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.

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 and pipe layers. In addition, Construction Industries has responsibility for Power Systems and three wholly-owned dealers 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, electric rope shovels, draglines, hydraulic shovels, drills, highwall miners, electric drive off-highway trucks, tunnel boring equipment, large wheel loaders, off-highway trucks, articulated trucks, wheel tractor scrapers, wheel dozers, select work tools, forestry products, paving products, industrial and waste products, machinery components and electronics and control systems. Resource Industries also manages areas that provide services to other parts of the company, including integrated manufacturing and research and development. In addition, segment profit includes the impact from divestiture of portions of the Bucyrus distribution business and the acquisition of ERA Mining Machinery Limited, including its wholly-owned subsidiary Zhengzhou Siwei Mechanical & Electrical Manufacturing Co., Ltd., commonly known as Siwei, which was completed during the second quarter of 2012. Siwei primarily designs, manufactures, sells and supports underground coal mining equipment in China. 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 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; 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. On July 31, 2012, we sold a majority interest in Caterpillar's third party logistics business. Inter-segment sales are a source of revenue for this segment. Results for the All Other operating segment 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 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 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 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 28 to 31 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)
	2013
	External sales and revenues		Inter- segment sales & revenues		Total sales and revenues		Depreciation and amortization		Segment profit		Segment assets at March 31		Capital expenditures
Construction Industries	$	4,197	$	111	$	4,308	$	138	$	239	$	9,407	$	124
Resource Industries	3,676		220		3,896		180		477		12,471		107
Power Systems	4,405		396		4,801		151		598		9,303		104
Machinery and Power Systems	$	12,278	$	727	$	13,005	$	469	$	1,314	$	31,181	$	335
Financial Products Segment	795		—		795		180		273		36,966		320
Total	$	13,073	$	727	$	13,800	$	649	$	1,587	$	68,147	$	655

	2012
	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	$	5,062	$	130	$	5,192	$	131	$	616	$	10,393	$	131
Resource Industries	4,778		328		5,106		163		1,168		13,455		132
Power Systems	4,987		675		5,662		138		812		9,323		129
Machinery and Power Systems	$	14,827	$	1,133	$	15,960	$	432	$	2,596	$	33,171	$	392
Financial Products Segment	761		—		761		174		205		36,563		343
Total	$	15,588	$	1,133	$	16,721	$	606	$	2,801	$	69,734	$	735



Reconciliation of Sales and revenues:
(Millions of dollars)	Machinery and Power Systems			Financial Products		Consolidating Adjustments				Consolidated Total
Three Months Ended March 31, 2013
Total external sales and revenues from reportable segments	$	12,278		$	795	$	—			$	13,073
All Other operating segment	217			—		—				217
Other	(11		)	19		(88		)	¹	(80		)
Total sales and revenues	$	12,484		$	814	$	(88	)		$	13,210

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
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 March 31, 2013
Total profit from reportable segments	$	1,314		$	273	$	1,587
All Other operating segment	192			—		192
Cost centers	39			—		39
Corporate costs	(373		)	—		(373		)
Timing	47			—		47
Methodology differences:
Inventory/cost of sales	(36		)	—		(36		)
Postretirement benefit expense	(165		)	—		(165		)
Financing costs	(124		)	—		(124		)
Equity in profit of unconsolidated affiliated companies	(1		)	—		(1		)
Currency	15			—		15
Other income/expense methodology differences	(52		)	—		(52		)
Other methodology differences	(19		)	17		(2		)
Total consolidated profit before taxes	$	837		$	290	$	1,127

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 consolidated profit before taxes	$	2,092		$	206	$	2,298



Reconciliation of Assets:
(Millions of dollars)	Machinery and Power Systems			Financial Products			Consolidating Adjustments			Consolidated Total
March 31, 2013
Total assets from reportable segments	$	31,181		$	36,966		$	—		$	68,147
All Other operating segment	1,488			—			—			1,488
Items not included in segment assets:
Cash and short-term investments	3,594			—			—			3,594
Intercompany receivables	305			—			(305		)	—
Investment in Financial Products	4,549			—			(4,549		)	—
Deferred income taxes	3,987			—			(521		)	3,466
Goodwill and intangible assets	3,445			—			—			3,445
Property, plant and equipment – net and other assets	1,018			—			—			1,018
Operating lease methodology difference	(297		)	—			—			(297		)
Liabilities included in segment assets	10,579			—			—			10,579
Inventory methodology differences	(2,470		)	—			—			(2,470		)
Other	(54		)	(98		)	(75		)	(227		)
Total assets	$	57,325		$	36,868		$	(5,450	)	$	88,743

December 31, 2012
Total assets from reportable segments	$	33,171		$	36,563		$	—		$	69,734
All Other operating segment	1,499			—			—			1,499
Items not included in segment assets:
Cash and short-term investments	3,306			—			—			3,306
Intercompany receivables	303			—			(303		)	—
Investment in Financial Products	4,433			—			(4,433		)	—
Deferred income taxes	3,926			—			(516		)	3,410
Goodwill and intangible assets	3,145			—			—			3,145
Property, plant and equipment – net and other assets	668			—			—			668
Operating lease methodology difference	(329		)	—			—			(329		)
Liabilities included in segment assets	11,293			—			—			11,293
Inventory methodology differences	(2,949		)	—			—			(2,949		)
Other	(182		)	(107		)	(132		)	(421		)
Total assets	$	58,284		$	36,456		$	(5,384	)	$	89,356



Reconciliations of Depreciation and amortization:
(Millions of dollars)	Machinery and Power Systems			Financial Products		Consolidated Total
Three Months Ended March 31, 2013
Total depreciation and amortization from reportable segments	$	469		$	180	$	649
Items not included in segment depreciation and amortization:
All Other operating segment	42			—		42
Cost centers	34			—		34
Other	(7		)	5		(2		)
Total depreciation and amortization	$	538		$	185	$	723

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



Reconciliations of Capital expenditures:
(Millions of dollars)	Machinery and Power Systems			Financial Products		Consolidating Adjustments			Consolidated Total
Three Months Ended March 31, 2013
Total capital expenditures from reportable segments	$	335		$	320	$	—		$	655
Items not included in segment capital expenditures:
All Other operating segment	41			—		—			41
Cost centers	27			—		—			27
Timing	534			—		—			534
Other	(24		)	16		(17		)	(25		)
Total capital expenditures	$	913		$	336	$	(17	)	$	1,232

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