CEO Doug Oberhelman’s Full Remarks at the 2015 Annual Stockholders Meeting

“Caterpillar, Innovation and the Internet of Big Things”
Caterpillar Inc. Chairman and CEO Doug Oberhelman
Remarks as Prepared for Delivery at Annual Stockholders Meeting
Wamego, Kansas

I’d like to take this opportunity to talk about Caterpillar’s future – but I’ll start first with a quick look back at 2014.

Overall, I count 2014 as a successful year. Our market position for machines improved for the fourth year in a row and we continued to execute on the things we can control. Our machine quality is among the best in our history, and our safety results have never been better.

Despite lower sales, earnings per share increased over 2013 and operating cash flow was the third highest in Caterpillar history. We successfully focused on maintaining our financial strength and generating cash flow – and returning much of that cash to shareholders. In 2014, we repurchased $4.2 billion of stock and raised the quarterly dividend by 17 percent.

It was a great year for Energy & Transportation with record sales and profit. Sales were also up and profit improved substantially in Construction Industries. However, weak commodity prices along with reduced equipment demand led to lower sales for Resource Industries.

Our leadership team will continue to respond strategically to the challenge of economic uncertainty in many parts of the world. In recent years, we have taken a number of actions to restructure operations and reduce costs, and we will do the same in 2015. Our priorities are to keep Caterpillar financially strong, globally competitive and ready to respond to opportunities. We will also keep improving quality and safety, and we remain 100 percent committed to helping our customers succeed.

Examples of that commitment are right here in Wamego where we manufacture work tools – the buckets, blades, grapples and forks that make our machines so versatile and valuable to our customers.

The hundreds of incredible employees here at Wamego are like every one of our Caterpillar employees, all 113,000 of us! We are all dedicated to constant improvement and constant innovation.

I know that when most people talk about innovation, the first thing they tell you is, “Think outside the box.” 

Well, Caterpillar doesn’t make boxes. We make heavy equipment and machinery.

So, when we talk about innovation we don’t think outside the box: We think inside and outside the machine.

When I say machine, I’m talking about everything that digs, powers, builds, crushes, cuts and operates. It’s every product we sell, every service we provide, and everything in between.

For 90 years, Caterpillar has designed, built and delivered breakthrough innovations inside our machines and engines – from the track-type tractor that gave us our Caterpillar name, to the diesel engine, the elevated sprocket, the hybrid excavator and dynamic gas blending, just to name a few.

In fact, Caterpillar founders Benjamin Holt and C.L. Best, two men from Northern California, were inventing and creating long before other Californians, like Hewlett and Packard, or Jobs and Wozniak, were born. And long before there was HP or Apple, Holt and Best’s inventions were the foundation of Caterpillar, a company that for almost a century has helped build, develop and power the world.

We have an incredible legacy. While we look back with pride, we also look forward to an even stronger future filled with innovative products and services.

We currently invest more than $2 billion each year on research and development. We’re developing and testing new products at R&D centers in the United States, the United Kingdom, India and China; and at proving grounds in North America and Asia. We’re developing advanced technologies through partnerships with universities, non-profits and government agencies – including NASA and the Department of Defense.

That’s how we think about innovation inside the machine.

Innovation outside the machine means thinking beyond the yellow iron – and these innovations fall into three main buckets:

  • How we use data;
  • How we adapt and develop new business models; and
  • How we operate internally.

Let’s start with how we use big data to help our customers. This isn’t difficult because we specialize in big:

  • Big trucks
  • Big machines
  • Big engines

Big data is just the next big on our list.

Put another way, Caterpillar goes beyond the Internet of things – to the Internet of big things.

In the industries we serve today, we have the largest population of connected machines and engines in the world. Through Cat Connect and Minestar™, hundreds of sensors on machines and engines send terabytes of data to state of the art monitoring facilities at Caterpillar and Cat dealers.

Cat off-road mining trucks are operating autonomously 24 hours a day, seven days a week – using sensors, radar, LiDAR and satellite communications.

We have hundreds of engineers developing the next generation of data analytics. We’ve accelerated that work with our recent investment in Uptake, a Chicago-based company. This next generation of data analytics will save our customers time and money by moving to a “predict and fix” model.

We’ll know where every machine is located and its status – not just Cat equipment but all the assets on a customer’s job site, or in a customer’s yard. We’ll instantly alert our customers, dealers and engineers to potential problems, or offer recommendations to improve machine productivity. Then, we’ll share that information with other customers in similar circumstances – to make sure their machine, wherever it is, anywhere in the world – is more productive.

We’ve already seen comparable results through Uptake’s work with our EMD locomotives. Our updated IntelliTrain™ application is shifting from time-based to condition-based maintenance and that will improve availability and help avoid catastrophic failures.

Our customers’ call for more comprehensive, predictive data analytics is being answered throughout Caterpillar –

  • Through Solar Turbines’ InSight System™ which reduces unplanned shutdowns through on-line analysis of detailed data.
  • Through our acquisition of ESRG Technologies Group, we offer a software suite that remotely monitors more than 65 on-board systems in marine vessels – and that increases efficiency and reduces vessel downtime.
  • Earlier this year, we acquired PEPR Inc., and we now offer a proprietary natural gas compressor optimization and emissions reporting software that creates a competitive advantage in the field.

All across our company, we are driving down operating costs and increasing uptime for our customers by turning big data into valuable, actionable information.

We’re investing in companies that think and act differently than we do. That’s intentional and it’s new for Caterpillar. We are trying to disrupt ourselves in our own way, before others can disrupt us.

And while our enterprise business model – seed, grow, harvest – remains our core, we recognize that industry boundaries and business models are changing. We will lead those changes where ever we can.

In energy, we’re leading with new solutions that broaden our already robust power generation portfolio –

  • We have a new alliance with First Solar to develop integrated solutions for the microgrid market. Cat solar panels, Cat gen-sets and energy storage will help bring power and light to remote communities in Africa, Latin America and the Asia Pacific – just for starters.
  • We recently invested in Fluidic Energy to develop advanced energy storage and offer rechargeable, backup power for cell phone towers around the world.

We also recognize new technology brings new competitors. They may not be manufacturing experts – like we are – but they’ll use new tools, like the Internet, to disrupt established business models.

So, when there’s promise, we’ll embrace those models, as we did with a strategic financing of Yard Club, a San Francisco start-up company that built a peer-to-peer equipment rental platform.

We recently formed Caterpillar Venture Capital and set up an office in the Silicon Valley to find start-up companies with innovative technologies or models that can add value to our customers’ operations.

We know successful innovation means thinking and acting differently in our internal operations,too. We have to do more than reward creativity; we have to celebrate failure that will help us succeed. At our Boonville, Missouri facility we call it “Failure Friday,” or “The Power of Trying Again.”

We know it takes hundreds of attempts to develop a new, wear-resistant plastic, but we’ve done it. We know it can take more than 300 tries to develop the right recipe for a new type of cement composite because we’ve done that, too.

Internal innovation also includes making the complex simple. One example is our Assurance of Supply Center. It’s one of the most comprehensive visibility tools in the world. It simplifies our supply network, a network that involves thousands of suppliers shipping more than a million parts and components every year.

Now, we can see those orders from production to delivery – by facility, business unit and cost. That’s just one way we’re going to reach our goal of right part, right time.

When we think of innovation, we think about our engineers first and rightly so. We have the best engineers in the business and because of their creativity, we hold more than 15,000 pending and granted patents worldwide.

In addition to our engineers, Caterpillar has innovators in every facility and office. I call them our hidden innovators. We’re going to turn their ideas into reality, too – inside and outside the machine.

The facility here in Wamego is a shining example of just that. Late last year, Wamego got its first 3D printer. We can’t print a 5,000 pound iron grapple – yet – but when Mick Rykhous was a team leader, he designed and printed a machine guard that eliminated a pinch point hazard in the manufacturing environment.

Mick not only created a safer workplace, he created a guard so ground-breaking it can be patented. Mick is now a manufacturing engineer and he’s here with us today. Mick, please stand and let us recognize you.

We find this same creativity and initiative throughout our workforce. The skills and dedication of our employees are second to none.

Earlier this spring, I met with employees in Dubai. Although it was a team of less than 200, they came from 25 different countries and spoke 24 different languages.

That’s who Caterpillar is today! We are a mighty and diverse force.

Think about how that diversity makes us strong now, and will make us even stronger in the future.

But being international is not new to Caterpillar. In 1929, the same year we were listed on the New York Stock Exchange, we were selling tractors and combines to Russia. Last year, we celebrated 60 years in Brazil. This year is our 50th anniversary in Belgium, and our 40th anniversary in China.

From that diversity will come even greater innovation; innovation that meets our customers’ – and the worlds’ – needs.

Innovation is Caterpillar’s promise to our stockholders, our customers and our employees. It’s how we will keep our 90-year old company forever young and strong.

Thank you all for coming to Wamego.

13 Innovations Highlighted in Oberhelman’s Remarks at the 2015 Annual Stockholders Meeting

When we think about innovation, we don’t think outside “boxes.” We think inside and outside the machine.

Learn More

Caterpillar, Innovation and the Internet of Big Things

Innovation is Caterpillar’s promise to stockholders, customers and employees. It’s how we will keep our 90-year-old company forever young and strong.

Learn More