Segment information


A.	Basis for segment information

Our Executive Office is comprised of five Group Presidents, a Senior Vice President, an Executive Vice President and a CEO. Group Presidents are accountable for a related set of end-to-end businesses that they manage. The Senior Vice President leads the Caterpillar Enterprise System Group and the Executive Vice President leads the Law and Public Policy Division. 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 Energy & Transportation are led by Group Presidents. One operating segment, Financial Products, is led by a Group President who also 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 two smaller operating segments that are included in the All Other operating segments. The Caterpillar Enterprise System Group and Law and Public Policy Division are cost centers and do not meet the definition of an operating segment.

Effective January 1, 2016, we made the following changes to segment reporting. These changes were made to reflect changes in organizational accountabilities and refinements to our internal reporting.


•	Responsibility for remanufacturing of Cat engines and components and remanufacturing services for other companies moved from the All Other operating segments to Energy & Transportation.


•	Responsibility for business strategy, product management, development, manufacturing, marketing and product support for forestry and paving products moved from the All Other operating segments to Construction Industries.


•	Responsibility for business strategy, product management, development, manufacturing, marketing and product support for industrial and waste products moved from the All Other operating segments to Resource Industries.


•	Responsibility for sales and product support of on-highway vocational trucks for North America moved from the All Other operating segments to Energy & Transportation.


•	Internal charges for component manufacturing and logistics services provided by All Other operating segments to Construction Industries, Resource Industries and Energy & Transportation in excess of cost have been adjusted to approximate cost, resulting in a reduction in profit in the All Other operating segments and corresponding increases in profit in the other three segments.


•	Costs that previously had been included in Corporate costs, primarily for company-wide strategies such as information technology and manufacturing process transformation, have been included in the ME&T operating segments that benefit from the costs.

Segment information for 2015 has been retrospectively adjusted to conform to the 2016 presentation.


B.	Description of segments

We have six 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 segments:

Construction Industries: A segment primarily responsible for supporting customers using machinery in infrastructure, forestry 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, telehandlers, select work tools, small, medium and large track excavators, wheel excavators, medium wheel loaders, compact track loaders, medium track-type tractors, track-type loaders, motor graders, pipelayers, forestry products, paving products and related parts. In addition, Construction Industries has responsibility for an integrated manufacturing cost center. Inter-segment sales are a source of revenue for this segment.

Resource Industries: A segment primarily responsible for supporting customers using machinery in mining, quarry, waste, and material handling 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, hard rock vehicles, longwall miners, electric rope shovels, draglines, hydraulic shovels, track and rotary drills, highwall miners, large wheel loaders, off-highway trucks, articulated trucks, wheel tractor scrapers, wheel dozers, landfill compactors, soil compactors, material handlers, continuous miners, scoops and haulers, hardrock continuous mining systems, select work tools, machinery components, electronics and control systems and related parts. Resource Industries also manages areas that provide services to other parts of the company, including integrated manufacturing and research and development. Inter-segment sales are a source of revenue for this segment.

Energy & Transportation: A segment primarily responsible for supporting customers using reciprocating engines, turbines, diesel-electric locomotives and related parts across industries serving power generation, industrial, oil and gas and transportation applications, including marine and rail-related businesses. Responsibilities include business strategy, product design, product management, development, manufacturing, marketing, sales and product support of turbines and turbine-related services, 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 oil and gas industries; reciprocating engines supplied to the industrial industry as well as Cat machinery; the remanufacturing of Cat engines and components and remanufacturing services for other companies; the business strategy, product design, product management, development, manufacturing, remanufacturing, leasing and service of diesel-electric locomotives and components and other rail-related products and services and product support of on-highway vocational trucks for North America. 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 segment also provides various forms of insurance to customers and dealers to help support the purchase and lease of our equipment.

All Other operating segments: Primarily includes activities such as: the business strategy, product management, development, and manufacturing of filters and fluids, undercarriage, tires and rims, ground engaging tools, fluid transfer products, precision seals and rubber, and sealing and connecting components primarily for Cat products; parts distribution; distribution services responsible for dealer development and administration including a wholly-owned dealer in Japan, dealer portfolio management and ensuring the most efficient and effective distribution of machines, engines and parts; digital investments for new customer and dealer solutions that integrate data analytics with state-of-the art digital technologies while transforming the buying experience. Results for the All Other operating segments are 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, Energy & Transportation segment net assets generally include inventories, receivables, property, plant and equipment, goodwill, intangibles, accounts payable, and customer advances. Liabilities other than accounts payable and customer advances 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 20 year useful life. This methodology difference only impacts segment assets; no goodwill amortization expense is included in segment profit. In addition, only a portion of goodwill for certain acquisitions made in 2011 or later has been allocated to segments.


•	The present value of future lease payments for certain Machinery, Energy & Transportation operating leases is included in segment assets. The estimated financing component of the lease payments is excluded.

•

Currency exposures for Machinery, Energy & Transportation 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 is recorded as a methodology difference.


•	Stock-based compensation expense is not included in segment profit.


•	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, Energy & Transportation segment profit is determined on a pretax basis and excludes interest expense 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 35 to 39 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 primarily for compliance and legal functions for the benefit of the entire organization.

•

Restructuring costs: Primarily costs for employee separation costs, long-lived asset impairments and contract terminations. These costs are included in Other Operating (Income) Expenses. Restructuring costs also include other exit-related costs primarily for accelerated depreciation, equipment relocation, inventory write-downs and sales discounts and payments to dealers and customers related to discontinued products. A table, Reconciliation of Restructuring costs on page 37, has been included to illustrate how segment profit would have been impacted by the restructuring costs. See Note 18 for more information.


•	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. For example, certain costs are reported on the cash basis for segment reporting and the accrual basis for consolidated external reporting.




Reportable Segments
Three Months Ended March 31
(Millions of dollars)
	2016
	External sales and revenues		Inter- segment sales and revenues		Total sales and revenues		Depreciation and amortization		Segment profit			Segment assets at March 31		Capital expenditures
Construction Industries	$	4,043	$	8	$	4,051	$	113	$	440		$	5,840	$	28
Resource Industries	1,449		71		1,520		155		(96		)	8,448		35
Energy & Transportation	3,278		632		3,910		166		410			8,131		147
Machinery, Energy & Transportation	$	8,770	$	711	$	9,481	$	434	$	754		$	22,419	$	210
Financial Products Segment	743		—		743		205		168			37,236		297
Total	$	9,513	$	711	$	10,224	$	639	$	922		$	59,655	$	507

	2015
	External sales and revenues		Inter- segment sales and revenues		Total sales and revenues		Depreciation and amortization		Segment profit			Segment assets at December 31		Capital expenditures
Construction Industries	$	5,014	$	23	$	5,037	$	140	$	745		$	6,176	$	40
Resource Industries	1,971		87		2,058		147		96			8,931		35
Energy & Transportation	4,915		794		5,709		167		1,024			8,769		159
Machinery, Energy & Transportation	$	11,900	$	904	$	12,804	$	454	$	1,865		$	23,876	$	234
Financial Products Segment	795		—		795		215		227			35,729		294
Total	$	12,695	$	904	$	13,599	$	669	$	2,092		$	59,605	$	528



Reconciliation of Sales and revenues:
(Millions of dollars)	Machinery, Energy & Transportation			Financial Products		Consolidating Adjustments				Consolidated Total
Three Months Ended March 31, 2016
Total external sales and revenues from reportable segments	$	8,770		$	743	$	—			$	9,513
All Other operating segments	38			—		—				38
Other	(28		)	16		(78		)	¹	(90		)
Total sales and revenues	$	8,780		$	759	$	(78	)		$	9,461

Three Months Ended March 31, 2015
Total external sales and revenues from reportable segments	$	11,900		$	795	$	—			$	12,695
All Other operating segments	72			—		—				72
Other	(11		)	18		(72		)	¹	(65		)
Total sales and revenues	$	11,961		$	813	$	(72	)		$	12,702
¹ Elimination of Financial Products revenues from Machinery, Energy & Transportation.



Reconciliation of Consolidated profit before taxes:
(Millions of dollars)	Machinery, Energy & Transportation			Financial Products			Consolidated Total
Three Months Ended March 31, 2016
Total profit from reportable segments	$	754		$	168		$	922
All Other operating segments	(7		)	—			(7		)
Cost centers	25			—			25
Corporate costs	(159		)	—			(159		)
Timing	32			—			32
Restructuring costs	(159		)	(2		)	(161		)
Methodology differences:
Inventory/cost of sales	(3		)	—			(3		)
Postretirement benefit expense	55			—			55
Stock-based compensation expense	(97		)	(4		)	(101		)
Financing costs	(135		)	—			(135		)
Equity in (profit) loss of unconsolidated affiliated companies	2			—			2
Currency	(40		)	—			(40		)
Other income/expense methodology differences	(56		)	—			(56		)
Other methodology differences	(14		)	5			(9		)
Total consolidated profit before taxes	$	198		$	167		$	365

Three Months Ended March 31, 2015
Total profit from reportable segments	$	1,865		$	227		$	2,092
All Other operating segments	(7		)	—			(7		)
Cost centers	18			—			18
Corporate costs	(140		)	—			(140		)
Timing	19			—			19
Restructuring costs	(35		)	—			(35		)
Methodology differences:							—
Inventory/cost of sales	(35		)	—			(35		)
Postretirement benefit expense	69			—			69
Stock-based compensation expense	(129		)	(6		)	(135		)
Financing costs	(136		)	—			(136		)
Equity in (profit) loss of unconsolidated affiliated companies	(2		)	—			(2		)
Currency	10			—			10
Other income/expense methodology differences	59			—			59
Other methodology differences	(18		)	8			(10		)
Total consolidated profit before taxes	$	1,538		$	229		$	1,767

Reconciliation of Restructuring costs:

As noted above, restructuring costs are a reconciling item between Segment profit and Consolidated profit before taxes. Had we included the amounts in the segments' results, the profit would have been as shown below:



Reconciliation of Restructuring costs:
(Millions of dollars)	Segment profit			Restructuring costs			Segment profit with restructuring costs
Three Months Ended March 31, 2016
Construction Industries	$	440		$	(22	)	$	418
Resource Industries	(96		)	(25		)	(121		)
Energy & Transportation	410			(100		)	310
Financial Products Segment	168			(2		)	166
All Other operating segments	(7		)	(5		)	(12		)
Total	$	915		$	(154	)	$	761

Three Months Ended March 31, 2015
Construction Industries	$	745		$	(23	)	$	722
Resource Industries	96			(8		)	88
Energy & Transportation	1,024			(3		)	1,021
Financial Products Segment	227			—			227
All Other operating segments	(7		)	(1		)	(8		)
Total	$	2,085		$	(35	)	$	2,050



Reconciliation of Assets:
(Millions of dollars)	Machinery, Energy & Transportation			Financial Products			Consolidating Adjustments			Consolidated Total
March 31, 2016
Total assets from reportable segments	$	22,419		$	37,236		$	—		$	59,655
All Other operating segments	1,411			—			—			1,411
Items not included in segment assets:
Cash and short-term investments	4,744			—			—			4,744
Intercompany receivables	2,107			—			(2,107		)	—
Investment in Financial Products	4,194			—			(4,194		)	—
Deferred income taxes	3,156			—			(750		)	2,406
Goodwill and intangible assets	4,080			—			—			4,080
Property, plant and equipment – net and other assets	2,015			—			—			2,015
Operating lease methodology difference	(201		)	—			—			(201		)
Inventory methodology differences	(2,263		)	—			—			(2,263		)
Intercompany loan included in Financial Products' assets	—			—			(1,000		)	(1,000		)
Liabilities included in segment assets	7,922			—			—			7,922
Other	(313		)	(83		)	(66		)	(462		)
Total assets	$	49,271		$	37,153		$	(8,117	)	$	78,307

December 31, 2015
Total assets from reportable segments	$	23,876		$	35,729		$	—		$	59,605
All Other operating segments	1,405			—			—			1,405
Items not included in segment assets:
Cash and short-term investments	5,340			—			—			5,340
Intercompany receivables	1,087			—			(1,087		)	—
Investment in Financial Products	3,888			—			(3,888		)	—
Deferred income taxes	3,208			—			(793		)	2,415
Goodwill and intangible assets	3,571			—			—			3,571
Property, plant and equipment – net and other assets	1,585			—			—			1,585
Operating lease methodology difference	(213		)	—			—			(213		)
Inventory methodology differences	(2,646		)	—			—			(2,646		)
Liabilities included in segment assets	8,017			—			—			8,017
Other	(567		)	(93		)	(77		)	(737		)
Total assets	$	48,551		$	35,636		$	(5,845	)	$	78,342



Reconciliations of Depreciation and amortization:
(Millions of dollars)	Machinery, Energy & Transportation			Financial Products		Consolidated Total
Three Months Ended March 31, 2016
Total depreciation and amortization from reportable segments	$	434		$	205	$	639
Items not included in segment depreciation and amortization:
All Other operating segments	52			—		52
Cost centers	40			—		40
Other	(1		)	10		9
Total depreciation and amortization	$	525		$	215	$	740

Three Months Ended March 31, 2015
Total depreciation and amortization from reportable segments	$	454		$	215	$	669
Items not included in segment depreciation and amortization:
All Other operating segments	49			—		49
Cost centers	37			—		37
Other	(10		)	8		(2		)
Total depreciation and amortization	$	530		$	223	$	753



Reconciliations of Capital expenditures:
(Millions of dollars)	Machinery, Energy & Transportation			Financial Products		Consolidating Adjustments			Consolidated Total
Three Months Ended March 31, 2016
Total capital expenditures from reportable segments	$	210		$	297	$	—		$	507
Items not included in segment capital expenditures:
All Other operating segments	16			—		—			16
Cost centers	12			—		—			12
Timing	217			—		—			217
Other	(76		)	73		(9		)	(12		)
Total capital expenditures	$	379		$	370	$	(9	)	$	740

Three Months Ended March 31, 2015
Total capital expenditures from reportable segments	$	234		$	294	$	—		$	528
Items not included in segment capital expenditures:
All Other operating segments	25			—		—			25
Cost centers	19			—		—			19
Timing	253			—		—			253
Other	(54		)	63		(8		)	1
Total capital expenditures	$	477		$	357	$	(8	)	$	826