CAT_10Q_3.31.2014
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
 FORM 10-Q 
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2014
OR
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to
Commission File Number:  1-768
CATERPILLAR INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
 
37-0602744
(IRS Employer I.D. No.)
 
 
 
100 NE Adams Street, Peoria, Illinois
(Address of principal executive offices)
 
61629
(Zip Code)
 
Registrant’s telephone number, including area code:
(309) 675-1000 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x   No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):
Large accelerated filer
x
Accelerated filer
o
 
 
 
 
Non-accelerated filer
o
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x
At March 31, 2014, 624,233,901 shares of common stock of the registrant were outstanding.
 


Table of Contents

Table of Contents
 
 
 
 
 
 
 
 
Item 1A.
Risk Factors
*
Item 3.
Defaults Upon Senior Securities
*
Item 5.
Other Information
*
 
* Item omitted because no answer is called for or item is not applicable.


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Part I.  FINANCIAL INFORMATION
 
Item 1.  Financial Statements

Caterpillar Inc.
Consolidated Statement of Results of Operations
(Unaudited)
(Dollars in millions except per share data)
 
 
Three Months Ended
March 31,
 
2014
 
2013
Sales and revenues:
 
 
 
Sales of Machinery, Energy & Transportation
$
12,493

 
$
12,484

Revenues of Financial Products
748

 
726

Total sales and revenues
13,241

 
13,210

 
 
 
 
Operating costs:
 

 
 

Cost of goods sold
9,437

 
9,639

Selling, general and administrative expenses
1,292

 
1,390

Research and development expenses
508

 
562

Interest expense of Financial Products
160

 
189

Other operating (income) expenses
446

 
212

Total operating costs
11,843

 
11,992

 
 
 
 
Operating profit
1,398

 
1,218

 
 
 
 
Interest expense excluding Financial Products
110

 
120

Other income (expense)
54

 
29

 
 
 
 
Consolidated profit before taxes
1,342

 
1,127

 
 
 
 
Provision (benefit) for income taxes
418

 
246

Profit of consolidated companies
924

 
881

 
 
 
 
Equity in profit (loss) of unconsolidated affiliated companies
1

 
1

 
 
 
 
Profit of consolidated and affiliated companies
925

 
882

 
 
 
 
Less: Profit (loss) attributable to noncontrolling interests
3

 
2

 
 
 
 
Profit 1
$
922

 
$
880

 
 
 
 
Profit per common share
$
1.47

 
$
1.34

 
 
 
 
Profit per common share – diluted 2
$
1.44

 
$
1.31

 
 
 
 
Weighted-average common shares outstanding (millions)
 

 
 

– Basic
626.7

 
656.2

– Diluted 2
639.3

 
671.6

 
 
 
 
Cash dividends declared per common share
$

 
$

 
1    Profit attributable to common stockholders.
2   Diluted by assumed exercise of stock-based compensation awards using the treasury stock method.
 
See accompanying notes to Consolidated Financial Statements.


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Caterpillar Inc.
Consolidated Statement of Comprehensive Income
(Unaudited)
(Dollars in millions)
 
Three Months Ended
March 31,
 
2014
 
2013
 
 
 
 
Profit of consolidated and affiliated companies
$
925

 
$
882

Other comprehensive income (loss), net of tax:
 
 
 
   Foreign currency translation, net of tax (provision)/benefit of: 2014 - $0; 2013 - $(21)
39

 
(366
)
 
 
 
 
   Pension and other postretirement benefits:

 
 
        Current year actuarial gain (loss), net of tax (provision)/benefit of: 2014 - $0; 2013 - $(10)

 
15

        Amortization of actuarial (gain) loss, net of tax (provision)/benefit of: 2014 - $(44); 2013 - $(67)
86

 
129

        Amortization of prior service (credit) cost, net of tax (provision)/benefit of: 2014 - $3; 2013 - $5
(6
)
 
(9
)
        Amortization of transition (asset) obligation, net of tax (provision)/benefit of: 2014 - $0; 2013 - $0

 
1

 
 
 
 
   Derivative financial instruments:
 
 
 
        Gains (losses) deferred, net of tax (provision)/benefit of: 2014 - $10; 2013 - $18
(16
)
 
(31
)
        (Gains) losses reclassified to earnings, net of tax (provision)/benefit of: 2014 - $3; 2013 - $(7)
(5
)
 
11

 
 
 
 
   Available-for-sale securities:
 
 
 
        Gains (losses) deferred, net of tax (provision)/benefit of: 2014 - $(3); 2013 - $(8)
8

 
15

        (Gains) losses reclassified to earnings, net of tax (provision)/benefit of: 2014 - $4; 2013 - $0
(10
)
 
(1
)
 
 
 
 
Total other comprehensive income (loss), net of tax
96

 
(236
)
Comprehensive income
1,021

 
646

Less: comprehensive income attributable to the noncontrolling interests
(2
)
 
(2
)
Comprehensive income attributable to stockholders
$
1,019

 
$
644

 
 
 
 

See accompanying notes to Consolidated Financial Statements.



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Caterpillar Inc.
Consolidated Statement of Financial Position
(Unaudited)
(Dollars in millions) 
 
March 31,
2014
 
December 31,
2013
Assets
 
 
 
Current assets:
 

 
 

Cash and short-term investments
$
5,345

 
$
6,081

Receivables – trade and other
8,565

 
8,413

Receivables – finance
8,834

 
8,763

Deferred and refundable income taxes
1,401

 
1,553

Prepaid expenses and other current assets
935

 
900

Inventories
12,888

 
12,625

Total current assets
37,968

 
38,335

 
 
 
 
Property, plant and equipment – net
16,716

 
17,075

Long-term receivables – trade and other
1,284

 
1,397

Long-term receivables – finance
15,206

 
14,926

Investments in unconsolidated affiliated companies
266

 
272

Noncurrent deferred and refundable income taxes
700

 
594

Intangible assets
3,509

 
3,596

Goodwill
6,986

 
6,956

Other assets
1,762

 
1,745

Total assets
$
84,397

 
$
84,896

 
 
 
 
Liabilities
 

 
 

Current liabilities:
 

 
 

Short-term borrowings:
 

 
 

Machinery, Energy & Transportation
$
18

 
$
16

Financial Products
4,497

 
3,663

Accounts payable
6,731

 
6,560

Accrued expenses
3,454

 
3,493

Accrued wages, salaries and employee benefits
1,475

 
1,622

Customer advances
2,500

 
2,360

Dividends payable

 
382

Other current liabilities
1,845

 
1,849

Long-term debt due within one year:
 

 
 

Machinery, Energy & Transportation
759

 
760

Financial Products
6,016

 
6,592

Total current liabilities
27,295

 
27,297

Long-term debt due after one year:
 

 
 

Machinery, Energy & Transportation
7,998

 
7,999

Financial Products
18,803

 
18,720

Liability for postemployment benefits
6,715

 
6,973

Other liabilities
3,217

 
3,029

Total liabilities
64,028

 
64,018

Commitments and contingencies (Notes 10 and 13)


 


Stockholders’ equity
 

 
 

Common stock of $1.00 par value:
 

 
 

Authorized shares: 2,000,000,000
Issued shares: (3/31/14 and 12/31/13 – 814,894,624) at paid-in amount
4,773

 
4,709

Treasury stock (3/31/14 – 190,660,723 shares; 12/31/13 – 177,072,282 shares) at cost
(13,442
)
 
(11,854
)
Profit employed in the business
32,775

 
31,854

Accumulated other comprehensive income (loss)
(3,801
)
 
(3,898
)
Noncontrolling interests
64

 
67

Total stockholders’ equity
20,369

 
20,878

Total liabilities and stockholders’ equity
$
84,397

 
$
84,896

 
See accompanying notes to Consolidated Financial Statements.

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Caterpillar Inc.
Consolidated Statement of Changes in Stockholders’ Equity
(Unaudited)
(Dollars in millions) 
 
Common
stock
 
Treasury
stock
 
Profit
employed
in the
business
 
Accumulated
other
comprehensive
income (loss)
 
Noncontrolling
interests
 
Total
Three Months Ended March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2012
$
4,481

 
$
(10,074
)
 
$
29,558

 
$
(6,433
)
 
$
50

 
$
17,582

Profit of consolidated and affiliated companies

 

 
880

 

 
2

 
882

Foreign currency translation, net of tax

 

 

 
(366
)
 

 
(366
)
Pension and other postretirement benefits, net of tax

 

 

 
136

 

 
136

Derivative financial instruments, net of tax

 

 

 
(20
)
 

 
(20
)
Available-for-sale securities, net of tax

 

 

 
14

 

 
14

Distribution to noncontrolling interests

 

 

 

 
(8
)
 
(8
)
Common shares issued from treasury stock for stock-based compensation:  2,436,453
(61
)
 
69

 

 

 

 
8

Stock-based compensation expense
49

 

 

 

 

 
49

Net excess tax benefits from stock-based compensation
41

 

 

 

 

 
41

Balance at March 31, 2013
$
4,510

 
$
(10,005
)
 
$
30,438

 
$
(6,669
)
 
$
44

 
$
18,318

 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2014
 

 
 

 
 

 
 

 
 

 
 

Balance at December 31, 2013
$
4,709

 
$
(11,854
)
 
$
31,854

 
$
(3,898
)
 
$
67

 
$
20,878

Profit of consolidated and affiliated companies

 

 
922

 

 
3

 
925

Foreign currency translation, net of tax

 

 

 
40

 
(1
)
 
39

Pension and other postretirement benefits, net of tax

 

 

 
80

 

 
80

Derivative financial instruments, net of tax

 

 

 
(21
)
 

 
(21
)
Available-for-sale securities, net of tax

 

 

 
(2
)
 

 
(2
)
Change in ownership from noncontrolling interests

 

 

 

 
2

 
2

Dividends declared

 

 
(1
)
 

 

 
(1
)
Distribution to noncontrolling interests

 

 

 

 
(7
)
 
(7
)
Common shares issued from treasury stock for stock-based compensation: 4,522,294
(58
)
 
150

 

 

 

 
92

Stock-based compensation expense
53

 

 

 

 

 
53

Net excess tax benefits from stock-based compensation
69

 

 

 

 

 
69

Common shares repurchased: 18,110,735 1

 
(1,738
)
 

 

 

 
(1,738
)
Balance at March 31, 2014
$
4,773

 
$
(13,442
)
 
$
32,775

 
$
(3,801
)
 
$
64

 
$
20,369

 
1 
See Note 11 regarding shares repurchased.
 
See accompanying notes to Consolidated Financial Statements.



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Caterpillar Inc.
Consolidated Statement of Cash Flow
(Unaudited)
(Millions of dollars)
 
Three Months Ended
March 31,
 
2014
 
2013
Cash flow from operating activities:
 
 
 
Profit of consolidated and affiliated companies
$
925

 
$
882

Adjustments for non-cash items:
 

 
 

Depreciation and amortization
781

 
723

Other
115

 
98

Changes in assets and liabilities, net of acquisitions and divestitures:
 

 
 

Receivables – trade and other
(37
)
 
209

Inventories
(270
)
 
308

Accounts payable
403

 
118

Accrued expenses
27

 
(121
)
Accrued wages, salaries and employee benefits
(152
)
 
(742
)
Customer advances
145

 
(47
)
Other assets – net
26

 
41

Other liabilities – net
(66
)
 
(45
)
Net cash provided by (used for) operating activities
1,897

 
1,424

 
 
 
 
Cash flow from investing activities:
 

 
 

Capital expenditures – excluding equipment leased to others
(454
)
 
(896
)
Expenditures for equipment leased to others
(285
)
 
(336
)
Proceeds from disposals of leased assets and property, plant and equipment
184

 
176

Additions to finance receivables
(2,634
)
 
(2,715
)
Collections of finance receivables
2,215

 
2,219

Proceeds from sale of finance receivables
20

 
66

Investments and acquisitions (net of cash acquired)
(5
)
 

Proceeds from sale of businesses and investments (net of cash sold)
13

 
98

Proceeds from sale of available-for-sale securities
115

 
98

Investments in available-for-sale securities
(105
)
 
(123
)
Other – net
(12
)
 
(46
)
Net cash provided by (used for) investing activities
(948
)
 
(1,459
)
 
 
 
 
Cash flow from financing activities:
 

 
 

Dividends paid
(383
)
 

Distribution to noncontrolling interests
(7
)
 
(8
)
Contribution from noncontrolling interests
2

 

Common stock issued, including treasury shares reissued
92

 
8

Treasury shares purchased
(1,738
)
 

Excess tax benefit from stock-based compensation
69

 
41

Proceeds from debt issued (original maturities greater than three months):
 

 
 

        Machinery, Energy & Transportation
6

 
54

        Financial Products
2,146

 
2,665

Payments on debt (original maturities greater than three months):
 

 
 

        Machinery, Energy & Transportation
(9
)
 
(26
)
        Financial Products
(2,773
)
 
(2,576
)
Short-term borrowings – net (original maturities three months or less)
944

 
387

Net cash provided by (used for) financing activities
(1,651
)
 
545

Effect of exchange rate changes on cash
(34
)
 
(18
)
Increase (decrease) in cash and short-term investments
(736
)
 
492

Cash and short-term investments at beginning of period
6,081

 
5,490

Cash and short-term investments at end of period
$
5,345

 
$
5,982


 All short-term investments, which consist primarily of highly liquid investments with original maturities of three months or less, are considered to be cash equivalents.

See accompanying notes to Consolidated Financial Statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1.
A.  Basis of Presentation
 
In the opinion of management, the accompanying financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of (a) the consolidated results of operations for the three month periods ended March 31, 2014 and 2013, (b) the consolidated comprehensive income for the three month periods ended March 31, 2014 and 2013, (c) the consolidated financial position at March 31, 2014 and December 31, 2013, (d) the consolidated changes in stockholders’ equity for the three month periods ended March 31, 2014 and 2013, and (e) the consolidated cash flow for the three month periods ended March 31, 2014 and 2013.  The financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (U.S. GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain amounts for prior periods have been reclassified to conform to the current period financial statement presentation.
 
Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with the audited financial statements and notes thereto included in our Company’s annual report on Form 10-K for the year ended December 31, 2013 (2013 Form 10-K).
 
The December 31, 2013 financial position data included herein is derived from the audited consolidated financial statements included in the 2013 Form 10-K but does not include all disclosures required by U.S. GAAP.
 
B.  Nature of Operations
 
Information in our financial statements and related commentary are presented in the following categories:
 
Machinery, Energy & Transportation – Represents the aggregate total of Construction Industries, Resource Industries, Energy & Transportation, and All Other operating segments and related corporate items and eliminations.
 
Financial Products – Primarily includes the company’s Financial Products Segment.  This category includes Caterpillar Financial Services Corporation (Cat Financial), Caterpillar Financial Insurance Services (Insurance Services) and their respective subsidiaries. 

2.                                    New Accounting Guidance
 
Joint and several liability arrangements – In February 2013, the Financial Accounting Standards Board (FASB) issued accounting guidance on the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements. The guidance requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The entity is also required to disclose the nature and amount of the obligation as well as any other information about those obligations. This guidance was effective January 1, 2014, with retrospective application required. The guidance did not have a material impact on our financial statements.

Parent's accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity – In March 2013, the FASB issued accounting guidance on the parent's accounting for the cumulative translation adjustment (CTA) upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. The new standard clarifies existing guidance regarding when the CTA should be released into earnings upon various deconsolidation and consolidation transactions. This guidance was effective January 1, 2014. The guidance did not have a material impact on our financial statements.

Presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists – In July 2013, the FASB issued accounting guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward

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in the financial statements if available under the applicable tax jurisdiction. The guidance was effective January 1, 2014. The guidance did not have a material impact on our financial statements.

Reporting discontinued operations and disclosures of disposals of components of an entity – In April 2014, the FASB issued accounting guidance for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. The guidance defines a discontinued operation as a disposal of a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results. This guidance is effective January 1, 2015. We do not expect the adoption to have a material impact on our financial statements.

3.                                     Stock-Based Compensation
 
Accounting for stock-based compensation requires that the cost resulting from all stock-based payments be recognized in the financial statements based on the grant date fair value of the award.  Stock-based compensation primarily consists of stock options, restricted stock units (RSUs) and stock-settled stock appreciation rights (SARs).  We recognized pretax stock-based compensation cost in the amount of $53 million and $49 million for the three months ended March 31, 2014 and 2013, respectively.

The following table illustrates the type and fair value of the stock-based compensation awards granted during the three month periods ended March 31, 2014 and 2013, respectively:
 
 
2014
 
2013
 
Shares Granted
 
Fair Value
Per Award
 
Shares Granted
 
Fair Value
Per Award
Stock options
4,448,218

 
$
29.52

 
4,276,060

 
$
28.34

RSUs
1,429,512

 
$
89.18

 
1,614,870

 
$
84.05

 
The stock price on the date of grant was $96.31 and $89.75 for 2014 and 2013, respectively.
 
The following table provides the assumptions used in determining the fair value of the stock-based awards for the three month periods ended March 31, 2014 and 2013, respectively:
 
 
Grant Year
 
2014
 
2013
Weighted-average dividend yield
2.15%
 
2.13%
Weighted-average volatility
28.2%
 
30.6%
Range of volatilities
18.4-36.2%
 
23.4-40.6%
Range of risk-free interest rates
0.12-2.60%
 
0.16-1.88%
Weighted-average expected lives
8 years
 
8 years
 
As of March 31, 2014, the total remaining unrecognized compensation cost related to nonvested stock-based compensation awards was $395 million, which will be amortized over the weighted-average remaining requisite service periods of approximately 2.4 years.
 
4.                                     Derivative Financial Instruments and Risk Management
 
Our earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates, interest rates and commodity prices.  Our Risk Management Policy (policy) allows for the use of derivative financial instruments to prudently manage foreign currency exchange rate, interest rate and commodity price exposures.  Our policy specifies that derivatives are not to be used for speculative purposes.  Derivatives that we use are primarily foreign currency forward, option, and cross currency contracts, interest rate swaps, and commodity forward and option contracts.  Our derivative activities are subject to the management, direction and control of our senior financial officers.  Risk management practices, including the use of financial derivative instruments, are presented to the Audit Committee of the Board of Directors at least annually.
 

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All derivatives are recognized on the Consolidated Statement of Financial Position at their fair value. On the date the derivative contract is entered into, we designate the derivative as (1) a hedge of the fair value of a recognized asset or liability (fair value hedge), (2) a hedge of a forecasted transaction or the variability of cash flow to be paid (cash flow hedge), or (3) an undesignated instrument. Changes in the fair value of a derivative that is qualified, designated and highly effective as a fair value hedge, along with the gain or loss on the hedged recognized asset or liability that is attributable to the hedged risk, are recorded in current earnings. Changes in the fair value of a derivative that is qualified, designated and highly effective as a cash flow hedge are recorded in Accumulated other comprehensive income (loss) (AOCI), to the extent effective, on the Consolidated Statement of Financial Position until they are reclassified to earnings in the same period or periods during which the hedged transaction affects earnings.  Changes in the fair value of undesignated derivative instruments and the ineffective portion of designated derivative instruments are reported in current earnings. Cash flow from designated derivative financial instruments are classified within the same category as the item being hedged on the Consolidated Statement of Cash Flow.  Cash flow from undesignated derivative financial instruments are included in the investing category on the Consolidated Statement of Cash Flow.
 
We formally document all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking various hedge transactions.  This process includes linking all derivatives that are designated as fair value hedges to specific assets and liabilities on the Consolidated Statement of Financial Position and linking cash flow hedges to specific forecasted transactions or variability of cash flow.

We also formally assess, both at the hedge’s inception and on an ongoing basis, whether the designated derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flow of hedged items.  When a derivative is determined not to be highly effective as a hedge or the underlying hedged transaction is no longer probable, we discontinue hedge accounting prospectively, in accordance with the derecognition criteria for hedge accounting.
 
Foreign Currency Exchange Rate Risk
 
Foreign currency exchange rate movements create a degree of risk by affecting the U.S. dollar value of sales made and costs incurred in foreign currencies. Movements in foreign currency rates also affect our competitive position as these changes may affect business practices and/or pricing strategies of non-U.S.-based competitors. Additionally, we have balance sheet positions denominated in foreign currencies, thereby creating exposure to movements in exchange rates.
 
Our Machinery, Energy & Transportation operations purchase, manufacture and sell products in many locations around the world. As we have a diversified revenue and cost base, we manage our future foreign currency cash flow exposure on a net basis. We use foreign currency forward and option contracts to manage unmatched foreign currency cash inflow and outflow. Our objective is to minimize the risk of exchange rate movements that would reduce the U.S. dollar value of our foreign currency cash flow. Our policy allows for managing anticipated foreign currency cash flow for up to five years.
 
We generally designate as cash flow hedges at inception of the contract any Australian dollar, Brazilian real, British pound, Canadian dollar, Chinese yuan, euro, Indian rupee, Japanese yen, Mexican peso, Singapore dollar or Swiss franc forward or option contracts that meet the requirements for hedge accounting and the maturity extends beyond the current quarter-end. Designation is performed on a specific exposure basis to support hedge accounting. The remainder of Machinery, Energy & Transportation foreign currency contracts are undesignated, including any hedges designed to protect our competitive exposure.  
 
As of March 31, 2014, $12 million of deferred net gains, net of tax, included in equity (AOCI in the Consolidated Statement of Financial Position), are expected to be reclassified to current earnings (Other income (expense) in the Consolidated Statement of Results of Operations) over the next twelve months when earnings are affected by the hedged transactions.  The actual amount recorded in Other income (expense) will vary based on exchange rates at the time the hedged transactions impact earnings.
 
In managing foreign currency risk for our Financial Products operations, our objective is to minimize earnings volatility resulting from conversion and the remeasurement of net foreign currency balance sheet positions, and future transactions denominated in foreign currencies. Our policy allows the use of foreign currency forward, option and cross currency contracts to offset the risk of currency mismatch between our receivables and debt, and exchange rate risk associated with future transactions denominated in foreign currencies. Substantially all such foreign currency forward, option and cross currency contracts are undesignated.
 

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Interest Rate Risk
 
Interest rate movements create a degree of risk by affecting the amount of our interest payments and the value of our fixed-rate debt. Our practice is to use interest rate derivatives to manage our exposure to interest rate changes and, in some cases, lower the cost of borrowed funds.
 
Our Machinery, Energy & Transportation operations generally use fixed-rate debt as a source of funding.  Our objective is to minimize the cost of borrowed funds.  Our policy allows us to enter into fixed-to-floating interest rate swaps and forward rate agreements to meet that objective. We designate fixed-to-floating interest rate swaps as fair value hedges at inception of the contract, and we designate certain forward rate agreements as cash flow hedges at inception of the contract.

As of March 31, 2014, $3 million of deferred net losses, net of tax, included in equity (AOCI in the Consolidated Statement of Financial Position), related to Machinery, Energy & Transportation forward rate agreements, are expected to be reclassified to current earnings (Other income (expense) in the Consolidated Statement of Results of Operations) over the next twelve months. The actual amount recorded in Other income (expense) will vary based on interest rates at the time the hedged transactions impact earnings.

Financial Products operations has a match-funding policy that addresses interest rate risk by aligning the interest rate profile (fixed or floating rate) of Cat Financial’s debt portfolio with the interest rate profile of their receivables portfolio within predetermined ranges on an ongoing basis. In connection with that policy, we use interest rate derivative instruments to modify the debt structure to match assets within the receivables portfolio. This matched funding reduces the volatility of margins between interest-bearing assets and interest-bearing liabilities, regardless of which direction interest rates move.
 
Our policy allows us to use fixed-to-floating, floating-to-fixed, and floating-to-floating interest rate swaps to meet the match-funding objective.  We designate fixed-to-floating interest rate swaps as fair value hedges to protect debt against changes in fair value due to changes in the benchmark interest rate.  We designate most floating-to-fixed interest rate swaps as cash flow hedges to protect against the variability of cash flows due to changes in the benchmark interest rate.

As of March 31, 2014, $3 million of deferred net losses, net of tax, included in equity (AOCI in the Consolidated Statement of Financial Position), related to Financial Products floating-to-fixed interest rate swaps, are expected to be reclassified to current earnings (Interest expense of Financial Products in the Consolidated Statement of Results of Operations) over the next twelve months.  The actual amount recorded in Interest expense of Financial Products will vary based on interest rates at the time the hedged transactions impact earnings.
 
We have, at certain times, liquidated fixed-to-floating and floating-to-fixed interest rate swaps at both Machinery, Energy & Transportation and Financial Products.  The gains or losses associated with these swaps at the time of liquidation are amortized into earnings over the original term of the previously designated hedged item.
 
Commodity Price Risk
 
Commodity price movements create a degree of risk by affecting the price we must pay for certain raw material. Our policy is to use commodity forward and option contracts to manage the commodity risk and reduce the cost of purchased materials.
 
Our Machinery, Energy & Transportation operations purchase base and precious metals embedded in the components we purchase from suppliers.  Our suppliers pass on to us price changes in the commodity portion of the component cost. In addition, we are subject to price changes on energy products such as natural gas and diesel fuel purchased for operational use.
 
Our objective is to minimize volatility in the price of these commodities. Our policy allows us to enter into commodity forward and option contracts to lock in the purchase price of a portion of these commodities within a five-year horizon. All such commodity forward and option contracts are undesignated.
 

11

Table of Contents

The location and fair value of derivative instruments reported in the Consolidated Statement of Financial Position are as follows:
 
(Millions of dollars)
 
 
 
 
 
 
Consolidated Statement of Financial
 
Asset (Liability) Fair Value
 
Position Location
 
March 31, 2014
 
December 31, 2013
Designated derivatives
 
 
 
 
 
Foreign exchange contracts
 
 
 

 
 

Machinery, Energy & Transportation
Receivables – trade and other
 
$
38

 
$
54

Machinery, Energy & Transportation
Accrued expenses
 
(19
)
 
(39
)
Interest rate contracts
 
 
 
 
 

Machinery, Energy & Transportation
Accrued expenses
 
(38
)
 

Financial Products
Receivables – trade and other
 
11

 
7

Financial Products
Long-term receivables – trade and other
 
97

 
115

Financial Products
Accrued expenses
 
(6
)
 
(6
)
 
 
 
$
83

 
$
131

Undesignated derivatives
 
 
 

 
 

Foreign exchange contracts
 
 
 

 
 

Machinery, Energy & Transportation
Receivables – trade and other
 
$
12

 
$
19

Machinery, Energy & Transportation
Accrued expenses
 
(2
)
 
(1
)
Financial Products
Receivables – trade and other
 
4

 
7

Financial Products
Long-term receivables – trade and other
 
7

 
9

Financial Products
Accrued expenses
 
(6
)
 
(4
)
Commodity contracts
 
 
 
 
 

Machinery, Energy & Transportation
Receivables – trade and other
 
1

 

Machinery, Energy & Transportation
Accrued expenses
 
(2
)
 

 
 
 
$
14

 
$
30

 
 
 
 
 
 

The total notional amounts of the derivative instruments are as follows:

(Millions of dollars)
 
 
 
 
 
 
March 31, 2014
 
December 31, 2013
 
 
 
 
 
Machinery, Energy & Transportation
 
$
4,493

 
$
3,565

Financial Products
 
$
6,517

 
$
6,743

 
 
 
 
 

The notional amounts of the derivative financial instruments do not represent amounts exchanged by the parties. The amounts exchanged by the parties are calculated by reference to the notional amounts and by other terms of the derivatives, such as foreign currency exchange rates, interest rates, or commodity prices.

12

Table of Contents


The effect of derivatives designated as hedging instruments on the Consolidated Statement of Results of Operations is as follows: 

Fair Value Hedges
(Millions of dollars)
 
 
 
 
 
 
 
 
Three Months Ended
March 31, 2014
 
Three Months Ended
March 31, 2013
 
Classification
 
Gains (Losses) 
on Derivatives
 
Gains (Losses) 
on Borrowings
 
Gains (Losses) 
on Derivatives
 
Gains (Losses) 
on Borrowings
Interest rate contracts
 
 
 
 
 
 
 
 
 

Financial Products
Other income (expense)
 
$
(13
)
 
$
15

 
$
(29
)
 
$
30

 
 
 
$
(13
)
 
$
15

 
$
(29
)
 
$
30

 
 
 
 
 
 
 
 
 
 

Cash Flow Hedges
(Millions of dollars)
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2014
 
 
 
 
Recognized in Earnings
 
 
Amount of Gains
(Losses) Recognized 
in AOCI
(Effective Portion)
 
Classification of 
Gains (Losses)
 
Amount of
Gains (Losses)
Reclassified 
from AOCI to
Earnings
 
Recognized
in Earnings 
(Ineffective
Portion)
 
Foreign exchange contracts
 

 
 
 
 

 
 

 
Machinery, Energy & Transportation
$
13

 
Other income (expense)
 
$
10


$

 
Interest rate contracts
 
 
 
 
 
 
 
 
Machinery, Energy & Transportation
(37
)
 
Other income (expense)
 
(1
)
 

 
Financial Products
(2
)
 
Interest expense of Financial Products
 
(1
)
 


 
$
(26
)
 
 
 
$
8

 
$

 
 
Three Months Ended March 31, 2013
 
 
 
 
Recognized in Earnings
 
 
Amount of Gains
(Losses) Recognized 
in AOCI
(Effective Portion)
 
Classification of 
Gains (Losses)
 
Amount of
Gains (Losses)
Reclassified 
from AOCI to
Earnings
 
Recognized
in Earnings 
(Ineffective
Portion)
 
Foreign exchange contracts
 
 
 
 
 
 
 
 
Machinery, Energy & Transportation
$
(49
)
 
Other income (expense)
 
$
(17
)
1 

$

 
Interest rate contracts
 

 
 
 
 

 
 

 
Financial Products

 
Interest expense of Financial Products
 
(1
)
 


 
$
(49
)
 
 
 
$
(18
)
 
$

 
 
 
 
 
 
 
 
 
 
1 
Includes $3 million loss reclassified from AOCI to Other income (expense) in 2013 as certain derivatives were dedesignated as the related transactions are no longer probable to occur.
 
 
 
 
 

The effect of derivatives not designated as hedging instruments on the Consolidated Statement of Results of Operations is as follows: 
 
(Millions of dollars)
 
 
 

 
 
 
Classification of Gains (Losses)
 
Three Months Ended
March 31, 2014
 
Three Months Ended
March 31, 2013
Foreign exchange contracts
 
 
 
 
 
Machinery, Energy & Transportation
Other income (expense)
 
$
11

 
$
(20
)
Financial Products
Other income (expense)
 
(5
)
 
(15
)
Commodity contracts
 
 
 

 
 
Machinery, Energy & Transportation
Other income (expense)
 
(1
)
 
(1
)
 
 
 
$
5

 
$
(36
)
 
 
 
 
 
 

13

Table of Contents

 
We enter into International Swaps and Derivatives Association (ISDA) master netting agreements within Machinery, Energy & Transportation and Financial Products that permit the net settlement of amounts owed under their respective derivative contracts. Under these master netting agreements, net settlement generally permits the company or the counterparty to determine the net amount payable for contracts due on the same date and in the same currency for similar types of derivative transactions. The master netting agreements generally also provide for net settlement of all outstanding contracts with a counterparty in the case of an event of default or a termination event.

Collateral is generally not required of the counterparties or of our company under the master netting agreements. As of March 31, 2014 and December 31, 2013, no cash collateral was received or pledged under the master netting agreements.


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Table of Contents

The effect of the net settlement provisions of the master netting agreements on our derivative balances upon an event of default or termination event is as follows:
March 31, 2014
 
 
 
 
 
 
 
Gross Amounts Not Offset in the Statement of Financial Position
 
 
(Millions of dollars)
 
Gross Amount of Recognized Assets
 
Gross Amounts Offset in the Statement of Financial Position
 
Net Amount of Assets Presented in the Statement of Financial Position
 
Financial Instruments
 
Cash Collateral Received
 
Net Amount of Assets
Derivatives
 
 
 
 
 
 
 
 
 
 
 
 
Machinery, Energy & Transportation
 
$
51

 
$

 
$
51

 
$
(39
)
 
$

 
$
12

Financial Products
 
119

 

 
119

 
(7
)
 

 
112

 Total
 
$
170

 
$

 
$
170

 
$
(46
)
 
$

 
$
124

March 31, 2014
 
 
 
 
 
 
 
Gross Amounts Not Offset in the Statement of Financial Position
 
 
(Millions of dollars)
 
Gross Amount of Recognized Liabilities
 
Gross Amounts Offset in the Statement of Financial Position
 
Net Amount of Liabilities Presented in the Statement of Financial Position
 
Financial Instruments
 
Cash Collateral Pledged
 
Net Amount of Liabilities
Derivatives
 
 
 
 
 
 
 
 
 
 
 
 
Machinery, Energy & Transportation
 
$
(61
)
 
$

 
$
(61
)
 
$
39

 
$

 
$
(22
)
Financial Products
 
(12
)
 

 
(12
)
 
7

 

 
(5
)
 Total
 
$
(73
)
 
$

 
$
(73
)
 
$
46

 
$

 
$
(27
)
December 31, 2013
 
 
 
 
 
 
 
Gross Amounts Not Offset in the Statement of Financial Position
 
 
(Millions of dollars)
 
Gross Amount of Recognized Assets
 
Gross Amounts Offset in the Statement of Financial Position
 
Net Amount of Assets Presented in the Statement of Financial Position
 
Financial Instruments
 
Cash Collateral Received
 
Net Amount of Assets
Derivatives
 
 
 
 
 
 
 
 
 
 
 
 
Machinery, Energy & Transportation
 
$
73

 
$

 
$
73

 
$
(32
)
 
$

 
$
41

Financial Products
 
138

 

 
138

 
(9
)
 

 
129

 Total
 
$
211

 
$

 
$
211

 
$
(41
)
 
$

 
$
170

December 31, 2013
 
 
 
 
 
 
 
Gross Amounts Not Offset in the Statement of Financial Position
 
 
(Millions of dollars)
 
Gross Amount of Recognized Liabilities
 
Gross Amounts Offset in the Statement of Financial Position
 
Net Amount of Liabilities Presented in the Statement of Financial Position
 
Financial Instruments
 
Cash Collateral Pledged
 
Net Amount of Liabilities
Derivatives
 
 
 
 
 
 
 
 
 
 
 
 
Machinery, Energy & Transportation
 
$
(40
)
 
$

 
$
(40
)
 
$
32

 
$

 
$
(8
)
Financial Products
 
(10
)
 

 
(10
)
 
9

 

 
(1
)
 Total
 
$
(50
)
 
$

 
$
(50
)
 
$
41

 
$

 
$
(9
)
 
 
 
 
 
 
 
 
 
 
 
 
 


15

Table of Contents

5.                                     Inventories
 
Inventories (principally using the last-in, first-out (LIFO) method) are comprised of the following:
 
(Millions of dollars)
March 31,
2014
 
December 31,
2013
Raw materials
$
3,031

 
$
2,966

Work-in-process
2,760

 
2,589

Finished goods
6,801

 
6,785

Supplies
296

 
285

Total inventories
$
12,888

 
$
12,625

 
 
 
 

6.                                     Investments in Unconsolidated Affiliated Companies
 
Combined financial information of the unconsolidated affiliated companies accounted for by the equity method (generally on a lag of 3 months or less) was as follows:
Results of Operations of unconsolidated affiliated companies:
(Millions of dollars)
Three Months Ended
March 31,
 
2014
 
2013
Sales
$
390

 
$
258

Cost of sales
301

 
205

Gross profit
$
89

 
$
53

 
 
 
 
Profit (loss)
$
(14
)
 
$
(3
)
 
 
 
 

Financial Position of unconsolidated affiliated companies: 
(Millions of dollars)
March 31,
2014
 
December 31,
2013
Assets:
 

 
 

Current assets
$
695

 
$
683

Property, plant and equipment – net
686

 
710

Other assets
582

 
608

 
1,963

 
2,001

Liabilities:
 

 
 

Current liabilities
466

 
437

Long-term debt due after one year
890

 
900

Other liabilities
216

 
262

 
1,572

 
1,599

Equity
$
391

 
$
402

 
 
 
 

Caterpillar’s investments in unconsolidated affiliated companies: 
(Millions of dollars)
March 31,
2014
 
December 31,
2013
Investments in equity method companies
$
256

 
$
262

Plus: Investments in cost method companies
10

 
10

Total investments in unconsolidated affiliated companies
$
266

 
$
272

 
 
 
 




16

Table of Contents

7.                                     Intangible Assets and Goodwill
 
A.  Intangible assets
 
Intangible assets are comprised of the following:
 
 
 
 
March 31, 2014
(Millions of dollars)
Weighted
Amortizable
Life (Years)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Customer relationships
15
 
$
2,643

 
$
(575
)
 
$
2,068

Intellectual property
11
 
1,752

 
(459
)
 
1,293

Other
11
 
239

 
(109
)
 
130

Total finite-lived intangible assets
14
 
4,634

 
(1,143
)
 
3,491

Indefinite-lived intangible assets - In-process research & development
 
 
18

 

 
18

Total intangible assets
 
 
$
4,652

 
$
(1,143
)
 
$
3,509

 
 
 
 
December 31, 2013
 
Weighted
Amortizable
Life (Years)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Customer relationships
15
 
$
2,653

 
$
(539
)
 
$
2,114

Intellectual property
11
 
1,821

 
(495
)
 
1,326

Other
10
 
274

 
(136
)
 
138

Total finite-lived intangible assets
13
 
4,748

 
(1,170
)
 
3,578

Indefinite-lived intangible assets - In-process research & development
 
 
18

 

 
18

Total intangible assets
 
 
$
4,766

 
$
(1,170
)
 
$
3,596

 
 
 
 
 
 
 
 
 
Amortization expense for the three months ended March 31, 2014 and 2013 was $92 million and $94 million, respectively. Amortization expense related to intangible assets is expected to be:
(Millions of dollars)
2014
 
2015
 
2016
 
2017
 
2018
 
Thereafter
$365
 
$357
 
$335
 
$333
 
$329
 
$1,882
 
 
 
 
 
 
 
 
 
 
 
 
B.  Goodwill
 
We test goodwill for impairment annually and whenever events or circumstances make it more likely than not that an impairment may have occurred. We perform our annual goodwill impairment test as of October 1 and monitor for interim triggering events on an ongoing basis. Goodwill is reviewed for impairment utilizing a qualitative assessment or a two-step process. We have an option to make a qualitative assessment of a reporting unit's goodwill for impairment. If we choose to perform a qualitative assessment and determine the fair value more likely than not exceeds the carrying value, no further evaluation is necessary. For reporting units where we perform the two-step process, the first step requires us to compare the fair value of each reporting unit, which we primarily determine using an income approach based on the present value of discounted cash flows, to the respective carrying value, which includes goodwill. If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired. If the carrying value is higher than the fair value, there is an indication that an impairment may exist and the second step is required. In step two, the implied fair value of goodwill is calculated as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities. If the implied fair value of goodwill is less than the carrying value of the reporting unit's goodwill, the difference is recognized as an impairment loss. No goodwill for reporting units was impaired during the three months ended March 31, 2014 or 2013.
 
As discussed in Note 15, effective January 1, 2014, we revised our reportable segments in line with the changes to our organizational structure. Our reporting units did not significantly change as a result of the changes to our reportable segments. The segment information for 2013 has been retrospectively adjusted to conform to the 2014 presentation.

17

Table of Contents


The changes in carrying amount of goodwill by reportable segment for the three months ended March 31, 2014 were as follows: 
 
(Millions of dollars)
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
2013
 
Acquisitions
 
Held for Sale and Business Divestitures 1
 
Other Adjustments 2
 
March 31,
2014
Construction Industries
 
 
 
 
 
 
 
 
 


Goodwill
 
$
291

 
$

 
$

 
$
15

 
$
306

Resource Industries
 
 
 
 
 
 
 
 
 
 
Goodwill
 
4,468

 

 
(2
)
 
10

 
4,476

Impairments
 
(580
)
 

 

 

 
(580
)
Net goodwill
 
3,888

 

 
(2
)
 
10

 
3,896

Energy & Transportation
 
 
 
 
 
 
 
 
 
 
Goodwill
 
2,600

 
3

 

 
4

 
2,607

All Other 3
 
 
 
 
 
 
 
 
 
 
Goodwill
 
199

 

 

 

 
199

Impairments
 
(22
)
 

 

 

 
(22
)
Net goodwill
 
177

 

 

 

 
177

Consolidated total
 
 
 
 
 
 
 
 
 
 
Goodwill
 
7,558

 
3

 
(2
)
 
29

 
7,588

Impairments
 
(602
)
 

 

 

 
(602
)
Net goodwill
 
$
6,956

 
$
3

 
$
(2
)
 
$
29

 
$
6,986


1  See Note 18 for additional details.
Other adjustments are comprised primarily of foreign currency translation.
3  Includes All Other operating segments (See Note 15).
 
 
 
 
 

8.                                     Available-For-Sale Securities
 
We have investments in certain debt and equity securities, primarily at Insurance Services, that have been classified as available-for-sale and recorded at fair value based upon quoted market prices. These investments are primarily included in Other assets in the Consolidated Statement of Financial Position. Unrealized gains and losses arising from the revaluation of available-for-sale securities are included, net of applicable deferred income taxes, in equity (Accumulated other comprehensive income (loss) in the Consolidated Statement of Financial Position).  Realized gains and losses on sales of investments are generally determined using the FIFO (first-in, first-out) method for debt instruments and the specific identification method for equity securities.  Realized gains and losses are included in Other income (expense) in the Consolidated Statement of Results of Operations.

18

Table of Contents

 
 
March 31, 2014
 
December 31, 2013
(Millions of dollars)
Cost 
Basis
 
Unrealized Pretax Net Gains 
(Losses)
 
Fair 
Value
 
Cost 
Basis
 
Unrealized Pretax Net Gains 
(Losses)
 
Fair 
Value
Government debt
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury bonds
$
10

 
$

 
$
10

 
$
10

 
$

 
$
10

Other U.S. and non-U.S. government bonds
117

 
1

 
118

 
119

 
1

 
120

 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
 

 
 

 
 
 
 

 
 

 
 

Corporate bonds
629

 
22

 
651

 
612

 
21

 
633

Asset-backed securities
76

 
1

 
77

 
72

 

 
72

 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed debt securities
 
 
 
 
 
 
 

 
 

 
 

U.S. governmental agency
326

 

 
326

 
322

 
(1
)
 
321

Residential
17

 
1

 
18

 
18

 

 
18

Commercial
70

 
6

 
76

 
87

 
6

 
93

 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 

 
 

 
 

Large capitalization value
164

 
74

 
238

 
173

 
81

 
254

Smaller company growth
24

 
24

 
48

 
25

 
24

 
49

Total
$
1,433

 
$
129

 
$
1,562

 
$
1,438

 
$
132

 
$
1,570

 
 
 
 
 
 
 
 
 
 
 
 
 
During the three months ended March 31, 2014 and 2013, there were no charges for other-than-temporary declines in the market values of securities.

19

Table of Contents

Investments in an unrealized loss position that are not other-than-temporarily impaired:
 
 
 
March 31, 2014
 
Less than 12 months 1
 
12 months or more 1
 
Total
(Millions of dollars)
Fair 
Value
 
Unrealized
Losses
 
Fair 
Value
 
Unrealized
Losses
 
Fair 
Value
 
Unrealized
Losses
Corporate bonds
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
$
159

 
$
1

 
$
1

 
$

 
$
160

 
$
1

Asset-backed securities
5

 

 
17

 
1

 
22

 
1

Mortgage-backed debt securities
 
 
 
 
 
 
 
 
 
 
 
U.S. governmental agency
98

 
2

 
105

 
4

 
203

 
6

Equity securities
 
 
 
 
 
 
 
 
 
 
 
Large capitalization value
20

 
1

 
1

 

 
21

 
1

Total
$
282

 
$
4

 
$
124

 
$
5

 
$
406

 
$
9

 
December 31, 2013
 
Less than 12 months 1
 
12 months or more 1
 
Total
(Millions of dollars)
Fair 
Value
 
Unrealized
Losses
 
Fair 
Value
 
Unrealized
Losses
 
Fair 
Value
 
Unrealized
Losses
Corporate bonds
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
$
159

 
$
2

 
$
1

 
$

 
$
160

 
$
2

Asset-backed securities
6

 

 
20

 
1

 
26

 
1

Mortgage-backed debt securities
 

 
 

 
 

 
 

 
 

 
 

U.S. governmental agency
140

 
4

 
65

 
2

 
205

 
6

Total
$
305

 
$
6

 
$
86

 
$
3

 
$
391

 
$
9


 1    Indicates length of time that individual securities have been in a continuous unrealized loss position.
 
 
 
 
 

Corporate Bonds.  The unrealized losses on our investments in corporate bonds and asset-backed securities relate to changes in interest rates and credit-related yield spreads since time of purchase.  We do not intend to sell the investments and it is not likely that we will be required to sell the investments before recovery of their amortized cost basis.  We do not consider these investments to be other-than-temporarily impaired as of March 31, 2014.
 
Mortgage-Backed Debt Securities.  The unrealized losses on our investments in mortgage-backed securities relate to changes in interest rates and credit-related yield spreads since time of purchase.  We do not intend to sell the investments and it is not likely that we will be required to sell these investments before recovery of their amortized cost basis.  We do not consider these investments to be other-than-temporarily impaired as of March 31, 2014.
 
Equity Securities.  Insurance Services maintains a well-diversified equity portfolio consisting of two specific mandates:  large capitalization value stocks and smaller company growth stocks.  U.S. equity valuations were generally higher during the first quarter of 2014 on generally favorable economic data.  The unrealized losses on our investments in equity securities relate to inherent risks of individual holdings and/or their respective sectors. We do not consider these investments to be other-than-temporarily impaired as of March 31, 2014.
 
The cost basis and fair value of the available-for-sale debt securities at March 31, 2014, by contractual maturity, is shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay and creditors may have the right to call obligations.


20

Table of Contents

 
March 31, 2014
(Millions of dollars)
Cost Basis
 
Fair Value
Due in one year or less
$
155

 
$
156

Due after one year through five years
614

 
635

Due after five years through ten years
33

 
35

Due after ten years
30

 
30

U.S. governmental agency mortgage-backed securities
326

 
326

Residential mortgage-backed securities
17

 
18

Commercial mortgage-backed securities
70

 
76

Total debt securities – available-for-sale
$
1,245

 
$
1,276

 
 
 
 

 
Sales of Securities:
 
 
Three Months Ended
March 31,
(Millions of dollars)
2014
 
2013
Proceeds from the sale of available-for-sale securities
$
115

 
$
98

Gross gains from the sale of available-for-sale securities
$
14

 
$
1

Gross losses from the sale of available-for-sale securities
$

 
$


9.                                     Postretirement Benefits
 
A.  Pension and postretirement benefit costs    
 
 
(Millions of dollars)
U.S. Pension 
Benefits
 
Non-U.S. Pension 
Benefits
 
Other
Postretirement 
Benefits
 
March 31,
 
March 31,
 
March 31,
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
For the three months ended:
 
 
 
 
 
 
 
 
 
 
 
Components of net periodic benefit cost:
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
39

 
$
49

 
$
28

 
$
31

 
$
20

 
$
24

Interest cost
162

 
145

 
46

 
43

 
53

 
49

Expected return on plan assets 1
(221
)
 
(208
)
 
(65
)
 
(59
)
 
(13
)
 
(14
)
Amortization of:
 
 
 

 
 
 
 

 
 
 
 

Transition obligation (asset)

 

 

 

 

 
1

Prior service cost (credit) 2
4

 
4

 

 

 
(13
)
 
(18
)
Net actuarial loss (gain) 3
98

 
136

 
22

 
33

 
10

 
27

Total cost included in operating profit
$
82

 
$
126

 
$
31

 
$
48

 
$
57

 
$
69

 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average assumptions used to determine net cost:
 
 
 
 
 
 
 
 
 
 
Discount rate
4.6
%
 
3.7
%
 
4.1
%
 
3.7
%
 
4.6
%
 
3.7
%
Expected rate of return on plan assets
7.8
%
 
7.8
%
 
6.9
%
 
6.7
%
 
7.8
%
 
7.8
%
Rate of compensation increase
4.0
%
 
4.5
%
 
4.2
%
 
3.9
%
 
4.0
%
 
4.4
%
 
 
 
 
 
 
 
 
 
 
 
 
1 
Expected return on plan assets developed using calculated market-related value of plan assets which recognizes differences in expected and actual returns over a three-year period.
2 
Prior service cost (credit) for both pension and other postretirement benefits are generally amortized using the straight-line method over the average remaining service period of active employees expected to receive benefits from the plan. For pension plans in which all or almost all of the plan's participants are inactive and other postretirement benefit plans in which all or almost all of the plan's participants are fully eligible for benefits under the plan, prior service cost (credit) are amortized using the straight-line method over the remaining life expectancy of those participants.
3 
Net actuarial loss (gain) for pension and other postretirement benefit plans are generally amortized using the straight-line method over the average remaining service period of active employees expected to receive benefits from the plan. For plans in which all or almost all of the plan’s participants are inactive, net actuarial loss (gain) are amortized using the straight-line method over the remaining life expectancy of the inactive participants.
 
 
 
 
 

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 We made $279 million of contributions to our pension plans during the three months ended March 31, 2014. We currently anticipate full-year 2014 contributions of approximately $510 million, all of which are required. We made $142 million of contributions to our pension plans during the three months ended March 31, 2013.
 
B.  Defined contribution benefit costs
 
Total company costs related to our defined contribution plans were as follows:
 
 
Three Months Ended
March 31,
(Millions of dollars)
2014
 
2013
U.S. Plans
$
81

 
$
83

Non-U.S. Plans
20

 
14

 
$
101

 
$
97

 
 
 
 
 
10.                              Guarantees and Product Warranty
 
We have provided an indemnity to a third-party insurance company for potential losses related to performance bonds issued on behalf of Caterpillar dealers.  The bonds are issued to insure governmental agencies against nonperformance by certain dealers.  We also provided guarantees to a third-party related to the performance of contractual obligations by certain Caterpillar dealers. The guarantees cover potential financial losses incurred by the third-party resulting from the dealers’ nonperformance.
 
We provide loan guarantees to third-party lenders for financing associated with machinery purchased by customers. These guarantees have varying terms and are secured by the machinery. In addition, Cat Financial participates in standby letters of credit issued to third parties on behalf of their customers. These standby letters of credit have varying terms and beneficiaries and are secured by customer assets.
 
We have provided a guarantee to one of our customers in Brazil related to the performance of contractual obligations by a supplier consortium to which one of our Caterpillar subsidiaries is a member. The guarantees cover potential damages (some of them capped) incurred by the customer resulting from the supplier consortium’s non-performance. The guarantee will expire when the supplier consortium performs all its contractual obligations, which is expected to be completed in 2022.

We have provided guarantees to third-party lessors for certain properties leased by Cat Logistics Services, LLC, in which we sold a 65 percent equity interest in the third quarter of 2012. The guarantees are for the possibility that the third party logistics business would default on real estate lease payments. The guarantees were granted at lease inception, which was prior to the divestiture, and generally will expire at the end of the lease terms.

No loss has been experienced or is anticipated under any of these guarantees.  At March 31, 2014 and December 31, 2013, the related liability was $13 million. The maximum potential amount of future payments (undiscounted and without reduction for any amounts that may possibly be recovered under recourse or collateralized provisions) we could be required to make under the guarantees are as follows:
 
(Millions of dollars)
March 31,
2014
 
December 31,
2013
Caterpillar dealer guarantees
$
201

 
$
193

Customer guarantees
62

 
62

Customer guarantees – supplier consortium
365

 
364

Third party logistics business guarantees
145

 
151

Other guarantees
35

 
35

Total guarantees
$
808

 
$
805

 
 
 
 
 

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Table of Contents

Cat Financial provides guarantees to repurchase certain loans of Caterpillar dealers from a special-purpose corporation (SPC) that qualifies as a variable interest entity.  The purpose of the SPC is to provide short-term working capital loans to Caterpillar dealers.  This SPC issues commercial paper and uses the proceeds to fund its loan program.  Cat Financial has a loan purchase agreement with the SPC that obligates Cat Financial to purchase certain loans that are not paid at maturity.  Cat Financial receives a fee for providing this guarantee, which provides a source of liquidity for the SPC.  Cat Financial is the primary beneficiary of the SPC as their guarantees result in Cat Financial having both the power to direct the activities that most significantly impact the SPC’s economic performance and the obligation to absorb losses, and therefore Cat Financial has consolidated the financial statements of the SPC.  As of March 31, 2014 and December 31, 2013, the SPC’s assets of $981 million and $1,005 million, respectively, are primarily comprised of loans to dealers and the SPC’s liabilities of $981 million and $1,005 million, respectively, are primarily comprised of commercial paper.  The assets of the SPC are not available to pay Cat Financial's creditors. Cat Financial may be obligated to perform under the guarantee if the SPC experiences losses. No loss has been experienced or is anticipated under this loan purchase agreement.

Our product warranty liability is determined by applying historical claim rate experience to the current field population and dealer inventory.  Generally, historical claim rates are based on actual warranty experience for each product by machine model/engine size by customer or dealer location (inside or outside North America).  Specific rates are developed for each product shipment month and are updated monthly based on actual warranty claim experience.  

(Millions of dollars)
2014
Warranty liability, January 1
$
1,367

Reduction in liability (payments)
(278
)
Increase in liability (new warranties)
288

Warranty liability, March 31
$
1,377

 
 

 
(Millions of dollars)
2013
Warranty liability, January 1
$
1,477

Reduction in liability (payments)
(938
)
Increase in liability (new warranties)
828

Warranty liability, December 31
$
1,367

 
 


11.                               Profit Per Share
 
Computations of profit per share:
Three Months Ended
March 31,
(Dollars in millions except per share data)
2014
 
2013
Profit for the period (A) 1:
$
922

 
$
880

Determination of shares (in millions):
 
 
 
Weighted-average number of common shares outstanding (B)
626.7

 
656.2

Shares issuable on exercise of stock awards, net of shares assumed to be purchased out of proceeds at average market price
12.6

 
15.4

Average common shares outstanding for fully diluted computation (C) 2
639.3

 
671.6

Profit per share of common stock:
 
 
 
Assuming no dilution (A/B)
$
1.47

 
$
1.34

Assuming full dilution (A/C) 2
$
1.44

 
$
1.31

Shares outstanding as of March 31 (in millions)
624.2

 
657.5


1 
Profit attributable to common stockholders.
2 
Diluted by assumed exercise of stock-based compensation awards using the treasury stock method.
 
 
 
 
 


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SARs and stock options to purchase 10,415,733 and 10,312,876 common shares were outstanding for the three months ended March 31, 2014 and 2013, respectively, which were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive.

In February 2007, the Board of Directors authorized the repurchase of $7.5 billion of Caterpillar common stock (the 2007 Authorization), and in December 2011, the 2007 Authorization was extended through December 2015. In January 2014, we completed the 2007 Authorization and entered into a definitive agreement with Citibank, N.A. to purchase shares of our common stock under an accelerated stock repurchase transaction (January ASR Agreement), which was completed in March 2014. In accordance with the terms of the January ASR Agreement, a total of approximately 18.1 million shares of our common stock were repurchased at an aggregate cost to Caterpillar of approximately $1.7 billion.

In January 2014, the Board approved a new authorization to repurchase up to $10 billion of Caterpillar common stock, which will expire on December 31, 2018.

12.                             Accumulated Other Comprehensive Income (Loss)

Comprehensive income and its components are presented in the Consolidated Statement of Comprehensive Income. Changes in Accumulated other comprehensive income (loss), net of tax, included in the Consolidated Statement of Changes in Stockholders’ Equity, consisted of the following:

(Millions of dollars)
 
Foreign currency translation
 
Pension and other postretirement benefits
 
Derivative financial instruments
 
Available-for-sale securities
 
Total
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2014
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2013
 
$
176

 
$
(4,152
)
 
$
(5
)
 
$
83

 
$
(3,898
)
Other comprehensive income (loss) before reclassifications
 
40

 

 
(16
)
 
8

 
32

Amounts reclassified from accumulated other comprehensive (income) loss
 

 
80

 
(5
)
 
(10
)
 
65

Other comprehensive income (loss)
 
40

 
80

 
(21
)
 
(2
)
 
97

Balance at March 31, 2014
 
$
216

 
$
(4,072
)
 
$
(26
)
 
$
81

 
$
(3,801
)
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2013
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2012
 
$
456

 
$
(6,914
)
 
$
(42
)
 
$
67

 
$
(6,433
)
Other comprehensive income (loss) before reclassifications
 
(366
)
 
15

 
(31
)
 
15

 
(367
)
Amounts reclassified from accumulated other comprehensive (income) loss
 

 
121

 
11

 
(1
)
 
131

Other comprehensive income (loss)
 
(366
)
 
136

 
(20
)
 
14

 
(236
)
Balance at March 31, 2013
 
$
90

 
$
(6,778
)
 
$
(62
)
 
$
81

 
$
(6,669
)
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
The effect of the reclassifications out of Accumulated other comprehensive income (loss) on the Consolidated Statement of Results of Operations is as follows:

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Table of Contents

 
 
 
 
 
 
 
(Millions of dollars)
 
Classification of
income (expense)
 
Three Months Ended March 31, 2014
 
Three Months Ended March 31, 2013
 
 
 
 
 
 
 
Pension and other postretirement benefits:
 
 
 
 
 
 
Amortization of actuarial gain (loss)
 
Note 9 1
 
$
(130
)
 
$
(196
)
Amortization of prior service credit (cost)
 
Note 9 1
 
9

 
14

Amortization of transition asset (obligation)
 
Note 9 1
 

 
(1
)
Reclassifications before tax
 
(121
)
 
(183
)
Tax (provision) benefit
 
41

 
62

Reclassifications net of tax
 
$
(80
)
 
$
(121
)
 
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
 
Foreign exchange contracts
 
Other income (expense)
 
$
10

 
$
(17
)
Interest rate contracts
 
Other income (expense)
 
(1
)
 

Interest rate contracts
 
Interest expense of Financial Products
 
(1
)
 
(1
)
Reclassifications before tax
 
8

 
(18
)
Tax (provision) benefit
 
(3
)
 
7

Reclassifications net of tax
 
$
5

 
$
(11
)
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
Realized gain (loss) on sale of securities
 
Other income (expense)
 
$
14

 
$
1

Tax (provision) benefit
 
(4
)
 

Reclassifications net of tax
 
$
10

 
$
1

 
 
 
 
 
 
 
Total reclassifications from Accumulated other comprehensive income (loss)
 
$
(65
)
 
$
(131
)

1    Amounts are included in the calculation of net periodic benefit cost. See Note 9 for additional information.
 
 
 
 
 
 
 
 
 
 
 
 
13.                              Environmental and Legal Matters

The company is regulated by federal, state and international environmental laws governing our use, transport and disposal of substances and control of emissions. In addition to governing our manufacturing and other operations, these laws often impact the development of our products, including, but not limited to, required compliance with air emissions standards applicable to internal combustion engines. We have made, and will continue to make, significant research and development and capital expenditures to comply with these emissions standards.
 
We are engaged in remedial activities at a number of locations, often with other companies, pursuant to federal and state laws.  When it is probable we will pay remedial costs at a site, and those costs can be reasonably estimated, the investigation, remediation, and operating and maintenance costs are accrued against our earnings.  Costs are accrued based on consideration of currently available data and information with respect to each individual site, including available technologies, current applicable laws and regulations, and prior remediation experience. Where no amount within a range of estimates is more likely, we accrue the minimum. Where multiple potentially responsible parties are involved, we consider our proportionate share of the probable costs. In formulating the estimate of probable costs, we do not consider amounts expected to be recovered from insurance companies or others.  We reassess these accrued amounts on a quarterly basis. The amount recorded for environmental remediation is not material and is included in Accrued expenses in the Consolidated Statement of Financial Position. There is no more than a remote chance that a material amount for remedial activities at any individual site, or at all the sites in the aggregate, will be required.

On March 20, 2014, Brazil’s Administrative Council for Economic Defense (CADE) published a Technical Opinion which named 18 companies and over 100 individuals as defendants, including two subsidiaries of Caterpillar Inc., MGE - Equipamentos e Serviços Ferroviários Ltda. (MGE) and Caterpillar Brasil Ltda. The publication of the Technical Opinion opened CADE's official administrative investigation into allegations that the defendants participated in anticompetitive bid activity for the construction and maintenance of metro and train networks in Brazil. While companies cannot be held

25

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criminally liable for anticompetitive conduct in Brazil, criminal charges have been brought against one current and one former employee of MGE involving the same conduct alleged by CADE. The Company has responded to all requests for information from the authorities. The Company is unable to predict the outcome or reasonably estimate the potential loss; however, we currently believe that this matter will not have a material adverse effect on the Company's consolidated results of operation, financial position or liquidity.

On February 19, 2014, Progress Rail Services Corporation (Progress Rail), a wholly-owned subsidiary of Caterpillar Inc., received information from the California Air Resources Board (CARB) Enforcement Division indicating it is contemplating an enforcement proceeding with potential monetary sanctions in excess of $100,000 in connection with a notice of violation received by Progress Rail on March 15, 2013 alleging violations of air emissions regulations applicable to compression ignition mobile cargo handling equipment operating at California ports or intermodal rail yards. Despite uncertainty regarding the applicability of these regulations, Progress Rail, in coordination with CARB, implemented certain corrective action measures. Progress Rail is cooperating with CARB to resolve this matter. The Company is unable to predict the outcome; however, we currently believe that this matter will not have a material adverse effect on the Company's consolidated results of operation, financial position or liquidity.

On October 24, 2013, Progress Rail received a grand jury subpoena from the U.S. District Court for the Central District of California. The subpoena requests documents and information from Progress Rail, United Industries Corporation, a wholly-owned subsidiary of Progress Rail, and Caterpillar Inc. relating to allegations that Progress Rail conducted improper or unnecessary railcar inspections and repairs and improperly disposed of parts, equipment, tools and other items. In connection with this subpoena, Progress Rail was informed by the U.S. Attorney for the Central District of California that it is a target of a criminal investigation into potential violations of environmental laws and alleged improper business practices. The Company is cooperating with the authorities. The Company is unable to predict the outcome or reasonably estimate the potential loss; however, we currently believe that this matter will not have a material adverse effect on the Company's consolidated results of operation, financial position or liquidity.

In addition, we are involved in other unresolved legal actions that arise in the normal course of business. The most prevalent of these unresolved actions involve disputes related to product design, manufacture and performance liability (including claimed asbestos and welding fumes exposure), contracts, employment issues, environmental matters or intellectual property rights.  The aggregate range of reasonably possible losses in excess of accrued liabilities, if any, associated with these unresolved legal actions is not material.  In some cases, we cannot reasonably estimate a range of loss because there is insufficient information regarding the matter.  However, there is no more than a remote chance that any liability arising from these matters would be material.  Although it is not possible to predict with certainty the outcome of these unresolved legal actions, we believe that these actions will not individually or in the aggregate have a material adverse effect on our consolidated results of operations, financial position or liquidity.

14.                              Income Taxes
 
The provision for income taxes reflects an estimated annual tax rate of 29.5 percent for both the first quarter of 2014 and 2013, excluding the items discussed below. The increase from the full-year 2013 rate of 28.5 percent is primarily due to the expiration of the U.S. research and development tax credit.

The provision for income taxes in the first quarter of 2014 also includes a charge of $55 million to correct for an error which resulted in an understatement of tax liabilities for prior years. This error had the effect of overstating profit by $27 million and $28 million for the years ended December 31, 2013 and 2012, respectively. These amounts are not material to the financial statements of any affected period. This charge was offset by a $33 million benefit to reflect a settlement with the U.S. Internal Revenue Service (IRS) related to 1992 through 1994 which resulted in a $16 million benefit to remeasure previously unrecognized tax benefits and a $17 million benefit to adjust related interest, net of tax. The first quarter of 2013 tax provision also included a benefit of $87 million primarily related to the U.S. research and development tax credit that was extended for 2012.


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Table of Contents

It is reasonably possible that the amount of unrecognized tax benefits will change in the next 12 months. The IRS is currently examining our U.S. tax returns for 2007 to 2009 including the impact of a loss carryback to 2005. While we have not yet received a Revenue Agent's Report generally issued at the end of the field examination process, we have received Notices of Proposed Adjustment from the IRS relating to U.S. taxation of profits earned by one of our non-U.S. subsidiaries, Caterpillar SARL, from certain parts transactions and to the disallowance of foreign tax credits incurred in connection with unrelated financings. We disagree with these proposed adjustments, which the IRS did not propose in previous audits of U.S. tax returns in which the same tax positions were taken. To the extent that adjustments are assessed upon completion of the field examination relating to these matters, we would vigorously contest the adjustments in appeals. The completion of the field examination for this audit is expected in the next 12 months. In our major non-U.S. jurisdictions, tax years are typically subject to examination for three to eight years. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial position, liquidity or results of operations. Due to the uncertainty related to the timing and potential outcome of these matters, we can not estimate the range of reasonably possible change in unrecognized tax benefits in the next 12 months.

15.                              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, which was formed during the second quarter of 2013, 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 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 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, 2014, responsibility for paving products, forestry products, industrial and waste products and tunnel boring equipment moved from Resource Industries to the All Other operating segments. The responsibility for select work tools was moved from Resource Industries to Construction Industries, and the responsibility for administration of three wholly-owned dealers in Japan moved from Construction Industries to the All Other operating segments. In addition, restructuring costs in 2013 were included in operating segments and are now a reconciling item between Segment profit and Consolidated profit before taxes. The segment information for 2013 has been retrospectively adjusted to conform to the 2014 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 the 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 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, compact track loaders, medium track-type tractors, track-type loaders, motor graders and pipe layers. In addition, Construction Industries has responsibility for an integrated manufacturing cost center. 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

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Table of Contents

mining trucks, hard rock vehicles, longwall miners, electric rope shovels, draglines, hydraulic shovels, drills, highwall miners, large wheel loaders, off-highway trucks, articulated trucks, wheel tractor scrapers, wheel dozers, select work tools, 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. Inter-segment sales are a source of revenue for this segment.

Energy & Transportation (formerly Power Systems):  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, 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 Caterpillar machinery; the business strategy, product design, product management, development, manufacturing, remanufacturing, 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 operating segments:  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 Cat products, paving products, forestry products, industrial and waste products, and tunnel boring equipment; the product management, development, marketing, sales and product support of on-highway vocational trucks for North America; parts distribution; distribution services responsible for dealer development and administration including three wholly-owned dealers in Japan, dealer portfolio management and ensuring the most efficient and effective distribution of machines, engines and parts. 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 are recorded as a methodology difference.


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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, 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 30 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, 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.

Restructuring costs: Primarily costs for employee severance and long-lived asset impairments. A table, Reconciliation of Restructuring Costs on page 32, has been included to illustrate how segment profit would have been impacted by the restructuring costs. See Note 19 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.

 
Reportable Segments
Three Months Ended March 31,
(Millions of dollars)
 
2014
 
External 
sales and
revenues
 
Inter-
segment 
sales and
revenues
 
Total sales
and 
revenues
 
Depreciation
and 
amortization
 
Segment 
profit
 
Segment
assets at
March 31
 
Capital 
expenditures
Construction Industries
$
5,064

 
$
75

 
$
5,139

 
$
134

 
$
688

 
$
7,061

 
$
64

Resource Industries
2,123

 
113

 
2,236

 
173

 
149

 
10,141

 
24

Energy & Transportation
4,776

 
550

 
5,326

 
156

 
827

 
8,346

 
76

Machinery, Energy & Transportation
$
11,963

 
$
738

 
$
12,701

 
$
463

 
$
1,664

 
$
25,548

 
$
164

Financial Products Segment
817

 

 
817

 
219

 
240

 
37,415

 
269

Total
$
12,780

 
$
738

 
$
13,518

 
$
682

 
$
1,904

 
$
62,963

 
$
433

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2013
 
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
$
4,219

 
$
99

 
$
4,318

 
$
115

 
$
228

 
$
7,607

 
$
100

Resource Industries
3,353

 
128

 
3,481

 
164

 
459

 
10,389

 
100

Energy & Transportation
4,405

 
396

 
4,801

 
151

 
591

 
8,492

 
104

Machinery, Energy & Transportation
$
11,977

 
$
623

 
$
12,600

 
$
430

 
$
1,278

 
$
26,488

 
$
304

Financial Products Segment
795

 

 
795

 
180

 
273

 
36,980

 
320

Total
$
12,772

 
$
623

 
$
13,395

 
$
610

 
$
1,551

 
$
63,468

 
$
624

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

29

Table of Contents

Reconciliation of Sales and revenues:
 
 
 
 
 
 
 
(Millions of dollars)
Machinery,
Energy &
Transportation
 
Financial
Products
 
Consolidating
 Adjustments
 
Consolidated
 Total
Three Months Ended March 31, 2014
 
 
 
 
 
 
 
Total external sales and revenues from reportable segments
$
11,963

 
$
817

 
$

 
$
12,780

All Other operating segments
554

 

 

 
554

Other
(24
)
 
14

 
(83
)
1 
(93
)
Total sales and revenues
$
12,493

 
$
831

 
$
(83
)
 
$
13,241

 
 
 
 
 
 
 
 
Three Months Ended March 31, 2013
 

 
 

 
 

 
 

Total external sales and revenues from reportable segments
$
11,977

 
$
795

 
$

 
$
12,772

All Other operating segments
517

 

 

 
517

Other
(10
)
 
19

 
(88
)
1 
(79
)
Total sales and revenues
$
12,484

 
$
814

 
$
(88
)
 
$
13,210

1  Elimination of Financial Products revenues from Machinery, Energy & Transportation. 
 
 
 
 
 
 
 
 
 
 
 
 

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Table of Contents

Reconciliation of Consolidated profit before taxes:
 
 
 
 
 
(Millions of dollars)
Machinery,
Energy &
Transportation
 
Financial
Products
 
Consolidated
 Total
Three Months Ended March 31, 2014
 
 
 
 
 
Total profit from reportable segments
$
1,664

 
$
240

 
$
1,904

All Other operating segments
235

 

 
235

Cost centers
52

 

 
52

Corporate costs
(366
)
 

 
(366
)
Timing
(41
)
 

 
(41
)
Restructuring costs
(149
)
 

 
(149
)
Methodology differences:
 
 
 

 


Inventory/cost of sales
14

 

 
14

Postretirement benefit expense
(102
)
 

 
(102
)
Financing costs
(114
)
 

 
(114
)
Equity in (profit) loss of unconsolidated affiliated companies
(1
)
 

 
(1
)
Currency
(26
)
 

 
(26
)
Other income/expense methodology differences
(60
)
 

 
(60
)
Other methodology differences
(4
)
 

 
(4
)
Total consolidated profit before taxes
$
1,102

 
$
240

 
$
1,342

 
 
 
 
 
 
Three Months Ended March 31, 2013
 

 
 

 
 

Total profit from reportable segments
$
1,278

 
$
273

 
$
1,551

All Other operating segments
205

 

 
205

Cost centers
40

 

 
40

Corporate costs
(350
)
 

 
(350
)
Timing
54

 

 
54

Restructuring costs
(7
)
 

 
(7
)
Methodology differences:
 
 
 
 


Inventory/cost of sales
(36
)
 

 
(36
)
Postretirement benefit expense
(165
)
 

 
(165
)
Financing costs
(124
)
 

 
(124
)
Equity in (profit) loss of unconsolidated affiliated companies
(1
)
 

 
(1
)
Currency
15

 

 
15

Other income/expense methodology differences
(52
)
 

 
(52
)
Other methodology differences
(20
)
 
17

 
(3
)
Total consolidated profit before taxes
$
837

 
$
290

 
$
1,127

 
 
 
 
 
 
 
 
 
 
 
 


31

Table of Contents

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 March 31, 2014
 
 
 
 
 
 
Construction Industries
 
$
688

 
$
(131
)
 
$
557

Resource Industries
 
149

 
(11
)
 
138

Energy & Transportation
 
827

 
(3
)
 
824

Financial Products Segment
 
240

 

 
240

All Other operating segments
 
235

 
(4
)
 
231

Total
 
$
2,139

 
$
(149
)
 
$
1,990

 
 
 
 
 
 
 
Three Months Ended March 31, 2013
 
 
 
 
 
 
Construction Industries
 
$
228

 
$
(2
)
 
$
226

Resource Industries
 
459

 
(2
)
 
457

Energy & Transportation
 
591

 
(2
)
 
589

Financial Products Segment
 
273

 

 
273

All Other operating segments
 
205

 
(1
)
 
204

Total
 
$
1,756

 
$
(7
)
 
$
1,749

 
 
 
 
 
 
 
 
 
 
 
 
 
 

32

Table of Contents

Reconciliation of Assets:
 
 
 
 
 
 
 
(Millions of dollars)
Machinery,
Energy &
Transportation
 
Financial
Products
 
Consolidating
 Adjustments
 
Consolidated
 Total
March 31, 2014
 
 
 
 
 
 
 
Total assets from reportable segments
$
25,548

 
$
37,415

 
$

 
$
62,963

All Other operating segments
2,717

 

 

 
2,717

Items not included in segment assets:
 

 
 

 
 

 
 

Cash and short-term investments
4,057

 

 

 
4,057

Intercompany receivables
1,223

 

 
(1,223
)
 

Investment in Financial Products
4,919

 

 
(4,919
)
 

Deferred income taxes
2,434

 

 
(488
)
 
1,946

Goodwill and intangible assets
3,881

 

 

 
3,881

Property, plant and equipment – net and other assets
1,298

 

 

 
1,298

Operating lease methodology difference
(191
)
 

 

 
(191
)
Liabilities included in segment assets
10,523

 

 

 
10,523

Inventory methodology differences
(2,544
)
 

 

 
(2,544
)
Other
(95
)
 
(74
)
 
(84
)
 
(253
)
Total assets
$
53,770

 
$
37,341

 
$
(6,714
)
 
$
84,397

 
 
 
 
 
 
 
 
December 31, 2013
 

 
 

 
 

 
 

Total assets from reportable segments
$
26,488

 
$
36,980

 
$

 
$
63,468

All Other operating segments
2,973

 

 

 
2,973

Items not included in segment assets:
 

 
 

 
 

 
 

Cash and short-term investments
4,597

 

 

 
4,597

Intercompany receivables
1,219

 

 
(1,219
)
 

Investment in Financial Products
4,798

 

 
(4,798
)
 

Deferred income taxes
2,541

 

 
(525
)
 
2,016

Goodwill and intangible assets
3,582

 

 

 
3,582

Property, plant and equipment – net and other assets
1,175

 

 

 
1,175

Operating lease methodology difference
(273
)
 

 

 
(273
)
Liabilities included in segment assets
10,357

 

 

 
10,357

Inventory methodology differences
(2,539
)
 

 

 
(2,539
)
Other
(214
)
 
(135
)
 
(111
)
 
(460
)
Total assets
$
54,704

 
$
36,845

 
$
(6,653
)
 
$
84,896

 
 
 
 
 
 
 
 

33

Table of Contents

 
Reconciliations of Depreciation and amortization:
 
 
 
 
 
(Millions of dollars)
Machinery,
Energy &
Transportation
 
Financial
Products
 
Consolidated
 Total
Three Months Ended March 31, 2014
 
 
 
 
 
Total depreciation and amortization from reportable segments
$
463

 
$
219

 
$
682

Items not included in segment depreciation and amortization:
 

 
 

 
 

All Other operating segments
66

 

 
66

Cost centers
37

 

 
37

Other
(10
)
 
6

 
(4
)
Total depreciation and amortization
$
556

 
$
225

 
$
781

 
 
 
 
 
 
Three Months Ended March 31, 2013
 

 
 

 
 

Total depreciation and amortization from reportable segments
$
430

 
$
180

 
$
610

Items not included in segment depreciation and amortization:
 

 
 

 
 

All Other operating segments
79

 

 
79

Cost centers
36

 

 
36

Other
(7
)
 
5

 
(2
)
Total depreciation and amortization
$
538

 
$
185

 
$
723

 
 
 
 
 
 
 
 
 
 
 
 
Reconciliations of Capital expenditures:
 
 
 
 
 
 
 
(Millions of dollars)
Machinery,
Energy &
Transportation
 
Financial
Products
 
Consolidating
 Adjustments
 
Consolidated
 Total
Three Months Ended March 31, 2014
 

 
 

 
 

 
 

Total capital expenditures from reportable segments
$
164

 
$
269

 
$

 
$
433

Items not included in segment capital expenditures:
 

 
 

 
 

 
 

All Other operating segments
38

 

 

 
38

Cost centers
21

 

 

 
21

Timing
267

 

 

 
267

Other
(21
)
 
24

 
(23
)
 
(20
)
Total capital expenditures
$
469

 
$
293

 
$
(23
)
 
$
739

 
 
 
 
 
 
 
 
Three Months Ended March 31, 2013
 

 
 

 
 

 
 

Total capital expenditures from reportable segments
$
304

 
$
320

 
$

 
$
624

Items not included in segment capital expenditures:
 

 
 

 
 

 
 

All Other operating segments
64

 

 

 
64

Cost centers
35

 

 

 
35

Timing
534

 

 

 
534

Other
(24
)
 
16

 
(17
)
 
(25
)
Total capital expenditures
$
913

 
$
336

 
$
(17
)
 
$
1,232

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


34

Table of Contents

16.                             Cat Financial Financing Activities
 
Credit quality of financing receivables and allowance for credit losses
 
Cat Financial applies a systematic methodology to determine the allowance for credit losses for finance receivables.  Based upon Cat Financial’s analysis of credit losses and risk factors, portfolio segments are as follows:

Customer – Finance receivables with retail customers.
Dealer – Finance receivables with Caterpillar dealers.
 
Cat Financial further evaluates portfolio segments by the class of finance receivables, which is defined as a level of information (below a portfolio segment) in which the finance receivables have the same initial measurement attribute and a similar method for assessing and monitoring credit risk.  Typically, Cat Financial’s finance receivables within a geographic area have similar credit risk profiles and methods for assessing and monitoring credit risk.  Cat Financial’s classes, which align with management reporting for credit losses, are as follows:
 
North America – Finance receivables originated in the United States or Canada.
Europe – Finance receivables originated in Europe, Africa, Middle East and the Commonwealth of Independent States.
Asia Pacific – Finance receivables originated in Australia, New Zealand, China, Japan, South Korea and Southeast Asia.
Mining – Finance receivables related to large mining customers worldwide.
Latin America – Finance receivables originated in Central and South American countries and Mexico.
Caterpillar Power Finance – Finance receivables related to marine vessels with Caterpillar engines worldwide and Caterpillar electrical power generation, gas compression and co-generation systems and non-Caterpillar equipment that is powered by these systems worldwide.
 
Impaired loans and finance leases
For all classes, a loan or finance lease is considered impaired, based on current information and events, if it is probable that Cat Financial will be unable to collect all amounts due according to the contractual terms of the loan or finance lease.  Loans and finance leases reviewed for impairment include loans and finance leases that are past due, non-performing or in bankruptcy. Recognition of income is suspended and the loan or finance lease is placed on non-accrual status when management determines that collection of future income is not probable (generally after 120 days past due except in locations where local regulatory requirements dictate a different method, or in instances in which relevant information is known that warrants placing the loan or finance lease on non-accrual status).  Accrual is resumed, and previously suspended income is recognized, when the loan or finance lease becomes contractually current and/or collection doubts are removed.  Cash receipts on impaired loans or finance leases are recorded against the receivable and then to any unrecognized income.

During the second quarter of 2013, Cat Financial changed the classification of certain loans and finance leases previously reported as impaired. While these loans and finance leases had been incorrectly reported as impaired, the related allowance for these loans and finance leases was appropriately measured; therefore, this change had no impact on the allowance for credit losses. The impact of incorrectly reporting these loans and finance leases as impaired was not considered material to previously issued financial statements; however, prior period impaired loan and finance lease balances have been revised.
 
There were no impaired loans or finance leases as of March 31, 2014 or December 31, 2013, for the Dealer portfolio segment.  The average recorded investment for impaired loans and finance leases for the Dealer portfolio segment was zero for the three months ended March 31, 2014 and 2013.
 
Individually impaired loans and finance leases for the Customer portfolio segment were as follows: 

35

Table of Contents

 
March 31, 2014
 
December 31, 2013
(Millions of dollars)
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
Impaired Loans and Finance Leases With No Allowance Recorded
 

 
 

 
 

 
 

 
 

 
 

Customer
 

 
 

 
 

 
 

 
 

 
 

North America
$
24

 
$
23

 
$

 
$
23

 
$
22

 
$

Europe
47

 
47

 

 
48

 
47

 

Asia Pacific
5

 
5

 

 
7

 
7

 

Mining
133

 
133

 

 
134

 
134

 

Latin America
37

 
37

 

 
11

 
11

 

Caterpillar Power Finance
156

 
156

 

 
223

 
222

 

Total
$
402

 
$
401

 
$

 
$
446

 
$
443

 
$

 
 
 
 
 
 
 
 
 
 
 
 
Impaired Loans and Finance Leases With An Allowance Recorded
 

 
 

 
 

 
 

 
 

 
 

Customer
 

 
 

 
 

 
 

 
 

 
 

North America
$
8

 
$
8

 
$
3

 
$
13

 
$
13

 
$
4

Europe
17

 
16

 
6

 
20

 
19

 
7

Asia Pacific
11

 
11

 
3

 
16

 
16

 
2

Mining
32

 
32

 
12

 

 

 

Latin America
28

 
28

 
8

 
23

 
23

 
6

Caterpillar Power Finance
55

 
54

 
18

 
110

 
106

 
51

Total
$
151

 
$
149

 
$
50

 
$
182

 
$
177

 
$
70

 
 
 
 
 
 
 
 
 
 
 
 
Total Impaired Loans and Finance Leases
 

 
 

 
 

 
 

 
 

 
 

Customer
 

 
 

 
 

 
 

 
 

 
 

North America
$
32

 
$
31

 
$
3

 
$
36

 
$
35


$
4

Europe
64

 
63

 
6

 
68

 
66


7

Asia Pacific
16

 
16

 
3

 
23

 
23


2

Mining
165

 
165

 
12

 
134

 
134

 

Latin America
65

 
65

 
8

 
34

 
34


6

Caterpillar Power Finance
211

 
210

 
18

 
333

 
328


51

Total
$
553

 
$
550

 
$
50

 
$
628

 
$
620

 
$
70

 
 
 
 
 
 
 
 
 
 
 
 


36

Table of Contents

 
Three Months Ended
March 31, 2014
 
Three Months Ended
March 31, 2013
(Millions of dollars)
Average Recorded
Investment
 
Interest Income
Recognized
 
Average Recorded
Investment
 
Interest Income
Recognized
Impaired Loans and Finance Leases With No Allowance Recorded
 

 
 

 
 

 
 

Customer
 

 
 

 
 

 
 

North America
$
25

 
$
1

 
$
28

 
$
1

Europe
48

 

 
45

 

Asia Pacific
6

 

 
4

 

Mining
134

 
2

 

 

Latin America
17

 

 
9

 

Caterpillar Power Finance
205

 
2

 
285

 

Total
$
435

 
$
5

 
$
371

 
$
1

 
 
 
 
 
 
 
 
Impaired Loans and Finance Leases With An Allowance Recorded
 

 
 

 
 

 
 

Customer
 

 
 

 
 

 
 

North America
$
10

 
$

 
$
24

 
$

Europe
19

 

 
34

 

Asia Pacific
14

 

 
26

 
1

Mining
24

 

 
19

 

Latin America
24

 

 
52

 
1

Caterpillar Power Finance
82

 
1

 
128

 

Total
$
173

 
$
1

 
$
283

 
$
2

 
 
 
 
 
 
 
 
Total Impaired Loans and Finance Leases
 

 
 

 
 

 
 

Customer
 

 
 

 
 

 
 

North America
$
35

 
$
1

 
$
52

 
$
1

Europe
67

 

 
79

 

Asia Pacific
20

 

 
30

 
1

Mining
158

 
2

 
19

 

Latin America
41

 

 
61

 
1

Caterpillar Power Finance
287

 
3

 
413

 

Total
$
608

 
$
6

 
$
654

 
$
3

 
 
 
 
 
 
 
 
 
Non-accrual and past due loans and finance leases
For all classes, Cat Financial considers a loan or finance lease past due if any portion of a contractual payment is due and unpaid for more than 30 days.  Recognition of income is suspended and the loan or finance lease is placed on non-accrual status when management determines that collection of future income is not probable (generally after 120 days past due except in locations where local regulatory requirements dictate a different method, or in instances in which relevant information is known that warrants placing the loan or finance lease on non-accrual status).  Accrual is resumed, and previously suspended income is recognized, when the loan or finance lease becomes contractually current and/or collection doubts are removed.
 
As of March 31, 2014 and December 31, 2013, there were no loans or finance leases on non-accrual status for the Dealer portfolio segment.
 
The investment in customer loans and finance leases on non-accrual status was as follows:
 

37

Table of Contents

(Millions of dollars)
 
 
 
 
March 31, 2014
 
December 31, 2013
Customer
 

 
 

North America
$
29

 
$
26

Europe
31

 
28

Asia Pacific
57

 
50

Mining
21

 
23

Latin America
165

 
179

Caterpillar Power Finance
82

 
119

Total
$
385

 
$
425

 
 
 
 

Aging related to loans and finance leases was as follows: 
(Millions of dollars)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2014
 
31-60
Days
Past Due
 
61-90
Days
Past Due
 
91+
Days
Past Due
 
Total Past
Due
 
Current
 
Total
Finance
Receivables
 
91+ Still
Accruing
Customer
 

 
 

 
 

 
 

 
 

 
 

 
 

North America
$
38

 
$
14

 
$
30

 
$
82

 
$
6,620

 
$
6,702

 
$
1

Europe
31

 
19

 
35

 
85

 
2,786

 
2,871

 
6

Asia Pacific
54

 
28

 
91

 
173

 
2,680

 
2,853

 
35

Mining

 

 
11

 
11

 
2,193

 
2,204

 

Latin America
85

 
39

 
143

 
267

 
2,598

 
2,865

 
4

Caterpillar Power Finance
27

 
19

 
102

 
148

 
2,960

 
3,108

 
24

Dealer
 

 
 

 
 

 


 
 

 


 
 

North America

 

 

 

 
2,312

 
2,312

 

Europe

 

 

 

 
157

 
157

 

Asia Pacific

 

 

 

 
600

 
600

 

Latin America

 

 

 

 
734

 
734

 

Total
$
235

 
$
119

 
$
412

 
$
766

 
$
23,640

 
$
24,406

 
$
70

 
 
 
 
 
 
 
 
 
 
 
 
 
 

(Millions of dollars)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
31-60
Days
Past Due
 
61-90
Days
Past Due
 
91+
Days
Past Due
 
Total Past
Due
 
Current
 
Total
Finance
Receivables
 
91+ Still
Accruing
Customer
 

 
 

 
 

 
 

 
 

 
 

 
 

North America
$
37

 
$
12

 
$
24

 
$
73

 
$
6,508

 
$
6,581

 
$

Europe
26

 
15

 
29

 
70

 
2,805

 
2,875

 
6

Asia Pacific
54

 
23

 
59

 
136

 
2,752

 
2,888

 
11

Mining
3

 

 
12

 
15

 
2,128

 
2,143

 

Latin America
54

 
25

 
165

 
244

 
2,474

 
2,718

 
5

Caterpillar Power Finance
55

 
30

 
60

 
145

 
2,946

 
3,091

 

Dealer
 

 
 

 
 

 
 

 
 

 
 

 
 

North America

 

 

 

 
2,283

 
2,283

 

Europe

 

 

 

 
150

 
150

 

Asia Pacific

 

 

 

 
583

 
583

 

Mining

 

 

 

 
1

 
1

 

Latin America

 

 

 

 
748

 
748

 

Total
$
229

 
$
105

 
$
349

 
$
683

 
$
23,378

 
$
24,061

 
$
22

 
 
 
 
 
 
 
 
 
 
 
 
 
 



38

Table of Contents

Allowance for credit loss activity
An analysis of the allowance for credit losses was as follows:
 
(Millions of dollars)
 
 
 
 
 
 
March 31, 2014
Allowance for Credit Losses:
Customer
 
Dealer
 
Total
Balance at beginning of year
$
365

 
$
10

 
$
375

Receivables written off
(52
)
 

 
(52
)
Recoveries on receivables previously written off
14

 

 
14

Provision for credit losses
32

 

 
32

Balance at end of period
$
359

 
$
10

 
$
369

 
 

 
 

 
 

Individually evaluated for impairment
$
50

 
$

 
$
50

Collectively evaluated for impairment
309

 
10

 
319

Ending Balance
$
359

 
$
10

 
$
369

 
 
 
 
 
 
Recorded Investment in Finance Receivables:
 

 
 

 
 

Individually evaluated for impairment
$
553

 
$

 
$
553

Collectively evaluated for impairment
20,050

 
3,803

 
23,853

Ending Balance
$
20,603

 
$
3,803

 
$
24,406

 
 
 
 
 
 
(Millions of dollars)
 
 
 
 
 
 
December 31, 2013
Allowance for Credit Losses:
Customer
 
Dealer
 
Total
Balance at beginning of year
$
414

 
$
9

 
$
423

Receivables written off
(179
)
 

 
(179
)
Recoveries on receivables previously written off
56

 

 
56

Provision for credit losses
83

 
1

 
84

Other
(9
)
 

 
(9
)
Balance at end of year
$
365

 
$
10

 
$
375

 
 
 
 
 
 
Individually evaluated for impairment
$
70

 
$

 
$
70

Collectively evaluated for impairment
295

 
10

 
305

Ending Balance
$
365

 
$
10

 
$
375

 
 
 
 
 
 
Recorded Investment in Finance Receivables:
 

 
 

 
 

Individually evaluated for impairment
$
628

 
$

 
$
628

Collectively evaluated for impairment
19,668

 
3,765

 
23,433

Ending Balance
$
20,296

 
$
3,765

 
$
24,061

 
 
 
 
 
 
 
Credit quality of finance receivables
The credit quality of finance receivables is reviewed on a monthly basis.  Credit quality indicators include performing and non-performing.  Non-performing is defined as finance receivables currently over 120 days past due and/or on non-accrual status or in bankruptcy.  Finance receivables not meeting the criteria listed above are considered performing.  Non-performing receivables have the highest probability for credit loss.  The allowance for credit losses attributable to non-performing receivables is based on the most probable source of repayment, which is normally the liquidation of collateral.  In determining collateral value, Cat Financial estimates the current fair market value of the collateral less selling costs. In addition, Cat Financial considers credit enhancements such as additional collateral and contractual third-party guarantees in determining the allowance for credit losses attributable to non-performing receivables.

The recorded investment in performing and non-performing finance receivables was as follows: 

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(Millions of dollars)
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2014
 
December 31, 2013
 
Customer
 
Dealer
 
Total
 
Customer
 
Dealer
 
Total
Performing
 

 
 

 
 

 
 

 
 

 
 

North America
$
6,673

 
$
2,312

 
$
8,985

 
$
6,555

 
$
2,283

 
$
8,838

Europe
2,840

 
157

 
2,997

 
2,847

 
150

 
2,997

Asia Pacific
2,796

 
600

 
3,396

 
2,838

 
583

 
3,421

Mining
2,183

 

 
2,183

 
2,120

 
1

 
2,121

Latin America
2,700

 
734

 
3,434

 
2,539

 
748

 
3,287

Caterpillar Power Finance
3,026

 

 
3,026

 
2,972

 

 
2,972

Total Performing
$
20,218

 
$
3,803

 
$
24,021

 
$
19,871

 
$
3,765

 
$
23,636

 
 
 
 
 
 
 
 
 
 
 
 
Non-Performing
 

 
 

 
 

 
 

 
 

 
 

North America
$
29

 
$

 
$
29

 
$
26

 
$

 
$
26

Europe
31

 

 
31

 
28

 

 
28

Asia Pacific
57

 

 
57

 
50

 

 
50

Mining
21

 

 
21

 
23

 

 
23

Latin America
165

 

 
165

 
179

 

 
179

Caterpillar Power Finance
82

 

 
82

 
119

 

 
119

Total Non-Performing
$
385

 
$

 
$
385

 
$
425

 
$

 
$
425

 
 
 
 
 
 
 
 
 
 
 
 
Performing & Non-Performing
 

 
 

 
 

 
 

 
 

 
 

North America
$
6,702

 
$
2,312

 
$
9,014

 
$
6,581

 
$
2,283

 
$
8,864

Europe
2,871

 
157

 
3,028

 
2,875

 
150

 
3,025

Asia Pacific
2,853

 
600

 
3,453

 
2,888

 
583

 
3,471

Mining
2,204

 

 
2,204

 
2,143

 
1

 
2,144

Latin America
2,865

 
734

 
3,599

 
2,718

 
748

 
3,466

Caterpillar Power Finance
3,108

 

 
3,108

 
3,091

 

 
3,091

Total
$
20,603

 
$
3,803

 
$
24,406

 
$
20,296

 
$
3,765

 
$
24,061

 
 
 
 
 
 
 
 
 
 
 
 

Troubled Debt Restructurings
A restructuring of a loan or finance lease receivable constitutes a troubled debt restructuring (TDR) when the lender grants a concession it would not otherwise consider to a borrower experiencing financial difficulties.  Concessions granted may include extended contract maturities, inclusion of interest only periods, below market interest rates, and extended skip payment periods.
 
TDRs are reviewed along with other receivables as part of management’s ongoing evaluation of the adequacy of the allowance for credit losses.  The allowance for credit losses attributable to TDRs is based on the most probable source of repayment, which is normally the liquidation of collateral.  In determining collateral value, Cat Financial estimates the current fair market value of the collateral less selling costs. In addition, Cat Financial considers credit enhancements such as additional collateral and contractual third-party guarantees in determining the allowance for credit losses attributable to TDRs.
 
There were no loans or finance lease receivables modified as TDRs during the three months ended March 31, 2014 or 2013 for the Dealer portfolio segment.
 
Loan and finance lease receivables in the Customer portfolio segment modified as TDRs during the three months ended March 31, 2014 and 2013, were as follows:

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(Dollars in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2014
 
Three Months Ended March 31, 2013
 
 
Number 
of
Contracts
 
Pre-TDR
Outstanding
Recorded
Investment
 
Post-TDR
Outstanding
Recorded
Investment
 
Number 
of
Contracts
 
Pre-TDR
Outstanding
Recorded
Investment
 
Post-TDR
Outstanding
Recorded
Investment
Customer
 
 

 
 

 
 

 
 

 
 
 
 

North America
 
3

 
$
2

 
$
2

 
10

 
$
2

 
$
2

Europe
 
3

 
5

 
5

 

 

 

Mining
 
1

 
11

 
10

 

 

 

Latin America
 
1

 
29

 
28

 

 

 

Caterpillar Power Finance 1
 
1

 
1

 
1

 
4

 
36

 
37

Total 2
 
9

 
$
48

 
$
46

 
14

 
$
38

 
$
39

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1 
During the three months ended March 31, 2014, there were no additional funds subsequently loaned to a borrower whose terms had been modified in a TDR. During the three months ended March 31, 2013, $5 million of additional funds were subsequently loaned to a borrower whose terms had been modified in a TDR.  The $5 million of additional funds is not reflected in the table above as no incremental modifications have been made with the borrower during the period presented.  At March 31, 2014, remaining commitments to lend additional funds to a borrower whose terms have been modified in a TDR were $3 million.
2 
Modifications include extended contract maturities, inclusion of interest only periods, below market interest rates, and extended skip payment periods.
 

TDRs in the Customer portfolio segment with a payment default during the three months ended March 31, 2014 and 2013, which had been modified within twelve months prior to the default date, were as follows: 
(Dollars in millions)
Three Months Ended March 31, 2014
 
Three Months Ended March 31, 2013
 
Number of
Contracts
 
Post-TDR
Recorded
Investment
 
Number of
Contracts
 
Post-TDR
Recorded
Investment
Customer
 

 
 

 
 
 
 
North America
7

 
$
1

 
8

 
$
2

Europe
7

 
1

 

 

Caterpillar Power Finance

 

 
2

 
3

Total
14

 
$
2

 
10

 
$
5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

17.                              Fair Value Measurements
 
A. Fair value measurements
 
The guidance on fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.  This guidance also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques.  Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions.  In accordance with this guidance, fair value measurements are classified under the following hierarchy:
 
Level 1 Quoted prices for identical instruments in active markets.

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets.

Level 3 – Model-derived valuations in which one or more significant inputs or significant value-drivers are unobservable.

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When available, we use quoted market prices to determine fair value, and we classify such measurements within Level 1.  In some cases where market prices are not available, we make use of observable market based inputs to calculate fair value, in which case the measurements are classified within Level 2.  If quoted or observable market prices are not available, fair value is based upon internally developed models that use, where possible, current market-based parameters such as interest rates, yield curves and currency rates.  These measurements are classified within Level 3.
 
Fair value measurements are classified according to the lowest level input or value-driver that is significant to the valuation.  A measurement may therefore be classified within Level 3 even though there may be significant inputs that are readily observable.
 
Fair value measurement includes the consideration of nonperformance risk.  Nonperformance risk refers to the risk that an obligation (either by a counterparty or Caterpillar) will not be fulfilled.  For financial assets traded in an active market (Level 1 and certain Level 2), the nonperformance risk is included in the market price.  For certain other financial assets and liabilities (certain Level 2 and Level 3), our fair value calculations have been adjusted accordingly.
 
Available-for-sale securities
Our available-for-sale securities, primarily at Insurance Services, include a mix of equity and debt instruments (see Note 8 for additional information).  Fair values for our U.S. treasury bonds and equity securities are based upon valuations for identical instruments in active markets.  Fair values for other government bonds, corporate bonds and mortgage-backed debt securities are based upon models that take into consideration such market-based factors as recent sales, risk-free yield curves and prices of similarly rated bonds.
 
Derivative financial instruments
The fair value of interest rate swap derivatives is primarily based on models that utilize the appropriate market-based forward swap curves and zero-coupon interest rates to determine discounted cash flows.  The fair value of foreign currency and commodity forward, option and cross currency contracts is based on a valuation model that discounts cash flows resulting from the differential between the contract price and the market-based forward rate.
 
Guarantees
The fair value of guarantees is based upon our estimate of the premium a market participant would require to issue the same guarantee in a stand-alone arms-length transaction with an unrelated party. If quoted or observable market prices are not available, fair value is based upon internally developed models that utilize current market-based assumptions.

Assets and liabilities measured on a recurring basis at fair value, primarily related to Financial Products, included in our Consolidated Statement of Financial Position as of March 31, 2014 and December 31, 2013 are summarized below:
 

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(Millions of dollars)
March 31, 2014
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets / Liabilities,
at Fair Value
Assets
 

 
 

 
 

 
 

Available-for-sale securities
 

 
 

 
 

 
 

Government debt
 

 
 

 
 

 
 

U.S. treasury bonds
$
10

 
$

 
$

 
$
10

Other U.S. and non-U.S. government bonds

 
118

 

 
118

Corporate bonds
 

 
 

 
 

 
 

Corporate bonds

 
651

 

 
651

Asset-backed securities

 
77

 

 
77

Mortgage-backed debt securities
 

 
 

 
 

 
 

U.S. governmental agency

 
326

 

 
326

Residential

 
18

 

 
18

Commercial

 
76

 

 
76

Equity securities
 

 
 

 
 

 
 

Large capitalization value
238

 

 

 
238

Smaller company growth
48

 

 

 
48

Total available-for-sale securities
296

 
1,266

 

 
1,562

Derivative financial instruments, net

 
97

 

 
97

Total Assets
$
296

 
$
1,363

 
$

 
$
1,659

Liabilities
 

 
 

 
 

 
 

Guarantees
$

 
$

 
$
13

 
$
13

Total Liabilities
$

 
$

 
$
13

 
$
13

 
 
 
 
 
 
 
 
 
(Millions of dollars)
December 31, 2013
 
Level 1
 
Level 2
 
Level 3
 
Total
 Assets / Liabilities,
 at Fair Value
Assets
 

 
 

 
 

 
 

Available-for-sale securities
 

 
 

 
 

 
 

Government debt
 

 
 

 
 

 
 

U.S. treasury bonds
$
10

 
$

 
$

 
$
10

Other U.S. and non-U.S. government bonds

 
120

 

 
120

Corporate bonds
 

 
 

 
 

 
 

Corporate bonds

 
633

 

 
633

Asset-backed securities

 
72

 

 
72

Mortgage-backed debt securities
 

 
 

 
 

 
 

U.S. governmental agency

 
321

 

 
321

Residential

 
18

 

 
18

Commercial

 
93

 

 
93

Equity securities
 

 
 

 
 

 
 

Large capitalization value
254

 

 

 
254

Smaller company growth
49

 

 

 
49

Total available-for-sale securities
313

 
1,257

 

 
1,570

Derivative financial instruments, net

 
161

 

 
161

Total Assets
$
313

 
$
1,418

 
$

 
$
1,731

Liabilities
 

 
 

 
 

 
 

Guarantees
$

 
$

 
$
13

 
$
13

Total Liabilities
$

 
$

 
$
13

 
$
13

 
 
 
 
 
 
 
 


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Below are roll-forwards of liabilities measured at fair value using Level 3 inputs for the three months ended March 31, 2014 and 2013.  These instruments were valued using pricing models that, in management’s judgment, reflect the assumptions of a marketplace participant.
 
(Millions of dollars)
 
Guarantees
Balance at December 31, 2013
 
$
13

Issuance of guarantees
 

Expiration of guarantees
 

Balance at March 31, 2014
 
$
13

 
 
 
Balance at December 31, 2012
 
$
14

Issuance of guarantees
 
5

Expiration of guarantees
 
(3
)
Balance at March 31, 2013
 
$
16

 
 
 
 
In addition to the amounts above, Cat Financial impaired loans are subject to measurement at fair value on a nonrecurring basis. A loan is considered impaired when management determines that collection of contractual amounts due is not probable.  In these cases, an allowance for credit losses may be established based primarily on the fair value of associated collateral.  As the collateral’s fair value is based on observable market prices and/or current appraised values, the impaired loans are classified as Level 2 measurements. Cat Financial had impaired loans with a fair value of $75 million and $81 million as of March 31, 2014 and December 31, 2013, respectively.  
 
B. Fair values of financial instruments
 
In addition to the methods and assumptions we use to record the fair value of financial instruments as discussed in the Fair value measurements section above, we used the following methods and assumptions to estimate the fair value of our financial instruments:
 
Cash and short-term investments
Carrying amount approximated fair value.
 
Restricted cash and short-term investments
Carrying amount approximated fair value.  Restricted cash and short-term investments are included in Prepaid expenses and other current assets in the Consolidated Statement of Financial Position.
 
Finance receivables
Fair value was estimated by discounting the future cash flows using current rates, representative of receivables with similar remaining maturities.
 
Wholesale inventory receivables
Fair value was estimated by discounting the future cash flows using current rates, representative of receivables with similar remaining maturities.
 
Short-term borrowings
Carrying amount approximated fair value.
 
Long-term debt
Fair value for fixed and floating rate debt was estimated based on quoted market prices.

Please refer to the table below for the fair values of our financial instruments.
 

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Fair Value of Financial Instruments
 
 
 
 
 
 
March 31, 2014
 
December 31, 2013
 
 
 
 
(Millions of dollars)
 
Carrying
 Amount
 
Fair
 Value
 
Carrying
 Amount
 
Fair
 Value
 
Fair Value Levels
 
Reference
Assets
 
 

 
 

 
 

 
 

 
 
 
 
Cash and short-term investments
 
$
5,345

 
$
5,345

 
$
6,081

 
$
6,081

 
1
 
 
Restricted cash and short-term investments
 
86

 
86

 
53

 
53

 
1
 
 
Available-for-sale securities
 
1,562

 
1,562

 
1,570

 
1,570

 
1 & 2
 
Note 8
Finance receivables – net (excluding finance leases 1)
 
16,394

 
16,113

 
16,049

 
15,913

 
2
 
Note 16
Wholesale inventory receivables – net (excluding finance leases 1)
 
1,428

 
1,361

 
1,529

 
1,467

 
2
 
Note 16
Foreign currency contracts – net
 
34

 
34

 
45

 
45

 
2
 
Note 4
Interest rate swaps – net
 
64

 
64

 
116

 
116

 
2
 
Note 4
 
 
 
 
 
 
 
 
 
 
 
 

Liabilities
 
 

 
 

 
 

 
 

 
 
 
 
Short-term borrowings
 
4,515

 
4,515

 
3,679

 
3,679

 
1
 
 
Long-term debt (including amounts due within one year)
 
 

 
 

 
 

 
 

 
 
 
 
Machinery, Energy & Transportation
 
8,757

 
10,136

 
8,759

 
9,905

 
2
 
 
Financial Products
 
24,819

 
25,399

 
25,312

 
25,849

 
2
 
 
Commodity contracts – net
 
1

 
1

 

 

 
2
 
Note 4
Guarantees
 
13

 
13

 
13

 
13

 
3
 
Note 10

1 
Total excluded items have a net carrying value at March 31, 2014 and December 31, 2013 of $8,093 million and $8,053 million, respectively.
 
 
 
 
 

18.                         Divestitures and Assets Held for Sale
Bucyrus Distribution Business Divestiture
In conjunction with our acquisition of Bucyrus in July 2011, we announced our intention to sell the Bucyrus distribution business to Caterpillar dealers that support mining customers around the world in a series of individual transactions.  Bucyrus predominantly employed a direct to end customer model to sell and support products.  The intention is for all Bucyrus products to be sold and serviced by Caterpillar dealers, consistent with our long-held distribution strategy.  These transitions are occurring in phases based on the mining business opportunity within each dealer territory.
 
As portions of the Bucyrus distribution business are sold or classified as held for sale, they will not qualify as discontinued operations because Caterpillar expects significant continuing direct cash flows from the Caterpillar dealers after the divestitures. The gain or loss on disposal, along with the continuing operations of these disposal groups, will be reported in the Resource Industries segment. Goodwill will be allocated to each disposal group using the relative fair value method. The value of the customer relationship intangibles related to each portion of the Bucyrus distribution business to be sold will be included in the disposal groups. The disposal groups will be recorded at the lower of their carrying value or fair value less cost to sell. The portions of the distribution business that were sold were not material to our results of operations, financial position or cash flow.

We completed three sale transactions during the first quarter 2014 whereby we sold portions of the Bucyrus distribution business to Caterpillar dealers for an aggregate price of $17 million. For the first three months of 2014, after-tax profit was unfavorably impacted by $6 million as a result of the Bucyrus distribution divestiture activities. This is comprised of $1 million of income related to the sales transactions (included in Other operating (income) expenses), costs incurred related to the Bucyrus distribution divestiture activities of $11 million (included in Selling, general and administrative expenses) and an income tax benefit of $4 million.
 
Assets sold in the first three months of 2014 primarily consisted of customer relationship intangibles of $16 million and allocated goodwill of $5 million related to the divested portions of the Bucyrus distribution business.


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As of March 31, 2014, eight divestiture transactions were classified as held for sale and are expected to close in 2014. Current assets held for sale were included in Prepaid expenses and other current assets and non-current assets held for sale were included in Other assets in the Consolidated Statement of Financial Position.

The major classes of assets held for sale for a portion of the Bucyrus distribution business were as follows:
(Millions of dollars)
March 31,
2014
 
December 31,
2013
 
 
 
 
Inventories
$
14

 
$
14

Current assets
$
14

 
$
14

 
 
 
 
Property, plant and equipment – net
$
5

 
$
5

Intangible assets
33

 
44

Goodwill
45

 
45

Non-current assets
$
83

 
$
94

 
 
 
 

19.                              Restructuring Costs

For the three months ended March 31, 2014, we recognized $149 million of restructuring costs in Other operating (income) expenses in the Consolidated Statement of Results of Operations, which included $142 million of employee separation costs and $7 million of long-lived asset impairments. The restructuring costs in 2014 were primarily related to a reduction in workforce at our Gosselies, Belgium facility. For the three months ended March 31, 2013, we recognized $7 million of restructuring costs, all of which related to employee separation costs.

Restructuring costs for the year ended December 31, 2013 were $200 million and were recognized in Other operating (income) expenses in the Consolidated Statement of Results of Operations. The 2013 restructuring costs included $151 million of employee separation costs, $41 million of long-lived asset impairments and $8 million of other restructuring costs. The most significant charges in 2013 were for the restructuring of management and support functions and the closure or downsizing of several facilities related to our mining business.

Restructuring costs are a reconciling item between Segment profit and Consolidated profit before taxes. See Note 15 for more information.

Our accounting for separations was dependent upon how the particular program was designed. For voluntary programs, eligible separation costs were recognized at the time of employee acceptance. For involuntary programs, eligible costs were recognized when management had approved the program, the affected employees had been properly notified and the costs were estimable.

The following table summarizes the 2013 and 2014 employee separation activity:
(Millions of dollars)
 
 
 
 
Total
Liability balance at December 31, 2012
$
29

Increase in liability (separation charges)
151

Reduction in liability (payments and other adjustments)
(91
)
Liability balance at December 31, 2013
$
89

Increase in liability (separation charges)
142

Reduction in liability (payments and other adjustments)
(37
)
Liability balance at March 31, 2014
$
194

 
 

The remaining liability balances as of March 31, 2014 represent costs for employees that have either not yet separated from the Company or their full severance has not yet been paid. The majority of these remaining costs are expected to be paid in 2014.


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In December 2013, we announced a restructuring plan for our Gosselies, Belgium facility. This restructuring plan is designed to improve the competitiveness of our European manufacturing footprint and achieve competitiveness in our European operations by refocusing our current Gosselies operations on final machine assembly, test and paint with limited component and fabrication operations. This action will include reshaping our supply base for more efficient sourcing, improving factory efficiencies and workforce reductions and was approved by the Belgian Minister of Employment in February 2014. We estimate the total employee cash separation costs to be about $300 million before tax, which represents substantially all of the restructuring costs to be incurred under the restructuring plan. We expect to recognize substantially all of these separation-related charges throughout 2014. For the three months ended March 31, 2014, we recognized $128 million of employee separation costs relating to this restructuring plan. The majority of these costs will be paid throughout the remainder of 2014.



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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Overview
 
First-quarter 2014 sales and revenues were $13.241 billion, compared with sales and revenues of $13.210 billion in the first quarter of 2013. Profit per share for the first quarter of 2014 was $1.44, a 10 percent increase from first-quarter 2013 profit per share of $1.31. Profit was $922 million in the quarter, an increase of 5 percent from $880 million in the first quarter of 2013.

 Highlights for the first quarter of 2014 include:
 
First-quarter sales and revenues of $13.241 billion were about flat with the first quarter of 2013. Increases in Construction Industries and Energy & Transportation were offset by declines in Resource Industries.

Restructuring costs were $149 million in the first quarter of 2014 with an after-tax impact of $0.17 per share.

Profit per share was $1.44 in the first quarter of 2014 and excluding restructuring costs of $0.17 per share was $1.61 per share. Profit in the first quarter of 2013 was $1.31 per share.

Machinery, Energy & Transportation (ME&T) operating cash flow was $1.878 billion in the first quarter of 2014, compared with $1.089 billion in the first quarter of 2013.

ME&T debt-to-capital ratio was 30.2 percent compared with 29.7 percent at the end of 2013.

The company repurchased $1.7 billion of Caterpillar common stock in the first quarter of 2014.


Notes:
Glossary of terms is included on pages 56-58; first occurrence of terms shown in bold italics.
Information on non-GAAP financial measures is included on page 67.


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Table of Contents

Consolidated Results of Operations
 
THREE MONTHS ENDED MARCH 31, 2014 COMPARED WITH THREE MONTHS ENDED MARCH 31, 2013
 
CONSOLIDATED SALES AND REVENUES

The chart above graphically illustrates reasons for the change in Consolidated Sales and Revenues between the first quarter of 2013 (at left) and the first quarter of 2014 (at right). Items favorably impacting sales and revenues appear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting sales and revenues appear as downward stair steps with dollar amounts reflected in parentheses above each bar. Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees.

Sales and Revenues
Total sales and revenues were $13.241 billion in the first quarter of 2014, about flat with the first quarter of 2013. When reviewing the change in sales and revenues, we focus on the following perspectives:
Reasons for the change: Sales volume increased $156 million due to higher volume in Construction Industries and Energy & Transportation, partially offset by lower volume in Resource Industries. The sales volume increase was partially offset by an unfavorable currency impact of $143 million primarily due to the Japanese yen and Brazilian real, as sales in yen and real translated into fewer U.S. dollars.
The volume increase was primarily the result of changes in dealer machine and engine inventories, as dealers increased inventories about $700 million in the first quarter of 2014 compared to a decrease of about $800 million in the first quarter of 2013. Dealers are independent, and there could be many reasons for changes in their inventory levels. In general, dealers adjust inventory based on their expectations of future demand and product delivery times. Dealers’ demand expectations take into account seasonal changes, macroeconomic conditions and other factors. Delivery times can vary based on availability of product from Caterpillar factories and product distribution centers. This volume increase was partially offset by lower end-user demand for mining equipment in Resource Industries, as customers are continuing to reduce their capital expenditures. Aftermarket parts sales also declined primarily for mining, as we believe some companies are delaying maintenance and rebuild activities.
Sales by geographic region: While overall sales were about flat, sales increased in North America, were about flat in EAME and declined in Asia/Pacific and Latin America. In North America, sales increased 16 percent primarily due to the favorable impact of changes in dealer machine inventory and higher deliveries to end users. While sales were about flat in EAME, the escalation of geo-political events in the region could negatively impact trade overall and the demand for our products. Asia/Pacific declined 12 percent primarily related to lower sales in Australia, where the most significant decrease was in mining sales due to continued low demand. While sales in Asia/Pacific declined overall, sales in China, primarily in Construction Industries, increased more than 30 percent due to increased dealer deliveries to end users and the favorable impact of dealer inventory changes. Sales declined 15 percent in Latin America primarily due to lower end-user demand for mining equipment.

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Sales by segment: Sales increases in Construction Industries and Energy & Transportation were offset by decreases in Resource Industries. Construction Industries’ sales increased 20 percent primarily due to changes in dealer inventories and increased end-user demand. Energy & Transportation’s sales were 8 percent higher primarily due to increased end-user demand and changes in dealer inventories. Resource Industries’ sales declined 37 percent, resulting primarily from weaker demand for mining products. Financial Products segment revenues were about flat.

CONSOLIDATED OPERATING PROFIT

The chart above graphically illustrates reasons for the change in Consolidated Operating Profit between the first quarter of 2013 (at left) and the first quarter of 2014 (at right). Items favorably impacting operating profit appear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting operating profit appear as downward stair steps with dollar amounts reflected in parentheses above each bar. Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees. The bar entitled Other includes consolidating adjustments and Machinery, Energy & Transportation other operating (income) expenses.

Operating profit for the first quarter of 2014 was $1.398 billion, an increase of $180 million from the first quarter of 2013. The increase was primarily the result of lower manufacturing costs, decreased SG&A and R&D expenses and the favorable impact of currency. These favorable impacts were partially offset by higher restructuring costs of $142 million and lower sales volume. Additionally, Financial Products’ operating profit was lower primarily due to the absence of favorable reserve adjustments at Caterpillar Financial Insurance Services.
The unfavorable operating profit impact from the change in sales volume was due to an unfavorable mix of products primarily related to a decline in Resource Industries’ sales and an increase in Construction Industries’ sales, which traditionally have lower margins.
Manufacturing costs decreased $230 million. The decrease was primarily due to lower material costs, favorable changes in cost absorption resulting from an increase in inventory during the first quarter of 2014 compared to a decrease in the first quarter of 2013 and increased efficiencies resulting from higher production primarily in Construction Industries. These favorable impacts were partially offset by increased warranty expense.
Decreases in SG&A and R&D expenses were primarily due to cost reduction measures, partially offset by higher incentive compensation expense. In addition, bad debt expense was lower at Caterpillar (Zhengzhou) Ltd. SG&A and R&D expenses are expected to be higher during the remainder of 2014 as the first quarter is generally low for these costs. We expect increases throughout the year as approved programs are implemented and annual wage increases take effect.
The favorable impact of currency was mostly due to the Japanese yen. We have a sizeable manufacturing presence in Japan, and while some of this production is sold in Japan, we are a net exporter, and therefore, a weaker yen provides a benefit.
First-quarter 2014 restructuring costs of $149 million were primarily related to a reduction in workforce at our Gosselies, Belgium, facility.

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The first-quarter short-term incentive compensation expense related to 2014 was about $260 million, and we expect the full-year expense will be about $1.0 billion. Short-term incentive compensation expense in the first quarter of 2013 was about $120 million, and the full-year 2013 was about $545 million.
Other Profit/Loss Items

Other income/expense was income of $54 million compared with income of $29 million in the first quarter of 2013. The change was primarily due to the net impact from currency translation and hedging. Although both periods included unfavorable impacts from currency translation and hedging, losses were more significant in the first quarter of 2013 than in the first quarter of 2014.

The provision for income taxes reflects an estimated annual tax rate of 29.5 percent for both the first quarter of 2014 and 2013, excluding the items discussed below. The increase from the full-year 2013 rate of 28.5 percent is primarily due to the expiration of the U.S. research and development tax credit.
The provision for income taxes in the first quarter of 2014 also includes a charge of $55 million to correct for an error which resulted in an understatement of tax liabilities for prior years. This error had the effect of overstating profit by $27 million and $28 million for the years ended December 31, 2013 and 2012, respectively. These amounts are not material to the financial statements of any affected period. This charge was offset by a $33 million benefit to reflect a settlement with the U.S. Internal Revenue Service related to 1992 through 1994 which resulted in a $16 million benefit to remeasure previously unrecognized tax benefits and a $17 million benefit to adjust related interest, net of tax. The first quarter of 2013 tax provision also included a benefit of $87 million primarily related to the U.S. research and development tax credit that was extended for 2012.


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Segment Information
 
Sales and Revenues by Geographic Region
(Millions of dollars)
Total
 
%
 Change
 
North
 America
 
%
 Change
 
Latin
 America
 
%
 Change
 
EAME
 
%
 Change
 
Asia/
 Pacific
 
%
 Change
First Quarter 2014
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Construction Industries 1
$
5,064

 
20
 %
 
$
2,092

 
36
 %
 
$
586

 
(2
)%
 
$
1,144

 
20
 %
 
$
1,242

 
10
 %
Resource Industries 2
2,123

 
(37
)%
 
725

 
(14
)%
 
402

 
(44
)%
 
532

 
(39
)%
 
464

 
(50
)%
Energy & Transportation 3
4,776

 
8
 %
 
2,082

 
15
 %
 
471

 
11
 %
 
1,329

 
8
 %
 
894

 
(4
)%
All Other Segments 4
554

 
7
 %
 
337

 
1
 %
 
55

 
12
 %
 
103

 
21
 %
 
59

 
23
 %
Corporate Items and Eliminations
(24
)
 

 
(17
)
 
 
 
(2
)
 
 
 
(3
)
 
 
 
(2
)
 
 
Machinery, Energy & Transportation Sales
12,493

 
 %
 
5,219

 
16
 %
 
1,512

 
(15
)%
 
3,105

 
(1
)%
 
2,657

 
(12
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial Products Segment
817

 
3
 %
 
437

 
8
 %
 
109

 
(1
)%
 
131

 
5
 %
 
140

 
(11
)%
Corporate Items and Eliminations
(69
)
 
 
 
(39
)
 
 
 
(11
)
 
 
 
(6
)
 
 
 
(13
)
 
 
Financial Products Revenues
748

 
3
 %
 
398

 
9
 %
 
98

 
(6
)%
 
125

 
5
 %
 
127

 
(7
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Sales and Revenues
$
13,241

 
 %
 
$
5,617

 
15
 %
 
$
1,610

 
(15
)%
 
$
3,230

 
(1
)%
 
$
2,784

 
(12
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First Quarter 2013
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Construction Industries 1
$
4,219

 
 
 
$
1,540

 
 
 
$
596

 
 
 
$
956

 
 
 
$
1,127

 
 

Resource Industries 2
3,353

 
 
 
839

 
 
 
717

 
 
 
867

 
 
 
930

 
 

Energy & Transportation 3
4,405

 
 
 
1,815

 
 
 
425

 
 
 
1,236

 
 
 
929

 
 

All Other Segments 4
517

 
 
 
335

 
 
 
49

 
 
 
85

 
 
 
48

 
 

Corporate Items and Eliminations
(10
)
 
 
 
(12
)
 
 
 

 
 
 
1

 
 
 
1

 
 
Machinery, Energy & Transportation Sales
12,484

 
 

 
4,517

 
 

 
1,787

 
 

 
3,145

 
 

 
3,035

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial Products Segment
795

 
 
 
403

 
 
 
110

 
 
 
125

 
 
 
157

 
 

Corporate Items and Eliminations
(69
)
 
 
 
(37
)
 
 
 
(6
)
 
 
 
(6
)
 
 
 
(20
)
 
 

Financial Products Revenues
726

 
 

 
366

 
 

 
104

 
 

 
119

 
 

 
137

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Sales and Revenues
$
13,210

 
 

 
$
4,883

 
 

 
$
1,891

 
 

 
$
3,264

 
 

 
$
3,172

 
 

 
1 
Does not include inter-segment sales of $75 million and $99 million in first quarter 2014 and 2013, respectively.
2 
Does not include inter-segment sales of $113 million and $128 million in first quarter 2014 and 2013, respectively.
3 
Does not include inter-segment sales of $550 million and $396 million in first quarter 2014 and 2013, respectively.
4 
Does not include inter-segment sales of $832 million and $803 million in first quarter 2014 and 2013, respectively.
 



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Sales and Revenues by Segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Millions of dollars)
First Quarter 2013
 
Sales
Volume
 
Price
Realization
 
Currency
 
Other
 
First Quarter 2014
 
$
Change
 
%
Change
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction Industries
$
4,219

 
$
982

 
$
(17
)
 
$
(120
)
 
$

 
$
5,064

 
$
845

 
20
 %
Resource Industries
3,353

 
(1,190
)
 
(21
)
 
(19
)
 

 
2,123

 
(1,230
)
 
(37
)%
Energy & Transportation
4,405

 
341

 
32

 
(2
)
 

 
4,776

 
371

 
8
 %
All Other Segments
517

 
37

 
3

 
(3
)
 

 
554

 
37

 
7
 %
Corporate Items and Eliminations
(10
)
 
(14
)
 
(1
)
 
1

 

 
(24
)
 
(14
)
 
 

Machinery, Energy & Transportation Sales
12,484

 
156

 
(4
)
 
(143
)
 

 
12,493

 
9

 
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial Products Segment
795

 

 

 

 
22

 
817

 
22

 
3
 %
Corporate Items and Eliminations
(69
)
 

 

 

 

 
(69
)
 

 
 

Financial Products Revenues
726

 

 

 

 
22

 
748

 
22

 
3
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Sales and Revenues
$
13,210

 
$
156

 
$
(4
)
 
$
(143
)
 
$
22

 
$
13,241

 
$
31

 
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Operating Profit by Segment
 
 
 
 
 
 
 
(Millions of dollars)
First Quarter 2014
 
First Quarter 2013
 
$
Change
 
%
 Change
Construction Industries
$
688

 
$
228

 
$
460

 
202
 %
Resource Industries
149

 
459

 
(310
)
 
(68
)%
Energy & Transportation
827

 
591

 
236

 
40
 %
All Other Segments
235

 
205

 
30

 
15
 %
Corporate Items and Eliminations
(660
)
 
(480
)
 
(180
)
 
 

Machinery, Energy & Transportation
1,239

 
1,003

 
236

 
24
 %
 
 
 
 
 
 
 
 
Financial Products Segment
240

 
273

 
(33
)
 
(12
)%
Corporate Items and Eliminations
(15
)
 
9

 
(24
)
 
 

Financial Products
225

 
282

 
(57
)
 
(20
)%
Consolidating Adjustments
(66
)
 
(67
)
 
1

 
 

Consolidated Operating Profit
$
1,398

 
$
1,218

 
$
180

 
15
 %
 
 
 
 
 
 
 
 

Construction Industries
Construction Industries’ sales were $5.064 billion in the first quarter of 2014, an increase of $845 million, or 20 percent, from the first quarter of 2013. The sales increase was due to higher sales volume, partially offset by the unfavorable impact of currency. Price realization was slightly unfavorable primarily due to continuing sales from a large government order in Brazil. Sales of new equipment increased, and sales of aftermarket parts were about flat.
The increase in sales volume was primarily related to changes in dealer inventories. Dealer inventories increased in the first quarter of 2014 in anticipation of seasonal increases in end-user demand and were about flat in the first quarter of 2013. Additionally, deliveries to end users increased in all regions except EAME.
The unfavorable currency impact was primarily from a weaker Japanese yen and Brazilian real, as sales in yen and real translated into fewer U.S. dollars.
Sales increased in all geographic regions except Latin America where they were about flat.
In North America, higher sales were primarily due to the impact of dealer inventory changes, as dealers increased inventory more in the first quarter of 2014 than in the first quarter of 2013. The remaining sales increase was primarily due to higher end-user demand resulting from an increase in construction-related spending in the United States. Although still below prior peaks, construction-related spending continues to improve.
In EAME, higher sales were primarily due to the impact of dealer inventory changes. Dealer-reported machine inventory increased in the first quarter of 2014 and was about flat during the first quarter of 2013. This increase was partially offset by lower dealer deliveries to end users as political unrest in several countries in the region, including Saudi Arabia and Turkey, was unfavorable to demand.

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In Asia/Pacific, the sales increase was primarily in China due to both increased dealer deliveries to end users due to increased building and infrastructure investment and the favorable impact of dealer inventory changes. These items were partially offset by unfavorable currency impacts primarily from the weaker Japanese yen.
Construction Industries’ profit was $688 million in the first quarter of 2014, compared with $228 million in the first quarter of 2013. The increase in profit was primarily due to higher sales volume, favorable manufacturing costs and the favorable impact of currency primarily due to the Japanese yen. Manufacturing costs improved primarily due to favorable changes in cost absorption resulting from a significantly larger decrease in inventory during the first quarter of 2013 than in the first quarter of 2014. In addition, higher production volumes resulted in increased efficiencies. SG&A and R&D expenses were about flat despite the increase in sales volume. SG&A and R&D expenses are expected to be higher during the remainder of 2014 as the first quarter is generally low for these costs. We expect increases throughout the year as approved programs are implemented and annual wage increases take effect.
While margins on Construction Industries' sales in the first quarter of 2014 were strong, lower margins are expected on Construction Industries' sales for the remainder of 2014 due to unfavorable product mix resulting from increased sales of smaller, lower margin equipment and seasonally higher costs.
Resource Industries
Resource Industries’ sales were $2.123 billion in the first quarter of 2014, a decrease of $1.230 billion, or 37 percent, from the first quarter of 2013 - nearly all from lower sales volume. Price realization was slightly unfavorable primarily due to discounting on one project. The sales volume decline was primarily due to lower end-user demand across all geographic regions. Aftermarket part sales also declined world-wide, as we believe some companies are delaying maintenance and rebuild activities. The declines from the first quarter of 2013 were partially offset by favorable changes in dealer machine inventory. While dealers continued to reduce machine inventories worldwide during the first quarter of 2014, the reductions were much less significant than during the first quarter of 2013. Although prices of most mined commodities remained above investment thresholds and mine production has improved, customers in all geographic regions have reduced spending across the mining industry. We believe that mining companies are increasing productivity at existing mines, rather than investing in expansions or new mine openings, which results in lower demand for our mining products. New orders for mining equipment continued to be weak in the quarter.
Resource Industries’ profit was $149 million in the first quarter of 2014 compared with $459 million in the first quarter of 2013. The decrease was primarily the result of lower sales volume, partially offset by a decline in manufacturing costs and SG&A and R&D expenses.
The decrease in manufacturing costs was primarily driven by favorable changes in cost absorption resulting from a relatively small increase in inventory during the first quarter of 2014, compared with a relatively small decrease in inventory during the first quarter of 2013, lower period manufacturing costs resulting from cost cutting measures and favorable material costs.
SG&A and R&D expenses were lower primarily due to cost cutting measures implemented in response to lower volumes, including decreased spending for new product introduction programs. In addition, bad debt expense was lower at Caterpillar (Zhengzhou) Ltd.
Energy & Transportation
Energy & Transportation’s sales were $4.776 billion in the first quarter of 2014, an increase of $371 million, or 8 percent, from the first quarter of 2013. The sales increase was primarily due to higher sales into power generation, oil and gas and industrial applications. Sales into transportation applications were about flat.
Sales into power generation applications increased across all regions except EAME, where they were about flat. The higher sales were mostly due to increased end-user demand for prime applications resulting from strengthening economic conditions.
Sales into oil and gas applications increased in all regions except Asia/Pacific. In North America, higher sales were primarily the result of increased demand for drilling and well servicing and favorable changes in dealer inventory for oil and gas applications. Sales increased in EAME due to the timing of large projects. Sales in Latin America were slightly higher due to favorable changes in dealer inventory. The decline in sales in Asia/Pacific was primarily due to the timing of large projects, partially offset by increased sales resulting from favorable dealer inventory changes.
Sales into industrial applications increased in all regions except Latin America where they were about flat. The increase in sales was primarily due to higher demand for engines used by original equipment manufacturers.
Energy & Transportation’s profit was $827 million in the first quarter of 2014 compared with $591 million in the first quarter of 2013. The increase was primarily due to higher sales volume and lower manufacturing costs. The decrease in manufacturing costs was primarily driven by lower losses on a power-generation project in EAME and lower material costs, partially offset by increased incentive compensation.

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Financial Products Segment
Financial Products’ revenues were $817 million, an increase of $22 million, or 3 percent, from the first quarter of 2013. The increase was primarily due to the favorable impact from higher average earning assets in North America and EAME, partially offset by decreases in Asia/Pacific.
Financial Products’ profit was $240 million in the first quarter of 2014, compared with $273 million in the first quarter of 2013. The decrease was primarily due to the absence of $45 million in favorable reserve adjustments in the first quarter of 2013 at Insurance Services and a $17 million increase in the provision for credit losses at Cat Financial. These decreases were partially offset by a $13 million increase in gains on sales of securities at Insurance Services and a $10 million favorable impact from higher average earning assets.
At the end of the first quarter of 2014, past dues at Cat Financial were 2.44 percent compared with 2.37 percent at the end of 2013. The slight increase in past dues compared to year-end 2013 was primarily due to seasonality impacts. At the end of the first quarter of 2013, past dues were 2.52 percent. Write-offs, net of recoveries, were $38 million for the first quarter of 2014, compared with $10 million for the first quarter of 2013. The increase was primarily related to higher write-offs in Cat Financial's Latin American marine portfolio that were previously provided for in the allowance for credit losses.
As of March 31, 2014, Cat Financial's allowance for credit losses totaled $373 million or 1.25 percent of net finance receivables, compared with $378 million or 1.30 percent of net finance receivables at year-end 2013. The allowance for credit losses as of March 31, 2013, was $429 million or 1.49 percent of net finance receivables.
Corporate Items and Eliminations
Expense for corporate items and eliminations was $675 million in the first quarter of 2014, an increase of $204 million from the first quarter of 2013. Corporate items and eliminations include: corporate-level expenses; restructuring costs; timing differences, as some expenses are reported in segment profit on a cash basis; retirement benefit costs other than service cost; currency differences for ME&T, as segment profit is reported using annual fixed exchange rates and inter-segment eliminations.
The increase in expense from the first quarter of 2013 was primarily due to restructuring costs, unfavorable timing differences and the unfavorable impact of currency. Segment profit for 2014 is based on fixed exchange rates set at the beginning of 2014, while segment profit for 2013 is based on fixed exchange rates set at the beginning of 2013. The difference in actual exchange rates compared with fixed exchange rates is included in corporate items and eliminations and is not reflected in segment profit. These unfavorable items were partially offset by decreased retirement benefit costs.


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RESTRUCTURING COSTS

For the three months ended March 31, 2014, we recognized $149 million of restructuring costs, which included $142 million of employee separation costs and $7 million of long-lived asset impairments. The restructuring costs in 2014 were primarily related to a reduction in workforce at our Gosselies, Belgium facility. For the three months ended March 31, 2013, we recognized $7 million of restructuring costs, all of which related to employee separation costs.

Restructuring costs for the year ended December 31, 2013 were $200 million and included $151 million of employee separation costs, $41 million of long-lived asset impairments and $8 million of other restructuring costs. The most significant costs in 2013 were for the restructuring of management and support functions and the closure or downsizing of several facilities related to our mining business.

Restructuring costs are a reconciling item between Segment profit and Consolidated profit before taxes.

The following table summarizes the 2013 and 2014 separation activity:
(Millions of dollars)
 
 
 
 
Total
Liability balance at December 31, 2012
$
29

Increase in liability (separation charges)
151

Reduction in liability (payments and other adjustments)
(91
)
Liability balance at December 31, 2013
$
89

Increase in liability (separation charges)
142

Reduction in liability (payments and other adjustments)
(37
)
Liability balance at March 31, 2014
$
194

 
 

The remaining liability balances as of March 31, 2014 represent costs for employees that have either not yet separated from the Company or their full severance has not yet been paid. The majority of these remaining costs are expected to be paid in 2014.

In December 2013, we announced a restructuring plan for our Gosselies, Belgium facility. This restructuring plan is designed to improve the competitiveness of our European manufacturing footprint and achieve competitiveness in our European operations by refocusing our current Gosselies operations on final machine assembly, test and paint with limited component and fabrication operations. This action will include reshaping our supply base for more efficient sourcing, improving factory efficiencies and workforce reductions and was approved by the Belgian Minister of Employment in February 2014. We estimate the total employee cash separation costs to be about $300 million before tax, which represents substantially all of the restructuring costs to be incurred under the restructuring plan. We expect to recognize substantially all of these separation-related charges throughout 2014. For the three months ended March 31, 2014, we recognized $128 million of employee separation costs relating to this restructuring plan. The majority of these costs will be paid throughout the remainder of 2014.

For the full year, we expect total restructuring costs of about $400 to $500 million. Excluding charges related to our Belgium facility, restructuring costs are anticipated to be about $100 to $200 million and are for a wide range of actions across the company that are part of our ongoing efforts to optimize our cost structure and improve the efficiency of our operations.

GLOSSARY OF TERMS
 
1.
All Other Segments - 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 Cat products, paving products, forestry products, industrial and waste products and tunnel boring equipment; the product management, development, marketing, sales and product support of on-highway vocational trucks for North America; parts distribution; distribution services responsible for dealer development and administration including three wholly-owned dealers in Japan, dealer portfolio management and ensuring the most efficient and effective distribution of machines, engines and parts.

2.
Caterpillar (Zhengzhou) Ltd. - A wholly-owned subsidiary (formerly known as Siwei) which primarily designs, manufactures, sells and supports underground coal mining equipment in China and is included in our Resource Industries segment.

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3.
Consolidating Adjustments - Eliminations of transactions between Machinery, Energy & Transportation and Financial Products.

4.
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, compact track loaders, medium track-type tractors, track-type loaders, motor graders and pipe layers. In addition, Construction Industries has responsibility for an integrated manufacturing cost center.

5.
Currency - With respect to sales and revenues, currency represents the translation impact on sales resulting from changes in foreign currency exchange rates versus the U.S. dollar. With respect to operating profit, currency represents the net translation impact on sales and operating costs resulting from changes in foreign currency exchange rates versus the U.S. dollar. Currency includes the impact on sales and operating profit for the Machinery, Energy & Transportation lines of business only; currency impacts on Financial Products revenues and operating profit are included in the Financial Products portions of the respective analyses. With respect to other income/expense, currency represents the effects of forward and option contracts entered into by the company to reduce the risk of fluctuations in exchange rates and the net effect of changes in foreign currency exchange rates on our foreign currency assets and liabilities for consolidated results.

6.
Debt-to-Capital Ratio - A key measure of Machinery, Energy & Transportation’s financial strength used by both management and our credit rating agencies. The metric is defined as Machinery, Energy & Transportation’s short-term borrowings, long-term debt due within one year and long-term debt due after one year (debt) divided by the sum of Machinery, Energy & Transportation’s debt and stockholders’ equity. Debt also includes Machinery, Energy & Transportation’s borrowings from Financial Products.

7.
EAME - A geographic region including Europe, Africa, the Middle East and the Commonwealth of Independent States (CIS).

8.
Earning Assets - Assets consisting primarily of total finance receivables net of unearned income, plus equipment on operating leases, less accumulated depreciation at Cat Financial.

9.
Energy & Transportation (formerly Power Systems) - 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, 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 Caterpillar machinery; the business strategy, product design, product management, development, manufacturing, remanufacturing, leasing, and service of diesel-electric locomotives and components and other rail-related products and services.

10.
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.

11.
Latin America - Geographic region including Central and South American countries and Mexico.

12.
Machinery, Energy & Transportation (ME&T) - Represents the aggregate total of Construction Industries, Resource Industries, Energy & Transportation and All Other Segments and related corporate items and eliminations.

13.
Machinery, Energy & Transportation Other Operating (Income) Expenses - Comprised primarily of gains/losses on disposal of long-lived assets, long-lived asset impairment charges and legal settlements. Restructuring costs, which are classified as other operating expenses on the Results of Operations, are presented separately on the Operating Profit Comparison.


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Table of Contents

14.
Manufacturing Costs - Manufacturing costs exclude the impacts of currency and represent the volume-adjusted change for variable costs and the absolute dollar change for period manufacturing costs. Variable manufacturing costs are defined as having a direct relationship with the volume of production. This includes material costs, direct labor and other costs that vary directly with production volume such as freight, power to operate machines and supplies that are consumed in the manufacturing process. Period manufacturing costs support production but are defined as generally not having a direct relationship to short-term changes in volume. Examples include machinery and equipment repair, depreciation on manufacturing assets, facility support, procurement, factory scheduling, manufacturing planning and operations management.
 
15.
Price Realization - The impact of net price changes excluding currency and new product introductions. Consolidated price realization includes the impact of changes in the relative weighting of sales between geographic regions.

16.
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, hard rock vehicles, longwall miners, electric rope shovels, draglines, hydraulic shovels, drills, highwall miners, large wheel loaders, off-highway trucks, articulated trucks, wheel tractor scrapers, wheel dozers, select work tools, 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.

17.
Restructuring Costs - Primarily costs for employee severance and long-lived asset impairments.

18.
Sales Volume - With respect to sales and revenues, sales volume represents the impact of changes in the quantities sold for Machinery, Energy & Transportation as well as the incremental revenue impact of new product introductions, including emissions-related product updates. With respect to operating profit, sales volume represents the impact of changes in the quantities sold for Machinery, Energy & Transportation combined with product mix as well as the net operating profit impact of new product introductions, including emissions-related product updates. Product mix represents the net operating profit impact of changes in the relative weighting of Machinery, Energy & Transportation sales with respect to total sales.

LIQUIDITY AND CAPITAL RESOURCES
 
Sources of funds
 
We generate significant capital resources from operating activities, which are the primary source of funding for our Machinery, Energy & Transportation operations. Funding for these businesses is also available from commercial paper and long-term debt issuances. Financial Products' operations are funded primarily from commercial paper, term debt issuances and collections from the existing portfolio. Throughout the first quarter of 2014, we experienced favorable liquidity conditions globally in both our Machinery, Energy & Transportation and Financial Products' operations. On a consolidated basis, we ended the first quarter of 2014 with $5.35 billion of cash, a decrease of $736 million from year-end 2013. We intend to maintain a strong cash and liquidity position. Our cash balances are held in numerous locations throughout the world with approximately $3.8 billion held by our non-U.S. subsidiaries. Amounts held outside the United States are available for general corporate use and could be used in the United States without incurring significant additional U.S. taxes.

Consolidated operating cash flow for the first quarter of 2014 was $1.90 billion, up from $1.42 billion for the same period a year ago. The increase was primarily due to lower short-term incentive compensation payments in 2014, favorable changes in accounts payable (primarily due to increased material purchases) and higher customer advances. In addition, although profit was about the same as the first quarter of 2013, the first quarter of 2014 included higher accruals for restructuring costs and short-term incentive compensation. Offsetting these items were unfavorable changes in inventory and receivables. Inventory increased in the first quarter of 2014 while during the same period of 2013, inventory decreased to align with lower demand levels. Receivables increased slightly during the first quarter of 2014 whereas during the same period of 2013, receivables declined. See further discussion of operating cash flow under Machinery, Energy & Transportation and Financial Products.

Total debt as of March 31, 2014 was $38.09 billion, an increase of $341 million from year-end 2013. Debt related to Financial Products increased $341 million, reflecting increasing portfolio balances. Debt related to Machinery, Energy & Transportation was unchanged from year-end 2013.

We have three global credit facilities with a syndicate of banks totaling $10.00 billion (Credit Facility) available in the aggregate to both Caterpillar and Cat Financial for general liquidity purposes.  Based on management's allocation decision, which can be

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revised from time to time, the portion of the Credit Facility available to Machinery, Energy & Transportation as of March 31, 2014 was $2.75 billion. Our three Global Credit Facilities are:

The 364-day facility of $3.00 billion (of which $0.82 billion is available to Machinery, Energy & Transportation) expires in September 2014.
The 2010 four-year facility, as amended in September 2013, of $2.60 billion (of which $0.72 billion is available to Machinery, Energy & Transportation) expires in September 2016.
The 2011 five-year facility, as amended in September 2013, of $4.40 billion (of which $1.21 billion is available to Machinery, Energy & Transportation) expires in September 2018.

At March 31, 2014, Caterpillar's consolidated net worth was $24.44 billion, which was above the $9.00 billion required under the Credit Facility.  The consolidated net worth is defined as the consolidated stockholders' equity including preferred stock but excluding the pension and other postretirement benefits balance within Accumulated other comprehensive income (loss).

At March 31, 2014, Cat Financial's covenant interest coverage ratio was 2.00 to 1.  This is above the 1.15 to 1 minimum ratio calculated as (1) profit excluding income taxes, interest expense and net gain/(loss) from interest rate derivatives to (2) interest expense calculated at the end of each calendar quarter for the rolling four quarter period then most recently ended, required by the Credit Facility.

In addition, at March 31, 2014, Cat Financial's covenant leverage ratio was 7.92 to 1. This is below the maximum ratio of debt to net worth of 10 to 1, calculated (1) on a monthly basis as the average of the leverage ratios determined on the last day of each of the six preceding calendar months and (2) at each December 31, required by the Credit Facility.

In the event Caterpillar or Cat Financial does not meet one or more of their respective financial covenants under the Credit Facility in the future (and are unable to obtain a consent or waiver), the syndicate of banks may terminate the commitments allocated to the party that does not meet its covenants.  Additionally, in such event, certain of Cat Financial's other lenders under other loan agreements where similar financial covenants or cross default provisions are applicable, may, at their election, choose to pursue remedies under those loan agreements, including accelerating the repayment of outstanding borrowings.  At March 31, 2014, there were no borrowings under the Credit Facility.

Our total credit commitments and available credit as of March 31, 2014 were:
 
 
March 31, 2014
(Millions of dollars)
Consolidated
 
Machinery,
Energy &
Transportation
 
Financial
Products
Credit lines available:
 

 
 

 
 

Global credit facilities
$
10,000

 
$
2,750

 
$
7,250

Other external
4,803

 
234

 
4,569

Total credit lines available
14,803

 
2,984

 
11,819

Less: Commercial paper outstanding
(3,289
)
 

 
(3,289
)
Less: Utilized credit
(2,140
)
 
(18
)
 
(2,122
)
Available credit
$
9,374

 
$
2,966

 
$
6,408

 
 
 
 
 
 
 
The other external consolidated credit lines with banks as of March 31, 2014 totaled $4.80 billion. These committed and uncommitted credit lines, which may be eligible for renewal at various future dates or have no specified expiration date, are used primarily by our subsidiaries for local funding requirements. Caterpillar or Cat Financial may guarantee subsidiary borrowings under these lines.

In the event that Caterpillar or Cat Financial, or any of their debt securities, experiences a credit rating downgrade, it would likely result in an increase in our borrowing costs and make access to certain credit markets more difficult. In the event economic conditions deteriorate such that access to debt markets becomes unavailable, our Machinery, Energy & Transportation's operations would rely on cash flow from operations, use of existing cash balances, borrowings from Cat Financial and access to our Credit Facility. Our Financial Products' operations would rely on cash flow from its existing portfolio, existing cash balances, access to our Credit Facility and other credit line facilities of Cat Financial and potential borrowings from Caterpillar. In addition, we maintain a support agreement with Cat Financial, which requires Caterpillar to remain the sole owner of Cat Financial and may,

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under certain circumstances, require Caterpillar to make payments to Cat Financial should Cat Financial fail to maintain certain financial ratios.

Machinery, Energy & Transportation
Net cash provided by operating activities was $1.88 billion in the first quarter of 2014, compared with $1.09 billion for the same period in 2013. The increase was primarily due to lower short-term incentive compensation payments in 2014, favorable changes in accounts payable (primarily due to increased material purchases) and higher customer advances. In addition, although profit was about the same as the first quarter of 2013, the first quarter of 2014 included higher accruals for restructuring costs and short-term incentive compensation. Offsetting these items was a change in inventory, as inventory increased in the first quarter of 2014 while during the same period of 2013, inventory decreased to align with demand levels.
Net cash used for investing activities in the first quarter of 2014 was $420 million, compared with $822 million for the same period in 2013. The change was due to lower capital expenditures during the first quarter of 2014 compared to the same period a year ago. Net cash used for financing activities in the first quarter of 2014 was $1.97 billion, compared with net cash provided by financing activities of $36 million in the first quarter of 2013. The change was primarily due to the repurchase of $1.74 billion of Caterpillar common stock in first quarter of 2014 and the absence of a dividend payment in the first quarter of 2013. The first quarter dividend payment for 2013 was accelerated into the fourth quarter of 2012.
Our priorities for the use of cash are maintaining a strong financial position that helps maintain our credit rating, providing capital to support growth, appropriately funding employee benefit plans, paying dividends and repurchasing common stock.

Strong financial position A key measure of Machinery, Energy & Transportation's financial strength used by both management and our credit rating agencies is Machinery, Energy & Transportation's debt-to-capital ratio. Debt-to-capital is defined as short-term borrowings, long-term debt due within one year and long-term debt due after one year (debt) divided by the sum of debt and stockholders' equity. Debt also includes Machinery, Energy & Transportation borrowings from Financial Products. The debt-to-capital ratio for Machinery, Energy & Transportation was 30.2 percent at March 31, 2014, within our target range of 30 to 45 percent. The Machinery, Energy & Transportation's debt-to-capital ratio was 29.7 percent at December 31, 2013. The increase in the debt-to-capital ratio was primarily due to the $1.74 billion Caterpillar common stock repurchase.

Capital to support growth Capital expenditures were $469 million during the first quarter of 2014, compared to $913 million for the same period in 2013. We expect capital expenditures for 2014 will be slightly lower than 2013 capital expenditures of $2.6 billion.

Appropriately funded employee benefit plansWe made $279 million of contributions to our pension plans during the first quarter of 2014. We currently anticipate full-year 2014 contributions of approximately $510 million, all of which are required. We made $142 million of contributions to our pension plans during the first quarter of 2013.

Paying dividendsDividends paid totaled $383 million in the first quarter of 2014, representing 60 cents per share. Each quarter, our Board of Directors reviews the company's dividend for the applicable quarter. The Board evaluates the financial condition of the company and considers the economic outlook, corporate cash flow, the company's liquidity needs, and the health and stability of global credit markets to determine whether to maintain or change the quarterly dividend.

Common stock repurchasesIn February 2007, the Board of Directors authorized the repurchase of $7.5 billion of Caterpillar common stock (the 2007 Authorization), and in December 2011, the 2007 Authorization was extended through December 2015. During the first quarter of 2014, we repurchased approximately $1.74 billion of Caterpillar common stock, completing the 2007 Authorization. In January 2014, the Board approved a new authorization to repurchase up to $10 billion of Caterpillar common stock, which will expire on December 31, 2018. Caterpillar's basic shares outstanding as of March 31, 2014 were approximately 624 million.

Financial Products
Financial Products' operating cash flow was $353 million in the first quarter of 2014, compared with $262 million for the same period a year ago. Net cash used for investing activities was $811 million for the first quarter of 2014, compared with $530 million for the same period in 2013. The change was primarily due to more net cash used for intercompany purchased receivables. Net cash provided by financing activities was $265 million for the first quarter of 2014, compared with $475 million for the same period in 2013. The change was primarily due to lower net debt issuances and the use of existing cash to fund Cat Financial’s investing activities.

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CRITICAL ACCOUNTING POLICIES
 
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts. The more significant estimates include: residual values for leased assets, fair values for goodwill impairment tests, impairment of available-for-sale securities, warranty liability, stock-based compensation, reserves for product liability and insurance losses, postretirement benefits, post-sale discounts, credit losses and income taxes. We have incorporated many years of data into the determination of each of these estimates and we have not historically experienced significant adjustments. These assumptions are reviewed at least annually with the Audit Committee of the Board of Directors.  Following are the methods and assumptions used in determining our estimates and an indication of the risks inherent in each.
 
Residual values for leased assets – The residual values for Cat Financial’s leased assets, which are based upon the estimated wholesale market value of leased equipment at the time of the expiration of the lease, are based on a careful analysis of historical wholesale market sales prices, projected forward on a level trend line without consideration for inflation or possible future pricing action.  At the inception of the lease, residual values are derived from consideration of the following critical factors: market size and demand, any known significant market/product trends, total expected hours of usage, machine configuration, application, location, model changes, quantities and past re-marketing experience, third-party residual guarantees and contractual customer purchase options. Many of these factors are gathered in an application survey that is completed prior to quotation.  The lease agreement also clearly defines applicable return conditions and remedies for non-compliance, to ensure that the leased equipment will be in good operating condition upon return.  Model changes and updates, as well as market strength and product acceptance, are monitored and adjustments are made to residual values in accordance with the significance of any such changes.  Remarketing sales staff works closely with customers and dealers to manage the sale of lease returns and the recovery of residual exposure.

During the term of the leases, residual amounts are monitored.  If estimated market values reflect a non-temporary impairment due to economic factors, obsolescence or other adverse circumstances, the residuals are adjusted to the lower estimated values by a charge to earnings.  For equipment on operating leases, the charge is recognized through depreciation expense.  For finance leases, it is recognized through a reduction of finance revenue.
 
Fair values for goodwill impairment tests – We test goodwill for impairment annually, at the reporting unit level, and whenever events or circumstances make it likely that an impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell all or a portion of a reporting unit.  We perform our annual goodwill impairment test as of October 1 and monitor for interim triggering events on an ongoing basis.
 
Goodwill is reviewed for impairment utilizing a qualitative assessment or a two-step process.  We have an option to make a qualitative assessment of a reporting unit's goodwill for impairment.  If we choose to perform a qualitative assessment and determine the fair value more likely than not exceeds the carrying value, no further evaluation is necessary.  For reporting units where we perform the two-step process, the first step requires us to compare the fair value of each reporting unit, which we primarily determine using an income approach based on the present value of discounted cash flows, to the respective carrying value, which includes goodwill.  If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired.  If the carrying value is higher than the fair value, there is an indication that an impairment may exist and the second step is required.  In step two, the implied fair value of goodwill is calculated as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities.  If the implied fair value of goodwill is less than the carrying value of the reporting unit's goodwill, the difference is recognized as an impairment loss.
 
The impairment test process requires valuation of the respective reporting unit, which we primarily determine using an income approach based on a discounted five year forecasted cash flow with a year-five residual value. The residual value is computed using the constant growth method, which values the forecasted cash flows in perpetuity. The income approach is supported by a reconciliation of our calculated fair value for Caterpillar to the company's market capitalization. The assumptions about future cash flows and growth rates are based on each reporting unit's long-term forecast and are subject to review and approval by senior management. The discount rate is a risk-adjusted weighted average cost of capital, which we believe approximates the rate from a market participant's perspective. The estimated fair value could be impacted by changes in market conditions, interest rates, growth rates, tax rates, costs, pricing and capital expenditures.
 
A prolonged economic downturn resulting in lower long-term growth rates and reduced long-term profitability may reduce the fair value of our reporting units. Industry specific events or circumstances that have a negative impact to the valuation assumptions may also reduce the fair value of our reporting units.  Should such events occur and it becomes more likely than not that a reporting unit's fair value has fallen below its carrying value, we will perform an interim goodwill impairment test(s), in addition to the

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annual impairment test.  Future impairment tests may result in a goodwill impairment, depending on the outcome of both step one and step two of the impairment review process.  A goodwill impairment would be reported as a non-cash charge to earnings.
 
Impairment of available-for-sale securities Available-for-sale securities, primarily at Insurance Services, are reviewed at least quarterly to identify fair values below cost which may indicate that a security is impaired and should be written down to fair value.
 
For debt securities, once a security’s fair value is below cost we utilize data gathered by investment managers, external sources and internal research to monitor the performance of the security to determine whether an other-than-temporary impairment has occurred.  These reviews, which include an analysis of whether it is more likely than not that we will be required to sell the security before its anticipated recovery, consist of both quantitative and qualitative analysis and require a degree of management judgment.  Securities in a loss position are monitored and assessed at least quarterly based on severity and timing of loss and may be deemed other-than-temporarily impaired at any time.  Once a security’s fair value has been 20 percent or more below its original cost for six consecutive months, the security will be other-than-temporarily impaired unless there are sufficient facts and circumstances supporting otherwise.
 
For equity securities in a loss position, determining whether a security is other-than-temporarily impaired requires an analysis of that security's historical sector return as well as the volatility of that return. This information is utilized to estimate a security’s future fair value and to assess whether the security has the ability to recover to its original cost over a reasonable period of time. Both historical annualized sector returns and the volatility of those returns are considered over a two year period to arrive at these estimates.

For both debt and equity securities, qualitative factors are also considered in determining whether a security is other-than-temporarily impaired. These include reviews of the following:  significant changes in the regulatory, economic or technological environment of the investee, significant changes in the general market condition of either the geographic area or the industry in which the investee operates, and length of time and the extent to which the fair value has been less than cost.  These qualitative factors are subjective and require a degree of management judgment.
 
Warranty liability – At the time a sale is recognized, we record estimated future warranty costs.  The warranty liability is determined by applying historical claim rate experience to the current field population and dealer inventory.  Generally, historical claim rates are based on actual warranty experience for each product by machine model/engine size by customer or dealer location (inside or outside North America).  Specific rates are developed for each product shipment month and are updated monthly based on actual warranty claim experience.  Warranty costs may differ from those estimated if actual claim rates are higher or lower than our historical rates.
 
Stock-based compensation – We use a lattice-based option-pricing model to calculate the fair value of our stock options and SARs.  The calculation of the fair value of the awards using the lattice-based option-pricing model is affected by our stock price on the date of grant as well as assumptions regarding the following:
 
Volatility is a measure of the amount by which the stock price is expected to fluctuate each year during the expected term of the award and is based on historical Caterpillar stock price movement and current implied volatilities from traded options on Caterpillar stock. The implied volatilities from traded options are impacted by changes in market conditions.  An increase in the volatility would result in an increase in our expense.
The expected term represents the period of time that awards granted are expected to be outstanding and is an output of the lattice-based option-pricing model. In determining the expected term of the award, future exercise and forfeiture patterns are estimated from Caterpillar employee historical exercise behavior.  These patterns are also affected by the vesting conditions of the award.  Changes in the future exercise behavior of employees or in the vesting period of the award could result in a change in the expected term.  An increase in the expected term would result in an increase to our expense.
The weighted-average dividend yield is based on Caterpillar’s historical dividend yields.  As holders of stock-based awards do not receive dividend payments, this could result in employees retaining the award for a longer period of time if dividend yields decrease or exercising the award sooner if dividend yields increase.  A decrease in the dividend yield would result in an increase in our expense.
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at time of grant.  As the risk-free interest rate increases, the expected term increases, resulting in an increase in our expense.
 
The fair value of our RSUs is determined by reducing the stock price on the date of grant by the present value of the estimated dividends to be paid during the vesting period. The estimated dividends are based on Caterpillar’s dividend yield at the time of grant. A decrease in the dividend yield would result in an increase in our expense.

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Stock-based compensation expense recognized during the period is based on the value of the number of awards that are expected to vest.  In determining the stock-based compensation expense to be recognized, a forfeiture rate is applied to the fair value of the award.  This rate represents the number of awards that are expected to be forfeited prior to vesting and is based on Caterpillar employee historical behavior.  Changes in the future behavior of employees could impact this rate.  A decrease in this rate would result in an increase in our expense.
 
Product liability and insurance loss reserve – We determine these reserves based upon reported claims in process of settlement and actuarial estimates for losses incurred but not reported. Loss reserves, including incurred but not reported reserves, are based on estimates and ultimate settlements may vary significantly from such estimates due to increased claims frequency or severity over historical levels.
 
Postretirement benefits – Primary actuarial assumptions were determined as follows:
 
The U.S. expected long-term rate of return on plan assets is based on our estimate of long-term passive returns for equities and fixed income securities weighted by the allocation of our plan assets.  Based on historical performance, we increase the passive returns due to our active management of the plan assets.  A similar process is used to determine the rate for our non-U.S. pension plans.  This rate is impacted by changes in general market conditions, but because it represents a long-term rate, it is not significantly impacted by short-term market swings.  Changes in our allocation of plan assets would also impact this rate.  For example, a shift to more fixed income securities would lower the rate. A decrease in the rate would increase our expense.
The assumed discount rate is used to discount future benefit obligations back to today’s dollars.  The U.S. discount rate is based on a benefit cash flow-matching approach and represents the rate at which our benefit obligations could effectively be settled as of our measurement date, December 31.  The benefit cash flow-matching approach involves analyzing Caterpillar’s projected cash flows against a high quality bond yield curve, calculated using a wide population of corporate Aa bonds available on the measurement date.  The very highest and lowest yielding bonds (top and bottom 10 percent) are excluded from the analysis.  A similar approach is used to determine the assumed discount rate for our most significant non-U.S. plans. This rate is sensitive to changes in interest rates.  A decrease in the discount rate would increase our obligation and future expense.
The expected rate of compensation increase is used to develop benefit obligations using projected pay at retirement. It represents average long-term salary increases. This rate is influenced by our long-term compensation policies.  An increase in the rate would increase our obligation and expense.
The assumed health care trend rate represents the rate at which health care costs are assumed to increase and is based on historical and expected experience.  Changes in our projections of future health care costs due to general economic conditions and those specific to health care (e.g., technology driven cost changes) will impact this trend rate.  An increase in the trend rate would increase our obligation and expense.

The effects of actual results differing from our assumptions and the effects of changing assumptions are considered actuarial gains or losses. Actuarial gains or losses are recorded in Accumulated other comprehensive income (loss). When the unamortized actuarial gains or losses for an individual plan exceed 10 percent of the higher of the projected benefit obligation or 10 percent of market-related value of plans assets at the beginning of the year, the excess is amortized as a component of net periodic benefit cost using the straight-line method. The amortization period is generally the average remaining service period of active employees expected to receive benefits from the plan. For plans in which all or almost all of the plan’s participants are inactive, actuarial gains or losses are amortized over the remaining life expectancy of the inactive participants.
  
Post-sale discount reserve – We provide discounts to dealers through merchandising programs.  We have numerous programs that are designed to promote the sale of our products.  The most common dealer programs provide a discount when the dealer sells a product to a targeted end user.  The amount of accrued post-sale discounts was $1.23 billion and $1.13 billion as of March 31, 2014 and December 31, 2013, respectively.  The reserve represents discounts that we expect to pay on previously sold units and is reviewed at least quarterly.  The reserve is adjusted if discounts paid differ from those estimated.  Historically, those adjustments have not been material.
 
Credit loss reserve – The allowance for credit losses is an estimate of the losses inherent in our finance receivable portfolio and includes consideration of accounts that have been individually identified as impaired, as well as pools of finance receivables where it is probable that certain receivables in the pool are impaired but the individual accounts cannot yet be identified.   In identifying and measuring impairment, management takes into consideration past loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of underlying collateral and current economic conditions.  In estimating probable credit losses, we review accounts that are past due, non-performing, in bankruptcy or otherwise

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identified as at-risk for potential credit loss including accounts which have been modified.  Accounts are identified as at-risk for potential credit loss using information available about the customer, such as financial statements, news reports and published credit ratings, as well as general information regarding industry trends and the economic environment in which our customers operate.
 
The allowance for credit losses attributable to specific accounts is based on the most probable source of repayment, which is normally the liquidation of collateral.  In determining collateral value, we estimate the current fair market value of the collateral less selling costs. We also consider credit enhancements such as additional collateral and contractual third-party guarantees. The allowance for credit losses attributable to the remaining accounts not yet individually identified as impaired is estimated utilizing probabilities of default and the estimated loss given default.  In addition, qualitative factors not able to be fully captured in previous analysis including industry trends, macroeconomic factors and model imprecision are considered in the evaluation of the adequacy of the allowance for credit losses.  These qualitative factors are subjective and require a degree of management judgment.
 
While management believes it has exercised prudent judgment and applied reasonable assumptions, there can be no assurance that in the future, changes in economic conditions or other factors would not cause changes in the financial health of our customers. If the financial health of our customers deteriorates, the timing and level of payments received could be impacted and therefore, could result in a change to our estimated losses.
 
Income taxes – We are subject to the income tax laws of the many jurisdictions in which we operate.  These tax laws are complex, and the manner in which they apply to our facts is sometimes open to interpretation.  In establishing the provision for income taxes, we must make judgments about the application of these inherently complex tax laws.
 
Despite our belief that our tax return positions are consistent with applicable tax laws, we believe that taxing authorities could challenge certain positions. Settlement of any challenge can result in no change, a complete disallowance, or some partial adjustment reached through negotiations or litigation. We record tax benefits for uncertain tax positions based upon management’s evaluation of the information available at the reporting date.  To be recognized in the financial statements, a tax benefit must be at least more likely than not of being sustained based on technical merits.  The benefit for positions meeting the recognition threshold is measured as the largest benefit more likely than not of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.  Significant judgment is required in making these determinations and adjustments to unrecognized tax benefits may be necessary to reflect actual taxes payable upon settlement.  Adjustments related to positions impacting the effective tax rate affect the provision for income taxes.  Adjustments related to positions impacting the timing of deductions impact deferred tax assets and liabilities.
 
Our income tax positions and analysis are based on currently enacted tax law.  Future changes in tax law could significantly impact the provision for income taxes, the amount of taxes payable, and the deferred tax asset and liability balances.  Deferred tax assets generally represent tax benefits for tax deductions or credits available in future tax returns.  Certain estimates and assumptions are required to determine whether it is more likely than not that all or some portion of the benefit of a deferred tax asset will not be realized.  In making this assessment, management analyzes and estimates the impact of future taxable income, reversing temporary differences and available prudent and feasible tax planning strategies.  Should a change in facts or circumstances lead to a change in judgment about the ultimate realizability of a deferred tax asset, we record or adjust the related valuation allowance in the period that the change in facts and circumstances occurs, along with a corresponding increase or decrease in the provision for income taxes.

A provision for U.S. income taxes has not been recorded on undistributed profits of our non-U.S. subsidiaries that we have determined to be indefinitely reinvested outside the U.S.  If management intentions or U.S. tax law changes in the future, there may be a significant negative impact on the provision for income taxes to record an incremental tax liability in the period the change occurs. A deferred tax asset is recognized only if we have definite plans to generate a U.S. tax benefit by repatriating earnings in the foreseeable future.

GLOBAL WORKFORCE

Caterpillar worldwide full-time employment was 116,579 at the end of the first quarter of 2014 compared with 124,874 at the end of the first quarter of 2013, a decrease of 8,295 full-time employees. The flexible workforce decreased 955 for a total decrease in the global workforce of 9,250.
The decrease was primarily the result of 2013 restructuring programs. The remaining decrease was primarily due to aligning the workforce with production volumes.


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OTHER MATTERS
 
Environmental and Legal Matters
 
The company is regulated by federal, state and international environmental laws governing our use, transport and disposal of substances and control of emissions. In addition to governing our manufacturing and other operations, these laws often impact the development of our products, including, but not limited to, required compliance with air emissions standards applicable to internal combustion engines. We have made, and will continue to make, significant research and development and capital expenditures to comply with these emissions standards.

We are engaged in remedial activities at a number of locations, often with other companies, pursuant to federal and state laws. When it is probable we will pay remedial costs at a site, and those costs can be reasonably estimated, the investigation, remediation, and operating and maintenance costs are accrued against our earnings. Costs are accrued based on consideration of currently available data and information with respect to each individual site, including available technologies, current applicable laws and regulations, and prior remediation experience. Where no amount within a range of estimates is more likely, we accrue the minimum. Where multiple potentially responsible parties are involved, we consider our proportionate share of the probable costs. In formulating the estimate of probable costs, we do not consider amounts expected to be recovered from insurance companies or others. We reassess these accrued amounts on a quarterly basis. The amount recorded for environmental remediation is not material and is included in Accrued expenses in Statement 3. There is no more than a remote chance that a material amount for remedial activities at any individual site, or at all the sites in the aggregate, will be required.

On March 20, 2014, Brazil’s Administrative Council for Economic Defense (CADE) published a Technical Opinion which named 18 companies and over 100 individuals as defendants, including two subsidiaries of Caterpillar Inc., MGE - Equipamentos e Serviços Ferroviários Ltda. (MGE) and Caterpillar Brasil Ltda. The publication of the Technical Opinion opened CADE's official administrative investigation into allegations that the defendants participated in anticompetitive bid activity for the construction and maintenance of metro and train networks in Brazil. While companies cannot be held criminally liable for anticompetitive conduct in Brazil, criminal charges have been brought against one current and one former employee of MGE involving the same conduct alleged by CADE. The Company has responded to all requests for information from the authorities. The Company is unable to predict the outcome or reasonably estimate the potential loss; however, we currently believe that this matter will not have a material adverse effect on the Company's consolidated results of operation, financial position or liquidity.

On February 19, 2014, Progress Rail Services Corporation (Progress Rail), a wholly-owned subsidiary of Caterpillar Inc., received information from the California Air Resources Board (CARB) Enforcement Division indicating it is contemplating an enforcement proceeding with potential monetary sanctions in excess of $100,000 in connection with a notice of violation received by Progress Rail on March 15, 2013 alleging violations of air emissions regulations applicable to compression ignition mobile cargo handling equipment operating at California ports or intermodal rail yards. Despite uncertainty regarding the applicability of these regulations, Progress Rail, in coordination with CARB, implemented certain corrective action measures. Progress Rail is cooperating with CARB to resolve this matter. The Company is unable to predict the outcome; however, we currently believe that this matter will not have a material adverse effect on the Company's consolidated results of operation, financial position or liquidity.

On October 24, 2013, Progress Rail received a grand jury subpoena from the U.S. District Court for the Central District of California. The subpoena requests documents and information from Progress Rail, United Industries Corporation, a wholly-owned subsidiary of Progress Rail, and Caterpillar Inc. relating to allegations that Progress Rail conducted improper or unnecessary railcar inspections and repairs and improperly disposed of parts, equipment, tools and other items. In connection with this subpoena, Progress Rail was informed by the U.S. Attorney for the Central District of California that it is a target of a criminal investigation into potential violations of environmental laws and alleged improper business practices. The Company is cooperating with the authorities. The Company is unable to predict the outcome or reasonably estimate the potential loss; however, we currently believe that this matter will not have a material adverse effect on the Company's consolidated results of operation, financial position or liquidity.

In addition, we are involved in other unresolved legal actions that arise in the normal course of business. The most prevalent of these unresolved actions involve disputes related to product design, manufacture and performance liability (including claimed asbestos and welding fumes exposure), contracts, employment issues, environmental matters or intellectual property rights. The aggregate range of reasonably possible losses in excess of accrued liabilities, if any, associated with these unresolved legal actions is not material. In some cases, we cannot reasonably estimate a range of loss because there is insufficient information regarding the matter. However, there is no more than a remote chance that any liability arising from these matters would be material. Although it is not possible to predict with certainty the outcome of these unresolved legal actions, we believe that these actions will not individually or in the aggregate have a material adverse effect on our consolidated results of operations, financial position or liquidity.

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Retirement Benefits
 
We recognized pension expense of $113 million for the three months ended March 31, 2014, as compared to $174 million for the three months ended March 31, 2013. The decrease in expense is primarily due to lower amortization of net actuarial losses primarily due to higher discount rates at the end of 2013. Accounting guidance on retirement benefits requires companies to discount future benefit obligations back to today’s dollars using a discount rate that is based on high-quality fixed income investments. A decrease in the discount rate increases the pension benefit obligation, while an increase in the discount rate decreases the pension benefit obligation. This increase or decrease in the pension benefit obligation is recognized in Accumulated other comprehensive income (loss) and subsequently amortized into earnings as an actuarial gain or loss. The guidance also requires companies to use an expected long-term rate of return on plan assets for computing current year pension expense. Differences between the actual and expected returns are also recognized in Accumulated other comprehensive income (loss) and subsequently amortized into earnings as actuarial gains and losses. As of March 31, 2014, total actuarial losses, recognized in Accumulated other comprehensive income (loss), related to pensions were $5.65 billion.  The majority of the actuarial losses are due to changes in discount rates, losses from demographic assumptions over the past several years and plan asset losses.
Other postretirement benefit expense was $57 million for the three months ended March 31, 2014, as compared to $69 million for the three months ended March 31, 2013.  The decrease in expense is primarily due to lower amortization of net actuarial losses primarily due to higher discount rates at the end of 2013.  Actuarial losses that were recognized in Accumulated other comprehensive income (loss) for other postretirement benefit plans were $0.65 billion at March 31, 2014. These losses mainly reflect the impact of discount rates, changes in our health care trend assumption, and plan asset losses, partially offset by gains from lower than expected health care costs. 
 
Actuarial losses for both pensions and other postretirement benefits will be impacted in future periods by actual asset returns, actual health care inflation, discount rate changes, actual demographic experience and other factors that impact these expenses. These losses, reported in Accumulated other comprehensive income (loss), will generally be amortized as a component of net periodic benefit cost on a straight-line basis over the average remaining service period of active employees expected to receive benefits from the plan. For plans in which all or almost all of the plan’s participants are inactive, actuarial losses are amortized using the straight-line method over the remaining life expectancy of the inactive participants. At the end of 2013, the average remaining service period of active employees or life expectancy for inactive participants was 10 years for our U.S. pension plans, 13 years for non-U.S. pension plans and 9 years for other postretirement benefit plans. We expect our amortization of net actuarial losses to decrease approximately $260 million in 2014 as compared to 2013, primarily due to an increase in discount rates during 2013 and plan asset gains during 2013. We expect our total pension and other postretirement benefits expense to decrease approximately $300 million in 2014 which is primarily due to a decrease in amortization of net actuarial losses.

We made $279 million of contributions to our pension plans during the three months ended March 31, 2014. We currently anticipate full-year 2014 contributions of approximately $510 million, all of which are required. We made $142 million of contributions to our pension plans during the three months ended March 31, 2013.


Order Backlog
 
The dollar amount of backlog believed to be firm was approximately $19.3 billion at March 31, 2014 and $18.0 billion at December 31, 2013.  The increase was all in Energy & Transportation and concentrated in locomotives. Resource Industries and Construction Industries were relatively flat. Of the total backlog, approximately $3.2 billion at March 31, 2014 and $3.0 billion at December 31, 2013 was not expected to be filled in the following twelve months.


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Table of Contents

NON-GAAP FINANCIAL MEASURES
 
The following definitions are provided for “non-GAAP financial measures” in connection with Item 10(e) of Regulation S-K issued by the Securities and Exchange Commission.   These non-GAAP financial measures have no standardized meaning prescribed by U.S. GAAP and therefore are unlikely to be comparable to the calculation of similar measures for other companies.  Management does not intend these items to be considered in isolation or substituted for the related GAAP measures.
 
We anticipate incurring significant restructuring costs in 2014. We believe it is important to separately quantify the profit-per-share impact of restructuring costs in order for our first-quarter 2014 results to be meaningful to our readers. Reconciliation of profit per share excluding restructuring costs to the most directly comparable GAAP measure, profit per share is as follows:
 
 
2014
 
 
First Quarter
Profit per share
 
$
1.44

Per share restructuring costs
 
$
0.17

Profit per share excluding restructuring costs
 
$
1.61

 
 
 

Supplemental Consolidating Data
 
We are providing supplemental consolidating data for the purpose of additional analysis.  The data has been grouped as follows:
 
Consolidated – Caterpillar Inc. and its subsidiaries.
 
Machinery, Energy & Transportation – Caterpillar defines Machinery, Energy & Transportation as it is presented in the supplemental data as Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis.  Machinery, Energy & Transportation information relates to the design, manufacture and marketing of our products.  Financial Products information relates to the financing to customers and dealers for the purchase and lease of Caterpillar and other equipment.  The nature of these businesses is different especially with regard to the financial position and cash flow items.  Caterpillar management utilizes this presentation internally to highlight these differences.  We also believe this presentation will assist readers in understanding our business.
 
Financial Products – Our finance and insurance subsidiaries, primarily Cat Financial and Insurance Services.
 
Consolidating Adjustments – Eliminations of transactions between Machinery, Energy & Transportation and Financial Products.
 
Pages 68 to 73 reconcile Machinery, Energy & Transportation with Financial Products on the equity basis to Caterpillar Inc. consolidated financial information.


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Table of Contents


Caterpillar Inc.
Supplemental Data for Results of Operations
For The Three Months Ended March 31, 2014
(Unaudited)
(Millions of dollars)
 
 
 
 
Supplemental Consolidating Data
 
 
Consolidated
 
Machinery,
Energy &
Transportation 1
 
Financial
Products
 
Consolidating
Adjustments
 
Sales and revenues:
 

 
 

 
 

 
 

 
Sales of Machinery, Energy & Transportation
$
12,493

 
$
12,493

 
$

 
$

 
Revenues of Financial Products
748

 

 
831

 
(83
)
2 

Total sales and revenues
13,241

 
12,493

 
831

 
(83
)
 
 
 
 
 
 
 
 
 
 
Operating costs:
 

 
 

 
 

 
 

 
Cost of goods sold
9,437

 
9,437

 

 

 
Selling, general and administrative expenses
1,292

 
1,155

 
146

 
(9
)
3 

Research and development expenses
508

 
508

 

 

 
Interest expense of Financial Products
160

 

 
162

 
(2
)
4 

Other operating (income) expenses
446

 
154

 
298

 
(6
)
3 

Total operating costs
11,843

 
11,254

 
606

 
(17
)
 
 
 
 
 
 
 
 
 
 
Operating profit
1,398

 
1,239

 
225

 
(66
)
 
 
 
 
 
 
 
 
 
 
Interest expense excluding Financial Products
110

 
120

 

 
(10
)
4 

Other income (expense)
54

 
(17
)
 
15

 
56

5 

 
 
 
 
 
 
 
 
 
Consolidated profit before taxes
1,342

 
1,102

 
240

 

 
 
 
 
 
 
 
 
 
 
Provision (benefit) for income taxes
418

 
350

 
68

 

 
Profit of consolidated companies
924

 
752

 
172

 

 
 
 
 
 
 
 
 
 
 
Equity in profit (loss) of unconsolidated affiliated companies
1

 
1

 

 

 
Equity in profit of Financial Products’ subsidiaries

 
169

 

 
(169
)
6 

 
 
 
 
 
 
 
 
 
Profit of consolidated and affiliated companies
925

 
922

 
172

 
(169
)
 
 
 
 
 
 
 
 
 
 
Less: Profit (loss) attributable to noncontrolling interests
3

 

 
3

 

 
 
 
 
 
 
 
 
 
 
Profit 7
$
922

 
$
922

 
$
169

 
$
(169
)
 
 
1 
Represents Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis.
2 
Elimination of Financial Products’ revenues earned from Machinery, Energy & Transportation.
3 
Elimination of net expenses recorded by Machinery, Energy & Transportation paid to Financial Products.
4 
Elimination of interest expense recorded between Financial Products and Machinery, Energy & Transportation.
5 
Elimination of discount recorded by Machinery, Energy & Transportation on receivables sold to Financial Products and of interest earned between Machinery, Energy & Transportation and Financial Products.
6 
Elimination of Financial Products’ profit due to equity method of accounting.
7 
Profit attributable to common stockholders.


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Caterpillar Inc.
Supplemental Data for Results of Operations
For The Three Months Ended March 31, 2013
(Unaudited)
(Millions of dollars)

 
 
 
Supplemental Consolidating Data
 
 
Consolidated
 
Machinery,
Energy &
Transportation 1
 
Financial
Products
 
Consolidating
Adjustments
 
Sales and revenues:
 

 
 

 
 

 
 

 
Sales of Machinery, Energy & Transportation
$
12,484

 
$
12,484

 
$

 
$

 
Revenues of Financial Products
726

 

 
814

 
(88
)
2 

Total sales and revenues
13,210

 
12,484

 
814

 
(88
)
 
 
 
 
 
 
 
 
 
 
Operating costs:
 

 
 

 
 

 
 

 
Cost of goods sold
9,639

 
9,639

 

 

 
Selling, general and administrative expenses
1,390

 
1,275

 
129

 
(14
)
3 

Research and development expenses
562

 
562

 

 

 
Interest expense of Financial Products
189

 

 
191

 
(2
)
4 

Other operating (income) expenses
212

 
5

 
212

 
(5
)
3 

Total operating costs
11,992

 
11,481

 
532

 
(21
)
 
 
 
 
 
 
 
 
 
 
Operating profit
1,218

 
1,003

 
282

 
(67
)
 
 
 
 
 
 
 
 
 
 
Interest expense excluding Financial Products
120

 
131

 

 
(11
)
4 

Other income (expense)
29

 
(35
)
 
8

 
56

5 

 
 
 
 
 
 
 
 
 
Consolidated profit before taxes
1,127

 
837

 
290

 

 
 
 
 
 
 
 
 
 
 
Provision (benefit) for income taxes
246

 
168

 
78

 

 
Profit of consolidated companies
881

 
669

 
212

 

 
 
 
 
 
 
 
 
 
 
Equity in profit (loss) of unconsolidated affiliated companies
1

 
1

 

 

 
Equity in profit of Financial Products’ subsidiaries

 
209

 

 
(209
)
6 

 
 
 
 
 
 
 
 
 
Profit of consolidated and affiliated companies
882

 
879

 
212

 
(209
)
 
 
 
 
 
 
 
 
 
 
Less: Profit (loss) attributable to noncontrolling interests
2

 
(1
)
 
3

 

 
 
 
 
 
 
 
 
 
 
Profit 7
$
880

 
$
880

 
$
209

 
$
(209
)
 
 
1 
Represents Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis.
2 
Elimination of Financial Products’ revenues earned from Machinery, Energy & Transportation.
3 
Elimination of net expenses recorded by Machinery, Energy & Transportation paid to Financial Products.
4 
Elimination of interest expense recorded between Financial Products and Machinery, Energy & Transportation.
5 
Elimination of discount recorded by Machinery, Energy & Transportation on receivables sold to Financial Products and of interest earned between Machinery, Energy & Transportation and Financial Products.
6 
Elimination of Financial Products’ profit due to equity method of accounting.
7 
Profit attributable to common stockholders.


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Caterpillar Inc.
Supplemental Data for Financial Position
At March 31, 2014
(Unaudited)
(Millions of dollars)
 
 
 
Supplemental Consolidating Data
 
 
Consolidated
 
Machinery,
Energy &
Transportation 1
 
Financial
Products
 
Consolidating
Adjustments
 
Assets
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
Cash and short-term investments
$
5,345

 
$
4,057

 
$
1,288

 
$

 
Receivables – trade and other
8,565

 
4,889

 
366

 
3,310

2,3 
Receivables – finance
8,834

 

 
13,405

 
(4,571
)
3 
Deferred and refundable income taxes
1,401

 
1,347

 
54

 

 
Prepaid expenses and other current assets
935

 
426

 
522

 
(13
)
4 
Inventories
12,888

 
12,888

 

 

 
Total current assets
37,968

 
23,607

 
15,635

 
(1,274
)
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment – net
16,716

 
12,773

 
3,943

 

 
Long-term receivables – trade and other
1,284

 
216

 
282

 
786

2,3 
Long-term receivables – finance
15,206

 

 
16,025

 
(819
)
3 
Investments in unconsolidated affiliated companies
266

 
266

 

 

 
Investments in Financial Products subsidiaries

 
4,919

 

 
(4,919
)
5 
Noncurrent deferred and refundable income taxes
700

 
1,084

 
104

 
(488
)
6 
Intangible assets
3,509

 
3,502

 
7

 

 
Goodwill
6,986

 
6,969

 
17

 

 
Other assets
1,762

 
434

 
1,328

 

 
Total assets
$
84,397

 
$
53,770

 
$
37,341

 
$
(6,714
)
 
 
 
 
 
 
 
 
 
 
Liabilities
 

 
 

 
 

 
 

 
Current liabilities:
 

 
 

 
 

 
 

 
Short-term borrowings
$
4,515

 
$
18

 
$
5,619

 
$
(1,122
)
7 
Accounts payable
6,731

 
6,649

 
221

 
(139
)
8 
Accrued expenses
3,454

 
3,160

 
307

 
(13
)
9 
Accrued wages, salaries and employee benefits
1,475

 
1,453

 
22

 

 
Customer advances
2,500

 
2,500

 

 

 
Dividends payable

 

 

 

 
Other current liabilities
1,845

 
1,334

 
522

 
(11
)
6 
Long-term debt due within one year
6,775

 
759

 
6,016

 

 
Total current liabilities
27,295

 
15,873

 
12,707

 
(1,285
)
 
Long-term debt due after one year
26,801

 
8,031

 
18,803

 
(33
)
7 
Liability for postemployment benefits
6,715

 
6,715

 

 

 
Other liabilities
3,217

 
2,782

 
912

 
(477
)
6 
Total liabilities
64,028

 
33,401

 
32,422

 
(1,795
)
 
Commitments and contingencies
 

 
 

 
 

 
 

 
Stockholders’ equity
 

 
 

 
 

 
 

 
Common stock
4,773

 
4,773

 
906

 
(906
)
5 
Treasury stock
(13,442
)
 
(13,442
)
 

 

 
Profit employed in the business
32,775

 
32,775

 
3,705

 
(3,705
)
5 
Accumulated other comprehensive income (loss)
(3,801
)
 
(3,801
)
 
183

 
(183
)
5 
Noncontrolling interests
64

 
64

 
125

 
(125
)
5 
Total stockholders’ equity
20,369

 
20,369

 
4,919

 
(4,919
)
 
Total liabilities and stockholders’ equity
$
84,397

 
$
53,770

 
$
37,341

 
$
(6,714
)
 
 
1 
Represents Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis.
2 
Elimination of receivables between Machinery, Energy & Transportation and Financial Products.
3 
Reclassification of Machinery, Energy & Transportation's trade receivables purchased by Financial Products and Financial Products’ wholesale inventory receivables.
4 
Elimination of Machinery, Energy & Transportation's insurance premiums that are prepaid to Financial Products.
5 
Elimination of Financial Products’ equity which is accounted for by Machinery, Energy & Transportation on the equity basis.
6 
Reclassification reflecting required netting of deferred tax assets / liabilities by taxing jurisdiction.
7 
Elimination of debt between Machinery, Energy & Transportation and Financial Products.
8 
Elimination of payables between Machinery, Energy & Transportation and Financial Products.
9 
Elimination of prepaid insurance in Financial Products’ accrued expenses.

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Caterpillar Inc.
Supplemental Data for Financial Position
At December 31, 2013
(Unaudited)
(Millions of dollars)
 
 
 
Supplemental Consolidating Data
 
 
Consolidated
 
Machinery,
Energy &
Transportation 1
 
Financial
Products
 
Consolidating
Adjustments
 
Assets
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
Cash and short-term investments
$
6,081

 
$
4,597

 
$
1,484

 
$

 
Receivables – trade and other
8,413

 
5,188

 
386

 
2,839

2,3 
Receivables – finance
8,763

 

 
12,886

 
(4,123
)
3 
Deferred and refundable income taxes
1,553

 
1,511

 
42

 

 
Prepaid expenses and other current assets
900

 
417

 
496

 
(13
)
4 
Inventories
12,625

 
12,625

 

 

 
Total current assets
38,335

 
24,338

 
15,294

 
(1,297
)
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment – net
17,075

 
13,078

 
3,997

 

 
Long-term receivables – trade and other
1,397

 
224

 
292

 
881

2,3 
Long-term receivables – finance
14,926

 

 
15,840

 
(914
)
3 
Investments in unconsolidated affiliated companies
272

 
272

 

 

 
Investments in Financial Products subsidiaries

 
4,798

 

 
(4,798
)
5 
Noncurrent deferred and refundable income taxes
594

 
1,027

 
92

 
(525
)
6 
Intangible assets
3,596

 
3,589

 
7

 

 
Goodwill
6,956

 
6,939

 
17

 

 
Other assets
1,745

 
439

 
1,306

 

 
Total assets
$
84,896

 
$
54,704

 
$
36,845

 
$
(6,653
)
 
 
 
 
 
 
 
 
 
 
Liabilities
 

 
 

 
 

 
 

 
Current liabilities:
 

 
 

 
 

 
 

 
Short-term borrowings
$
3,679

 
$
16

 
$
4,781

 
$
(1,118
)
7 
Accounts payable
6,560

 
6,516

 
209

 
(165
)
8 
Accrued expenses
3,493

 
3,165

 
341

 
(13
)
9 
Accrued wages, salaries and employee benefits
1,622

 
1,589

 
33

 

 
Customer advances
2,360

 
2,360

 

 

 
Dividends payable
382

 
382

 

 

 
Other current liabilities
1,849

 
1,425

 
432

 
(8
)
6 
Long-term debt due within one year
7,352

 
760

 
6,592

 

 
Total current liabilities
27,297

 
16,213

 
12,388

 
(1,304
)
 
Long-term debt due after one year
26,719

 
8,033

 
18,720

 
(34
)
7 
Liability for postemployment benefits
6,973

 
6,973

 

 

 
Other liabilities
3,029

 
2,607

 
939

 
(517
)
6 
Total liabilities
64,018

 
33,826

 
32,047

 
(1,855
)
 
Commitments and contingencies
 

 
 

 
 

 
 

 
Stockholders’ equity
 

 
 

 
 

 
 

 
Common stock
4,709

 
4,709

 
906

 
(906
)
5 
Treasury stock
(11,854
)
 
(11,854
)
 

 

 
Profit employed in the business
31,854

 
31,854

 
3,586

 
(3,586
)
5 
Accumulated other comprehensive income (loss)
(3,898
)
 
(3,898
)
 
183

 
(183
)
5 
Noncontrolling interests
67

 
67

 
123

 
(123
)
5 
Total stockholders’ equity
20,878

 
20,878

 
4,798

 
(4,798
)
 
Total liabilities and stockholders’ equity
$
84,896

 
$
54,704

 
$
36,845

 
$
(6,653
)
 
 
1 
Represents Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis.
2 
Elimination of receivables between Machinery, Energy & Transportation and Financial Products.
3 
Reclassification of Machinery, Energy & Transportation's trade receivables purchased by Financial Products and Financial Products’ wholesale inventory receivables.
4 
Elimination of Machinery, Energy & Transportation's insurance premiums that are prepaid to Financial Products.
5 
Elimination of Financial Products’ equity which is accounted for by Machinery, Energy & Transportation on the equity basis.
6 
Reclassification reflecting required netting of deferred tax assets / liabilities by taxing jurisdiction.
7 
Elimination of debt between Machinery, Energy & Transportation and Financial Products.
8 
Elimination of payables between Machinery, Energy & Transportation and Financial Products.
9 
Elimination of prepaid insurance in Financial Products’ accrued expenses.


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Caterpillar Inc.
Supplemental Data for Cash Flow
For The Three Months Ended March 31, 2014
(Unaudited)
(Millions of dollars)
 
 
 
 
Supplemental Consolidating Data
 
 
Consolidated
 
Machinery,
Energy &
Transportation 1
 
Financial
Products
 
Consolidating
Adjustments
 
Cash flow from operating activities:
 
 
 
 
 
 
 
 
Profit of consolidated and affiliated companies
$
925

 
$
922

 
$
172

 
$
(169
)
2 
Adjustments for non-cash items:
 

 
 

 
 

 
 

 
Depreciation and amortization
781

 
556

 
225

 

 
Undistributed profit of Financial Products

 
(119
)
 

 
119

3 
Other
115

 
108

 
(41
)
 
48

4 
Changes in assets and liabilities, net of acquisitions and divestitures:

 
 
 
 
 
 
 
Receivables - trade and other
(37
)
 
305

 
11

 
(353
)
4,5 
Inventories
(270
)
 
(265
)
 

 
(5
)
4 
Accounts payable
403

 
382

 
(5
)
 
26

4 
Accrued expenses
27

 
66

 
(39
)
 

 
Accrued wages, salaries and employee benefits
(152
)
 
(141
)
 
(11
)
 

 
Customer advances
145

 
145

 

 

 
Other assets – net
26

 
85

 
(22
)
 
(37
)
4 
Other liabilities – net
(66
)
 
(166
)
 
63

 
37

4 
Net cash provided by (used for) operating activities
1,897

 
1,878

 
353

 
(334
)
 
 
 
 
 
 
 
 
 
 
Cash flow from investing activities:
 

 
 

 
 

 
 

 
Capital expenditures - excluding equipment leased to others
(454
)
 
(452
)
 
(2
)
 

 
Expenditures for equipment leased to others
(285
)
 
(17
)
 
(291
)
 
23

4 
Proceeds from disposals of leased assets and property, plant and equipment
184

 
22

 
164

 
(2
)
4 
Additions to finance receivables
(2,634
)
 

 
(3,218
)
 
584

5 
Collections of finance receivables
2,215

 

 
2,872

 
(657
)
5 
Net intercompany purchased receivables

 

 
(339
)
 
339

5 
Proceeds from sale of finance receivables
20

 

 
23

 
(3
)
5 
Net intercompany borrowings

 

 
1

 
(1
)
6 
Investments and acquisitions (net of cash acquired)
(5
)
 
(5
)
 

 

 
Proceeds from sale of businesses and investments (net of cash sold)
13

 
13

 

 

 
Proceeds from sale of available-for-sale securities
115

 
8

 
107

 

 
Investments in available-for-sale securities
(105
)
 
(8
)
 
(97
)
 

 
Other – net
(12
)
 
19

 
(31
)
 

 
Net cash provided by (used for) investing activities
(948
)
 
(420
)
 
(811
)
 
283

 
 
 
 
 
 
 
 
 
 
Cash flow from financing activities:
 

 
 

 
 

 
 

 
Dividends paid
(383
)
 
(383
)
 
(50
)
 
50

7 
Distribution to noncontrolling interests
(7
)
 
(7
)
 

 

 
Contribution from noncontrolling interests
2

 
2

 

 

 
Common stock issued, including treasury shares reissued
92

 
92

 

 

 
Treasury shares purchased
(1,738
)
 
(1,738
)
 

 

 
Excess tax benefit from stock-based compensation
69

 
69

 

 

 
Net intercompany borrowings

 
(1
)
 

 
1

6 
Proceeds from debt issued (original maturities greater than three months)
2,152

 
6

 
2,146

 

 
Payments on debt (original maturities greater than three months)
(2,782
)
 
(9
)
 
(2,773
)
 

 
Short-term borrowings – net  (original maturities three months or less)
944

 
2

 
942

 

 
Net cash provided by (used for) financing activities
(1,651
)
 
(1,967
)
 
265

 
51

 
Effect of exchange rate changes on cash
(34
)
 
(31
)
 
(3
)
 

 
Increase (decrease) in cash and short-term investments
(736
)
 
(540
)
 
(196
)
 

 
Cash and short-term investments at beginning of period
6,081

 
4,597

 
1,484

 

 
Cash and short-term investments at end of period
$
5,345

 
$
4,057

 
$
1,288

 
$

 
 
1 
Represents Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis.
2 
Elimination of Financial Products’ profit after tax due to equity method of accounting.
3 
Elimination of non-cash adjustment for the undistributed earnings from Financial Products.
4 
Elimination of non-cash adjustments and changes in assets and liabilities related to consolidated reporting.
5 
Reclassification of Financial Products' cash flow activity from investing to operating for receivables that arose from the sale of inventory.
6 
Elimination of net proceeds and payments to/from Machinery, Energy & Transportation and Financial Products.
7 
Elimination of dividend from Financial Products to Machinery, Energy & Transportation.


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Table of Contents


Caterpillar Inc.
Supplemental Data for Cash Flow
For The Three Months Ended March 31, 2013
(Unaudited)
(Millions of dollars)
 
 
 
Supplemental Consolidating Data
 
 
Consolidated
 
Machinery,
Energy &
Transportation 1
 
Financial
Products
 
Consolidating
Adjustments
 
Cash flow from operating activities:
 
 
 
 
 
 
 
 
Profit of consolidated and affiliated companies
$
882

 
$
879

 
$
212

 
$
(209
)
2 
Adjustments for non-cash items:
 

 
 

 
 

 
 

 
Depreciation and amortization
723

 
538

 
185

 

 
Undistributed profit of Financial Products

 
(209
)
 

 
209

3 
Other
98

 
67

 
(46
)
 
77

4 
Changes in assets and liabilities, net of acquisitions and divestitures:


 
 

 
 

 
 

 
Receivables - trade and other
209

 
251

 
(20
)
 
(22
)
4,5 
Inventories
308

 
311

 

 
(3
)
4 
Accounts payable
118

 
82

 
15

 
21

4 
Accrued expenses
(121
)
 
(51
)
 
(70
)
 

 
Accrued wages, salaries and employee benefits
(742
)
 
(726
)
 
(16
)
 

 
Customer advances
(47
)
 
(47
)
 

 

 
Other assets – net
41

 
30

 
6

 
5

4 
Other liabilities – net
(45
)
 
(36
)
 
(4
)
 
(5
)
4 
Net cash provided by (used for) operating activities
1,424

 
1,089

 
262

 
73

 
 
 
 
 
 
 
 
 
 
Cash flow from investing activities:
 

 
 

 
 

 
 

 
Capital expenditures - excluding equipment leased to others
(896
)
 
(893
)
 
(3
)
 

 
Expenditures for equipment leased to others
(336
)
 
(20
)
 
(333
)
 
17

4 
Proceeds from disposals of leased assets and property, plant and equipment
176

 
23

 
161

 
(8
)
4 
Additions to finance receivables
(2,715
)
 

 
(3,337
)
 
622

5 
Collections of finance receivables
2,219

 

 
2,937

 
(718
)
5 
Net intercompany purchased receivables

 

 
(14
)
 
14

5 
Proceeds from sale of finance receivables
66

 

 
66

 

 
Net intercompany borrowings

 

 
34

 
(34
)
6 
Proceeds from sale of businesses and investments (net of cash sold)
98

 
98

 

 

 
Proceeds from sale of available-for-sale securities
98

 
5

 
93

 

 
Investments in available-for-sale securities
(123
)
 
(7
)
 
(116
)
 

 
Other – net
(46
)
 
(28
)
 
(18
)
 

 
Net cash provided by (used for) investing activities
(1,459
)
 
(822
)
 
(530
)
 
(107
)
 
 
 
 
 
 
 
 
 
 
Cash flow from financing activities:
 

 
 

 
 

 
 

 
Distribution to noncontrolling interests
(8
)
 
(8
)
 

 

 
Common stock issued, including treasury shares reissued
8

 
8

 

 

 
Excess tax benefit from stock-based compensation
41

 
41

 

 

 
Net intercompany borrowings

 
(34
)
 

 
34

6 
Proceeds from debt issued (original maturities greater than three months)
2,719

 
54

 
2,665

 

 
Payments on debt (original maturities greater than three months)
(2,602
)
 
(26
)
 
(2,576
)
 

 
Short-term borrowings – net  (original maturities three months or less)
387

 
1

 
386

 

 
Net cash provided by (used for) financing activities
545

 
36

 
475

 
34

 
Effect of exchange rate changes on cash
(18
)
 
(15
)
 
(3
)
 

 
Increase (decrease) in cash and short-term investments
492

 
288

 
204

 

 
Cash and short-term investments at beginning of period
5,490

 
3,306

 
2,184

 

 
Cash and short-term investments at end of period
$
5,982

 
$
3,594

 
$
2,388

 
$

 

1 
Represents Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis.
2 
Elimination of Financial Products' profit after tax due to equity method of accounting.
3 
Elimination of non-cash adjustment for the undistributed earnings from Financial Products.
4 
Elimination of non-cash adjustments and changes in assets and liabilities related to consolidated reporting.
5 
Reclassification of Financial Products' cash flow activity from investing to operating for receivables that arose from the sale of inventory.
6 
Elimination of net proceeds and payments to/from Machinery, Energy & Transportation and Financial Products.


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Table of Contents

Forward-looking Statements

Certain statements in this Form 10-Q relate to future events and expectations and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “believe,” “estimate,” “will be,” “will,” “would,” “expect,” “anticipate,” “plan,” “project,” “intend,” “could,” “should” or other similar words or expressions often identify forward-looking statements. All statements other than statements of historical fact are forward-looking statements, including, without limitation, statements regarding our outlook, projections, forecasts or trend descriptions. These statements do not guarantee future performance, and we do not undertake to update our forward-looking statements.
 
Caterpillar’s actual results may differ materially from those described or implied in our forward-looking statements based on a number of factors, including, but not limited to: (i) global economic conditions and economic conditions in the industries we serve; (ii) government monetary or fiscal policies and infrastructure spending; (iii) commodity price changes, component price increases, fluctuations in demand for our products or significant shortages of component products; (iv) disruptions or volatility in global financial markets limiting our sources of liquidity or the liquidity of our customers, dealers and suppliers; (v) political and economic risks, commercial instability and events beyond our control in the countries in which we operate; (vi) failure to maintain our credit ratings and potential resulting increases to our cost of borrowing and adverse effects on our cost of funds, liquidity, competitive position and access to capital markets; (vii) our Financial Products segment’s risks associated with the financial services industry; (viii) changes in interest rates or market liquidity conditions; (ix) an increase in delinquencies, repossessions or net losses of Cat Financial’s customers; (x) new regulations or changes in financial services regulations; (xi) a failure to realize, or a delay in realizing, all of the anticipated benefits of our acquisitions, joint ventures or divestitures; (xii) international trade policies and their impact on demand for our products and our competitive position; (xiii) our ability to develop, produce and market quality products that meet our customers’ needs; (xiv) the impact of the highly competitive environment in which we operate on our sales and pricing; (xv) failure to realize all of the anticipated benefits from initiatives to increase our productivity, efficiency and cash flow and to reduce costs; (xvi) additional restructuring costs or a failure to realize anticipated savings or benefits from past or future cost reduction actions; (xvii) inventory management decisions and sourcing practices of our dealers and our OEM customers; (xviii) compliance with environmental laws and regulation; (xix) alleged or actual violations of trade or anti-corruption laws and regulations; (xx) additional tax expense or exposure; (xxi) currency fluctuations; (xxii) our or Cat Financial’s compliance with financial covenants; (xxiii) increased pension plan funding obligations; (xxiv) union disputes or other employee relations issues; (xxv) significant legal proceedings, claims, lawsuits or investigations; (xxvi) compliance requirements imposed if additional carbon emissions legislation and/or regulations are adopted; (xxvii) changes in accounting standards; (xxviii) failure or breach of IT security; (xxix) adverse effects of unexpected events including natural disasters; and (xxx) other factors described in more detail under “Item 1A. Risk Factors” in our Form 10-K filed with the SEC on February 18, 2014 for the year ended December 31, 2013. 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk
 
The information required by this Item is incorporated by reference from Note 4 – “Derivative Financial Instruments and Risk Management” included in Part I, Item 1 and Management’s Discussion and Analysis included in Part I, Item 2 of this Form 10-Q.
 
Item 4.  Controls and Procedures
 
Evaluation of disclosure controls and procedures
 
An evaluation was performed under the supervision and with the participation of the company’s management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the company’s disclosure controls and procedures, as that term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this quarterly report.  Based on that evaluation, the company’s management, including the CEO and CFO, concluded that the company’s disclosure controls and procedures are effective as of the end of the period covered by this quarterly report.

Changes in internal control over financial reporting
 
During the first quarter of 2014, there has been no change in the company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.


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Table of Contents

PART II.  OTHER INFORMATION
 
Item 1.  Legal Proceedings
 
The information required by this Item is incorporated by reference from Note 13 included in Part I, Item 1 of this Form 10-Q.    

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 
Issuer Purchases of Equity Securities

Period 1
 
Total Number
of Shares
Purchased
 
Average Price 
Paid per Share
 
Total Number
of Shares Purchased
Under the Program
 
Approximate Dollar
Value of Shares that
may yet be Purchased
under the Program (dollars in billions) 2
January 1-31, 2014
 
17,719,132

 
$
95.94

 
17,719,132

 
$
10.038

February 1-28, 2014
 

 
$

 

 
$
10.038

March 1-31, 2014
 
391,603

 
$
95.94

 
391,603

 
$
10

Total
 
18,110,735

 
$
95.94

 
18,110,735

 
 


1 
In January 2014, we entered into a definitive agreement with Citibank, N.A. to purchase shares of our common stock under an accelerated stock repurchase transaction (January ASR Agreement). Pursuant to the terms of the January ASR Agreement, a total of 18.1 million shares of our common stock were repurchased at an aggregate cost to Caterpillar of approximately $1.7 billion.
2 
In February 2007, the Board of Directors authorized the repurchase of $7.5 billion of Caterpillar common stock (the 2007 Authorization), and in December 2011, the 2007 Authorization was extended through December 2015. During the first quarter of 2014, we repurchased approximately $1.74 billion of Caterpillar common stock, completing the 2007 Authorization. In January 2014, the Board approved a new authorization to repurchase up to $10 billion of Caterpillar common stock, which will expire on December 31, 2018 (the 2014 Authorization). Through the end of the first quarter 2014, none of the 2014 Authorization was spent.
 
 
 
 
 

Other Purchases of Equity Securities

Period
 
Total Number
of Shares
Purchased 1
 
Average Price 
Paid per Share
 
Total Number
of Shares Purchased
Under the Program
 
Approximate Dollar
Value of Shares that
may yet be Purchased
under the Program
January 1-31, 2014
 
22,384

 
$
89.98

 
NA
 
NA
February 1-28, 2014
 
1,189

 
$
96.91

 
NA
 
NA
March 1-31, 2014
 
302,379

 
$
97.18

 
NA
 
NA
Total
 
325,952

 
$
96.69

 
 
 
 
 
1 
Represents shares delivered back to issuer for the payment of taxes resulting from the vesting of restricted stock units and the exercise of stock options by employees and Directors.
 

Non-U.S. Employee Stock Purchase Plans
 
We have 28 employee stock purchase plans administered outside the United States for our non-U.S. employees.  As of March 31, 2014, those plans had approximately 14,000 active participants in the aggregate.  During the first quarter of 2014, approximately 400,000 shares of Caterpillar common stock or foreign denominated equivalents were distributed under the plans.  Participants in some foreign plans have the option of receiving non-U.S. share certificates (foreign-denominated equivalents) in lieu of U.S. shares of Caterpillar common stock upon withdrawal from the plan.  These equivalent certificates are tradable only on the local stock market and are included in our determination of shares outstanding.
 
Distributions of Caterpillar stock under the plans are exempt from registration under the Securities Act of 1933 (Act) pursuant to 17 CFR 230.903.


75

Table of Contents

Item 4. Mine Safety Disclosures

Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95 to this quarterly report.

Item 6. Exhibits
11
 
Computations of Earnings per Share (included in Note 11 of this Form 10-Q filed for the quarter ended March 31, 2014).
 
 
 
31.1
 
Certification of Douglas R. Oberhelman, Chairman and Chief Executive Officer of Caterpillar Inc., as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.2
 
Certification of Bradley M. Halverson, Group President and Chief Financial Officer of Caterpillar Inc., as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
32
 
Certification of Douglas R. Oberhelman, Chairman and Chief Executive Officer of Caterpillar Inc. and Bradley M. Halverson, Group President and Chief Financial Officer of Caterpillar Inc., as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
95
 
Mine Safety Disclosures
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document


76

Table of Contents

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
CATERPILLAR INC.
 
 
 
 
 
 
 
May 2, 2014
/s/Douglas R. Oberhelman
Chairman and Chief Executive Officer
 
(Douglas R. Oberhelman)
 
 
 
 
 
 
 
May 2, 2014
/s/Bradley M. Halverson
Group President and Chief Financial Officer
 
(Bradley M. Halverson)
 
 
 
 
 
 
 
May 2, 2014
/s/James B. Buda
Executive Vice President, Law and Public Policy
 
(James B. Buda)
 
 
 
 
 
 
 
May 2, 2014
/s/Jananne A. Copeland
Chief Accounting Officer
 
(Jananne A. Copeland)
 


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Table of Contents

EXHIBIT INDEX

Exhibit No.
 
Description
11
 
Computations of Earnings per Share (included in Note 11 of this Form 10-Q filed for the quarter ended March 31, 2014).
 
 
 
31.1
 
Certification of Douglas R. Oberhelman, Chairman and Chief Executive Officer of Caterpillar Inc., as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.2
 
Certification of Bradley M. Halverson, Group President and Chief Financial Officer of Caterpillar Inc., as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
32
 
Certification of Douglas R. Oberhelman, Chairman and Chief Executive Officer of Caterpillar Inc. and Bradley M. Halverson, Group President and Chief Financial Officer of Caterpillar Inc., as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
95
 
Mine Safety Disclosures
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document



78