Segment Information

A. Basis for segment information

Our Executive Office is comprised of five Group Presidents and a CEO. 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. On June 6, 2012, the acquisition of ERA Mining Machinery Limited, including its wholly-owned subsidiary Zhengzhou Siwei Mechanical & Electrical Manufacturing Co., Ltd., commonly known as Siwei, was completed. This added the responsibility for business strategy, product design, product management and development, manufacturing, marketing and sales and product support for underground coal mining equipment to Resource Industries. 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 segment 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 32 to 37 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 June 30,

(Millions of dollars)



	2012
	External sales and revenues		Inter- segment sales & revenues		Total sales and revenues		Depreciation and amortization		Segment profit		Segment assets at June 30		Capital expenditures
Construction Industries	$	5,340	$	123	$	5,463	$	139	$	688	$	9,771	$	219
Resource Industries	5,390		328		5,718		168		1,426		13,499		242
Power Systems	5,511		680		6,191		147		982		9,496		237
Machinery and Power Systems	$	16,241	$	1,131	$	17,372	$	454	$	3,096	$	32,766	$	698
Financial Products Segment	764		—		764		177		188		34,451		457
Total	$	17,005	$	1,131	$	18,136	$	631	$	3,284	$	67,217	$	1,155

	2011
	External sales and revenues		Inter- segment sales & revenues		Total sales and revenues		Depreciation and amortization		Segment profit		Segment assets at December 31		Capital expenditures
Construction Industries	$	4,941	$	124	$	5,065	$	126	$	482	$	7,942	$	158
Resource Industries	3,206		284		3,490		72		796		12,292		105
Power Systems	4,918		541		5,459		129		736		8,748		132
Machinery and Power Systems	$	13,065	$	949	$	14,014	$	327	$	2,014	$	28,982	$	395
Financial Products Segment	764		—		764		182		172		31,747		339
Total	$	13,829	$	949	$	14,778	$	509	$	2,186	$	60,729	$	734

Reportable Segments

Six Months Ended June 30,

(Millions of dollars)



	2012
	External sales and revenues		Inter- segment sales & revenues		Total sales and revenues		Depreciation and amortization		Segment profit		Segment assets at June 30		Capital expenditures
Construction Industries	$	10,402	$	253	$	10,655	$	270	$	1,304	$	9,771	$	350
Resource Industries	10,168		656		10,824		331		2,594		13,499		374
Power Systems	10,498		1,355		11,853		285		1,794		9,496		366
Machinery and Power Systems	$	31,068	$	2,264	$	33,332	$	886	$	5,692	$	32,766	$	1,090
Financial Products Segment	1,525		—		1,525		351		393		34,451		800
Total	$	32,593	$	2,264	$	34,857	$	1,237	$	6,085	$	67,217	$	1,890

	2011
	External sales and revenues		Inter- segment sales & revenues		Total sales and revenues		Depreciation and amortization		Segment profit		Segment assets at December 31		Capital expenditures
Construction Industries	$	9,412	$	271	$	9,683	$	246	$	1,026	$	7,942	$	237
Resource Industries	5,974		558		6,532		143		1,592		12,292		161
Power Systems	9,367		1,095		10,462		265		1,436		8,748		217
Machinery and Power Systems	$	24,753	$	1,924	$	26,677	$	654	$	4,054	$	28,982	$	615
Financial Products Segment	1,494		—		1,494		358		308		31,747		519
Total	$	26,247	$	1,924	$	28,171	$	1,012	$	4,362	$	60,729	$	1,134



Reconciliation of Sales and revenues:
(Millions of dollars)	Machinery and Power Systems			Financial Products		Consolidating Adjustments				Consolidated Total
Three Months Ended June 30, 2012
Total external sales and revenues from reportable segments	$	16,241		$	764	$	—			$	17,005
All Other operating segment	454			—		—				454
Other	(11		)	16		(90		)	¹	(85		)
Total sales and revenues	$	16,684		$	780	$	(90	)		$	17,374

Three Months Ended June 30, 2011
Total external sales and revenues from reportable segments	$	13,065		$	764	$	—			$	13,829
All Other operating segment	475			—		—				475
Other	(5		)	13		(82		)	¹	(74		)
Total sales and revenues	$	13,535		$	777	$	(82	)		$	14,230
¹ Elimination of Financial Products revenues from Machinery and Power Systems.



Reconciliation of Sales and revenues:
(Millions of dollars)	Machinery and Power Systems			Financial Products		Consolidating Adjustments				Consolidated Total
Six Months Ended June 30, 2012
Total external sales and revenues from reportable segments	$	31,068		$	1,525	$	—			$	32,593
All Other operating segment	928			—		—				928
Other	(24		)	32		(174		)	¹	(166		)
Total sales and revenues	$	31,972		$	1,557	$	(174	)		$	33,355

Six Months Ended June 30, 2011
Total external sales and revenues from reportable segments	$	24,753		$	1,494	$	—			$	26,247
All Other operating segment	1,064			—		—				1,064
Other	(5		)	23		(150		)	¹	(132		)
Total sales and revenues	$	25,812		$	1,517	$	(150	)		$	27,179
¹ Elimination of Financial Products revenues from Machinery and Power Systems.



Reconciliation of Consolidated profit before taxes:
(Millions of dollars)	Machinery and Power Systems			Financial Products			Consolidated Total
Three Months Ended June 30, 2012
Total profit from reportable segments	$	3,096		$	188		$	3,284
All Other operating segment	188			—			188
Cost centers	(11		)	—			(11		)
Corporate costs	(400		)	—			(400		)
Timing	(137		)	—			(137		)
Methodology differences:
Inventory/cost of sales	(21		)	—			(21		)
Postretirement benefit expense	(145		)	—			(145		)
Financing costs	(112		)	—			(112		)
Equity in profit of unconsolidated affiliated companies	(5		)	—			(5		)
Currency	9			—			9
Other income/expense methodology differences	(74		)	—			(74		)
Other methodology differences	4			(4		)	—
Total profit before taxes	$	2,392		$	184		$	2,576

Three Months Ended June 30, 2011
Total profit from reportable segments	$	2,014		$	172		$	2,186
All Other operating segment	122			—			122
Cost centers	(20		)	—			(20		)
Corporate costs	(300		)	—			(300		)
Timing	(93		)	—			(93		)
Methodology differences:
Inventory/cost of sales	16			—			16
Postretirement benefit expense	(166		)	—			(166		)
Financing costs	(89		)	—			(89		)
Equity in profit of unconsolidated affiliated companies	10			—			10
Currency	(93		)	—			(93		)
Interest rate swaps	(124		)	—			(124		)
Other income/expense methodology differences	(97		)	—			(97		)
Other methodology differences	(3		)	1			(2		)
Total profit before taxes	$	1,177		$	173		$	1,350



Reconciliation of Consolidated profit before taxes:
(Millions of dollars)	Machinery and Power Systems			Financial Products			Consolidated Total
Six Months Ended June 30, 2012
Total profit from reportable segments	$	5,692		$	393		$	6,085
All Other operating segment	406			—			406
Cost centers	23			—			23
Corporate costs	(760		)	—			(760		)
Timing	(288		)	—			(288		)
Methodology differences:
Inventory/cost of sales	(35		)	—			(35		)
Postretirement benefit expense	(331		)	—			(331		)
Financing costs	(227		)	—			(227		)
Equity in profit of unconsolidated affiliated companies	(7		)	—			(7		)
Currency	140			—			140
Other income/expense methodology differences	(135		)	—			(135		)
Other methodology differences	6			(3		)	3
Total profit before taxes	$	4,484		$	390		$	4,874

Six Months Ended June 30, 2011
Total profit from reportable segments	$	4,054		$	308		$	4,362
All Other operating segment	367			—			367
Cost centers	1			—			1
Corporate costs	(571		)	—			(571		)
Timing	(169		)	—			(169		)
Methodology differences:
Inventory/cost of sales	22			—			22
Postretirement benefit expense	(358		)	—			(358		)
Financing costs	(178		)	—			(178		)
Equity in profit of unconsolidated affiliated companies	18			—			18
Currency	(75		)	—			(75		)
Interest rate swaps	(149		)	—			(149		)
Other income/expense methodology differences	(156		)	—			(156		)
Other methodology differences	(4		)	3			(1		)
Total profit before taxes	$	2,802		$	311		$	3,113



Reconciliation of Assets:
(Millions of dollars)	Machinery and Power Systems			Financial Products			Consolidating Adjustments			Consolidated Total
June 30, 2012
Total assets from reportable segments	$	32,766		$	34,451		$	—		$	67,217
All Other operating segment	2,029			—			—			2,029
Items not included in segment assets:
Cash and short-term investments	2,810			—			—			2,810
Intercompany receivables	54			—			(54		)	—
Investment in Financial Products	4,011			—			(4,011		)	—
Deferred income taxes	4,107			—			(542		)	3,565
Goodwill, intangible assets and other assets	3,988			—			—			3,988
Operating lease methodology difference	(549		)	—			—			(549		)
Liabilities included in segment assets	13,061			—			—			13,061
Inventory methodology differences	(3,164		)	—			—			(3,164		)
Other	96			(137		)	(78		)	(119		)
Total assets	$	59,209		$	34,314		$	(4,685	)	$	88,838

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)	Machinery and Power Systems			Financial Products		Consolidating Adjustments		Consolidated Total
Three Months Ended June 30, 2012
Total depreciation and amortization from reportable segments	$	454		$	177	$	—	$	631
Items not included in segment depreciation and amortization:
All Other operating segment	41			—		—		41
Cost centers	22			—		—		22
Other	(11		)	6		—		(5		)
Total depreciation and amortization	$	506		$	183	$	—	$	689

Three Months Ended June 30, 2011
Total depreciation and amortization from reportable segments	$	327		$	182	$	—	$	509
Items not included in segment depreciation and amortization:
All Other operating segment	41			—		—		41
Cost centers	19			—		—		19
Other	28			2		—		30
Total depreciation and amortization	$	415		$	184	$	—	$	599



Reconciliations of Depreciation and amortization:
(Millions of dollars)	Machinery and Power Systems			Financial Products		Consolidating Adjustments		Consolidated Total
Six Months Ended June 30, 2012
Total depreciation and amortization from reportable segments	$	886		$	351	$	—	$	1,237
Items not included in segment depreciation and amortization:
All Other operating segment	84			—		—		84
Cost centers	41			—		—		41
Other	(23		)	11		—		(12		)
Total depreciation and amortization	$	988		$	362	$	—	$	1,350

Six Months Ended June 30, 2011
Total depreciation and amortization from reportable segments	$	654		$	358	$	—	$	1,012
Items not included in segment depreciation and amortization:
All Other operating segment	86			—		—		86
Cost centers	37			—		—		37
Other	33			6		—		39
Total depreciation and amortization	$	810		$	364	$	—	$	1,174



Reconciliations of Capital expenditures:
(Millions of dollars)	Machinery and Power Systems			Financial Products		Consolidating Adjustments			Consolidated Total
Three Months Ended June 30, 2012
Total capital expenditures from reportable segments	$	698		$	457	$	—		$	1,155
Items not included in segment capital expenditures:
All Other operating segment	90			—		—			90
Cost centers	65			—		—			65
Timing	(81		)	—		—			(81		)
Other	(91		)	57		(29		)	(63		)
Total capital expenditures	$	681		$	514	$	(29	)	$	1,166

Three Months Ended June 30, 2011
Total capital expenditures from reportable segments	$	395		$	339	$	—		$	734
Items not included in segment capital expenditures:
All Other operating segment	51			—		—			51
Cost centers	19			—		—			19
Timing	(74		)	—		—			(74		)
Other	16			22		(24		)	14
Total capital expenditures	$	407		$	361	$	(24	)	$	744



Reconciliations of Capital expenditures:
(Millions of dollars)	Machinery and Power Systems			Financial Products		Consolidating Adjustments			Consolidated Total
Six Months Ended June 30, 2012
Total capital expenditures from reportable segments	$	1,090		$	800	$	—		$	1,890
Items not included in segment capital expenditures:
All Other operating segment	154			—		—			154
Cost centers	103			—		—			103
Timing	321			—		—			321
Other	(123		)	74		(124		)	(173		)
Total capital expenditures	$	1,545		$	874	$	(124	)	$	2,295

Six Months Ended June 30, 2011
Total capital expenditures from reportable segments	$	615		$	519	$	—		$	1,134
Items not included in segment capital expenditures:
All Other operating segment	89			—		—			89
Cost centers	34			—		—			34
Timing	240			—		—			240
Other	(3		)	55		(45		)	7
Total capital expenditures	$	975		$	574	$	(45	)	$	1,504