News Column

CATERPILLAR INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

May 2, 2014

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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Consolidated Results of Operations

THREE MONTHS ENDED MARCH 31, 2014 COMPARED WITH THREE MONTHS ENDED MARCH 31, 2013

CONSOLIDATED SALES AND REVENUES

[[Image Removed]] 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. 49



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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

[[Image Removed]] 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. 50



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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. 51



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Segment Information

Sales and Revenues by Geographic Region

% North % Latin % % Asia/ % (Millions of dollars) Total Change America Change America Change EAME Change 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. 52



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Sales and Revenues by Segment

First Sales Price First $ %



(Millions of dollars) Quarter 2013 Volume Realization Currency Other 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 (10 ) (14 ) (1 ) 1 - (24 ) (14 ) Eliminations Machinery, Energy & Transportation Sales 12,484 156 (4 ) (143 ) - 12,493 9 - % Financial Products Segment 795 - - - 22 817 22 3 % Corporate Items and (69 ) - - - - (69 ) -



Eliminations

Financial Products Revenues 726 - - - 22 748 22 3 % Consolidated Sales and $ 13,210$ 156$ (4 )$ (143 )$ 22$ 13,241$ 31 - % Revenues 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 IndustriesConstruction 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. 53



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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 IndustriesResource 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. 54



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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. 55



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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 Catฎ 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

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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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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 58



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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 Machinery, Energy & Financial (Millions of dollars) Consolidated Transportation 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, 59



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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 billionCaterpillar 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 plans - We 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 dividends - Dividends 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 repurchases - 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. 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. 60



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Table of Contents 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 61



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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. 62



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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 63



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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. 64



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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'sAdministrative 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. 65



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Table of Contents 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. 66



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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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Caterpillar Inc. Supplemental Data for Results of Operations For The Three Months Ended March 31, 2014 (Unaudited) (Millions of dollars)



Supplemental Consolidating Data

Machinery, Energy & Financial Consolidating Consolidated Transportation 1 Products 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

Machinery, Energy & Financial Consolidating Consolidated Transportation 1 Products Adjustments Sales and revenues: Sales of Machinery, Energy & $ 12,484 $ 12,484 $ - $ -



Transportation

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 1,390 1,275 129 expenses (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 120 131 - Products (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 1 1 - - unconsolidated affiliated companies Equity in profit of Financial Products' - 209 - subsidiaries (209 ) 6 Profit of consolidated and affiliated 882 879 212 (209 )



companies

Less: Profit (loss) attributable to 2 (1 ) 3 - noncontrolling interests 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

Machinery, Energy & Financial Consolidating Consolidated Transportation 1 Products 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

Machinery, Energy & Financial Consolidating Consolidated Transportation 1 Products 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

Machinery, Energy & Financial Consolidating Consolidated Transportation 1 Products 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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Caterpillar Inc. Supplemental Data for Cash Flow For The Three Months Ended March 31, 2013 (Unaudited) (Millions of dollars)



Supplemental Consolidating Data

Machinery, Energy & Financial Consolidating Consolidated Transportation 1 Products 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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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.


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