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 Services 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 Law and Public Policy Division and the Human Services Division are cost centers and do not meet the definition of an operating segment.


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, compact track loaders, multi-terrain loaders, mini excavators, compact wheel loaders, telehandlers, select work tools, small, medium and large track excavators, wheel excavators, medium wheel loaders, medium track-type tractors, track-type loaders, motor graders, pipelayers, forestry and 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 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 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 and 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 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.

All Other operating segments: Primarily includes activities such as: business strategy, product management and development, and manufacturing of filters and fluids, undercarriage, tires and rims, ground engaging tools, fluid transfer products, precision seals, and rubber 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 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 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 39 to 45 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. Restructuring costs also include other exit-related costs primarily for accelerated depreciation, inventory write-downs, equipment relocation and project management costs and also LIFO inventory decrement benefits from inventory liquidations at closed facilities all of which are primarily included in Cost of goods sold. A table, Reconciliation of Restructuring costs on page 42, 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)
	2017
	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	$	4,854	$	32	$	4,886	$	99	$	884		$	4,739	$	50
Resource Industries	1,870		86		1,956		129		226			6,596		41
Energy & Transportation	3,961		877		4,838		165		750			7,502		113
Machinery, Energy & Transportation	$	10,685	$	995	$	11,680	$	393	$	1,860		$	18,837	$	204
Financial Products Segment	774		—		774		204		185			35,415		308
Total	$	11,459	$	995	$	12,454	$	597	$	2,045		$	54,252	$	512

	2016
	External sales and revenues		Inter- segment sales and revenues		Total sales and revenues		Depreciation and amortization		Segment profit (loss)			Segment assets at December 31		Capital expenditures
Construction Industries	$	3,554	$	27	$	3,581	$	117	$	326		$	5,367	$	46
Resource Industries	1,377		69		1,446		150		(77		)	7,135		68
Energy & Transportation	3,534		629		4,163		170		572			7,791		97
Machinery, Energy & Transportation	$	8,465	$	725	$	9,190	$	437	$	821		$	20,293	$	211
Financial Products Segment	749		—		749		215		183			35,224		357
Total	$	9,214	$	725	$	9,939	$	652	$	1,004		$	55,517	$	568




Reportable Segments
Nine Months Ended September 30
(Millions of dollars)
	2017
	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	$	13,875	$	70	$	13,945	$	301	$	2,420		$	4,739	$	107
Resource Industries	5,299		254		5,553		386		481			6,596		93
Energy & Transportation	11,258		2,484		13,742		485		2,002			7,502		320
Machinery, Energy & Transportation	$	30,432	$	2,808	$	33,240	$	1,172	$	4,903		$	18,837	$	520
Financial Products Segment	2,310		—		2,310		616		559			35,415		1,018
Total	$	32,742	$	2,808	$	35,550	$	1,788	$	5,462		$	54,252	$	1,538

	2016
	External sales and revenues		Inter- segment sales and revenues		Total sales and revenues		Depreciation and amortization		Segment profit (loss)			Segment assets at December 31		Capital expenditures
Construction Industries	$	12,023	$	47	$	12,070	$	346	$	1,316		$	5,367	$	114
Resource Industries	4,283		197		4,480		458		(336		)	7,135		162
Energy & Transportation	10,562		1,919		12,481		505		1,584			7,791		340
Machinery, Energy & Transportation	$	26,868	$	2,163	$	29,031	$	1,309	$	2,564		$	20,293	$	616
Financial Products Segment	2,251		—		2,251		633		553			35,224		1,266
Total	$	29,119	$	2,163	$	31,282	$	1,942	$	3,117		$	55,517	$	1,882



Reconciliation of Sales and revenues:
(Millions of dollars)	Machinery, Energy & Transportation			Financial Products		Consolidating Adjustments				Consolidated Total
Three Months Ended September 30, 2017
Total external sales and revenues from reportable segments	$	10,685		$	774	$	—			$	11,459
All Other operating segments	56			—		—				56
Other	(28		)	19		(93		)	¹	(102		)
Total sales and revenues	$	10,713		$	793	$	(93	)		$	11,413

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
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, 2017
Total external sales and revenues from reportable segments	$	30,432		$	2,310	$	—			$	32,742
All Other operating segments	126			—		—				126
Other	(76		)	53		(279		)	¹	(302		)
Total sales and revenues	$	30,482		$	2,363	$	(279	)		$	32,566

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
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, 2017
Total profit from reportable segments	$	1,860		$	185		$	2,045
All Other operating segments	6			—			6
Cost centers	17			—			17
Corporate costs	(158		)	—			(158		)
Timing	(21		)	—			(21		)
Restructuring costs	(89		)	(1		)	(90		)
Methodology differences:
Inventory/cost of sales	(4		)	—			(4		)
Postretirement benefit expense	32			—			32
Stock-based compensation expense	(46		)	(2		)	(48		)
Financing costs	(116		)	—			(116		)
Currency	(37		)	—			(37		)
Other income/expense methodology differences	(71		)	—			(71		)
Other methodology differences	(31		)	(1		)	(32		)
Total consolidated profit before taxes	$	1,342		$	181		$	1,523

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



Reconciliation of Consolidated profit before taxes:
(Millions of dollars)	Machinery, Energy & Transportation			Financial Products			Consolidated Total
Nine Months Ended September 30, 2017
Total profit from reportable segments	$	4,903		$	559		$	5,462
All Other operating segments	(27		)	—			(27		)
Cost centers	13			—			13
Corporate costs	(447		)	—			(447		)
Timing	(128		)	—			(128		)
Restructuring costs	(1,009		)	(2		)	(1,011		)
Methodology differences:
Inventory/cost of sales	(80		)	—			(80		)
Postretirement benefit expense	111			—			111
Stock-based compensation expense	(158		)	(7		)	(165		)
Financing costs	(369		)	—			(369		)
Currency	(195		)	—			(195		)
Other income/expense methodology differences	(105		)	—			(105		)
Other methodology differences	(91		)	3			(88		)
Total consolidated profit before taxes	$	2,418		$	553		$	2,971

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

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 September 30, 2017
Construction Industries	$	884		$	(15	)	$	869
Resource Industries	226			(59		)	167
Energy & Transportation	750			(28		)	722
Financial Products Segment	185			—			185
All Other operating segments	6			(13		)	(7		)
Total	$	2,051		$	(115	)	$	1,936

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



Reconciliation of Restructuring costs:
(Millions of dollars)	Segment profit (loss)			Restructuring costs			Segment profit (loss) with restructuring costs
Nine Months Ended September 30, 2017
Construction Industries	$	2,420		$	(709	)	$	1,711
Resource Industries	481			(229		)	252
Energy & Transportation	2,002			(86		)	1,916
Financial Products Segment	559			(2		)	557
All Other operating segments	(27		)	(32		)	(59		)
Total	$	5,435		$	(1,058	)	$	4,377

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



Reconciliation of Assets:
(Millions of dollars)	Machinery, Energy & Transportation			Financial Products			Consolidating Adjustments			Consolidated Total
September 30, 2017
Total assets from reportable segments	$	18,837		$	35,415		$	—		$	54,252
All Other operating segments	1,345			—			—			1,345
Items not included in segment assets:
Cash and short-term investments	8,736			—			—			8,736
Intercompany receivables	1,567			—			(1,567		)	—
Investment in Financial Products	4,435			—			(4,435		)	—
Deferred income taxes	3,595			—			(855		)	2,740
Goodwill and intangible assets	4,203			—			—			4,203
Property, plant and equipment – net and other assets	1,979			—			—			1,979
Operating lease methodology difference	(189		)	—			—			(189		)
Inventory methodology differences	(2,207		)	—			—			(2,207		)
Intercompany loan included in Financial Products' assets	—			—			(1,000		)	(1,000		)
Liabilities included in segment assets	9,153			—			—			9,153
Other	(378		)	(29		)	(45		)	(452		)
Total assets	$	51,076		$	35,386		$	(7,902	)	$	78,560

December 31, 2016
Total assets from reportable segments	$	20,293		$	35,224		$	—		$	55,517
All Other operating segments	1,381			—			—			1,381
Items not included in segment assets:
Cash and short-term investments	5,257			—			—			5,257
Intercompany receivables	1,713			—			(1,713		)	—
Investment in Financial Products	3,638			—			(3,638		)	—
Deferred income taxes	3,648			—			(947		)	2,701
Goodwill and intangible assets	3,883			—			—			3,883
Property, plant and equipment – net and other assets	1,645			—			—			1,645
Operating lease methodology difference	(186		)	—			—			(186		)
Inventory methodology differences	(2,373		)	—			—			(2,373		)
Liabilities included in segment assets	7,400			—			—			7,400
Other	(436		)	(29		)	(56		)	(521		)
Total assets	$	45,863		$	35,195		$	(6,354	)	$	74,704



Reconciliations of Depreciation and amortization:
(Millions of dollars)	Machinery, Energy & Transportation		Financial Products		Consolidated Total
Three Months Ended September 30, 2017
Total depreciation and amortization from reportable segments	$	393	$	204	$	597
Items not included in segment depreciation and amortization:
All Other operating segments	52		—		52
Cost centers	36		—		36
Other	28		10		38
Total depreciation and amortization	$	509	$	214	$	723

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



Reconciliations of Depreciation and amortization:
(Millions of dollars)	Machinery, Energy & Transportation		Financial Products		Consolidated Total
Nine Months Ended September 30, 2017
Total depreciation and amortization from reportable segments	$	1,172	$	616	$	1,788
Items not included in segment depreciation and amortization:
All Other operating segments	162		—		162
Cost centers	106		—		106
Other	67		30		97
Total depreciation and amortization	$	1,507	$	646	$	2,153

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



Reconciliations of Capital expenditures:
(Millions of dollars)	Machinery, Energy & Transportation			Financial Products		Consolidating Adjustments			Consolidated Total
Three Months Ended September 30, 2017
Total capital expenditures from reportable segments	$	204		$	308	$	—		$	512
Items not included in segment capital expenditures:
All Other operating segments	26			—		—			26
Cost centers	17			—		—			17
Timing	(21		)	—		—			(21		)
Other	(31		)	19		(9		)	(21		)
Total capital expenditures	$	195		$	327	$	(9	)	$	513

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



Reconciliations of Capital expenditures:
(Millions of dollars)	Machinery, Energy & Transportation			Financial Products		Consolidating Adjustments			Consolidated Total
Nine Months Ended September 30, 2017
Total capital expenditures from reportable segments	$	520		$	1,018	$	—		$	1,538
Items not included in segment capital expenditures:
All Other operating segments	71			—		—			71
Cost centers	40			—		—			40
Timing	58			—		—			58
Other	(115		)	62		(17		)	(70		)
Total capital expenditures	$	574		$	1,080	$	(17	)	$	1,637

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