Edgar Filing: CATERPILLAR INC

Document




UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 11-K
(Mark One)
[X]	ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2017
OR
[ ]	TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________.
Commission File No. 1-768
CATERPILLAR 401(K) RETIREMENT PLAN (Full title of the plan and the address of the plan, if different from that of the issuer named below)
CATERPILLAR INC. 510 Lake Cook Road, Suite 100, Deerfield, Illinois 60015 (Name of issuer of the securities held pursuant to the plan and the address of its principal executive office)

Caterpillar 401(k) Retirement Plan

Financial Statements and Supplemental Schedule

December 31, 2017 and 2016

Report of Independent Registered Public Accounting Firm

To the Administrator and Plan Participants of

Caterpillar 401(k) Retirement Plan

Opinion on the Financial Statements

We have audited the accompanying statements of net assets available for benefits of Caterpillar 401(k) Retirement Plan (the “Plan”) as of December 31, 2017 and 2016, and the related statement of changes in net assets available for benefits for the year ended December 31, 2017, including the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2017 and 2016, and the changes in net assets available for benefits for the year ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on the Plan’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Plan in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Supplemental Information

The supplemental Schedule H, Line 4i - Schedule of Assets (Held at End of Year) as of December 31, 2017 has been subjected to audit procedures performed in conjunction with the audit of the Plan’s financial statements. The supplemental schedule is the responsibility of the Plan’s management. Our audit procedures included determining whether the supplemental schedule reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental schedule. In forming our opinion on the supplemental schedule, we evaluated whether the supplemental schedule, including its form and content, is presented in conformity with the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the supplemental schedule is fairly stated, in all material respects, in relation to the financial statements as a whole.

/s/ PricewaterhouseCoopers LLP

Peoria, Illinois

June 28, 2018

We have served as the Plan’s auditor since 2003.



Caterpillar 401(k) Retirement Plan
Index

		Page(s)
Report of Independent Registered Public Accounting Firm
Financial Statements
Statements of Net Assets Available for Benefits, December 31, 2017 and 2016		1
Statement of Changes in Net Assets Available for Benefits, Year Ended December 31, 2017		2
Notes to Financial Statements, as of December 31, 2017 and 2016 and for the Year Ended December 31, 2017		3
Supplemental Schedule
Schedule H, Line 4i - Schedule of Assets (Held at End of Year) December 31, 2017		17
Exhibit Index
23.1 - Consent of Independent Registered Public Accounting Firm
Signatures		19

Note: Other schedules required by 29 CFR 2520.103-10 of the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 have been omitted because they are not applicable.



Caterpillar 401(k) Retirement Plan
Statements of Net Assets Available for Benefits
December 31, 2017 and 2016

(in thousands of dollars)	2017			2016
Investments
Interest in the Master Trust	$	3,263,705		$	2,618,554
Other investments – participant directed brokerage accounts	93,087			78,006
Total investments	3,356,792			2,696,560
Receivables
Notes receivable from participants	43,950			46,911
Participant contributions receivable	297			2,080
Employer contributions receivable	24,794			27,181
Other contributions receivable	42			—
Receivables for securities sold – participant directed brokerage accounts	1,259			1,825
Total receivables	70,342			77,997

Cash	312			36

Total assets	3,427,446			2,774,593
Liabilities
Payables for securities purchased – participant directed brokerage accounts	(679		)	(1,318		)

Net assets available for benefits	$	3,426,767		$	2,773,275

The accompanying notes are an integral part of these financial statements.



Caterpillar 401(k) Retirement Plan
Statement of Changes in Net Assets Available for Benefits
Year Ended December 31, 2017

(in thousands of dollars)	2017
Investment income (loss)
Plan interest in net investment income (loss) of the Master Trust	$	783,552
Net appreciation (depreciation) in fair value of investments from participant directed brokerage accounts	9,345
Net investment income (loss)	792,897
Interest and dividend income
Interest income on notes receivable from participants	1,939
Interest and dividend income from participant directed brokerage accounts	3,001
Total interest and dividend income	4,940
Contributions
Participant	52,518
Employer	57,496
Other	42
Total contributions	110,056
Deductions
Participant withdrawals	(251,297		)
Administrative expenses	(2,135		)
Total deductions	(253,432		)

Increase (decrease) in net assets available for benefits	654,461

Transfers
Transfers from (to) other plans, net	(969		)

Net increase (decrease) in net assets available for benefits	653,492
Net assets available for benefits
Beginning of year	2,773,275
End of year	$	3,426,767

The accompanying notes are an integral part of these financial statements.

Caterpillar 401(k) Retirement Plan

Notes to Financial Statements

December 31, 2017 and 2016


1.	Plan Description

The following description of the Caterpillar 401(k) Retirement Plan (the “Plan”) provides only general information. Participants should refer to the Plan documents for more complete information regarding the Plan.

General

The Plan is a profit sharing plan that includes a cash or deferred arrangement under Section 401(k) of the Internal Revenue Code ("IRC") and is an "employee stock ownership plan" within the meaning of IRC Section 4975(e)(7). The Plan is maintained and sponsored by Caterpillar Inc. (the “Company”), and enables eligible employees of the Company and its subsidiaries that adopt the Plan (the “participating employers”) to accumulate funds for retirement. The Plan is governed by the provisions of the Employee Retirement Income Security Act, as amended (“ERISA”).

Participation

Effective December 14, 2013, the Plan was closed for new entrants. Management, salaried and non-bargained hourly employees of the participating employers on U.S. payroll who meet certain age and service requirements and who are not eligible to participate in the Caterpillar 401(k) Savings Plan ("401(k) SP") are eligible to participate in the Plan. Participating eligible employees (the “participants”) elect to defer a portion of their eligible compensation through pre-tax and after-tax contributions. For determination of which employer contribution provisions of the Plan are applicable, participants are divided into “Group 1 Participants” and “Group 2 Participants”. These groups are described as follows:

Group 1 Participants - Participants who are not part of Group 2, as described below, are classified as Group 1 Participants.

Group 2 Participants - The following participants are classified as Group 2 Participants:

•

Participants who, as of January 1, 2011, continue to accrue pension benefits or are eligible to continue to accrue pension benefits upon returning from a leave of absence under the pension equity formula of the Caterpillar Inc. Retirement Income Plan ("RIP"). Pension benefit accruals under RIP for these participants will cease on January 1, 2020, at which time these participants will move into Group 1.


•	Participants who were employed by participating employers that were in existence on December 31, 2010 who did not participate in RIP or the Solar Turbines Incorporated Retirement Plan.


•	Participants at specified facilities that have adopted the Plan. Effective dates for these participants vary based on the adoption of the Plan. Participants should refer to the Plan documents for a complete list.

Contributions

All participants (i.e., Group 1 Participants and Group 2 Participants) are eligible to make participant contributions through a pre-tax deferral arrangement and an after-tax Roth 401(k) arrangement as elected by each participant. Participants who are at least 50 years old by the end of the calendar year are allowed to make a catch-up contribution for that year. Contributions are subject to certain limitations set by the IRC. All participants also are eligible for employer matching contributions which are 100 percent of participant 401(k) contributions up to a maximum of 6 percent of eligible compensation.

In addition, Group 1 Participants are also eligible for an annual employer non-elective contribution. The non-elective contribution is based on a point system calculated on the last day of each Plan year which is the sum of the participant's age plus years of benefit service. Based upon the participant's point total, a non-elective contribution of 3, 4 or 5 percent of base and annual incentive pay will be made after the close of the Plan year. In order to receive the annual non-elective contribution, the participant must complete a year of benefit service and be employed by the Company or a participating employer on December 31^stof the Plan year for which the contribution relates. The non-elective contribution is included in Employer contributions receivable on the Statements of Net Assets Available for Benefits and was $22.6 million and $23.1 million for the 2017 and 2016 Plan years, respectively. Group 2 Participants are not eligible for the annual employer non-elective contribution.

Participants direct the investment of their contributions, employer matching and employer non-elective contributions into various investment options offered by the Plan as discussed in Note 3. Participants generally may change their contribution elections and prospective investment elections on a daily basis and reallocate the investment of their existing account balance either daily or every seven business days (if subject to applicable trading restrictions) depending on the investment.

The Plan has an automatic escalation feature whereby eligible participants will have their default 6 percent deferral of base pay increase 1 percent each year until the participant is contributing 15 percent, unless the participant elects otherwise.

Participant Accounts

Accounts are separately maintained for each participant. The participant's account is credited with the participant's contributions, employer matching contributions, employer non-elective contributions, Plan earnings/losses (based on each participant's investment elections) and charged with administrative expenses. Participants are entitled to the benefit that can be provided from the participant's vested account.

Vesting and Distribution Provisions

Participants are fully vested in their participant contributions, employer matching contributions and related earnings thereon. Participants fully vest in the employer non-elective contributions and the related earnings thereon after being credited with three years of benefit service. The Plan provides for 100 percent vesting of the employer non-elective contributions and the related earnings thereon, upon a participant's death while actively employed or while performing qualified military service.

Upon termination of employment for any reason, including death or retirement, the balance in a participant's vested account is distributable in a single lump sum cash payment unless the participant (or beneficiary) elects to receive periodic withdrawals. Participants also have the option to leave their vested account balance in the Plan, subject to certain limitations. A participant also may elect to receive a distribution of Company shares up to the amount of the participant's balance in the Caterpillar Stock Fund. The value of any full or fractional shares paid in cash will be based upon the average price per share the Trustee receives from the sale of Company shares for the purpose of making the distribution.

Company contributions forfeited by terminated participants are used to reduce future Company contributions to the Plan. The amount forfeited and used to reduce future Company contributions for the year ended December 31, 2017 was $196 thousand.

Notes Receivable from Participants

The Plan provides for participant loans against eligible participant account balances. Eligible participants obtain loans by filing a loan application with the Plan's recordkeeper and receiving all requisite approvals. Loan amounts are generally limited to the lesser of $50,000 or 50 percent of the individual participant's vested account balance, with certain regulatory restrictions. Each loan specifies a repayment period that cannot extend beyond five years. However, the five-year limit shall not apply to any loan used to acquire any dwelling unit which within a reasonable time is to be used as the principal residence of the participant (determined at the time the loan is made). Loans bear interest at the prime interest rate plus 1 percent, as determined at the time of loan origination. Loans that transferred to the Plan due to acquisitions are based upon the terms of the plan agreement in effect at the time of loan origination. Repayments, including interest, are made through payroll deductions and are credited to the individual participant's account balance. Participant loans are measured at their unpaid principal balance plus any accrued but unpaid interest. For participant loans that are in default, the amount of the unpaid loan principle and interest due to the Plan will be treated as a deemed distribution. Deemed distributions are reported as a taxable distribution and remain part of the participant’s account balance until a distributable event occurs (i.e. as termination of employment).

Administration

The Plan is administered by the Company. Pursuant to procedures adopted by the Company, responsibility for the Plan's non-financial matters has been delegated to the Benefits Administrative Committee and responsibility for the Plan's financial matters has been delegated to the Caterpillar Inc. Benefit Funds Committee. The Company and the Benefit Funds Committee have entered into a trust agreement with The Northern Trust Company (the “Trustee”) to receive contributions, administer the assets of the Plan and distribute withdrawals pursuant to the Plan. The Company has retained Alight Solutions to provide recordkeeping and administrative services as part of the administration of the Plan.

Plan Termination

The Company has the right under the Plan at any time to terminate the Plan, subject to provisions of ERISA. In the event of Plan termination, participants will become fully vested in all benefits which have been accrued up to the date of Plan termination and Plan assets will be distributed in accordance with the provisions of the Plan.

Plan Qualification

The Plan obtained its latest determination letter on March 16, 2015, in which the Internal Revenue Service ("IRS") stated that the Plan and related trust, as then designed, were in compliance with the applicable requirements of the IRC. Although the Plan has been amended subsequent to the period covered by the determination letter, the Plan Administrator and the Plan's counsel believe that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC, and therefore, believe that the Plan is qualified and the related trust is tax-exempt.

Accounting principles generally accepted in the United States of America require management to evaluate tax positions taken by the Plan and recognize a tax liability if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. The Company has analyzed the tax positions taken by the Plan and has concluded that, as of December 31, 2017 and 2016, there are no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Company believes the Plan is no longer subject to income tax examinations for tax years prior to 2007.


2.	Summary of Significant Accounting Policies and New Accounting Pronouncements

New Accounting Pronouncements

Employee Benefit Plan Master Trust Reporting - In February 2017, the Financial Accounting Standards Board issued accounting guidance to improve the usefulness of information reported to users of employee benefit plan financial statements and to provide clarity to preparers and auditors. The new guidance primarily relates to the reporting by a plan for its interest in a master trust. The new guidance requires that a plan’s interest in each master trust and changes in those interests be reported in separate line items in the statement of net assets available for benefits and statement of changes in net assets available for benefits, respectively. The new guidance also removes the requirement to disclose the percentage interest for plans with a divided interest in a master trust, requires all plans to disclose the dollar amount of their interest in each general investment type of the master trust, and requires plans to disclose the master trust’s other asset and liability balances and the dollar amount of the plan’s interest in each of those balances. In addition, the guidance also eliminates redundancy relating to 401(h) account asset disclosures which is not applicable to the Plan. This guidance is effective for the Plan year ending December 31, 2019, with retrospective application required. Early adoption is permitted. The Plan’s management is currently reviewing the impact of this guidance on the Plan’s financial statements and the accompanying notes to the financial statements.

Basis of Accounting

The financial statements of the Plan are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.

Investments

The Plan's interest in the Caterpillar Investment Trust ("Master Trust") and investments included in the participant directed brokerage accounts are valued as described in Note 4. Interest on investments is recorded as earned. Dividends are recorded on the ex-dividend date. Purchases and sales of securities are recorded on a trade-date basis.

Administrative Expenses

The Plan charges a $5 per month per participant fee, which is transferred monthly from the Master Trust into a holding account to pay expenses as they come due. The amount accumulated in the holding account is used to pay certain administrative expenses that have been approved by the Benefit Funds Committee including recordkeeping fees, trustee fees, plan education and audit fees. The Company pays any administrative expenses which exceed amounts collected from participants annually by the Plan, excluding applicable expenses paid directly from participant accounts described below. If amounts collected from participants exceed certain administrative expenses, the Company determines whether a corrective action is appropriate which could include a reallocation of funds back to participant accounts or a structural change to the participant fees.

In addition, certain administrative expenses are paid directly from participant accounts. These administrative expenses include quarterly fees for participants invested in the participant directed brokerage option, quarterly fees for participants that utilize managed account services and processing fees for qualified domestic relations orders.

Participant Withdrawals

Participant withdrawals are recorded when paid.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimated. The Company believes the techniques and assumptions used in establishing these amounts are appropriate.

Risks and Uncertainties

The Plan invests in a combination of stocks, bonds, fixed income securities, common collective trusts, mutual funds and other investment securities. Investment securities are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities could occur in the near term and that such changes could materially affect participant account balances and the amounts reported in the Statements of Net Assets Available for Benefits.


3.	Investment Programs

Investment options that are currently available to participants consist of three main categories: Target Retirement Funds, core investment options (including the Caterpillar Stock Fund) and a participant directed brokerage option.

The Target Retirement Funds are portfolios created primarily from the Plan’s core investment options. The goal of these funds is to give participants investment options that provide an age appropriate asset allocation. Each Target Retirement Fund contains a blend of stock and bond investments. The proportion of stocks and bonds in each fund is based on an anticipated retirement date and will change over time. These funds automatically change the asset allocation over time to maintain an appropriate level of risk for the retirement horizon. Below are the Target Retirement Funds for participants based upon their birth year with the assumption that participants will retire at the age of 65 and the asset allocation for the 2017 Plan year.



Target Retirement Funds	Birth Years	Asset Allocation
Target Retirement Income Fund	Before 1954	37% stocks, 53% bonds and 10% cash equivalents
Target Retirement 2020 Fund	1954-1958	48% stocks, 48% bonds and 4% cash equivalents
Target Retirement 2025 Fund	1959-1963	61% stocks and 39% bonds
Target Retirement 2030 Fund	1964-1968	71% stocks and 29% bonds
Target Retirement 2035 Fund	1969-1973	79% stocks and 21% bonds
Target Retirement 2040 Fund	1974-1978	84% stocks and 16% bonds
Target Retirement 2045 Fund	1979-1983	86% stocks and 14% bonds
Target Retirement 2050 Fund	1984-1988	86% stocks and 14% bonds
Target Retirement 2055 Fund	1989-1993	86% stocks and 14% bonds
Target Retirement 2060 Fund	1994 & After	86% stocks and 14% bonds

In addition to the Target Retirement Funds, the Plan also provides participants with core investment options which are made up of actively managed investment funds and index funds. The following table provides the current lineup of investment funds and index funds that are currently available to participants.



Menu of Core Investment Options
U.S. Large Cap Equity Funds	Capital Preservation Funds
1 Caterpillar Stock Fund 2 U.S. Large Cap Equity Fund 3 U.S. Large Cap Equity Index Fund	8 Stable Principal Fund 9 Money Market Fund
U.S. Small/Mid Cap Equity Funds	Fixed Income Fund
4 U.S. Small/Mid Cap Equity Fund 5 U.S. Small/Mid Cap Equity Index Fund	10 Bond Fund 11 Bond Index Fund
International Equity Funds
6 International Equity Fund 7 International Equity Index Fund

The Caterpillar Stock Fund consists of Caterpillar Inc. common stock and a small amount of cash and/or cash equivalents.

The participant directed brokerage option allows participants to invest outside of the standard Plan options. Alight Financial Solutions is the introducing broker/dealer and Pershing, a division of BNY Mellon, is the custodian/clearing firm for the participant directed brokerage option. The types of investments offered through the participant directed brokerage option are individual company stocks (excluding Caterpillar Inc. common stock), exchange traded funds, registered investment companies and fixed income securities such as bonds.

Participants also have the option to enroll in professional account management through the Plan’s recordkeeper for additional, separately charged fees.


4.	Master Trust

Substantially all of the Plan's investments are held in the Master Trust, which was established for the investment of the Plan and other Company sponsored retirement plans. The Northern Trust Company is the Trustee of the Master Trust and the custodian for funds invested through the core investments and the Target Retirement Funds (the funds invested through the core investments and the Target Retirement Funds are referred to as the Master Trust herein). The Plan and the other Company sponsored retirement plans pool their investments in the Master Trust in exchange for a percentage of participation in the Master Trust.

The percentage of the Plan's participation in the Master Trust was determined based on the December 31, 2017 and 2016 net asset values for the investment fund options chosen by participants of each plan. At December 31, 2017 and 2016, the Plan's interest in the net assets of the Master Trust was 29.32 percent.

The following table presents the net assets of the Master Trust as of December 31, 2017 and 2016.



(in thousands of dollars)	2017			2016
ASSETS
Investments, at fair value
Caterpillar Inc. common stock	$	2,787,928		$	1,974,515
Common stocks	1,878,127			1,483,469
Preferred stocks	15,970			12,290
Preferred corporate bonds and notes	14,548			17,645
Other corporate bonds and notes	598,098			530,559
U.S. government securities	613,587			492,975
Common collective trusts	4,506,627			3,633,576
Registered investment companies	4,125			2,862
Interest bearing cash	90,212			77,808
Other investments, net	135,958			118,242
	10,645,180			8,343,941

Investments, at contract value
Fully benefit-responsive synthetic guaranteed investment contracts	565,569			626,007

Other assets
Cash	2,407			674
Receivable for plan transfers ¹	—			4,987
Receivables for securities sold	65,512			60,017
Accrued income	14,525			12,695
	82,444			78,373

Total Master Trust assets	11,293,193			9,048,321

LIABILITIES
Payables for securities purchased	(158,769		)	(115,208		)

Net Master Trust assets	$	11,134,424		$	8,933,113

Plan’s interest in net Master Trust assets with fully benefit-responsive synthetic guaranteed investment contracts at contract value	$	3,263,705		$	2,618,554

¹On December 31, 2016, the RDS Manufacturing, Inc. 401(k) Savings Plan merged with and into the Caterpillar 401(k) Savings Plan. Plan assets were not transferred into the Master Trust until January 2017.

As the Plan has a specific interest in the Master Trust, the below table provides the distribution of investment risk specific to the Plan based upon the investment programs available to participants as of December 31, 2017 and 2016.



Investment Program	2017	2016
Caterpillar Stock Fund	33.7%	29.4%
U.S. Large Cap Equity Funds	11.9%	11.5%
U.S. Small / Mid Cap Equity Funds	4.8%	5.0%
International Equity Funds	7.6%	6.3%
Capital Preservation Funds	6.5%	8.7%
Fixed Income Funds	6.3%	7.3%

Target Retirement Funds	29.2%	31.8%

The fully benefit-responsive synthetic guaranteed investment contracts are valued at contract value as described in the Investment Contracts section of Note 4. All other investments are stated at fair value and are valued as described below:


•	Common and preferred stocks: Primarily valued at quoted market prices.


•	Preferred and other corporate bonds and notes: Valued based on matrices or models from reputable pricing vendors and may be determined by factors which include, but are not limited to market quotations, yields, maturities, call features, ratings, institutional size trading in similar groups of securities and developments related to specific securities.


•	U.S. government securities: Valued based on matrices or models from reputable pricing vendors.


•	Common collective trusts: Primarily stated at net asset value ("NAV") of units held. The Plan's management have elected the practical expedient to use NAV in measuring the fair value of the underlying investments.


•	Registered investment companies: Valued at quoted market prices that represent the net asset value of shares held by the Master Trust.


•	Interest bearing cash: Stated at cost which approximates fair value.


•	Other investments, net: Primarily valued at quoted market prices, when available, or valued based on matrices or models from reputable pricing vendors.

The preceding methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The following tables summarize investments measured at fair value based on NAV per share using the practical expedient that have unfunded commitments or redemption restrictions as of December 31, 2017 and 2016.



(in thousands of dollars)
December 31, 2017	Fair Value		Unfunded Commitments	Redemption Restrictions	Redemption Frequency (if currently eligible)	Redemption Notice Period
Common collective trusts:
Stocks	$	3,620,897	—	None	Daily	None
Short-term investments	$	337,455	—	None	Daily	None
U.S. Government securities	$	516,228	—	None	Daily	None
Private placement - Mortgages	$	32,047	—	Yes ¹	Monthly ¹	Yes ¹

¹ Redemptions allowed once per month and are restricted to available cash on hand as determined by the trustee of the fund. A notice of redemptions required five days prior to the last business day of the month.



(in thousands of dollars)
December 31, 2016	Fair Value		Unfunded Commitments	Redemption Restrictions	Redemption Frequency (if currently eligible)	Redemption Notice Period
Common collective trusts:
Stocks	$	2,802,212	—	None	Daily	None
Short-term investments	$	317,384	—	None	Daily	None
U.S. Government securities	$	485,911	—	None	Daily	None
Private placement - Mortgages	$	28,069	—	Yes ¹	Monthly ¹	Yes ¹

¹ Redemptions allowed once per month and are restricted to available cash on hand as determined by the trustee of the fund. A notice of redemptions required five days prior to the last business day of the month.

The following table presents the changes in net assets for the Master Trust for the year ended December 31, 2017.



(in thousands of dollars)	2017
Changes in Net Assets:
Caterpillar Inc. common stock net appreciation (depreciation) in fair value of investments	$	1,213,648
Net appreciation (depreciation) in fair value of investments	1,052,487
Interest	56,058
Caterpillar Inc. common stock dividends	61,146
Dividends	31,297
Other income	3,553
Net investment income (loss)	2,418,189

Transfers, net ¹	(205,343		)
Administrative expenses not directly allocated to the plans and other expenses ²	(11,535		)
Increase (decrease) in net assets	2,201,311

Net assets
Beginning of the year	8,933,113
End of the year	$	11,134,424

¹ Represents items recorded at the plan level such as contributions, benefit payments, plan transfers and plan specific administrative expenses.
² Primarily related to fees and expenses paid to professional money managers who manage the investment funds.

Dividend income is recorded as of the ex-dividend date. Interest is recorded daily as earned. The Master Trust presents in Net investment income (loss), the net appreciation (depreciation) in the fair value of its investments which consists of the realized gains (losses) and the unrealized appreciation (depreciation) on those investments. Purchases and sales of securities are recorded on a trade-date basis.

Investment Contracts

The Master Trust holds fixed income fully benefit-responsive investment contracts, referred to as synthetic guaranteed investment contracts (“synthetic GICs”), in which an investment contract is issued by an insurance company or a financial services institution (Metropolitan Life Insurance Company, Transamerica Premier Life Insurance Company and The Prudential Insurance Company of America). The Plan measures the synthetic GICs at contract value in the Plan's Interest in the Master Trust in the Statements of Net Assets Available for Benefits. The synthetic GICs, which are designed to help preserve principal and provide a stable crediting rate of interest, are fully benefit-responsive and provide that participant initiated withdrawals will be paid at contract value. The synthetic GICs are primarily backed by a portfolio of fixed income investments, which are effectively owned by the Plan. The assets underlying the synthetic GICs are maintained by a third party custodian, separate from the contract issuer's general assets. The synthetic GICs are obligated to provide an interest rate not less than zero. These contracts provide that realized and unrealized gains and losses of the underlying assets are not reflected immediately in the assets of the fund, but rather are amortized, usually over the duration of the underlying assets, through adjustments to the future interest crediting rate. The future interest crediting rate can be adjusted periodically and is primarily based on the current yield-to-maturity of the covered investment, plus or minus amortization of the difference between the market value and contract value of the covered investment over the duration of the covered investment at the time of computation. The issuers guarantee that all qualified participant withdrawals will occur at contract value. There are no reserves against contract value for credit risks of the contract issuers or otherwise.

Employer initiated events, if material, may affect the underlying economics of the investment contracts. These events include plant closings, layoffs, plan termination, bankruptcy or reorganization, merger, early retirement incentive programs, tax disqualification of a trust or other events. The occurrence of one or more employer initiated events could limit the Plan's ability to transact at contract value with the issuers. Except for the employer initiated events above, the synthetic GICs do not permit the issuers to terminate the agreement prior to the scheduled maturity date at an amount different from contract value. As of December 31, 2017, the Company does not believe that the occurrence of an event that would limit the ability of the Plan to transact at contract value with the issuers is probable.

Fair Value Measurements

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


•	Level 1 - Quoted prices for identical instruments in active markets.


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


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

When available, quoted market prices are used to determine fair value and such measurements are classified within Level 1. In some cases where market prices are not available, observable market based inputs are used to calculate fair value, in which case the measurements are classified within Level 2. If quoted or observable market prices are not available, fair value is based upon internally developed models that use, where possible, current market-based parameters such as interest rates, yield curves and currency rates. These measurements are classified within Level 3.

Fair value measurements are classified according to the lowest level input or value-driver that is significant to the valuation. A measurement may therefore be classified within Level 3 even though there may be significant inputs that are readily observable.

The availability of observable market data is monitored to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the end of the reporting period.

The significance of transfers between levels was evaluated based upon the nature of the financial instrument and size of the transfer relative to total net Master Trust assets. For the year ended December 31, 2017, there were no significant transfers into or out of Levels 1, 2 or 3.

Master Trust assets that are measured at fair value as of December 31, 2017 and 2016 are summarized below. Investments measured at net asset value per share using the practical expedient have not been classified in the fair value hierarchy, but are presented in order to permit reconciliation to the table that presents the net assets of the Master Trust.



	Fair Value Measurements as of December 31, 2017
(in thousands of dollars)	Level 1		Level 2		Measured at NAV		Total

Stocks	$	4,679,611	$	2,414	$	—	$	4,682,025
Corporate bonds and notes	—		612,646		—		612,646
U.S. government securities	—		613,587		—		613,587
Common collective trusts	—		—		4,506,627		4,506,627
Registered investment companies	4,125		—		—		4,125
Interest bearing cash	90,212		—		—		90,212
Other investments, net	83,853		52,105		—		135,958
Total assets	$	4,857,801	$	1,280,752	$	4,506,627	$	10,645,180



	Fair Value Measurements as of December 31, 2016
(in thousands of dollars)	Level 1		Level 2		Measured at NAV		Total

Stocks	$	3,466,925	$	3,349	$	—	$	3,470,274
Corporate bonds and notes	—		548,204		—		548,204
U.S. government securities	—		492,975		—		492,975
Common collective trusts	—		—		3,633,576		3,633,576
Registered investment companies	2,862		—		—		2,862
Interest bearing cash	77,808		—		—		77,808
Other investments, net	65,650		52,592		—		118,242
Total assets	$	3,613,245	$	1,097,120	$	3,633,576	$	8,343,941

Within the Master Trust, certain investment managers may use derivative financial instruments to meet fund objectives and manage exposure to foreign currency, interest rate and market fluctuations. The following is a description of the types of derivative contracts the Master Trust may use:

•

Credit contracts: Credit default swaps are used to manage exposure to credit risk. A credit default swap is a contract in which, for a fee, a protection seller agrees to pay a protection buyer an amount resulting from a credit event on a reference entity. If there is no credit default event or settlement trigger, as defined by the contract, then the protection seller makes no payment to the protection buyer and receives only the contractually specified fee. However, if a credit event occurs, the protection seller will be required to make a payment to the protection buyer.

•

Equity contracts: Equity index futures contracts are used by investment managers to invest excess cash into equity benchmarks, such as the MSCI EAFE (developing countries), S&P 500 and S&P MidCap 400. These contracts are settled in cash daily. Investment managers may also invest in equity rights and warrants which gives the holder the right to purchase securities from the issuer at a specific price within a certain time frame.

•

Foreign exchange contracts: Foreign currency exchange rate movements create a degree of risk by affecting the U.S. dollar value of instruments denominated in foreign currencies. Forward contracts are used by investment managers to manage foreign exchange rate risks associated with certain investments. These contracts are presented gross (buy side of the contract as a receivable and sell side of the contract as a payable) in the table that presents the net assets of the Master Trust.


•	Interest rate contracts: Interest rate movements create a degree of risk by affecting the amount of interest payments and the value of debt instruments. Investment managers use interest rate swaps, total return swaps, futures contracts, options and swaptions to manage interest rate risk.

The fair value of these derivative contracts are included in Other investments, net, Receivables for securities sold and Payables for securities purchased in the Net Master Trust assets. The related appreciation (depreciation) is included in Net appreciation (depreciation) in fair value of investments in the Net investment income (loss) of the Master Trust. As of December 31, 2017 and 2016, the fair value of these derivative financial instruments was $0.5 million and $2.1 million, respectively. In 2017, the effect of these derivatives on Net investment income (loss) of the Master Trust was $7.6 million, which is primarily related to equity contracts.

Participant Directed Brokerage Accounts

The participant directed brokerage account Plan assets are not included in the Master Trust and are primarily related to investments in registered investment companies. The participant directed brokerage account assets that are measured at fair value as of December 31, 2017 and 2016 are summarized below:



Participant directed brokerage accounts	Fair Value Measurements as of December 31
(in thousands of dollars)	2017		2016

Level 1	$	79,555	$	66,010
Level 2	13,532		11,996
Total assets	$	93,087	$	78,006


5.	Related-Party and Parties in Interest

The Trustee is authorized, under contract provisions and by exemption under 29 CFR 408(b) of ERISA regulations, to invest in securities under its control and in securities of the Company.

The investment options available to the participants, as summarized in Note 3, include the Caterpillar Stock Fund (related-party and party in interest). The Master Trust also invests in the U.S. Large Cap Equity Index Fund, U.S. Small/Mid Cap Equity Index Fund, International Equity Index Fund, Money Market Fund, and the Bond Index Fund, which are sponsored and managed by The Northern Trust Company, the Trustee for the Master Trust. The Northern Trust Company also invests excess cash in equitization accounts and manages liquidity pools for the actively managed investment funds. The custodian of the funds invested in the participant directed brokerage option is Pershing, a division of BNY Mellon, which currently provides third party administrative and other plan related services to the Plan on behalf of Alight Financial Solutions. These transactions, and related fees, as well as participant loans, qualify as exempt party in interest transactions.


6.	Reconciliation of Financial Statements to Form 5500

The following table reconciles the Net assets available for benefits per the audited financial statements to the Form 5500 Annual Report:



(in thousands of dollars)	2017			2016
Net assets available for benefits per financial statements	$	3,426,767		$	2,773,275
Certain deemed distributions of participant loans	(2,497		)	(2,516		)
Adjustment from contract value to fair value for fully benefit-responsive synthetic guaranteed investment contracts	(2,034		)	(1,544		)
Net assets per Form 5500	$	3,422,236		$	2,769,215

The following table reconciles the Plan's Increase (decrease) in net assets available for benefits per the audited financial statements to the Form 5500 Annual Report:



(in thousands of dollars)	2017
Plan's Increase (decrease) in net assets available for benefits per financial statements	$	654,461
Change in certain deemed distributions of participant loans	19
Change in adjustment from contract value to fair value for fully benefit-responsive synthetic guaranteed investment contracts	(490		)
Net income (loss) per Form 5500	$	653,990

Supplemental Schedule



Caterpillar 401(k) Retirement Plan
EIN 37-0602744 Schedule H, Line 4i - Schedule of Assets (Held at End of Year) December 31, 2017
(a)	(b)	(c)	(d)	(e)
	Identity of issue, borrower, lessor or similar party	Description of investment, including maturity date, rate of interest, collateral, par or maturity value	Cost	Current value
*	Plan's interest in the Caterpillar Investment Trust	Master Trust – at fair value	**	$	3,261,671,340
*	Alight Financial Solutions	Participant directed brokerage accounts	**	93,087,070
*	Notes receivable from participants	Participant loans net of deemed distributions (various maturity dates through July 31, 2027, various interest rates ranging from 4.25% to 10.00%)	—	41,452,648
		Total Investments		$	3,396,211,058
* Denotes party in interest.
** Cost information is not applicable for participant directed investments.

EXHIBIT INDEX



Exhibit No.		Description

23.1	Consent of Independent Registered Public Accounting Firm



SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
	CATERPILLAR 401(K) RETIREMENT PLAN

June 28, 2018	By:	/s/Stephen G. Robertson
		Name:	Stephen G. Robertson
		Title:	Plan Administrator