Consolidated Sales and Revenues   (29%) USD 3,432 (27%) USD 9,858  (12%) USD 10,244 (15%) USD       (22%) USD -     -%    USD 41,748 (22%) 
.......USD 18,214                                                                     41,748 
2019 
Construction Industries                 USD 1,533       USD 4,012        USD 5,556        USD             USD 93          USD 22,649 
..............USD 11,455                                                              22,556 
Resource Industries                     1,533         1,836          2,812          9,813         463           10,276 
...................3,632 
Energy & Transportation.                1,389         4,994          3,238          18,485        3,612         22,097 
...............8,864 
All Other Segment                       7             28             67             127           373           500 
.....................25 
Corporate Items and Eliminations        -             (20)           (14)           (226)         (4,541)       (4,767) 
...........(192) 
Machinery, Energy &                     4,462         10,850         11,659         50,755        -             50,755 
Transportation.............23,784 
Financial Products Segment.             299           408            492            3,434 1       -             3,434 
.............2,235 
Corporate Items and Eliminations        (51)          (35)           (69)           (389)         -             (389) 
...........(234) 
Financial Products Revenues             248           373            423            3,045         -             3,045 
............. 2,001 
Consolidated Sales and Revenues         USD 4,710       USD 11,223       USD 12,082       USD             USD -           USD 53,800 
.......USD 25,785                                                                     53,800

1 Includes revenues from Machinery, Energy & Transportation of USD362 million and USD524 million in 2020 and 2019, respectively.

31

Table of Contents

CONSOLIDATED OPERATING PROFIT

The chart above graphically illustrates reasons for the change in consolidated operating profit between 2019 (at left) and 2020 (at right). 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 was USD4.553 billion in 2020, a decrease of USD3.737 billion, or 45 percent, compared with USD8.290 billion in 2019. The decrease was due to lower sales volume and unfavorable price realization, partially offset by lower SG&A/R&D expenses and favorable manufacturing costs.

Lower SG&A/R&D expenses reflected reduced short-term incentive compensation expense and other cost reductions related to lower sales volumes.

Favorable manufacturing costs were mostly driven by lower period manufacturing costs and material costs, partially offset by higher warranty expense. Period manufacturing costs declined primarily due to a reduction in short-term incentive compensation expense and other cost reductions related to lower sales volumes.

Short-term incentive compensation expense is directly related to financial and operational performance, measured against targets set annually. In the first quarter, in response to the continued global economic uncertainty due to the COVID-19 pandemic, Caterpillar suspended 2020 short-term incentive compensation plans for many employees and all senior executives. As a result, no short-term incentive compensation expense was recognized during 2020, compared with about USD700 million during 2019.

For 2021, we expect short-term incentive compensation expense will be about USD900 million. Operating profit margin was 10.9 percent in 2020, compared with 15.4 percent in 2019.

32

Table of Contents 


Profit by Segment                                                             USD         % 
(Millions of dollars)                                         2020    2019              Change 
                                                                              Change 
Construction Industries....................................   USD 2,373 USD 3,931 USD (1,558) (40%) 
Resource Industries......................................     896     1,629   (733)     (45%) 
Energy & Transportation...................................    2,405   3,910   (1,505)   (38%) 
All Other Segment.......................................      28      4       24        600% 
Corporate Items and Eliminations............................. (1,381) (1,504) 123 
Machinery, Energy & Transportation.........................   4,321   7,970   (3,649)   (46%) 
Financial Products Segment.................................   590     832     (242)     (29%) 
Corporate Items and Eliminations............................. (53)    (81)    28 
Financial Products......................................      537     751     (214)     (28%) 
Consolidating Adjustments.................................    (305)   (431)   126 
Consolidated Operating Profit..............................   USD 4,553 USD 8,290 USD (3,737) (45%)

Other Profit/Loss and Tax Items ? Interest expense excluding Financial Products in 2020 was USD514 million, compared with USD421 million in 2019. The

increase was due to higher average debt outstanding during 2020, compared with 2019.

Other income/expense in 2020 was expense of USD44 million, compared with expense of USD57 million in 2019. The change was due to a higher expected return on pension and other postretirement benefit (OPEB) costs that include lower mark-to-market losses for remeasurement of pension and OPEB plans, partially offset by unfavorable impacts from foreign currency exchange gains (losses); lower investment and interest income; and the absence of realized gains that occurred in 2019. ? The provision for income taxes for 2020 reflected an annual effective tax rate of 27.8 percent compared with 25

percent for 2019, excluding the discrete items discussed in the following paragraph. The increase from 2019

primarily related to changes in the geographic mix of profits from a tax perspective.

The provision for income taxes for 2020 also included the following:

? A tax benefit of USD80 million to adjust prior year U.S. taxes including the impact of regulations received in 2020 compared to USD178 million in 2019.

? A tax benefit of USD82 million related to USD383 million of pension and OPEB mark-to-market losses in 2020, compared to a USD105 million tax benefit related to USD468 million of mark-to-market losses in 2019.

? A tax benefit of USD49 million in 2020, compared with USD41 million in 2019, for the settlement of stock-based compensation awards with associated tax deductions in excess of cumulative U.S. GAAP compensation expense.

Construction Industries

Construction Industries' total sales were USD16.918 billion in 2020, a decrease of USD5.731 billion, or 25 percent, compared with USD22.649 billion in 2019. The decrease was due to lower sales volume, driven by lower end-user demand and the impact from changes in dealer inventories. Dealers decreased inventories during 2020, compared with an increase during 2019. ? In North America, sales decreased mostly due to lower sales volume driven by lower end-user demand and the impact

from changes in dealer inventories. Dealers decreased inventories during 2020, compared with an increase during

2019. ? Sales declined in Latin America primarily due to the impact from changes in dealer inventories and unfavorable

currency impacts from a weaker Brazilian real. Dealers decreased inventories during 2020, compared with a slight

increase during 2019. ? In EAME, sales decreased mostly due to lower end-user demand and the impact from changes in dealer inventories

across most countries in the region. Dealers decreased inventories more in 2020 than in 2019.

33

Table of Contents ? Sales declined in Asia/Pacific primarily due to lower sales volume driven by the impact of changes in dealer

inventories, lower end-user demand across most of the region and unfavorable price realization due to competitive

market conditions in China.

Construction Industries' profit was USD2.373 billion in 2020, a decrease of USD1.558 billion, or 40 percent, compared with USD3.931 billion in 2019. The decrease was mainly due to lower sales volume and unfavorable price realization primarily due to the geographic mix of sales, partially offset by favorable manufacturing costs and lower SG&A/R&D expenses. Favorable manufacturing costs were primarily due to lower period manufacturing costs, material costs and favorable cost absorption, partially offset by higher warranty expense. Cost absorption was favorable as inventory decreased in 2019, compared with inventory that was about flat in 2020. Lower SG&A/R&D expenses and period manufacturing costs both reflected a reduction in short-term incentive compensation expense and other cost reductions related to lower sales volumes.

Construction Industries' profit as a percent of total sales was 14.0 percent in 2020, compared with 17.4 percent in 2019. Resource Industries

Resource Industries' total sales were USD7.906 billion in 2020, a decrease of USD2.370 billion, or 23 percent, compared with USD10.276 billion in 2019. The decrease was due to lower sales volume, driven by lower end-user demand for equipment and aftermarket parts and the impact from changes in dealer inventories. Dealers decreased inventories during 2020, compared with an increase during 2019. Lower end-user demand was primarily driven by equipment supporting heavy construction and quarry and aggregates. Mining equipment end-user demand and aftermarket parts demand were also down in 2020, though to a lesser extent. Mining equipment sales were impacted by mining company delays in capital expenditures due to pricing in certain commodities and overall economic uncertainty.

(MORE TO FOLLOW) Dow Jones Newswires

February 18, 2021 14:47 ET (19:47 GMT)