Segment Information

9 Months Ended

Sep. 30, 2011

Segment Information

Segment Information

14. Segment Information

A. Basis for segment information

In the first quarter of 2011, we implemented revised internal financial measurements in line with changes to our organizational structure that were announced during 2010.  Our previous structure used a matrix organization comprised of multiple profit and cost center divisions.  There were twenty-five operating segments, twelve of which were reportable segments.  These segments were led by vice-presidents that were managed by Caterpillar’s Executive Office (comprised of our CEO and Group Presidents), which served as our Chief Operating Decision Maker.  As part of the strategy revision, Group Presidents were given accountability for a related set of end-to-end businesses that they manage, a significant change for the company.  The CEO allocates resources and manages performance at the Group President level.  As such, the CEO now 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 three smaller operating segments that are included in All Other operating segments.

The segment information for 2010 has been retrospectively adjusted to conform to the 2011 presentation.

B. Description of segments

We have seven operating segments, of which four are reportable segments.  Following is a brief description of our reportable segments and the business activities included in all other operating segments:

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, 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, quarry and construction 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 large electric drive mining trucks to Resource Industries.  In addition, Bucyrus acquisition costs impacting operating profit are included in this segment.  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 and 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 and development, manufacturing, marketing, sales and product support of turbines and turbine related services; the business strategy, product design, product management and development, manufacturing, remanufacturing, maintenance, marketing, sales, 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 division 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. & 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 All Other operating segments are included as reconciling items 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 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 29 to 34 for financial information regarding significant reconciling items.  Most of our reconciling items are self-explanatory given the above explanations.  For the reconciliation of profit (loss), 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 September 30,

(Millions of dollars)

	2011
	External sales and revenues	Inter- segment sales & revenues	Total sales and revenues	Depreciation and amortization	Segment profit	Segment assets at Sept. 30	Capital expenditures
Construction Industries	$4,900	$162	$5,062	$136	$496	$7,390	$234
Resource Industries	4,599	290	4,889	155	745	14,903	159
Power Systems	5,075	600	5,675	133	794	8,216	279
Machinery and Power Systems	$14,574	$1,052	$15,626	$424	$2,035	$30,509	$672
Financial Products Segment	757	—	757	177	145	31,116	311
Total	$15,331	$1,052	$16,383	$601	$2,180	$61,625	$983
	2010
	External sales and revenues	Inter- segment sales & revenues	Total sales and revenues	Depreciation and amortization	Segment profit	Segment assets at Dec. 31	Capital expenditures
Construction Industries	$3,466	$179	$3,645	$123	$246	$6,927	$124
Resource Industries	2,262	206	2,468	70	538	3,892	68
Power Systems	4,196	485	4,681	132	694	8,321	92
Machinery and Power Systems	$9,924	$870	$10,794	$325	$1,478	$19,140	$284
Financial Products Segment	737	—	737	175	108	30,346	290
Total	$10,661	$870	$11,531	$500	$1,586	$49,486	$574

Reportable Segments

Nine Months Ended September 30,

(Millions of dollars)

	2011
	External sales and revenues	Inter- segment sales & revenues	Total sales and revenues	Depreciation and amortization	Segment profit	Segment assets at Sept. 30	Capital expenditures
Construction Industries	$14,312	$433	$14,745	$382	$1,522	$7,390	$471
Resource Industries	10,573	848	11,421	298	2,337	14,903	320
Power Systems	14,442	1,695	16,137	398	2,230	8,216	496
Machinery and Power Systems	$39,327	$2,976	$42,303	$1,078	$6,089	$30,509	$1,287
Financial Products Segment	2,251	—	2,251	535	453	31,116	830
Total	$41,578	$2,976	$44,554	$1,613	$6,542	$61,625	$2,117

	2010
	External sales and revenues	Inter- segment sales & revenues	Total sales and revenues	Depreciation and amortization	Segment profit	Segment assets at Dec. 31	Capital expenditures
Construction Industries	$9,469	$481	$9,950	$377	$496	$6,927	$288
Resource Industries	5,860	552	6,412	210	1,183	3,892	139
Power Systems	10,873	1,129	12,002	358	1,580	8,321	274
Machinery and Power Systems	$26,202	$2,162	$28,364	$945	$3,259	$19,140	$701
Financial Products Segment	2,220	—	2,220	538	324	30,346	677
Total	$28,422	$2,162	$30,584	$1,483	$3,583	$49,486	$1,378

Reconciliation of Sales and revenues:
(Millions of dollars)	Machineryand Power Systems	Financial Products	ConsolidatingAdjustments	ConsolidatedTotal
Three Months Ended September 30, 2011:
Total external sales and revenues from reportable segments	$14,574	$757	$—	$15,331
All other operating segments	461	—	—	461
Other	(12)	17	(81)1	(76)
Total sales and revenues	$15,023	$774	$(81)	$15,716
Three Months Ended September 30, 2010:
Total external sales and revenues from reportable segments	$9,924	$737	$—	$10,661
All other operating segments	550	—	—	550
Other	(22)	12	(67)1	(77)
Total sales and revenues	$10,452	$749	$(67)	$11,134

1 Elimination of Financial Products revenues from Machinery and Power Systems.

Reconciliation of Sales and revenues:
(Millions of dollars)	Machineryand Power Systems	Financial Products	ConsolidatingAdjustments	ConsolidatedTotal
Nine Months Ended September 30, 2011:
Total external sales and revenues from reportable segments	$39,327	$2,251	$—	$41,578
All other operating segments	1,525	—	—	1,525
Other	(17)	40	(231)1	(208)
Total sales and revenues	$40,835	$2,291	$(231)	$42,895
Nine Months Ended September 30, 2010:
Total external sales and revenues from reportable segments	$26,202	$2,220	$—	$28,422
All other operating segments	1,573	—	—	1,573
Other	(49)	28	(193)1	(214)
Total sales and revenues	$27,726	$2,248	$(193)	$29,781

1 Elimination of Financial Products revenues from Machinery and Power Systems.

Reconciliation of Consolidated profit (loss) before taxes:
(Millions of dollars)	Machineryand Power Systems	Financial Products	ConsolidatedTotal
Three Months Ended September 30, 2011:
Total profit from reportable segments	$2,035	$145	$2,180
All other operating segments	234	—	234
Cost centers	30	—	30
Corporate costs	(332)	—	(332)
Timing	12	—	12
Methodology differences:
Inventory/cost of sales	(21)	—	(21)
Postretirement benefit expense	(110)	—	(110)
Financing costs	(116)	—	(116)
Equity in profit of unconsolidated affiliated companies	6	—	6
Currency	(188)	—	(188)
Other income/expense methodology differences	(54)	—	(54)
Other methodology differences	(7)	—	(7)
Total profit (loss) before taxes	$1,489	$145	$1,634
Three Months Ended September 30, 2010:
Total profit from reportable segments	$1,478	$108	$1,586
All other operating segments	200	—	200
Cost centers	(3)	—	(3)
Corporate costs	(238)	—	(238)
Timing	(97)	—	(97)
Methodology differences:
Postretirement benefit expense	(224)	—	(224)
Financing costs	(79)	—	(79)
Equity in profit of unconsolidated affiliated companies	7	—	7
Currency	(22)	—	(22)
Interest rate swaps	(1)	—	(1)
Other income/expense methodology differences	(29)	—	(29)
Other methodology differences	1	2	3
Total profit (loss) before taxes	$993	$110	$1,103

Reconciliation of Consolidated profit (loss) before taxes:
(Millions of dollars)	Machineryand Power Systems	Financial Products	ConsolidatedTotal
Nine Months Ended September 30, 2011:
Total profit from reportable segments	$6,089	$453	$6,542
All other operating segments	601	—	601
Cost centers	28	—	28
Corporate costs	(900)	—	(900)
Timing	(157)	—	(157)
Methodology differences:
Inventory/cost of sales	1	—	1
Postretirement benefit expense	(468)	—	(468)
Financing costs	(294)	—	(294)
Equity in profit of unconsolidated affiliated companies	24	—	24
Currency	(263)	—	(263)
Interest rate swaps	(149)	—	(149)
Other income/expense methodology differences	(210)	—	(210)
Other methodology differences	(11)	3	(8)
Total profit (loss) before taxes	$4,291	$456	$4,747
Nine Months Ended September 30, 2010:
Total profit from reportable segments	$3,259	$324	$3,583
All other operating segments	580	—	580
Cost centers	(8)	—	(8)
Corporate costs	(708)	—	(708)
Timing	(209)	—	(209)
Methodology differences:
Inventory/cost of sales	38	—	38
Postretirement benefit expense	(467)	—	(467)
Financing costs	(248)	—	(248)
Equity in profit of unconsolidated affiliated companies	13	—	13
Currency	23	—	23
Interest rate swaps	(3)	—	(3)
Other income/expense methodology differences	(79)	—	(79)
Other methodology differences	(2)	5	3
Total profit (loss) before taxes	$2,189	$329	$2,518

Reconciliation of Assets:
(Millions of dollars)	Machineryand Power Systems	Financial Products	ConsolidatingAdjustments	ConsolidatedTotal
September 30, 2011:
Total assets from reportable segments	$30,509	$31,116	$—	$61,625
All other operating segments	2,010	—	—	2,010
Items not included in segment assets:
Cash and short-term investments	1,649	—	—	1,649
Intercompany receivables	69	—	(69)	—
Investment in Financial Products	3,965	—	(3,965)	—
Deferred income taxes	2,262	—	(485)	1,777
Goodwill, intangible assets and other assets	1,635	—	—	1,635
Operating lease methodology difference	(514)	—	—	(514)
Liabilities included in segment assets	11,450	—	—	11,450
Inventory methodology differences	(2,633)	—	—	(2,633)
Other	1,103	(220)	(115)	768
Total assets	$51,505	$30,896	$(4,634)	$77,767
December 31, 2010:
Total assets from reportable segments	$19,140	$30,346	$—	$49,486
All other operating segments	2,472	—	—	2,472
Items not included in segment assets:
Cash and short-term investments	1,825	—	—	1,825
Intercompany receivables	618	—	(618)	—
Investment in Financial Products	4,275	—	(4,275)	—
Deferred income taxes	3,745	—	(519)	3,226
Goodwill, intangible assets and other assets	1,511	—	—	1,511
Operating lease methodology difference	(567)	—	—	(567)
Liabilities included in segment assets	8,758	—	—	8,758
Inventory methodology differences	(2,913)	—	—	(2,913)
Other	627	(233)	(172)	222
Total assets	$39,491	$30,113	$(5,584)	$64,020

Reconciliations of Depreciation and amortization:
(Millions of dollars)	MachineryandPower Systems	Financial Products	ConsolidatingAdjustments	ConsolidatedTotal
Three Months Ended September 30, 2011:
Total depreciation and amortization from reportable segments	$424	$177	$—	$601
Items not included in segment depreciation and amortization:
All other operating segments	42	—	—	42
Cost centers	26	—	—	26
Other	(15)	4	—	(11)
Total depreciation and amortization	$477	$181	$—	$658
Three Months Ended September 30, 2010:
Total depreciation and amortization from reportable segments	$325	$175	$—	$500
Items not included in segment depreciation and amortization:
All other operating segments	48	—	—	48
Cost centers	23	—	—	23
Other	(8)	2	—	(6)
Total depreciation and amortization from reportable segments	$388	$177	$—	$565

Reconciliations of Depreciation and amortization:
(Millions of dollars)	MachineryandPower Systems	Financial Products	ConsolidatingAdjustments	ConsolidatedTotal
Nine Months Ended September 30, 2011:
Total depreciation and amortization from reportable segments	$1,078	$535	$—	$1,613
Items not included in segment depreciation and amortization:
All other operating segments	128	—	—	128
Cost centers	74	—	—	74
Other	7	10	—	17
Total depreciation and amortization	$1,287	$545	$—	$1,832
Nine Months Ended September 30, 2010:
Total depreciation and amortization from reportable segments	$945	$538	$—	$1,483
Items not included in segment depreciation and amortization:
All other operating segments	144	—	—	144
Cost centers	72	—	—	72
Other	(23)	5	—	(18)
Total depreciation and amortization	$1,138	$543	$—	$1,681

Reconciliations of Capital expenditures:
(Millions of dollars)	MachineryandPower Systems	Financial Products	ConsolidatingAdjustments	ConsolidatedTotal
Three Months Ended September 30, 2011:
Total capital expenditures from reportable segments	$672	$311	$—	$983
Items not included in segment capital expenditures:
All other operating segments	84	—	—	84
Cost centers	31	—	—	31
Timing	(89)	—	—	(89)
Other	(88)	92	(18)	(14)
Total capital expenditures	$610	$403	$(18)	$995
Three Months Ended September 30, 2010:
Total capital expenditures from reportable segments	$284	$290	$—	$574
Items not included in segment capital expenditures:
All other operating segments	115	—	—	115
Cost centers	24	—	—	24
Timing	(53)	—	—	(53)
Other	(6)	7	(20)	(19)
Total capital expenditures	$364	$297	$(20)	$641

Reconciliations of Capital expenditures:
(Millions of dollars)	MachineryandPower Systems	Financial Products	ConsolidatingAdjustments	ConsolidatedTotal
Nine Months Ended September 30, 2011:
Total capital expenditures from reportable segments	$1,287	$830	$—	$2,117
Items not included in segment capital expenditures:
All other operating segments	173	—	—	173
Cost centers	72	—	—	72
Timing	151	—	—	151
Other	(98)	147	(63)	(14)
Total capital expenditures	$1,585	$977	$(63)	$2,499
Nine Months Ended September 30, 2010:
Total capital expenditures from reportable segments	$701	$677	$—	$1,378
Items not included in segment capital expenditures:
All other operating segments	170	—	—	170
Cost centers	48	—	—	48
Timing	115	—	—	115
Other	(10)	18	(54)	(46)
Total capital expenditures	$1,024	$695	$(54)	$1,665