundation’s past investments
have benefited hundreds of thousands with access to
education, clean water and sanitation and microfinance.
Now, the Caterpillar Foundation will commit approximately$15 million by 2020 to organizations working to improve
lives across Africa.

2016 EXECUTIVE SUMMARY

13

CUSTOMERSA DIAMOND MINER’S
BEST FRIEND

When Stornoway Diamond Corporation began making
plans to build Quebec’s first diamond mine, they had
a relatively small project in mind. Then they started
digging. “We discovered that the ore body was flaring
at depth rather than getting smaller,” says Matt Manson,
Stornoway CEO, president and director. “Our six-yearmine life became a 20-year mine life. Suddenly, we had
a major project on our hands. But first, we had tofinance it.”

WHATEVER A MINE NEEDS,CAT FINANCIAL IS THERE
TO MAKE IT SUCCESSFUL.
David Hewitt,
Hewitt Equipment Vice President
Enter Cat Financial. Working with local Cat® dealer
Hewitt Equipment Ltd., Caterpillar determined
Stornoway’s financing needs for the life of the mine.
“Cat Financial is often one of the first groups that we
contact when we talk with greenfield customers,”
says David Hewitt, Hewitt Equipment vice president.
“They are very aware of what mining customers needto accomplish, and they are also very good listeners.”

14

CATERPILLARCat Financial looks at what customers want to accomplish,
what their financial structures are and what their cash flowneeds are. Then, we come back not just with equipment
solutions, but guidance based on the structured financing
requirements of mines. Based on these discussions, Cat
Financial funded the equipment on site and is a partner inthe project financing.
Stornoway secured $946 million from multiple sources,
the most ever for a publicly listed diamond company
and enough to fund the project to completion. The
mine began production in fall 2016 and now employs
approximately 500 people, including members of
the local Cree tribe. It’s a project Caterpillar is proud
to support.

POWER IN THE JUNGLE:
BRINGING RELIABLE ELECTRICITY TO AN OFF-GRID REGION
The remote city of Boa Vista, Brazil, is isolated from thenational power grid. Due to its location, aging equipment
and increasing power demands, brownouts were common
and power rationing was critical. In 2009, facing failinggenerators, the city was desperate for a new solution.
Oliveira Energia, a local supplier of power plants andemergency power installations, acted quickly, developing
a substation to supply more than 40 MW of power from32 containerized Cat® 3516A and 3516B diesel generator
sets in just eight weeks. The substation was designed
as a two-year fix. Meeting the region’s long-term
power needs, however, was more complicated. Many
municipalities are reachable only by boat, some requiring
journeys as long as two weeks.
Working with local Cat® dealer Sotreq, Oliveira Energia
built a power plant with 34 Cat® C175-20 diesel generator
sets. The generator sets were manufactured in Indiana
and transported across land and sea for 30 days, including
a final 600 miles by cargo ship up the Amazon River.

The plant factors in requirements for climate conditions,emissions, noise, voltage and frequency control. “It’simportant for us to select power solutions that willwithstand the high-temperature, high-humidity conditions
common in the Amazon region, which shorten the usefullife of the equipment,” says Pedro Farias, technicaldirector for Oliveira Energia. “By using Caterpillar
equipment, we have managed to maintain above
90 percent availability.”
The power plant was completed on time and on budget.
“A project like this typically takes about three years, but
we built this plant in record time, which never happens
in Brazil,” says Orsine Oliveira, Oliveira Energia’s
president and CEO.
A more stable power system means better quality oflife for residents and greater productivity for businesses.
The region’s power needs are expected to grow withtime. When that happens, Caterpillar will be ready tomeet the demand.

2016 EXECUTIVE SUMMARY

15NATURAL INFRASTRUCTURE
Conventional infrastructure – sanitary sewers, treatment
plants, roads and bridges – is not the only infrastructure
in need of rebuilding. Ecosystems that are essential tothe health of our economy, communities and planet –forests, prairies, agricultural lands, estuaries, coastal
landscapes and wetlands – also are in critical need ofrestoration. These ecosystems purify our water and air,sequester carbon, produce nourishment and supply
other raw materials. A significant portion of the earth’s
natural infrastructure has been lost or degraded. The
good news: Cat® products are well equipped to addressthese types of restoration projects.
Consider the New Jersey coastline. Hurricane Sandy
and Winter Storm Jonas caused more than $30 billion
in financial, social and environmental damage to theshoreline. Now, Cat® equipment is being used bymultiple dredging contractors to restore the beaches

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and dunes. These projects will help improve coastal
resilience and protect social and environmental assets
on coastlines from future storm surge and flood damage.
To raise awareness of the importance of such projects,
Caterpillar is helping form a coalition on restoring natural
infrastructure. The planned coalition will focus initially oncoastal resilience, inland waterways and dam removals.
Its role is to add value by accelerating the frequency, paceand funding for natural infrastructure projects. It will
also identify and help remove or reduce regulatory andcommercial barriers to implementation. Other activities
may include a public campaign to raise awarenessof the environmental, social and economic benefitsof restoring natural infrastructure and encouraging
policymakers to provide incentives to invest in natural
infrastructure projects.

WHY NATURAL INFRASTRUCTURE RESTORATION IS CRITICAL
THE MOST IMPORTANT
ROLE OF NATURALINFRASTRUCTURE IS TOSEQUESTER BILLIONS OFTONS OF CARBON. MORE
CARBON RESIDES IN SOIL
THAN IN THE ATMOSPHERE.

SOIL

2,500 BILLION TONS CO2

ATMOSPHERE800 BILLION TONS CO2TODAY THE UNITED
NATIONS ESTIMATES:

25% LAND IS

NATURAL INFRASTUCTURERESTORATION CANREVERSE SOME OF
THIS DAMAGE.

HIGHLY DEGRADED

50%+ WETLANDS

1-3 BILLIONTONS ANNUALLY

3.5-11 BILLIONTONSAnnual increase incarbon storage capacity
due to soil restoration

HAVE BEEN LOST

Annual carbon emissions
eliminated due to soil
restoration

Sources:Ontl, T. A. & Schulte, L. A. (2012) Soil Carbon Storage. Nature Education Knowledge
United Nations report, the State of the World’s Land and Water Resources for Food and Agriculture (SOLAW)
Ohio State University’s Carbon Management and Sequestration Center2016 EXECUTIVE SUMMARY

17

WOMEN IN LEADERSHIP
Caterpillar has set ambitious targets in several
key areas to increase the mix of qualified,capable females across our enterprise toindustry benchmark levels by 2022. These
goals include increasing our total female
workforce to 29 percent, a 9 percent increaseover our current population, and the numberof female leaders to 25 percent, a 6 percent
increase over the current composition of
our leadership.

DIVERSITY RECOGNITION

DIVERSITYINC

HUMAN RIGHTSCAMPAIGN FOUNDATIONWOMAN ENGINEERMAGAZINE

CAREERS & THE
disABLED MAGAZINE

25 Noteworthy
Companies

Corporate
Equality Index
90%

Top 50 Employers#7

Top 50 Employers#2Enterprise Employees
by GenderEnterprise Leadershipby Gender

Includes management andproduction employees

Includes management andproduction employees

2022 Targets

29%
25%

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20% / Female

19% / Female

80% / Male

81% / Male

Female employees
Female leaders

WOMEN’S LEADERSHIP
INITIATIVE

Inclusion drives business results, and Caterpillar knowsthat when it focuses on having the best talent – including
a more gender-balanced workforce at all levels –everyone benefits. That’s why we’ve set ambitious
targets in several key areas to increase the mix of
qualified women across our enterprise to industry
benchmark levels by 2022. These goals include
increasing our total female workforce to 29 percent
and increasing our total female leaders to 25 percent.
We’re making progress toward these goals with thehelp of the Women in Leadership (WIL) initiative,
an intentional, focused step on a continuous journey
toward a globally diverse team. WIL is focused on
three key pillars to drive cultural change:• Executive sponsorship across all levels of theenterprise to generate internal commitment that
positions us for long-term change• Pipeline development that looks inside and outsideof Caterpillar for creative and innovative sourcing
solutions to attract and retain talent• Culture change focused on our current policies andprocedures to help us better understand what ouremployees seek in their work culture

BREAKTHROUGH LEADERSHIPPROGRAMS
One standout WIL-related program is BreakthroughLeadership for Women. The workshop develops skillsin the areas of networking, negotiating for leadership
success, solving gender dilemmas and coachingon leadership challenges. The program has grown
substantially since its inception in 2014, and in 2017
will graduate nearly 1,000 women.

The success of this program helped us address a further
need: identifying and developing men as advocates
for their female colleagues. In response, we createda parallel program, Breakthrough Leadership for Men,
in 2016. The course is designed to help men develop
inclusive leadership strategies and sharpen awarenessof gender biases, their leadership journeys and ourorganizational culture. Participants explore how they
can become more fully empowered, inclusive leaders
and advocates of gender equality by creating more
success for both men and women. We expect that
more than 500 men and 200 women will participate
in Breakthrough Leadership for Men in 2017.
In both programs, participants come together for in-depth
discussions about bias, privilege and leadership. They
share real-life business examples and leave with apersonal action plan that includes how to identify,
mentor and sponsor high-performing talent acrossthe organization.

2016 EXECUTIVE SUMMARY

19

CIRCULAR ECONOMY
Earth’s iron ore deposits date to nearly 2 billion
years ago. To us, it makes a lot of sense to keepthat iron, which we use in our products, aroundfor as long as possible. It’s a concept that also
makes a lot of financial sense for our customers
and why our remanufacturing and rebuilding
businesses are a win for all.
Cat Reman focuses on the reclamation,
recycling and reuse of parts and components,
such as engines, into good-as-new ones. The
process keeps materials, such as iron, in ourvalue chain and out of landfills and is less350

Cat Certified
Rebuild tests& inspections

125M+

Pounds of
end-of-life material
received annuallyenergy-intensive than manufacturing a newmachine. Cat Rebuild programs increase thelifespan of equipment by providing customers
with product updates for a fraction of the costof buying a new machine.

PURCHASE

MARKETING

Product is painted
Caterpillar yellow
and re-enters themarketplace forpurchase as aremanufactured part.

Customer buys remanufactured
component; price includes acore deposit as incentive to turnin the original “core” productbeing replaced.

INSPECTION

Dealer inspects
core product; if
accepted, thendeposit returned
to customer.

TESTING

Each productis tested toensure it meetssame-as-whennew specifications
and a new serial
number is assigned
where applicable.

DISASSEMBLY
Cores aredisassembled
down to theirsmallest parts,
losing their originalidentities.

ASSEMBLY

Components areassembled into Cat
Reman productsthat include thelatest engineering
updates.

CLEANING

Elements arecleaned andinspected against
strict engineering
criteria.

RECYCLING

Components thatfail to meet
performance
specifications arerecycled as scrap.

20

CATERPILLARSALVAGE

Individualcomponents are
salvaged using
advanced
technologies.

500TH CAT® CERTIFIED REBUILD PT FREEPORTINDONESIA MINE
Fifteen years after Caterpillar, Cat® dealer PT Trakindo
and customer PT Freeport Indonesia signed a strategic
alliance agreement, the group celebrated its 500th Cat ®
Certified Rebuild in 2016.
Rebuilding these 500 machines has saved the gold mineover $350 million in replacement costs alone. Better still,
every dollar saved has been directly reinvested into themine or the mining community, which 32,000 people from
26 different countries call home. The entire town relies on
mine-funded hospitals, health clinics, schools, religious
centers and recreational centers. To operate its Lowland
Kuala Kencana Rebuild Center, which opened its doors
15 years ago, our dealer hired and trained 405 local
employees. The center supports a total of 43 rebuilding
bays and has achieved OSHAS 18001 certification.
The benefits of rebuilding also contribute positively to themine’s economic performance. Rebuilt machines lower
the mine’s cost per ton, so savings are compoundedthrough the life of each product, especially the undergroundequipment that is approaching its fourth or fifth rebuild.
This benefits the customer, the dealer and Caterpillar.
During the rebuilding process, Caterpillar also updates
and improves each machine over its previous model.
This results in an enhanced operator experience andenables more advanced upgrades, such as adding
Command remote operation technology for Cat LoadHaul-Dump (LHD) Loaders. Now, PT Freeport Indonesia’s
fleet is operating 85 percent of the time, and rotating
through regularly scheduled maintenance practices
the other 15 percent, allowing the mine to focus
on operations.
The 500th Cat® Certified Rebuild with PT FreeportIndonesia signifies much more than reuse of materials;
it represents long-term business stability, community
growth and brand loyalty for the mine. For Caterpillar,
rebuilds show the value and long-term quality that comewith the Cat® brand, and they provide the aftermarket
sales and services on which our business model depends.

2016 EXECUTIVE SUMMARY

21

ENERGY ACCESS
Consider the implications of not having electricity:
No light for a child to read a school book; no way
to cook without harmful smoke; limited, if any,
options for a business to work through thenight; and no heating to warm the very young,elderly or sick. In short, no sustainable way
forward. That’s the situation for a sizeable
amount of the world’s population today.

Caterpillar and the Caterpillar Foundation arecommitted to reducing energy poverty so thatsustainable progress is possible — progresssuch as sanitation and education. These are thebuilding blocks to grow economies and improveliving standards for millions. Explore some ofthe solutions that Caterpillar and its customers
are deploying around the world today.

Cat® Microgrid Solutions

Gas-to-PowerDistributed Power Generation

Investment & AwarenessMicrogrids couple renewable energy generation
with traditional generators for deployment toplaces where the grid is weak or does not reach.
Our strategic alliance with First Solar is focusedon development and distribution of Cat®-branded
photovoltaic modules for incorporation into microgrid
systems for use anywhere in the world.

Caterpillar offers solutions that include combined
heat and power, waste to energy, landfill gas toenergy, coal mine methane to energy, and more.

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Cat® power generators play an integral role insupplying reliable electric power in parts of theworld where a dependable power infrastructureis lacking. In these areas, a lack of reliable powerslows economic development, often for decades.

Sometimes, the best solution is simply about finding
the right channel to work through a challenge.
By combining the strength of Cat® products andthe enduring power of women in communities allover the world, we are on a mission to make energy
access a basic global human right.

TUCSON PROVING GROUND REDUCES EMISSIONS USINGNEW CAT® MICROGRID SOLUTION
Caterpillar’s Tucson Proving Ground (TPG) is located in
an off-the-grid corner of Arizona – but supports activities
with high power demands. The site has relied on threeCat® C15 diesel generator sets that are designed to run
continuously all year long, consuming approximately
250,000 gallons of diesel fuel each year. Altogether, thegenerator sets typically run a combined 11,000 hours
per year.
In 2016, to reduce fuel costs, decrease dependency on
generator sets and lower emissions on the site, TPG
installed 500 kWp of thin-film photovoltaic (PV) solar
panels and 500 kW of short-term energy storage from the
new Cat® Microgrid Solution suite of product offerings.
The Cat® Microgrid Solution offers solar panels, stateof-the-art energy storage, and advanced monitoring
and control systems in combination with Caterpillar’s
traditional line of power generation equipment, includingCat® generator sets, switchgear, uninterruptible power

supplies and automatic transfer switches. Ideal fora broad range of applications such as mining sites,
rural electrification and telecommunication towers,
the Cat® Microgrid Solution is designed to reduce fuelexpenses, lower utility bills and decrease emissions
while increasing energy efficiency in even the mostchallenging of environments.
Thanks to the Cat® Microgrid Solution, TPG expects tolower its diesel fuel use by 33 percent and its generator
set operation by 25 percent, saving about 1,000 tons ofcarbon dioxide emissions a year.
In addition to the TPG project, the microgrid team hasrecently supplied a 1000 kW PV system to the Illinois
Municipal Electric Agency in Rantoul, Illinois, and acomplete off-grid microgrid, including solar panels,
diesel generator sets and energy storage, to a gameand wildlife park in the West African country of Gabon.

2016 EXECUTIVE SUMMARY23

CORPORATE GOVERNANCE
Caterpillar’s governance structure provides leadership, accountability and transparency to company
business on behalf of our employees and our stockholders. Our corporate governance framework
serves the interests of stockholders with the highest standards of responsibility, integrity andcommitment. These standards are developed and implemented by our Board of Directors and global
management team, who oversee the company’s performance and governance policies. Learn moreat www.caterpillar.com/investors.

BOARD OF DIRECTORSDavid Calhoun
Senior Managing
Director
The Blackstone Group
Independent Chairmanof the Caterpillar Board
Daniel Dickinson
Managing Partner
HCI Equity Partners
Juan Gallardo
Former CEO
Organización CULTIBA
Jesse Greene, Jr.
Instructor
Columbia Business
SchoolJon Huntsman, Jr.
Former Ambassador
to China
Dennis Muilenburg
Chairman, President
and CEO
The Boeing Company

As of April 1, 201724

CATERPILLAR

William Osborn
Former Chairman
and CEO
Northern Trust
Corporation
Debra Reed
Chairman and CEO
Sempra Energy
Edward Rust, Jr.
Former Chairman
and CEO
State Farm Mutual
Automobile Insurance
Company
Susan Schwab
Professor
University of Maryland
School of Public Policy
Jim Umpleby
Chief Executive Officer
Caterpillar Inc.
Miles White
Chairman and CEO
AbbottOFFICERS
Chief Executive Officer
Jim Umpleby
Group Presidents
Robert Charter
Bob De Lange
Bradley Halverson
Denise Johnson
Thomas PelletteGroup President &Chief Financial Officer
Bradley Halverson
Executive Vice President,
Law and Public Policy &Chief Legal Officer
James Buda

Jean Savage
George Taylor
Tana Utley
Karl WeissDavid Walton
Ramin Younessi
Interim Executive Vice
President, Law and
Public Policy &Chief Legal Officer
Suzette Long
Chief Accounting Officer
Jananne Copeland
Corporate Controller
Kyle Epley

Senior Vice President
William Ainsworth

Treasurer
Richard Moore

Vice Presidents
Thomas Bluth
Wai Man (Raymond) Chan
Qihua Chen
Joseph Creed
Frank Crespo
Paolo Fellin
Gregory Folley
Tom Frake
Ken Hoefling
Douglas Hoerr
Kathryn Dickey Karol
Zachary KaukPhilip Kelliher
Pablo Koziner
Julie Lagacy
Nigel Lewis

Chief Audit Officer
Jill Daugherty
Chief Ethics andCompliance Officer
Lance HighCorporate Secretary
Christopher Reitz
Assistant Treasurer
Sally Stiles
Assistant Secretary
Chad Wiener
Assistant Secretary
Joni FunkEndnotes
1	Total includes purchased and on-site generated alternative and renewable energy, as well as calculating the percentage of renewableenergy from grid-purchased electricity using data obtained from the International Energy Agency.
2	Renewable Energy: Caterpillar defines renewable energy as energy resources that are naturally replenishing over a short periodof time and virtually inexhaustible. Power generation examples include wind, solar, hydro, geothermal, tidal, wave, biomass andbiogas from anaerobic digestion.
3	Alternative Energy: Caterpillar defines alternative energy as any source of usable energy that offers substantial environmental
benefits compared to the conventional sources of energy that it replaces. Power generation examples include landfill gas, coalmine and abandoned mine methane, combined heat and power (cogen, trigen and quadgen), coal with carbon sequestration andlocalized power generation. Transportation fuel examples include pure methanol, ethanol blends of 85 percent or more with gasoline,
pure natural gas, natural gas blends of 85 percent or more with diesel fuel, liquid fuels domestically produced from natural gas(compressed natural gas, liquefied natural gas and gas to liquid fuels), propane, coal-derived liquid fuels, hydrogen and electricity.
4	GHG emissions intensity reduction goal is based on our combined Scope 1 (direct) and Scope 2 (indirect, market-based) GHG
emissions using a 2006 baseline year. Likewise, total absolute GHG emissions are a sum of Scope 1 and Scope 2 (market-based)emissions.
5 Data prior to 2016 has been restated due to data updates realized from improved accuracy.
6 Water consumption intensity does not include non-contact cooling water.
7 Data does not include Progress Rail, Electro-Motive or Solar Turbines.

Legal Statements
Certain statements in this 2016 Executive Summary 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 other similar words or expressions often identify forward-looking statements.
All statements other than statements of historical fact are forward-looking statements, including, without limitation, statements regarding
our outlook, projections, forecasts or trend descriptions. These statements do not guarantee future performance and speak only as ofthe date they are made, 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 numberof factors, including, but not limited to: (i) global and regional economic conditions and economic conditions in the industries we serve;(ii) commodity price changes, material price increases, fluctuations in demand for our products or significant shortages of material;(iii) government monetary or fiscal policies; (iv) political and economic risks, commercial instability and events beyond our control
in the countries in which we operate; (v) our ability to develop, produce and market quality products that meet our customers’ needs;(vi) the impact of the highly competitive environment in which we operate on our sales and pricing; (vii) information technology security
threats and computer crime; (viii) additional restructuring costs or a failure to realize anticipated savings or benefits from past or future
cost reduction actions; (ix) failure to realize all of the anticipated benefits from initiatives to increase our productivity, efficiency andcash flow and to reduce costs; (x) inventory management decisions and sourcing practices of our dealers and our OEM customers;(xi) a failure to realize, or a delay in realizing, all of the anticipated benefits of our acquisitions, joint ventures or divestitures; (xii) union
disputes or other employee relations issues; (xiii) adverse effects of unexpected events including natural disasters; (xiv) disruptions orvolatility in global financial markets limiting our sources of liquidity or the liquidity of our customers, dealers and suppliers; (xv) 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; (xvi) our Financial Products segment’s risks associated with the financial
services industry; (xvii) changes in interest rates or market liquidity conditions; (xviii) an increase in delinquencies, repossessions or
net losses of Cat Financial’s customers; (xix) currency fluctuations; (xx) our or Cat Financial’s compliance with financial and otherrestrictive covenants in debt agreements; (xxi) increased pension plan funding obligations; (xxii) alleged or actual violations of tradeor anti-corruption laws and regulations; (xxiii) international trade policies and their impact on demand for our products and ourcompetitive position; (xxiv) additional tax expense or exposure; (xxv) significant legal proceedings, claims, lawsuits or government
investigations; (xxvi) new regulations or changes in financial services regulations; (xxvii) compliance with environmental laws andregulations; and (xxviii) other factors described in more detail in Caterpillar’s Forms 10-Q, 10-K and other filings with the Securities
and Exchange Commission.

Learn MoreFind the Annual Report and Sustainability Report at:reports.caterpillar.com

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