Chief Executive Officer



After a successful 41-year career, including seven years as chairman and CEO, Doug Oberhelman announced his intention to retire. He leaves behind a solid legacy, including product quality at historically high levels and a dramatically improved employee safety record. Doug led Caterpillar to our highest sales and revenues peak in 2012 and then through the unprecedented downturn that continues to impact the industries we serve.

Throughout his tenure, Doug was tenaciously committed to helping our customers succeed. I share that commitment. It’s an honor and privilege to be chosen as the next CEO to lead this iconic company.

With Doug’s retirement, the board of directors elected to separate the roles of chairman and CEO. On April 1, 2017, Dave Calhoun, a Caterpillar director since 2011, became non-executive chairman of the board.

Financial Performance and a Strong Balance Sheet

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 in all segments and all regions. However, we reduced variable manufacturing costs 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 to a loss per share of $0.11, compared to $4.18 profit per share in 2015. Excluding the non-cash charges and restructuring costs, 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 (ME&T) debt-to-capital ratio was 41.0 percent at the end of 2016, within our targeted range. We ended the year with a strong cash and liquidity position. Operating profit pull through was better than our target, and ME&T operating cash flow was more than enough to cover dividend payments and capital expenditures.

Our dividend has remained a high priority throughout this difficult economic cycle. We’ve been able to maintain our dividend because of our balance sheet strength and because we’ve taken the tough actions necessary to reduce our cost structure and generate solid cash flow.

Delivering on Our Operational Commitment

Our financial performance is the result of successful operational execution by our global team of employees. We continued our Lean journey in 2016, to further increase safety and efficiency in our facilities, and product and service quality for our customers.

We also continued the restructuring actions first announced in September 2015. At that time, we anticipated lowering operating costs by about $1.5 billion annually through reducing our workforce by about 10,000 people, and closing or consolidating about 20 facilities to reduce manufacturing floor space by about 10 percent.

As of the end of 2016, we’ve consolidated or closed more than 30 facilities, reducing manufacturing floor space by about 14 percent. Our total workforce has declined more than 16,000. Overall, excluding shortterm incentive compensation, we have reduced period costs by about $1.5 billion since 2014, as we projected we would.

None of this has been easy on our employees or their families, but these decisions were necessary due to market conditions and will position Caterpillar for future profitable growth.


The World Needs Caterpillar Equipment

Even as we control costs, we are also preserving capacity for when markets turn positive. We continue to lead in most of the industries we serve. Our customers use our equipment to build the infrastructure and extract the coal, oil and natural gas that improves living standards around the world. As the world’s population grows, a rising middle class will require more roads, bridges, dams, railroads, water and power for better living conditions. Caterpillar equipment has been and will continue to be essential for sustainable progress.

Future progress will also come from our investments in digital technologies, data analytics and automation that increase the efficiency of our machines, engines and locomotives so our customers are more productive wherever they operate around the world. With 470,000 connected assets today – sharing data to improve grading, paving and safety, just as examples – Caterpillar has the largest connected fleet in the industry and we’ve barely 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 and more than 350 PhDlevel scientists and technology experts, is always working to improve current offerings and design the products of the future.

Caterpillar has been continually innovating since the early 20th century. By continuing to focus on innovation, we will stay on the leading-edge throughout the 21st century as well.

The Cat® Dealer Network: A Competitive Advantage Second to None

To provide our customers with personalized, local service, we depend on the 172 independent Cat Dealers with more than 157,000 employees around the world. We continue to collaborate with our dealers to ensure we can meet the ever-evolving needs of our customers. Through strategic planning and implementation, we are raising the distribution network’s foundational capabilities and further strengthening this unmatched competitive advantage.

Strategy Update

We last comprehensively reviewed our enterprise strategy in 2010 shortly after Doug Oberhelman was appointed as CEO. The plan we developed at that time has served us well. In 2017, a diverse, cross-functional team, in consultation with our board, will be 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.

Our Values and Our Future

In everything we do, we are guided by Our Values in Action. The Caterpillar Foundation is a laudable example of that. In 2016, the Foundation invested $36.8 million dollars in global communities. Our values also demand unwavering commitment to the safety of our people. We’re proud our recordable injury frequency rate has improved more than 90 percent since 2003, which is a testament to our company and employees’ dedication to Safely Home. Everyone. Every Day.™

Caterpillar is as solid as the iron of our machines. Although 2016 was another challenging year for us, 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