Segment information


A.	Basis for segment information

Our Executive Office is comprised of a Chief Executive Officer (CEO), five Group Presidents, a General Counsel & Corporate Secretary and a Chief Human Resources Officer. Group Presidents are accountable for a related set of end-to-end businesses that they manage. The General Counsel & Corporate Secretary leads the Law and Public Policy Division. The Chief Human Resources Officer leads the Human Resources Organization. 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 Law and Public Policy Division and the Human Resources Organization are cost centers and do not meet the definition of an operating segment.

Segment information for 2017 has been recast due to our adoption of new accounting guidance issued by the FASB related to the presentation of net periodic pension costs and net period postretirement benefit costs. Prior service cost (credits) is no longer included in segment profit. See Note 2 for additional information.


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 asphalt pavers, backhoe loaders, compactors, cold planers, compact track and multi-terrain loaders, mini, small, medium and large track excavators, forestry excavators, feller bunchers, harvesters, knuckleboom loaders, motor graders, pipelayers, road reclaimers, site prep tractors, skidders, skid steer loaders, telehandlers, small and medium track-type tractors, track-type loaders, wheel excavators, compact, small and medium wheel loaders and related parts and work tools. 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 and aggregates, 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, rotary drills, large wheel loaders, off-highway trucks, articulated trucks, wheel tractor scrapers, wheel dozers, landfill compactors, soil compactors, hard rock continuous mining systems, select work tools, machinery components, electronics and control systems and related parts. In addition to equipment, Resource Industries also develops and sells technology products and services to provide customers fleet management, equipment management analytics and autonomous machine capabilities. 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 Oil and Gas, Power Generation, Industrial and Transportation applications, including marine and rail-related businesses. Responsibilities include business strategy, product design, product management and development, manufacturing, marketing and sales and product support of turbine machinery and integrated systems and solutions 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 and 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 alternatives to customers and dealers around the world for Caterpillar products, as well as financing for vehicles, power generation facilities and marine vessels that, in most cases, incorporate Caterpillar products. Financing plans include operating and finance leases, installment sale contracts, working capital loans and wholesale financing plans. The segment also provides insurance and risk management products and services that help customers and dealers manage their business risk. Insurance and risk management products offered include physical damage insurance, inventory protection plans, extended service coverage for machines and engines, and dealer property and casualty insurance. The various forms of financing, insurance and risk management products offered to customers and dealers help support the purchase and lease of our equipment. The segment also earns revenues from Machinery, Energy & Transportation but the related costs are not allocated to operating segments.

All Other operating segments: Primarily includes activities such as: business strategy, product management and development, and manufacturing of filters and fluids, undercarriage, ground engaging tools, fluid transfer products, precision seals, and rubber sealing and connecting components primarily for Cat products; parts distribution; integrated logistics solutions, 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 reported 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 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 34 to 38 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, long-lived asset impairments and contract terminations. These costs are included in Other operating (income) expenses except for defined-benefit plan curtailment losses and special termination benefits, which are included in Other income (expense). Restructuring costs also include other exit-related costs primarily for accelerated depreciation, inventory write-downs, equipment relocation and project management costs and LIFO inventory decrement benefits from inventory liquidations at closed facilities, primarily included in Cost of goods sold. A table, Reconciliation of Restructuring costs on page 36, 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)
	2018
	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	$	5,659		$	18	$	5,677	$	89	$	1,117	$	4,961	$	42
Resource Industries	2,208			101		2,309		116		378		6,172		23
Energy & Transportation	4,276			943		5,219		158		874		8,119		162
Machinery, Energy & Transportation	$	12,143		$	1,062	$	13,205	$	363	$	2,369	$	19,252	$	227
Financial Products Segment	793		¹	—		793		203		141		35,332		361
Total	$	12,936		$	1,062	$	13,998	$	566	$	2,510	$	54,584	$	588

	2017
	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	$	4,091		$	9	$	4,100	$	102	$	634	$	4,838	$	21
Resource Industries	1,670			91		1,761		127		160		6,403		21
Energy & Transportation	3,356			780		4,136		158		545		7,564		116
Machinery, Energy & Transportation	$	9,117		$	880	$	9,997	$	387	$	1,339	$	18,805	$	158
Financial Products Segment	760		¹	—		760		208		183		34,893		271
Total	$	9,877		$	880	$	10,757	$	595	$	1,522	$	53,698	$	429

¹ Includes revenues from Machinery, Energy & Transportation of $105 million and $86 million in the first quarter of 2018 and 2017, respectively.

For the three months ending March 31, 2018, sales and revenues by geographic region reconciled to consolidated sales and revenues were as follows:



Sales and Revenues by Geographic Region
(Millions of dollars)	North America			Latin America			EAME			Asia/ Pacific			External Sales and Revenues
First Quarter 2018
Construction Industries	$	2,620		$	344		$	1,067		$	1,628		$	5,659
Resource Industries	798			360			520			530			2,208
Energy & Transportation	2,225			280			1,092			679			4,276
All Other operating segments	15			—			4			18			37
Corporate Items and Eliminations	(28		)	1			(3		)	—			(30		)
Machinery, Energy & Transportation Sales	5,630			985			2,680			2,855			12,150

Financial Products Segment	512			74			101			106			793
Corporate Items and Eliminations	(49		)	(13		)	(5		)	(17		)	(84		)
Financial Products Revenues	463			61			96			89			709

Consolidated Sales and Revenues	$	6,093		$	1,046		$	2,776		$	2,944		$	12,859

For the three months ending March 31, 2018, Energy & Transportation segment sales by end user application were as follows:



Energy & Transportation External Sales
(Millions of dollars)	Three Months Ended March 31, 2018
Oil and gas	$	1,215
Power generation	969
Industrial	906
Transportation	1,186
Energy & Transportation External Sales	$	4,276




Reconciliation of Sales and revenues:
(Millions of dollars)	Machinery, Energy & Transportation			Financial Products		Consolidating Adjustments				Consolidated Total
Three Months Ended March 31, 2017
Total external sales and revenues from reportable segments	$	9,117		$	760	$	—			$	9,877
All Other operating segments	37			—		—				37
Other	(24		)	17		(85		)	¹	(92		)
Total sales and revenues	$	9,130		$	777	$	(85	)		$	9,822
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, 2018
Total profit from reportable segments	$	2,369		$	141		$	2,510
All Other operating segments	57			—			57
Cost centers	27			—			27
Corporate costs	(168		)	—			(168		)
Timing	(84		)	—			(84		)
Restructuring costs	(69		)	—			(69		)
Methodology differences:
Inventory/cost of sales	(8		)	—			(8		)
Postretirement benefit expense	87			—			87
Stock-based compensation expense	(48		)	(2		)	(50		)
Financing costs	(78		)	—			(78		)
Currency	3			—			3
Other income/expense methodology differences	(78		)	—			(78		)
Other methodology differences	(13		)	(2		)	(15		)
Total consolidated profit before taxes	$	1,997		$	137		$	2,134

Three Months Ended March 31, 2017
Total profit from reportable segments	$	1,339		$	183		$	1,522
All Other operating segments	(14		)	—			(14		)
Cost centers	7			—			7
Corporate costs	(115		)	—			(115		)
Timing	(38		)	—			(38		)
Restructuring costs	(751		)	(1		)	(752		)
Methodology differences:							—
Inventory/cost of sales	(68		)	—			(68		)
Postretirement benefit expense	47			—			47
Stock-based compensation expense	(47		)	(2		)	(49		)
Financing costs	(130		)	—			(130		)
Currency	(39		)	—			(39		)
Other income/expense methodology differences	(55		)	—			(55		)
Other methodology differences	(31		)	4			(27		)
Total consolidated profit before taxes	$	105		$	184		$	289

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 (loss)			Restructuring costs			Segment profit (loss) with restructuring costs
Three Months Ended March 31, 2018
Construction Industries	$	1,117		$	(14	)	$	1,103
Resource Industries	378			(44		)	334
Energy & Transportation	874			(5		)	869
Financial Products Segment	141			—			141
All Other operating segments	57			(4		)	53
Total	$	2,567		$	(67	)	$	2,500

Three Months Ended March 31, 2017
Construction Industries	$	634		$	(667	)	$	(33	)
Resource Industries	160			(59		)	101
Energy & Transportation	545			(14		)	531
Financial Products Segment	183			(1		)	182
All Other operating segments	(14		)	(6		)	(20		)
Total	$	1,508		$	(747	)	$	761



Reconciliation of Assets:
(Millions of dollars)	Machinery, Energy & Transportation			Financial Products			Consolidating Adjustments			Consolidated Total
March 31, 2018
Total assets from reportable segments	$	19,252		$	35,332		$	—		$	54,584
All Other operating segments	1,342			—			—			1,342
Items not included in segment assets:
Cash and short-term investments	7,034			—			—			7,034
Intercompany receivables	1,630			—			(1,630		)	—
Investment in Financial Products	4,225			—			(4,225		)	—
Deferred income taxes	2,116			—			(537		)	1,579
Goodwill and intangible assets	4,572			—			—			4,572
Property, plant and equipment – net and other assets	2,261			—			—			2,261
Operating lease methodology difference	(174		)	—			—			(174		)
Inventory methodology differences	(2,214		)	—			—			(2,214		)
Liabilities included in segment assets	9,657			—			—			9,657
Other	(589		)	(8		)	(30		)	(627		)
Total assets	$	49,112		$	35,324		$	(6,422	)	$	78,014

December 31, 2017
Total assets from reportable segments	$	18,805		$	34,893		$	—		$	53,698
All Other operating segments	1,312			—			—			1,312
Items not included in segment assets:
Cash and short-term investments	7,381			—			—			7,381
Intercompany receivables	1,733			—			(1,733		)	—
Investment in Financial Products	4,064			—			(4,064		)	—
Deferred income taxes	2,166			—			(574		)	1,592
Goodwill and intangible assets	4,210			—			—			4,210
Property, plant and equipment – net and other assets	2,341			—			—			2,341
Operating lease methodology difference	(191		)	—			—			(191		)
Inventory methodology differences	(2,287		)	—			—			(2,287		)
Liabilities included in segment assets	9,352			—			—			9,352
Other	(399		)	(14		)	(33		)	(446		)
Total assets	$	48,487		$	34,879		$	(6,404	)	$	76,962



Reconciliations of Depreciation and amortization:
(Millions of dollars)	Machinery, Energy & Transportation		Financial Products		Consolidated Total
Three Months Ended March 31, 2018
Total depreciation and amortization from reportable segments	$	363	$	203	$	566
Items not included in segment depreciation and amortization:
All Other operating segments	57		—		57
Cost centers	31		—		31
Other	17		10		27
Total depreciation and amortization	$	468	$	213	$	681

Three Months Ended March 31, 2017
Total depreciation and amortization from reportable segments	$	387	$	208	$	595
Items not included in segment depreciation and amortization:
All Other operating segments	54		—		54
Cost centers	35		—		35
Other	15		11		26
Total depreciation and amortization	$	491	$	219	$	710



Reconciliations of Capital expenditures:
(Millions of dollars)	Machinery, Energy & Transportation			Financial Products		Consolidating Adjustments			Consolidated Total
Three Months Ended March 31, 2018
Total capital expenditures from reportable segments	$	227		$	361	$	—		$	588
Items not included in segment capital expenditures:
All Other operating segments	11			—		—			11
Cost centers	14			—		—			14
Timing	175			—		—			175
Other	(104		)	77		(4		)	(31		)
Total capital expenditures	$	323		$	438	$	(4	)	$	757

Three Months Ended March 31, 2017
Total capital expenditures from reportable segments	$	158		$	271	$	—		$	429
Items not included in segment capital expenditures:
All Other operating segments	20			—		—			20
Cost centers	9			—		—			9
Timing	88			—		—			88
Other	(66		)	32		(3		)	(37		)
Total capital expenditures	$	209		$	303	$	(3	)	$	509