Segment Information

3 Months Ended

Mar. 31, 2012

Segment Information

Segment Information

14.Segment Information

A.Basis for segment information

Group Presidents are accountable for a related set of end-to-end businesses that they manage.  The CEO allocates resources and manages performance at the Group President level.  As such, the CEO serves as our Chief Operating Decision Maker and operating segments are primarily based on the Group President reporting structure.

Three of our operating segments, Construction Industries, Resource Industries and Power Systems, are led by Group Presidents.  One operating segment, Financial Products, is led by a Group President who has responsibility for Corporate Services.  Corporate Services is a cost center primarily responsible for the performance of certain support functions globally and to provide centralized services; it does not meet the definition of an operating segment.  One Group President leads a smaller operating segment that is included in the All Other operating segment.

The segment information for 2011 has been retrospectively adjusted to conform to the 2012 presentation. A portion of goodwill assets, related to recent acquisitions, that was allocated to Machinery and Power Systems operating segments is now a methodology difference between segment and external reporting.

B.Description of segments

We have five operating segments, of which four are reportable segments.  Following is a brief description of our reportable segments and the business activities included in the All Other operating segment:

Construction Industries:  A segment primarily responsible for supporting customers using machinery in infrastructure and building construction applications. Responsibilities include business strategy, product design, product management and development, manufacturing, marketing, and sales and product support. The product portfolio includes backhoe loaders, small wheel loaders, small track-type tractors, skid steer loaders, multi-terrain loaders, mini excavators, compact wheel loaders, select work tools, small, medium and large track excavators, wheel excavators, medium wheel loaders, medium track-type tractors, track-type loaders, motor graders, pipelayers and related parts. In addition, Construction Industries has responsibility for Power Systems and components in Japan and an integrated manufacturing cost center that supports Machinery and Power Systems businesses. Inter-segment sales are a source of revenue for this segment.

Resource Industries:  A segment primarily responsible for supporting customers using machinery in mining and quarrying applications. Responsibilities include business strategy, product design, product management and development, manufacturing, marketing and sales and product support. The product portfolio includes large track-type tractors, large mining trucks, underground mining equipment, tunnel boring equipment, large wheel loaders, off-highway trucks, articulated trucks, wheel tractor scrapers, wheel dozers, compactors, select work tools, forestry products, paving products, machinery components and electronics and control systems. In addition, Resource Industries manages areas that provide services to other parts of the company, including integrated manufacturing, research and development and coordination of the Caterpillar Production System. On July 8, 2011, the acquisition of Bucyrus was completed. This added the responsibility for business strategy, product design, product management and development, manufacturing, marketing and sales and product support for electric rope shovels, draglines, hydraulic shovels, drills, highwall miners and electric drive off-highway trucks to Resource Industries. In addition, segment profit includes Bucyrus acquisition-related costs and the impact from divestiture of a portion of the Bucyrus distribution business. Inter-segment sales are a source of revenue for this segment.

Power Systems:  A segment primarily responsible for supporting customers using reciprocating engines, turbines and related parts across industries serving electric power, industrial, petroleum and marine applications as well as rail-related businesses. Responsibilities include business strategy, product design, product management, development, manufacturing, marketing, sales and product support of reciprocating engine powered generator sets, integrated systems used in the electric power generation industry, reciprocating engines and integrated systems and solutions for the marine and petroleum industries; reciprocating engines supplied to the industrial industry as well as Caterpillar machinery; the business strategy, product design, product management, development, manufacturing, marketing, sales and product support of turbines and turbine-related services; the development, manufacturing, remanufacturing, maintenance, leasing and service of diesel-electric locomotives and components and other rail-related products and services. Inter-segment sales are a source of revenue for this segment.

Financial Products Segment:  Provides financing to customers and dealers for the purchase and lease of Caterpillar and other equipment, as well as some financing for Caterpillar sales to dealers.  Financing plans include operating and finance leases, installment sale contracts, working capital loans and wholesale financing plans. The division also provides various forms of insurance to customers and dealers to help support the purchase and lease of our equipment.

All Other:  Primarily includes activities such as: the remanufacturing of Cat engines and components and remanufacturing services for other companies as well as the business strategy, product management, development, manufacturing, marketing and product support of undercarriage, specialty products, hardened bar stock components and ground engaging tools primarily for Caterpillar products; logistics services for Caterpillar and other companies; the product management, development, marketing, sales and product support of on-highway vocational trucks for North America (U.S. and Canada only); distribution services responsible for dealer development and administration, dealer portfolio management and ensuring the most efficient and effective distribution of machines, engines and parts; and the 50/50 joint venture with Navistar (NC2) until it became a wholly owned subsidiary of Navistar effective September 29, 2011. Inter-segment sales are a source of revenue for this segment. Results for the All Other operating segment is included as a reconciling item between reportable segments and consolidated external reporting.

C.Segment measurement and reconciliations

There are several methodology differences between our segment reporting and our external reporting.  The following is a list of the more significant methodology differences:

·Machinery and Power Systems segment net assets generally include inventories, receivables, property, plant and equipment, goodwill, intangibles and accounts payable.  Liabilities other than accounts payable are generally managed at the corporate level and are not included in segment operations.  Financial Products Segment assets generally include all categories of assets.

·Segment inventories and cost of sales are valued using a current cost methodology.

·Goodwill allocated to segments is amortized using a fixed amount based on a twenty year useful life.  This methodology difference only impacts segment assets; no goodwill amortization expense is included in segment profit.

·The present value of future lease payments for certain Machinery and Power Systems operating leases is included in segment assets.  The estimated financing component of the lease payments is excluded.

·Currency exposures for Machinery and Power Systems are generally managed at the corporate level and the effects of changes in exchange rates on results of operations within the year are not included in segment profit.  The net difference created in the translation of revenues and costs between exchange rates used for U.S. GAAP reporting and exchange rates used for segment reporting are recorded as a methodology difference.

·Postretirement benefit expenses are split; segments are generally responsible for service and prior service costs, with the remaining elements of net periodic benefit cost included as a methodology difference.

·Machinery and Power Systems segment profit is determined on a pretax basis and excludes interest expense, gains and losses on interest rate swaps and other income/expense items.  Financial Products Segment profit is determined on a pretax basis and includes other income/expense items.

Reconciling items are created based on accounting differences between segment reporting and our consolidated external reporting. Please refer to pages 25 to 28 for financial information regarding significant reconciling items.  Most of our reconciling items are self-explanatory given the above explanations.  For the reconciliation of profit, we have grouped the reconciling items as follows:

·Corporate costs:  These costs are related to corporate requirements and strategies that are considered to be for the benefit of the entire organization.

·Methodology differences:  See previous discussion of significant accounting differences between segment reporting and consolidated external reporting.

·Timing:   Timing differences in the recognition of costs between segment reporting and consolidated external reporting.

Reportable Segments

Three Months Ended March 31,

(Millions of dollars)

	2012
	Externalsales andrevenues		Inter-segmentsales &revenues		Total salesandrevenues		Depreciationandamortization		Segmentprofit		Segmentassets atMarch 31		Capitalexpenditures
Construction Industries	$	5,062	$	130	$	5,192	$	131	$	616	$	8,899	$	131
Resource Industries	4,778		328		5,106		163		1,168		13,050		132
Power Systems	4,987		675		5,662		138		812		9,293		129
Machinery and Power Systems	$	14,827	$	1,133	$	15,960	$	432	$	2,596	$	31,242	$	392
Financial Products Segment	761		—		761		174		205		32,458		343
Total	$	15,588	$	1,133	$	16,721	$	606	$	2,801	$	63,700	$	735

	2011
	Externalsales andrevenues		Inter-segmentsales &revenues		Total salesandrevenues		Depreciationandamortization		Segmentprofit		Segmentassets atDecember 31		Capitalexpenditures
Construction Industries	$	4,471	$	147	$	4,618	$	120	$	544	$	7,942	$	79
Resource Industries	2,768		274		3,042		71		796		12,292		56
Power Systems	4,449		554		5,003		136		700		8,748		85
Machinery and Power Systems	$	11,688	$	975	$	12,663	$	327	$	2,040	$	28,982	$	220
Financial Products Segment	730		—		730		176		136		31,747		180
Total	$	12,418	$	975	$	13,393	$	503	$	2,176	$	60,729	$	400

Reconciliation of Sales and revenues:

(Millions of dollars)	Machineryand PowerSystems			FinancialProducts		ConsolidatingAdjustments			ConsolidatedTotal
Three Months Ended March 31, 2012
Total external sales and revenues from reportable segments	$	14,827		$	761	$	—		$	15,588
All Other operating segment	474			—		—			474
Other	(13		)	16		(84		)(1)	(81		)
Total sales and revenues	$	15,288		$	777	$	(84	)	$	15,981
Three Months Ended March 31, 2011
Total external sales and revenues from reportable segments	$	11,688		$	730	$	—		$	12,418
All Other operating segment	589			—		—			589
Other	—			10		(68		)(1)	(58		)
Total sales and revenues	$	12,277		$	740	$	(68	)	$	12,949

(1) Elimination of Financial Products revenues from Machinery and Power Systems.

Reconciliation of Consolidated profit before taxes:

(Millions of dollars)	Machineryand PowerSystems			FinancialProducts		ConsolidatedTotal
Three Months Ended March 31, 2012
Total profit from reportable segments	$	2,596		$	205	$	2,801
All Other operating segment	218			—		218
Cost centers	34			—		34
Corporate costs	(360		)	—		(360		)
Timing	(151		)	—		(151		)
Methodology differences:
Inventory/cost of sales	(14		)	—		(14		)
Postretirement benefit expense	(186		)	—		(186		)
Financing costs	(115		)	—		(115		)
Equity in profit of unconsolidated affiliated companies	(2		)	—		(2		)
Currency	131			—		131
Other income/expense methodology differences	(61		)	—		(61		)
Other methodology differences	2			1		3
Total profit before taxes	$	2,092		$	206	$	2,298
Three Months Ended March 31, 2011
Total profit from reportable segments	$	2,040		$	136	$	2,176
All Other operating segment	245			—		245
Cost centers	21			—		21
Corporate costs	(271		)	—		(271		)
Timing	(76		)	—		(76		)
Methodology differences:
Inventory/cost of sales	6			—		6
Postretirement benefit expense	(192		)	—		(192		)
Financing costs	(89		)	—		(89		)
Equity in profit of unconsolidated affiliated companies	8			—		8
Currency	18			—		18
Interest rate swaps	(25		)	—		(25		)
Other income/expense methodology differences	(59		)	—		(59		)
Other methodology differences	(1		)	2		1
Total profit before taxes	$	1,625		$	138	$	1,763

Reconciliation of Assets:

(Millions of dollars)	Machineryand PowerSystems			FinancialProducts			ConsolidatingAdjustments			ConsolidatedTotal
March 31, 2012
Total assets from reportable segments	$	31,242		$	32,458		$	—		$	63,700
All Other operating segment	2,007			—			—			2,007
Items not included in segment assets:
Cash and short-term investments	1,635			—			—			1,635
Intercompany receivables	102			—			(102		)	—
Investment in Financial Products	4,055			—			(4,055		)	—
Deferred income taxes	3,929			—			(487		)	3,442
Goodwill, intangible assets and other assets	4,030			—			—			4,030
Operating lease methodology difference	(544		)	—			—			(544		)
Liabilities included in segment assets	12,688			—			—			12,688
Inventory methodology differences	(3,078		)	—			—			(3,078		)
Other	347			(158		)	(161		)	28
Total assets	$	56,413		$	32,300		$	(4,805	)	$	83,908
December 31, 2011
Total assets from reportable segments	$	28,982		$	31,747		$	—		$	60,729
All Other operating segment	2,035			—			—			2,035
Items not included in segment assets:
Cash and short-term investments	1,829			—			—			1,829
Intercompany receivables	75			—			(75		)	—
Investment in Financial Products	4,035			—			(4,035		)	—
Deferred income taxes	4,109			—			(533		)	3,576
Goodwill, intangible assets and other assets	4,461			—			—			4,461
Operating lease methodology difference	(511		)	—			—			(511		)
Liabilities included in segment assets	12,088			—			—			12,088
Inventory methodology differences	(2,786		)	—			—			(2,786		)
Other	362			(194		)	(143		)	25
Total assets	$	54,679		$	31,553		$	(4,786	)	$	81,446

Reconciliations of Depreciation and amortization:

(Millions of dollars)	Machineryand PowerSystems			FinancialProducts		ConsolidatingAdjustments		ConsolidatedTotal
Three Months Ended March 31, 2012
Total depreciation and amortization from reportable segments	$	432		$	174	$	—	$	606
Items not included in segment depreciation and amortization:
All Other operating segment	43			—		—		43
Cost centers	19			—		—		19
Other	(12		)	5		—		(7		)
Total depreciation and amortization	$	482		$	179	$	—	$	661
Three Months Ended March 31, 2011
Total depreciation and amortization from reportable segments	$	327		$	176	$	—	$	503
Items not included in segment depreciation and amortization:
All Other operating segment	45			—		—		45
Cost centers	18			—		—		18
Other	5			4		—		9
Total depreciation and amortization	$	395		$	180	$	—	$	575

Reconciliations of Capital expenditures:

(Millions of dollars)	Machineryand PowerSystems			FinancialProducts		ConsolidatingAdjustments			ConsolidatedTotal
Three Months Ended March 31, 2012
Total capital expenditures from reportable segments	$	392		$	343	$	—		$	735
Items not included in segment capital expenditures:
All Other operating segment	64			—		—			64
Cost centers	38			—		—			38
Timing	402			—		—			402
Other	(32		)	17		(95		)	(110		)
Total capital expenditures	$	864		$	360	$	(95	)	$	1,129
Three Months Ended March 31, 2011
Total capital expenditures from reportable segments	$	220		$	180	$	—		$	400
Items not included in segment capital expenditures:
All Other operating segment	38			—		—			38
Cost centers	15			—		—			15
Timing	314			—		—			314
Other	(19		)	33		(21		)	(7		)
Total capital expenditures	$	568		$	213	$	(21	)	$	760