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Annual Report 2018 | Annual Report ® CORPORATE PROFILE Whether paving roads, mining essential commodities or extracting the fuels to satisfy global energy demand, Caterpillar products, services and solutions help improve the lives of people around the world. Customers use our products to build the basic infrastructure that enables higher standards of living so that people have access to water, electricity, roads, bridges, hospitals, schools and so much more. In short, our solutions help our customers build a better world. 104,000 Full-time employees 4 Million+ Products working around the world 168 Global Cat® dealers 19 Years Dow Jones Sustainability ~850,000 Index member Connected assets $27 Million Caterpillar Foundation investments $1.85 Billion in global communities in 2018 Research and development funding Our Strategy for Profitable Growth Services Operational Excellence Expanded Offerings Growing digital- Building upon core Enabling customer success enabled solutions and competencies – safety, through integrated and aftermarket offerings quality, Lean and cost differentiated solutions. to deliver unmatched discipline – to deliver strong value to customers. operational performance. “ The Caterpillar team extended our legacy of more than 90 years by introducing innovative products and services, executing our strategy to deliver long-term profitable growth and shareholder value, and – ultimately – making our customers more successful.” Jim Umpleby Chairman & CEO DEAR FELLOW SHAREHOLDERS Caterpillar’s outstanding performance in 2018 can be summed up by one number: 104,000. That’s the size of our dedicated global team who spent the year innovating and providing solutions that help our customers build a better world. In the process, our team is also building a better Caterpillar. They extended Caterpillar’s legacy of more than 90 years dividends to shareholders – earning Caterpillar a by introducing innovative products and services, spot on the elite Dividend Aristocrats list. In addition, executing our strategy to deliver long-term profitable we generated Machinery, Engine & Transportation growth and shareholder value, and – ultimately – operating cash flow of $6.3 billion, due in part to our making our customers more successful. Their efforts disciplined use of the Operating & Execution (O&E) executing our strategy and serving our customers Model – a strategic framework that allocates resources drove 2018’s record levels of profitability, increased to the areas of the business that have the best potential sales and delivered strong operational performance. for profitable growth. The team achieved a number of key financial milestones EXECUTING OUR ENTERPRISE STRATEGY in 2018: record profit per share of $10.26, a 63 percent The core components of our enterprise strategy increase in adjusted profit per share to the highest remain the same: expanded offerings, services and levels in our company’s history, a 20 percent increase operational excellence. In 2018, this strategy took in sales and revenues and an 86 percent improvement firm hold, providing momentum for our team to in our operating profit. Both the overall enterprise and deliver significant results in each of these areas. our three primary business segments achieved or exceeded the operating margin targets we announced DELIVERING A SUPERIOR CUSTOMER during Investor Day in 2017. EXPERIENCE Our services strategy is to deliver a superior customer This performance allowed us to return $5.8 billion of experience focused on value-added offerings – capital to shareholders by repurchasing $3.8 billion in transforming traditional product support. And we’re shares of stock and raising the dividend by 10 percent. well on our way. An increase in the number of products 2018 marked the 25th consecutive year of higher sold with customer value agreements is expected 2018 | Annual Report 1 to strengthen our presence in the aftermarket. We continue to invest in digital and technology solutions, from connected fleets and autonomous machines, to e-commerce options and equipment management mobile apps – and nearly everything in between. Connected fleets are the industry’s future and have strong implications for our customers, allowing them to make informed decisions that improve productivity and boost profits. When it comes to automation technology for mining, six different mining companies now use Cat® MineStar™ Command for hauling at seven sites in Australia, North America and South America. By the end of 2018, trucks using MineStar had autonomously moved more than 1 billion tonnes of material. DEVELOPING DIFFERENTIATED PRODUCTS Expanded offerings means developing the right differentiated product solutions to meet the needs of our global customer base, ensuring their success and long-term loyalty. We introduced the 20-ton class of Next Generation excavators, with features that increase operating efficiency, reduce fuel use and lower maintenance costs, helping our customers achieve their productivity and cost targets. We also launched our Next Generation D6 dozer, which has 35 percent better fuel efficiency and increased agility compared to prior models. Our team is continuing to develop exciting new offerings, which promise to further drive customer loyalty and profitable growth. INVESTING IN OPERATIONAL EXCELLENCE Finally, we are investing in operational excellence – particularly focusing on safety, quality and Lean manufacturing. We’ll never relent on our commitment to safety, because we want every person to go home safely every day. That’s why we focus on preventing OPERATIONAL EXCELLENCE injuries before they occur. In 2018, we continued to reduce lost time injuries with a 6 percent improvement over 2017 and a 95 percent improvement since our 2003 baseline. EXPANDED SERVICES OFFERINGS Lean delivers strong bottom-line results and drives profitability through the ups and downs of business cycles. We continue to refine Lean in our manufacturing operations and are also applying Lean end-to-end through product development, order to delivery and transactional work. We have a continuous improvement mindset, built on the foundation of 6 Sigma, to stay customer focused, stop defects, improve processes and eliminate waste. A BETTER WORLD IS A SUSTAINABLE ONE For Caterpillar, focusing on sustainability is an important part of building a better world. Sustainability is part of who we are and what we do every single day. You can learn more about our efforts in the 2018 Sustainability Report. Our team’s work resulted in Caterpillar being named to the 2018 Dow Jones Sustainability Indices for the 19th time, which is a testament to our deep commitment to sustainability. We are also proud to have been named to Fortune’s World’s Most Admired Companies for 2018. 2 2018 | Annual Report “ These external accolades combined returned significant capital to shareholders and continued investment in expanded offerings and with our 2018 performance are proof services to drive long-term profitable growth. of the power of Caterpillar’s strategy. None of this would be possible without our team – the people who put our strategy into action daily. Quite simply – it’s working.” We are excited about the tremendous opportunities that lie before us. These external accolades combined with our 2018 performance are proof of the power of Caterpillar’s Thank you for sharing this journey with us. strategy. Quite simply – it’s working. For us, it’s also a reminder that anything worth doing is worth doing right. At Caterpillar, we want to win – but we only want to win in the right way – by remaining dedicated to our customers and living Our Values in Action. In summary, 2018 was an excellent year for Caterpillar Jim Umpleby that demonstrates the power – and the potential – of Chairman & CEO our strategy. We achieved record profit per share, 2018 | Annual Report 3 OPERATIONAL PERFORMANCE EXCELLENCE EXPANDED SERVICES AT-A-GLANCE OFFERINGS Caterpillar delivered an outstanding performance in recognition as a member of the Dividend Aristocrats 2018. Profit per share was the best in company history list. In total, we returned $5.8 billion in capital to with sales and revenues growth of 20 percent over Caterpillar shareholders. The company delivered these 2017. We returned capital to shareholders through results due in part to the relentless execution of our the repurchase of $3.8 billion in shares of stock and enterprise strategy for profitable growth using the a 10 percent increase in the annual dividend. This Operating & Execution Model with a focus on services, increase marked the 25th consecutive year we have operational excellence and expanded offerings. declared higher dividends to shareholders, earning us Sales & Revenues Operating Profit Sales and Revenues Sales by Region Operating Profit (in millions) (in millions) (in millions) 2016 $38.5 2018 SALES BY REGION2016 $1,162 (in millions) 2017 $45.5 North America – $25,6232017 $4,460 Asia/Pacific – $12,475Dividends Declared Europe, Africa, Middle East – $11,929 2018 $54.7 2018 SALES BY REGION 2018 $8,293 (in millions) Latin America – $4,695 North America – $25,623 Asia/Pacific – $12,475 Europe, Africa, Middle East – $11,929 Latin America – $4,695 Profit Per Share Adjusted Profit Per Share Profit (Loss) Per Share Adjusted Profit Per Share Dividends Declared (in dollars) (in dollars) (per share) 2016 ($.11) 2016 $3.42 2016 $3.08 2017 $1.26 2017 $6.88 2017 $3.11 2018 $10.26 2018 $11.22 2018 $3.36 A reconciliation of adjusted profit per share to U.S. GAAP can be found in our press releases describing
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