CATERPILLAR INC.
Caterpillar Inc.
Table of Contents
Part I. Financial Information
Part II. Other Information
* 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
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:
Consolidated Statement of Results of Operations (Unaudited) (Dollars in millions except per share data)
Nine Months Ended September 30 2022 2021
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:
Consolidated Statement of Financial Position (Unaudited) (Dollars in millions)
September 30, 2022
December 31, 2021
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 EndedSeptember 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 EndedSeptember 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 EndedSeptember 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 declared1........................................................................ — — (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 EndedSeptember 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 declared1........................................................................ — — (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:
(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 CaterpillarFinancial ServicesCorporation(Cat Financial)andCaterpillarInsurance HoldingsInc.(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 andninemonthsendedSeptember30,2022and2021,(c)theconsolidatedfinancialpositionatSeptember30,2022 and December 31, 2021, (d) the consolidated changes in shareholders’ equity for the three and nine months ended September30,2022and2021and(e)theconsolidatedcashflowfortheninemonthsendedSeptember30,2022and 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 resultsare not necessarilyindicative ofresultsfora full year.The informationincludedinthisForm 10-Q shouldbe readinconjunctionwiththe auditedfinancial statementsandnotestheretoincludedinourcompany’sannual 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 statementsincludedinthe2021Form10-KbutdoesnotincludealldisclosuresrequiredbyU.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 primarybeneficiary.Ourmaximum exposure tolossfrom ourinvolvement withthese VIEsislimitedtothe 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 inventoryfinancingprovidedbyCat Financial fora dealer’spurchase ofinventory. We recognize tradereceivablesfromdealers(includingwholesaleinventoryfinancing) andendusersinReceivables–tradeand otherandLong-term receivables–trade andotherinthe ConsolidatedStatement ofFinancial Position.Trade receivablesfromdealersandenduserswere$6,736million,$7,267millionand$6,310millionasofSeptember30, 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. Contractliabilitieswere$2,290million,$1,557millionand$1,526millionasofSeptember30,2022,December31, 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 followingSeptember30,2022. Wehaveelectedthepracticalexpedientnottodiscloseunsatisfiedperformance obligationswithanoriginalcontractdurationofoneyearorless. Contractswithanoriginaldurationofoneyearor 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
Accountingforstock-basedcompensationrequiresthat the cost resultingfrom all stock-basedpaymentsbe recognized inthe financial statementsbasedonthe grant date fairvalue ofthe award. Ourstock-basedcompensationconsistsof stock options, restricted stock units (RSUs) and performance-based restricted stock units (PRSUs).
Werecognizedpretaxstock-basedcompensationexpenseof$55millionand$162millionforthethreeandnine monthsendedSeptember30,2022,respectively,and$58millionand$169millionforthethreeandninemonths ended September 30, 2021, respectively.
The followingtable illustratesthe type andfairvalue ofthe stock-basedcompensationawardsgrantedduringthe nine months ended September 30, 2022 and 2021, respectively:
Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021
Thefollowingtableprovidestheassumptionsusedindeterminingthefairvalueofthestock-basedawardsforthenine months ended September 30, 2022 and 2021, respectively:
Grant Year
AsofSeptember30,2022,the total remainingunrecognizedcompensationexpense relatedtononvestedstock-based compensationawardswas$173million,whichwillbeamortizedovertheweighted-averageremainingrequisite 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 derivativeactivitiesaresubjecttothemanagement,directionandcontrolofourseniorfinancialofficers. Wepresent 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)anundesignatedinstrument. Werecordincurrentearningschangesinthefairvalueofaderivativethatis qualified,designatedandhighlyeffective asa fairvalue hedge,alongwiththe gainorlossonthe hedgedrecognized 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 instrumentswithinthesamecategoryastheitembeinghedgedontheConsolidatedStatementofCashFlow. We include cashflowsfrom undesignatedderivative financial instrumentsinthe investingcategoryonthe Consolidated Statement of Cash Flow.
We formallydocument all relationshipsbetweenhedginginstrumentsandhedgeditems,aswell asthe risk- managementobjectiveandstrategyforundertakingvarioushedgetransactions. Thisprocessincludeslinkingall 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 areusedinhedgingtransactionsarehighlyeffectiveinoffsettingchangesinfairvaluesorcashflowofhedged items. When a derivative is determined not to be highly effective as a hedge or the underlying hedged transaction is no longerprobable,wediscontinuehedgeaccountingprospectively,inaccordancewiththederecognitioncriteriafor 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 costsincurredinforeigncurrencies. Movementsinforeigncurrencyratesalsoaffect ourcompetitive positionasthese changesmayaffect businesspracticesand/orpricingstrategiesofnon-U.S.-basedcompetitors. 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 diversifiedrevenue andcost base,we manage ourfuture foreigncurrencycashflowexposure ona 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 generallydesignate ascashflowhedgesat inceptionofthe contract anyforeigncurrencyforwardoroption contractsthatmeettherequirementsforhedgeaccountingandthematurityextendsbeyondthecurrentquarter-end. We perform designationona specific exposure basistosupport hedge accounting. The remainderofME&T foreign currency contracts are undesignated.
InmanagingforeigncurrencyriskforourFinancialProductsoperations,ourobjectiveistominimizeearnings volatility resulting from conversion and the remeasurement of net foreign currency balance sheet positions and future transactionsdenominatedinforeigncurrencies. Ourpolicyallowstheuseofforeigncurrencyforward,optionand crosscurrencycontractstooffsettheriskofcurrencymismatchbetweenourassetsandliabilitiesandexchangerate risk associated with future transactions denominated in foreign currencies. Our foreign currency forward and option contractsareprimarilyundesignated. Wedesignatefixed-to-fixedcrosscurrencycontractsascashflowhedgesto 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 agreementstomeetthatobjective. Wedesignatefixed-to-floatinginterestratecontractsasfairvaluehedgesat inceptionofthe contract,andwe designate certainforwardrate agreementsascashflowhedgesat inceptionofthe contract.
Financial Products operations has a match-funding policy that addresses interest rate risk by aligning the interest rate profile (fixedorfloatingrate andduration)ofCat Financial’sdebt portfoliowiththe interest rate profile ofour receivablesportfoliowithinpredeterminedrangesonanongoingbasis. Inconnectionwiththat policy,we use interest rate derivative instrumentstomodifythe debt structure tomatchassetswithinthe receivablesportfolio. Thismatched funding reduces the volatility of margins between interest-bearing assets and interest-bearing liabilities, regardless of which direction interest rates move.
Ourpolicyallowsustousefixed-to-floating,floating-to-fixedandfloating-to-floatinginterestratecontractstomeet the match-fundingobjective. We designate fixed-to-floatinginterest rate contractsasfairvalue hedgestoprotect debt againstchangesinfairvalueduetochangesinthebenchmarkinterestrate. Wedesignatemostfloating-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 FinancialProducts. Weamortizethegainsorlossesassociatedwiththesecontractsatthetimeofliquidationinto 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.
Ourobjective 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
1Assets are classified on the Consolidated Statement of Financial Position as Receivables - trade and other or Long-term receivables - trade and other.
2Liabilities are classified on the Consolidated Statement of Financial Position as Accrued expenses or Other liabilities.
ThetotalnotionalamountsofthederivativeinstrumentsasofSeptember30,2022andDecember31,2021were $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 amountsandbyothertermsofthe derivatives,suchasforeigncurrencyexchange rates,interest ratesor 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
1Foreign 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.
2Foreign 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...................................................
1Foreign 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. 2Foreign 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
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 September30,2022andDecember31,2021,nocashcollateral wasreceivedorpledgedunderthe masternetting agreements.
Theeffectofthenetsettlementprovisionsofthemasternettingagreementsonourderivativebalancesuponanevent of default or termination event was as follows:
6. Inventories
Inventories (principally using the last-in, first-out (LIFO) method) were comprised of the following:
(Millions of dollars) September 30, 2022
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
Amortizable Life (Years)
Amount
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
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
AmortizationexpenseforthethreeandninemonthsendedSeptember30,2022was$70millionand$213million, respectively. AmortizationexpenseforthethreeandninemonthsendedSeptember30,2021was$75millionand $228 million, respectively. Amortization expense related to intangible assets is expected to be:
B. Goodwill
No goodwill was impaired during the nine months ended September 30, 2022 or 2021.
ThechangesincarryingamountofgoodwillbyreportablesegmentfortheninemonthsendedSeptember30,2022 were as follows:
(Millions of dollars) December 31, 2021 Acquisitions
Adjustments1
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 Other2 Goodwill........................................................... 52 — (10) 42 Consolidated total
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 investmentsincertaindebt andequitysecurities,whichwe recordat fairvalue andprimarilyinclude inOther assets in the Consolidated Statement of Financial Position.
We classifydebt securitiesprimarilyasavailable-for-sale.We include the unrealizedgainsandlossesarisingfrom the revaluationofavailable-for-sale debt securities,net ofapplicable deferredincome taxes,inequity(AOCIinthe Consolidated Statement of Financial Position). We include the unrealized gains and losses arising from the revaluation oftheequitysecuritiesinOtherincome(expense)intheConsolidatedStatementofResultsofOperations. 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.
Thecostbasisandfairvalueofavailable-for-saledebtsecuritieswithunrealizedgainsandlossesincludedinequity (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)
Pretax Net
Pretax Net
Government debt securities
Corporate debt securities
Available-for-sale debt securities in an unrealized loss position:
September 30, 2022 Less than 12 months1 12 months or more1 Total
(Millions of dollars) Corporate debt securities
Less than 12 months1 12 months or more1 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
1Indicates the length of time that individual securities have been in a continuous unrealized loss position.
The unrealizedlossesonourinvestmentsingovernment debt securities,corporate debt securities,andmortgage- 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 theirrespective amortizedcost basis.Inaddition,we didnot expect credit-relatedlossesonthese investmentsasof 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
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 millionofinvestmentsintimedepositsclassifiedasheld-to-maturitydebtsecuritiesasofDecember31,2021.All these investments mature within one year and we include them in Prepaid expenses and other current assets in the ConsolidatedStatementofFinancialPosition. Werecordheld-to-maturitydebtsecuritiesatamortizedcost,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:
1 TheservicecostcomponentisincludedinOperatingcostsintheConsolidatedStatementofResultsofOperations. Allother components are included in Other income (expense) in the Consolidated Statement of Results of Operations.
Wemade$44millionand$299millionofcontributionstoourpensionandotherpostretirementplansduringthethree andninemonthsendedSeptember30,2022. Wecurrentlyanticipatefull-year2022contributionsofapproximately $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
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
ThedecreaseintheU.S.definedcontributionbenefitcostsfortheninemonthsendedSeptember30,2022was 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
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 bycertaindealers. We alsoprovidedguaranteestothird-partiesrelatedtothe performance of contractualobligationsbycertainCaterpillardealers. Theseguaranteeshavevaryingtermsandcoverpotential 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 uptoanannualdesignatedcap.Thisguaranteewasterminatedduringthefirstquarterof2022.Nopaymentswere 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 consortiumtowhichoneofourCaterpillarsubsidiarieswasamember. Theguaranteecoveredpotentialdamages incurred by the customer resulting from the supplier consortium's non-performance. The damages were capped except forfailure ofthe consortium tomeet certainobligationsoutlinedinthe contract inthe normal course ofbusiness. 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 endusersrelatedtoindemnitiesandothercommercialcontractualobligations. Inaddition,wehaveenteredinto contractsinvolvingindustrystandardindemnificationsthatdonotlimitpotentialpayment. Fortheseunlimited 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:
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 andthe obligationtoabsorblosses,andtherefore Cat Financial hasconsolidatedthe financial statements ofthe SPC. AsofSeptember30,2022andDecember31,2021,the SPC’sassetsof$1.09billionand$888million, respectively, were primarily comprised of loans to dealers, and the SPC’s liabilities of $1.09 billion and $888 million, respectively,wereprimarilycomprisedofcommercialpaper. TheassetsoftheSPCarenotavailabletopayCat Financial’screditors. CatFinancialmaybeobligatedtoperformundertheguaranteeiftheSPCexperienceslosses. 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 anddealerinventory. Generally,webasehistoricalclaimratesonactualwarrantyexperienceforeachproductby machinemodel/enginesizebycustomerordealerlocation(insideoroutsideNorthAmerica). Wedevelopspecific rates for each product shipment month and update them monthly based on actual warranty claim experience.
ThereconciliationofthechangeinourproductwarrantyliabilitybalancesfortheninemonthsendedSeptember30 was as follows:
First Nine Months
12. Profit per share
1Profit attributable to common shareholders. 2Diluted 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,atanaggregatecostof$1.4billionand$1.6billion,respectively.Wemadethesepurchases 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 repurchaseauthorization(the2022Authorization)ofupto$15.0billionofCaterpillarcommonstockeffectiveAugust 1,2022,withnoexpiration.Utilizationofthe2022AuthorizationforallsharerepurchasescommencedonAugust1, 2022,leavingapproximately$70millionunutilizedunderthe2018AuthorizationasofSeptember30,2022.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
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
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 disposalofsubstancesandcontrolofemissions.Inadditiontogoverningourmanufacturingandotheroperations, 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 otherthings,the purchase andresale ofreplacement partsbyCaterpillarInc.andnon-U.S.Caterpillarsubsidiaries, dividend distributions of certain non-U.S. Caterpillar subsidiaries, and Caterpillar SARL (CSARL) and related structures. OnMarch2-3,2017,agentswiththe Department ofCommerce,the Federal Deposit Insurance Corporation andthe Internal Revenue Service executedsearchandseizure warrantsat three facilitiesofthe Companyinthe Peoria, Illinois area, including its former corporate headquarters. The warrants identify, and agents seized, documents and informationrelatedto,amongotherthings,the export ofproductsfrom the UnitedStates,the movement ofproducts between the United States and Switzerland, the relationship between Caterpillar Inc. and CSARL, and sales outside the UnitedStates.It isthe Company’sunderstandingthat the warrants,whichconcernbothtaxandexport activities,are related to the ongoing grand jury investigation. The Company is continuing to cooperate with this investigation. The Companyisunabletopredicttheoutcomeorreasonablyestimateanypotentialloss;however,wecurrentlybelieve 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 ofthese unresolvedactionsinvolve disputesrelatedtoproduct design,manufacture andperformance 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 ofaccruedliabilities,ifany,associatedwiththese unresolvedlegal actionsisnot material.Insome 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
TheprovisionforincometaxesfortheninemonthsendedSeptember30,2022,reflectedanestimatedannualtaxrate 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.
OnSeptember8,2022,thecompanyreachedasettlementwiththeU.S.InternalRevenueService(IRS)thatresolves 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" judicialdoctrinesanditsproposedincreasestotaxandimpositionofaccuracyrelatedpenalties.Thesettlementdoes 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. ThisamountwasprimarilypaidintheninemonthsendingSeptember30,2022,andtheassociatedestimatedinterest of$250millionisexpectedtobe paidbythe endof2022.The settlement waswithinthe total amount ofgross 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.
Inthe nine monthsendedSeptember30,2022,the companyalsorecordeddiscrete taxbenefitsof$49milliontoreflect otherchangesinestimatesrelatedtoprioryears'U.S.taxes,comparedto$36millioninthe nine monthsended September30,2021.Inaddition,thecompanyrecordedadiscretetaxbenefitof$18millionforthesettlementof 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
OurExecutive Office iscomprisedofa ChiefExecutive Officer(CEO),fourGroupPresidents,a ChiefFinancial Officer(CFO),aChiefLegalOfficerandGeneralCounselandaChiefHumanResourcesOfficer. TheGroup PresidentsandCFOareaccountableforarelatedsetofend-to-endbusinessesthattheymanage. TheChiefLegal Officer and General Counsel leads the Law, Security and Public Policy Division. The Chief Human Resources Officer leadstheHumanResourcesOrganization. TheCEOallocatesresourcesandmanagesperformanceattheGroup 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 ofouroperatingsegments,ConstructionIndustries,Resource IndustriesandEnergy& Transportationare ledby GroupPresidents. Oneoperatingsegment,FinancialProducts,isledbytheCFOwhoalsohasresponsibilityfor 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 salesandsegmentprofitfromourtechnologyproductsandservicestoConstructionIndustries,ResourceIndustries 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 includeslarge track-type tractors; large miningtrucks; hardrockvehicles; longwall miners; electric rope shovels; draglines; hydraulic shovels; rotary drills; large wheel loaders; off-highway trucks; articulated trucks; wheel tractor scrapers;wheeldozers;landfillcompactors;soilcompactors;selectworktools;machinerycomponents;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 andproduct support.The product andservicesportfolioincludesturbines,centrifugal gascompressors,andturbine- related services; reciprocating engine-powered generator sets; integrated systems and solutions used in the electric powergenerationindustry;reciprocatingengines,drivetrainandintegratedsystemsandsolutionsforthemarineand 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; anddiesel-electric locomotivesandcomponentsandotherrail-relatedproductsandservices,including remanufacturingandleasing.ResponsibilitiesalsoincludetheremanufacturingofCaterpillarreciprocatingengines 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 ProductsSegment: Providesfinancingalternativestocustomersanddealersaroundthe worldfor Caterpillarproductsandservices,aswell asfinancingforvehicles,powergenerationfacilitiesandmarine vesselsthat, 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, extendedservice coverage andmaintenance plansformachinesandengines,anddealerpropertyandcasualty 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 relatedcostsarenotallocatedtooperatingsegments.FinancialProducts’segmentprofitisdeterminedonapretax basis and includes other income/expense items.
AllOtheroperatingsegment: Primarilyincludesactivitiessuchas:businessstrategy;productmanagementand development; manufacturingandsourcingoffiltersandfluids,undercarriage,ground-engagingtools,fluidtransfer 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 whollyowneddealerinJapan;dealerportfoliomanagementandensuringthemostefficientandeffectivedistribution of machines, engines and parts; brand management and marketing strategy; and digital investments for new customer anddealersolutionsthatintegratedataanalyticswithstate-of-the-artdigitaltechnologieswhiletransformingthe 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
Thereareseveralmethodologydifferencesbetweenoursegmentreportingandourexternalreporting. Thefollowing 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.
• Weamortizegoodwillallocatedtosegmentsusingafixedamountbasedona20-yearusefullife. This methodologydifference onlyimpactssegment assets.We donot include goodwill amortizationexpense in segment profit. Inaddition,we have allocatedtosegmentsonlya portionofgoodwill forcertainacquisitions made in 2011 or later.
• WegenerallymanagecurrencyexposuresforME&Tatthecorporatelevelanddonotincludeinsegment profit the effects of changes in exchange rates on results of operations within the year. We report the net difference createdinthe translationofrevenuesandcostsbetweenexchange ratesusedforU.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.
• Postretirementbenefitexpensesaresplit;segmentsaregenerallyresponsibleforservicecosts,withthe remaining elements of net periodic benefit cost included as a methodology difference.
• WedetermineME&Tsegmentprofitonapretaxbasisandexcludeinterestexpenseandmostotherincome/ expense items. We determine Financial Products Segment profit on a pretax basis and include other income/ expense items.
Reconcilingitemsarecreatedbasedonaccountingdifferencesbetweensegmentreportingandourconsolidated external reporting. Please refer to pages 30 to 33 for financial information regarding significant reconciling items. Mostofourreconcilingitemsareself-explanatorygiventheaboveexplanations. Forthereconciliationof profit, we have grouped the reconciling items as follows:
• Corporatecosts: Thesecostsarerelatedtocorporaterequirementsprimarilyforcomplianceandlegal functions for the benefit of the entire organization.
• Restructuringcosts: Mayincludecostsforemployeeseparation,long-livedassetimpairmentsandcontract terminations. These costsare includedinOtheroperating(income)expensesexcept fordefined-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.
• Methodologydifferences: Seepreviousdiscussionofsignificantaccountingdifferencesbetweensegment reporting and consolidated external reporting.
• Timing: Timingdifferencesintherecognitionofcostsbetweensegmentreportingandconsolidatedexternal reporting. For example, we report certain costs on the cash basis for segment reporting and the accrual basis for consolidated external reporting.
ForthethreeandninemonthsendedSeptember30,2022and2021,salesandrevenuesbygeographicregionreconciledto 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
1 IncludesrevenuesfromConstructionIndustries,ResourceIndustries,Energy&TransportationandAllOtheroperatingsegmentof$124millionand $87 million in the three months endedSeptember 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
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
1 IncludesrevenuesfromConstructionIndustries,ResourceIndustries,Energy&TransportationandAllOtheroperatingsegmentof$332millionand $263 million in the nine months endedSeptember 30, 2022 and 2021, respectively.
ForthethreeandninemonthsendedSeptember30,2022and2021,Energy&Transportationsegmentsalesbyenduser application were as follows: Energy & Transportation External Sales
Three Months Ended September 30 Nine Months Ended September 30
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
Reconciliation of Assets:
Reconciliation of Depreciation and amortization: (Millions of dollars)
Three Months Ended September 30
Nine Months Ended September 30
Reconciliation of Capital expenditures: (Millions of dollars)
Three Months Ended September 30
Nine Months Ended September 30
17. Cat Financial financing activities
Allowance for credit losses
Portfolio segments A portfolio segment is the level at which Cat Financial develops a systematic methodology for determining its allowanceforcreditlosses.CatFinancial'sportfoliosegmentsandrelatedmethodsforestimatingexpectedcredit losses are as follows:
Customer Cat Financial provides loans and finance leases to end-user customers primarily for the purpose of financing new and used Caterpillar machinery, engines and equipment for commercial use, the majority of which operate in construction- related industries. Cat Financial also provides financing for vehicles, power generation facilities and marine vessels that, in most cases, incorporate Caterpillar products. The average original term of Cat Financial's customer finance receivable portfolio was approximately 50 months with an average remaining term of approximately 26 months as of September 30, 2022.
Cat Financial typically maintains a security interest in financed equipment and requires physical damage insurance coverage on the financed equipment, both of which provide Cat Financial with certain rights and protections. If Cat Financial'scollectioneffortsfailtobringadefaultedaccountcurrent,CatFinancialgenerallycanrepossessthe financedequipment,aftersatisfyinglocallegalrequirements,andsellitwithintheCaterpillardealernetworkor through third-party auctions.
Cat Financial estimates the allowance for credit losses related to its customer finance receivables based on loss forecast models utilizing probabilities of default and the estimated loss given default based on past loss experience adjusted for current conditions and reasonable and supportable forecasts capturing country and industry-specific economic factors.
During the three and nine months ended September 30, 2022, Cat Financial's forecasts for the markets in which it operatesreflecteda continuationofthe trendofrelativelylowunemployment ratesanddelinquencies.However,high inflationratesandconsequent central bankactionsare weakeningglobal economic growth. The companybelievesthe economic forecasts employed represent reasonable and supportable forecasts, followed by a reversion to long-term trends.
Dealer Cat Financial provides financing to Caterpillar dealers in the form of wholesale financing plans. Cat Financial's wholesale financing plans provide assistance to dealers by financing their mostly new Caterpillar equipment inventory and rental fleets on a secured and unsecured basis. In addition, Cat Financial provides a variety of secured and unsecured loans to Caterpillar dealers.
Cat Financial estimates the allowance for credit losses for dealer finance receivables based on historical loss rates with consideration of current economic conditions and reasonable and supportable forecasts.
In general, Cat Financial's Dealer portfolio segment has not historically experienced large increases or decreases in credit losses based on changes in economic conditions due to its close working relationships with the dealers and their financial strength. Therefore, Cat Financial made no adjustments to historical loss rates during the three and nine months ended September 30, 2022.
Classes of finance receivables Cat Financial further evaluates portfolio segments by the class of finance receivables, which is defined as a level of information (below a portfolio segment) in which the finance receivables have the same initial measurement attribute anda similarmethodforassessingandmonitoringcredit risk. Cat Financial'sclasses,whichalignwithmanagement reporting for credit losses, are as follows:
• North America - Finance receivables originated in the United States and Canada. • EAME-FinancereceivablesoriginatedinEurope,Africa,theMiddleEastandtheCommonwealthof Independent States. • Asia/Pacific-FinancereceivablesoriginatedinAustralia,NewZealand,China,Japan,SoutheastAsiaand India. • Mining - Finance receivables related to large mining customers worldwide. • Latin America - Finance receivables originated in Mexico and Central and South American countries. • Caterpillar Power Finance - Finance receivables originated worldwide related to marine vessels with Caterpillar engines and Caterpillar electrical power generation, gas compression and co-generation systems and non-Caterpillar equipment that is powered by these systems.
Receivable balances, including accrued interest, are written off against the allowance for credit losses when, in the judgmentofmanagement,theyareconsidereduncollectible(generallyuponrepossessionofthecollateral).The amount ofthe write-offisdeterminedbycomparingthe fairvalue ofthe collateral,lesscost tosell,tothe amortized cost. Subsequent recoveries, if any, are credited to the allowance for credit losses when received.
An analysis of the allowance for credit losses was as follows:
(Millions of dollars) Three Months Ended September 30, 2022 Three Months Ended September 30, 2021
Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021
1Excludes provision for credit losses on unfunded commitments and other miscellaneous receivables.
Credit quality of finance receivables At origination, Cat Financial evaluates credit risk based on a variety of credit quality factors including prior payment experience,customerfinancialinformation,creditratings,loan-to-valueratios,probabilitiesofdefault, industry trends,macroeconomic factorsandotherinternal metrics.Onanongoingbasis,Cat Financial monitorscredit quality basedonpast-due statusasthere isa meaningful correlationbetweenthe past-due statusofcustomersandthe riskof loss. In determining past-due status, Cat Financial considers the entire finance receivable past due when any installment is over 30 days past due.
Customer ThetablesbelowsummarizetheagingcategoryofCatFinancial'samortizedcostoffinancereceivablesinthe Customer portfolio segment by origination year:
(Millions of dollars) September 30, 2022
North America
EAME
Asia/Pacific
Mining
Latin America
Caterpillar Power Finance
Totals by Aging Category
(Millions of dollars) December 31, 2021
North America
EAME
Asia/Pacific
Mining
Latin America
Caterpillar Power Finance
Totals by Aging Category
Finance receivables in the Customer portfolio segment are substantially secured by collateral, primarily in the form of Caterpillar and other machinery. For those contracts where the borrower is experiencing financial difficulty, repayment of the outstanding amounts is generally expected to be provided through the operation or repossession and sale of the machinery.
Dealer
AsofSeptember30,2022andDecember31,2021,CatFinancial'stotalamortizedcostoffinancereceivableswithin theDealerportfoliosegmentwascurrent,withtheexceptionof$58millionand$78million,respectively,thatwere 91+ days past due in Latin America, all of which were originated in 2017.
Non-accrual finance receivables
Recognitionofincome issuspendedandthe finance receivable isplacedonnon-accrual statuswhenmanagement determinesthatcollectionoffutureincomeisnotprobable.Contractsonnon-accrualstatusaregenerallymorethan 120 days past due or have been restructured in a troubled debt restructuring (TDR). Recognition is resumed and previously suspended income is recognized when collection is considered probable. Payments received while the financereceivableisonnon-accrualstatusareappliedtointerestandprincipalinaccordancewiththecontractual terms. Interest earned but uncollected prior to the receivable being placed on non-accrual status is written off through Provision for credit losses when, in the judgment of management, it is considered uncollectible.
In Cat Financial's Customer portfolio segment, finance receivables which were on non-accrual status and finance receivables over 90 days past due and still accruing income were as follows:
September 30, 2022 December 31, 2021 Amortized Cost Amortized Cost
With an
There was $2 million and $1 million of interest income recognized during the three months ended September 30, 2022 and 2021, respectively, for customer finance receivables on non-accrual status. There was $11 million and $9 million ofinterest income recognizedduringthe nine monthsendedSeptember30,2022and2021,respectively,forcustomer finance receivables on non-accrual status.
AsofSeptember30,2022andDecember31,2021,finance receivablesinCat Financial'sDealerportfoliosegment on non-accrual status were $58 million and $78 million, respectively, all of which was in Latin America. There were no finance receivables in Cat Financial's Dealer portfolio segment more than 90 days past due and still accruing income as ofSeptember30,2022 andDecember31,2021andnointerestincomewasrecognizedondealerfinancereceivables on non-accrual status during the three and nine months ended September 30, 2022 and 2021.
Troubled debt restructurings
A restructuring of a finance receivable constitutes a TDR when the lender grants a concession it would not otherwise consider to a borrower experiencing financial difficulties. Concessions granted may include extended contract maturities, inclusion of interest only periods, below market interest rates, payment deferrals and reduction of principal and/or accrued interest. Cat Financial individually evaluates TDR contracts and establishes an allowance based on the present value of expected future cash flows discounted at the receivable's effective interest rate, the fair value of the collateral for collateral-dependent receivables or the observable market price of the receivable.
TherewerenofinancereceivablesmodifiedasTDRsduringthethreeandninemonthsendedSeptember30,2022and 2021 for the Dealer portfolio segment. Cat Financial’s finance receivables in the Customer portfolio segment modified as TDRs were as follows: (Millions of dollars) Three Months Ended September 30, 2022
30, 2021
Customer Pre-TDR Amortized Cost Post-TDR Amortized Cost Pre-TDR Amortized Cost Post-TDR Amortized Cost
Nine Months Ended September 30, 2022
2021
Pre-TDR Amortized Cost Post-TDR Amortized Cost Pre-TDR Amortized Cost Post-TDR Amortized Cost North America.................................................... $ 4 $ 4 $ 5 $ 5 EAME................................................................. 1 1 1 1 Asia/Pacific........................................................ — — 4 4 Mining................................................................ 15 15 11 5 Latin America..................................................... — — 10 10 Caterpillar Power Finance.................................. 20 19 23 19 Total..................................................................... $ 40 $ 39 $ 54 $ 44
ThePost-TDRamortizedcostsintheCustomerportfoliosegmentwithapaymentdefault(definedas91+dayspast due) which had been modified within twelve months prior to the default date, were as follows:
(Millions of dollars) Three Months Ended September 30 Nine Months Ended September 30
Customer North America.......................................... Asia/Pacific............................................... Mining...................................................... Latin America........................................... Caterpillar Power Finance........................ Total............................................................
18. Fair value disclosures
A. Fair value measurements
Theguidanceonfairvaluemeasurementsdefinesfairvalueastheexchangepricethatwouldbereceivedforanasset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. This guidance also specifies a fair value hierarchy based upon the observabilityofinputsusedinvaluationtechniques. Observable inputs(highest level)reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. In accordance with this guidance, fair value measurements are classified under the following hierarchy:
• Level 1 – Quoted prices for identical instruments in active markets.
• Level2–Quotedpricesforsimilarinstrumentsinactivemarkets;quotedpricesforidenticalorsimilar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets.
• Level3–Model-derivedvaluationsinwhichoneormoresignificantinputsorsignificantvalue-driversare unobservable.
Whenavailable,weusequotedmarketpricestodeterminefairvalue,andweclassifysuchmeasurementswithinLevel 1. Insomecaseswheremarketpricesarenotavailable,wemakeuseofobservablemarketbasedinputstocalculate fairvalue,inwhichcase the measurementsare classifiedwithinLevel 2. Ifquotedorobservable market pricesare not available, fair value is based upon valuations in which one or more significant inputs are unobservable, including internallydevelopedmodelsthat use,where possible,current market-basedparameterssuchasinterest rates,yield curves and currency rates. These measurements are classified within Level 3.
We classifyfairvalue measurementsaccordingtothe lowest level input orvalue-driverthat issignificant tothe valuation. We may therefore classify a measurement within Level 3 even though there may be significant inputs that are readily observable.
Fair value measurement includes the consideration of nonperformance risk. Nonperformance risk refers to the risk that anobligation(eitherbyacounterpartyorCaterpillar)willnotbefulfilled. Forfinancialassetstradedinanactive market(Level1andcertainLevel2),thenonperformanceriskisincludedinthemarketprice. Forcertainother financial assets and liabilities (certain Level 2 and Level 3), our fair value calculations have been adjusted accordingly.
Investments in debt and equity securities Wehaveinvestmentsincertaindebtandequitysecuritiesthatarerecordedatfairvalue. FairvaluesforourU.S. treasury bonds and large capitalization value and smaller company growth equity securities are based upon valuations for identical instruments in active markets. Fair values for other government debt securities, corporate debt securities and mortgage-backed debt securities are based upon models that take into consideration such market-based factors as recent sales, risk-free yield curves and prices of similarly rated bonds.
We alsohave investmentsintime depositsclassifiedasheld-to-maturitydebt securities.The fairvalue ofthese investmentsisbaseduponvaluationsobservedinlessactive marketsthanLevel 1. These investmentshave a maturity of less than one year and are recorded at amortized costs, which approximate fair value.
In addition, Insurance Services has an equity investment in a real estate investment trust (REIT) which is recorded at fair value based on the net asset value (NAV) of the investment and is not classified within the fair value hierarchy. See Note 8 for additional information on our investments in debt and equity securities. Derivative financial instruments Thefairvalueofinterestratecontractsisprimarilybasedonastandardindustryacceptedvaluationmodelthatutilizes the appropriate market-based forward swap curves and zero-coupon interest rates to determine discounted cash flows. The fair value of foreign currency and commodity forward, option and cross currency contracts is based on standardindustryacceptedvaluationmodelsthat discount cashflowsresultingfrom the differential betweenthe contract price and the market-based forward rate.
See Note 5 for additional information.
AssetsandliabilitiesmeasuredonarecurringbasisatfairvalueincludedinourConsolidatedStatementofFinancial Position as of September 30, 2022 and December 31, 2021 were as follows:
(Millions of dollars)
Measured
Total Assets / Liabilities,
Assets Debt securities Government debt securities
Corporate debt securities
Liabilities
(Millions of dollars)
Measured
Total Assets / Liabilities,
Assets Debt securities Government debt securities
Corporate debt securities
In addition to the amounts above, certain Cat Financial loans are subject to measurement at fair value on a nonrecurring basis and are classified as Level 3 measurements. A loan is measured at fair value when management determines that collection of contractual amounts due is not probable and the loan is individually evaluated. In these cases, an allowance for credit losses may be established based either on the present value of expected future cash flows discounted at the receivables’ effective interest rate, the fair value of the collateral for collateral-dependent receivables, ortheobservablemarketpriceofthereceivable. Indeterminingcollateralvalue,CatFinancialestimatesthecurrent fairmarketvalueofthecollaterallesssellingcosts. CatFinancialhadloanscarriedatfairvalueof$90millionand $100 million as of September 30, 2022 and December 31, 2021, respectively.
B. Fair values of financial instruments
In addition to the methods and assumptions we use to record the fair value of financial instruments as discussed in the Fairvaluemeasurementssectionabove,weusethefollowingmethodsandassumptionstoestimatethefairvalueof our financial instruments:
Cash and cash equivalents Carryingamountapproximatesfairvalue.WeclassifycashandcashequivalentsasLevel1.SeeConsolidated Statement of Financial Position.
Restricted cash and short-term investments Carrying amount approximates fair value. We include restricted cash and short-term investments in Prepaid expenses and other current assets in the Consolidated Statement of Financial Position. We classify these instruments as Level 1 except for time deposits which are Level 2, and certain corporate debt securities which are Level 3. See Note 8 for additional information.
Finance receivables We estimate fair value by discounting the future cash flows using current rates, representative of receivables with similar remaining maturities.
Wholesale inventory receivables Weestimatefairvaluebydiscountingthefuturecashflowsusingcurrentrates,representativeofreceivableswith similar remaining maturities.
Short-term borrowings Carryingamountapproximatesfairvalue. Weclassifyshort-termborrowingsasLevel1.SeeConsolidatedStatement of Financial Position.
Long-term debt We estimate fair value for fixed and floating rate debt based on quoted market prices.
Guarantees The fair value of guarantees is based upon our estimate of the premium a market participant would require to issue the same guarantee in a stand-alone arms-length transaction with an unrelated party. If quoted or observable market prices are not available, fair value is based upon internally developed models that utilize current market-based assumptions. We classify guarantees as Level 3. See Note 11 for additional information.
Our financial instruments not carried at fair value were as follows:
September 30, 2022 December 31, 2021
Fair (Millions of dollars) Carrying Amount
Value
Amount
Value
Levels Reference Assets
Liabilities
1 Representsfinanceleasesandfailedsaleleasebacksof$7,083millionand$8,083millionatSeptember30,2022andDecember31,2021, respectively.
19. Other income (expense)
Three Months Ended September 30
Nine Months Ended September 30
1 Includes gains (losses) from foreign exchange derivative contracts. See Note 5 for further details.
20. Restructuring costs
Our accounting for employee separations is dependent upon how the particular program is designed. For voluntary programs, we recognize eligible separation costs at the time of employee acceptance unless the acceptance requires explicitapprovalbythecompany. Forinvoluntaryprograms,werecognizeeligiblecostswhenmanagementhas approved the program, the affected employees have been properly notified and the costs are estimable.
Restructuring costs for the three and nine months ended September 30, 2022 and 2021 were as follows:
(Millions of dollars)
September 30
September 30
1Recognized in Other operating (income) expenses.
2Represents costs related to our restructuring programs, primarily for accelerated depreciation, equipment relocation, inventory write-downs and project management, all of which are primarily included in Cost of goods sold.
ForboththeninemonthsendedSeptember30,2022and2021,therestructuringcostswereprimarilyrelatedtoactions across the company including strategic actions to address a small number of products.
In 2022 and 2021, all restructuring costs are excluded from segment profit.
The following table summarizes the 2022 and 2021 employee separation activity:
(Millions of dollars) Nine Months Ended September 30 2022 2021 Liability balance, beginning of period........................................................................................ $ 61 $ 164 Increase in liability (separation charges)................................................................................ 62 79 Reduction in liability (payments)........................................................................................... (63) (159) Liability balance, end of period................................................................................................... $ 60 $ 84
Most of the liability balance at September 30, 2022 is expected to be paid in 2022 and 2023.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide information that will assist the reader in understanding the company’s Consolidated Financial Statements, the changes in certain key items in those financial statements between select periods and the primary factors that accounted for those changes. In addition, we discuss how certain accounting principles, policies and critical estimates affect our Consolidated Financial Statements. Our discussion also contains certain forward-looking statements related to future events and expectations as well as a discussion of the many factors that we believe may have an impact on our business on an ongoing basis. This MD&A should be read in conjunction with our discussion of cautionary statements and significant risks to the company’s business under Part I, Item 1A. Risk Factors of the 2021 Form 10-K.
Highlights for the third quarter of 2022 include: • Totalsalesandrevenuesforthethirdquarterof2022were$14.994billion,anincreaseof$2.597billion,or21percent, compared with $12.397 billion in the third quarter of 2021. Sales were higher across the three primary segments. • Operatingprofitmarginwas16.2percentforthethirdquarterof2022,comparedwith13.4percentforthethirdquarterof 2021.Adjustedoperatingprofitmarginwas16.5percentforthethirdquarterof2022,comparedwith13.7percentforthe third quarter of 2021. • Third-quarter2022profitpersharewas$3.87,andexcludingtheitemsinthetablebelow,adjustedprofitpersharewas $3.95.Third-quarter2021profitpersharewas$2.60and,excludingtheitemsinthetablebelow,adjustedprofitpershare was $2.66. • Caterpillar ended the third quarter of 2022 with $6.3 billion of enterprise cash.
Highlights for the nine months ended September 30, 2022 include: • Total sales and revenues were $42.830 billion for the nine months ended September 30, 2022, an increase of $5.657 billion, or 15 percent, compared with $37.173 billion for the nine months ended September 30, 2021. • Operatingprofitmarginwas14.5percentfortheninemonthsendedSeptember30,2022,comparedwith14.2percentfor the nine months ended September 30, 2021. Adjusted operating profit margin was 14.7 percent for the nine months ended September 30, 2022, compared with 14.5 percent for the nine months ended September 30, 2021. • ProfitpersharefortheninemonthsendedSeptember30,2022,was$9.85and,excludingtheitemsinthetablebelow, adjustedprofit pershare was$9.99.Profit pershare forthe nine monthsendedSeptember30,2021,was$7.94,and excluding the items in the table below, adjusted profit per share was $8.13. • Enterprise operating cash flow was $5.0 billion for the nine months ended September 30, 2022. • Inorderforourresultstobemoremeaningfultoourreaders,wehaveseparatelyquantifiedtheimpactofseveral significant items. A detailed reconciliation of GAAP to non-GAAP financial measures is included on page 65. Three Months Ended September 30, 2022
September 30, 2021
September 30, 2022
September 30, 2021
Overview
Total sales and revenues for the third quarter of 2022 were $14.994 billion, an increase of $2.597 billion, or 21 percent, compared with $12.397 billion in the third quarter of 2021. The increase was due to favorable price realization and higher sales volume,partiallyoffset byunfavorable currency impactsprimarilyrelatedtothe euro,Japanese yenandAustraliandollar.The increase insalesvolume wasdrivenbythe impact from changesindealerinventories,highersalesofequipment toendusers andhigherservices.Dealersincreasedinventoriesby$700millionduringthethirdquarterof2022,comparedwithadecrease of $300 million during the third quarter of 2021. Sales were higher across the three primary segments.
Third-quarter2022profitpersharewas$3.87,comparedwith$2.60profitpershareinthethirdquarterof2021.Profitper share for both quarters included restructuring costs. Profit for the third quarter of 2022 was $2.041 billion, an increase of $615 million, or 43%, compared with $1.426 billion for the third quarter of 2021. The increase was primarily due to favorable price realizationandhighersalesvolume,partiallyoffset byunfavorable manufacturingcostsandhigherselling,general and administrative (SG&A) and research and development (R&D) expenses. Unfavorable manufacturing costs largely reflected higher material costs, freight and the impact of manufacturing inefficiencies. SG&A/R&D expenses increased primarily due to investments aligned with the company's strategy for profitable growth and higher short-term incentive compensation expense.
Global Business Conditions: We continue to monitor a variety of external factors around the world, such as supply chain disruptions, inflationary cost and labor pressures. Areas of particular focus include certain components, transportation and raw materials. Transportation shortages have resulted in delays and increased costs. In addition, our suppliers are dealing with availability issues and freight delays, which leads to pressure on production in our facilities. Contingency plans have been developed and continue to be modified to minimize supply chain challenges that may impact our ability to meet increasing customer demand. We continue to assess the environment and are taking appropriate price actions in response to rising costs. We will continue to monitor the situation as conditions remain fluid and evolve throughout the year. We address these external factors throughout the discussion in the Consolidated Results of Operations section below.
Notes:
• Glossary of terms is included on pages 58 - 60; first occurrence of terms shown in bold italics.
• Information on non-GAAP financial measures is included on page 65.
• Certain amounts may not add due to rounding.
Consolidated Results of Operations
THREE MONTHS ENDED SEPTEMBER 30, 2022 COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 2021
CONSOLIDATED SALES AND REVENUES
Thechartabovegraphicallyillustratesreasonsforthechangeinconsolidatedsalesandrevenuesbetweenthe thirdquarterof2021(atleft)andthethirdquarter of 2022 (at right). Caterpillar management utilizes these charts internally to visually communicate with the company’s Board of Directors and employees.
Total sales and revenues for the third quarter of 2022 were $14.994 billion, an increase of $2.597 billion, or 21 percent, compared with $12.397 billion in the third quarter of 2021. The increase was due to favorable price realization and higher sales volume, partially offset by unfavorable currency impacts primarily related to the euro, Japanese yen and Australian dollar. The increaseinsalesvolumewasdrivenbytheimpactfromchangesindealerinventories,highersalesofequipmenttoendusers andhigherservices.Dealersincreasedinventoriesby$700millionduringthethirdquarterof2022,comparedwithadecrease of $300 million during the third quarter of 2021.
Sales were higher across the three primary segments.
North America sales increased 33 percent due to favorable price realization, the impact from changes in dealer inventories, services and higher sales of equipment to end users. Dealers increased inventories during the third quarter of 2022, compared with a decrease during the third quarter of 2021.
Sales increased 36 percent in Latin America due to favorable price realization, higher sales of equipment to end users and the impact from changes in dealer inventories. Dealers increased inventories during the third quarter of 2022, compared with remaining about flat during the third quarter of 2021.
EAME sales increased 8 percent as unfavorable currency impacts, primarily related to the euro and British pound, were more than offset by favorable price realization, the impact from changes in dealer inventories and higher sales of equipment to end users.Dealersincreasedinventoriesduringthethirdquarterof2022,comparedwithremainingaboutflatduringthethird quarter of 2021.
Asia/Pacific sales increased 9 percent driven by favorable price realization and the impact from changes in dealer inventories, partially offset by unfavorable currency impacts, related to the Japanese yen and Australian dollar. Dealers increased inventories during the third quarter of 2022, compared with a decrease during the third quarter of 2021.
Dealers increased inventories by $700 million during the third quarter of 2022, compared with a decrease of $300 million during the third quarter of 2021. Most of the increase related to timing differences between when we ship product to dealers and when the dealers, in turn, are able to deliver completed orders to customers. Dealers are independent, and the reasons for changes in their inventory levels vary, including their expectations of future demand and product delivery times. Dealers’ demand expectations take into account seasonal changes, macroeconomic conditions, machine rentals and other factors. Delivery times can vary based on availability of product from Caterpillar factories and product distribution centers. At year end, we expect dealer inventory levels to be similar to the third quarter of 2022.
Compared to the fourth quarter of 2021, we expect higher sales to users and price realization to support the sales growth in the fourth quarter of 2022. We anticipate the fourth quarter will reflect our highest quarterly sales for the year, which is in line with typical seasonality.
Sales and Revenues by Geographic Region
% $
1Includes revenues from Machinery, Energy & Transportation of $124 million and $87 million in the third quarter of 2022 and 2021, respectively.
CONSOLIDATED OPERATING PROFIT
Thechartabovegraphicallyillustratesreasonsforthechangeinconsolidatedoperatingprofitbetweenthethirdquarterof2021(atleft)andthethirdquarterof 2022 (at right). Caterpillar management utilizes these charts internally to visually communicate with the company’s Board of Directors and employees. The bar titled Other includesconsolidating adjustmentsand Machinery, Energy & Transportation's other operating (income) expenses.
Operatingprofitforthethirdquarterof2022was$2.425billion,anincreaseof$761million,or46percent,comparedwith $1.664billioninthethirdquarterof2021.Theincreasewasprimarilyduetofavorablepricerealizationandhighersales volume,partiallyoffset byhighermanufacturingcostsandhigherSG&A/R&Dexpenses.Unfavorable manufacturingcosts largely reflected higher material costs, freight and the impact of manufacturing inefficiencies, due to ongoing disruptions to the supply chain. SG&A/R&D expenses increased primarily due to investments aligned with the company's strategy for profitable growth, which included services growth and technology, such as digital, electrification and autonomy, as well as higher short- term incentive compensation expense.
Short-termincentivecompensationexpensewasabout$400millioninthethirdquarterof2022,comparedtoabout$350 million in the third quarter of 2021.
Operatingprofitmarginwas16.2percentforthethirdquarterof2022,comparedwith13.4percentforthethirdquarterof 2021.
Weexpecthighersalesvolumeandcontinuedfavorablepricerealizationinthefourthquarterof2022,comparedwiththe fourth quarter of 2021. We anticipate the impact of favorable price realization to more than offset manufacturing cost increases, including manufacturing inefficiencies.
Corporate Items and Eliminations included corporate-level expenses, timing differences (as some expenses are reported in segment profit on a cash basis), methodology differences between segment and consolidated external reporting (the company values segment inventories and cost of sales using a current cost methodology), certain restructuring costs and inter-segment eliminations.
Other Profit/Loss and Tax Items
▪ Interest expense excluding Financial Products in the third quarter of 2022 was $109 million, compared with $114 million in the thirdquarterof2021.The decrease wasdue toloweraverage debt outstandingduringthe thirdquarterof2022, compared with the third quarter of 2021.
▪ Otherincome(expense)inthethirdquarterof2022wasincomeof$242million,comparedwithincomeof$225millionin thethirdquarterof2021.Thechangewasprimarilydrivenbyfavorableimpactsfromforeigncurrencyexchangeand higherinvestmentandinterestincome,partiallyoffsetbylowergainsonmarketablesecuritiesandlowerpensionand other postemployment benefit (OPEB) plan income.
▪ Theprovisionforincometaxesforthethirdquarterof2022reflectedanestimatedannualtaxrateof23percent,compared with 25 percent for the third quarter of 2021, excluding the discrete items discussed below. The comparative tax rate for full-year 2021 was approximately 23 percent.
Inthethirdquarterof2022,thecompanyreachedasettlementwiththeU.S.InternalRevenueService(IRS)thatresolves 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 IRSforallissuesunderthesettlementwas$490millionfortheten-yearperiod.Thisamountwasprimarilypaidinthe third quarter of 2022, and the associated estimated interest of $250 million is expected to be paid by the end of 2022. The settlementwaswithinthetotalamountofgrossunrecognizedtaxbenefitsforuncertaintaxpositionsandenablesusto avoidthecostsandburdensoffurtherdisputeswiththeIRS.Asaresultofthesettlement,werecordedadiscretetax benefit of$41milliontoreflect changesinestimatesofprioryears’taxesandrelatedinterest,net oftax.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.
Theprovisionforincometaxesinthirdquarterof2022alsoincludeda$20millionbenefitduetoadecreaseinthe estimatedannual taxrate,comparedto$39millioninthe thirdquarterof2021. The companyalsorecordeda discrete tax benefit of $36 million to reflect changes in estimates related to the prior year’s U.S. taxes in the third quarter of 2021.
Construction Industries
ConstructionIndustries’total saleswere $6.276billioninthe thirdquarterof2022,anincrease of$1.021billion,or19percent, compared with $5.255 billion in the third quarter of 2021. The increase was due to favorable price realization and higher sales volume, partially offset by unfavorable currency impacts primarily related to the euro, Japanese yen and Australian dollar. The increase in sales volume was driven by the impact from changes in dealer inventories. Dealer inventory increased during the third quarter of 2022, compared with a decrease during the third quarter of 2021.
▪ InNorthAmerica,salesincreasedduetofavorablepricerealizationandhighersalesvolume.Highersalesvolumewas driven by the impact from changes in dealer inventories. Dealer inventory decreased during the third quarter of 2021, compared with an increase during the third quarter of 2022. Dealer inventories in North America remained at relatively low levels.
▪ SalesincreasedinLatinAmericaprimarilyduetohighersalesvolumeandfavorablepricerealization.Highersales volumewasdrivenbyhighersalesofequipmenttoendusersandtheimpactfromchangesindealerinventories. Dealer inventory increased more during the third quarter of 2022 than during the third quarter of 2021.
▪ InEAME,saleswereaboutflat.Unfavorablecurrencyimpacts,primarilyrelatedtotheeuro,wereoffsetbyfavorable price realization.
▪ SaleswereaboutflatinAsia/Pacific.Favorablepricerealizationwasoffsetbyunfavorablecurrencyimpacts,primarily related to the Japanese yen and Australian dollar.
Construction Industries’ profit was $1.209 billion in the third quarter of 2022, an increase of $343 million, or 40 percent, compared with $866 million in the third quarter of 2021. The increase was mainly due to favorable price realization and higher sales volume, partially offset by unfavorable manufacturing costs and higher SG&A/R&D expenses. Unfavorable manufacturing costs largely reflected higher material costs, freight and the impact of manufacturing inefficiencies. The increase in SG&A/R&D expenses was primarily driven by investments aligned with strategic initiatives and higher short-term incentive compensation expense.
ConstructionIndustries’profitasapercentoftotalsaleswas19.3percentinthethirdquarterof2022,comparedwith16.5 percent in the third quarter of 2021.
ConstructionIndustries’segmentprofitasapercentoftotalsalesisexpectedtoimproveinthefourthquarterof2022, compared to the fourth quarter of 2021. We expect North America residential construction to moderate due to tightening financial conditions but remain at relatively high levels. We expect non-residential construction to strengthen due to investmentsrelatedtogovernmentinfrastructureinitiatives.InAsiaPacific,excludingChina,weexpectmoderategrowthdue to higher infrastructure spending and commodity prices. We expect continued weakness in China in the above 10-ton excavator industry. In EAME, business activity is expected to be flat to slightly down versus last year based on uncertain economic conditions in Europe. Construction activity in Latin America is expected to grow due to supportive commodity prices. We also expect favorable price realization in the fourth quarter of 2022, compared to the fourth quarter of 2021. The favorable impact of price realization is expected to more than offset manufacturing cost increases in the fourth quarter of 2022.
Resource Industries
Resource Industries’ total sales were $3.087 billion in the third quarter of 2022, an increase of $721 million, or 30 percent, compared with $2.366 billion in the third quarter of 2021. The increase was primarily due to favorable price realization and higher sales volume. The increase in sales volume was due to the impact of changes in dealer inventories, higher sales of aftermarket parts and higher sales of equipment to end users. Dealer inventory decreased during the third quarter of 2021, compared with an increase during the third quarter of 2022.
Resource Industries’ profit was $506 million in the third quarter of 2022, an increase of $226 million, or 81 percent, compared with $280 million in the third quarter of 2021. The increase was mainly due to favorable price realization and higher sales volume,partiallyoffsetbyunfavorablemanufacturingcostsandhigherSG&A/R&Dexpenses.Unfavorablemanufacturing costslargelyreflectedhighermaterial costs,freight andthe impact ofmanufacturinginefficiencies.The increase inSG&A/ R&D expenses was primarily driven by investments aligned with strategic initiatives.
ResourceIndustries’profitasapercentoftotalsaleswas16.4percentinthethirdquarterof2022,comparedwith11.8percent in the third quarter of 2021.
Resource Industries’ segment profit as a percent of total sales is expected to improve in the fourth quarter of 2022, compared to the fourth quarter of 2021. Commodity prices remain supportive of continued investment. We expect production and utilization levels will remain elevated, and our autonomous solutions continue to gain momentum. We expect the continuation of high equipment utilizationanda lowlevel ofparkedtrucks,whichbothsupport future demandforourequipment andservices.In Heavy Construction and Quarry and Aggregates, we anticipate continued growth in the fourth quarter. We also expect price realizationtobefavorableinthefourthquarterof2022,comparedtothefourthquarterof2021.Thefavorableimpactfrom price realization is expected to more than offset manufacturing cost increases in the fourth quarter of 2022.
Energy & Transportation Sales by Application
(Millions of dollars)
Third Quarter 2022
Third Quarter 2021
$ Change
% Change Oil and Gas..................................................................................................................... $ 1,323 $ 1,088 $ 235 22% Power Generation........................................................................................................... 1,320 1,010 310 31% Industrial......................................................................................................................... 1,158 948 210 22% Transportation................................................................................................................ 1,196 1,095 101 9% External Sales............................................................................................................... 4,997 4,141 856 21% Inter-segment.................................................................................................................. 1,189 936 253 27% Total Sales..................................................................................................................... $ 6,186 $ 5,077 $ 1,109 22%
Energy & Transportation’s total sales were $6.186 billion in the third quarter of 2022, an increase of $1.109 billion, or 22 percent, compared with $5.077 billion in the third quarter of 2021. Sales increased across all applications and inter-segment sales. The increase in sales was primarily due to higher sales volume and favorable price realization, partially offset by unfavorable currency impacts.
• OilandGas–Salesincreasedduetohighersalesofreciprocatingengineaftermarketpartsandenginesusedingas compression and well servicing applications. Turbines and turbine-related services were about flat.
• PowerGeneration–Salesincreasedinlargereciprocatingengines,primarilydatacenterapplications,andsmall reciprocating engines. Turbines and turbine-related services increased as well.
• Industrial – Sales were up across all regions.
• Transportation–Salesincreasedinreciprocatingengineaftermarketpartsandmarineapplications.International locomotive deliveries were also higher.
Energy& Transportation’sprofit was$935millioninthe thirdquarterof2022,anincrease of$229million,or32percent, compared with $706 million in the third quarter of 2021. The increase was driven by favorable price realization and higher sales volume,partiallyoffsetbyunfavorablemanufacturingcostsandhigherSG&A/R&Dexpenses.Unfavorablemanufacturing costslargelyreflectedhighermaterial costs,freight andthe impact ofmanufacturinginefficiencies.The increase inSG&A/ R&D expenses was primarily driven by investments aligned with strategic initiatives, including electrification and services growth, higher labor-related costs and higher short-term incentive compensation expense.
Energy & Transportation’s profit as a percent of total sales was 15.1 percent in the third quarter of 2022, compared with 13.9 percent in the third quarter of 2021.
Energy & Transportation's segment profit as a percent of total sales is expected to improve in the fourth quarter of 2022, compared to the fourth quarter of 2021. In Oil & Gas, we are encouraged by continued strength in reciprocating engine orders, especiallyforlargeenginerepowersasassetutilizationincreases.Newequipmentordersforturbineandturbine–related services strengthened significantly, particularly in Oil & Gas. Power Generation orders remain healthy due to positive industry dynamics and continued data center strength. Industrial remains healthy with continued momentum in construction, agriculture and electric power. We also anticipate growth in high-speed marine as customers continue to upgrade aging fleets. We also expect favorable price realization in the fourth quarter of 2022, compared to the fourth quarter of 2021. The favorable impact from price realization is expected to more than offset manufacturing cost increases in the fourth quarter of 2022.
Financial Products Segment
Financial Products’ segment revenues were $819 million in the third quarter of 2022, an increase of $57 million, or 7 percent, compared with $762 million in the third quarter of 2021. The increase was primarily due to higher average financing rates in North America and Latin America.
Financial Products’segment profit was$220millioninthe thirdquarterof2022,anincrease of$47million,or27percent, comparedwith$173millioninthe thirdquarterof2021.The increase wasmainlydue toa favorable impact from a lower provision for credit losses at Cat Financial, partially offset by mark-to-market adjustments on derivative contracts.
At the end of the third quarter of 2022, past dues at Cat Financial were 2.00 percent, compared with 2.41 percent at the end of the third quarter of 2021. Past dues decreased across all our portfolio segments, with the exception of an increase in Latin America. Write-offs, net of recoveries, were $13 million for the third quarter of 2022, compared with $76 million for the third quarter of 2021. As of September 30, 2022, Cat Financial's allowance for credit losses totaled $339 million, or 1.30 percent of finance receivables,comparedwith$376million,or1.41percent offinance receivables,at June 30,2022.The allowance for credit losses at year-end 2021 was $337 million, or 1.22 percent of finance receivables.
Corporate Items and Eliminations
Expense for corporate items and eliminations was $343 million in the third quarter of 2022, an increase of $50 million from the third quarter of 2021, primarily driven by increased expenses due to timing differences, partially offset by favorable impacts of segment reporting methodology differences and lower corporate costs.
NINE MONTHS ENDED SEPTEMBER 30, 2022 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 2021
CONSOLIDATED SALES AND REVENUES
Thechartabovegraphicallyillustratesreasonsforthechangeinconsolidatedsalesandrevenuesbetweenthe ninemonthsendedSeptember30,2021(atleft) and the nine months ended September 30, 2022 (at right). Caterpillar management utilizes these charts internally to visually communicate with the company’s Board of Directors and employees.
Totalsalesandrevenueswere$42.830billionfortheninemonthsendedSeptember30,2022,anincreaseof$5.657billion,or 15 percent, compared with $37.173 billion for the nine months ended September 30, 2021. The increase was primarily due to favorable price realizationandhighersalesvolume,partiallyoffset byunfavorable currencyimpactsrelatedtothe euro, AustraliandollarandJapanese yen.The increase insalesvolume wasdrivenbythe impact from changesindealerinventories, services and higher sales of equipment to end users. Dealers increased inventories about $1.6 billion during the nine months ended September 30, 2022, compared with remaining about flat during the nine months ended September 30, 2021.
Sales were higher in the three primary segments.
North America sales increased 26 percent driven by favorable price realization, the impact from changes in dealer inventories, servicesandhighersalesofequipmenttoendusers.DealersdecreasedinventoriesduringtheninemonthsendedSeptember30, 2021, compared with an increase during the nine months ended September 30, 2022.
Sales increased 30 percent in Latin America due to favorable price realization, higher sales of equipment to end users and the impactfromchangesindealerinventories.DealersincreasedinventoriesmoreduringtheninemonthsendedSeptember30, 2022, than during the nine months ended September 30, 2021.
EAME sales increased 6 percent due to favorable price realization, higher sales of equipment to end users and the impact from changesindealerinventories,partiallyoffset byunfavorable currencyimpactsrelatedtothe euroandBritishpound.Dealers increasedinventoriesmoreduringtheninemonthsendedSeptember30,2022,thanduringtheninemonthsendedSeptember 30, 2021.
Asia/Pacific salesincreased3percent drivenbyfavorable price realization,servicesandthe impact from changesindealer inventories, partially offset by lower sales of equipment to end users and unfavorable currency impacts related to the Australian dollar and Japanese yen. Dealers increased inventories during the nine months ended September 30, 2022, compared with a decrease during the nine months ended September 30, 2021.
Dealers increased inventories about $1.6 billion during the nine months ended September 30, 2022, compared with remaining about flat during the nine months ended September 30, 2021. Dealers are independent, and the reasons for changes in their inventory levels vary, including their expectations of future demand and product delivery times. Dealers’ demand expectations takeintoaccountseasonalchanges,macroeconomicconditions,machinerentalsandotherfactors.Deliverytimescanvary based on availability of product from Caterpillar factories and product distribution centers.
Sales and Revenues by Segment
(Millions of dollars)
Nine Months Ended September 30, 2021
Sales Volume
Price Realization Currency
Inter- Segment / Other
Nine Months Ended September 30, 2022
$ Change
% Change
Construction Industries..................................... $ 16,370 $ 723 $ 1,737 $ (452) $ 46 $ 18,424 $ 2,054 13% Resource Industries........................................... 7,091 1,005 929 (126) (21) 8,878 1,787 25% Energy & Transportation.................................. 14,559 1,314 784 (348) 620 16,929 2,370 16% All Other Segment............................................ 377 8 1 (4) (43) 339 (38) (10%) Corporate Items and Eliminations.................... (3,306) 48 (7) — (602) (3,867) (561) Machinery, Energy & Transportation Sales 35,091 3,098 3,444 (930) — 40,703 5,612 16%
Financial Products Segment.............................. 2,297 — — — 103 2,400 103 4% Corporate Items and Eliminations.................... (215) — — — (58) (273) (58) Financial Products Revenues......................... 2,082 — — — 45 2,127 45 2%
Consolidated Sales and Revenues.................. $ 37,173 $ 3,098 $ 3,444 $ (930) $ 45 $ 42,830 $ 5,657 15%
Sales and Revenues by Geographic Region
(Millions of dollars) $ %
Nine Months Ended September 30, 2021 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 All Other Segment............................... 42 1 10 54 107 270 377 Corporate Items and Eliminations....... (89) (1) (1) (8) (99) (3,207) (3,306) Machinery, Energy & Transportation Sales.......................... 14,822 3,494 8,509 8,266 35,091 — 35,091
1Includes revenues from Machinery, Energy & Transportation of $332 million and $263 million in the nine months ended September 30, 2022 and 2021, respectively.
CONSOLIDATED OPERATING PROFIT
Thechartabovegraphicallyillustratesreasonsforthechangeinconsolidatedoperatingprofitbetweenthe ninemonthsendedSeptember30,2021(atleft)and theninemonthsendedSeptember30,2022(atright).Caterpillarmanagementutilizesthesechartsinternallytovisuallycommunicatewiththecompany’s Board of Directors and employees. The bar titled Other includes consolidating adjustments and Machinery, Energy & Transportation’s other operating (income) expenses.
Operating profit for the nine months ended September 30, 2022, was $6.224 billion, an increase of $957 million, or 18 percent, comparedwith$5.267billionfortheninemonthsendedSeptember30,2021.Theincreasewasduetofavorableprice realization and higher sales volume, partially offset by unfavorable manufacturing costs and higher SG&A/R&D expenses.
Unfavorable manufacturing costs largely reflected higher material costs, freight and the impact of manufacturing inefficiencies. For 2022, price realization is expected to more than offset manufacturing cost increases. The increase in SG&A/R&D expenses was driven by investments aligned with the company's strategy for profitable growth, which included services growth and technology, such as digital, electrification and autonomy, as well as higher short-term incentive compensation expense.
Short-termincentivecompensationexpenseisdirectlyrelatedtofinancialandoperationalperformance,measuredagainst targets set annually. Expense for the nine months ended September 30, 2022, was about $1.2 billion, compared with about $1.1 billion for the nine months ended September 30, 2021. For 2022, short-term incentive compensation expense is expected to be about $1.6 billion, compared with $1.3 billion in 2021.
Operating profit margin was 14.5 percent for the nine months ended September 30, 2022, compared with 14.2 percent for the nine months ended September 30, 2021.
Corporate Items and Eliminations included corporate-level expenses, timing differences (as some expenses are reported in segment profit on a cash basis), methodology differences between segment and consolidated external reporting (the company values segment inventories and cost of sales using a current cost methodology), certain restructuring costs and inter-segment eliminations.
Other Profit/Loss and Tax Items
▪ InterestexpenseexcludingFinancialProductsfortheninemonthsendedSeptember30,2022,was$326million,compared with$376millionforthe nine monthsendedSeptember30,2021.The decrease wasdue toloweraverage debt outstanding during the nine months ended September 30, 2022, compared with the nine months ended September 30, 2021.
▪ Otherincome(expense)fortheninemonthsendedSeptember30,2022,wasincomeof$755million,aboutflatcompared with income of $751 million for the nine months September 30, 2021. Favorable impacts from foreign currency exchange were offset by unrealized losses on marketable securities and lower pension and OPEB income.
▪ TheprovisionforincometaxesfortheninemonthsendedSeptember30,2022,reflectedanestimatedannualtaxrateof23 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 IRSforallissuesunderthesettlementwas$490millionfortheten-yearperiod. Thisamountwasprimarilypaidinthe 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 enablesustoavoidthe costsandburdensoffurtherdisputeswiththe IRS.Asa result ofthe settlement,we recordeda discretetaxbenefitof$41milliontoreflectchangesinestimatesofprioryears’taxesandrelatedinterest,netoftax.We aresubjecttothecontinuousexaminationofourincometaxreturnsbytheIRS,andtaxyearssubsequentto2016arenot yet under examination.
In the nine months ended September 30, 2022, the company also recorded discrete tax benefits of $49 million to reflect otherchangesinestimatesrelatedtoprioryears’U.S.taxes,comparedto$36millionintheninemonthsendedSeptember 30,2021. Inaddition,thecompanyrecordedadiscretetaxbenefitof$18millionforthesettlementofstock-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.
Construction Industries
Construction Industries’ total sales were $18.424 billion for the nine months ended September 30, 2022, an increase of $2.054 billion, or 13 percent, compared with $16.370 billion for the nine months ended September 30, 2021. The increase was due to favorablepricerealizationandhighersalesvolume,partiallyoffsetbyunfavorablecurrencyimpactsrelatedtotheeuro, Japanese yen and Australian dollar. The increase in sales volume was driven by the impact from changes in dealer inventories andhighersalesofaftermarket parts,partiallyoffset bylowersalesofequipment toendusers.Dealersincreasedinventories more during the nine months ended September 30, 2022, than during the nine months ended September 30, 2021.
• InNorthAmerica,salesincreasedduetofavorablepricerealization,theimpactfromchangesindealerinventories, higher sales of aftermarket parts and higher sales of equipment to end users. Dealers decreased inventories during the nine months ended September 30, 2021, compared with an increase during the nine months ended September 30, 2022.
• Sales increased in Latin America primarily due to higher sales of equipment to end users and favorable price realization.
• InEAME,salesincreasedasunfavorablecurrencyimpactsrelatedtotheeuroweremorethanoffsetbyfavorableprice realization and the impact from changes in dealer inventories. Dealers increased inventories more during the nine months ended September 30, 2022, than during the nine months ended September 30, 2021.
• SalesdecreasedinAsia/Pacificduetolowersalesofequipmenttoendusersandunfavorablecurrencyimpactsrelated to the Japanese yen and Australian dollar, partially offset by favorable price realization and the impact from changes in dealer inventories. Dealers increased inventories during the nine months ended September 30, 2022, compared with a decrease during the nine months ended September 30, 2021.
Construction Industries’ profit was $3.255 billion for the nine months ended September 30, 2022, an increase of $318 million, or 11 percent, compared with $2.937 billion for the nine months ended September 30, 2021. The increase was mainly due to favorable price realization and higher sales volume, partially offset by unfavorable manufacturing costs and higher SG&A/ R&D expenses. Unfavorable manufacturing costs largely reflected higher material costs, freight and the impact of manufacturing inefficiencies. The increase in SG&A/R&D expenses was primarily driven by investments aligned with strategic initiatives and higher short-term incentive compensation expense.
Construction Industries’ profit as a percent of total sales was 17.7 percent for the nine months ended September 30, 2022, compared with 17.9 percent for the nine months ended September 30, 2021.
Resource Industries
ResourceIndustries’totalsaleswere$8.878billionfortheninemonthsendedSeptember30,2022,anincreaseof$1.787 billion, or 25 percent, compared with $7.091 billion for the nine months ended September 30, 2021. The increase was due to highersalesvolumeandfavorablepricerealization.Theincreaseinsalesvolumewasdrivenbyhighersalesofaftermarket parts, the impact from changes in dealer inventories and higher sales of equipment to end users. Dealer inventory increased duringtheninemonthsendedSeptember30,2022,comparedwithadecreaseduringtheninemonthsendedSeptember30, 2021.
ResourceIndustries’profitwas$1.222billionfortheninemonthsendedSeptember30,2022,anincreaseof$281million,or 30 percent, compared with $941 million for the nine months ended September 30, 2021. Unfavorable manufacturing costs and higher SG&A/R&D expenses were more than offset by favorable price realization and higher sales volume. Unfavorable manufacturing costs largely reflected higher material costs, freight and the impact of manufacturing inefficiencies. The increase in SG&A/R&D expenses was primarily driven by investments aligned with strategic initiatives.
ResourceIndustries’profitasapercentoftotalsaleswas13.8percentfortheninemonthsendedSeptember30,2022, compared with 13.3 percent for the nine months ended September 30, 2021.
Energy&Transportation’stotalsaleswere$16.929billionfortheninemonthsendedSeptember30,2022,anincreaseof $2.370billion,or16percent,comparedwith$14.559billionforthe nine monthsendedSeptember30,2021.Salesincreased across all applications and inter-segment sales. The increase in sales was primarily due to higher sales volume and favorable price realization, partially offset by unfavorable currency impacts.
• OilandGas–Salesincreasedduetohighersalesofreciprocatingengineaftermarketpartsandenginesusedinwell servicingandgascompressionapplications,primarilyinNorthAmerica,partiallyoffsetbylowersalesforturbines and turbine-related services.
• PowerGeneration–Salesincreasedinsmallreciprocatingengineapplications,reciprocatingengineaftermarketparts and turbines and turbine-related services.
• Industrial – Sales were up across all regions.
• Transportation – Sales increased primarily in reciprocating engine aftermarket parts and marine applications. Rail services and international locomotives deliveries were also higher.
Energy&Transportation’sprofitwas$2.132billionfortheninemonthsendedSeptember30,2022,aboutflatcomparedwith $2.119 billion for the nine months ended September 30, 2021. Unfavorable manufacturing costs and higher SG&A/R&D expenses were offset by favorable price realization and higher sales volume. Unfavorable manufacturing costs largely reflected higher material costs, freight and the impact of manufacturing inefficiencies. The increase in SG&A/R&D expenses was primarily driven by investments aligned with strategic initiatives and higher short-term incentive compensation expense.
Energy & Transportation’s profit as a percent of total sales was 12.6 percent for the nine months ended September 30, 2022, compared with 14.6 percent for the nine months ended September 30, 2021.
Financial Products Segment
Financial Products’ segment revenues were $2.400 billion for the nine months ended September 30, 2022, an increase of $103 million, or 4 percent, compared with $2.297 billion for the nine months ended September 30, 2021. The increase was primarily due toa favorable impact from returnedorrepossessedequipment inNorthAmerica andhigheraverage financingratesinLatin America.
Financial Products’ segment profit was $675 million for the nine months ended September 30, 2022, an increase of $15 million, or 2 percent, compared with $660 million for the nine months ended September 30, 2021. The increase was mainly due to a favorable impact from returned or repossessed equipment and lower provision for credit losses at Cat Financial, partially offset by an unfavorable impact from equity securities in Insurance Services and an increase in SG&A expenses.
Corporate Items and Eliminations
Expenseforcorporateitemsandeliminationswas$817millionfortheninemonthsendedSeptember30,2022,adecreaseof $345 million from the nine months ended September 30, 2021, primarily driven by favorable impacts of segment reporting methodology, a favorable change in fair value adjustments related to deferred compensation plans and lower expenses due to timing differences, partially offset by higher corporate costs.
RESTRUCTURING COSTS
In 2022, we expect to incur about $800 million of restructuring costs primarily related to strategic actions to address a small number of products. Approximately $600 million of the total is a non-cash charge related to the release of accumulated foreign currency translation losses that will be recognized upon the sale of a business containing some of these products, which may not occur until 2023.We expect that prior restructuring actions will result in an incremental benefit to operating costs, primarily Cost of goods sold and SG&A expenses of about $75 million in 2022 compared with 2021.
AdditionalinformationrelatedtorestructuringcostsisincludedinNote20-"RestructuringCosts"ofPartI,Item1"Financial Statements".
GLOSSARY OF TERMS
1. Adjusted Operating Profit Margin – Operating profit excluding restructuring costs as a percent of sales and revenues.
2. Adjusted Profit Per Share – Profit per share excluding restructuring costs.
3. AllOtherSegment–Primarilyincludesactivitiessuchas:businessstrategy;productmanagementanddevelopment; 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; brandmanagement andmarketingstrategy; anddigital investmentsfornewcustomeranddealersolutionsthat integrate data analytics with state-of-the-art digital technologies while transforming the buying experience.
4. ConsolidatingAdjustments–EliminationoftransactionsbetweenMachinery,Energy&TransportationandFinancial Products.
5. ConstructionIndustries–Asegmentprimarilyresponsibleforsupportingcustomersusingmachineryininfrastructure 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;smallandmediumtrack-typetractors;track-typeloaders;wheelexcavators;compact,smallandmedium wheel loaders; and related parts and work tools.
6. Corporate Items and Eliminations – Includes corporate-level expenses, timing differences (as some expenses are reported in segment profit on a cash basis), methodology differences between segment and consolidated external reporting, certain restructuring costs and inter-segment eliminations.
7. Currency–Withrespecttosalesandrevenues,currencyrepresentsthetranslationimpactonsalesresultingfromchanges in foreign currency exchange rates versus the U.S. dollar. With respect to operating profit, currency represents the net translation impact on sales and operating costs resulting from changes in foreign currency exchange rates versus the U.S. dollar. Currency only includes the impact on sales and operating profit for the Machinery, Energy & Transportation line of business; currency impacts on Financial Products revenues and operating profit are included in the Financial Products portions of the respective analyses. With respect to other income/expense, currency represents the effects of forward and optioncontractsenteredintobythecompanytoreducetheriskoffluctuationsinexchangerates(hedging)andthenet effect of changes in foreign currency exchange rates on our foreign currency assets and liabilities for consolidated results (translation).
8. Dealer Inventories – Represents dealer machine and engine inventories, excluding aftermarket parts.
9. EAME–AgeographicregionincludingEurope,Africa,theMiddleEastandtheCommonwealthofIndependentStates (CIS).
10. EarningAssets–Assetsconsistingprimarilyoftotalfinancereceivablesnetofunearnedincome,plusequipmenton operating leases, less accumulated depreciation at Cat Financial.
11. Energy&Transportation–Asegmentprimarilyresponsibleforsupportingcustomersusingreciprocatingengines, turbines, diesel-electric locomotives and related services across industries serving Oil and Gas, Power Generation, Industrial andTransportationapplications,includingmarine-andrail-relatedbusinesses.Responsibilitiesinclude 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; reciprocatingengines,drivetrainandintegratedsystemsandsolutionsforthe marine andoil andgasindustries; 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.
12. FinancialProducts–ThecompanydefinesFinancialProductsasourfinanceandinsurancesubsidiaries,primarily Caterpillar Financial Services Corporation (Cat Financial) and Caterpillar Insurance Holdings Inc. (Insurance Services). Financial Products’ information relates to the financing to customers and dealers for the purchase and lease of Caterpillar and other equipment.
13. FinancialProductsSegment–ProvidesfinancingalternativestocustomersanddealersaroundtheworldforCaterpillar productsandservices,aswell asfinancingforvehicles,powergenerationfacilitiesandmarine vesselsthat,inmost cases, incorporate Caterpillar products. Financing plans include operating and finance leases, installment sale contracts, repair/ rebuildfinancing,workingcapital loansandwholesale financingplans.The segment alsoprovidesinsurance andrisk management productsandservicesthat helpcustomersanddealersmanage theirbusinessrisk.Insurance andrisk managementproductsofferedincludephysicaldamageinsurance,inventoryprotectionplans,extendedservicecoverage andmaintenance plansformachinesandengines,anddealerpropertyandcasualtyinsurance.The variousformsof financing, insurance and risk management products offered to customers and dealers help support the purchase and lease of Caterpillarequipment.ThesegmentalsoearnsrevenuesfromMachinery,Energy&Transportation,buttherelatedcosts are not allocatedtooperatingsegments.Financial Products’segment profit isdeterminedona pretaxbasisandincludes other income/expense items.
14. Latin America – A geographic region including Central and South American countries and Mexico.
15. Machinery,Energy&Transportation(ME&T)–ThecompanydefinesME&TasCaterpillarInc.anditssubsidiaries, excluding Financial Products. ME&T’s information relates to the design, manufacturing and marketing of its products.
16. Machinery,Energy&TransportationOtherOperating(Income)Expenses–Comprisedprimarilyofgains/losseson disposal of long-lived assets, gains/losses on divestitures and legal settlements and accruals.
17. ManufacturingCosts–Manufacturingcostsexcludetheimpactsofcurrencyandrepresentthevolume-adjustedchange forvariablecostsandtheabsolutedollarchangeforperiodmanufacturingcosts.Variablemanufacturingcostsaredefined as having a direct relationship with the volume of production. This includes material costs, direct labor and other costs that varydirectlywithproductionvolume,suchasfreight,powertooperate machinesandsuppliesthat are consumedinthe manufacturing process. Period manufacturing costs support production but are defined as generally not having a direct relationship to short-term changes in volume. Examples include machinery and equipment repair, depreciation on manufacturing assets, facility support, procurement, factory scheduling, manufacturing planning and operations management.
18. Mark-to-market gains/losses – Represents the net gain or loss of actual results differing from the company’s assumptions and the effects of changing assumptions for our defined benefit pension and OPEB plans. These gains and losses are immediately recognized through earnings upon the annual remeasurement in the fourth quarter, or on an interim basis as triggering events warrant remeasurement.
19. PensionandOtherPostemploymentBenefits(OPEB)–Thecompany’sdefined-benefitpensionandpostretirement benefit plans.
20. PriceRealization–Theimpactofnetpricechangesexcludingcurrencyandnewproductintroductions.Pricerealization includes geographic mix of sales, which is the impact of changes in the relative weighting of sales prices between geographic regions.
21. ResourceIndustries–Asegmentprimarilyresponsibleforsupportingcustomersusingmachineryinmining,heavy constructionandquarryandaggregates.Responsibilitiesincludebusinessstrategy,productdesign,productmanagement and development, manufacturing, marketing and sales and product support. The product portfolio includes large track-type tractors;largeminingtrucks;hardrockvehicles;longwallminers;electricropeshovels;draglines;hydraulicshovels; rotary drills; large wheel loaders; off-highway trucks; articulated trucks; wheel tractor scrapers; wheel dozers; landfill compactors;soilcompactors;selectworktools;machinerycomponents;electronicsandcontrolsystemsandrelatedparts. In addition to equipment, Resource Industries also develops and sells technology products and services to provide customersfleet management,equipment management analytics,autonomousmachine capabilities,safetyservicesand 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.
22. RestructuringCosts–Mayincludecostsforemployeeseparation,long-livedassetimpairmentsandcontractterminations. ThesecostsareincludedinOtheroperating(income)expensesexceptfordefined-benefitplancurtailmentlossesand special termination benefits, which are included in Other income (expense). Restructuring costs also include other exit- related costs, which may consist of accelerated depreciation, inventory write-downs, building demolition, equipment relocation and project management costs and LIFO inventory decrement benefits from inventory liquidations at closed facilities, all of which are primarily included in Cost of goods sold.
23. Sales Volume – With respect to sales and revenues, sales volume represents the impact of changes in the quantities sold for Machinery, Energy & Transportation as well as the incremental sales impact of new product introductions, including emissions-relatedproduct updates.Withrespect tooperatingprofit,salesvolume representsthe impact ofchangesinthe quantitiessoldforMachinery,Energy& Transportationcombinedwithproduct mixaswell asthe net operatingprofit impact of new product introductions, including emissions-related product updates. Product mix represents the net operating profit impact ofchangesinthe relative weightingofMachinery,Energy& Transportationsaleswithrespect tototal sales. The impact of sales volume on segment profit includes inter-segment sales.
24. Services–Enterpriseservicesinclude,butarenotlimitedto,aftermarketparts,FinancialProductsrevenuesandother service-related revenues. Machinery, Energy & Transportation segments exclude most Financial Products revenues.
LIQUIDITY AND CAPITAL RESOURCES
Sources of funds
We generate significant capital resources from operating activities, which are the primary source of funding for our ME&T operations. Funding for these businesses is also available from commercial paper and long-term debt issuances. Financial Products’operationsarefundedprimarilyfromcommercialpaper,termdebtissuancesandcollectionsfromitsexisting portfolio. On a consolidated basis, we had positive operating cash flow in the first nine months of 2022 and ended the third quarter with $6.35 billion of cash, a decrease of $2.91 billion from year-end 2021. In addition, ME&T has invested in available- for-sale debt securitiesthat are consideredhighlyliquidandare available forcurrent operations.These securitiesare includedin Prepaidexpensesandothercurrent assetsandOtherassetsinthe ConsolidatedStatement ofFinancial Positionandwere $982 million at the end of September 30, 2022. We intend to maintain a strong cash and liquidity position.
Consolidated operating cash flow for the first nine months of 2022 was $5.03 billion, down $759 million compared to the same periodayearago.Thedecreasewasprimarilyduetopaymentsforshort-termincentivecompensationinthefirstquarterof 2022 as well as higher cash taxes paid which includes payments related to settlements with the U.S. Internal Revenue Service. Partially offsetting these items was higher profit adjusted for non-cash items during the first nine months of 2022 compared to the same period last year.
TotaldebtasofSeptember30,2022was$36.53billion,adecreaseof$1.26billionfromyear-end2021.DebtrelatedtoME&T decreased $192 million in the first nine months of 2022 while debt related to Financial Products decreased $1.07 billion.
AsofSeptember30,2022,wehadthreeglobalcreditfacilitieswithasyndicateofbankstotaling$10.50billion(Credit Facility) available in the aggregate to both Caterpillar and Cat Financial for general liquidity purposes. Based on management’s allocationdecision,whichcanbe revisedfrom time totime,the portionofthe Credit Facilityavailable toME&T asof September 30, 2022 was $2.75 billion. Information on our Credit Facility is as follows:
• In September 2022, we entered into a new 364-day facility. The 364-day facility of $3.15 billion (of which $825 million is available to ME&T) expires in August 2023.
• In September 2022, we amended and restated the three-year facility (as amended and restated, the "three-year facility").Thethree-yearfacilityof$2.73billion(ofwhich$715millionisavailabletoME&T)expiresinAugust 2025.
• InSeptember2022,weamendedandrestatedthefive-yearfacility(asamendedandrestated,the"five-yearfacility"). The five-year facility of $4.62 billion (of which $1.21 billion is available to ME&T) expires in September 2027.
At September 30, 2022, Caterpillar’s consolidated net worth was $15.69 billion, which was above the $9.00 billion required under the Credit Facility. The consolidated net worth is defined in the Credit Facility as the consolidated shareholders’ equity including preferred stock but excluding the pension and other postretirement benefits balance within Accumulated other comprehensive income (loss).
At September 30, 2022, Cat Financial’s covenant interest coverage ratio was 2.59 to 1. This was above the 1.15 to 1 minimum ratio calculated as (1) profit excluding income taxes, interest expense and net gain (loss) from interest rate derivatives to (2) interest expense calculated at the end of each calendar quarter for the rolling four quarter period then most recently ended, required by the Credit Facility.
In addition, at September 30, 2022, Cat Financial’s six-month covenant leverage ratio was 7.03 to 1. This was below the maximumratioofdebttonetworthof10to1,calculated(1)onamonthlybasisastheaverageoftheleverageratios determined on the last day of each of the six preceding calendar months and (2) at each December 31, required by the Credit Facility.
In the event Caterpillar or Cat Financial does not meet one or more of their respective financial covenants under the Credit Facility in the future (and are unable to obtain a consent or waiver), the syndicate of banks may terminate the commitments allocated to the party that does not meet its covenants. Additionally, in such event, certain of Cat Financial’s other lenders under other loan agreements where similar financial covenants or cross default provisions are applicable may, at their election, choose to pursue remedies under those loan agreements, including accelerating the repayment of outstanding borrowings. At September 30, 2022, there were no borrowings under the Credit Facility.
Our total credit commitments and available credit as of September 30, 2022 were:
(Millions of dollars)
Credit lines available:
Consolidated
Machinery, Energy & Transportation
Financial Products
The other external consolidated credit lines with banks as of September 30, 2022 totaled $3.35 billion. These committed and uncommittedcreditlines,whichmaybeeligibleforrenewalatvariousfuturedatesorhavenospecifiedexpirationdate,are usedprimarilybyoursubsidiariesforlocal fundingrequirements.CaterpillarorCat Financial mayguarantee subsidiary borrowings under these lines.
We receive debt ratings from the major credit rating agencies. Moody’s, Fitch and S&P maintain a “mid-A” debt rating. A downgrade of our credit ratings by any of the major credit rating agencies would result in increased borrowing costs and could make access to certain credit markets more difficult. In the event economic conditions deteriorate such that access to debt marketsbecomesunavailable,ME&T’soperationswouldrelyoncashflowfrom operations,use ofexistingcashbalances, borrowings from Cat Financial and access to our committed credit facilities. Our Financial Products’ operations would rely on cash flow from its existing portfolio, existing cash balances, access to our committed credit facilities and other credit line facilities of Cat Financial, and potential borrowings from Caterpillar. In addition, we maintain a support agreement with Cat Financial, which requires Caterpillar to remain the sole owner of Cat Financial and may, under certain circumstances, require Caterpillar to make payments to Cat Financial should Cat Financial fail to maintain certain financial ratios.
We facilitate voluntary supply chain finance programs (the “Programs”) through participating financial institutions. The Programs are available to a wide range of suppliers and allow them the option to manage their cash flow. We are not a party to the agreements between the participating financial institutions and the suppliers in connection with the Programs. The range of paymenttermswenegotiatewithoursuppliersisconsistent,irrespectiveofwhetherasupplierparticipatesinthePrograms. TheamountspayabletoparticipatingfinancialinstitutionsforsupplierswhovoluntarilyparticipateintheProgramsand included in accounts payable in the Consolidated Statement of Financial Position were $894 million and $822 million at September 30, 2022 and December 31, 2021, respectively. The amounts settled through the Programs and paid to participating financial institutionswere $4.0billionand$2.9billionduringthe first nine monthsof2022and2021,respectively. We account for payments made under the Programs, the same as our other accounts payable, as a reduction to our cash flows from operations. We do not believe that changes in the availability of supply chain financing will have a significant impact on our liquidity.
Machinery, Energy & Transportation
Net cash provided by operating activities was $3.19 billion in the first nine months of 2022, compared with net cash provided of $4.90 billion for the same period in 2021. The decrease was primarily due to payments for short-term incentive compensation in the first quarter of 2022, higher payments for taxes which includes payments related to settlements with the U.S. Internal Revenue Service and increased working capital requirements during the first nine months of 2022 compared to the same period last year. Within working capital, changes in inventory, accounts payable and accrued expenses unfavorably impacted cash flow but were partially offset by favorable changes in customer advances and accounts receivable. Partially offsetting these unfavorable items was higher profit adjusted for non-cash items during the first nine months of 2022 compared to the same period a year ago.
Net cash used by investing activities in the first nine months of 2022 was $881 million, compared with net cash used of $487 million in the first nine months of 2021. The change was primarily due to decreased activity related to intercompany lending with Financial Products and was partially offset by decreases in net investment activity.
Netcashusedforfinancingactivitiesduringthefirstninemonthsof2022was$5.29billion,comparedwithnetcashusedof $4.67billioninthesameperiodof2021.Thechangewasprimarilyduetohighersharerepurchasesinthefirstninemonthsof 2022andtheabsenceofproceedsfromdebtissuanceswhichoccurredinthefirstninemonthsof2021. Theseitemswere partially offset by lower repayments of maturing debt during the first nine months of 2022.
Whileourshort-termprioritiesfortheuseofcashmayvaryfromtimetotimeasbusinessneedsandconditionsdictate,our long-term cash deployment strategy is focused on the following priorities. Our top priority is to maintain a strong financial position in support of a mid-A rating. Next, we intend to fund operational requirements and commitments. Then, we intend to fund priorities that profitably grow the company and return capital to shareholders through dividend growth and share repurchases. Additional information on cash deployment is as follows:
Strongfinancialposition – Our top priority is to maintain a strong financial position in support of a mid-A rating. We track a diverse group of financial metrics that focus on liquidity, leverage, cash flow and margins which align with our cash deployment actions and the various methodologies used by the major credit rating agencies.
Operationalexcellenceandcommitments–Capitalexpenditureswere$880millionduringthefirstninemonthsof 2022, compared to $693 million for the same period in 2021. We expect ME&T’s capital expenditures in 2022 to be about $1.4 billion. We made $299 million of contributions to our pension and other postretirement benefit plans during the first nine months of 2022. We currently anticipate full-year 2022 contributions of approximately $357 million. In comparison, we made $229 million of contributions to our pension and other postretirement benefit plans during the first nine months of 2021.
Fundstrategicgrowthinitiativesandreturncapitaltoshareholders–We intendtoutilize ourliquidityanddebt capacity to fund targeted investments that drive long-term profitable growth focused in the areas of expanded offerings and services, including acquisitions.
As part of our capital allocation strategy, ME&T free cash flow is a liquidity measure we use to determine the cash generated and available for financing activities including debt repayments, dividends and share repurchases. We define ME&T free cash flow as cash from ME&T operations less capital expenditures, excluding discretionary pension and other postretirement benefit plan contributions and cash payments related to settlements with the U.S. Internal Revenue Service.Agoal ofourcapital allocationstrategyistoreturnsubstantiallyall ME&T free cashflowto shareholders over time in the form of dividends and share repurchases, while maintaining our mid-A rating.
Our share repurchase plans are subject to the company’s cash deployment priorities and are evaluated on an ongoing basis considering the financial condition of the company and the economic outlook, corporate cash flow, the company’s liquidity needs, and the health and stability of global credit markets. The timing and amount of future repurchases may vary depending on market conditions and investing priorities. In July 2018, the Board approved a repurchaseauthorization(the2018Authorization)ofupto$10.0billionofCaterpillarcommonstockeffectiveJanuary 1,2019,withnoexpiration.InMay2022,theBoardapprovedanewsharerepurchaseauthorization(the2022 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 $70 million unutilizedunderthe2018AuthorizationasofSeptember30,2022.Inthefirstninemonthsof2022,werepurchased $3.31 billion of Caterpillar common stock, with $13.7 billion remaining under the 2022 Authorization as of September 30, 2022. Our basic shares outstanding as of September 30, 2022 were approximately 520 million.
Each quarter, our Board of Directors reviews the company’s dividend for the applicable quarter. The Board evaluates the financial condition of the company and considers the economic outlook, corporate cash flow, the company’s liquidity needs, and the health and stability of global credit markets to determine whether to maintain or change the quarterlydividend.InOctober2022,theBoardofDirectorsapprovedmaintainingourquarterlydividendrepresenting $1.20 per share, and we continue to expect our strong financial position to support the dividend. Dividends paid totaled $1.82 billion in the first nine months of 2022.
Financial Products
Financial Products operating cash flow was $1.25 billion in the first nine months of 2022, compared with $1.10 billion for the sameperiodayearago.Netcashusedforinvestingactivitieswas$228millionforthefirstninemonthsof2022,compared with net cash used of $468 million for the same period in 2021. The change was primarily due to portfolio related activity. Net cashusedforfinancingactivitieswas$872millionforthe first nine monthsof2022comparedwithnet cashusedof$289 million for the same period in 2021. The change was primarily due to lower portfolio funding requirements.
FinancialProductsendedthethirdquarterof2022with$943millionofcash,including$142millioninRussiawhichis currently subject to local government restrictions that substantially limit transfer outside of the country.
RECENT ACCOUNTING PRONOUNCEMENTS
For a discussion of recent accounting pronouncements, see Part I, Item 1. Note 2 - “New accounting guidance”.
CRITICAL ACCOUNTING ESTIMATES
For a discussion of the company’s critical accounting estimates, see Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Annual Report on Form 10-K. There have been no significant changes to our critical accounting estimates since our 2021 Annual Report on Form 10-K.
OTHER MATTERS
InformationrelatedtolegalproceedingsappearsinNote14—EnvironmentalandLegalMattersofPartII,Item8“Financial Statements and Supplementary Data.”
Retirement Benefits
We recognize mark-to-market gains and losses immediately through earnings upon the remeasurement of our pension and OPEB plans. Mark-to-market gains and losses represent the effects of actual results differing from our assumptions and the effectsofchangingassumptions.Wewillrecordtheannualmark-to-marketadjustmentasofthemeasurementdate,December 31, 2022. It is difficult to predict the December 31, 2022 adjustment amount, as it will be dependent primarily on changes in discount rates during 2022, and actual returns on plan assets differing from our expected returns for 2022.
Order Backlog
Attheendofthethirdquarterof2022,thedollaramountofbacklogbelievedtobefirmwasapproximately$30.0billion,about $1.6 billion higher than the second quarter of 2022. The order backlog increase was primarily driven by Energy & Transportation and Construction Industries. Of the total backlog at September 30, 2022, approximately $5.7 billion was not expected to be filled in the following twelve months.
NON-GAAP FINANCIAL MEASURES
We provide the followingdefinitionsforthe non-GAAPfinancial measuresusedinthisreport.These non-GAAPfinancial measures have no standardized meaning prescribed by U.S. GAAP and therefore are unlikely to be comparable to the calculation of similar measures for other companies. Management does not intend these items to be considered in isolation or as a substitute for the related GAAP measures.
Webelieveitisimportanttoseparatelyquantifytheprofitimpactofonesignificantiteminorderforourresultstobe meaningful to our readers. This item consists of restructuring costs, which were incurred to generate longer-term benefits. We do not consider this item indicative of earnings from ongoing business activities and believe the non-GAAP measure provides investors with useful perspective on underlying business results and trends and aids with assessing our period-over-period results. In addition, we provide a calculation of ME&T free cash flow as we believe it is an important measure for investors to determine the cash generation available for financing activities including debt repayments, dividends and share repurchases.
Reconciliations of adjusted results to the most directly comparable GAAP measures are as follows:
(Dollars in millions except per share data)
ReconciliationsofME&TfreecashflowtothemostdirectlycomparableGAAPmeasure,netcashprovidedbyoperating activities are as follows:
(Millions of dollars) Nine Months Ended September 30 2022 2021
ME&T net cash provided by operating activities1............................................................................. $ 3,191 $ 4,899
ME&T capital expenditures................................................................................................................ (880) (693) Cash payments related to settlements with the U.S. Internal Revenue Service.................................. 467 — ME&T free cash flow.......................................................................................................................... $ 2,778 $ 4,206 1See reconciliation of ME&T net cash provided by operating activities to consolidated net cash provided by operating activities on pages 73 - 74.
Supplemental Consolidating Data
We are providing supplemental consolidating data for the purpose of additional analysis. The data has been grouped as follows:
Consolidated – Caterpillar Inc. and its subsidiaries.
Machinery, Energy & Transportation – We define ME&T as it is presented in the supplemental data 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 it is presented in the supplemental data 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.
Consolidating Adjustments – Eliminations of transactions between ME&T and Financial Products.
The nature of the ME&T and Financial Products businesses is different, especially with regard to the financial position and cash flow items. Caterpillar management utilizes this presentation internally to highlight these differences. We believe this presentation will assist readers in understanding our business.
Pages67to74reconcileME&TandFinancialProductstoCaterpillarInc.consolidatedfinancialinformation.Certainamounts for prior periods have been reclassified to conform to the current period presentation.
Caterpillar Inc. Supplemental Data for Results of Operations For the Three Months Ended September 30, 2022 (Unaudited) (Millions of dollars)
Supplemental Consolidating Data Machinery,
Sales and revenues:
Consolidated Energy & Transportation
Products
Adjustments
Operating costs:
1 Elimination of Financial Products’ revenues earned from ME&T. 2 Elimination of net expenses recorded by ME&T paid to Financial Products. 3 Elimination of interest expense recorded between Financial Products and ME&T. 4 Elimination of discount recorded by ME&T on receivables sold to Financial Products and of interest earned between ME&T and Financial Products as well as dividends paid by Financial Products to ME&T. 5 Elimination of equity profit (loss) earned from Financial Products’ subsidiaries partially owned by ME&T subsidiaries. 6 Elimination of noncontrolling interest profit (loss) recorded by Financial Products for subsidiaries partially owned by ME&T subsidiaries. 7 Profit attributable to common shareholders.
Caterpillar Inc. Supplemental Data for Results of Operations For the Nine Months Ended September 30, 2022 (Unaudited) (Millions of dollars)
Supplemental Consolidating Data Machinery,
Sales and revenues:
Consolidated Energy & Transportation
Products
Adjustments
Operating costs:
1 Elimination of Financial Products’ revenues earned from ME&T. 2 Elimination of net expenses recorded by ME&T paid to Financial Products. 3 Elimination of interest expense recorded between Financial Products and ME&T. 4 Elimination of discount recorded by ME&T on receivables sold to Financial Products and of interest earned between ME&T and Financial Products as well as dividends paid by Financial Products to ME&T. 5 Elimination of equity profit (loss) earned from Financial Products’ subsidiaries partially owned by ME&T subsidiaries. 6 Elimination of noncontrolling interest profit (loss) recorded by Financial Products for subsidiaries partially owned by ME&T subsidiaries. 7 Profit attributable to common shareholders.
Caterpillar Inc. Supplemental Data for Results of Operations For the Three Months Ended September 30, 2021 (Unaudited) (Millions of dollars)
Supplemental Consolidating Data Machinery,
Sales and revenues:
Consolidated Energy & Transportation
Products
Adjustments Sales of Machinery, Energy & Transportation.......................... $ 11,707 $ 11,707 $ — $ — Revenues of Financial Products................................................. 690 — 787 (97)1 Total sales and revenues............................................................ 12,397 11,707 787 (97)
Operating costs: Cost of goods sold...................................................................... 8,617 8,618 — (1)2 Selling, general and administrative expenses............................ 1,340 1,147 200 (7)2 Research and development expenses......................................... 427 427 — — Interest expense of Financial Products...................................... 111 — 111 — Other operating (income) expenses........................................... 238 (56) 310 (16)2 Total operating costs.................................................................. 10,733 10,136 621 (24) Operating profit.............................................................................. 1,664 1,571 166 (73) Interest expense excluding Financial Products.......................... 114 114 — — Other income (expense)............................................................. 225 143 9 73 3 Consolidated profit before taxes.................................................... 1,775 1,600 175 — Provision (benefit) for income taxes.......................................... 368 331 37 — Profit of consolidated companies............................................... 1,407 1,269 138 —
Equity in profit (loss) of unconsolidated affiliated companies.. 21 23 — (2)4
Profit of consolidated and affiliated companies........................... 1,428 1,292 138 (2) Less: Profit (loss) attributable to noncontrolling interests................ 2 1 3 (2)5 Profit6............................................................................................... $ 1,426 $ 1,291 $ 135 $ —
1 Elimination of Financial Products’ revenues earned from ME&T. 2 Elimination of net expenses recorded by ME&T paid to Financial Products. 3 Elimination of discount recorded by ME&T on receivables sold to Financial Products and of interest earned between ME&T and Financial Products as well as dividends paid by Financial Products to ME&T. 4 Elimination of equity profit (loss) earned from Financial Products’ subsidiaries partially owned by ME&T subsidiaries. 5 Elimination of noncontrolling interest profit (loss) recorded by Financial Products for subsidiaries partially owned by ME&T subsidiaries. 6 Profit attributable to common shareholders.
Caterpillar Inc. Supplemental Data for Results of Operations For the Nine Months Ended September 30, 2021 (Unaudited) (Millions of dollars)
Supplemental Consolidating Data Machinery,
Sales and revenues:
Consolidated Energy & Transportation
Products
Adjustments
1 Elimination of Financial Products’ revenues earned from ME&T. 2 Elimination of net expenses recorded by ME&T paid to Financial Products. 3 Elimination of discount recorded by ME&T on receivables sold to Financial Products and of interest earned between ME&T and Financial Products as well as dividends paid by Financial Products to ME&T. 4 Elimination of equity profit (loss) earned from Financial Products’ subsidiaries partially owned by ME&T subsidiaries. 5 Elimination of noncontrolling interest profit (loss) recorded by Financial Products for subsidiaries partially owned by ME&T subsidiaries. 6 Profit attributable to common shareholders.
Caterpillar Inc. Supplemental Data for Financial Position At September 30, 2022 (Unaudited) (Millions of dollars)
Supplemental Consolidating Data Machinery,
Assets Current assets:
Consolidated Energy & Transportation
Products
Adjustments
2
2
Liabilities Current liabilities:
1 Elimination of receivables between ME&T and Financial Products. 2 Reclassification of ME&T’s trade receivables purchased by Financial Products and Financial Products’ wholesale inventory receivables. 3 Elimination of ME&T’s insurance premiums that are prepaid to Financial Products. 4 Reclassification reflecting required netting of deferred tax assets/liabilities by taxing jurisdiction. 5 Elimination of other intercompany assets between ME&T and Financial Products. 6 Elimination of payables between ME&T and Financial Products. 7 Elimination of prepaid insurance in Financial Products’ other liabilities. 8 Elimination of debt between ME&T and Financial Products. 9 Eliminations associated with ME&T’s investments in Financial Products’ subsidiaries.
Caterpillar Inc. Supplemental Data for Financial Position At December 31, 2021 (Unaudited) (Millions of dollars)
Supplemental Consolidating Data Machinery,
Assets Current assets:
Consolidated Energy & Transportation
Products
Adjustments
2
2
Liabilities Current liabilities:
1 Elimination of receivables between ME&T and Financial Products. 2 Reclassification of ME&T’s trade receivables purchased by Financial Products and Financial Products’ wholesale inventory receivables. 3 Elimination of ME&T’s insurance premiums that are prepaid to Financial Products. 4 Reclassification reflecting required netting of deferred tax assets/liabilities by taxing jurisdiction. 5 Elimination of other intercompany assets between ME&T and Financial Products. 6 Elimination of payables between ME&T and Financial Products. 7 Elimination of prepaid insurance in Financial Products' other liabilities. 8 Elimination of debt between ME&T and Financial Products. 9 Eliminations associated with ME&T’s investments in Financial Products’ subsidiaries.
Caterpillar Inc. Supplemental Data for Cash Flow For the Nine Months Ended September 30, 2022 (Unaudited) (Millions of dollars)
Supplemental Consolidating Data Machinery,
Cash flow from operating activities:
Consolidated Energy & Transportation
Products
Adjustments
3
Cash flow from financing activities: Dividends paid.................................................................................................. (1,820) (1,820) — — Common stock issued, including treasury shares reissued............................... 2 2 — — Common shares repurchased............................................................................ (3,309) (3,309) — — Net intercompany borrowings.......................................................................... — (5) — 5 4 Proceeds from debt issued (original maturities greater than three months)..... 5,570 — 5,570 — Payments on debt (original maturities greater than three months)................... (5,289) (20) (5,269) — Short-term borrowings – net (original maturities three months or less)........... (1,311) (138) (1,173) — Other – net........................................................................................................ (1) (1) — — Net cash provided by (used for) financing activities........................................... (6,158) (5,291) (872) 5 Effect of exchange rate changes on cash............................................................. (79) (42) (37) — Increase (decrease) in cash, cash equivalents and restricted cash................. (2,908) (3,023) 115 — Cash, cash equivalents and restricted cash at beginning of period...................... 9,263 8,433 830 — Cash, cash equivalents and restricted cash at end of period................................ $ 6,355 $ 5,410 $ 945 $ —
1 Elimination of equity profit earned from Financial Products' subsidiaries partially owned by ME&T subsidiaries. 2 Elimination of non-cash adjustments and changes in assets and liabilities related to consolidated reporting. 3 Reclassification of Financial Products’cash flow activity from investing to operating for receivables that arose from the sale of inventory. 4 Elimination of net proceeds and payments to/from ME&T and Financial Products.
Caterpillar Inc. Supplemental Data for Cash Flow For the Nine Months Ended September 30, 2021 (Unaudited) (Millions of dollars)
Supplemental Consolidating Data Machinery,
Cash flow from operating activities:
Consolidated Energy & Transportation
Products
Adjustments
1 Elimination of equity profit earned from Financial Products' subsidiaries partially owned by ME&T subsidiaries. 2 Elimination of non-cash adjustments and changes in assets and liabilities related to consolidated reporting. 3 Reclassification of Financial Products’ cash flow activity from investing to operating for receivables that arose from the sale of inventory. 4 Elimination of net proceeds and payments to/from ME&T and Financial Products. 5 Elimination of dividend activity between Financial Products and ME&T.
Forward-looking Statements
Certain statements in this Form 10-Q relate to future events and expectations and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “believe,” “estimate,” “will be,” “will,” “would,” “expect,” “anticipate,” “plan,” “forecast,” “target,” “guide,” “project,” “intend,” “could,” “should” or other similar words or expressions often identify forward-looking statements. All statements other than statements of historical fact are forward-looking statements, including, without limitation, statements regarding our outlook, projections, forecasts or trend descriptions. These statements do not guarantee future performance and speak only as of the date they are made, and we do not undertake to update our forward-looking statements.
Caterpillar’s actual results may differ materially from those described or implied in our forward-looking statements based on a number of factors, including, but not limited to: (i) global and regional economic conditions and economic conditions in the industries we serve; (ii) commodity price changes, material price increases, fluctuations in demand for our products or significant shortages of material; (iii) government monetary or fiscal policies; (iv) political and economic risks, commercial instability and events beyond our control in the countries in which we operate; (v) international trade policies and their impact on demand for our products and our competitive position, including the imposition of new tariffs or changes in existing tariff rates; (vi) our ability to develop, produce and market quality products that meet our customers’ needs; (vii) the impact of the highly competitive environment in which we operate on our sales and pricing; (viii) information technology security threats and computer crime; (ix) inventory management decisions and sourcing practices of our dealers and our OEM customers; (x) a failure to realize, or a delay in realizing, all of the anticipated benefits of our acquisitions, joint ventures or divestitures; (xi) union disputes or other employee relations issues; (xii) adverse effects of unexpected events; (xiii) disruptions or volatility in global financial markets limiting our sources of liquidity or the liquidity of our customers, dealers and suppliers; (xiv) failure to maintain our credit ratings and potential resulting increases to our cost of borrowing and adverse effects on our cost of funds, liquidity, competitive position and access to capital markets; (xv) our Financial Products segment’s risks associated with the financial services industry; (xvi) changes in interest rates or market liquidity conditions; (xvii) an increase in delinquencies, repossessions or net losses of Cat Financial’s customers; (xviii) currency fluctuations; (xix) our or Cat Financial’s compliance with financial and other restrictive covenants in debt agreements; (xx) increased pension plan funding obligations; (xxi) alleged or actual violations of trade or anti-corruption laws and regulations; (xxii) additional tax expense or exposure, including the impact of U.S. tax reform; (xxiii) significant legal proceedings, claims, lawsuits or government investigations; (xxiv) new regulations or changes in financial services regulations; (xxv) compliance with environmental laws and regulations; (xxvi) the duration and geographic spread of, business disruptions caused by, and the overall global economic impact of, the COVID-19 pandemic; and (xxvii) other factors described in more detail under the section entitled "Part I - Item 1A. Risk Factors" of Caterpillar's Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as such factors may be updated from time to time in Caterpillar's periodic filings with the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The informationrequiredbythisItem isincorporatedbyreference from Note 5–“Derivative financial instrumentsandrisk management” included in Part I, Item 1 and Management’s Discussion and Analysis included in Part I, Item 2 of this Form 10- Q.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
An evaluation was performed under the supervision and with the participation of the company’s management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the company’sdisclosurecontrolsandprocedures,asthattermisdefinedinRule13a-15(e)undertheSecuritiesExchangeActof 1934, as amended, as of the end of the period covered by this quarterly report. Based on that evaluation, the CEO and CFO concluded that the company’s disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.
Changes in internal control over financial reporting
Duringthethirdquarterof2022,therehasbeennochangeinthecompany’sinternalcontroloverfinancialreportingthathas materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
TheinformationrequiredbythisItemisincorporatedbyreferencefromNote14–“Environmentalandlegalmatters”included in Part I, Item 1 of this Form 10-Q.
Item 1A. Risk Factors
TherehavebeennomaterialchangestotheriskfactorswepreviouslydisclosedinourAnnualReportonForm10-Kforthe year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Period
Total Number of Shares Purchased2
Average Price Paid per Share2
Total Number of Shares Purchased as Part of Publicly Announced Program
(in billions)1 July 1-31, 2022 591,861 $ 177.08 591,861 $ 0.070 August 1-31, 2022 3,015,701 $ 192.33 3,015,701 $ 14.420 September 1-30, 2022 3,967,760 $ 176.42 3,967,760 $ 13.720 Total 7,575,322 $ 182.80 7,575,322
1In 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 ofSeptember 30, 2022. As of September 30, 2022, $13.7 billion remained available under the 2022 Authorization.
2 In July, August and September of 2022, we repurchased0.6 million, 3.0 million and 4.0 million shares respectively, for an aggregate of$1.4 billion in open market transactions at an average price per share of$177.08, $192.33 and $176.42, respectively.
Non-U.S. Employee Stock Purchase Plans
As of September 30, 2022, we had 28 employee stock purchase plans (the “EIP Plans”) that are administered outside the United Statesforournon-U.S.employees,whichhadapproximately13,000activeparticipantsintheaggregate. Duringthethird quarter of 2022, approximately 81,000 shares of Caterpillar common stock were purchased by the EIP Plans pursuant to the terms of such plans.
Item 6. Exhibits
10.1 Fourth Amendment to the Caterpillar Inc. 2006 Long-Term Incentive Plan*
10.2 First Amendment to the Caterpillar Inc. 2014 Long-Term Incentive Plan*
10.3 Second Amendment to the Caterpillar Inc. Supplemental Retirement Plan*
10.4 Fourth Amendment to the Caterpillar Inc. Supplemental Employees' Investment Plan*
10.5 Second Amendment to the Caterpillar Inc. Directors' Deferred Compensation Plan*
10.6 Fourth Amendment to the Caterpillar Inc. Deferred Employees' Investment Plan*
10.7 Fifth Amendment to the Caterpillar Inc. Supplement Deferred Compensation Plan*
10.8 364-Day Credit Agreement dated September 1, 2022 (incorporated by reference from Exhibit 10.1 to the Company's Current Report on Form 8-K filed September 6, 2022)
10.9 Local Currency Addendum to the 364-Day Credit Agreement dated September 1, 2022 (incorporated by reference from Exhibit 10.2 to the Company's Current Report on Form 8-K filed September 6, 2022)
10.10 Japan Local Currency Addendum to the 364-Day Credit Agreement dated September 1, 2022 (incorporated by reference from Exhibit 10.3 to the Company's Current Report on Form 8-K filed September 6, 2022)
10.11 Third Amended and Restated Credit Agreement (Three-Year Facility) dated September 1, 2022 (incorporated by reference from Exhibit 10.4 to the Company's Current Report on Form 8-K filed September 6, 2022)
10.12 Local Currency Addendum to the Third Amended and Restated Credit Agreement (Three-Year Facility) dated September 1, 2022 (incorporated by reference from Exhibit 10.5 to the Company's Current Report on Form 8-K filed September 6, 2022)
10.13 Japan Local Currency Addendum to the Third Amended and Restated Credit Agreement (Three-Year Facility) dated September 1, 2022 (incorporated by reference from Exhibit 10.6 to the Company's Current Report on Form 8-K filed September 6, 2022)
10.14 Third Amended and Restated Credit Agreement (Five-Year Facility) dated September 1, 2022 (incorporated by reference from Exhibit 10.7 to the Company's Current Report on Form 8-K filed September 6, 2022)
10.15 Local Currency Addendum to the Third Amended and Restated Credit Agreement (Five-Year Facility) dated September 1, 2022 (incorporated by reference from Exhibit 10.8 to the Company's Current Report on Form 8-K filed September 6, 2022)
10.16 Japan Local Currency Addendum to the Third Amended and Restated Credit Agreement (Five-Year Facility) dated September 1, 2022 (incorporated by reference from Exhibit 10.9 to the Company's Current Report on Form 8-K filed September 6, 2022)
31.1 Certification of Chief Executive Officer of Caterpillar Inc., as required pursuant to Section 302 of the Sarbanes- Oxley Act of 2002
31.2 Certification of Chief Financial Officer of Caterpillar Inc., as required pursuant to Section 302 of the Sarbanes- Oxley Act of 2002
32 Certification of Chief Executive Officer of Caterpillar Inc. and Chief Financial Officer of Caterpillar Inc., as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive File (embedded within the Inline XBRL document and included in Exhibit 101)
*Management contracts and compensatory plans and arrangements required to be filed as exhibits pursuant to Item 6 of this report.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CATERPILLAR INC.
November 2, 2022
D. James Umpleby III
November 2, 2022 /s/ Andrew R.J. Bonfield Chief Financial Officer Andrew R.J. Bonfield
November 2, 2022 /s/ Suzette M. Long Chief Legal Officer and General Counsel Suzette M. Long
November 2, 2022 /s/ William E. Schaupp Vice President and Chief Accounting Officer William E. Schaupp
November 2, 2022 /s/ D. James Umpleby III Chief Executive Officer D. James Umpleby III
November 2, 2022 /s/ Andrew R.J. Bonfield Chief Financial Officer Andrew R.J. Bonfield
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Caterpillar Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
November 2, 2022 /s/ D. James Umpleby III Chief Executive Officer D. James Umpleby III
November 2, 2022 /s/ Andrew R.J. Bonfield Chief Financial Officer Andrew R.J. Bonfield
A signed original of this written statement required by Section 906 has been provided to Caterpillar Inc. and will be retained by Caterpillar Inc. and furnished to the Securities and Exchange Commission or its staff upon request. Fichier PDF dépôt réglementaire Document : Caterpillar Inc.: Files Form 10-Q FQE 30 Sept 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Langue : | Français |
| Entreprise : | Caterpillar Inc. |
| 5205 N. O'Connor Boulevard | |
| 75039 Irving | |
| États-Unis | |
| Téléphone : | 972-891-7700 |
| Internet : | www.caterpillar.com |
| ISIN : | US1491231015 |
| Ticker Euronext : | CATR |
| Catégorie AMF : | Informations privilégiées / Communiqué sur comptes, résultats |
| EQS News ID : | 1477857 |
| Fin du communiqué | EQS News-Service |
1477857 02-Nov-2022 CET/CEST
