Caterpillar 2015 Annual Report Download - page 7

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2015 YEAR IN REVIEW
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 billion
of 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 to
manage now and prepare for future opportunities. We have paid higher dividends for 22 consecutive years, and since
2007 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 business
model. 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 since
2013. 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 more
than 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 manufacturing
square 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’re
restructuring 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, through
distributed 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-as-
when-new condition, and this conserves natural resources.
A Message to Shareholders
DOUG OBERHELMAN Chairman & CEO, Caterpillar Inc. (continued)