2021 Annual Report to Shareholders on Form 10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 cat-20211231_g1.jpg
FORM 10-K
 
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2021
 
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                      to                     .
 
Commission File No. 1-768
 
CATERPILLAR INC.
(Exact name of Registrant as specified in its charter)
 
Delaware 37-0602744
(State or other jurisdiction of incorporation)(IRS Employer I.D. No.)
510 Lake Cook Road,Suite 100,Deerfield,Illinois60015
(Address of principal executive offices)(Zip Code)
 
Registrant’s telephone number, including area code:  (224) 551-4000
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each classTrading Symbol (s)Name of each exchange on which registered
Common Stock ($1.00 par value)CATNew York Stock Exchange
 (1)
8% Debentures due February 15, 2023CAT23New York Stock Exchange
5.3% Debentures due September 15, 2035CAT35New York Stock Exchange

(1)     In addition to the New York Stock Exchange, Caterpillar common stock is also listed on stock exchanges in France and Switzerland.
 
Securities registered pursuant to Section 12(g) of the Act:  None
 
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý  No o
 
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o  No ý
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý  No o
 
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ý  No o
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.  (Check one):
 


Large accelerated filerxAccelerated filero
Non-accelerated fileroSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.s.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.ý
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No ý
 
As of June 30, 2021, there were 547,471,467 shares of common stock of the Registrant outstanding, and the aggregate market value of the voting stock held by non-affiliates of the Registrant (assuming only for purposes of this computation that directors and executive officers may be affiliates) was approximately $118.1 billion.
 
As of December 31, 2021, there were 535,888,051 shares of common stock of the Registrant outstanding.
 
Documents Incorporated by Reference
 
Portions of the documents listed below have been incorporated by reference into the indicated parts of this Form 10-K, as specified in the responses to the item numbers involved.
 
Part III2022 Annual Meeting Proxy Statement (Proxy Statement) to be filed with the Securities and Exchange Commission (SEC) within 120 days after the end of the fiscal year.











TABLE OF CONTENTS
Page
 132
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PART I

Item 1.Business.

General
 
Originally organized as Caterpillar Tractor Co. in 1925 in the State of California, our company was reorganized as Caterpillar Inc. in 1986 in the State of Delaware.  As used herein, the term “Caterpillar,” “we,” “us,” “our” or “the company” refers to Caterpillar Inc. and its subsidiaries unless designated or identified otherwise.
 
Overview
 
With 2021 sales and revenues of $50.971 billion, Caterpillar is the world’s leading manufacturer of construction and mining equipment, off-highway diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives.  The company principally operates through its three primary segments - Construction Industries, Resource Industries and Energy & Transportation - and also provides financing and related services through its Financial Products segment. Caterpillar is also a leading U.S. exporter.  Through a global network of independent dealers and direct sales of certain products, Caterpillar builds long-term relationships with customers around the world.
 
Currently, we have five operating segments, of which four are reportable segments and are described below. 
 
Categories of Business Organization
 
1.               Machinery, Energy & Transportation — Caterpillar Inc. and its subsidiaries, excluding Financial Products. Machinery, Energy & Transportation information relates to the design, manufacturing and marketing of our products.
 
2.               Financial Products — Our finance and insurance subsidiaries, primarily Caterpillar Financial Services Corporation (Cat Financial) and Caterpillar Insurance Holdings Inc. (Insurance Services). Financial Products information relates to the financing to customers and dealers for the purchase and lease of Caterpillar and other equipment.
 
Other information about our operations in 2021, including certain risks associated with our operations, is included in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
Construction Industries
 
Our Construction Industries segment is primarily responsible for supporting customers using machinery in infrastructure, forestry and building construction.  The majority of machine sales in this segment are made in the heavy and general construction, rental, quarry and aggregates markets and mining.
The nature of customer demand for construction machinery varies around the world.  Customers in developing economies often prioritize purchase price in making their investment decisions, while customers in developed economies generally weigh productivity and other performance criteria that contribute to lower owning and operating costs over the lifetime of the machine.  To meet customer expectations in developing economies, Caterpillar developed differentiated product offerings that target customers in those markets, including our SEM brand machines.  We believe that these customer-driven product innovations enable us to compete more effectively in developing economies. The majority of Construction Industries' research and development spending in 2021 focused on the next generation of construction machines.
 
The competitive environment for construction machinery is characterized by some global competitors and many regional and specialized local competitors. Examples of global competitors include CASE (part of CNH Industrial N.V.), Deere Construction & Forestry (part of Deere & Company), Doosan Infracore Co., Ltd., Hitachi Construction Machinery Co., Ltd., Hyundai Construction Equipment Co., Ltd., Hyundai Doosan Infracore Co., Ltd. and Hyundai Construction Equipment Co., Ltd. (both part of Hyundai Heavy Industries Holdings Co.), J.C. Bamford Excavators Ltd., Kobelco Construction Machinery (part of Kobe Steel, Ltd), Komatsu Ltd., Kubota Farm & Industrial Machinery (part of Kubota Corporation), and Volvo Construction Equipment (part of the Volvo Group). As an example of regional and local competitors, our competitors in China also include Guangxi LiuGong Machinery Co., Ltd., Longking Holdings Ltd., Sany Heavy Industry Co., Ltd., XCMG Construction Machinery Co., Ltd., Shandong Lingong Construction Machinery Co., Ltd. (SDLG, part of the Volvo Group) and Shantui Construction Machinery Co., Ltd., (part of Shandong Heavy Industry Group Co.). Each of these companies has varying product lines that compete with Caterpillar products, and each has varying degrees of regional focus.
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 The Construction Industries product portfolio includes the following machines and related parts and work tools:
·                  asphalt pavers
·     forestry excavators·      small and medium
·                  backhoe loaders
·                 motorgraders
                     track-type tractors
·                  compactors
·                 pipelayers
·                  track-type loaders
·                 cold planers
·                 road reclaimers
·                  wheel excavators
·      compact track and·     site prep tractors·      compact, small and
                  multi-terrain loaders
·     skid steer loaders       medium wheel loaders
·               mini, small, medium
·     telehandlers 
·                  utility vehicles
                and large excavators

Resource Industries
 
The Resource Industries segment is primarily responsible for supporting customers using machinery in mining and heavy construction and quarry and aggregates.  Caterpillar offers a broad product range and services to deliver comprehensive solutions for our customers. We develop and manufacture high productivity equipment for both surface and underground mining operations around the world, as well as provide drivetrains, hydraulic systems, electronics and software for Caterpillar machines and engines. Our equipment is used to extract and haul copper, iron ore, coal, oil sands, aggregates, gold and other minerals and ores, as well as a variety of heavy construction applications. In addition to equipment, Resource Industries also develops and sells technology products and services to provide customers fleet management systems, equipment management analytics and autonomous machine capabilities.

Customers in most markets place an emphasis on equipment that is highly productive, reliable and provides the lowest total cost of ownership over the life of the equipment. In some developing markets, customers often prioritize purchase price in making their investment decisions.  We believe our ability to control the integration and design of key machine components represents a competitive advantage. Our research and development efforts remain focused on providing customers the lowest total cost of ownership enabled through the highest quality, most productive products and services in the industry.
The competitive environment for Resource Industries consists of a few larger global competitors that compete in several of the markets that we serve and a substantial number of smaller companies that compete in a more limited range of products, applications, and regional markets. Our global surface competitors include Deere Construction & Forestry (part of Deere & Company), Epiroc AB, Hitachi Construction Machinery Co., Ltd., Komatsu Ltd., Liebherr-International AG, Sandvik AB, and Volvo Construction Equipment. Our global underground competitors include Epiroc AB, Komatsu Ltd., and Sandvik AB.

The Resource Industries product portfolio includes the following machines and related parts and services
·                  electric rope shovels
·                  longwall miners
·                  landfill compactors
·                  draglines
·                  large wheel loaders
·                  soil compactors
·                  hydraulic shovels
·                  off-highway trucks
·                machinery components
·                  rotary drills
·                  articulated trucks
·                  autonomous ready vehicles and solutions
·                  hard rock vehicles
·                  wheel tractor scrapers
·                  select work tools
·                  large track-type tractors
·                  wheel dozers
·                  safety services and mining performance
·                  large mining trucks
·                  fleet management
                     solutions
 
Energy & Transportation
 
Our Energy & Transportation segment supports customers in oil and gas, power generation, marine, rail and industrial applications, including Caterpillar machines. The product and services portfolio includes reciprocating engines, generator sets, integrated systems and solutions, turbines and turbine-related services, the remanufacturing of Caterpillar engines and components and remanufacturing services for other companies, diesel-electric locomotives and other rail-related products and services and product support of on-highway vocational trucks for North America.
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Regulatory emissions standards require us to continue to make investments as new products and new regulations are introduced.  Ongoing compliance with these regulations remains a focus.  Emissions compliance in developing markets is complex due to rapidly evolving and unique requirements where enforcement processes can often vary.  We employ robust product development, manufacturing processes and testing to help us comply with these regulations. 
 
The competitive environment for reciprocating engines in marine, oil and gas, industrial and electric power generation systems along with turbines in oil and gas and electric power generation consists of a few larger global competitors that compete in a variety of markets that Caterpillar serves, and a substantial number of smaller companies that compete in a limited-size product range, geographic region and/or application. Principal global competitors include Cummins Inc., Deutz AG, INNIO Jenbacher GmbH, Rolls-Royce Power Systems and Wärtsilä Corp. Other competitors, such as Fiat Industrial SpA (Iveco Group), GE Power, Kawasaki Heavy Industries Energy Solutions & Marine Engineering, MAN Energy Solutions (VW), Mitsubishi Heavy Industries Ltd., Siemens Energy Global GmbH,Volvo Penta AB, Weichai Power Co., Ltd., and other emerging market competitors compete in certain markets in which Caterpillar competes. An additional set of competitors, including Aggreko plc, Baker Hughes Co., Generac Holdings, Kohler Power Systems, and others, are primarily packagers who source engines and/or other components from domestic and international suppliers and market products regionally and internationally through a variety of distribution channels. In rail-related businesses, our global competitors include Alstom SA, CRRC Corp., LTD., The Greenbrier Companies, Siemens Mobility, Voestalpine AG, Vossloh AG and Wabtec Freight. We also compete with other companies on a more limited range of products, services and/or geographic regions.

The Energy & Transportation portfolio includes the following products and related parts:

Reciprocating engine powered generator sets
Reciprocating engines and integrated systems and solutions supplied to the industrial industry as well as Caterpillar machinery
Integrated systems and solutions used in the electric power generation industry
Turbines, centrifugal gas compressors and related services
Reciprocating engines and integrated systems and solutions for the marine and oil and gas industries
Remanufactured reciprocating engines and components
Diesel-electric locomotives and components and other rail-related products and services

Financial Products Segment
 
The business of our Financial Products Segment is primarily conducted by Cat Financial, Insurance Services and their respective subsidiaries and affiliates.  Cat Financial is a wholly owned finance subsidiary of Caterpillar Inc. and it provides retail and wholesale financing to customers and dealers around the world for Caterpillar products and services, as well as financing for vehicles, power generation facilities and marine vessels that, in most cases, incorporate Caterpillar products. Retail financing is primarily comprised of installment sale contracts and other equipment-related loans, working capital loans, finance leases and operating leases. Wholesale financing to Caterpillar dealers consists primarily of inventory and rental fleet financing. In addition, Cat Financial purchases short-term wholesale trade receivables from Caterpillar. The various financing plans offered by Cat Financial are designed to support sales of Caterpillar products and services and generate financing income for Cat Financial.  A significant portion of our activity is conducted in North America and we have additional offices and subsidiaries in Latin America, Asia/Pacific, Europe, Africa and the Middle East.  

For over 40 years, Cat Financial has been providing financing for Caterpillar products, contributing to our knowledge of asset values, industry trends, financing structures and customer needs.
 
In certain instances, Cat Financial’s operations are subject to supervision and regulation by state, federal and various foreign governmental authorities, and may be subject to various laws and judicial and administrative decisions imposing various requirements and restrictions which, among other things, (i) regulate credit granting activities and the administration of loans, (ii) establish maximum interest rates, finance charges and other charges, (iii) require disclosures to customers, (iv) govern secured transactions, (v) set collection, foreclosure, repossession and other trade practices and (vi) regulate the use and reporting of information related to a borrower’s credit experience.  Cat Financial’s ability to comply with these and other governmental and legal requirements and restrictions affects its operations.

Cat Financial’s retail loans (totaling 48 percent*) include:
     
Loans that allow customers and dealers to use their Caterpillar equipment or other assets as collateral to obtain financing.

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Installment sale contracts, which are equipment loans that enable customers to purchase equipment with a down payment or trade-in and structure payments over time.

Cat Financial's retail leases (totaling 36 percent*) include:
 
Finance (non-tax) leases, where the lessee for tax purposes is considered to be the owner of the equipment during the term of the lease, that either require or allow the customer to purchase the equipment for a fixed price at the end of the term.

Tax leases that are classified as either operating or finance leases for financial accounting purposes, depending on the characteristics of the lease.  For tax purposes, we are considered the owner of the equipment.

Governmental lease-purchase plans in the U.S. that offer low interest rates and flexible terms to qualified non-federal government agencies.

Cat Financial also purchases short-term receivables from Caterpillar (15 percent*).
 
Cat Financial’s wholesale loans and leases (1 percent*) include inventory/rental programs, which provide assistance to dealers by financing their new Caterpillar inventory and rental fleets.

*Indicates the percentage of Cat Financial’s total portfolio at December 31, 2021.  We define total portfolio as total finance receivables (net of unearned income and allowance for credit losses) plus equipment on operating leases, less accumulated depreciation. For more information on the above and Cat Financial’s concentration of credit risk, please refer to Note 7 — “Cat Financial Financing Activities” of Part II, Item 8 "Financial Statements and Supplementary Data."
_____________________________
 
Cat Financial operates in a highly competitive environment, with financing for users of Caterpillar equipment and services available through a variety of sources, principally commercial banks and finance and leasing companies.  Our competitors include Wells Fargo Equipment Finance Inc., Banc of America Leasing & Capital LLC, BNP Paribas Leasing Solutions Limited, Australia and New Zealand Banking Group Limited, Société Générale S.A. and various other banks and finance companies.  In addition, many of the manufacturers that compete with Caterpillar also own financial subsidiaries, such as John Deere Capital Corporation, Komatsu Financial L.P., Volvo Financial Services and Kubota Credit Corporation, which utilize many below-market interest rate programs (funded by the manufacturer) to support machine sales.  We and Caterpillar work together to provide a broad array of financial merchandising programs to compete around the world.

Cat Financial’s financial results are largely dependent upon the ability of Caterpillar dealers to sell equipment and customers’ willingness to enter into financing or leasing agreements.  Cat Financial is also affected by, among other things, the availability of funds from its financing sources, its cost of funds relative to its competitors and general economic conditions such as inflation and market interest rates.
 
Cat Financial has a match-funding policy that addresses interest rate risk by aligning the interest rate profile (fixed or floating rate and duration) of its debt portfolio with the interest rate profile of its receivables portfolio within predetermined ranges on an ongoing basis.  In connection with that policy, Cat Financial uses interest rate derivative instruments to modify the debt structure to match assets within the receivables portfolio. This matched funding reduces the volatility of margins between interest-bearing assets and interest-bearing liabilities, regardless of which direction interest rates move. For more information regarding match funding, please see Note 4 — “Derivative financial instruments and risk management” of Part II, Item 8 "Financial Statements and Supplementary Data."  See also the risk factors associated with our financial products business included in Item 1 A. of this Form 10-K.

In managing foreign currency risk for Cat Financial’s operations, the objective is to minimize earnings volatility resulting from conversion and the remeasurement of net foreign currency balance sheet positions, and future transactions denominated in foreign currencies.  This policy allows the use of foreign currency forward, option and cross currency contracts to offset the risk of currency mismatch between the assets and liabilities, and exchange rate risk associated with future transactions denominated in foreign currencies.
 
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Cat Financial provides financing only when certain criteria are met. Credit decisions are based on a variety of credit quality factors including prior payment experience, customer financial information, credit ratings, loan-to-value ratios and other internal metrics. Cat Financial typically maintains a security interest in retail-financed equipment and requires physical damage insurance coverage on financed equipment.  Cat Financial finances a significant portion of Caterpillar dealers’ sales and inventory of Caterpillar equipment throughout the world.  Cat Financial’s competitive position is improved by marketing programs offered in conjunction with Caterpillar and/or Caterpillar dealers.  Under these programs, Caterpillar, or the dealer, funds an amount at the outset of the transaction, which Cat Financial then recognizes as revenue over the term of the financing.  We believe that these marketing programs provide Cat Financial a significant competitive advantage in financing Caterpillar products.
 
Caterpillar Insurance Company, a wholly owned subsidiary of Caterpillar Insurance Holdings Inc., is a U.S. insurance company domiciled in Missouri and primarily regulated by the Missouri Department of Insurance.  Caterpillar Insurance Company is licensed to conduct property and casualty insurance business in 50 states, the District of Columbia and Guam, and as such, is also regulated in those jurisdictions.  The State of Missouri acts as the lead regulatory authority and monitors Caterpillar Insurance Company’s financial status to ensure that it is in compliance with minimum solvency requirements, as well as other financial ratios prescribed by the National Association of Insurance Commissioners.  Caterpillar Insurance Company is also licensed to conduct insurance business through a branch in Zurich, Switzerland and, as such, is regulated by the Swiss Financial Market Supervisory Authority.
 
Caterpillar Life Insurance Company, a wholly owned subsidiary of Caterpillar, is a U.S. insurance company domiciled in Missouri and primarily regulated by the Missouri Department of Insurance.  Caterpillar Life Insurance Company is licensed to conduct life and accident and health insurance business in 26 states and the District of Columbia and, as such, is also regulated in those jurisdictions. The State of Missouri acts as the lead regulatory authority and it monitors the financial status to ensure that it is in compliance with minimum solvency requirements, as well as other financial ratios prescribed by the National Association of Insurance Commissioners.  Caterpillar Life Insurance Company provides reinsurance coverage to Caterpillar Insurance Company. Specifically, Caterpillar Life Insurance Company has entered into a reinsurance agreement with Caterpillar Insurance Company, assuming 100% of the risk of an Accident and Health Stop Loss Insurance Policy to cover a Caterpillar Voluntary Employees' Benefits Association (VEBA) Trust for medical losses sustained by a select group of Caterpillar retirees and dependents.
 
Caterpillar Insurance Co. Ltd., a wholly owned subsidiary of Caterpillar Insurance Holdings Inc., is a captive insurance company domiciled in Bermuda and regulated by the Bermuda Monetary Authority.  Caterpillar Insurance Co. Ltd. holds a Class 2 license (as defined by the Bermuda Insurance Amendment Act of 1995), which primarily insures its parent and affiliates. Caterpillar Insurance Co.Ltd. also provides reinsurance to Caterpillar Insurance Company under quota share reinsurance agreements for contractual liability and contractors' equipment programs in the United States. Finally, Caterpillar Insurance Co. Ltd. holds a Class B license to provide life and disability reinsurance covering Caterpillar Inc.'s International employee benefits program. The Bermuda Monetary Authority is responsible for monitoring Caterpillar Insurance Co. Ltd.'s compliance with solvency requirements, and requires an Annual Financial Filing for this purpose.
 
Caterpillar Product Services Corporation (CPSC), a wholly owned subsidiary of Caterpillar, is a warranty company domiciled in Missouri.  CPSC previously conducted a machine extended service contract program in Germany and France by providing machine extended warranty reimbursement protection to dealers in Germany and France. The program was discontinued effective January 1, 2013, though CPSC continues to provide extended warranty reimbursement protection under existing contracts.
 
Caterpillar Insurance Services Corporation, a wholly owned subsidiary of Caterpillar Insurance Holdings Inc., is a Tennessee insurance agency licensed in all 50 states, the District of Columbia and Guam. It provides insurance services for all property and casualty and life and health lines of business.
 
Caterpillar’s insurance group provides protection and service for claims under the following programs:
 
Contractual Liability Insurance to insure certain service contract obligations of Caterpillar and its affiliates, Caterpillar dealers and original equipment manufacturers (OEMs).

Cargo reinsurance for the worldwide cargo risks of Caterpillar products.

Contractors’ Equipment Physical Damage Insurance for equipment manufactured by Caterpillar or OEMs, which is leased, rented or sold by third party dealers to customers.

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General liability, employer’s liability, auto liability and property insurance for Caterpillar.

Life, health and disability reinsurance for Caterpillar's international employee benefits program (non-U.S.).

Reinsurance to cover VEBA Trust for medical claims of certain Caterpillar retirees and dependents.

Brokerage and insurance services for property and casualty and life and health business.

Competitive Environment
 
Caterpillar products and services are sold worldwide into a variety of highly competitive markets.  In all markets, we compete on the basis of product performance, customer service, quality and price.  From time to time, the intensity of competition results in price discounting in a particular industry or region.  Such price discounting puts pressure on margins and can negatively impact operating profit. Outside the United States, certain competitors enjoy competitive advantages inherent to operating in their home countries or regions.
 
Raw Materials and Component Products
 
We source our raw materials and manufactured components from suppliers both domestically and internationally. These purchases include unformed materials and rough and finished parts.  Unformed materials include a variety of steel products, which are then cut or formed to shape and machined in our facilities. Rough parts include various sized steel and iron castings and forgings, which are machined to final specification levels inside our facilities. Finished parts are ready to assemble components, which are made either to Caterpillar specifications or to supplier developed specifications.  We machine and assemble some of the components used in our machines, engines and power generation units and to support our after-market dealer parts sales. We also purchase various goods and services used in production, logistics, offices and product development processes.  We maintain global strategic sourcing models to meet our global facilities’ production needs while building long-term supplier relationships and leveraging enterprise spend.  We expect our suppliers to maintain, at all times, industry-leading levels of quality and the ability to timely deliver raw materials and component products for our machine and engine products. However, in some cases, increases in demand or supply chain disruptions have led to parts and components constraints across some products. We use a variety of agreements with suppliers to protect our intellectual property and processes to monitor and mitigate risks of the supply base causing a business disruption.  The risks monitored include supplier financial viability, the ability to increase or decrease production levels, business continuity, quality and delivery.
 
Patents and Trademarks
 
We own a number of patents and trademarks, which have been obtained over a period of years and relate to the products we manufacture and the services we provide. These patents and trademarks are generally considered beneficial to our business. We do not regard our business as being dependent upon any single patent or group of patents.

Order Backlog
 
The dollar amount of backlog believed to be firm was approximately $23.1 billion at December 31, 2021 and $14.2 billion at December 31, 2020. Compared with year-end 2020, the order backlog increased across the three primary segments, with the largest increase in Energy & Transportation. Of the total backlog at December 31, 2021, approximately $4.3 billion was not expected to be filled in 2022. 

Dealers and Distributors
 
We distribute our machines principally through a worldwide organization of dealers (dealer network), 44 located in the United States and 116 located outside the United States, serving 193 countries.  We sell reciprocating engines principally through the dealer network and to other manufacturers for use in products. We also sell some of the reciprocating engines manufactured by our subsidiary Perkins Engines Company Limited through its worldwide network of 90 distributors covering 171 countries. We sell the FG Wilson branded electric power generation systems through its worldwide network of 110 distributors covering 109 countries.  We also sell some of the large, medium speed reciprocating engines under the MaK brand through a worldwide network of 20 distributors covering 130 countries. 
 
Our dealers do not deal exclusively with our products; however, in most cases sales and servicing of our products are the dealers’ principal business.  We sell some products, primarily turbines and locomotives, directly to end customers through sales forces employed by the company.  At times, these employees are assisted by independent sales representatives.
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While the large majority of our worldwide dealers are independently owned and operated, we own and operate a dealership in Japan that covers approximately 80% of the Japanese market: Nippon Caterpillar Division. We are currently operating this Japanese dealer directly and we report its results in the All Other operating segment. There are also three independent dealers in the Southern Region of Japan.
 
For Caterpillar branded products, the company’s relationship with each of its independent dealers is memorialized in standard sales and service agreements.  Pursuant to these agreements, the company grants the dealer the right to purchase and sell its products and to service the products in a specified geographic service territory.  The company establishes prices to dealers after receiving input from dealers on transactional pricing in the marketplace.  The company also agrees to defend its intellectual property and to provide warranty and technical support to the dealer.  The agreement further grants the dealer a non-exclusive license to use the company’s trademarks, service marks and brand names.  In some instances, a separate trademark agreement exists between the company and a dealer.
 
In exchange for these rights, the agreement obligates the dealer to develop and promote the sale of the company’s products to current and prospective customers in the dealer’s service territory.  Each dealer agrees to employ adequate sales and support personnel to market, sell and promote the company’s products, demonstrate and exhibit the products, perform the company’s product improvement programs, inform the company concerning any features that might affect the safe operation of any of the company’s products and maintain detailed books and records of the dealer’s financial condition, sales and inventories and make these books and records available at the company’s reasonable request.
 
These sales and service agreements are terminable at will by either party primarily upon 90 days written notice.
 
Human Capital

Core Values

Caterpillar’s global workforce is united by Our Values In Action, Caterpillar’s Code of Conduct. Integrity, Excellence, Teamwork, Commitment and Sustainability provide the foundation for our values-based culture. Our diversity and inclusion principles are embedded in our values. Our values unite us, and reflect our diverse cultures, languages, geographies, and businesses, as one Caterpillar team.

Health and Safety

The health and safety of our employees is an important focus at Caterpillar, and we strive to continually reduce our recordable injuries. As part of this focus on health and safety, Caterpillar has established a peer-to-peer safety mentorship and education program for manufacturing new hires to accelerate acclimation to our safety culture in many global locations. In 2021, the Company achieved a recordable injury frequency rate of 0.41, compared to the 2020 recordable injury frequency rate of 0.42.

The COVID-19 pandemic has continued to further reinforce the importance of a safe and healthy workforce. In response to the pandemic, the Company continues to utilize safeguards to protect our essential employees, including increased frequency of cleaning and disinfecting, social distancing practices, face coverings, temperature screening, supporting vaccination opportunities in many workplaces and paid time off to receive vaccinations away from work. We implemented workplace pandemic measures consistent with specific regulatory requirements and guidance from health authorities. We also maintained travel restrictions and remote work, for employees who were able to work from home. Our medical teams provide ongoing training and education to support the emotional health and resilience of our workforce.

Talent Development and Training

In addition to our focus on values and safety, we strive to continually attract, develop, engage, and retain a high-performing diverse global team that executes our enterprise strategy of long-term profitable growth.

We are committed to employee development and helping individuals reach their full potential, by making on-going investments in our team. Our global internships, engineering co-ops, and career programs for engineering, marketing, and manufacturing provide development opportunities for early career employees. We also have a continual focus on strengthening technical, professional and leadership capabilities at every level. Strategic talent reviews and succession planning occur at a minimum, annually, across our businesses.

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Our leadership development programs and focus on encouraging a variety of experiences to help employees broaden understanding and increase perspective. Our leadership curriculums include managing for inclusion as a core development principle and a professional skill.

Additionally, skill-based programs to upskill our manufacturing employees are developed locally and tailored to the specific needs of the business. In China, we continue to invest in programs that encourage women to pursue engineering management and leadership roles. In India, we tailored recruiting campaigns and on-site benefits to attract female employees. Caterpillar, along with other companies across industries, participates in the OneTen coalition. The coalition is committed to upskill, hire and advance Black Americans over the next 10 years into family-sustaining careers.

Diversity and Inclusion

We are committed to fostering a diverse workforce and an inclusive environment. Our 14 Employee Resource Groups (ERGs), which are sponsored and supported by leadership, help ensure different voices and perspectives contribute to our strategy for long-term profitable growth. They also engage our employees, helping contribute to development and retention.

Our ERGs provide many contributions, such as mentoring programs that connect diverse employees with senior leaders who can support their career goals, partnerships with recruiters and diverse early career and professional organizations that can assist in strengthening the diverse talent pipeline and programs that educate and inform on the richness of the global cultures that we share.

Compensation, Benefits and Employee Insights

Providing competitive benefits and compensation underpins our commitment to our engaged and productive employees. Our pay-for-performance philosophy aligns employee’s individual contributions, behaviors and business results with individual rewards. Our comprehensive Total Health programs focus on purpose, as well as physical, emotional, financial, and social health. The annual Employee Insights Survey provides all employees the opportunity to confidentially share their perspectives and engages leaders to listen, learn and respond to employee feedback.

Employment

Management aligns employment levels with the needs of the business. We believe we have the appropriate human capital resources to successfully operate and deliver our enterprise strategy. As of December 31, 2021, we employed about 107,700 full-time persons of whom approximately 63,400 were located outside the United States. In the United States, we employed approximately 44,300 full-time persons, most of whom are at-will employees and, therefore, not subject to any type of employment contract or agreement.  At select business units, we have hired certain highly specialized employees under employment contracts that specify a term of employment, pay and other benefits.
 
Full-Time Employees at Year-End
 20212020
Inside U.S.44,30040,300
Outside U.S.63,40057,000
Total107,70097,300
By Region:  
North America44,70040,500
EAME17,60017,700
Latin America19,50015,900
Asia/Pacific25,90023,200
Total107,70097,300



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As of December 31, 2021, there were approximately 7,710 hourly production employees in the United States who were covered by collective bargaining agreements with various labor unions, including The United Automobile, Aerospace and Agricultural Implement Workers of America (UAW), The International Association of Machinists and The United Steelworkers. Outside the United States, the company enters into employment contracts and agreements in those countries in which such relationships are mandatory or customary. The provisions of these agreements generally correspond in each case with the required or customary terms in the subject jurisdiction.
 

Environmental 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 of the remedial action 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 the line item "Accrued expenses" in Statement 3 — "Consolidated Financial Position at December 31" of Part II, Item 8 "Financial Statements and Supplementary Data." 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.

Available Information

The company files electronically with the Securities and Exchange Commission (SEC) required reports on Form 8-K, Form 10-Q, Form 10-K and Form 11-K; proxy materials; ownership reports for insiders as required by Section 16 of the Securities Exchange Act of 1934 (Exchange Act); registration statements on Forms S-3 and S-8, as necessary; and other forms or reports as required.  The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The company maintains a website (www.Caterpillar.com) and copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports filed or furnished with the SEC are available free of charge through our website (www.Caterpillar.com/secfilings) as soon as reasonably practicable after filing with the SEC.  Copies of our board committee charters, our board’s Guidelines on Corporate Governance Issues, Worldwide Code of Conduct and other corporate governance information are available on our website (www.Caterpillar.com/governance).  The information contained on the company’s website is not included in, or incorporated by reference into, this annual report on Form 10-K.
 
Additional company information may be obtained as follows:
 
Current information -
 
view additional financial information on-line at www.Caterpillar.com/en/investors/financial-information.html

request, view or download materials on-line or register for email alerts at www.Caterpillar.com/materialsrequest
 
Historical information -
 
view/download on-line at www.Caterpillar.com/historical

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Item 1A.Risk Factors.
 
The statements in this section describe the most significant risks to our business and should be considered carefully in conjunction with Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the “Notes to Consolidated Financial Statements” of Part II, Item 8 “Financial Statements and Supplementary Data” to this Form 10-K.  In addition, the statements in this section and other sections of this Form 10-K, including in Part II, Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations,” include “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995 and involve uncertainties that could significantly impact results.  Forward-looking statements give current expectations or forecasts of future events about the company or our outlook.  You can identify forward-looking statements by the fact they do not relate to historical or current facts and by the use of words such as “believe,” “expect,” “estimate,” “anticipate,” “will be,” “should,” “plan,” “forecast,” “target,” “guide,” “project,” “intend,” “could” and similar words or expressions.
 
Forward-looking statements are based on assumptions and on known risks and uncertainties. Although we believe we have been prudent in our assumptions, any or all of our forward-looking statements may prove to be inaccurate, and we can make no guarantees about our future performance.  Should known or unknown risks or uncertainties materialize or underlying assumptions prove inaccurate, actual results could materially differ from past results and/or those anticipated, estimated or projected.

We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You should, however, consult any subsequent disclosures we make in our filings with the SEC on Form 10-Q or Form 8-K.
 
The following is a cautionary discussion of risks, uncertainties and assumptions that we believe are material to our business. In addition to the factors discussed elsewhere in this report, the following are some of the important factors that, individually or in the aggregate, we believe could make our actual results differ materially from those described in any forward-looking statements. It is impossible to predict or identify all such factors and, as a result, you should not consider the following factors to be a complete discussion of risks, uncertainties and assumptions.

RISKS RELATED TO THE COVID-19 PANDEMIC

The COVID-19 pandemic could materially adversely affect our business, results of operations and/or financial condition.

COVID-19 was identified in late 2019 and spread globally. Efforts to combat the virus have been complicated by viral variants and access to, and acceptance and effectiveness of, vaccines globally. COVID 19 has had, and continues to have, a significant impact around the world, prompting governments and businesses to take unprecedented measures in response. Such measures have included travel bans and restrictions, quarantines, shelter in place orders and shutdowns. These measures have impacted and may continue to impact all or portions of our workforce and operations and the operations of our customers, dealers and suppliers. Although certain restrictions related to the COVID-19 pandemic have eased, uncertainty continues to exist regarding such measures and potential future measures. Current material and component shortages, logistics constraints and labor inefficiencies have limited and could continue to limit our ability to meet customer demand, which could have a material adverse effect on our business, results of operations and/or financial condition.

The COVID-19 pandemic caused a global recession and the sustainability of the economic recovery observed in 2021 remains unclear. The COVID-19 pandemic has also significantly increased economic and customer demand uncertainty, has caused inflationary pressure in the U.S. and elsewhere and has led to volatility in customer demand for the Company’s products and services and caused supply chain disruptions. Economic uncertainties could continue to affect customer demand for the Company’s products and services, the value of the equipment financed or leased, the demand for financing and the financial condition and credit risk of our dealers and customers.

Continued uncertainties related to the magnitude, duration and persistent effects of the COVID-19 pandemic may adversely affect our business. These uncertainties include, among other things: the duration and impact of the resurgence in COVID-19 cases in any country, state, or region; the emergence, contagiousness, and threat of new and different strains of the virus; the availability, acceptance, and effectiveness of vaccines; prolonged reduction or closure of the Company’s operations; disruptions in the supply chain; labor inefficiencies; increased logistics costs; the impact of the pandemic on the Company’s customers and dealers; the impact of disruptions in the global capital markets and/or declines in our financial performance or credit ratings, which could impact the Company’s ability to obtain funding in the future; and the impact of the pandemic on customer demand
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for our products and services as discussed above. All of these factors could materially and adversely affect our business, results of operations and/or financial condition.

The ultimate impact of the COVID-19 pandemic on the Company’s financial and operational results will be determined by the length of time that the pandemic continues, its effect on the demand for the Company’s products and services and the supply chain, as well as the effect of governmental regulations imposed in response to the pandemic. The overall magnitude of the COVID-19 pandemic and the continued fluidity of the situation could materially and adversely impact our business, results of operations and/or financial condition.

MACROECONOMIC RISKS

Our business and the industries we serve are highly sensitive to global and regional economic conditions.
 
Our results of operations are materially affected by economic conditions globally and regionally and in the particular industries we serve.  The demand for our products and services tends to be cyclical and can be significantly reduced in periods of economic weakness characterized by lower levels of government and business investment, lower levels of business confidence, lower corporate earnings, high real interest rates, lower credit activity or tighter credit conditions, perceived or actual industry overcapacity, higher unemployment and lower consumer spending. A prolonged period of economic weakness may also result in increased expenses due to higher allowances for doubtful accounts and potential goodwill and asset impairment charges.  Economic conditions vary across regions and countries, and demand for our products and services generally increases in those regions and countries experiencing economic growth and investment.  Slower economic growth or a change in the global mix of regions and countries experiencing economic growth and investment could have an adverse effect on our business, results of operations and financial condition.
 
The energy, transportation and mining industries are major users of our products, including the mineral extraction, oil and natural gas industries.  Customers in these industries frequently base their decisions to purchase our products and services on the expected future performance of these industries, which in turn are dependent in part on commodity prices. Prices of commodities in these industries are frequently volatile and can change abruptly and unpredictably in response to general economic conditions and trends, government actions, regulatory actions, commodity inventories, production and consumption levels, technological innovations, commodity substitutions, market expectations and any disruptions in production or distribution or changes in consumption.  Economic conditions affecting the industries we serve may in the future also lead to reduced capital expenditures by our customers. Reduced capital expenditures by our customers are likely to lead to a decrease in the demand for our products and services and may also result in a decrease in demand for aftermarket parts as customers are likely to extend preventative maintenance schedules and delay major overhauls when possible.
 
The rates of infrastructure spending, commercial construction and housing starts also play a significant role in our results.  Our products are an integral component of these activities, and as these activities decrease, demand for our products and services may be significantly impacted, which could negatively impact our results.  

Commodity price changes, material price increases, fluctuations in demand for our products and services, significant disruptions to our supply chains or significant shortages of labor and material may adversely impact our financial results or our ability to meet commitments to customers.
 
We are a significant user of steel and many other commodities required for the manufacture of our products. Increases in the prices of such commodities would increase our costs, negatively impacting our business, results of operations and financial condition if we are unable to fully offset the effect of these increased costs through price increases, productivity improvements or cost reduction programs.
 
We rely on suppliers to produce or secure material required for the manufacture of our products. Production challenges at suppliers (including suppliers of semiconductors), a disruption in deliveries to or from suppliers or decreased availability of raw materials or commodities could have an adverse effect on our ability to meet our commitments to customers or increase our operating costs.  On the other hand, in circumstances where demand for our products is less than we expect, we may experience excess inventories and be forced to incur additional costs and our profitability may suffer. Additionally, we have experienced and expect to continue to experience transportation delays for parts, components and finished machines due to significant demands in global transportation and congestion at ports throughout the globe. Our business, competitive position, results of operations or financial condition could be negatively impacted if supply is insufficient for our operations, if significant transportation delays interfere with deliveries, if we experience excess inventories or if we are unable to adjust our production schedules or our purchases from suppliers to reflect changes in customer demand and market fluctuations on a timely basis.
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Changes in government monetary or fiscal policies may negatively impact our results.
 
Most countries where our products and services are sold have established central banks to regulate monetary systems and influence economic activities, generally by adjusting interest rates. Interest rate changes affect overall economic growth, which affects demand for residential and nonresidential structures, as well as energy and mined products, which in turn affects sales of our products and services that support these activities.  Interest rate changes may also affect our customers’ ability to finance machine purchases, can change the optimal time to keep machines in a fleet and can impact the ability of our suppliers to finance the production of parts and components necessary to manufacture and support our products. Increases in interest rates could negatively impact sales and create supply chain inefficiencies.
 
Central banks and other policy arms of many countries may take actions to vary the amount of liquidity and credit available in an economy. The impact from a change in liquidity and credit policies could negatively affect the customers and markets we serve or our suppliers, create supply chain inefficiencies and could adversely impact our business, results of operations and financial condition.

Changes in monetary and fiscal policies, along with other factors, may cause currency exchange rates to fluctuate. Actions that lead the currency exchange rate of a country where we manufacture products to increase relative to other currencies could reduce the competitiveness of products made in that country, which could adversely affect our competitive position, results of operations and financial condition.

Government policies on taxes and spending also affect our business.  Throughout the world, government spending finances a significant portion of infrastructure development, such as highways, rail systems, airports, sewer and water systems, waterways and dams.  Tax regulations determine asset depreciation lives and impact the after-tax returns on business activity and investment, both of which influence investment decisions.  Unfavorable developments, such as decisions to reduce public spending or to increase taxes, could negatively impact our results.

Our global operations are exposed to political and economic risks, commercial instability and events beyond our control in the countries in which we operate.
 
Our global operations are dependent upon products manufactured, purchased and sold in the U.S. and internationally, including in countries with political and economic instability or uncertainty. Some countries have greater political and economic volatility and greater vulnerability to infrastructure and labor disruptions than others.  Our business could be negatively impacted by adverse fluctuations in freight costs, limitations on shipping and receiving capacity, and other disruptions in the transportation and shipping infrastructure at important geographic points of exit and entry for our products. Operating in different regions and countries exposes us to numerous risks, including:

multiple and potentially conflicting laws, regulations and policies that are subject to change;

imposition of currency restrictions, restrictions on repatriation of earnings or other restraints;

imposition of new or additional tariffs or quotas;

withdrawal from or modification of trade agreements or the negotiation of new trade agreements;

imposition of new or additional trade and economic sanctions laws imposed by the U.S. or foreign governments;

war or acts of terrorism; and

political and economic instability or civil unrest that may severely disrupt economic activity in affected countries.

The occurrence of one or more of these events may negatively impact our business, results of operations and financial condition.

OPERATIONAL RISKS

The success of our business depends on our ability to develop, produce and market quality products that meet our customers’ needs.
 
Our business relies on continued global demand for our brands and products.  To achieve business goals, we must develop and sell products that appeal to our dealers, OEMs and end-user customers.  This is dependent on a number of factors, including our
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ability to maintain key dealer relationships; our ability to produce products that meet the quality, performance and price expectations of our customers and our ability to develop effective sales, advertising and marketing programs.  In addition, our continued success in selling products that appeal to our customers is dependent on leading-edge innovation, with respect to both products and operations, and on the availability and effectiveness of legal protection for our innovations.  Failure to continue to deliver high quality, innovative, competitive products to the marketplace, to adequately protect our intellectual property rights; to supply products that meet applicable regulatory requirements, including engine exhaust emission requirements or to predict market demands for, or gain market acceptance of, our products, could have a negative impact on our business, results of operations and financial condition.

We operate in a highly competitive environment, which could adversely affect our sales and pricing.
 
We operate in a highly competitive environment.  We compete on the basis of a variety of factors, including product performance, customer service, quality and price.  There can be no assurance that our products will be able to compete successfully with other companies’ products.  Thus, our share of industry sales could be reduced due to aggressive pricing or product strategies pursued by competitors, unanticipated product or manufacturing difficulties, our failure to price our products competitively, our failure to produce our products at a competitive cost or an unexpected buildup in competitors’ new machine or dealer-owned rental fleets, which could lead to downward pressure on machine rental rates and/or used equipment prices.
 
Lack of customer acceptance of price increases we announce from time to time, changes in customer requirements for price discounts, changes in our customers’ behavior or a weak pricing environment could have an adverse impact on our business, results of operations and financial condition.
 
In addition, our results and ability to compete may be impacted negatively by changes in our geographic and product mix of sales.  

Increased information technology security threats and more sophisticated computer crime pose a risk to our systems, networks, products and services.

We rely upon information technology systems and networks, some of which are managed by third parties, in connection with a variety of business activities. Additionally, we collect and store sensitive information relating to our business, customers, dealers, suppliers and employees. Operating these information technology systems and networks and processing and maintaining this data in a secure manner, is critical to our business operations and strategy. Information technology security threats -- from user error to cybersecurity attacks designed to gain unauthorized access to our systems, networks and data -- are increasing in frequency and sophistication. Cybersecurity attacks from threat actors globally range from random attempts to coordinated and targeted attacks, including sophisticated computer crime and advanced persistent threats. These threats pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. Cybersecurity attacks could also include attacks targeting customer data or the security, integrity and/or reliability of the hardware and software installed in our products. It is possible that our information technology systems and networks, or those managed or provided by third parties, could have vulnerabilities, which could go unnoticed for a period of time. While various procedures and controls have been and are being utilized to mitigate such risks, there can be no guarantee that the actions and controls we have implemented and are implementing, or which we cause or have caused third-party service providers to implement, will be sufficient to protect and mitigate associated risks to our systems, information or other property.
We have experienced cyber security threats and vulnerabilities in our systems and those of our third party providers, and we have experienced viruses and attacks targeting our information technology systems and networks. Such prior events, to date, have not had a material impact on our financial condition, results of operations or liquidity. However, the potential consequences of a future material cybersecurity attack include reputational damage, litigation with third parties, government enforcement actions, penalties, disruption to systems, unauthorized release of confidential or otherwise protected information, corruption of data, diminution in the value of our investment in research, development and engineering, and increased cybersecurity protection and remediation costs, which in turn could adversely affect our competitiveness, results of operations and financial condition. Due to the evolving nature of such security threats, the potential impact of any future incident cannot be predicted. Further, the amount of insurance coverage we maintain may be inadequate to cover claims or liabilities relating to a cybersecurity attack.
In addition, data we collect, store and process are subject to a variety of U.S. and international laws and regulations, such as the European Union's General Data Protection Regulation that became effective in May 2018 and the California Consumer Privacy Act that became effective in January 2020, which may carry significant potential penalties for noncompliance.

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Our business is subject to the inventory management decisions and sourcing practices of our dealers and our OEM customers.
 
We sell finished products primarily through an independent dealer network and directly to OEMs and are subject to risks relating to their inventory management decisions and operational and sourcing practices.  Both carry inventories of finished products as part of ongoing operations and adjust those inventories based on their assessments of future needs and market conditions, including levels of used equipment inventory and machine rental usage rates.  Such adjustments may impact our results positively or negatively.  If the inventory levels of our dealers and OEM customers are higher than they desire, they may postpone product purchases from us, which could cause our sales to be lower than the end-user demand for our products and negatively impact our results. Similarly, our results could be negatively impacted through the loss of time-sensitive sales if our dealers and OEM customers do not maintain inventory levels sufficient to meet customer demand.

We may not realize all of the anticipated benefits of our acquisitions, joint ventures or divestitures, or these benefits may take longer to realize than expected.

In pursuing our business strategy, we routinely evaluate targets and enter into agreements regarding possible acquisitions, divestitures and joint ventures. We often compete with others for the same opportunities. To be successful, we conduct due diligence to identify valuation issues and potential loss contingencies, negotiate transaction terms, complete complex transactions and manage post-closing matters such as the integration of acquired businesses. Further, while we seek to mitigate risks and liabilities of such transactions through due diligence, among other things, there may be risks and liabilities that our due diligence efforts fail to discover, that are not accurately or completely disclosed to us or that we inadequately assess. We may incur unanticipated costs or expenses following a completed acquisition, including post-closing asset impairment charges, expenses associated with eliminating duplicate facilities, litigation, and other liabilities. Risks associated with our past or future acquisitions also include the following:

the failure to achieve the acquisition's revenue or profit forecast;

the business culture of the acquired business may not match well with our culture;

technological and product synergies, economies of scale and cost reductions may not occur as expected;

unforeseen expenses, delays or conditions may be imposed upon the acquisition, including due to required regulatory approvals or consents;

we may acquire or assume unexpected liabilities or be subject to unexpected penalties or other enforcement actions;

faulty assumptions may be made regarding the macroeconomic environment or the integration process;

unforeseen difficulties may arise in integrating operations, processes and systems;

higher than expected investments may be required to implement necessary compliance processes and related systems, including information technology systems, accounting systems and internal controls over financial reporting;

we may fail to retain, motivate and integrate key management and other employees of the acquired business;

higher than expected costs may arise due to unforeseen changes in tax, trade, environmental, labor, safety, payroll or pension policies in any jurisdiction in which the acquired business conducts its operations; and

we may experience problems in retaining customers and integrating customer bases.

Many of these factors will be outside of our control and any one of them could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and attention. They may also delay the realization of the benefits we anticipate when we enter into a transaction.
 
In order to conserve cash for operations, we may undertake acquisitions financed in part through public offerings or private placements of debt or equity securities, or other arrangements.  Such acquisition financing could result in a decrease in our earnings and adversely affect other leverage measures.  If we issue equity securities or equity-linked securities, the issued securities may have a dilutive effect on the interests of the holders of our common shares.
 
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Failure to implement our acquisition strategy, including successfully integrating acquired businesses, could have an adverse effect on our business, financial condition and results of operations.  Furthermore, we make strategic divestitures from time to time. In the case of divestitures, we may agree to indemnify acquiring parties for certain liabilities arising from our former businesses. These divestitures may also result in continued financial involvement in the divested businesses following the transaction, including through guarantees or other financial arrangements.  Lower performance by those divested businesses could affect our future financial results.

Union disputes or other labor matters could adversely affect our operations and financial results.
 
Some of our employees are represented by labor unions in a number of countries under various collective bargaining agreements with varying durations and expiration dates.  There can be no assurance that any current or future issues with our employees will be resolved or that we will not encounter future strikes, work stoppages or other disputes with labor unions or our employees.  We may not be able to satisfactorily renegotiate collective bargaining agreements in the United States and other countries when they expire.  If we fail to renegotiate our existing collective bargaining agreements, we could encounter strikes or work stoppages or other disputes with labor unions.  In addition, existing collective bargaining agreements may not prevent a strike or work stoppage at our facilities in the future.  We may also be subject to general country strikes or work stoppages unrelated to our business or collective bargaining agreements. A work stoppage or other limitations on production at our facilities for any reason could have an adverse effect on our business, results of operations and financial condition. In addition, many of our customers and suppliers have unionized work forces. Strikes or work stoppages experienced by our customers or suppliers could have an adverse effect on our business, results of operations and financial condition.

Unexpected events may increase our cost of doing business or disrupt our operations.
 
The occurrence of one or more unexpected events, including war, acts of terrorism or violence, civil unrest, fires, tornadoes, tsunamis, hurricanes, earthquakes, floods and other forms of severe weather in the United States or in other countries in which we operate or in which our suppliers are located could adversely affect our operations and financial performance.  Natural disasters, pandemic illness, including the current COVID-19 outbreak, equipment failures, power outages or other unexpected events could result in physical damage to and complete or partial closure of one or more of our manufacturing facilities or distribution centers, temporary or long-term disruption in the supply of component products from some local and international suppliers, and disruption and delay in the transport of our products to dealers, end-users and distribution centers.  Existing insurance coverage may not provide protection for all of the costs that may arise from such events.

FINANCIAL RISKS

Disruptions or volatility in global financial markets could limit our sources of liquidity, or the liquidity of our customers, dealers and suppliers.
 
Continuing to meet our cash requirements over the long-term requires substantial liquidity and access to varied sources of funds, including capital and credit markets. Global economic conditions may cause volatility and disruptions in the capital and credit markets. Market volatility, changes in counterparty credit risk, the impact of government intervention in financial markets and general economic conditions may also adversely impact our ability to access capital and credit markets to fund operating needs.  Global or regional economic downturns could cause financial markets to decrease the availability of liquidity, credit and credit capacity for certain issuers, including certain customers, dealers and suppliers. An inability to access capital and credit markets may have an adverse effect on our business, results of operations, financial condition and competitive position. Furthermore, changes in global economic conditions, including material cost increases and decreases in economic activity in key markets we serve, and the success of plans to manage cost increases, inventory and other important elements of our business may significantly impact our ability to generate funds from operations. 
 
In addition, demand for our products generally depends on customers’ ability to pay for our products, which, in turn, depends on their access to funds. Changes in global economic conditions may result in customers experiencing increased difficulty in generating funds from operations. Capital and credit market volatility and uncertainty may cause financial institutions to revise their lending standards, resulting in customers’ decreased access to capital. If capital and credit market volatility occurs, customers’ liquidity may decline which, in turn, would reduce their ability to purchase our products.

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Failure to maintain our credit ratings would increase our cost of borrowing and could adversely affect our cost of funds, liquidity, competitive position and access to capital markets.
 
Each of Caterpillar’s and Cat Financial’s costs of borrowing and their respective ability to access the capital markets are affected not only by market conditions but also by the short- and long-term credit ratings assigned to their respective debt by the major credit rating agencies.  These ratings are based, in significant part, on each of Caterpillar’s and Cat Financial’s performance as measured by financial metrics such as net worth, interest coverage and leverage ratios, as well as transparency with rating agencies and timeliness of financial reporting.  There can be no assurance that Caterpillar and Cat Financial will be able to maintain their credit ratings. We receive debt ratings from the major credit rating agencies.  A downgrade of our credit rating by any of the major credit rating agencies would result in increased borrowing costs and could adversely affect Caterpillar’s and Cat Financial’s liquidity, competitive position and access to the capital markets, including restricting, in whole or in part, access to the commercial paper market.  There can be no assurance that the commercial paper market will continue to be a reliable source of short-term financing for Cat Financial or an available source of short-term financing for Caterpillar. An inability to access the capital markets could have an adverse effect on our cash flow, results of operations and financial condition.
 
Our Financial Products segment is subject to risks associated with the financial services industry.
 
Cat Financial is significant to our operations and provides financing support for a significant share of our global sales. The inability of Cat Financial to access funds to support its financing activities to our customers could have an adverse effect on our business, results of operations and financial condition.

Continuing to meet Cat Financial's cash requirements over the long-term could require substantial liquidity and access to sources of funds, including capital and credit markets. Cat Financial has continued to maintain access to key global medium- term note and commercial paper markets, but there can be no assurance that such markets will continue to represent a reliable source of financing. If global economic conditions were to deteriorate, Cat Financial could face materially higher financing costs, become unable to access adequate funding to operate and grow its business and/or meet its debt service obligations as they mature. Cat Financial also could and be required to draw upon contractually committed lending agreements and/or seek other funding sources. However, there can be no assurance that such agreements and other funding sources would be sufficient or even available under extreme market conditions.  Any of these events could negatively impact Cat Financial’s business, as well as our and Cat Financial's results of operations and financial condition.
 
Market disruption and volatility may also lead to numerous risks in connection with these events, including but not limited to:

Market developments that may affect customer confidence levels and cause declines in the demand for financing and adverse changes in payment patterns, causing increases in delinquencies and default rates, which could increase Cat Financial’s write-offs and provision for credit losses.

The process Cat Financial uses to estimate losses inherent in its credit exposure requires a high degree of management’s judgment regarding numerous subjective qualitative factors, including forecasts of economic conditions and how economic predictors might impair the ability of its borrowers to repay their loans.  Financial market disruption and volatility may impact the accuracy of these judgments.

Cat Financial’s ability to engage in routine funding transactions or to engage or to borrow from other financial institutions on acceptable terms or at all could be adversely affected by disruptions in the capital markets or other events, including actions by rating agencies and deteriorating investor expectations.

As Cat Financial’s lending agreements are primarily with financial institutions, their ability to perform in accordance with any of our underlying agreements could be adversely affected by market volatility and/or disruptions in financial markets.
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Changes in interest rates or market liquidity conditions could adversely affect Cat Financial's and our earnings and/or cash flow.

Changes in interest rates and market liquidity conditions could have an adverse impact on Cat Financial's and our earnings and cash flows. Because a significant number of the loans made by Cat Financial are made at fixed interest rates, its business results are subject to fluctuations in interest rates. Certain loans made by Cat Financial and various financing extended to Cat Financial are made at variable rates that use LIBOR as a benchmark for establishing the interest rate.  LIBOR is the subject of recent proposals for reform.  On July 27, 2017, the United Kingdom’s Financial Conduct Authority ("FCA") announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021.  On November 18, 2020, ICE Benchmark Administration ("IBA"), the administrator of USD LIBOR, announced plans to consult on its intention to cease the publication of all GBP, EUR, CHF and JPY LIBOR settings immediately following the LIBOR publication on December 31, 2021. On November 30, 2020, IBA, with the support of the United States Federal Reserve and the FCA, announced plans to consult on ceasing publication of USD LIBOR on December 31, 2021 for only the one-week and two-month USD LIBOR tenors, and on June 30, 2023 for all other USD LIBOR tenors. While the November 30 announcement extends the transition period to June 2023, the United States Federal Reserve concurrently issued a statement advising banks to stop new USD LIBOR issuances by the end of 2021. These reforms may cause LIBOR to cease to exist, new methods of calculating LIBOR to be established if LIBOR continues to exist after 2021 or alternative reference rates to be established.  The consequences of these developments cannot be entirely predicted and could have an adverse impact on the market value for or value of LIBOR-linked securities, loans, derivatives, and other financial obligations or extensions of credit held by or due to Cat Financial, as well as the revenue and expenses associated with those securities, loans and financial instruments. Cat Financial has created a cross-functional team that will assess risk across multiple categories as it relates to the use of LIBOR in securities, loans, derivatives, and other financial obligations or extensions of credit held by or due to us. Other changes in market interest rates may influence Cat Financial’s borrowing costs and could reduce its and our earnings and cash flows, returns on financial investments and the valuation of derivative contracts. Cat Financial manages interest rate and market liquidity risks through a variety of techniques that include a match funding strategy, the selective use of derivatives and a broadly diversified funding program. There can be no assurance, however, that fluctuations in interest rates and market liquidity conditions will not have an adverse impact on its and our earnings and cash flows. If any of the variety of instruments and strategies Cat Financial uses to hedge its exposure to these types of risk is ineffective, this may have an adverse impact on our earnings and cash flows.  With respect to Insurance Services' investment activities, changes in the equity and bond markets could result in a decline in value of its investment portfolio, resulting in an unfavorable impact to earnings.

An increase in delinquencies, repossessions or net losses of Cat Financial customers could adversely affect its results.
 
Inherent in the operation of Cat Financial is the credit risk associated with its customers. The creditworthiness of each customer and the rate of delinquencies, repossessions and net losses on customer obligations are directly impacted by several factors, including relevant industry and economic conditions, the availability of capital, the experience and expertise of the customer's management team, commodity prices, political events and the sustained value of the underlying collateral. Any increase in delinquencies, repossessions and net losses on customer obligations could have a material adverse effect on Cat Financial's and our earnings and cash flows. Cat Financial evaluates and adjusts its allowance for credit losses related to past due and non-performing receivables on a regular basis. However, adverse economic conditions or other factors that might cause deterioration of the financial health of its customers could change the timing and level of payments received and necessitate an increase in Cat Financial's estimated losses, which could also have a material adverse effect on Cat Financial's and our earnings and cash flows.

Currency exchange rate fluctuations affect our results of operations.
 
We conduct operations in many countries involving transactions denominated in a variety of currencies.  We are subject to currency-exchange rate risk to the extent that our costs are denominated in currencies other than those in which we earn revenues.  Fluctuations in currency exchange rates have had, and will continue to have, an impact on our results as expressed in U.S. dollars.  There can be no assurance that currency exchange rate fluctuations will not adversely affect our results of operations, financial condition and cash flows. While the use of currency hedging instruments may provide us with protection from adverse fluctuations in currency exchange rates, by utilizing these instruments we potentially forego the benefits that might result from favorable fluctuations in currency exchange rates. In addition, our outlooks do not assume fluctuations in currency exchange rates. Adverse fluctuations in currency exchange rates from the date of our outlooks could cause our actual results to differ materially from those anticipated in any outlooks and adversely impact our business, results of operations and financial condition.
 
17

We also face risks arising from the imposition of exchange controls and currency devaluations. Exchange controls may limit our ability to convert foreign currencies into U.S. dollars or to remit dividends and other payments by our foreign subsidiaries or businesses located in or conducted within a country imposing controls. Currency devaluations result in a diminished value of funds denominated in the currency of the country instituting the devaluation.
 
Restrictive covenants in our debt agreements could limit our financial and operating flexibility.
 
We maintain a number of credit facilities to support general corporate purposes (facilities) and have issued debt securities to manage liquidity and fund operations (debt securities).  The agreements relating to a number of the facilities and the debt securities contain certain restrictive covenants applicable to us and certain subsidiaries, including Cat Financial.  These covenants include maintaining a minimum consolidated net worth (defined as the consolidated shareholder’s equity including preferred stock but excluding the pension and other post-retirement benefits balance within accumulated other comprehensive income (loss)), limitations on the incurrence of liens and certain restrictions on consolidation and merger. Cat Financial has also agreed under certain of these agreements not to exceed a certain leverage ratio (consolidated debt to consolidated net worth, 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), to maintain a minimum interest coverage ratio (profit excluding income taxes, interest expense and net gain/(loss) from interest rate derivatives to interest expense, calculated at the end of each calendar quarter for the rolling four quarter period then most recently ended) and not to terminate, amend or modify its support agreement with us.
 
A breach of one or more of the covenants could result in adverse consequences that could negatively impact our business, results of operations and financial condition. These consequences may include the acceleration of amounts outstanding under certain of the facilities, triggering of an obligation to redeem certain debt securities, termination of existing unused commitments by our lenders, refusal by our lenders to extend further credit under one or more of the facilities or to enter into new facilities or the lowering or modification of our credit ratings or those of one or more of our subsidiaries.
 
Sustained increases in funding obligations under our pension plans may impair our liquidity or financial condition.
 
We maintain certain defined benefit pension plans for our employees, which impose on us certain funding obligations. In determining our future payment obligations under the plans, we assume certain rates of return on the plan assets and a certain level of future benefit payments. Significant adverse changes in credit or capital markets could result in actual rates of return being materially lower than projected and result in increased contribution requirements.  We expect to make contributions to our pension plans in the future, and may be required to make contributions that could be material.  We may fund contributions through the use of cash on hand, the proceeds of borrowings, shares of our common stock or a combination of the foregoing, as permitted by applicable law. These factors could significantly increase our payment obligations under the plans, and as a result, adversely affect our business and overall financial condition.

LEGAL & REGULATORY RISKS

Our global operations are subject to a wide-range of trade and anti-corruption laws and regulations.
 
Due to the international scope of our operations, we are subject to a complex system of import- and export-related laws and regulations. These include U.S. regulations issued by Customs and Border Protection, the Bureau of Industry and Security, the Office of Antiboycott Compliance, the Directorate of Defense Trade Controls and the Office of Foreign Assets Control, as well as the counterparts of these agencies in other countries.  Any alleged or actual violations may subject us to increased government scrutiny, investigation and civil and criminal penalties, and may limit our ability to import or export our products or to provide services outside the United States.  Furthermore, embargoes and sanctions imposed by the U.S. and other governments restricting or prohibiting sales to specific persons or countries or based on product classification may expose us to potential criminal and civil sanctions. We cannot predict the nature, scope or effect of future regulatory requirements to which our operations might be subject. We also cannot predict in certain locations the manner in which existing laws might be administered or interpreted.
 
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In addition, the U.S. Foreign Corrupt Practices Act and similar foreign anti-corruption laws generally prohibit companies and their intermediaries from making improper payments or providing anything of value to improperly influence foreign government officials for the purpose of obtaining or retaining business or obtaining an unfair advantage. Recent years have seen a substantial increase in the global enforcement of anti-corruption laws.  Our operations outside the United States, including in developing countries, expose us to the risk of such violations. Violations of anti-corruption laws or regulations by our employees, intermediaries acting on our behalf, or our joint venture partners may result in severe criminal or civil sanctions. Violations may also disrupt our business, and may result in an adverse effect on our reputation, business and results of operations or financial condition.

International trade policies may impact demand for our products and our competitive position.
 
Government policies on international trade and investment such as import quotas, capital controls or tariffs, whether adopted by individual governments or addressed by regional trade blocs, can affect the demand for our products and services, impact the competitive position of our products or prevent us from being able to sell products in certain countries.  The implementation of more restrictive trade policies (such as more detailed inspections, higher tariffs or new barriers to entry) in countries where we sell large quantities of products and services could negatively impact our business, results of operations and financial condition.  For example, a government’s adoption of “buy national” policies or retaliation by another government against such policies could have a negative impact on our results of operations.

We may incur additional tax expense or become subject to additional tax exposure.
 
We are subject to income taxes in the United States and numerous other jurisdictions. Our future results of operations could be adversely affected by changes in the effective tax rate as a result of a change in the mix of earnings between U.S. and non-U.S. jurisdictions or among jurisdictions with differing statutory tax rates. In addition, our future results of operations could also be adversely affected by changes in our overall profitability, changes in tax laws or treaties or in their application or interpretation, changes in tax rates, changes in generally accepted accounting principles, changes in the valuation of deferred tax assets and liabilities, changes in the amount of earnings indefinitely reinvested in certain non-U.S. jurisdictions, the results of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures. We are also subject to the continuous examination of our income tax returns by the U.S. Internal Revenue Service and other tax authorities. We regularly assess the likelihood of an adverse outcome resulting from these examinations. If our effective tax rates were to increase, or if the ultimate determination of our taxes owed is for an amount in excess of amounts previously accrued, our operating results, cash flows and financial condition could be adversely affected. For information regarding additional legal matters related to our taxes, please see Note 6 — “Income taxes” and Note 22 — “Environmental and legal matters” of Part II, Item 8 “Financial Statements and Supplementary Data” to this Annual Report on Form 10-K.

Costs associated with lawsuits or investigations or adverse rulings in enforcement or other legal proceedings may have an adverse effect on our results of operations.
 
We are subject to a variety of legal proceedings and legal compliance risks in virtually every part of the world. We face risk of exposure to various types of claims, lawsuits and government investigations. We are involved in various claims and lawsuits related to product design, manufacture and performance liability (including claimed asbestos exposure), contracts, employment issues, environmental matters, intellectual property rights, tax, securities and other legal proceedings that arise in and outside of the ordinary course of our business.  The industries in which we operate are also periodically reviewed or investigated by regulators, which could lead to enforcement actions, fines and penalties or the assertion of private litigation claims.  It is not possible to predict with certainty the outcome of claims, investigations and lawsuits, and we could in the future incur judgments, fines or penalties or enter into settlements of lawsuits and claims that could have an adverse effect on our reputation, business, results of operations or financial condition in any particular period. 

The global and diverse nature of our operations means that legal and compliance risks will continue to exist and additional legal proceedings and other contingencies, the outcome of which cannot be predicted with certainty, may arise from time to time. In addition, subsequent developments in legal proceedings may affect our assessment and estimates of loss contingencies recorded as a reserve and require us to make payments in excess of our reserves. Such payments could have an adverse effect on our reputation, business and results of operations or financial condition.

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New regulations or changes in financial services regulation could adversely impact Caterpillar and Cat Financial.
 
Cat Financial’s operations are highly regulated by governmental authorities in the locations where it operates, which can impose significant additional costs and/or restrictions on its business. In the United States, for example, certain Cat Financial activities are subject to the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), which includes extensive provisions regulating the financial services industry. As a result, Cat Financial has become and could continue to become subject to additional regulatory costs that could be significant and have an adverse effect on Cat Financials and our results of operations and financial condition. Changes in regulations or additional regulations in the United States or internationally impacting the financial services industry could also add significant cost or operational constraints that might have an adverse effect on Cat Financials and our results of operations and financial condition.

We are subject to stringent environmental laws and regulations that impose significant compliance costs.
 
Our facilities, operations and products are subject to increasingly stringent environmental laws and regulations globally, including laws and regulations governing emissions to noise, air, releases to soil and discharges to water and the generation, handling, storage, transportation, treatment and disposal of non-hazardous and hazardous waste materials. Some environmental laws impose strict, retroactive and joint and several liability for the remediation of the release of hazardous substances, even for conduct that was lawful at the time it occurred, or for the conduct of, or conditions caused by, prior operators, predecessors or other third parties. Failure to comply with environmental laws could expose us to penalties or clean-up costs, civil or criminal liability and sanctions on certain of our activities, as well as damage to property or natural resources. The potential liabilities, sanctions, damages and remediation efforts related to any non-compliance with such laws and regulations could negatively impact our ability to conduct our operations and our financial condition and results of operations. In addition, there can be no assurances that we will not be adversely affected by costs, liabilities or claims with respect to existing or subsequently acquired operations or under present laws and regulations or those that may be adopted or imposed in the future.

Environmental laws and regulations may change from time to time, as may related interpretations and other guidance. Changes in environmental laws or regulations could result in higher expenses and payments. Uncertainty relating to environmental laws or regulations may also affect how we conduct our operations and structure our investments and could limit our ability to enforce our rights. Changes in environmental and climate change laws or regulations, including laws relating to greenhouse gas emissions, could lead to new or additional investment in product designs and could increase environmental compliance expenditures. Changes in climate change concerns, or in the regulation of such concerns, including greenhouse gas emissions, could subject us to additional costs and restrictions, including increased energy and raw materials costs. If environmental laws or regulations are either changed or adopted and impose significant operational restrictions and compliance requirements upon us or our products, they could negatively impact our reputation, business, capital expenditures, results of operations, financial condition and competitive position.

The Company’s amended and restated bylaws provide that the Court of Chancery of the State of Delaware will be the exclusive forum for certain legal actions between the Company and its shareholders, which could discourage claims or limit the ability of the Company’s shareholders to bring a claim in a judicial forum viewed by the shareholders as more favorable for disputes with the Company or the Company’s directors, officers or other employees.

The Company’s amended and restated bylaws provide to the fullest extent permitted by law that unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s shareholders, (iii) any action asserting a claim against the Company or any director or officer or other employee of the Company arising pursuant to any provision of the Delaware General Corporation Law or the Company’s certificate of incorporation or bylaws (as either may be amended from time to time) or (iv) any action asserting a claim against the Company or any director or officer or other employee of the Company governed by the internal affairs doctrine.

The exclusive forum provisions in our bylaws could limit our shareholders’ ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or its directors, officers or other employees. Alternatively, if a court were to find the choice of forum provision contained in the Company’s amended and restated bylaws to be inapplicable or unenforceable in an action, the Company may incur additional costs associated with resolving such action in other jurisdictions. The exclusive forum provision in the Company’s amended and restated bylaws will not preclude or contract the scope of exclusive federal or concurrent jurisdiction for actions brought under the federal securities laws including the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, or the respective rules and regulations promulgated thereunder.

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Item 1B.Unresolved Staff Comments.
 
None.
 
Item 1C.Executive Officers of the Registrant.

Name and agePresent Caterpillar Inc. position
and date of initial election
Principal positions held during the
past five years if other than
Caterpillar Inc. position currently held
D. James Umpleby III (63)Chairman of the Board (2018) and Chief Executive Officer (2017)Group President (2013-2016)
Andrew R.J. Bonfield (59)Chief Financial Officer (2018)Group Chief Financial Officer for a multinational electricity and gas utility company (2010-2018)
Bob De Lange (52)Group President (2017)Vice President (2015-2016), Worldwide Product Manager, Medium Wheel Loaders, (2013-2014)
Denise C. Johnson (55)Group President (2016)Vice President (2012-2016)
Joseph E. Creed (46)Group President (2021)Vice President, Oil & Gas and Marine Division (2019-2020), Interim Chief Financial Officer (2018), Vice President, Finance Services Division (2017), Group Chief Financial Officer, Energy and Transportation (2013-2016)
Anthony D. Fassino (51)Group President (2021)Vice President, Building Construction Products (2018-2020), Director of Worldwide Forestry Products (2016-2018)
Suzette M. Long (56)Chief Legal Officer and General Counsel (2017)Interim Executive Vice President, Law and Public Policy (2017), Deputy General Counsel (2013-2017)
Cheryl H. Johnson (61)Chief Human Resources Officer (2017)Executive Vice President of Human Resources for a global multi-industry aerospace, defense and industrial manufacturing company (2012-2017)
G. Michael Marvel (60)Chief Accounting Officer (2019)Director of Corporate Financial Reporting (2018-2019), Chief Financial Officer for Solar Turbines Incorporated (2013-2018)

Item 2.Properties.
 
General Information
Caterpillar’s operations are highly integrated.  Although the majority of our plants are involved primarily in production relating to our Construction Industries, Resource Industries or Energy & Transportation segments, several plants are involved in manufacturing relating to more than one business segment.  In addition, several plants reported in our financial statements under the All Other segment are involved in the manufacturing of components that are used in the assembly of products for more than one business segment.  Caterpillar’s parts distribution centers are involved in the storage and distribution of parts for Construction Industries, Resource Industries and Energy & Transportation.  The research and development activities carried on at our Technical Centers in Aurora and Mossville, Illinois involve products for Construction Industries, Resource Industries and Energy & Transportation.
 
We believe the properties we own to be generally well maintained and adequate for present use.  Through planned capital expenditures, we expect these properties to remain adequate for future needs.  Properties we lease are covered by leases expiring over terms of generally one to ten years.  We do not anticipate any difficulty in retaining occupancy of any leased facilities, either by renewing leases prior to expiration or by replacing them with equivalent leased facilities.
 


21

Headquarters and Other Key Offices
Our corporate headquarters is in a leased office located in Deerfield, Illinois. Our Financial Products business is headquartered in offices in Nashville, Tennessee. Additional key offices are located inside and outside the United States.

Technical Center, Training Centers, Demonstration Areas and Proving Grounds
We operate Technical Centers located in Aurora and Mossville, Illinois; Wuxi, China; and Chennai, India. Our demonstration centers are located in Tinaja Hills, Arizona; Edwards, Illinois; Chichibu, Japan and Malaga, Spain. We have various other technical and training centers, demonstration areas and proving grounds located both inside and outside the United States.

Parts Distribution Centers
Distribution of our parts is conducted from parts distribution centers inside and outside the United States. We operate parts distribution centers in the following locations: Arvin, California; Denver, Colorado; Miami, Florida; Atlanta, Georgia; Morton, Illinois; St. Paul, Minnesota; Clayton, Ohio; York, Pennsylvania; Waco, Texas; Spokane, Washington; Melbourne, Australia; Queensland, Australia; Grimbergen, Belgium; Piracicaba, Brazil; Shanghai, China; Sagami, Japan; San Luis Potosi, Mexico; Singapore, Republic of Singapore; Moscow, Russia; Johannesburg, South Africa; and Dubai, United Arab Emirates. We also own or lease other facilities that support our distribution activities.
 
Remanufacturing and Components
Remanufacturing of our products is reported in our Energy & Transportation segment and is conducted primarily at the facilities in the following locations: Franklin, Indiana; Bogor, Indonesia; Corinth, Mississippi; Prentiss County, Mississippi; West Fargo, North Dakota; Piracicaba, Brazil; Shanghai, China; and Nuevo Laredo, Mexico.
Component manufacturing is reported in the All Other segment and is conducted primarily at facilities in the following locations: East Peoria, Illinois; Mapleton, Illinois; Peoria, Illinois; Bogor, Indonesia; Menominee, Michigan; Boonville, Missouri; West Plains, Missouri; Goldsboro, North Carolina; Sumter, South Carolina; Tianjin, China; Xuzhou, China; Atessa, Italy; Bazzano, Italy; Frosinone, Italy; San Eusebio, Italy; Ramos Arizpe, Mexico; Pyeongtaek, South Korea; and Skinningrove, United Kingdom. 
We also lease or own other facilities that support our remanufacturing and component manufacturing activities.
Manufacturing
Manufacturing of products for our Construction Industries, Resource Industries and Energy & Transportation segments is conducted primarily at the locations listed below.  These facilities are believed to be suitable for their intended purposes, with adequate capacities for current and projected needs for existing products.

Our principal manufacturing facilities include those used by the following segments in the following locations:
22

SegmentU.S. FacilitiesFacilities Outside the U.S.
   
Construction Industries
Arkansas:  North Little Rock
Brazil: Campo Largo, Piracicaba
 
Georgia: Athens
China: Suzhou, Wujiang, Xuzhou, Qingzhou
 
Illinois:  Decatur, East Peoria
France: Grenoble, Echirolles
 
Kansas: Wamego
Hungary: Godollo
Minnesota: Brooklyn Park
India: Thiruvallur
 
North Carolina: Clayton, Sanford
Indonesia: Jakarta
 
Texas: Victoria
Italy: Minerbio, Cattolica
Japan: Akashi
 
Mexico: Torreon
Netherlands: Den Bosch
  
Poland: Janow, Sosnowiec
Russia: Tosno
  
Thailand: Rayong
United Kingdom: Desford, Stockton
   
Resource Industries
Illinois:  Decatur, East Peoria
China: Qingzhou, Wuxi
 
South Carolina: Sumter
Germany: Dortmund, Lunen
 
Texas: Denison
India:  Thiruvallur
Wisconsin: South Milwaukee
Indonesia: Batam
 
Italy: Jesi
 
Mexico: Acuna, Monterrey, Reynosa
  
Russia: Tosno
 
Thailand: Rayong
 
United Kingdom: Peterlee, Springvale
 
   
Energy & Transportation
Alabama: Albertville, Montgomery
Australia: Cardiff, Perth, Redbank, Revesby
California:  San Diego
Brazil: Curitiba, Hortolandia, Piracicaba, Sete Lagoas
Georgia:  Griffin, Patterson
China: Tianjin, Wuxi
 
Illinois: Mossville, Mapleton, Pontiac
Czech Republic: Zatec, Zebrak
 
Indiana: Lafayette, Muncie
Germany: Kiel, Mannheim, Rostock
 
Kentucky: Decoursey, Mayfield
India: Aurangabad, Hosur
Oklahoma: Broken Arrow
Indonesia: Batam
North Carolina: Winston-Salem
Italy: Pistoria
Texas:  Channelview, DeSoto, Fort Worth, Mabank, San Antonio, Schertz, Seguin, Sherman
Mexico: San Luis Potosi, Tijuana
 
United Kingdom: Larne, Peterborough, Sandiacre, South Queensferry, Stafford, Wimborne
  



23


Item 3.Legal Proceedings.
 
Certain legal proceedings in which we are involved are discussed in Note 22 — "Environmental and legal matters" of Part II, Item 8 "Financial Statements and Supplementary Data" and should be considered an integral part of Part I, Item 3 "Legal Proceedings", which is hereby incorporated by reference. 

Item 4.Mine Safety Disclosures.
 
Not applicable.


PART II

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
Common Stock (NYSE: CAT)

Listing Information: Caterpillar common stock is listed on the New York Stock Exchange in the United States, and on stock exchanges in France and Switzerland.
 
Number of Shareholders: Shareholders of record at the end of 2021 totaled 22,559, compared with 23,299 at the end of 2020.

24

Performance Graph:  Total Cumulative Shareholder Return for Five-Year Period Ending December 31, 2021

The graph below shows the cumulative shareholder return assuming an investment of $100 on December 31, 2016, and reinvestment of dividends issued thereafter.

cat-20211231_g2.jpg

 201620172018201920202021
Caterpillar Inc.$100.00 $175.03 $144.30 $172.46 $218.96 $253.90 
S&P 500$100.00 $121.83 $116.49 $153.17 $181.35 $233.41 
S&P 500 Machinery$100.00 $133.94 $121.46 $158.26 $195.32 $234.70 


25

Non-U.S. Employee Stock Purchase Plans
 
As of December 31, 2021, we had 28 employee stock purchase plans (the “EIP Plans”) administered outside the United States for our non-U.S. employees, which had approximately 13,000 active participants in the aggregate.  During the fourth quarter of 2021, approximately 83,000 shares of Caterpillar common stock were purchased by the EIP Plans pursuant to the terms of such plans.
 
Issuer Purchases of Equity Securities

Period
Total Number
of Shares
Purchased2,3
Average Price
Paid per Share2,3
Total Number
of Shares Purchased
as Part of Publicly Announced Program
Approximate Dollar
Value of Shares that
May Yet be Purchased
under the Program (in billions)1
October 1-31, 2021908,433 $195.66 908,433 $2.966 
November 1-30, 20212,350,143 $205.52 2,350,143 $2.483 
December 1-31, 20211,956,330 $196.66 1,956,330 $2.099 
Total5,214,906 $200.48 5,214,906 
1 In July 2018, the Board approved a share repurchase authorization of up to $10.0 billion of Caterpillar common stock effective January 1, 2019, with no expiration (the 2018 Authorization). As of December 31, 2021, approximately $2.1 billion remained available under the 2018 Authorization.
2 During the fourth quarter of 2021, we entered into an ASR with a third-party financial institution to purchase $500 million of our common stock. In November 2021, upon payment of the $500 million to the financial institution, we received 2.0 million shares. In December 2021, upon final settlement of the ASR, we received an additional 0.5 million shares. In total, we repurchased 2.5 million shares under this ASR at an average price per share of $200.93.
3 In October, November and December of 2021, we repurchased 0.9 million, 0.4 million and 1.4 million shares respectively, for an aggregate of $545 million in open market transactions at an average price per share of $195.66, $205.54 and $201.33, respectively.

Item 6.[Reserved]

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Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide information that will assist the reader in understanding the company’s Consolidated Financial Statements, the changes in certain key items in those financial statements between select periods and the primary factors that accounted for those changes. In addition, we discuss how certain accounting principles, policies and critical estimates affect our Consolidated Financial Statements. Our discussion also contains certain forward looking statements related to future events and expectations. This MD&A should be read in conjunction with our discussion of cautionary statements and significant risks to the company’s business under Item 1A. Risk Factors of the 2021 Form 10-K.
Highlights for 2021 include:
Sales and revenues for 2021 were $50.971 billion, an increase of 22 percent from 2020. Sales were higher across all regions and in the three primary segments.
Operating profit as a percent of sales and revenues was 13.5 percent in 2021, compared with 10.9 percent in 2020.
Profit was $11.83 per share for 2021, and excluding the items in the table below, adjusted profit per share was $10.81. For 2020, profit was $5.46 per share, and excluding the items in the table below, adjusted profit per share was $6.56.
In order for our results to be more meaningful to our readers, we have separately quantified the impact of several significant items. A detailed reconciliation of GAAP to non-GAAP financial measures is included on page 54.
Full Year 2021Full Year 2020
(Dollars in millions except per share data)Profit Before TaxesProfit
Per Share
Profit Before TaxesProfit
Per Share
Profit.............................................................................$8,204 $11.83 $3,995 $5.46 
Mark-to-market (gains) losses......................................
(833)(1.17)383 0.55 
Restructuring costs.......................................................
90 0.15 354 0.55 
Adjusted profit...............................................................$7,461 $10.81 $4,732 $6.56 
Enterprise operating cash flow was $7.2 billion in 2021. Caterpillar ended 2021 with $9.3 billion of enterprise cash.
OVERVIEW
Our sales and revenues for 2021 were $50.971 billion, an increase of $9.223 billion, or 22 percent, compared with $41.748 billion in 2020. The increase was primarily due to higher sales volume, driven by higher end-user demand for equipment and services and the impact from changes in dealer inventories, along with favorable price realization. Profit per share was $11.83 in 2021, compared with profit per share of $5.46 in 2020. Profit was $6.489 billion in 2021, compared with $2.998 billion in 2020. The increase was primarily due to higher sales volume and favorable price realization. Mark-to-market gains for remeasurement of pension and other postemployment benefit (OPEB) plans, a lower effective tax rate, favorable impacts from foreign currency exchange (gains) losses and lower restructuring expenses were mostly offset by unfavorable manufacturing costs and higher selling, general and administrative (SG&A) and research and development (R&D) expenses.
Fourth-quarter 2021 sales and revenues were $13.798 billion, up $2.563 billion, or 23 percent, from $11.235 billion in the fourth quarter of 2020. Fourth-quarter 2021 profit was $3.91 per share, compared with $1.42 per share in the fourth quarter of 2020. Fourth-quarter 2021 profit was $2.120 billion, compared with $780 million in the fourth quarter of 2020.
Response to COVID-19 and Global Business Conditions:
We continue to monitor a variety of external factors including the ongoing impact of the COVID-19 pandemic around the world and have implemented safeguards in our facilities to protect team members in line with local governmental requirements and guidance from health authorities.
Operations continue to be impacted by a variety of external factors including the pandemic, supply chain disruptions and associated cost and labor pressures. Areas of particular focus include certain components, transportation and raw materials. Transportation shortages have resulted in delays and increased costs. In addition, our suppliers are dealing with availability issues and freight delays, which leads to delays of production in our facilities. We continue to develop and modify contingency plans to minimize supply chain challenges that may impact our ability to meet increasing customer demand. To help mitigate supply chain challenges, we have proactively redirected components and altered our assembly processes. We continue to assess the environment and are taking appropriate price actions in response to rising costs. We will continue to monitor the situation as conditions remain fluid and evolve, but we expect these challenges to continue this year.
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Notes:
Glossary of terms included on pages 40-42; first occurrence of terms shown in bold italics.
Information on non-GAAP financial measures is included on page 54.
Some amounts within this report are rounded to the millions or billions and may not add. In addition, the sum of the components reported across periods may not equal the total amount reported year-to-date due to rounding.
28


2021 COMPARED WITH 2020
CONSOLIDATED SALES AND REVENUES
cat-20211231_g3.jpg
The chart above graphically illustrates reasons for the change in consolidated sales and revenues between 2020 (at left) and 2021 (at right). Caterpillar management utilizes these charts internally to visually communicate with the company’s Board of Directors and employees.
Total sales and revenues for 2021 were $50.971 billion, an increase of $9.223 billion, or 22 percent, compared with $41.748 billion in 2020. The increase was primarily due to higher sales volume, driven by higher end-user demand for equipment and services and the impact from changes in dealer inventories, along with favorable price realization. Dealers decreased their inventories about $2.9 billion in 2020, compared to a decrease of about $100 million in 2021.
Sales were higher across all regions and in the three primary segments.
North America sales increased 23 percent driven by higher end-user demand for equipment and services, the impact from changes in dealer inventories and favorable price realization. Dealers decreased inventories more during 2020 than during 2021.
Sales increased 51 percent in Latin America due to higher end-user demand for equipment and services and the impact from changes in dealer inventories. Dealers decreased inventories during 2020, compared to an increase during 2021.
EAME sales increased 24 percent due to higher end-user demand for equipment and services, the impact of changes in dealer inventories, favorable currency impacts primarily related to a stronger euro and British pound and favorable price realization. Dealers decreased inventories during 2020, compared to an increase during 2021.
Asia/Pacific sales increased 15 percent driven by higher end-user demand for equipment and services, the impact of changes in dealer inventories and favorable currency impacts related to a stronger Australian dollar and Chinese yuan. Dealers decreased their inventories during 2020, compared to remaining about flat during 2021.
Dealers decreased their inventories about $2.9 billion in 2020, compared to a decrease of about $100 million in 2021. Dealers are independent, and the reasons for changes in their inventory levels vary, including their expectations of future demand and product delivery times. Dealers’ demand expectations take into account seasonal changes, macroeconomic conditions, machine rental rates and other factors. Delivery times can vary based on availability of product from Caterpillar factories and product distribution centers. We expect dealer inventories to be about flat in 2022 compared to 2021.
29

Sales and Revenues by Segment
(Millions of dollars)2020Sales
Volume
Price
Realization
CurrencyInter-Segment / Other2021$
Change
%
Change
Construction Industries$16,918 $4,063 $732 $323 $70 $22,106 $5,188 31 %
Resource Industries7,906 1,833 100 123 9,963 2,057 26 %
Energy & Transportation17,470 1,683 101 222 811 20,287 2,817 16 %
All Other Segment467 30 (1)12 511 44 %
Corporate Items and Eliminations(3,739)(46)— — (894)(4,679)(940) 
Machinery, Energy & Transportation39,022 7,563 932 671 — 48,188 9,166 23 %
Financial Products Segment3,044 — — — 29 3,073 29 %
Corporate Items and Eliminations(318)— — — 28 (290)28  
Financial Products Revenues
2,726 — — — 57 2,783 57 %
Consolidated Sales and Revenues$41,748 $7,563 $932 $671 $57 $50,971 $9,223 22 %
Sales and Revenues by Geographic Region
North AmericaLatin AmericaEAMEAsia/PacificExternal Sales and RevenuesInter-SegmentTotal Sales and Revenues
(Millions of dollars)$% Chg$% Chg$% Chg$% Chg$% Chg$% Chg$% Chg
2021          
Construction Industries$9,676 31%$1,913 86%$4,858 40%$5,547 11%$21,994 30%$112 167%$22,106 31 %
Resource Industries2,987 31%1,724 38%1,987 27%2,804 20%9,502 28%461 —%9,963 26 %
Energy & Transportation7,611 11%1,233 32%4,908 10%2,918 20%16,670 14%3,617 29%20,287 16 %
All Other Segment56 107%(50%)18 (31%)69 23%145 28%366 3%511 %
Corporate Items and Eliminations(106)(1)(1)(15)(123)(4,556)(4,679)
Machinery, Energy & Transportation 20,224 23%4,871 51%11,770 24%11,323 15%48,188 23%— —%48,188 23 %
Financial Products Segment1,935 —%265 3%402 3%471 1%3,073 
1
1%— —%3,073 %
Corporate Items and Eliminations(136)(50)(35)(69)(290)— (290)
Financial Products Revenues1,799 3%215 —%367 4%402 —%2,783 2%— —%2,783 %
Consolidated Sales and Revenues$22,023 21%$5,086 48%$12,137 23%$11,725 14%$50,971 22%$— —%$50,971 22 %
2020          
Construction Industries$7,365 $1,031 $3,466 $5,014 $16,876  $42 $16,918 
Resource Industries2,286 1,253 1,570 2,337 7,446  460 7,906 
Energy & Transportation6,843 932 4,448 2,441 14,664  2,806 17,470 
All Other Segment27 26 56 113  354 467 
Corporate Items and Eliminations(62)(4)(6)(5)(77) (3,662)(3,739)
Machinery, Energy & Transportation16,459 3,216 9,504 9,843 39,022  — 39,022 
 
Financial Products Segment1,930 257 392 465 3,044 
1
 — 3,044 
Corporate Items and Eliminations(175)(41)(38)(64)(318) — (318)
Financial Products Revenues1,755 216 354 401 2,726  — 2,726 
 
Consolidated Sales and Revenues$18,214 $3,432 $9,858 $10,244 $41,748  $— $41,748 
1 Includes revenues from Machinery, Energy & Transportation of $351 million and $362 million in 2021 and 2020, respectively.


30

CONSOLIDATED OPERATING PROFIT
cat-20211231_g4.jpg
The chart above graphically illustrates reasons for the change in consolidated operating profit between 2020 (at left) and 2021 (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 $6.878 billion in 2021, an increase of $2.325 billion, or 51 percent, compared with $4.553 billion in 2020. The increase was due to higher sales volume, favorable price realization, higher profit from Financial Products and lower restructuring expenses (included in other), partially offset by unfavorable manufacturing costs and higher SG&A/R&D expenses.
Unfavorable manufacturing costs reflected increased freight and higher material costs. In addition, unfavorable period manufacturing costs were driven by higher short-term incentive compensation expense, which was reinstated in 2021, and higher labor costs. Unfavorable period manufacturing costs were mostly offset by favorable cost absorption and lower warranty expense. Cost absorption was favorable as inventory increased more during 2021 than during 2020.
Higher SG&A/R&D expenses reflected higher short-term incentive compensation expense and investments aligned with the company's strategy for profitable growth, including higher labor costs and acquisition-related expenses.
Short-term incentive compensation expense, which was reinstated in 2021, was $1.3 billion in 2021, compared to no short-term incentive compensation expense recognized in 2020. Short-term incentive compensation expense is directly related to financial and operational performance, measured against targets set annually. For 2022, we expect short-term incentive compensation expense will be about $1.0 billion.
Operating profit margin was 13.5 percent in 2021, compared with 10.9 percent in 2020.
Profit (Loss) by Segment
(Millions of dollars)20212020$
Change
%
Change
Construction Industries$3,706 $2,373 $1,333 56 %
Resource Industries1,291 896 395 44 %
Energy & Transportation 2,768 2,405 363 15 %
All Other Segment(14)28 (42)n/a
Corporate Items and Eliminations(1,388)(1,381)(7) 
Machinery, Energy & Transportation6,363 4,321 2,042 47 %
Financial Products Segment908 590 318 54 %
Corporate Items and Eliminations(92)(53)(39) 
Financial Products816 537 279 52 %
Consolidating Adjustments(301)(305) 
Consolidated Operating Profit$6,878 $4,553 $2,325 51 %
31


Other Profit/Loss and Tax Items
Interest expense excluding Financial Products in 2021 was $488 million, compared with $514 million in 2020. The decrease was due to lower average debt outstanding during 2021, compared with 2020.
Other income/expense in 2021 was income of $1.814 billion, compared with expense of $44 million in 2020. The change was primarily due to mark-to-market gains for remeasurement of pension and other postretirement benefit (OPEB) plans in 2021, compared with mark-to-market losses in 2020. Favorable impacts from foreign currency exchange gains (losses) and lower pension and OPEB plan costs also contributed to the change.
The company experienced foreign currency exchange net losses in 2020, compared with net gains in 2021.
The provision for income taxes for 2021 reflected an annual effective tax rate of 22.9 percent compared with 27.8 percent for 2020, excluding the discrete items discussed in the following paragraph. The decrease from 2020 was primarily related to changes in the geographic mix of profits from a tax perspective.
The provision for income taxes for 2021 also included the following:
A tax charge of $190 million related to $833 million of pension and OPEB mark-to-market gains in 2021, compared to a $82 million tax benefit related to $383 million of mark-to-market losses in 2020.
A tax benefit of $36 million to reflect changes in estimates related to prior year’s U.S. taxes in 2021 compared to $80 million in 2020.
A tax benefit of $63 million in 2021, compared with $49 million in 2020, for the settlement of stock-based compensation awards with associated tax deductions in excess of cumulative U.S. GAAP compensation expense.
A tax benefit of $38 million in 2021 to recognize U.S. capital losses.
Construction Industries
Construction Industries’ total sales were $22.106 billion in 2021, an increase of $5.188 billion, or 31 percent, compared with $16.918 billion in 2020. The increase was due to higher sales volume, favorable price realization and favorable currency impacts related to the Chinese yuan, euro and Australian dollar. The increase in sales volume was driven by higher end-user demand for equipment and aftermarket parts and the impact from changes in dealer inventories. Dealers decreased inventories during 2020, compared with dealer inventories that were about flat during 2021.
In North America, sales increased due to higher end-user demand, the impact from changes in dealer inventories and favorable price realization. Dealers decreased inventories more in 2020 than in 2021.
Sales increased in Latin America primarily due to the impact from changes in dealer inventories, higher end-user demand and favorable price realization. Dealers increased inventories during 2021, compared with a decrease in 2020.
In EAME, sales increased due to higher end-user demand, the impact from changes in dealer inventories and favorable currency impacts from a stronger euro and British pound. Dealers increased inventories during 2021, compared with a decrease in 2020.
Sales increased in Asia/Pacific due to the impact from changes in dealer inventories and favorable currency impacts related to the Chinese yuan and Australian dollar. Dealers decreased inventories during 2020, compared with a slight increase in 2021.
Construction Industries’ profit was $3.706 billion in 2021, an increase of $1.333 billion, or 56 percent, compared with $2.373 billion in 2020. The increase was mainly due to higher sales volume and favorable price realization, partially offset by unfavorable manufacturing costs and higher SG&A/R&D expenses.
Unfavorable manufacturing costs reflected higher material costs, increased variable labor and burden, primarily freight, and higher period manufacturing costs. The increase in period manufacturing costs was driven by higher short-term incentive compensation expense and higher labor costs.
Higher SG&A/R&D expenses were driven primarily by higher short-term incentive compensation expense.
Construction Industries’ profit as a percent of total sales was 16.8 percent in 2021, compared with 14.0 percent in 2020.
32

Resource Industries
Resource Industries’ total sales were $9.963 billion in 2021, an increase of $2.057 billion, or 26 percent, compared with $7.906 billion in 2020. The increase was due to higher sales volume driven by higher end-user demand for equipment and aftermarket parts and the impact from changes in dealer inventories. End-user demand was higher in mining as well as heavy construction and quarry and aggregates. Dealers decreased inventories more during 2020 than during 2021.
Resource Industries’ profit was $1.291 billion in 2021, an increase of $395 million, or 44 percent, compared with $896 million in 2020. The increase was mainly due to higher sales volume and favorable price realization, partially offset by unfavorable manufacturing costs and higher SG&A/R&D expenses.
Unfavorable manufacturing costs reflected higher variable labor and burden, primarily freight, as well as higher material and period manufacturing costs, partially offset by the favorable impact of cost absorption. Higher period manufacturing costs were driven by higher short-term incentive compensation expense. Cost absorption was favorable as inventory increased during 2021, compared with a decrease during 2020.
Higher SG&A/R&D expenses were driven primarily by higher short-term incentive compensation expense and investments aligned with growth initiatives, primarily labor costs.
Resource Industries’ profit as a percent of total sales was 13.0 percent for 2021, compared with 11.3 percent for 2020.
Energy & Transportation
Sales by Application
(Millions of dollars)20212020$
Change
%
 Change
Oil and Gas$4,460 $3,701 $759 21 %
Power Generation4,292 3,963 329 %
Industrial3,612 2,945 667 23 %
Transportation4,306 4,055 251 %
External Sales16,670 14,664 2,006 14 %
Inter-Segment3,617 2,806 811 29 %
Total Sales$20,287 $17,470 $2,817 16 %
Energy & Transportation’s total sales were $20.287 billion in 2021, an increase of $2.817 billion, or 16 percent, compared with $17.470 billion in 2020. Sales increased across all applications and inter-segment sales.
Oil and Gas – Sales increased mainly due to higher sales of reciprocating engine aftermarket parts in all regions as well as higher sales in turbines and turbine-related services.
Power Generation – Sales increased due to higher sales of aftermarket parts and large reciprocating engines, primarily data centers. Sales also increased due to favorable currency impacts.
Industrial – Sales increased due to higher demand across all regions.
Transportation – Sales increased due to higher deliveries of locomotives, which were primarily international, and rail services. Sales also increased due to favorable currency impacts.
Energy & Transportation’s profit was $2.768 billion in 2021, an increase of $363 million, or 15 percent, compared with $2.405 billion in 2020. The increase was due to higher sales volume and favorable price realization, partially offset by unfavorable manufacturing costs and higher SG&A/R&D expenses. Increased manufacturing costs were mainly driven by higher period manufacturing costs and higher variable labor and burden, primarily freight. In addition, segment profit was favorably impacted by lower other operating expense.
Both SG&A/R&D expenses and period manufacturing costs were driven by higher short-term incentive compensation expense and investments aligned with growth initiatives, including acquisition-related expenses.
Energy & Transportation’s profit as a percent of total sales was 13.6 percent in 2021, compared with 13.8 percent in 2020.
Financial Products Segment
Financial Products’ segment revenues were $3.073 billion in 2021, an increase of $29 million, or 1 percent, from 2020.
33

Financial Products’ segment profit was $908 million in 2021, an increase of $318 million, or 54 percent, compared with $590 million in 2020. The increase was primarily due to lower provision for credit losses at Cat Financial, a favorable impact from returned or repossessed equipment and a favorable impact from equity securities in Insurance Services. These favorable impacts were partially offset by an increase in SG&A expenses primarily due to higher short-term incentive compensation expense.
At the end of 2021, past dues at Cat Financial were 1.95 percent, compared with 3.49 percent at the end of 2020. Past dues decreased across all portfolio segments as global markets generally improved. Write-offs, net of recoveries, were $205 million for 2021, compared with $222 million for 2020. As of December 31, 2021, Cat Financial's allowance for credit losses totaled $337 million, or 1.22 percent of finance receivables, compared with $479 million, or 1.77 percent of finance receivables at December 31, 2020.
Corporate Items and Eliminations
Expense for corporate items and eliminations was $1.480 billion in 2021, a slight increase of $46 million from 2020.

34


FOURTH QUARTER 2021 COMPARED WITH FOURTH QUARTER 2020
CONSOLIDATED SALES AND REVENUES
cat-20211231_g5.jpg
The chart above graphically illustrates reasons for the change in consolidated sales and revenues between the fourth quarter of 2020 (at left) and the fourth quarter of 2021 (at right). Caterpillar management utilizes these charts internally to visually communicate with the company’s Board of Directors and employees.
Total sales and revenues for the fourth quarter of 2021 were $13.798 billion, an increase of $2.563 billion, or 23 percent, compared with $11.235 billion in the fourth quarter of 2020. The increase was mostly due to higher sales volume, driven by higher end-user demand for equipment and services and the impact from changes in dealer inventories, along with favorable price realization. Dealers decreased inventories during the fourth quarter of 2020, compared to remaining about flat during the fourth quarter of 2021.
Sales were higher across the three primary segments.
North America sales increased 29 percent due to the impact from changes in dealer inventories, higher end-user demand for services and favorable price realization. Dealers decreased inventories during the fourth quarter of 2020, compared with dealer inventories that were about flat during the fourth quarter of 2021.
Sales increased 40 percent in Latin America primarily due to higher end-user demand for equipment and services and favorable price realization.
EAME sales increased 24 percent primarily due to higher end-user demand for equipment and services and the impact from changes in dealer inventories. Dealers decreased inventories more during the fourth quarter of 2020 than during the fourth quarter of 2021.
Asia/Pacific sales increased 9 percent primarily due to the impact from changes in dealer inventories, higher end-user demand for equipment and services and favorable price realization. Dealers decreased inventories during the fourth quarter of 2020, compared with an increase during the fourth quarter of 2021.
Dealers decreased inventories about $1.100 billion during the fourth quarter of 2020, compared to a decrease of about $100 million during the fourth quarter of 2021. Dealers are independent, and the reasons for changes in their inventory levels vary, including their expectations of future demand and product delivery times. Dealers’ demand expectations take into account seasonal changes, macroeconomic conditions, machine rental rates and other factors. Delivery times can vary based on availability of product from Caterpillar factories and product distribution centers.


35

Sales and Revenues by Segment
(Millions of dollars)Fourth Quarter 2020Sales
Volume
Price
Realization
CurrencyInter-Segment / OtherFourth Quarter 2021$
Change
%
Change
Construction Industries$4,508 $929 $299 $(23)$23 $5,736 $1,228 27 %
Resource Industries2,180 467 121 (8)2,762 582 27 %
Energy & Transportation4,811 640 88 (7)196 5,728 917 19 %
All Other Segment137 — (1)(9)134 (3)(2 %)
Corporate Items and Eliminations(1,066)(1)— (202)(1,263)(197) 
Machinery, Energy & Transportation10,570 2,049 507 (29)— 13,097 2,527 24 %
Financial Products Segment743 — — — 33 776 33 %
Corporate Items and Eliminations(78)— — — (75) 
Financial Products Revenues665 — — — 36 701 36 %
Consolidated Sales and Revenues$11,235 $2,049 $507 $(29)$36 $13,798 $2,563 23 %
Sales and Revenues by Geographic Region
North AmericaLatin AmericaEAMEAsia/PacificExternal Sales and RevenuesInter-SegmentTotal Sales and Revenues
(Millions of dollars)$% Chg$% Chg$% Chg$% Chg$% Chg$% Chg$% Chg
Fourth Quarter 2021          
Construction Industries$2,635 39%$563 74%$1,246 47%$1,245 (12%)$5,689 27%$47 96%$5,736 27 %
Resource Industries857 44%415 5%532 29%839 29%2,643 29%119 (6%)2,762 27 %
Energy & Transportation1,913 12%398 50%1,475 9%965 36%4,751 18%977 25%5,728 19 %
All Other Segment14 180%—%(11%)15 (17%)38 19%96 (9%)134 (2 %)
Corporate Items and Eliminations(17)— — (7)(24)(1,239)(1,263)
Machinery, Energy & Transportation 5,402 29%1,377 40%3,261 24%3,057 9%13,097 24%— —%13,097 24 %
Financial Products Segment493 6%70 9%101 7%112 (7%)776 
1
4%— —%776 %
Corporate Items and Eliminations(37)(15)(9)(14)(75)— (75)
Financial Products Revenues456 8%55 2%92 10%98 (6%)701 5%— —%701 %
Consolidated Sales and Revenues$5,858 27%$1,432 38%$3,353 24%$3,155 9%$13,798 23%$— —%$13,798 23 %
Fourth Quarter 2020          
Construction Industries$1,895  $324  $848  $1,417  $4,484  $24 $4,508 
Resource Industries596  394  412  651  2,053  127 2,180 
Energy & Transportation1,705  265  1,353  707  4,030  781 4,811 
All Other Segment —   18  32  105 137 
Corporate Items and Eliminations(27)  (2) (1) (29) (1,037)(1,066)
Machinery, Energy & Transportation4,174  984  2,620  2,792  10,570  — 10,570 
     
Financial Products Segment464  64  94  121  743 
1
 — 743 
Corporate Items and Eliminations(41) (10) (10) (17) (78) — (78)
Financial Products Revenues423  54  84  104  665  — 665 
     
Consolidated Sales and Revenues$4,597  $1,038  $2,704  $2,896  $11,235  $— $11,235 
1 Includes revenues from Machinery, Energy & Transportation of $88 million for both the three months ended December 31, 2021 and 2020.
36

CONSOLIDATED OPERATING PROFIT

cat-20211231_g6.jpg
The chart above graphically illustrates reasons for the change in consolidated operating profit between the fourth quarter of 2020 (at left) and the fourth quarter of 2021 (at right). Caterpillar management utilizes these charts internally to visually communicate with the companys Board of Directors and employees. The bar entitled Other includes consolidating adjustments and Machinery, Energy & Transportation other operating (income) expenses.
Operating profit for the fourth quarter of 2021 was $1.611 billion, an increase of $231 million, or 17 percent, compared with $1.380 billion in the fourth quarter of 2020. Higher manufacturing costs and selling, general and administrative (SG&A) and research and development (R&D) expenses were more than offset by higher sales volume, favorable price realization and net restructuring income due to a gain on the sale of a facility.
Unfavorable manufacturing costs reflected higher variable labor and burden, primarily freight, and higher material costs.
The increase in SG&A/R&D expenses was driven by higher short-term incentive compensation expense, which was reinstated in 2021, higher labor costs due to increased headcount and investments aligned with the company's strategy for profitable growth, including acquisition-related expenses.
Short-term incentive compensation expense, which was reinstated in 2021, was about $200 million in the fourth quarter of 2021, compared to no short-term incentive compensation expense recognized in the fourth quarter of 2020.
Operating profit margin was 11.7 percent for the fourth quarter of 2021, compared with 12.3 percent for the fourth quarter of 2020.
Profit (Loss) by Segment
(Millions of dollars)Fourth Quarter 2021Fourth Quarter 2020$
Change
%
Change
Construction Industries$788 $630 $158 25 %
Resource Industries305 273 32 12 %
Energy & Transportation 675 687 (12)(2 %)
All Other Segment(12)(3)(9)(300 %)
Corporate Items and Eliminations(281)(281)—  
Machinery, Energy & Transportation1,475 1,306 169 13 %
Financial Products Segment248 195 53 27 %
Corporate Items and Eliminations(37)(47)10  
Financial Products211 148 63 43 %
Consolidating Adjustments(75)(74)(1) 
Consolidated Operating Profit$1,611 $1,380 $231 17 %
37

Other Profit/Loss and Tax Items
Interest expense excluding Financial Products in the fourth quarter of 2021 was $112 million, compared with $130 million in the fourth quarter of 2020. The decrease was due to lower average debt outstanding during the fourth quarter of 2021, compared with the fourth quarter of 2020.
Other income (expense) in the fourth quarter of 2021 was income of $1.063 billion, compared with expense of $309 million in the fourth quarter of 2020. The change was primarily driven by mark-to-market gains for remeasurement of pension and OPEB plans in the fourth quarter of 2021, compared with mark-to-market losses in the fourth quarter of 2020.
The provision for income taxes for the fourth quarter of 2021 reflected an annual effective tax rate of 22.9 percent, compared with 27.8 percent for the fourth quarter of 2020, excluding the discrete items discussed in the following paragraph. The decrease from 2020 was primarily related to changes in the geographic mix of profits from a tax perspective.
The provision for income taxes for the fourth quarter of 2021 also included the following:
A tax benefit of $118 million for the change from the third-quarter estimated annual tax rate of 25 percent, compared to a $96 million benefit for the reduction in the annual effective tax rate in the fourth quarter of 2020.
A tax charge of $190 million related to $833 million of pension and OPEB mark-to-market gains in the fourth quarter of 2021, compared to a $92 million tax benefit related to $438 million of mark-to-market losses in the fourth quarter of 2020.
A tax benefit of $40 million in the fourth quarter of 2021 primarily related to recognition of U.S. capital losses compared to $28 million in the fourth quarter of 2020 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 $5.736 billion in the fourth quarter of 2021, an increase of $1.228 billion, or 27 percent, compared with $4.508 billion in the fourth quarter of 2020. The increase was due to higher sales volume, driven by the impact from changes in dealer inventories and higher end-user demand, along with favorable price realization. Dealers decreased inventories more during the fourth quarter of 2020 than during the fourth quarter of 2021.
In North America, sales increased due to higher sales volume and favorable price realization. Higher sales volume was driven by the impact from changes in dealer inventories as dealers decreased inventories more during the fourth quarter of 2020 than during the fourth quarter of 2021.
Sales increased in Latin America primarily due to higher sales volume and favorable price realization. Higher sales volume was driven by higher end-user demand and the impact from changes in dealer inventories. Dealers increased inventories during the fourth quarter of 2021, compared to a decrease during the fourth quarter of 2020.
In EAME, sales increased due to higher sales volume from higher end-user demand and the impact of changes in dealer inventories. Dealers decreased inventories more during the fourth quarter of 2020 than during the fourth quarter of 2021.
Sales decreased in Asia/Pacific primarily due to lower sales volume, partially offset by favorable price realization. Decreased sales volume reflected lower end-user demand, partially offset by the impact from changes in dealer inventories. Lower sales in China, driven by lower end-user demand, were partially offset by higher sales across most of the rest of the region. Dealers decreased inventories during the fourth quarter of 2020, compared to an increase during the fourth quarter of 2021.
Construction Industries’ profit was $788 million in the fourth quarter of 2021, an increase of $158 million, or 25 percent, compared with $630 million in the fourth quarter of 2020. Higher manufacturing costs and SG&A/R&D expenses were more than offset by higher sales volume and favorable price realization. Increased manufacturing costs reflected higher variable labor and burden, primarily freight, as well as higher material costs.
The increase in SG&A/R&D expenses was driven by higher short-term incentive compensation expense.
Construction Industries’ profit as a percent of total sales was 13.7 percent in the fourth quarter of 2021, compared with 14.0 percent in the fourth quarter of 2020.


38

Resource Industries
Resource Industries’ total sales were $2.762 billion in the fourth quarter of 2021, an increase of $582 million, or 27 percent, compared with $2.180 billion in the fourth quarter of 2020. The increase was primarily due to higher sales volume, driven by higher end-user demand for equipment and aftermarket parts, and favorable price realization. End-user demand was higher in mining as well as heavy construction and quarry and aggregates.
Resource Industries’ profit was $305 million in the fourth quarter of 2021, an increase of $32 million, or 12 percent, compared with $273 million in the fourth quarter of 2020. Increased manufacturing costs and SG&A/R&D expenses were more than offset by higher sales volume and favorable price realization. Unfavorable manufacturing costs reflected higher variable labor and burden, primarily freight, and material costs.
The increase in SG&A/R&D expenses was driven by investments aligned with growth initiatives, primarily labor, and higher short-term incentive compensation expense.
Resource Industries’ profit as a percent of total sales was 11.0 percent in the fourth quarter of 2021, compared with 12.5 percent in the fourth quarter of 2020.
Energy & Transportation
Sales by Application
(Millions of dollars)Fourth Quarter 2021Fourth Quarter 2020$
Change
%
 Change
Oil and Gas$1,320 $1,079 $241 22 %
Power Generation1,267 1,180 87 %
Industrial952 736 216 29 %
Transportation1,212 1,035 177 17 %
External Sales4,751 4,030 721 18 %
Inter-Segment977 781 196 25 %
Total Sales$5,728 $4,811 $917 19 %
Energy & Transportation’s total sales were $5.728 billion in the fourth quarter of 2021, an increase of $917 million, or 19 percent, compared with $4.811 billion in the fourth quarter of 2020. Sales increased across all applications and inter-segment sales.
Oil and Gas – Sales increased for reciprocating engines aftermarket parts across all regions, turbines and turbine-related services and reciprocating engines used in gas compression.
Power Generation – Sales rose due to higher sales volume in reciprocating engines aftermarket parts and small reciprocating engine applications.
Industrial – Sales were up due to higher demand across all regions.
Transportation –Sales increased due to higher deliveries of locomotives, which were primarily international, and rail services.
Energy & Transportation’s profit was $675 million in the fourth quarter of 2021, a decrease of $12 million, or 2 percent, compared with $687 million in the fourth quarter of 2020. The decrease was due to unfavorable manufacturing costs and higher SG&A/R&D expenses, mostly offset by higher sales volume and favorable price realization. Unfavorable manufacturing costs reflected higher variable labor and burden, primarily freight, higher period manufacturing and material costs.
Both SG&A/R&D expenses and period manufacturing costs increased primarily due to higher short-term incentive compensation expense and investments aligned with growth initiatives, including acquisition-related expenses.
Energy & Transportation’s profit as a percent of total sales was 11.8 percent in the fourth quarter of 2021, compared with 14.3 percent in the fourth quarter of 2020.
Financial Products Segment
Financial Products’ segment revenues were $776 million in the fourth quarter of 2021, an increase of $33 million, or 4 percent, from the fourth quarter of 2020.
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Financial Products’ segment profit was $248 million in the fourth quarter of 2021, an increase of $53 million, or 27 percent, compared with $195 million in the fourth quarter of 2020. The increase was mainly due to a favorable impact from returned or repossessed equipment and lower provision for credit losses at Cat Financial, partially offset by an increase in SG&A expenses primarily due to higher short-term incentive compensation expense.
Corporate Items and Eliminations
Expense for corporate items and eliminations was $318 million in the fourth quarter of 2021, about flat to the fourth quarter of 2020.
2020 COMPARED WITH 2019

For discussions related to the consolidated sales and revenue and consolidated operating profit between 2020 and 2019, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020, which was filed with the United States Securities and Exchange Commission on February 17, 2021.


RESTRUCTURING COSTS

In 2022, we expect to incur about $600 million of restructuring costs primarily related to strategic actions to address a small number of products. We expect that prior restructuring actions will result in an incremental benefit to operating costs, primarily Costs of goods sold and SG&A expenses of about $75 million in 2022 compared with 2021.

Additional information related to restructuring costs is included in Note 25 - "Restructuring Costs" of Part II, Item 8 "Financial Statements and Supplemental Data."

GLOSSARY OF TERMS
1.Adjusted Operating Profit Margin – Operating profit excluding restructuring costs as a percent of sales and revenues.
2.Adjusted Profit Per Share – Profit per share excluding pension and OPEB mark-to-market gains/losses and restructuring income/costs.
3.All Other Segment – Primarily includes activities such as: business strategy; product management and development; manufacturing and sourcing of filters and fluids, undercarriage, ground-engaging tools, fluid transfer products, precision seals, rubber sealing and connecting components primarily for Cat® products; parts distribution; integrated logistics solutions; distribution services responsible for dealer development and administration, including a wholly owned dealer in Japan; dealer portfolio management and ensuring the most efficient and effective distribution of machines, engines and parts; brand management and marketing strategy; and digital investments for new customer and dealer solutions that integrate data analytics with state-of-the-art digital technologies while transforming the buying experience.
4.Consolidating Adjustments – Elimination of transactions between Machinery, Energy & Transportation and Financial Products.
5.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 asphalt pavers; backhoe loaders; compactors; cold planers; compact track and multi-terrain loaders; mini, small, medium and large track excavators; motor graders; pipelayers; road reclaimers; skid steer loaders; telehandlers; small and medium track-type tractors; track-type loaders; utility vehicles; wheel excavators; compact, small and medium wheel loaders; and related parts and work tools.
6.Corporate Items and Eliminations – Includes corporate-level expenses, timing differences (as some expenses are reported in segment profit on a cash basis), methodology differences between segment and consolidated external reporting, certain restructuring costs and inter-segment eliminations.
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7.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 only includes the impact on sales and operating profit for the Machinery, Energy & Transportation line of business; 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 (hedging) and the net effect of changes in foreign currency exchange rates on our foreign currency assets and liabilities for consolidated results (translation).
8.Dealer Inventories – Represents dealer machine and engine inventories, excluding aftermarket parts.
9.EAME – A geographic region including Europe, Africa, the Middle East and the Commonwealth of Independent States (CIS).
10.Earning Assets – Assets consisting primarily of total finance receivables net of unearned income, plus equipment on operating leases, less accumulated depreciation at Cat Financial.
11.Energy & Transportation – A segment primarily responsible for supporting customers using reciprocating engines, turbines, diesel-electric locomotives and related services across industries serving Oil and Gas, Power Generation, Industrial and Transportation applications, including marine- and rail-related businesses. Responsibilities include business strategy, product design, product management and development, manufacturing, marketing and sales and product support. The product and services portfolio includes turbines, centrifugal gas compressors, 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 Cat machinery; and diesel-electric locomotives and components and other rail-related products and services, including remanufacturing and leasing. Responsibilities also include the remanufacturing of Caterpillar reciprocating engines and components and remanufacturing services for other companies; and product support of on-highway vocational trucks for North America.
12.Financial Products – The company defines Financial Products as our finance and insurance subsidiaries, primarily Caterpillar Financial Services Corporation (Cat Financial) and Caterpillar Insurance Holdings Inc. (Insurance Services). Financial Products’ information relates to the financing to customers and dealers for the purchase and lease of Caterpillar and other equipment.
13.Financial Products Segment – Provides financing alternatives to customers and dealers around the world for Caterpillar products, as well as financing for vehicles, power generation facilities and marine vessels that, in most cases, incorporate Caterpillar products. Financing plans include operating and finance leases, installment sale contracts, repair/rebuild financing, working capital loans and wholesale financing plans. The segment also provides insurance and risk management products and services that help customers and dealers manage their business risk. Insurance and risk management products offered include physical damage insurance, inventory protection plans, extended service coverage and maintenance plans for machines and engines, and dealer property and casualty insurance. The various forms of financing, insurance and risk management products offered to customers and dealers help support the purchase and lease of Caterpillar equipment. The segment also earns revenues from Machinery, Energy & Transportation, but the related costs are not allocated to operating segments. Financial Products’ segment profit is determined on a pretax basis and includes other income/expense items.
14.Latin America – A geographic region including Central and South American countries and Mexico.
15.Machinery, Energy & Transportation (ME&T) – The company defines ME&T as Caterpillar Inc. and its subsidiaries, excluding Financial Products. ME&T’s information relates to the design, manufacturing and marketing of its products.
16.Machinery, Energy & Transportation Other Operating (Income) Expenses – Comprised primarily of gains/losses on disposal of long-lived assets, gains/losses on divestitures and legal settlements and accruals.
17.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.
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18.Mark-to-market gains/losses – Represents the net gain or loss of actual results differing from the company’s assumptions and the effects of changing assumptions for our defined benefit pension and OPEB plans. These gains and losses are immediately recognized through earnings upon the annual remeasurement in the fourth quarter, or on an interim basis as triggering events warrant remeasurement.
19.Pension and Other Postemployment Benefits (OPEB) – The company’s defined-benefit pension and postretirement benefit plans.
20.Price Realization – The impact of net price changes excluding currency and new product introductions. Price realization includes geographic mix of sales, which is the impact of changes in the relative weighting of sales prices between geographic regions.
21.Resource Industries – A segment primarily responsible for supporting customers using machinery in mining, heavy construction and quarry and aggregates. 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; rotary drills; large wheel loaders; off-highway trucks; articulated trucks; wheel tractor scrapers; wheel dozers; landfill compactors; soil compactors; select work tools; machinery components; electronics and control systems and related parts. In addition to equipment, Resource Industries also develops and sells technology products and services to provide customers fleet management, equipment management analytics, autonomous machine capabilities, safety services and mining performance solutions. Resource Industries also manages areas that provide services to other parts of the company, including integrated manufacturing, research and development for drivetrains, hydraulic systems, electronics and software for Cat machines and engines.
22.Restructuring Costs – May include costs for employee separation, long-lived asset impairments and contract terminations. These costs are included in Other operating (income) expenses except for defined-benefit plan curtailment losses and special termination benefits, which are included in Other income (expense). Restructuring costs also include other exit-related costs, which may consist of accelerated depreciation, inventory write-downs, building demolition, equipment relocation and project management costs and LIFO inventory decrement benefits from inventory liquidations at closed facilities, all of which are primarily included in Cost of goods sold.
23.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 sales 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. The impact of sales volume on segment profit includes inter-segment sales.
24.Services – Enterprise services include, but are not limited to, aftermarket parts, Financial Products revenues and other service-related revenues. Machinery, Energy & Transportation segments exclude most Financial Products revenues.

LIQUIDITY AND CAPITAL RESOURCES
 
Sources of funds
 
We generate significant capital resources from operating activities, which are the primary source of funding for our ME&T 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 its existing portfolio. During 2021, we had positive operating cash flow within both our ME&T and Financial Products' operations. On a consolidated basis, we ended 2021 with $9.25 billion of cash, a decrease of $98 million from year-end 2020. We intend to maintain a strong cash and liquidity position.
 
Consolidated operating cash flow for 2021 was $7.20 billion, up $871 million compared to 2020. The increase was primarily due to profit before taxes adjusted for non-cash items, including higher accruals for short-term incentive compensation. In addition, lower payments for short-term incentive compensation favorably impacted cash flow. Partially offsetting these items were increased working capital requirements compared to last year. Within working capital, changes in accounts receivable and inventory unfavorably impacted cash flow but were partially offset by favorable changes in accounts payable and accrued expenses. See further discussion of operating cash flow under ME&T and Financial Products.

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Total debt as of December 31, 2021 was $37.79 billion, an increase of $626 million from year-end 2020. Debt related to ME&T decreased $1.37 billion in 2021 due to the repayment of maturing debt. In addition, during the first quarter of 2021, we issued $500 million of ten year bonds at 1.9 percent and utilized the net proceeds to redeem all our $500 million 2.6 percent notes due in 2022. Debt related to Financial products increased by $2.01 billion due to portfolio funding requirements.
 
We have three global credit facilities with a syndicate of banks totaling $10.50 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 revised from time to time, the portion of the Credit Facility available to ME&T as of December 31, 2021 was $2.75 billion. Information on our Credit Facility is as follows:

The 364-day facility of $3.15 billion (of which $825 million is available to ME&T) expires on September 1, 2022.
The three-year facility, as amended and restated in September 2021, of $2.73 billion (of which $715 million is available to ME&T) expires in September 2024.
The five-year facility, as amended and restated in September 2021, of $4.62 billion (of which $1.21 billion is available to ME&T) expires in September 2026.

At December 31, 2021, Caterpillar’s consolidated net worth was $16.58 billion, which was above the $9.00 billion required under the Credit Facility.  The consolidated net worth is defined as the consolidated shareholder’s equity including preferred stock but excluding the pension and other postretirement benefits balance within Accumulated other comprehensive income (loss).

At December 31, 2021, Cat Financial’s covenant interest coverage ratio was 2.51 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 December 31, 2021, Cat Financial’s six-month covenant leverage ratio was 7.25 to 1 and year-end covenant leverage ratio was 7.91 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 December 31, 2021, there were no borrowings under the Credit Facility.

Our total credit commitments and available credit as of December 31, 2021 were:
 December 31, 2021
(Millions of dollars)ConsolidatedMachinery,
Energy &
Transportation
Financial
Products
Credit lines available:   
Global credit facilities$10,500 $2,750 $7,750 
Other external3,251 184 3,067 
Total credit lines available13,751 2,934 10,817 
Less: Commercial paper outstanding(4,896) (4,896)
Less: Utilized credit(568)(9)(559)
Available credit$8,287 $2,925 $5,362 
 
The other consolidated credit lines with banks as of December 31, 2021 totaled $3.25 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.
 
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We receive debt ratings from the major credit rating agencies. Moody’s, Fitch and S&P maintain a “mid-A” debt rating. A downgrade of our credit ratings by any of the major credit rating agencies would result in increased borrowing costs and could make access to certain credit markets more difficult. In the event economic conditions deteriorate such that access to debt markets becomes unavailable, ME&T’s operations would rely on cash flow from operations, use of existing cash balances, borrowings from Cat Financial and access to our committed credit facilities. Our Financial Products’ operations would rely on cash flow from its existing portfolio, existing cash balances, access to our committed credit facilities 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, under certain circumstances, require Caterpillar to make payments to Cat Financial should Cat Financial fail to maintain certain financial ratios.

We facilitate voluntary supply chain finance programs (the “Programs”) through participating financial institutions. The Programs are available to a wide range of suppliers and allows them the option to manage their cash flow. We are not a party to the agreements between the participating financial institutions and the suppliers in connection with the Programs. The range of payment terms we negotiate with our suppliers is consistent, irrespective of whether a supplier participates in the Programs. The amounts payable to participating financial institutions for suppliers who voluntarily participate in the Programs and included in accounts payable in the Consolidated Statement of Financial Position were $822 million and $533 million at December 31, 2021 and December 31, 2020, respectively. The amounts settled through the Programs and paid to participating financial institutions were $4.1 billion and $3.2 billion in 2021 and 2020, respectively. We account for payments made under the Programs, the same as our other accounts payable, as a reduction to our cash flows from operations. We do not believe that changes in the availability of supply chain financing will have a significant impact on our liquidity.

Material cash requirements for contractual obligations

We believe our balances of cash and cash equivalents of $9.25 billion and time deposits of $964 million as of December 31, 2021, along with cash generated by ongoing operations and continued access to debt markets, will be sufficient to satisfy our cash requirements over the next 12 months and beyond.

We have committed cash outflow related to postretirement benefit obligations, long-term debt and operating lease agreements. See Notes 12, 14 and 20, respectively, of Part II, Item 8 “Financial Statements and Supplementary Data” for additional information.

We have short-term obligations related to the purchase of goods and services made in the ordinary course of business. These consist of invoices received and recorded as liabilities as of December 31, 2021, but scheduled for payment in 2022 of $8.15 billion. In addition, we have contractual obligations for material and services on order at December 31, 2021, but not yet invoiced or delivered, of $7.28 billion.

We also have long-term contractual obligations primarily for logistics services agreements; systems support, software licenses and development contracts; information technology consulting contracts and outsourcing contracts for benefit plan administration. These obligations total $1.16 billion, with $550 million due in the next 12 months.

Machinery, Energy & Transportation
 
Net cash provided by operating activities was $7.18 billion in 2021, compared with $4.05 billion in 2020. The increase was primarily due to higher profit in 2021 adjusted for non-cash items, which included higher accruals for short-term incentive compensation. In addition, lower payments for short-term incentive compensation favorably impacted cash flow. Partially offsetting these items were increased working capital requirements. Within working capital, changes in inventory and accounts receivable unfavorably impacted cash flow but were partially offset by favorable changes in accounts payable and accrued expenses.

Net cash used for investing activities in 2021 was $1.23 billion, compared with net cash used of $1.34 billion in 2020. The change was primarily due to increased activity related to intercompany lending with Financial Products, mostly offset by increased investments in securities. During 2021, we invested $1.19 billion in bank time deposits with varying maturity dates within one year and received proceeds from time deposits that matured of $225 million. We also acquired the Oil & Gas division of the Weir Group PLC for $359 million, net of cash acquired in February 2021.

Net cash used for financing activities during 2021 was $6.30 billion, compared with net cash used of $1.18 billion in 2020. The change was primarily due to the repayment of debt and lower proceeds from the issuance of debt. In addition, we repurchased $2.67 billion of Caterpillar common stock in 2021 compared to $1.13 billion in 2020.
 
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While our short-term priorities for the use of cash may vary from time to time as business needs and conditions dictate, our long-term cash deployment strategy is focused on the following priorities. Our top priority is to maintain a strong financial position in support of a Mid-A rating. Next, we intend to fund operational requirements and commitments. Then, we intend to fund priorities that profitably grow the company and return capital to shareholders through dividend growth and share repurchases. Additional information on cash deployment is as follows:
 
Strong financial position Our top priority is to maintain a strong financial position in support of a mid-A rating. We track a diverse group of financial metrics that focus on liquidity, leverage, cash flow and margins which align with our cash deployment actions and the various methodologies used by the major credit rating agencies.

Operational excellence and commitments Capital expenditures were $1.13 billion during 2021, compared to $994 million in 2020. We expect ME&T’s capital expenditures in 2022 to be around $1.4 billion. We made $340 million of contributions to our OPEB plans during 2021. By comparison, we made $262 million of contributions to our OPEB plans in 2020. We expect to make approximately $357 million of contributions to our pension and OPEB plans in 2022.
 
Fund strategic growth initiatives and return capital to shareholders We intend to utilize our liquidity and debt capacity to fund targeted investments that drive long-term profitable growth focused in the areas of expanded offerings and services, including acquisitions.

As part of our capital allocation strategy, ME&T free cash flow is a liquidity measure we use to determine the cash generated and available for financing activities including debt repayments, dividends and share repurchases. We define ME&T free cash flow as cash from ME&T operations excluding discretionary pension and other postretirement benefit plan contributions less capital expenditures. A goal of our capital allocation strategy is to return substantially all ME&T free cash flow to shareholders over time in the form of dividends and share repurchases, while maintaining our mid-A rating.

Our share repurchase plans are subject to the company’s cash deployment priorities and are evaluated on an ongoing basis considering the financial condition of the company and the economic outlook, corporate cash flow, the company's liquidity needs and the health and stability of global credit markets. The timing and amount of future repurchases may vary depending on market conditions and investing priorities. In July 2018, the Board of Directors approved an authorization to repurchase up to $10 billion of Caterpillar common stock (the 2018 Authorization) effective January 1, 2019, with no expiration. In 2021, we repurchased $2.67 billion of Caterpillar common stock, with $2.10 billion remaining under the 2018 Authorization as of December 31, 2021. Caterpillar's basic shares outstanding as of December 31, 2021 were approximately 536 million.

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. In December 2021, the Board of Directors approved maintaining our quarterly dividend representing $1.11 per share and we continue to expect our strong financial position to support the dividend. Dividends paid totaled $2.33 billion in 2021.

Financial Products
 
Financial Products operating cash flow was $1.42 billion in 2021, compared with $1.27 billion in 2020. Net cash used for investing activities was $1.40 billion in 2021, compared with net cash provided by investing activities of $791 million in 2020. The change was primarily due to portfolio related activity. Net cash provided by financing activities was $257 million in 2021, compared with net cash used of $2.50 billion in 2020. The change was primarily due to higher portfolio funding requirements.

Off-balance sheet arrangements

We are a party to certain off-balance sheet arrangements, primarily in the form of guarantees. Information related to guarantees appears in Note 21 – “Guarantees and product warranty” of Part II, Item 8 “Financial Statements and Supplementary Data.”

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RECENT ACCOUNTING PRONOUNCEMENTS

For a discussion of recent accounting pronouncements, see Note 1J — “New accounting guidance” of Part II, Item 8 “Financial Statements and Supplementary Data.”

CRITICAL ACCOUNTING ESTIMATES
 
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, warranty liability, 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. We review these assumptions 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 – We determine the residual value of Cat Financial’s leased equipment based on its estimated end-of-term market value. We estimate the residual value of leased equipment at the inception of the lease based on a number of factors, including historical wholesale market sales prices, past remarketing experience and any known significant market/product trends. We also consider the following critical factors in our residual value estimates: lease term, market size and demand, total expected hours of usage, machine configuration, application, location, model changes, quantities, third-party residual guarantees and contractual customer purchase options.

Upon termination of the lease, the equipment is either purchased by the lessee or sold to a third party, in which case we may record a gain or a loss for the difference between the estimated residual value and the sale price.

During the term of our leases, we monitor residual values.  For operating leases, we record adjustments to depreciation expense reflecting changes in residual value estimates prospectively on a straight-line basis. For finance leases, we recognize residual value adjustments through a reduction of finance revenue over the remaining lease term.

We evaluate the carrying value of equipment on operating leases for potential impairment when we determine a triggering event has occurred. When a triggering event occurs, we perform a test for recoverability by comparing projected undiscounted future cash flows to the carrying value of the equipment on operating leases. If the test for recoverability identifies a possible impairment, we measure the fair value of the equipment on operating leases in accordance with the fair value measurement framework. We recognize an impairment charge for the amount by which the carrying value of the equipment on operating leases exceeds its estimated fair value.

At December 31, 2021, the aggregate residual value of equipment on operating leases was $1.87 billion. Without consideration of other factors such as third-party residual guarantees or contractual customer purchase options, a 10 percent non-temporary decrease in the market value of our equipment subject to operating leases would reduce residual value estimates and result in the recognition of approximately $85 million of additional annual depreciation expense.

Fair values for goodwill impairment tests – We test goodwill for impairment annually, at the reporting unit level, and whenever events or circumstances make it more likely than not 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.

We review goodwill for impairment utilizing either a qualitative assessment or a quantitative goodwill impairment test. 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 quantitative goodwill impairment test, we 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, we do not consider the goodwill impaired. If the carrying value is higher than the fair value, we recognize the difference as an impairment loss.

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For reporting units where we perform a quantitative goodwill impairment test, the 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. We compute the residual value using the constant growth method, which values the forecasted cash flows in perpetuity. 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. A reporting unit’s 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. We categorize the fair value determination as Level 3 in the fair value hierarchy due to its use of internal projections and unobservable measurement inputs.

We completed our annual assessment of goodwill in the fourth quarter of 2021 and determined that there was no impairment of goodwill. Caterpillar’s market capitalization has remained significantly above the net book value of the Company.

An unfavorable change in our expectations for the financial performance of our reporting units, particularly long-term growth and profitability, would reduce the fair value of our reporting units. The demand for our equipment and related parts is highly cyclical and significantly impacted by commodity prices, although the impact may vary by reporting unit. The energy and mining industries are major users of our products, including the mineral extraction, oil and natural gas industries. Decisions to purchase our products are dependent upon the performance of those industries, which in turn are dependent in part on commodity prices. Lower commodity prices or industry specific circumstances that have a negative impact to the valuation assumptions may 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 annual impairment test.  Future impairment tests may result in a goodwill impairment, depending on the outcome of the quantitative impairment test. We would report a goodwill impairment as a non-cash charge to earnings.
 
Warranty liability – At the time we recognize a sale, we record estimated future warranty costs.  We determine the warranty liability by applying historical claim rate experience to the current field population and dealer inventory.  Generally, we base historical claim rates on actual warranty experience for each product by machine model/engine size by customer or dealer location (inside or outside North America).  We develop specific rates for each product shipment month and update them 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.
 
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. The amount of these reserves totaled $1.2 billion at both December 31, 2021 and 2020. The majority of the balance in both 2021 and 2020 consisted of unearned insurance premiums.
 
Postretirement benefits – We sponsor defined benefit pension plans and/or other postretirement benefit plans (retirement healthcare and life insurance) to employees in many of our locations throughout the world. There are assumptions used in the accounting for these defined benefit plans that include discount rate, expected return on plan assets, expected rate of compensation increase, the future health care trend rate, mortality and other economic and demographic assumptions. The actuarial assumptions we use may change or differ significantly from actual results, which may result in a material impact to our consolidated financial statements.

The effects of actual results differing from our assumptions and the effects of changing assumptions are considered actuarial gains or losses. We utilize a mark-to-market approach in recognizing actuarial gains or losses immediately through earnings upon the annual remeasurement in the fourth quarter, or on an interim basis as triggering events warrant remeasurement.
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Primary actuarial assumptions were determined as follows:

We use the assumed discount rate 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. We use a similar approach to determine the assumed discount rate for our most significant non-U.S. plans. In estimating the service and interest cost components of net periodic benefit cost, we utilize a full yield curve approach in determining a discount rate. This approach applies the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. Discount rates are sensitive to changes in interest rates. A decrease in the discount rate would increase our obligation and future expense.

The 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. 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 expected return on plan assets is based on the fair value of plan assets allocations as of our measurement date, December 31.

We use the expected rate of compensation increase 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.

We use the mortality assumption to estimate the life expectancy of plan participants. An increase in the life expectancy of plan participants will result in an increase in our obligation and expense.
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Postretirement Benefit Plan Actuarial Assumptions Sensitivity
 
The effects of a one percentage-point change in certain actuarial assumptions on 2021 pension and OPEB costs and obligations are as follows:
 
 2021 Benefit Cost Increase (Decrease)Year-end Benefit Obligation Increase (Decrease)
(Millions of dollars)One percentage-
point increase
One percentage-
point decrease
One percentage-
point increase
One percentage-
point decrease
U.S. Pension Benefits: 1
    
Assumed discount rate$115 $(149)$(1,910)$2,329 
Expected long-term rate of return on plan assets(171)171