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Operations and summary of significant accounting policies (Policies)
12 Months Ended
Dec. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation, Policy
B.
Basis of presentation and change in accounting principle
 
The consolidated financial statements include the accounts of Caterpillar Inc. and its subsidiaries where we have a controlling financial interest.

Investments in companies where our ownership exceeds 20 percent and we do not have a controlling interest or where the ownership is less than 20 percent and for which we have a significant influence are accounted for by the equity method.  See Note 9 for further discussion.

We consolidate all variable interest entities (VIEs) where Caterpillar Inc. is the primary beneficiary.  For VIEs, we assess whether we are the primary beneficiary as prescribed by the accounting guidance on the consolidation of VIEs.  The primary beneficiary of a VIE is the party that has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. See Note 21 for further discussion on a consolidated VIE.

We have affiliates, suppliers and dealers that are VIEs of which we are not the primary beneficiary. Although we have provided financial support, we do not have the power to direct the activities that most significantly impact the economic performance of each entity. Our maximum exposure to loss from VIEs for which we are not the primary beneficiary was as follows:

 
 
December 31,
(Millions of dollars)
 
2016
 
2015
 
Receivables - trade and other
 
$
55

 
$
19

 
Receivables - finance
 
174

 
466

 
Long-term receivables - finance
 
246

 
62

 
Investments in unconsolidated affiliated companies
 
31

 
35

 
Guarantees
 
210

 
175

 
Total
 
$
716

 
$
757

 
 
 
 
 
 
 


In addition, Cat Financial has end-user customers that are VIEs of which we are not the primary beneficiary. Although we have provided financial support to these entities and therefore have a variable interest, we do not have the power to direct the activities that most significantly impact their economic performance. Our maximum exposure to loss from our involvement with these VIEs is limited to the credit risk inherently present in the financial support that we have provided. These risks are evaluated and reflected in our financial statements as part of our overall portfolio of finance receivables and related allowance for credit losses.

Shipping and handling costs are included in Cost of goods sold in Statement 1.  Other operating (income) expenses primarily include Cat Financial’s depreciation of equipment leased to others, Insurance Services’ underwriting expenses, gains (losses) on disposal of long-lived assets, long-lived asset impairment charges, legal settlements and accruals, employee separation charges and benefit plan curtailment gains (losses).
 
Prepaid expenses and other current assets in Statement 3 include prepaid rent, prepaid insurance, prepaid and refundable income tax, assets held for sale, core to be returned for remanufacturing, restricted cash and other short-term investments, and other prepaid items.

Certain amounts for prior years have been reclassified to conform with the current-year financial statement presentation.
 
Change in Accounting Principle

Effective January 1, 2016, we changed our accounting principle for recognizing actuarial gains and losses and expected returns on plan assets for our defined benefit pension and other postretirement benefit plans. Prior to 2016, actuarial gains and losses were recognized as a component of Accumulated other comprehensive income (loss) and were generally amortized into earnings in future periods. Under the new principle, actuarial gains and losses are immediately recognized through net benefit cost upon the annual remeasurement in the fourth quarter, or on an interim basis as triggering events warrant remeasurement. In addition, we have changed our policy for recognizing the expected returns on plan assets from a market-related value method (based on a three-year smoothing of asset returns) to a fair value method. We believe these changes are preferable as they accelerate the recognition of changes in fair value of plan assets and actuarial gains and losses in our Consolidated Statement of Results of Operations, provide greater transparency of our economic obligations in accounting results and better align with the fair value principles by recognizing the effects of economic and interest rate changes on pension and other postretirement benefit assets and liabilities in the year in which the gains and losses are incurred. These changes have been applied retrospectively to prior years. As of January 1, 2014, the cumulative effect of the change resulted in a decrease of $4.1 billion in Profit employed in the business and a corresponding increase of $4.1 billion in Accumulated other comprehensive income (loss), both net of tax of $2.4 billion.

Following are the impacts to financial statement line items as a result of the change in accounting principle for the periods
presented in the accompanying consolidated financial statements:

Consolidated Statement of Results of Operations for the Years Ended December 31
 
 
 
 
 
(Dollars in millions except per share data)
 
2016
 
 
 
As Reported
 
Previous Accounting Method
 
Effect of Accounting Change
 
Cost of goods sold
 
$
28,309

 
$
28,074

 
$
235

 
Selling, general and administrative expenses
 
$
4,686

 
$
4,441

 
$
245

 
Research and development expenses
 
$
1,951

 
$
1,868

 
$
83

 
Total operating costs
 
$
38,039

 
$
37,476

 
$
563

 
Operating profit
 
$
498

 
$
1,061

 
$
(563
)
 
Other income (expense)
 
$
146

 
$
50

 
$
96

 
Consolidated profit before taxes
 
$
139

 
$
606

 
$
(467
)
 
Provision (benefit) for income taxes
 
$
192

 
$
364

 
$
(172
)
 
Profit (loss) of consolidated companies
 
$
(53
)
 
$
242

 
$
(295
)
 
Profit (loss) of consolidated and affiliated companies
 
$
(59
)
 
$
236

 
$
(295
)
 
Profit (loss)
 
$
(67
)
 
$
228

 
$
(295
)
 
Profit (loss) per common share
 
$
(0.11
)
 
$
0.39

 
$
(0.50
)
 
Profit (loss) per common share - diluted
 
$
(0.11
)
 
$
0.39

 
$
(0.50
)
 
 
 
 
 
 
 
 
 
 
 
2015
 
 
 
Recast
 
Previously Reported
 
Effect of Accounting Change
 
Cost of goods sold
 
$
33,546

 
$
33,742

 
$
(196
)
 
Selling, general and administrative expenses
 
$
4,951

 
$
5,199

 
$
(248
)
 
Research and development expenses
 
$
2,119

 
$
2,165

 
$
(46
)
 
Other operating (income) expenses
 
$
2,023

 
$
2,062

 
$
(39
)
 
Total operating costs
 
$
43,226

 
$
43,755

 
$
(529
)
 
Operating profit
 
$
3,785

 
$
3,256

 
$
529

 
Other income (expense)
 
$
161

 
$
106

 
$
55

 
Consolidated profit before taxes
 
$
3,439

 
$
2,855

 
$
584

 
Provision (benefit) for income taxes
 
$
916

 
$
742

 
$
174

 
Profit (loss) of consolidated companies
 
$
2,523

 
$
2,113

 
$
410

 
Profit (loss) of consolidated and affiliated companies
 
$
2,523

 
$
2,113

 
$
410

 
Profit (loss)
 
$
2,512

 
$
2,102

 
$
410

 
Profit (loss) per common share
 
$
4.23

 
$
3.54

 
$
0.69

 
Profit (loss) per common share - diluted
 
$
4.18

 
$
3.50

 
$
0.68

 
 
 
 
 
 
 
 
 
 
 
2014
 
 
 
Recast
 
Previously Reported
 
Effect of Accounting Change
 
Cost of goods sold
 
$
40,718

 
$
39,767

 
$
951

 
Selling, general and administrative expenses
 
$
6,529

 
$
5,697

 
$
832

 
Research and development expenses
 
$
2,380

 
$
2,135

 
$
245

 
Other operating (income) expenses
 
$
1,619

 
$
1,633

 
$
(14
)
 
Total operating costs
 
$
51,870

 
$
49,856

 
$
2,014

 
Operating profit
 
$
3,314

 
$
5,328

 
$
(2,014
)
 
Other income (expense)
 
$
322

 
$
239

 
$
83

 
Consolidated profit before taxes
 
$
3,152

 
$
5,083

 
$
(1,931
)
 
Provision (benefit) for income taxes
 
$
692

 
$
1,380

 
$
(688
)
 
Profit (loss) of consolidated companies
 
$
2,460

 
$
3,703

 
$
(1,243
)
 
Profit (loss) of consolidated and affiliated companies
 
$
2,468

 
$
3,711

 
$
(1,243
)
 
Profit (loss)
 
$
2,452

 
$
3,695

 
$
(1,243
)
 
Profit (loss) per common share
 
$
3.97

 
$
5.99

 
$
(2.02
)
 
Profit (loss) per common share - diluted
 
$
3.90

 
$
5.88

 
$
(1.98
)
 
 
 
 
 
 
 
 
 
Consolidated Statement of Comprehensive Income for the Years Ended December 31
 
 
 
 
 
(Dollars in millions)
 
2016
 
 
 
As Reported
 
Previous Accounting Method
 
Effect of Accounting Change
 
 
 
 
 
 
 
 
 
Profit (loss) of consolidated and affiliated companies
 
$
(59
)
 
$
236

 
$
(295
)
 
Foreign currency translation, net of tax
 
$

 
$

 
$

 
Pension and other postretirement benefits:
 
 
 
 
 

 
  Current year actuarial gain (loss), net of tax
 
$

 
$
(621
)
 
$
621

 
  Amortization of actuarial (gain) loss, net of tax
 
$

 
$
326

 
$
(326
)
 
Total other comprehensive income (loss), net of tax
 
$
(4
)
 
$
(299
)
 
$
295

 
 
 
 
 
 
 
 
 
 
 
2015
 
 
 
Recast
 
Previously Reported
 
Effect of Accounting Change
 
Profit (loss) of consolidated and affiliated companies
 
$
2,523

 
$
2,113

 
$
410

 
Foreign currency translation, net of tax
 
$
(973
)
 
$
(977
)
 
$
4

 
Pension and other postretirement benefits:
 
 
 
 
 

 
  Current year actuarial gain (loss), net of tax
 
$

 
$
(10
)
 
$
10

 
  Amortization of actuarial (gain) loss, net of tax
 
$

 
$
424

 
$
(424
)
 
Total other comprehensive income (loss), net of tax
 
$
(988
)
 
$
(578
)
 
$
(410
)
 
 
 
 
 
 
 
 
 
 
 
2014
 
 
 
Recast
 
Previously Reported
 
Effect of Accounting Change
 
Profit (loss) of consolidated and affiliated companies
 
$
2,468

 
$
3,711

 
$
(1,243
)
 
Foreign currency translation, net of tax
 
$
(1,155
)
 
$
(1,164
)
 
$
9

 
Pension and other postretirement benefits:
 
 
 
 
 

 
  Current year actuarial gain (loss), net of tax
 
$

 
$
(1,578
)
 
$
1,578

 
  Amortization of actuarial (gain) loss, net of tax
 
$

 
$
344

 
$
(344
)
 
Total other comprehensive income (loss), net of tax
 
$
(1,290
)
 
$
(2,533
)
 
$
1,243

 
 
 
 
 
 
 
 
 

Consolidated Statement of Financial Position at December 31
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
 
2016
 
2015
 
 
 
As Reported
 
Previous Accounting Method
 
Effect of Accounting Change
 
Recast
 
Previously Reported
 
Effect of Accounting Change
 
Profit employed in the business
 
$
27,377

 
$
32,634

 
$
(5,257
)
 
$
29,246

 
$
34,208

 
$
(4,962
)
 
Accumulated other comprehensive income (loss)
 
$
(2,039
)
 
$
(7,296
)
 
$
5,257

 
$
(2,035
)
 
$
(6,997
)
 
$
4,962

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Consolidated Statement of Changes in Stockholders' Equity for the Years Ended December 31
 
 
 
(Dollars in millions)
 
2016
 
 
 
As Reported
 
Previous Accounting Method
 
Effect of Accounting Change
 
Profit (loss) of consolidated and affiliated companies
 
$
(59
)
 
$
236

 
$
(295
)
 
Pension and other postretirement benefits, net of tax
 
$
83

 
$
(212
)
 
$
295

 
 
 
 
 
 
 
 
 
 
 
2015
 
 
 
Recast
 
Previously Reported
 
Effect of Accounting Change
 
Profit (loss) of consolidated and affiliated companies
 
$
2,523

 
$
2,113

 
$
410

 
Foreign currency translation, net of tax
 
$
(973
)
 
$
(977
)
 
$
4

 
Pension and other postretirement benefits, net of tax
 
$
(38
)
 
$
376

 
$
(414
)
 
 
 
 
 
 
 
 
 
 
 
2014
 
 
 
Recast
 
Previously Reported
 
Effect of Accounting Change
 
Profit (loss) of consolidated and affiliated companies
 
$
2,468

 
$
3,711

 
$
(1,243
)
 
Foreign currency translation, net of tax
 
$
(1,155
)
 
$
(1,164
)
 
$
9

 
Pension and other postretirement benefits, net of tax
 
$
(21
)
 
$
(1,255
)
 
$
1,234

 
 
 
 
 
 
 
 
 

Consolidated Statement of Cash Flow for the Years Ended December 31
 
 
 
 
 
(Millions of dollars)
 
2016
 
Cash flow from operating activities:
 
As Reported
 
Previous Accounting Method
 
Effect of Accounting Change
 
Profit (loss) of consolidated and affiliated companies
 
$
(59
)
 
$
236

 
$
(295
)
 
Adjustments for non-cash items:
 
 
 
 
 
 
 
     Actuarial (gain) loss on pension and postretirement benefits
 
$
985

 
$

 
$
985

 
  Provision (benefit) for deferred income taxes
 
$
(431
)
 
$

 
$
(431
)
 
     Other
 
$
856

 
$
952

 
$
(96
)
 
Changes in assets and liabilities, net of acquisitions and divestitures:
 
 
 
 
 
 
 
  Other assets – net
 
$
224

 
$
46

 
$
178

 
  Other liabilities – net
 
$
(388
)
 
$
(47
)
 
$
(341
)
 
 
 
 
 
 
 
 
 
 
 
2015
 
Cash flow from operating activities:
 
Recast
 
Previously Reported
 
Effect of Accounting Change
 
Profit (loss) of consolidated and affiliated companies
 
$
2,523

 
$
2,113

 
$
410

 
Adjustments for non-cash items:
 
 
 
 
 
 
 
     Actuarial (gain) loss on pension and postretirement benefits
 
$
179

 
$

 
$
179

 
  Provision (benefit) for deferred income taxes
 
$
(307
)
 
$

 
$
(307
)
 
     Other
 
$
453

 
$
508

 
$
(55
)
 
Changes in assets and liabilities, net of acquisitions and divestitures:
 
 
 
 
 
 
 
  Other assets – net
 
$
143

 
$
(220
)
 
$
363

 
  Other liabilities – net
 
$
(146
)
 
$
444

 
$
(590
)
 
 
 
 
 
 
 
 
 
 
 
2014
 
Cash flow from operating activities:
 
Recast
 
Previously Reported
 
Effect of Accounting Change
 
Profit (loss) of consolidated and affiliated companies
 
$
2,468

 
$
3,711

 
$
(1,243
)
 
Adjustments for non-cash items:
 
 
 
 
 
 
 
     Actuarial (gain) loss on pension and postretirement benefits
 
$
2,624

 
$

 
$
2,624

 
  Provision (benefit) for deferred income taxes
 
$
(954
)
 
$

 
$
(954
)
 
     Other
 
$
470

 
$
553

 
$
(83
)
 
Changes in assets and liabilities, net of acquisitions and divestitures:
 
 
 
 
 
 
 
  Other assets – net
 
$
(139
)
 
$
(300
)
 
$
161

 
  Other liabilities – net
 
$
(359
)
 
$
146

 
$
(505
)
 
 
 
 
 
 
 
 
 
The above tables include changes resulting from reclassifications between financial statement line items.
Sales and Revenue Recognition, Policy
C.
Sales and revenue recognition
 
Sales of Machinery, Energy & Transportation are recognized and earned when all the following criteria are satisfied:  (a) persuasive evidence of a sales arrangement exists; (b) price is fixed and determinable; (c) collectibility is reasonably assured; and (d) delivery has occurred.  Persuasive evidence of an arrangement and a fixed or determinable price exist once we receive an order or contract from a customer or independently owned and operated dealer.  We assess collectibility at the time of the sale and if collectibility is not reasonably assured, the sale is deferred and not recognized until collectibility is probable or payment is received.  Typically, where product is produced and sold in the same country, title and risk of ownership transfer when the product is shipped.  Products that are exported from a country for sale typically pass title and risk of ownership at the border of the destination country.
 
Sales of certain turbine machinery units, draglines and long wall roof supports are recognized under accounting for construction-type contracts, primarily using the percentage-of-completion method.  Revenue is recognized based upon progress towards completion, which is estimated and continually updated over the course of construction.  We provide for any loss that we expect to incur on these contracts when that loss is probable.
 
Our remanufacturing operations are primarily focused on the remanufacture of Cat engines and components and rail related products.  In this business, used engines and related components (core) are inspected, cleaned and remanufactured.  In connection with the sale of most of our remanufactured product, we collect a deposit from the dealer that is repaid if the dealer returns an acceptable core within a specified time period.  Caterpillar owns and has title to the cores when they are returned from dealers.  The rebuilt engine or component (the core plus any new content) is then sold as a remanufactured product to dealers and customers.  Revenue is recognized pursuant to the same criteria as Machinery, Energy & Transportation sales noted above (title to the entire remanufactured product passes to the dealer upon sale).  At the time of sale, the deposit is recognized in Other current liabilities in Statement 3.  In addition, the core to be returned is recognized as an asset in Prepaid expenses and other current assets in Statement 3 at the estimated replacement cost (based on historical experience with useable cores).  Upon receipt of an acceptable core, we repay the deposit and relieve the liability.  The returned core is then included in inventory.  In the event that the deposit is forfeited (i.e. upon failure by the dealer to return an acceptable core in the specified time period), we recognize the core deposit and the cost of the core in Sales and Cost of goods sold, respectively.
 
No right of return exists on sales of equipment.  Replacement part returns are estimable and accrued at the time a sale is recognized.
 
We provide discounts to dealers through merchandising programs.  We have numerous programs that are designed to promote the sale of our products.  The most common dealer programs provide a discount when the dealer sells a product to a targeted end user.  The cost of these discounts is estimated based on historical experience and known changes in merchandising programs and is reported as a reduction to sales when the product sale is recognized.
 
Our standard dealer invoice terms are established by marketing region. Our invoice terms for end-user customer sales are established by the responsible business unit. When a sale is made to a dealer, the dealer is responsible for payment even if the product is not sold to an end customer. Dealers and customers must make payment within the established invoice terms to avoid potential interest costs. Interest at or above prevailing market rates may be charged on any past due balance, and generally our practice is to not forgive this interest. In 2016, 2015 and 2014 terms were extended to not more than one year for $406 million, $635 million and $624 million of receivables, respectively, which represent approximately 1 percent of consolidated sales.

We establish a bad debt allowance for Machinery, Energy & Transportation receivables when it becomes probable that the receivable will not be collected.  Our allowance for bad debts is not significant.

Revenues of Financial Products are generated primarily from finance revenue on finance receivables and rental payments on operating leases. Finance revenue is recorded over the life of the related finance receivable using the interest method, including the accretion of certain direct origination costs that are deferred. Revenue from rental payments received on operating leases is recognized on a straight-line basis over the term of the lease.

Recognition of finance revenue and rental revenue is suspended and the account is placed on non-accrual status when management determines that collection of future income is not probable (generally after 120 days past due). Recognition is resumed, and previously suspended income is recognized, when the account becomes current and collection of remaining amounts is considered probable. See Note 6 for more information.
 
Sales and revenues are presented net of sales and other related taxes.
Inventories, Policy
D.
Inventories
 
Inventories are stated at the lower of cost or market. Cost is principally determined using the last-in, first-out (LIFO) method. The value of inventories on the LIFO basis represented about 60 percent of total inventories at December 31, 2016 and 2015.
 
If the FIFO (first-in, first-out) method had been in use, inventories would have been $2,139 million and $2,498 million higher than reported at December 31, 2016 and 2015, respectively.
Depreciation and Amortization, Policy
E.
Depreciation and amortization
 
Depreciation of plant and equipment is computed principally using accelerated methods. Depreciation on equipment leased to others, primarily for Financial Products, is computed using the straight-line method over the term of the lease. The depreciable basis is the original cost of the equipment less the estimated residual value of the equipment at the end of the lease term. In 2016, 2015 and 2014, Cat Financial depreciation on equipment leased to others was $841 million, $836 million and $872 million, respectively, and was included in Other operating (income) expenses in Statement 1. In 2016, 2015 and 2014, consolidated depreciation expense was $2,707 million, $2,705 million and $2,795 million, respectively. Amortization of purchased finite-lived intangibles is computed principally using the straight-line method, generally not to exceed a period of 20 years.
Foreign Currency Translation, Policy
F.
Foreign currency translation
 
The functional currency for most of our Machinery, Energy & Transportation consolidated companies is the U.S. dollar. The functional currency for most of our Financial Products and affiliates accounted for under the equity method is the respective local currency.  Gains and losses resulting from the remeasurement of foreign currency amounts to the functional currency are included in Other income (expense) in Statement 1. Gains and losses resulting from translating assets and liabilities from the functional currency to U.S. dollars are included in Accumulated other comprehensive income (loss) in Statement 3.
Derivative Financial Instruments, Policy
G.
Derivative financial instruments
 
Our earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates, interest rates and commodity prices.  Our Risk Management Policy (policy) allows for the use of derivative financial instruments to prudently manage foreign currency exchange rate, interest rate and commodity price exposures. Our policy specifies that derivatives are not to be used for speculative purposes. Derivatives that we use are primarily foreign currency forward, option, and cross currency contracts, interest rate swaps, and commodity forward and option contracts. All derivatives are recorded at fair value.  See Note 3 for more information.
Income Taxes, Policy
H.
Income taxes
 
The provision for income taxes is determined using the asset and liability approach taking into account guidance related to uncertain tax positions.  Tax laws require items to be included in tax filings at different times than the items are reflected in the financial statements.  A current liability is recognized for the estimated taxes payable for the current year.  Deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid.  Deferred taxes are adjusted for enacted changes in tax rates and tax laws.  Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.
Goodwill, Policy
I.
Goodwill
 
For acquisitions accounted for as a business combination, goodwill represents the excess of the cost over the fair value of the net assets acquired.  We are required to test goodwill for impairment, at the reporting unit level, annually and when events or circumstances indicate the fair value of a reporting unit may be below its carrying value.  A reporting unit is an operating segment or one level below an operating segment (referred to as a component) to which goodwill is assigned when initially recorded. We assign goodwill to reporting units based on our integration plans and the expected synergies resulting from the acquisition.  Because Caterpillar is a highly integrated company, the businesses we acquire are sometimes combined with or integrated into existing reporting units.  When changes occur in the composition of our operating segments or reporting units, goodwill is reassigned to the affected reporting units based on their relative fair values. 
We test goodwill for impairment annually and whenever events or circumstances make it more likely than not that an impairment may have occurred.  We perform our annual goodwill impairment test as of October 1 and monitor for interim triggering events on an ongoing basis.  Goodwill is reviewed for impairment utilizing either a qualitative assessment or a two-step process.  We have an option to make a qualitative assessment of a reporting unit’s goodwill for impairment.  If we choose to perform a qualitative assessment and determine the fair value more likely than not exceeds the carrying value, no further evaluation is necessary.  For reporting units where we perform the two-step process, the first step requires us to compare the fair value of each reporting unit, which we primarily determine using an income approach based on the present value of discounted cash flows, to the respective carrying value, which includes goodwill.  If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired.  If the carrying value is higher than the fair value, there is an indication that an impairment may exist and the second step is required.  In step two, the implied fair value of goodwill is calculated as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities.  If the implied fair value of goodwill is less than the carrying value of the reporting unit’s goodwill, the difference is recognized as an impairment loss.  See Note 10 for further details.

Estimates in Financial Statements, Policy
J.
Estimates in financial statements
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts. The more significant estimates include: residual values for leased assets, fair values for goodwill impairment tests, impairment of available-for-sale securities, warranty liability, stock-based compensation and reserves for product liability and insurance losses, postretirement benefits, post-sale discounts, credit losses and income taxes.