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. 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. In addition to equipment, Resource Industries also develops and sells technology to provide customers fleet management systems, 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 power generation, industrial, oil and gas and transportation applications, including marine and rail-related businesses. Responsibilities include business strategy, product design, product management and 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 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 to customers and dealers for the purchase and lease of Cat 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 44 to 50 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 47, 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 September 30
(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 September 30		Capital expenditures
Construction Industries	$	3,554	$	27	$	3,581	$	117	$	326		$	5,521	$	46
Resource Industries	1,377		69		1,446		150		(77		)	8,017		68
Energy & Transportation	3,534		629		4,163		170		572			8,118		97
Machinery, Energy & Transportation	$	8,465	$	725	$	9,190	$	437	$	821		$	21,656	$	211
Financial Products Segment	749		—		749		215		183			36,330		357
Total	$	9,214	$	725	$	9,939	$	652	$	1,004		$	57,986	$	568

	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	$	4,075	$	17	$	4,092	$	139	$	354		$	6,176	$	62
Resource Industries	1,842		88		1,930		144		(42		)	8,931		73
Energy & Transportation	4,352		702		5,054		172		683			8,769		179
Machinery, Energy & Transportation	$	10,269	$	807	$	11,076	$	455	$	995		$	23,876	$	314
Financial Products Segment	752		—		752		210		207			35,729		359
Total	$	11,021	$	807	$	11,828	$	665	$	1,202		$	59,605	$	673




Reportable Segments
Nine Months Ended September 30
(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 September 30		Capital expenditures
Construction Industries	$	12,023	$	47	$	12,070	$	346	$	1,316		$	5,521	$	114
Resource Industries	4,283		197		4,480		458		(336		)	8,017		162
Energy & Transportation	10,562		1,919		12,481		505		1,584			8,118		340
Machinery, Energy & Transportation	$	26,868	$	2,163	$	29,031	$	1,309	$	2,564		$	21,656	$	616
Financial Products Segment	2,251		—		2,251		633		553			36,330		1,266
Total	$	29,119	$	2,163	$	31,282	$	1,942	$	3,117		$	57,986	$	1,882

	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	$	13,892	$	66	$	13,958	$	419	$	1,687		$	6,176	$	156
Resource Industries	5,861		250		6,111		441		81			8,931		152
Energy & Transportation	13,975		2,262		16,237		510		2,649			8,769		565
Machinery, Energy & Transportation	$	33,728	$	2,578	$	36,306	$	1,370	$	4,417		$	23,876	$	873
Financial Products Segment	2,332		—		2,332		638		618			35,729		995
Total	$	36,060	$	2,578	$	38,638	$	2,008	$	5,035		$	59,605	$	1,868



Reconciliation of Sales and revenues:
(Millions of dollars)	Machinery, Energy & Transportation			Financial Products		Consolidating Adjustments				Consolidated Total
Three Months Ended September 30, 2016
Total external sales and revenues from reportable segments	$	8,465		$	749	$	—			$	9,214
All Other operating segments	28			—		—				28
Other	(30		)	19		(71		)	¹	(82		)
Total sales and revenues	$	8,463		$	768	$	(71	)		$	9,160

Three Months Ended September 30, 2015
Total external sales and revenues from reportable segments	$	10,269		$	752	$	—			$	11,021
All Other operating segments	39			—		—				39
Other	(23		)	20		(95		)	¹	(98		)
Total sales and revenues	$	10,285		$	772	$	(95	)		$	10,962
¹ Elimination of Financial Products revenues from Machinery, Energy & Transportation.



Reconciliation of Sales and revenues:
(Millions of dollars)	Machinery, Energy & Transportation			Financial Products		Consolidating Adjustments				Consolidated Total
Nine Months Ended September 30, 2016
Total external sales and revenues from reportable segments	$	26,868		$	2,251	$	—			$	29,119
All Other operating segments	107			—		—				107
Other	(87		)	54		(230		)	¹	(263		)
Total sales and revenues	$	26,888		$	2,305	$	(230	)		$	28,963

Nine Months Ended September 30, 2015
Total external sales and revenues from reportable segments	$	33,728		$	2,332	$	—			$	36,060
All Other operating segments	166			—		—				166
Other	(65		)	58		(238		)	¹	(245		)
Total sales and revenues	$	33,829		$	2,390	$	(238	)		$	35,981
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 September 30, 2016
Total profit from reportable segments	$	821		$	183		$	1,004
All Other operating segments	(22		)	—			(22		)
Cost centers	29			—			29
Corporate costs	(121		)	—			(121		)
Timing	12			—			12
Restructuring costs	(323		)	(1		)	(324		)
Methodology differences:
Inventory/cost of sales	19			—			19
Postretirement benefit expense	37			—			37
Stock-based compensation expense	(40		)	(1		)	(41		)
Financing costs	(129		)	—			(129		)
Currency	(10		)	—			(10		)
Other income/expense methodology differences	(60		)	—			(60		)
Other methodology differences	(11		)	—			(11		)
Total consolidated profit before taxes	$	202		$	181		$	383

Three Months Ended September 30, 2015
Total profit from reportable segments	$	995		$	207		$	1,202
All Other operating segments	(11		)	—			(11		)
Cost centers	23			—			23
Corporate costs	(136		)	—			(136		)
Timing	37			—			37
Restructuring costs	(98		)	—			(98		)
Methodology differences:							—
Inventory/cost of sales	(22		)	—			(22		)
Postretirement benefit expense	131			—			131
Stock-based compensation expense	(46		)	(2		)	(48		)
Financing costs	(128		)	—			(128		)
Currency	(104		)	—			(104		)
Other income/expense methodology differences	(51		)	—			(51		)
Other methodology differences	(13		)	1			(12		)
Total consolidated profit before taxes	$	577		$	206		$	783



Reconciliation of Consolidated profit before taxes:
(Millions of dollars)	Machinery, Energy & Transportation			Financial Products			Consolidated Total
Nine Months Ended September 30, 2016
Total profit from reportable segments	$	2,564		$	553		$	3,117
All Other operating segments	(43		)	—			(43		)
Cost centers	68			—			68
Corporate costs	(429		)	—			(429		)
Timing	53			—			53
Restructuring costs	(619		)	(5		)	(624		)
Methodology differences:
Inventory/cost of sales	—			—			—
Postretirement benefit expense	148			—			148
Stock-based compensation expense	(180		)	(7		)	(187		)
Financing costs	(396		)	—			(396		)
Currency	(22		)	—			(22		)
Other income/expense methodology differences	(170		)	—			(170		)
Other methodology differences	(34		)	6			(28		)
Total consolidated profit before taxes	$	940		$	547		$	1,487

Nine Months Ended September 30, 2015
Total profit from reportable segments	$	4,417		$	618		$	5,035
All Other operating segments	(36		)	—			(36		)
Cost centers	31			—			31
Corporate costs	(451		)	—			(451		)
Timing	15			—			15
Restructuring costs	(219		)	—			(219		)
Methodology differences:
Inventory/cost of sales	(30		)	—			(30		)
Postretirement benefit expense	282			—			282
Stock-based compensation expense	(230		)	(10		)	(240		)
Financing costs	(394		)	—			(394		)
Currency	(226		)	—			(226		)
Other income/expense methodology differences	(48		)	—			(48		)
Other methodology differences	(45		)	12			(33		)
Total consolidated profit before taxes	$	3,066		$	620		$	3,686

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 September 30, 2016
Construction Industries	$	326		$	(9	)	$	317
Resource Industries	(77		)	(254		)	(331		)
Energy & Transportation	572			(39		)	533
Financial Products Segment	183			(1		)	182
All Other operating segments	(22		)	(15		)	(37		)
Total	$	982		$	(318	)	$	664

Three Months Ended September 30, 2015
Construction Industries	$	354		$	(28	)	$	326
Resource Industries	(42		)	(39		)	(81		)
Energy & Transportation	683			(10		)	673
Financial Products Segment	207			—			207
All Other operating segments	(11		)	(9		)	(20		)
Total	$	1,191		$	(86	)	$	1,105



Reconciliation of Restructuring costs:
(Millions of dollars)	Segment profit			Restructuring costs			Segment profit with restructuring costs
Nine Months Ended September 30, 2016
Construction Industries	$	1,316		$	(34	)	$	1,282
Resource Industries	(336		)	(348		)	(684		)
Energy & Transportation	1,584			(194		)	1,390
Financial Products Segment	553			(5		)	548
All Other operating segments	(43		)	(29		)	(72		)
Total	$	3,074		$	(610	)	$	2,464

Nine Months Ended September 30, 2015
Construction Industries	$	1,687		$	(83	)	$	1,604
Resource Industries	81			(83		)	(2		)
Energy & Transportation	2,649			(24		)	2,625
Financial Products Segment	618			—			618
All Other operating segments	(36		)	(12		)	(48		)
Total	$	4,999		$	(202	)	$	4,797



Reconciliation of Assets:
(Millions of dollars)	Machinery, Energy & Transportation			Financial Products			Consolidating Adjustments			Consolidated Total
September 30, 2016
Total assets from reportable segments	$	21,656		$	36,330		$	—		$	57,986
All Other operating segments	1,368			—			—			1,368
Items not included in segment assets:
Cash and short-term investments	4,894			—			—			4,894
Intercompany receivables	1,877			—			(1,877		)	—
Investment in Financial Products	4,367			—			(4,367		)	—
Deferred income taxes	3,311			—			(821		)	2,490
Goodwill and intangible assets	4,055			—			—			4,055
Property, plant and equipment – net and other assets	2,138			—			—			2,138
Operating lease methodology difference	(187		)	—			—			(187		)
Inventory methodology differences	(2,243		)	—			—			(2,243		)
Intercompany loan included in Financial Products' assets	—			—			(1,000		)	(1,000		)
Liabilities included in segment assets	7,394			—			—			7,394
Other	(380		)	(50		)	(63		)	(493		)
Total assets	$	48,250		$	36,280		$	(8,128	)	$	76,402

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 September 30, 2016
Total depreciation and amortization from reportable segments	$	437		$	215	$	652
Items not included in segment depreciation and amortization:
All Other operating segments	53			—		53
Cost centers	39			—		39
Other	6			11		17
Total depreciation and amortization	$	535		$	226	$	761

Three Months Ended September 30, 2015
Total depreciation and amortization from reportable segments	$	455		$	210	$	665
Items not included in segment depreciation and amortization:
All Other operating segments	51			—		51
Cost centers	39			—		39
Other	(7		)	10		3
Total depreciation and amortization	$	538		$	220	$	758



Reconciliations of Depreciation and amortization:
(Millions of dollars)	Machinery, Energy & Transportation			Financial Products		Consolidated Total
Nine Months Ended September 30, 2016
Total depreciation and amortization from reportable segments	$	1,309		$	633	$	1,942
Items not included in segment depreciation and amortization:
All Other operating segments	158			—		158
Cost centers	117			—		117
Other	7			31		38
Total depreciation and amortization	$	1,591		$	664	$	2,255

Nine Months Ended September 30, 2015
Total depreciation and amortization from reportable segments	$	1,370		$	638	$	2,008
Items not included in segment depreciation and amortization:
All Other operating segments	151			—		151
Cost centers	114			—		114
Other	(27		)	26		(1		)
Total depreciation and amortization	$	1,608		$	664	$	2,272



Reconciliations of Capital expenditures:
(Millions of dollars)	Machinery, Energy & Transportation			Financial Products		Consolidating Adjustments			Consolidated Total
Three Months Ended September 30, 2016
Total capital expenditures from reportable segments	$	211		$	357	$	—		$	568
Items not included in segment capital expenditures:
All Other operating segments	35			—		—			35
Cost centers	20			—		—			20
Timing	4			—		—			4
Other	(30		)	22		(24		)	(32		)
Total capital expenditures	$	240		$	379	$	(24	)	$	595

Three Months Ended September 30, 2015
Total capital expenditures from reportable segments	$	314		$	359	$	—		$	673
Items not included in segment capital expenditures:
All Other operating segments	33			—		—			33
Cost centers	52			—		—			52
Timing	(35		)	—		—			(35		)
Other	(28		)	35		(4		)	3
Total capital expenditures	$	336		$	394	$	(4	)	$	726



Reconciliations of Capital expenditures:
(Millions of dollars)	Machinery, Energy & Transportation			Financial Products		Consolidating Adjustments			Consolidated Total
Nine Months Ended September 30, 2016
Total capital expenditures from reportable segments	$	616		$	1,266	$	—		$	1,882
Items not included in segment capital expenditures:
All Other operating segments	102			—		—			102
Cost centers	48			—		—			48
Timing	221			—		—			221
Other	(129		)	117		(41		)	(53		)
Total capital expenditures	$	858		$	1,383	$	(41	)	$	2,200

Nine Months Ended September 30, 2015
Total capital expenditures from reportable segments	$	873		$	995	$	—		$	1,868
Items not included in segment capital expenditures:
All Other operating segments	86			—		—			86
Cost centers	98			—		—			98
Timing	199			—		—			199
Other	(161		)	130		(23		)	(54		)
Total capital expenditures	$	1,095		$	1,125	$	(23	)	$	2,197