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CATERPILLAR INC.

(CAT)
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Caterpillar Inc.: Files Form 10-Q FQE 30 Sept 2022

02/11/2022 | 16:40

Caterpillar Inc.
Caterpillar Inc.: Files Form 10-Q FQE 30 Sept 2022

02-Nov-2022 / 16:36 CET/CEST
Information réglementaire transmise par EQS Group.
Le contenu de ce communiqué est de la responsabilité de l’émetteur.


 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended  September 30, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to

Commission File Number:  1-768

CATERPILLAR INC.

(Exact name of registrant as specified in its charter)

 

Delaware                                       37-0602744

(State or other jurisdiction of incorporation)                 (IRS Employer I.D. No.)

5205 N. O'Connor Boulevard,  Suite 100,     Irving,     Texas     75039

(Address of principal executive offices)                 (Zip Code)

 

Registrant’s telephone number, including area code: (972) 891-7700

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report: N/A

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class                            Trading Symbol (s)         Name of each exchange on which registered

Common Stock ($1.00 par value)                             CAT                                                     New York Stock Exchange  ¹

8% Debentures due February 15, 2023                       CAT23                                                   New York Stock Exchange

5.3% Debentures due September 15, 2035                    CAT35                                                   New 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.

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     No 

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

   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and  “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer                                                                                                 Accelerated filer                                                 Non-accelerated filer                                                                                        Smaller 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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No

 

At September 30, 2022, 520,409,355 shares of common stock of the registrant were outstanding.

 

 

 

 

Table of Contents

 

 

Part I. Financial Information

Item 1.

Financial Statements

3

Item 2.

Management’s Discussion and Analysis of Financial Con

Operations

dition and Results of                   45

Item 3.

Quantitative and Qualitative Disclosures About Market R

isk                                               75

Item 4.

Controls and Procedures

75

 

Part II. Other Information

Item 1.

Legal Proceedings

76

Item 1A.

Risk Factors

76

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

76

Item 3.

Defaults Upon Senior Securities

*

Item 4. Item 5.

Mine Safety Disclosures

Other Information

*

*

Item 6.

Exhibits

77

 

* Item omitted because no answer is called for or item is not applicable.

 

 

 

Part I.  FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

Caterpillar Inc.

Consolidated Statement of Results of Operations

(Unaudited)

(Dollars in millions except per share data)

 

Three Months Ended

September 30

 

2022

 

2021

Sales and revenues:

Sales of Machinery, Energy & Transportation .....................................................................................

 

$   14,278

 

 

$   11,707

Revenues of Financial Products ...........................................................................................................

716

 

690

Total sales and revenues .......................................................................................................................

14,994

 

12,397

Operating costs:

Cost of goods sold ................................................................................................................................

 

10,202

 

 

8,617

Selling, general and administrative expenses .......................................................................................

1,401

 

1,340

Research and development expenses....................................................................................................

476

 

427

Interest expense of Financial Products .................................................................................................

151

 

111

Other operating (income) expenses ......................................................................................................

339

 

238

Total operating costs.............................................................................................................................

12,569

 

10,733

 

Operating profit ......................................................................................................................................

 

2,425

 

 

1,664

 

Interest expense excluding Financial Products.....................................................................................

109

 

114

Other income (expense)........................................................................................................................

242

 

225

 

Consolidated profit before taxes ............................................................................................................

 

2,558

 

 

1,775

 

Provision (benefit) for income taxes ....................................................................................................

527

 

368

Profit of consolidated companies .........................................................................................................

2,031

 

1,407

Equity in profit (loss) of unconsolidated affiliated companies.............................................................

9

 

21

 

Profit of consolidated and affiliated companies ...................................................................................

 

2,040

 

 

1,428

 

Less: Profit (loss) attributable to noncontrolling interests ........................................................................

(1)

 

2

 

Profit 1 ......................................................................................................................................................

 

$     2,041

 

 

$     1,426

Profit per common share ........................................................................................................................

$       3.89

 

$       2.62

 

Profit per common share – diluted 2 .....................................................................................................

 

$       3.87

 

 

$       2.60

 

Weighted-average common shares outstanding (millions)

 

 

 

– Basic ...............................................................................................................................................

525.0

 

544.0

– Diluted 2  .........................................................................................................................................

527.6

 

547.6

 

1     Profit attributable to common shareholders.

2    Diluted by assumed exercise of stock-based compensation awards using the treasury stock method.

 

See accompanying notes to Consolidated Financial Statements.

 

 

 

 

Caterpillar Inc.

Consolidated Statement of Comprehensive Income

(Unaudited) (Dollars in millions)

 

Three Months Ended

September 30

2022            2021

 

 

Profit of consolidated and affiliated companies...............................................................................................  $     2,040    $     1,428

Other comprehensive income (loss), net of tax (Note 13):

Foreign currency translation:.............................................................................................................................          (618)           (242) Pension and other postretirement benefits: ........................................................................................................              (1)               (8) Derivative financial instruments:.......................................................................................................................          (191)             (31) Available-for-sale securities: .............................................................................................................................            (44)               (5)

 

Total other comprehensive income (loss), net of tax ...........................................................................................          (854)           (286) Comprehensive income ........................................................................................................................................         1,186           1,142

Less: comprehensive income attributable to the noncontrolling interests............................................................              (1)                 2

Comprehensive income attributable to shareholders .....................................................................................  $     1,187    $     1,140

 

 

 

See accompanying notes to Consolidated Financial Statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and revenues:


Caterpillar Inc.

Consolidated Statement of Results of Operations

(Unaudited)

(Dollars in millions except per share data)

 

 

 

 

 

 

Nine Months Ended

September 30

2022           2021

 

Sales of Machinery, Energy & Transportation ........................................................................................

$  40,703

$  35,091

Revenues of Financial Products ..............................................................................................................

2,127

2,082

Total sales and revenues ..........................................................................................................................

42,830

37,173

 

Operating costs:

Cost of goods sold ...................................................................................................................................

29,736

25,510

Selling, general and administrative expenses ..........................................................................................

4,172

3,943

Research and development expenses.......................................................................................................

1,413

1,247

Interest expense of Financial Products ....................................................................................................

377

352

Other operating (income) expenses .........................................................................................................

908

854

Total operating costs................................................................................................................................

36,606

31,906

 

Operating profit .........................................................................................................................................

 

6,224

 

5,267

 

Interest expense excluding Financial Products........................................................................................

 

326

 

376

Other income (expense)...........................................................................................................................

755

751

 

Consolidated profit before taxes ...............................................................................................................

 

6,653

 

5,642

Provision (benefit) for income taxes .......................................................................................................

1,423

1,313

Profit of consolidated companies ............................................................................................................

5,230

4,329

 

Equity in profit (loss) of unconsolidated affiliated companies................................................................

 

20

 

44

 

Profit of consolidated and affiliated companies ......................................................................................

 

5,250

 

4,373

 

Less: Profit (loss) attributable to noncontrolling interests ...........................................................................

 

(1)

 

4

 

Profit 1 .........................................................................................................................................................

 

$    5,251

 

$    4,369

Profit per common share ...........................................................................................................................

 

$      9.91

 

$      8.00

 

Profit per common share – diluted 2 ........................................................................................................

 

$      9.85

 

$      7.94

 

Weighted-average common shares outstanding (millions)

 

 

– Basic ..................................................................................................................................................

530.1

545.8

– Diluted 2  ............................................................................................................................................

533.2

550.2

 

1     Profit attributable to common shareholders.

2    Diluted by assumed exercise of stock-based compensation awards using the treasury stock method.

See accompanying notes to Consolidated Financial Statements.

 

 

 

 

Caterpillar Inc.

Consolidated Statement of Comprehensive Income

(Unaudited) (Dollars in millions)

 

 

Nine Months Ended

September 30

2022            2021

 

 

Profit of consolidated and affiliated companies...............................................................................................  $     5,250    $     4,373

Other comprehensive income (loss), net of tax (Note 13):

Foreign currency translation:.............................................................................................................................       (1,392)           (490) Pension and other postretirement benefits: ........................................................................................................              (3)             (23) Derivative financial instruments:.......................................................................................................................          (254)             (19) Available-for-sale securities:                                                                                                                                        (151)             (20)

 

Total other comprehensive income (loss), net of tax ...........................................................................................       (1,800)           (552) Comprehensive income ........................................................................................................................................         3,450           3,821

Less: comprehensive income attributable to the noncontrolling interests............................................................              (1)                 4

Comprehensive income attributable to shareholders .....................................................................................  $     3,451    $     3,817

 

 

 

See accompanying notes to Consolidated Financial Statements.

 

 

 

 

 

 

 

 

 

 

 

 

Assets

Current assets:


Caterpillar Inc.

Consolidated Statement of Financial Position

(Unaudited) (Dollars in millions)

 

 

 

 

 

 

September 30,

2022

 

 

 

 

 

 

December 31,

2021

 

Cash and cash equivalents .............................................................................................................

$               6,346

 

$               9,254

Receivables – trade and other ........................................................................................................

8,158

 

8,477

Receivables – finance ....................................................................................................................

8,918

 

8,898

Prepaid expenses and other current assets .....................................................................................

2,295

 

2,788

Inventories......................................................................................................................................

16,860

 

14,038

Total current assets .............................................................................................................................

42,577

 

43,455

Property, plant and equipment – net ...................................................................................................

11,643

 

12,090

Long-term receivables – trade and other ............................................................................................

1,278

 

1,204

Long-term receivables – finance.........................................................................................................

11,859

 

12,707

Noncurrent deferred and refundable income taxes .............................................................................

2,218

 

1,840

Intangible assets ..................................................................................................................................

806

 

1,042

Goodwill .............................................................................................................................................

6,092

 

6,324

Other assets .........................................................................................................................................

4,434

 

4,131

Total assets.................................................................................................................................................

$             80,907

 

$             82,793

Liabilities

Current liabilities:

Short-term borrowings:

Machinery, Energy & Transportation ....................................................................................  $                      3     $                      9

Financial Products..................................................................................................................                   4,199                      5,395

Accounts payable ...........................................................................................................................                   8,260                      8,154

Accrued expenses...........................................................................................................................                   4,013                      3,757

Accrued wages, salaries and employee benefits ............................................................................                   2,204                      2,242

Customer advances ........................................................................................................................                   1,831                      1,087

Dividends payable..........................................................................................................................                                                 595

Other current liabilities ..................................................................................................................                   2,878                      2,256

Long-term debt due within one year:.............................................................................................

Machinery, Energy & Transportation ....................................................................................                      120                           45

Financial Products..................................................................................................................                   6,694                      6,307

Total current liabilities........................................................................................................................                 30,202                    29,847

 

Long-term debt due after one year:

Machinery, Energy & Transportation ....................................................................................                   9,479                      9,746

Financial Products..................................................................................................................                 16,030                    16,287

Liability for postemployment benefits................................................................................................                   5,038                      5,592

Other liabilities....................................................................................................................................                   4,536                      4,805

Total liabilities...........................................................................................................................................                 65,285                    66,277

Commitments and contingencies (Notes 11 and 14) Shareholders’ equity

Common stock of $1.00 par value: Authorized shares: 2,000,000,000

Issued shares: (9/30/22 and 12/31/21 – 814,894,624) at paid-in amount ...........................................                   6,523                      6,398

Treasury stock: (9/30/22 – 294,485,269 shares; 12/31/21 – 279,006,573 shares) at cost ..................                (30,883)                  (27,643) Profit employed in the business ..........................................................................................................                 43,304                    39,282

Accumulated other comprehensive income (loss) ..............................................................................                  (3,353)                    (1,553) Noncontrolling interests......................................................................................................................                        31                           32

Total shareholders’ equity .......................................................................................................................                 15,622                    16,516

Total liabilities and shareholders’ equity ...............................................................................................  $             80,907     $             82,793

 

See accompanying notes to Consolidated Financial Statements.

 

 

 

 

Caterpillar Inc.

Consolidated Statement of Changes in Shareholders’ Equity

(Unaudited) (Dollars in millions)

 

 

 

 

 

Three Months Ended September 30, 2021

 

 

Common stock

 

 

Treasury stock

 

Profit employed in the business

 

Accumulated other comprehensive income (loss)

 

 

Noncontrolling

interests             Total

 

Balance at June 30, 2021..................................................................  $     6,293    $   (25,240)   $   36,934    $              (1,154)   $                   47    $ 16,880

Profit of consolidated and affiliated companies.................................                                            1,426                                                       2          1,428

Foreign currency translation, net of tax .............................................                                                                         (242)                                     (242) Pension and other postretirement benefits, net of tax ........................                                                                             (8)                                         (8) Derivative financial instruments, net of tax .......................................                                                                           (31)                                       (31) Available-for-sale securities, net of tax..............................................                                                                             (5)                                         (5) Change in ownership from noncontrolling interests ..........................                                                                                                     (16)            (16) Dividends declared ............................................................................                                                   1                                                                      1

Distribution to noncontrolling interests..............................................                                                                                                       (2)              (2)

Common shares issued from treasury stock for stock-based

compensation: 80,571.........................................................................               (5)                   4                                                                                      (1)

Stock-based compensation expense ...................................................              58                                                                                                       58

Common shares repurchased: 6,610,438 1 .........................................                          (1,371)                                                                              (1,371) Other...................................................................................................                6                   (1)                                                                      (1)                4

Balance at September 30, 2021........................................................  $     6,352    $   (26,608)   $   38,361    $              (1,440)   $                   30    $ 16,695

 

Three Months Ended September 30, 2022

Balance at June 30, 2022..................................................................  $     6,464    $   (29,501)   $   41,263    $              (2,499)   $                   32    $ 15,759

Profit of consolidated and affiliated companies.................................                                            2,041                                                      (1)         2,040

Foreign currency translation, net of tax .............................................                                                                         (618)                                     (618) Pension and other postretirement benefits, net of tax ........................                                                                             (1)                                         (1) Derivative financial instruments, net of tax .......................................                                                                         (191)                                     (191) Available-for-sale securities, net of tax..............................................                                                                           (44)                                       (44)

Common shares issued from treasury stock for stock-based

compensation: 75,534.........................................................................               (5)                   4                                                                                      (1)

Stock-based compensation expense ...................................................              55                                                                                                       55

Common shares repurchased: 7,575,322 1 ........................................                          (1,385)                                                                              (1,385) Other...................................................................................................                9                   (1)                                                                                      8

Balance at September 30, 2022........................................................  $     6,523    $   (30,883)   $   43,304    $              (3,353)   $                   31    $ 15,622

 

 

1   See Note 12 for additional information.

 

 

 

 

See accompanying notes to Consolidated Financial Statements.

 

 

 

 

Caterpillar Inc.

Consolidated Statement of Changes in Shareholders’ Equity

(Unaudited) (Dollars in millions)

 

 

 

 

 

Nine Months Ended September 30, 2021

 

 

Common stock

 

 

Treasury stock

 

Profit employed in the business

 

Accumulated other comprehensive income (loss)

 

 

Noncontrolling

interests             Total

 

Balance at December 31, 2020 ......................................................  $     6,230    $   (25,178)   $   35,167    $                 (888)   $                   47    $ 15,378

Profit of consolidated and affiliated companies ..............................                                            4,369                                                       4          4,373

Foreign currency translation, net of tax...........................................                                                                         (490)                                     (490) Pension and other postretirement benefits, net of tax......................                                                                           (23)                                       (23) Derivative financial instruments, net of tax.....................................                                                                           (19)                                       (19) Available-for-sale securities, net of tax ...........................................                                                                           (20)                                       (20) Change in ownership from noncontrolling interests........................                                                                                                     (16)            (16) Dividends declared 1 ........................................................................                                           (1,175)                                                             (1,175) Distribution to noncontrolling interests...........................................                                                                                                       (4)              (4)

Common shares issued from treasury stock for stock-based

compensation: 3,410,146 ................................................................             (70)               192                                                                                   122

Stock-based compensation expense.................................................            169                                                                                                     169

Common shares repurchased: 7,772,393 2.......................................                          (1,622)                                                                              (1,622) Other ................................................................................................              23                                                                                         (1)              22

Balance at September 30, 2021 .....................................................  $     6,352    $   (26,608)   $   38,361    $              (1,440)   $                   30    $ 16,695

 

Nine Months Ended September 30, 2022

Balance at December 31, 2021 ......................................................  $     6,398    $   (27,643)   $   39,282    $              (1,553)   $                   32    $ 16,516

Profit of consolidated and affiliated companies ..............................                                            5,251                                                      (1)         5,250

Foreign currency translation, net of tax...........................................                                                                      (1,392)                                  (1,392) Pension and other postretirement benefits, net of tax......................                                                                             (3)                                         (3) Derivative financial instruments, net of tax.....................................                                                                         (254)                                     (254) Available-for-sale securities, net of tax ...........................................                                                                         (151)                                     (151) Dividends declared 1 ........................................................................                                           (1,229)                                                             (1,229)

Common shares issued from treasury stock for stock-based

compensation: 1,529,753 .................................................................             (67)                 69                                                                                       2

Stock-based compensation expense.................................................            162                                                                                                     162

Common shares repurchased: 17,007,819 2 ....................................                          (3,309)                                                                              (3,309) Other ................................................................................................              30                                                                                                       30

Balance at September 30, 2022 .....................................................  $     6,523    $   (30,883)   $   43,304    $              (3,353)   $                   31    $ 15,622

 

 

1   Dividends per share of common stock of $2.31 and $2.14 were declared in the nine months ended September 30, 2022 and 2021, respectively.

2   See Note 12 for additional information.

 

See accompanying notes to Consolidated Financial Statements.

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow from operating activities:


Caterpillar Inc. Consolidated Statement of Cash Flow (Unaudited)

(Millions of dollars)

 

 

 

 

 

Nine Months Ended September 30

2022                             2021

 

Profit of consolidated and affiliated companies ...................................................................  $                     5,250    $                       4,373

Adjustments for non-cash items:

Depreciation and amortization......................................................................................                         1,661                              1,766

Provision (benefit) for deferred income taxes ..............................................................                           (349)                              (321) Other .............................................................................................................................                            132                                 102

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

Receivables – trade and other.......................................................................................                            365                               (326) Inventories ....................................................................................................................                        (3,088)                           (2,195) Accounts payable..........................................................................................................                            786                              1,232

Accrued expenses .........................................................................................................                              70                                   46

Accrued wages, salaries and employee benefits...........................................................                              15                                 934

Customer advances .......................................................................................................                            751                                   39

Other assets – net..........................................................................................................                              57                                 138

Other liabilities – net ....................................................................................................                           (623)                                  (2) Net cash provided by (used for) operating activities.................................................................                         5,027                              5,786

 

Cash flow from investing activities:

Capital expenditures – excluding equipment leased to others..............................................                           (868)                              (673) Expenditures for equipment leased to others........................................................................                        (1,023)                           (1,014) Proceeds from disposals of leased assets and property, plant and equipment......................                            666                                 877

Additions to finance receivables...........................................................................................                        (9,914)                           (9,603) Collections of finance receivables........................................................................................                         9,738                              9,221

Proceeds from sale of finance receivables............................................................................                              50                                   44

Investments and acquisitions (net of cash acquired) ............................................................                             (44)                              (449) Proceeds from sale of businesses and investments (net of cash sold) ..................................                                1                                   23

Proceeds from sale of securities ...........................................................................................                         2,080                                 424

Investments in securities.......................................................................................................                        (2,399)                              (934) Other – net ............................................................................................................................                              15                                   (8) Net cash provided by (used for) investing activities .................................................................                        (1,698)                           (2,092)

 

Cash flow from financing activities:

Dividends paid......................................................................................................................                        (1,820)                           (1,733) Common stock issued, including treasury shares reissued...................................................                                2                                 122

Common shares repurchased ................................................................................................                        (3,309)                           (1,622) Proceeds from debt issued (original maturities greater than three months):

Machinery, Energy & Transportation...........................................................................                                                               494

Financial Products ........................................................................................................                         5,570                              6,437

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

Machinery, Energy & Transportation...........................................................................                             (20)                           (1,910) Financial Products ........................................................................................................                        (5,269)                           (6,710)

Short-term borrowings – net (original maturities three months or less)...............................                        (1,311)                            1,324

Other – net                                                                                                                                                           (1)                                  (4) Net cash provided by (used for) financing activities.................................................................                        (6,158)                           (3,602) Effect of exchange rate changes on cash ...................................................................................                             (79)                                  (9) Increase (decrease) in cash, cash equivalents and restricted cash ......................................                        (2,908)                                 83

Cash, cash equivalents and restricted cash at beginning of period............................................                         9,263                              9,366

Cash, cash equivalents and restricted cash at end of period......................................................  $                     6,355    $                       9,449

 

Cash equivalents primarily represent short-term, highly liquid investments with original maturities of generally three months or less.

 

See accompanying notes to Consolidated Financial Statements.

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

1.          A.  Nature of operations

 

Information in our financial statements and related commentary are presented in the following categories:

 

Machinery, Energy & Transportation (ME&T) – We define ME&T as Caterpillar Inc. and its subsidiaries, excluding Financial Products. ME&T’s information relates to the design, manufacturing and marketing of our products.

 

Financial  Products    We  define  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.

 

B.  Basis of presentation

 

In the opinion of management, the accompanying unaudited financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of (a) the consolidated results of operations for the three and nine months ended September 30, 2022 and 2021, (b) the consolidated comprehensive income for the three and nine months ended September 30, 2022 and 2021, (c) the consolidated financial position at September 30, 2022 and December 31, 2021, (d) the consolidated changes in shareholders’ equity for the three and nine months ended September 30, 2022 and 2021 and (e) the consolidated cash flow for the nine months ended September 30, 2022 and

2021.  The financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (U.S. GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).

 

Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with the audited financial statements and notes thereto included in our company’s annual report on Form 10-K for the year ended December 31, 2021 (2021 Form 10-K).

 

The December 31, 2021 financial position data included herein is derived from the audited consolidated financial statements included in the 2021 Form 10-K but does not include all disclosures required by U.S. GAAP.   Certain amounts for prior periods have been reclassified to conform to the current period financial statement presentation.

 

Cat Financial has end-user customers and dealers that are variable interest entities (VIEs) of which we are not the primary beneficiary. Our maximum exposure to loss from our involvement with these VIEs is limited to the credit risk inherently present in the financial support that we have provided. Credit risk was evaluated and reflected in our financial statements as part of our overall portfolio of finance receivables and related allowance for credit losses. See Note 11 for further discussions on a consolidated VIE.

 

2.          New accounting guidance

 

A.  Adoption of new accounting standards

 

We consider the applicability and impact of all ASUs. We adopted the following ASUs effective January 1, 2022, none of which had a material impact on our financial statements:

 

ASU            Description

2020-06       Debt with conversion and other options and derivatives and hedging

2021-05       Lessor - Variable lease payments

2021-10       Government assistance

 

 

 

B.  Accounting standards issued but not yet adopted

 

We consider the applicability and impact of all ASUs. We assessed the ASUs and determined that they either were not applicable or were not expected to have a material impact on our financial statements.

 

3.          Sales and revenue contract information

 

Trade receivables represent amounts due from dealers and end users for the sale of our products, and include amounts due from wholesale inventory financing provided by Cat Financial for a dealer’s purchase of inventory.  We recognize trade receivables from dealers (including wholesale inventory financing)  and end users in Receivables trade and other and Long-term receivables trade and other in the Consolidated Statement of Financial Position. Trade receivables from dealers and end users were $6,736 million, $7,267 million and $6,310 million as of September 30,

2022, December 31, 2021 and December 31, 2020, respectively.  Long-term trade receivables from dealers and end users  were  $448  million,  $624  million  and  $657  million  as  of  September  30,  2022,  December  31,  2021  and December 31, 2020, respectively.

 

We invoice in advance of recognizing the sale of certain products.  We recognize advanced customer payments as a contract liability in Customer advances and Other liabilities in the Consolidated Statement of Financial Position. Contract liabilities were $2,290 million, $1,557 million and $1,526 million as of September 30, 2022, December 31,

2021 and December 31, 2020, respectively.  We reduce the contract liability when revenue is recognized.  During the three and nine months ended September 30, 2022, we recognized $124 million and $781 million, respectively, of revenue that was recorded as a contract liability at the beginning of 2022.  During the three and nine months ended September 30, 2021, we recognized $121 million and $795 million, respectively, of revenue that was recorded as a contract liability at the beginning of 2021.

 

As of September 30, 2022, we have entered into contracts with dealers and end users for which sales have not been recognized as we have not satisfied our performance obligations and transferred control of the products.  The dollar amount of unsatisfied performance obligations for contracts with an original duration greater than one year is $10.9 billion, with about one-half of the amount expected to be completed and revenue recognized in the twelve months following September 30, 2022.   We have elected the practical expedient not to disclose unsatisfied performance obligations with an original contract duration of one year or less.  Contracts with an original duration of one year or less are primarily sales to dealers for machinery, engines and replacement parts.

 

See Note 16 for further disaggregated sales and revenues information.

 

4.          Stock-based compensation

 

Accounting for stock-based compensation requires that the cost resulting from all stock-based payments be recognized in the financial statements based on the grant date fair value of the award.  Our stock-based compensation consists of stock options, restricted stock units (RSUs) and performance-based restricted stock units (PRSUs).

 

We recognized pretax stock-based compensation expense of $55 million and $162 million for the three and nine months ended September 30, 2022, respectively, and $58 million and $169 million for the three and nine months ended September 30, 2021, respectively.

 

The following table illustrates the type and fair value of the stock-based compensation awards granted during the nine months ended September 30, 2022 and 2021, respectively:

 

 

Nine Months Ended September 30, 2022             Nine Months Ended September 30, 2021

 

 

 

Weighted-

 

Weighted-

 

 

Weighted-

 

Weighted-

Average Fair

Average Grant

 

Average Fair

Average Grant

 

Shares Granted

Value Per Share

Date Stock Price

Shares Granted

Value Per Share

Date Stock Price

Stock options........................

1,029,202

$            51.69

$           196.70

1,084,821

$            56.30

$         219.76

RSUs ....................................

484,025

$          196.70

$           196.70

448,311

$          219.76

$         219.76

PRSUs ..................................

258,900

$          196.70

$           196.70

266,894

$          219.76

$         219.76

 

 

 

The following table provides the assumptions used in determining the fair value of the stock-based awards for the nine months ended September 30, 2022 and 2021, respectively:

 

 

Grant Year

 

2022

2021

Weighted-average dividend yield........................................................................................

2.60%

2.60%

Weighted-average volatility ................................................................................................

31.7%

32.9%

Range of volatilities ............................................................................................................

25.3% - 36.8%

29.2% - 45.8%

Range of risk-free interest rates ..........................................................................................

1.03% - 2.00%

0.06% - 1.41%

Weighted-average expected lives........................................................................................

8 years

8 years

 

As of September 30, 2022, the total remaining unrecognized compensation expense related to nonvested stock-based compensation awards was $173 million, which will be amortized over the weighted-average remaining requisite service periods of approximately 1.8 years.

 

5.           Derivative financial instruments and risk management

 

Our earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates, interest rates and commodity prices.  Our Risk Management Policy (policy) allows for the use of derivative financial instruments to prudently manage foreign currency exchange rate, interest rate and commodity price exposures.  Our policy specifies that derivatives are not to be used for speculative purposes.  Derivatives that we use are primarily foreign currency forward, option and cross currency contracts, interest rate contracts and commodity forward and option contracts.  Our derivative activities are subject to the management, direction and control of our senior financial officers.  We present at least annually to the Audit Committee of the Board of Directors on our risk management practices, including our use of financial derivative instruments.

 

We recognize all derivatives at their fair value on the Consolidated Statement of Financial Position.  On the date the derivative contract is entered into, we designate the derivative as (1) a hedge of the fair value of a recognized asset or liability (fair value hedge), (2) a hedge of a forecasted transaction or the variability of cash flow (cash flow hedge) or (3) an undesignated instrument.   We record in current earnings changes in the fair value of a derivative that is qualified, designated and highly effective as a fair value hedge, along with the gain or loss on the hedged recognized asset or liability that is attributable to the hedged risk.  We record in Accumulated other comprehensive income (loss) (AOCI) changes in the fair value of a derivative that is qualified, designated and highly effective as a cash flow hedge, to the extent effective, on the Consolidated Statement of Financial Position until we reclassify them to earnings in the same period or periods during which the hedged transaction affects earnings.  We report changes in the fair value of undesignated derivative instruments in current earnings.  We classify cash flows from designated derivative financial instruments within the same category as the item being hedged on the Consolidated Statement of Cash Flow.   We include cash flows from undesignated derivative financial instruments in the investing category on the Consolidated Statement of Cash Flow.

 

We formally document all relationships between hedging instruments and hedged items, as well as the risk- management objective and strategy for undertaking various hedge transactions.   This process includes linking all derivatives that are designated as fair value hedges to specific assets and liabilities on the Consolidated Statement of Financial Position and linking cash flow hedges to specific forecasted transactions or variability of cash flow.

 

We also formally assess, both at the hedge’s inception and on an ongoing basis, whether the designated derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flow of hedged items.  When a derivative is determined not to be highly effective as a hedge or the underlying hedged transaction is no longer probable, we discontinue hedge accounting prospectively, in accordance with the derecognition criteria for hedge accounting.

 

Foreign Currency Exchange Rate Risk

 

Foreign currency exchange rate movements create a degree of risk by affecting the U.S. dollar value of sales made and costs incurred in foreign currencies.  Movements in foreign currency rates also affect our competitive position as these changes may affect business practices and/or pricing strategies of non-U.S.-based competitors.  Additionally, we have balance sheet positions denominated in foreign currencies, thereby creating exposure to movements in exchange rates.

 

 

 

 

Our ME&T operations purchase, manufacture and sell products in many locations around the world.  As we have a diversified revenue and cost base, we manage our future foreign currency cash flow exposure on a net basis.  We use foreign currency forward and option contracts to manage unmatched foreign currency cash inflow and outflow.  Our objective is to minimize the risk of exchange rate movements that would reduce the U.S. dollar value of our foreign currency cash flow.  Our policy allows for managing anticipated foreign currency cash flow for up to approximately five  years.  As  of  September  30,  2022,  the  maximum  term  of  these  outstanding  contracts  at  inception  was approximately 60 months.

 

We generally designate as cash flow hedges at inception of the contract any foreign currency forward or option contracts that meet the requirements for hedge accounting and the maturity extends beyond the current quarter-end. We perform designation on a specific exposure basis to support hedge accounting.  The remainder of ME&T foreign currency contracts are undesignated.

 

In managing foreign currency risk for our Financial Products operations, our objective is to minimize earnings volatility resulting from conversion and the remeasurement of net foreign currency balance sheet positions and future transactions denominated in foreign currencies.  Our policy allows the use of foreign currency forward, option and cross currency contracts to offset the risk of currency mismatch between our assets and liabilities and exchange rate risk associated with future transactions denominated in foreign currencies.  Our foreign currency forward and option contracts are primarily undesignated.   We designate fixed-to-fixed cross currency contracts as cash flow hedges to protect against movements in exchange rates on foreign currency fixed-rate assets and liabilities.

 

Interest Rate Risk

 

Interest rate movements create a degree of risk by affecting the amount of our interest payments and the value of our fixed-rate debt.  Our practice is to use interest rate contracts to manage our exposure to interest rate changes.

 

Our ME&T operations generally use fixed-rate debt as a source of funding.  Our objective is to minimize the cost of borrowed  funds.    Our  policy  allows  us  to  enter  into  fixed-to-floating  interest  rate  contracts  and  forward  rate agreements to meet that objective.   We designate fixed-to-floating interest rate contracts as fair value hedges at inception of the contract, and we designate certain forward rate agreements as cash flow hedges at inception of the contract.

 

Financial Products operations has a match-funding policy that addresses interest rate risk by aligning the interest rate profile (fixed or floating rate and duration) of Cat Financial’s debt portfolio with the interest rate profile of our receivables portfolio within predetermined ranges on an ongoing basis.  In connection with that policy, we use interest rate derivative instruments to modify the debt structure to match assets within the receivables portfolio.  This matched funding reduces the volatility of margins between interest-bearing assets and interest-bearing liabilities, regardless of which direction interest rates move.

 

Our policy allows us to use fixed-to-floating, floating-to-fixed and floating-to-floating interest rate contracts to meet the match-funding objective.  We designate fixed-to-floating interest rate contracts as fair value hedges to protect debt against changes in fair value due to changes in the benchmark interest rate.   We designate most floating-to-fixed interest rate contracts as cash flow hedges to protect against the variability of cash flows due to changes in the benchmark interest rate.

 

We have, at certain times, liquidated fixed-to-floating and floating-to-fixed interest rate contracts at both ME&T and Financial Products.   We amortize the gains or losses associated with these contracts at the time of liquidation into earnings over the original term of the previously designated hedged item.

 

Commodity Price Risk

 

Commodity price movements create a degree of risk by affecting the price we must pay for certain raw materials.  Our policy is to use commodity forward and option contracts to manage the commodity risk and reduce the cost of purchased materials.

 

Our  ME&T  operations  purchase  base  and  precious  metals  embedded  in  the  components  we  purchase  from suppliers.  Our suppliers pass on to us price changes in the commodity portion of the component cost.  In addition, we are subject to price changes on energy products such as natural gas and diesel fuel purchased for operational use.

 

 

 

 

Our objective  is  to  minimize  volatility  in  the  price  of  these  commodities.    Our  policy  allows  us  to  enter  into commodity forward and option contracts to lock in the purchase price of a portion of these commodities within a five- year horizon.  All such commodity forward and option contracts are undesignated.

 

The location and fair value of derivative instruments reported in the Consolidated Statement of Financial Position were as follows:

 

 

(Millions of dollars)                                                                                            Fair Value

September 30, 2022                                           December 31, 2021

Assets1                                  Liabilities2                                  Assets1                                  Liabilities2

 

Designated derivatives

Foreign exchange contracts...............

 

 

$                        692

 

 

 

$                       (394)

 

 

 

$                        228

 

 

 

$                         (64)

Interest rate contracts ........................

94

 

(302)

 

38

 

(15)

Total ..................................................

$                        786

 

$                       (696)

 

$                        266

 

$                         (79)

 

 

Undesignated derivatives

Foreign exchange contracts...............

 

 

 

$                        118

 

 

 

 

$                         (78)

 

 

 

 

$                          46

 

 

 

 

$                         (42)

Commodity contracts ........................

9

 

(43)

 

30

 

(9)

Total ..................................................

$                        127

 

$                       (121)

 

$                          76

 

$                         (51)

 

 

1 Assets are classified on the Consolidated Statement of Financial Position as Receivables - trade and other or Long-term receivables - trade and other.

 

2 Liabilities are classified on the Consolidated Statement of Financial Position as Accrued expenses or Other liabilities.

 

The total notional amounts of the derivative instruments as of September 30, 2022 and December 31, 2021 were

$24.8 billion and $18.9 billion, respectively. The notional amounts of the derivative financial instruments do not represent amounts exchanged by the parties.  We calculate the amounts exchanged by the parties by referencing the notional amounts and by other terms of the derivatives, such as foreign currency exchange rates, interest rates or commodity prices.

 

Gains  (Losses) on derivative instruments are categorized as follows:

 

 

(Millions of dollars)                                                                      Three Months Ended September 30

 

Fair Value / Undesignated

Hedges                                                       Cash Flow Hedges

 

 

Gains (Losses) Recognized on the Consolidated Statement of Results of Operations1

 

Gains (Losses) Recognized in AOCI

 

Gains (Losses) Reclassified from AOCI2

 

2022                      2021                  2022                2021                2022               2021

Foreign exchange contracts .............  $                   (2)     $                46      $           18      $           42      $         289      $          90

Interest rate contracts.......................                        (5)                         5                    26                      3                      7                   (5) Commodity contracts.......................                      (42)                      (30)                                                                            — Total.................................................  $                 (49)     $                21      $           44      $           45      $         296      $          85

 

 

1 Foreign exchange contract and Commodity contract gains (losses) are included in Other income (expense).  Interest rate contract gains (losses)

are primarily included in Interest expense of Financial Products.

 

2 Foreign exchange contract gains (losses) are primarily included in Other income (expense) in the Consolidated Statement of Results of Operations. Interest rate contract gains (losses) are primarily included in Interest expense of Financial Products in the Consolidated Statement of Results of Operations.

 

 

 

(Millions of dollars)                                                                        Nine Months Ended September 30

 

 

 

 

 

 

 

Foreign exchange contracts................ Interest rate contracts ......................... Commodity contract...........................

Total ...................................................

 

1 Foreign exchange contract and Commodity contract gains (losses) are included in Other income (expense).  Interest rate contract gains (losses)

are primarily included in Interest expense excluding Financial Products.

2 Foreign exchange contract gains (losses) are primarily included in Other income (expense).  Interest rate contract gains (losses) are primarily included in Interest expense excluding Financial Products.

 

 

The following amounts were recorded on the Consolidated Statement of Financial Position related to cumulative basis adjustments for fair value hedges:

 

 

 

 

(Millions of dollars)

 

Carrying Value of the Hedged

Liabilities


Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Value of the Hedged Liabilities

 

 

 

September 30,

 

 

 

September 30,

 

2022

 

December 31, 2021

 

2022

 

December 31, 2021

Long-term debt due within one year...

$                     

 

$                       755

 

$                       

 

$                            5

Long-term debt due after one year .....

3,796

 

1,304

 

(227)

 

(2)

Total....................................................

$                3,796

 

$                    2,059

 

$                   (227)

 

$                            3

 

 

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

 

Collateral is typically not required of the counterparties or of our company under the master netting agreements.  As of September 30, 2022 and December 31, 2021, no cash collateral was received or pledged under the master netting agreements.

 

The effect of the net settlement provisions of the master netting agreements on our derivative balances upon an event of default or termination event was as follows:

 

(Millions of dollars)

September 30, 2022

 

December 31, 2021

 

Assets                     Liabilities

 

Assets                     Liabilities

Gross Amounts Recognized.......................

$                      913

 

$                    (817)

 

$                      342

 

$                    (130)

Financial Instruments Not Offset...............

Cash Collateral Received...........................

(282)

 

282

 

(114)

 

114

Net Amount................................................

$                      631

 

$                    (535)

 

$                      228

 

$                      (16)

 

 

 

6.           Inventories

 

Inventories (principally using the last-in, first-out (LIFO) method) were comprised of the following:

 

 

(Millions of dollars)                                                                                                              September 30,

2022


December 31,

2021

 

Raw materials ..................................................................................................................  $                    6,335    $                     5,528

Work-in-process ..............................................................................................................                         1,836                            1,318

Finished goods.................................................................................................................                         8,387                            6,907

Supplies ...........................................................................................................................                            302                               285

Total inventories ..............................................................................................................  $                  16,860    $                   14,038

 

 

 

7.           Intangible assets and goodwill

 

A.  Intangible assets

 

Intangible assets were comprised of the following:

 

 

 

(Millions of dollars)                                                                                     Weighted

 

Gross


September 30, 2022

 

Amortizable

Life (Years)


Carrying

Amount


Accumulated

Amortization         Net

 

Customer relationships.............................................................................           16             $     2,183    $           (1,604)   $       579

Intellectual property .................................................................................           12                     1,470                  (1,287)             183

Other ........................................................................................................           16                        128                       (84)               44

Total finite-lived intangible assets ...........................................................           14             $     3,781    $           (2,975)   $       806

 

 

 

 

Weighted Amortizable Life (Years)

 

 

Gross Carrying Amount


December 31, 2021

 

Accumulated

Amortization         Net

 

Customer relationships.............................................................................           15             $     2,421    $           (1,709)   $       712

Intellectual property .................................................................................           12                     1,472                  (1,192)             280

Other ........................................................................................................           14                        156                     (106)               50

Total finite-lived intangible assets ...........................................................           14             $     4,049    $           (3,007)   $    1,042

 

 

 

Amortization expense for the three and nine months ended September 30, 2022 was $70 million and $213 million, respectively.  Amortization expense for the three and nine months ended September 30, 2021 was $75 million and

$228 million, respectively.  Amortization expense related to intangible assets is expected to be:

 

 

 

(Millions of dollars)

 

Remaining Three

Months of 2022

 

2023

 

2024

 

2025

 

2026

 

Thereafter

$70

$222

$163

$153

$85

$113

 

B.  Goodwill

 

No goodwill was impaired during the nine months ended September 30, 2022 or 2021.

 

 

 

The changes in carrying amount of goodwill by reportable segment for the nine months ended September 30, 2022 were as follows:

 

 

 

(Millions of dollars)                                                     December 31,

2021                  Acquisitions


Other

Adjustments 1


September 30,

2022

 

Construction Industries

Goodwill ...........................................................    $                    302    $                              $                     (39)   $                    263

Impairments ......................................................                           (22)                                                                                    (22) Net goodwill......................................................                          280                                                            (39)                          241

Resource Industries

Goodwill ...........................................................                       4,182                                                          (127)                       4,055

Impairments ......................................................                      (1,175)                                                                               (1,175) Net goodwill......................................................                       3,007                                                          (127)                       2,880

Energy & Transportation

Goodwill ...........................................................                       2,985                            25                            (81)                       2,929

All Other 2

Goodwill ...........................................................                            52                                                        (10)                            42

Consolidated total

Goodwill ...........................................................

7,521

25

(257)

7,289

Impairments ......................................................

(1,197)

(1,197)

Net goodwill......................................................

$                 6,324

$                      25

$                   (257)

$                 6,092

 

 

1   Other adjustments are comprised primarily of foreign currency translation.

2    Includes All Other operating segment (See Note 16).

 

 

 

 

8.           Investments in debt and equity securities

 

We have investments in certain debt and equity securities, which we record at fair value and primarily include in Other assets in the Consolidated Statement of Financial Position.

 

We classify debt securities primarily as available-for-sale. We include the unrealized gains and losses arising from the revaluation of available-for-sale debt securities, net of applicable deferred income taxes, in equity (AOCI in the Consolidated Statement of Financial Position).  We include the unrealized gains and losses arising from the revaluation of the equity securities in Other income (expense) in the Consolidated Statement of Results of Operations.   We generally determine realized gains and losses on sales of investments using the specific identification method for available-for-sale debt and equity securities and include them in Other income (expense) in the Consolidated Statement of Results of Operations.

 

The cost basis and fair value of available-for-sale debt securities with unrealized gains and losses included in equity

(AOCI in the Consolidated Statement of Financial Position) were as follows:

 

 

 

 

Available-for-sale debt securities                                     September 30, 2022                                  December 31, 2021

 

 

 

(Millions of dollars)


Unrealized

Pretax Net


Unrealized

Pretax Net

 

 

 

Government debt securities

U.S. treasury bonds .........................................

$           10

$             

$           10

$           10

$             

$           10

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

51

(2)

49

61

61

Corporate debt securities

Corporate bonds and other debt securities ......

2,156

(108)

2,048

1,027

19

1,046

Asset-backed securities ...................................

185

(5)

180

175

1

176

 

Mortgage-backed debt securities

U.S. governmental agency ..............................

384

(36)

348

319

6

325

Residential.......................................................

3

3

4

4

Commercial .....................................................

139

(10)

129

98

1

99

Total available-for-sale debt securities...........

$      2,928

$          (161)

$      2,767

$      1,694

$             27

$      1,721

 

 

Available-for-sale debt securities in an unrealized loss position:

 

September 30, 2022

Less than 12 months 1                  12 months or more 1                                         Total

 

 

(Millions of dollars)

Fair

Value

Unrealized

Losses

Fair

Value

Unrealized

Losses

Fair

Value

Unrealized

Losses

Government debt securities

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

 

$            31

 

$               1

 

$          15

 

$               1

 

$          46

 

$              2

 

Corporate debt securities

 

 

 

 

 

 

Corporate bonds .............................................

1,774

75

218

33

1,992

108

Asset-backed securities ..................................

102

4

35

1

137

5

 

Mortgage-backed debt securities

 

 

 

 

 

 

U.S. governmental agency .............................

293

27

51

9

344

36

Commercial ....................................................

88

7

41

3

129

10

 

$       2,288

$           114

$        360

$             47

$     2,648

$          161

 

 

 

 

(Millions of dollars) Corporate debt securities


December 31, 2021

Less than 12 months 1                 12 months or more 1                                           Total

 

Corporate bonds ...............................................  $          270    $              4    $            33    $              1    $          303    $              5

 

Mortgage-backed debt securities

U.S. governmental agency ...............................                89                    1                  22                                   111                     1

Total ....................................................................  $          359    $              5    $            55    $              1    $          414    $              6

 

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

 

The unrealized losses on our investments in government debt securities, corporate debt securities, and mortgage- backed debt securities relate to changes in interest rates and credit-related yield spreads since time of purchase.  We do not intend to sell the investments, and it is not likely that we will be required to sell the investments before recovery of their respective amortized cost basis. In addition, we did not expect credit-related losses on these investments as of September 30, 2022.

 

 

 

The cost basis and fair value of available-for-sale debt securities at September 30, 2022, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because borrowers may have the right to prepay and creditors may have the right to call obligations.

 

September 30, 2022

 

(Millions of dollars)

Cost Basis

Fair Value

Due in one year or less ...................................................................................................................

$                696

$                687

Due after one year through five years ............................................................................................

1,354

1,277

Due after five years through ten years............................................................................................

282

256

Due after ten years..........................................................................................................................

70

67

U.S. governmental agency mortgage-backed securities.................................................................

384

348

Residential mortgage-backed securities .........................................................................................

3

3

Commercial mortgage-backed securities........................................................................................

139

129

Total debt securities – available-for-sale........................................................................................

$             2,928

$             2,767

 

 

Sales of available-for-sale debt securities:

 

 

Three Months Ended

September 30

 

 

Nine Months Ended

September 30

 

(Millions of dollars)                                                                            2022                   2021                   2022                    2021

Proceeds from the sale of available-for-sale securities ..............  $               204    $                97    $               474    $               322

Gross gains from the sale of available-for-sale securities..........                                             1                          1                          3

Gross losses from the sale of available-for-sale securities.........                                                                     1                        

 

 

We did not have any investments classified as held-to-maturity debt securities as of September 30, 2022. We had $964 million of investments in time deposits classified as held-to-maturity debt securities as of December 31, 2021. All these investments mature within one year and we include them in Prepaid expenses and other current assets in the Consolidated Statement of Financial Position.   We record held-to-maturity debt securities at amortized cost, which approximates fair value.

 

For the three months ended September 30, 2022 and 2021, the net unrealized gains (losses) for equity securities held at

September 30, 2022 and 2021 were $(12) million and $46 million, respectively.  For the nine months ended

September 30, 2022 and 2021, the net unrealized gains (losses) for equity securities held at September 30, 2022 and

2021 were $(97) million and $65 million, respectively.

 

 

 

9.           Postretirement benefits

 

A.  Pension and postretirement benefit costs

 

 

U.S. Pension

Benefits

 

Non-U.S. Pension

Benefits

 

Other Postretirement Benefits

 

September 30            September 30            September 30 (Millions of dollars)                                                                        2022          2021          2022          2021          2022          2021

For the three months ended:

Components of net periodic benefit cost:

Service cost ..............................................................................  $           $           $       15    $    15       $       24    $    25

Interest cost ..............................................................................         100          82                 17          16                 20          16

Expected return on plan assets ................................................        (167)      (180)              (33)        (33)                (3)          (1)

Amortization of prior service cost (credit)...............................                                                                  (1)        (11) Net periodic benefit cost (benefit) 1 .........................................  $      (67)   $  (98)      $        (1)   $    (2)      $       40    $    29

 

For the nine months ended:

Components of net periodic benefit cost:

Service cost ..............................................................................

$       

$    

$       40

$    44

$       74

$    75

Interest cost ..............................................................................

301

247

53

43

60

48

Expected return on plan assets ................................................

(502)

(538)

(100)

(98)

(9)

(4)

Amortization of prior service cost (credit)...............................

(4)

(31)

Net periodic benefit cost (benefit) 1 .........................................

$    (201)

$ (291)

$        (7)

$  (11)

$     121

$    88

 

1    The service cost component is included in Operating costs in the Consolidated Statement of Results of Operations.  All other components are included in Other income (expense) in the Consolidated Statement of Results of Operations.

 

 

We made $44 million and $299 million of contributions to our pension and other postretirement plans during the three and nine months ended September 30, 2022.  We currently anticipate full-year 2022 contributions of approximately

$357 million.

 

B.  Defined contribution benefit costs

 

Total  company  costs  related  to  our  defined  contribution  plans,  which  are  included  in  Operating  Costs  in  the

Consolidated Statement of Results of Operations, were as follows:

 

 

Three Months Ended

September 30


Nine Months Ended September

30

 

(Millions of dollars)                                                                      2022                   2021                     2022                       2021

U.S. Plans.............................................................................  $                 87    $                81    $                  236    $                  321

Non-U.S. Plans.....................................................................                     29                       29                           85                           83

$               116    $              110    $                  321    $                  404

 

 

The decrease in the U.S. defined contribution benefit costs for the nine months ended September 30, 2022 was primarily due to the fair value adjustments related to our non-qualified deferred compensation plans.

 

 

 

10.         Leases

 

Revenues  from  finance  and  operating  leases,  primarily  included  in  Revenues  of  Financial  Products  on  the

Consolidated Statement of Results of Operations, were as follows:

 

 

Three Months Ended September 30    Nine Months Ended September 30

 

(Millions of dollars)

2022

 

2021

 

2022

 

2021

 

Finance lease revenue...............................................

$

105

$

120

$

326

$

369

Operating lease revenue............................................

 

270

 

275

 

819

 

850

Total..........................................................................

$

375

$

395

$

1,145

$

1,219

 

We present revenues net of sales and other related taxes.

 

11.         Guarantees and product warranty

 

Caterpillar dealer performance guarantees

We have provided an indemnity to a third-party insurance company for potential losses related to performance bonds issued on behalf of Caterpillar dealers.  The bonds have varying terms and are issued to insure governmental agencies against nonperformance by certain dealers.  We also provided guarantees to third-parties related to the performance of contractual obligations by certain Caterpillar dealers.   These guarantees have varying terms and cover potential financial losses incurred by the third parties resulting from the dealers’ nonperformance.

 

In 2016, we provided a guarantee to an end user related to the performance of contractual obligations by a Caterpillar dealer.  Under the guarantee, which was set to expire in 2025, non-performance by the Caterpillar dealer could require Caterpillar to satisfy the contractual obligations by providing goods, services or financial compensation to the end user up to an annual designated cap. This guarantee was terminated during the first quarter of 2022. No payments were made under the guarantee.

 

Supplier consortium performance guarantee

We provided a guarantee to a customer in Europe related to the performance of contractual obligations by a supplier consortium to which one of our Caterpillar subsidiaries was a member.   The guarantee covered potential damages incurred by the customer resulting from the supplier consortium's non-performance.  The damages were capped except for failure of the consortium to meet certain obligations outlined in the contract in the normal course of business.  The guarantee expired during the second quarter of 2022.

 

We have dealer performance guarantees and third-party performance guarantees that do not limit potential payment to end users related to indemnities and other commercial contractual obligations.   In addition, we have entered into contracts involving industry standard indemnifications that do not limit potential payment.   For these unlimited guarantees, we are unable to estimate a maximum potential amount of future payments that could result from claims made.

 

No significant loss has been experienced or is anticipated under any of these guarantees.  At September 30, 2022 and December 31, 2021, the related recorded liability was $3 million and $5 million, respectively.  The maximum potential amount of future payments that we can estimate (undiscounted and without reduction for any amounts that may possibly be recovered under recourse or collateralized provisions) and we could be required to make under the guarantees was as follows:

 

 

 

(Millions of dollars)

 

September 30,

2022

 

December 31,

2021

Caterpillar dealer performance guarantees.................................................................

$                            137

$                          747

Supplier consortium performance guarantee..............................................................

17

242

Other guarantees.........................................................................................................

284

232

Total guarantees .........................................................................................................

$                            438

$                       1,221

 

 

 

Cat Financial provides guarantees to purchase certain loans of Caterpillar dealers from a special-purpose corporation (SPC) that qualifies as a variable interest entity.  The purpose of the SPC is to provide short-term working capital loans to Caterpillar dealers.  This SPC issues commercial paper and uses the proceeds to fund its loan program. Cat Financial receives a fee for providing this guarantee.  Cat Financial is the primary beneficiary of the SPC as its guarantees result in Cat Financial having both the power to direct the activities that most significantly impact the SPC’s economic performance and the obligation to absorb losses, and therefore Cat Financial has consolidated the financial statements of the SPC.  As of September 30, 2022 and December 31, 2021, the SPC’s assets of $1.09 billion and $888 million, respectively, were primarily comprised of loans to dealers, and the SPC’s liabilities of $1.09 billion and $888 million, respectively, were primarily comprised of commercial paper.   The assets of the SPC are not available to pay Cat Financial’s creditors.  Cat Financial may be obligated to perform under the guarantee if the SPC experiences losses. No loss has been experienced or is anticipated under this loan purchase agreement.

 

We determine our product 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.

 

The reconciliation of the change in our product warranty liability balances for the nine months ended September 30 was as follows:

 

 

First Nine Months

 

(Millions of dollars)

 

2022

 

2021

Warranty liability, beginning of period ............................................................................................

$              1,689

$             1,612

Reduction in liability (payments) .....................................................................................................

(589)

(638)

Increase in liability (new warranties) ..............................................................................................

562

716

Warranty liability, end of period ......................................................................................................

$              1,662

$             1,690

 

 

12.          Profit per share

 

 

 

Computations of profit per share:

 

Three Months Ended         Nine Months Ended

September 30                     September 30

2022               2021              2022             2021

(Dollars in millions except per share data)

Profit for the period (A) 1 ...................................................................................

$       2,041

$        1,426

$     5,251

$       4,369

Determination of shares (in millions):

 

 

 

 

Weighted-average number of common shares outstanding (B) ......................

525.0

544.0

530.1

545.8

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

 

2.6

 

3.6

 

3.1

 

4.4

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

527.6

547.6

533.2

550.2

Profit per share of common stock:

Assuming no dilution (A/B) ............................................................................

 

 

$         3.89

 

 

$          2.62

 

 

$       9.91

 

 

$         8.00

Assuming full dilution (A/C) 2.........................................................................

$         3.87

$          2.60

$       9.85

$         7.94

Shares outstanding as of September 30 (in millions) .........................................

 

 

520.4

540.9

 

1 Profit attributable to common shareholders.

2 Diluted by assumed exercise of stock-based compensation awards using the treasury stock method.

 

 

For the three and nine months ended September 30, 2022 and 2021, we excluded 2.1 million and 1.1 million of outstanding stock options, respectively, from the computation of diluted earnings per share because the effect would have been antidilutive.

 

 

 

For the three and nine months ended September 30, 2022, we repurchased 7.6 million and 17.0 million shares of Caterpillar common stock, respectively, at an aggregate cost of $1.4 billion and $3.3 billion, respectively. For the three and nine months ended September 30, 2021, we repurchased 6.6 million and 7.8 million shares of Caterpillar common stock, respectively, at an aggregate cost of $1.4 billion and $1.6 billion, respectively. We made these purchases through a combination of accelerated stock repurchase agreements with third-party financial institutions and open market transactions.

 

In July 2018, the Board approved a share repurchase authorization (the 2018 Authorization) of up to $10.0 billion of Caterpillar common stock effective January 1, 2019, with no expiration. In May 2022, the Board approved a new share repurchase authorization (the 2022 Authorization) of up to $15.0 billion of Caterpillar common stock effective August

1, 2022, with no expiration. Utilization of the 2022 Authorization for all share repurchases commenced on August 1,

2022, leaving approximately $70 million unutilized under the 2018 Authorization as of September 30, 2022. As  of

September 30, 2022, $13.7 billion remained available under the 2022 Authorization.

 

 

13.       Accumulated other comprehensive income (loss)

 

We present comprehensive income and its components in the Consolidated Statement of Comprehensive Income. Changes in the balances for each component of AOCI were as follows:

 

 

 

Three Months Ended

September 30


Nine Months Ended

September 30

 

(Millions of dollars)                                                                            2022                   2021                  2022                  2021

Foreign currency translation:

Beginning balance......................................................................  $        (2,282)  $       (1,158)  $       (1,508)  $         (910) Gains (losses) on foreign currency translation ........................                 (592)               (230)            (1,328)              (461) Less: Tax provision /(benefit)..................................................                     26                    12                    64                  29

Net gains (losses) on foreign currency translation .............                 (618)               (242)            (1,392)              (490) (Gains) losses reclassified to earnings ....................................                                                                               Less: Tax provision /(benefit) .................................................                                                                               Net (gains) losses reclassified to earnings ............................                                                                               

Other comprehensive income (loss), net of tax .........................                 (618)               (242)            (1,392)              (490)

Ending balance...........................................................................  $        (2,900)  $       (1,400)  $       (2,900)  $      (1,400)

 

Pension and other postretirement benefits

Beginning balance......................................................................  $             (64)  $            (47)  $            (62)  $           (32) Current year prior service credit (cost)....................................                                                                               Less: Tax provision /(benefit)..................................................                                                                               

Net current year prior service credit (cost).........................                                                                               Amortization of prior service (credit) cost..............................                      (1)                 (11)                   (4)                (31) Less: Tax provision /(benefit) .................................................                                         (3)                   (1)                  (8) Net amortization of prior service (credit) cost......................                      (1)                   (8)                   (3)                (23)

Other comprehensive income (loss), net of tax .........................                      (1)                   (8)                   (3)                (23)

Ending balance...........................................................................  $             (65)  $            (55)  $            (65)  $           (55)

 

Derivative financial instruments

Beginning balance......................................................................

$             (66)

$              12

$              (3)

$            

Gains (losses) deferred ............................................................

44

45

298

141

Less: Tax provision /(benefit)..................................................

35

3

71

22

Net gains (losses) deferred .................................................

9

42

227

119

(Gains) losses reclassified to earnings ....................................

(296)

(85)

(636)

(164)

Less: Tax provision /(benefit) .................................................

(96)

(12)

(155)

(26)

Net (gains) losses reclassified to earnings ............................

(200)

(73)

(481)

(138)

Other comprehensive income (loss), net of tax .........................

(191)

(31)

(254)

(19)

Ending balance...........................................................................

$           (257)

$            (19)

$          (257)

$           (19)

 

Available-for-sale securities

Beginning balance......................................................................  $             (87)  $              39    $             20    $            54

Gains (losses) deferred ............................................................                   (55)                   (4)               (188)                (22) Less: Tax provision /(benefit)..................................................                   (11)                                    (37)                  (4) Net gains (losses) deferred .................................................                   (44)                   (4)               (151)                (18) (Gains) losses reclassified to earnings ....................................                                         (1)                                     (3) Less: Tax provision /(benefit) .................................................                                                                                (1) Net (gains) losses reclassified to earnings ............................                                         (1)                                     (2) Other comprehensive income (loss), net of tax .........................                   (44)                   (5)               (151)                (20)

Ending balance...........................................................................  $           (131)  $              34    $          (131)  $            34

 

Total AOCI Ending Balance at September 30 .................  $        (3,353)  $       (1,440)  $       (3,353)  $      (1,440)

 

 

 

14.         Environmental and legal matters

 

The Company is regulated by federal, state and international environmental laws governing its 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,  we accrue the investigation, remediation, and operating and maintenance costs against our earnings. We accrue costs based on consideration of currently available data and information with respect to each individual site, including available technologies, current applicable laws and regulations, and prior remediation experience. Where no amount within a range of estimates is more likely, we accrue the minimum. Where multiple potentially responsible parties are involved, we consider our proportionate share of the probable costs. In formulating the estimate of probable costs, we do not consider amounts expected to be recovered from insurance companies or others. We reassess these accrued amounts on a quarterly basis. The amount recorded for environmental remediation is not material and is included in Accrued expenses in the Consolidated Statement of Financial Position. We believe there is no more than a remote chance that a material amount for remedial activities at any individual site, or at all the sites in the aggregate, will be required.

 

On January 7, 2015, the Company received a grand jury subpoena from the U.S. District Court for the Central District of Illinois. The subpoena requested documents and information from the Company relating to, among other things, financial information concerning U.S. and non-U.S. Caterpillar subsidiaries (including undistributed profits of non- U.S. subsidiaries and the movement of cash among U.S. and non-U.S. subsidiaries). The Company has received additional subpoenas relating to this investigation requesting additional documents and information relating to, among other things, the purchase and resale of replacement parts by Caterpillar Inc. and non-U.S. Caterpillar subsidiaries, dividend distributions of certain non-U.S. Caterpillar subsidiaries, and Caterpillar SARL (CSARL) and related structures.  On March 2-3, 2017, agents with the Department of Commerce, the Federal Deposit Insurance Corporation and the Internal Revenue Service executed search and seizure warrants at three facilities of the Company in the Peoria, Illinois area, including its former corporate headquarters. The warrants identify, and agents seized, documents and information related to, among other things, the export of products from the United States, the movement of products between the United States and Switzerland, the relationship between Caterpillar Inc. and CSARL, and sales outside the United States. It is the Company’s understanding that the warrants, which concern both tax and export activities, are related to the ongoing grand jury investigation. The Company is continuing to cooperate with this investigation. The Company is unable to predict the outcome or reasonably estimate any potential loss; however, we currently believe that this matter will not have a material adverse effect on the Company’s consolidated results of operations, financial position or liquidity.

 

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

 

15.         Income taxes

 

The provision for income taxes for the nine months ended September 30, 2022, reflected an estimated annual tax rate of 23 percent, compared with 25 percent for the nine months ended September 30, 2021, excluding the discrete items discussed below. The comparative tax rate for full-year 2021 was approximately 23 percent.

 

 

 

On September 8, 2022, the company reached a settlement with the U.S. Internal Revenue Service (IRS) that resolves all issues for tax years 2007 through 2016, without any penalties. The company's settlement includes, among other issues, the resolution of disputed tax treatment of profits earned by Caterpillar SARL (CSARL) from certain parts transactions. We vigorously contested the IRS's application of the "substance-over-form" or "assignment-of-income" judicial doctrines and its proposed increases to tax and imposition of accuracy related penalties. The settlement does not include any increases to tax in the United States based on those judicial doctrines and does not include any penalties. The final tax assessed by the IRS for all issues under the settlement was $490 million for the ten-year period. This amount was primarily paid in the nine months ending September 30, 2022, and the associated estimated interest of $250 million is expected to be paid by the end of 2022. The settlement was within the total amount of gross unrecognized tax benefits for uncertain tax positions and enables us to avoid the costs and burdens of further disputes with the IRS. As a result of the settlement, we recorded a discrete tax benefit of $41 million to reflect changes in estimates of prior years' taxes and related interest, net of tax. We are subject to the continuous examination of our income tax returns by the IRS, and tax years subsequent to 2016 are not yet under examination.

 

In the nine months ended September 30, 2022, the company also recorded discrete tax benefits of $49 million to reflect other changes in estimates related to prior years' U.S. taxes, compared to $36 million in the nine months ended September 30, 2021. In addition, the company recorded a discrete tax benefit of $18 million for the settlement of stock-based compensation awards with associated tax deductions in excess of cumulative U.S. GAAP compensation expense, compared with a $61 million benefit for the nine months ended September 30, 2021.

 

 

16.         Segment information

 

A.   Basis for segment information

 

Our Executive Office is comprised of a Chief Executive Officer (CEO), four Group Presidents, a Chief Financial Officer (CFO), a Chief Legal Officer and General Counsel and a Chief Human Resources Officer.   The Group Presidents and CFO are accountable for a related set of end-to-end businesses that they manage.   The Chief Legal Officer and General Counsel leads the Law, Security and Public Policy Division.  The Chief Human Resources Officer leads the Human Resources Organization.   The CEO allocates resources and manages performance at the Group President/CFO level.  As such, the CEO serves as our Chief Operating Decision Maker, and operating segments are primarily based on the Group President/CFO reporting structure.

 

Three of our operating segments, Construction Industries, Resource Industries and Energy & Transportation are led by Group Presidents.   One operating segment, Financial Products, is led by the CFO who also has responsibility for Corporate Services.  Corporate Services is a cost center primarily responsible for the performance of certain support functions globally and to provide centralized services; it does not meet the definition of an operating segment.  One Group President leads one smaller operating segment that is included in the All Other operating segment.  The Law, Security and Public Policy Division and the Human Resources Organization are cost centers and do not meet the definition of an operating segment.

 

Segment information for 2021 has been recast due to a methodology change related to how we assign intersegment sales and segment profit from our technology products and services to Construction Industries, Resource Industries and Energy & Transportation. This methodology change did not have a material impact on our segment results.

 

B.   Description of segments

 

We have five operating segments, of which four are reportable segments. Following is a brief description of our reportable segments and the business activities included in the All Other operating segment:

 

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; forestry machines; material handlers; motor graders; pipelayers; road reclaimers;  skid  steer  loaders;  telehandlers;  small  and  medium  track-type  tractors;  track-type  loaders;  wheel excavators; compact, small and medium wheel loaders; and related parts and work tools. Inter-segment sales are a source of revenue for this segment.

 

 

 

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 strategic procurement, lean center of excellence, integrated manufacturing,  research  and  development  for  hydraulic  systems,  automation,  electronics  and  software  for  Cat machines and engines.  Inter-segment sales are a source of revenue for this segment.

 

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, development and testing 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 and solutions used in the electric power generation industry; reciprocating engines, drivetrain and integrated systems and solutions for the marine and oil and gas industries; reciprocating engines, drivetrain and integrated systems and solutions supplied to the industrial industry as well as Cat machinery; electrified powertrain and zero-emission power sources and service solutions development; 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.  Inter-segment sales are a source of revenue for this segment.

 

Financial Products Segment:   Provides financing alternatives 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. 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 ME&T, 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.

 

All Other operating 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.  Results for the All Other operating segment are included as a reconciling item between reportable segments and consolidated external reporting.

 

C.   Segment measurement and reconciliations

 

There are several methodology differences between our segment reporting and our external reporting.  The following is a list of the more significant methodology differences:

 

 ME&T  segment  net  assets  generally  include  inventories,  receivables,  property,  plant  and  equipment, goodwill, intangibles, accounts payable and customer advances.  We generally manage at the corporate level liabilities other than accounts payable and customer advances, and we do not include these in segment operations.  Financial Products Segment assets generally include all categories of assets.

 

 

 

             We value segment inventories and cost of sales using a current cost methodology.

 

 We amortize goodwill allocated to segments using a fixed amount based on a 20-year useful life.   This methodology difference only impacts segment assets. We do not include goodwill amortization expense in segment profit.  In addition, we have allocated to segments only a portion of goodwill for certain acquisitions made in 2011 or later.

 

 We generally manage currency exposures for ME&T at the corporate level and do not include in segment profit the effects of changes in exchange rates on results of operations within the year.  We report the net difference created in the translation of revenues and costs between exchange rates used for U.S. GAAP reporting and exchange rates used for segment reporting as a methodology difference.

 

             We do not include stock-based compensation expense in segment profit.

 

 Postretirement benefit expenses are split; segments are generally responsible for service costs, with the remaining elements of net periodic benefit cost included as a methodology difference.

 

 We determine ME&T segment profit on a pretax basis and exclude interest expense and most other income/ expense items.  We determine Financial Products Segment profit on a pretax basis and include other income/ expense items.

 

Reconciling items are created based on accounting differences between segment reporting and our consolidated external  reporting.  Please  refer  to  pages  30  to  33  for  financial  information  regarding  significant  reconciling items.   Most of our reconciling items are self-explanatory given the above explanations.   For the reconciliation of profit, we have grouped the reconciling items as follows:

 

 Corporate costs:   These costs are related to corporate requirements primarily for compliance and legal functions for the benefit of the entire organization.

 

 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. See Note 20 for more information.

 

 Methodology differences:  See previous discussion of significant accounting differences between segment reporting and consolidated external reporting.

 

 Timing:   Timing differences in the recognition of costs between segment reporting and consolidated external reporting.  For example, we report certain costs on the cash basis for segment reporting and the accrual basis for consolidated external reporting.

 

For the three and nine months ended September 30, 2022 and 2021, sales and revenues by geographic region reconciled to consolidated sales and revenues were as follows:

 

 

 

Sales and Revenues by Geographic Region

 

(Millions of dollars)                                               North

America

 

 

Latin

America     EAME

 

 

 

Asia/ Pacific

 

 

External Sales and Revenues

 

 

Intersegment Sales and Revenues

 

 

Total Sales and Revenues

 

Three Months Ended September 30, 2022

Construction Industries...............................    $     3,106    $       799    $   1,247    $   1,084    $      6,236     $                40     $       6,276

Resource Industries.....................................           1,122              472            526             893            3,013                        74              3,087

Energy & Transportation ............................           2,422              468         1,280             827            4,997                   1,189              6,186

Financial Products Segment .......................              522                90            100             107               819  1                                               819

Total sales and revenues from reportable

segments ..........................................................           7,172           1,829         3,153          2,911          15,065                   1,303            16,368

All Other operating segment.......................                16                                4               15                 35                        68                 103

Corporate Items and Eliminations ..............              (53)             (20)            (12)            (21)             (106)                (1,371)            (1,477)

Total Sales and Revenues..............................    $     7,135    $    1,809    $   3,145    $   2,905    $    14,994     $                     $     14,994

 

Three Months Ended September 30, 2021

Construction Industries...............................    $     2,417    $       528    $   1,240    $   1,076    $      5,261     $                 (6)   $       5,255

Resource Industries.....................................              674              417            456             744            2,291                        75              2,366

Energy & Transportation ............................           1,924              329         1,144             744            4,141                      936              5,077

Financial Products Segment .......................              478                68            105             111               762  1                                               762

Total sales and revenues from reportable

segments ..........................................................

5,493

1,342

2,945

2,675

12,455

 

1,005

 

13,460

All Other operating segment.......................

18

3

14

35

 

84

 

119

Corporate Items and Eliminations ..............

(56)

(13)

(9)

(15)

(93)

 

(1,089)

 

(1,182)

Total Sales and Revenues..............................

$     5,455

$    1,329

$   2,939

$   2,674

$    12,397

 

$                

 

$     12,397

 

1   Includes revenues from Construction Industries, Resource Industries, Energy & Transportation and All Other operating segment of $124 million and

$87 million in the three months ended September 30, 2022 and 2021, respectively.

 

Sales and Revenues by Geographic Region

 

(Millions of dollars)                                              North

America

 

 

Latin

America     EAME

 

 

 

Asia/ Pacific

 

 

External Sales and Revenues

 

 

Intersegment Sales and Revenues

 

 

Total Sales and Revenues

 

Nine Months Ended September 30, 2022

Construction Industries...............................    $    8,832     $    2,061    $  3,726    $    3,694    $   18,313     $              111    $     18,424

Resource Industries.....................................          3,167            1,337        1,609           2,554           8,667                      211             8,878

Energy & Transportation ............................          6,637            1,160        3,679           2,193         13,669                   3,260           16,929

Financial Products Segment .......................          1,530               250           293              327           2,400  1                                           2,400

Total sales and revenues from reportable

segments ..........................................................        20,166            4,808        9,307           8,768         43,049                   3,582           46,631

All Other operating segment.......................               52                              14                46              112                      227                339

Corporate Items and Eliminations ..............            (175)              (59)           (33)             (64)            (331)                (3,809)           (4,140)

Total Sales and Revenues..............................

 

 

 

Nine Months Ended September 30, 2021


$  20,043     $    4,749    $  9,288    $    8,750    $   42,830     $                    $     42,830

 

Construction Industries...............................    $    7,041     $    1,350    $  3,612    $    4,302    $   16,305     $                65    $     16,370

Resource Industries.....................................          2,130            1,309        1,455           1,965           6,859                      232             7,091

Energy & Transportation ............................          5,698               835        3,433           1,953         11,919                   2,640           14,559

Financial Products Segment .......................          1,442               195           301              359           2,297  1                                           2,297

Total sales and revenues from reportable

segments ..........................................................

16,311

 

3,689

8,801

8,579

37,380

 

2,937

40,317

All Other operating segment.......................

42

 

1

10

54

107

 

270

377

Corporate Items and Eliminations ..............

(188)

 

(36)

(27)

(63)

(314)

 

(3,207)

(3,521)

Total Sales and Revenues..............................

$  16,165

 

$    3,654

$  8,784

$    8,570

$   37,173

 

$                

$     37,173

 

1   Includes revenues from Construction Industries, Resource Industries, Energy & Transportation and All Other operating segment of $332 million and

$263 million in the nine months ended September 30, 2022 and 2021, respectively.

 

 

 

For the three and nine months ended September 30, 2022 and 2021, Energy & Transportation segment sales by end user application were as follows:

 

Energy & Transportation External Sales

 

 

Three Months Ended September 30      Nine Months Ended September 30

 

 

(Millions of dollars)

2022

 

2021

 

2022

 

2021

 

Oil and gas ...........................................................................

$

1,323

$

1,088

$

3,503

$

3,140

Power generation .................................................................

 

1,320

 

1,010

 

3,518

 

3,025

Industrial..............................................................................

 

1,158

 

948

 

3,295

 

2,660

Transportation......................................................................

 

1,196

 

1,095

 

3,353

 

3,094

Energy & Transportation External Sales........................    $                 4,997    $                 4,141    $               13,669    $               11,919

 

 

 

 

Reconciliation of Consolidated profit before taxes:

 

 

(Millions of dollars)                                                                   Three Months Ended September 30    Nine Months Ended September 30

 

 

2022

2021

2022

2021

Profit from reportable segments:

 

 

 

 

Construction Industries........................................................

$                1,209

$                    866

$                3,255

$               2,937

Resource Industries..............................................................

506

280

1,222

941

Energy & Transportation .....................................................

935

706

2,132

2,119

Financial Products Segment ................................................

220

173

675

660

Total profit from reportable segments ......................................

2,870

2,025

7,284

6,657

Profit from All Other operating segment..................................

8

5

42

(2)

Cost centers...............................................................................

(37)

19

1

51

Corporate costs .........................................................................

(168)

(189)

(670)

(576)

Timing ......................................................................................

(84)

(40)

(129)

(230)

Restructuring costs ................................................................... Methodology differences:

(49)

(35)

(90)

(124)

Inventory/cost of sales .........................................................

138

73

407

80

Postretirement benefit expense............................................

82

116

293

270

Stock-based compensation expense.....................................

(55)

(58)

(162)

(169)

Financing costs ....................................................................

(75)

(103)

(269)

(342)

Currency ..............................................................................

53

19

315

255

Other income/expense methodology differences ................