CATERPILLAR INC - Quarter Report: 2022 June (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2022

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

For the transition period from to

Commission File Number: 1-768

CATERPILLAR INC.

(Exact name of registrant as specified in its charter)

Delaware

37-0602744

(State or other jurisdiction of incorporation)

(IRS Employer I.D. No.)

510 Lake Cook Road,

Suite 100,

Deerfield,

Illinois

60015

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (224) 551-4000

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

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


Title of each class	Trading Symbol (s)	Name of each exchange on which registered
Common Stock ($1.00 par value)	CAT	New York Stock Exchange	¹
8% Debentures due February 15, 2023	CAT23	New York Stock Exchange
5.3% Debentures due September 15, 2035	CAT35	New York Stock Exchange

¹ In addition to the New York Stock Exchange, Caterpillar common stock is also listed on stock exchanges in France and Switzerland.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

At June 30, 2022, 527,909,143 shares of common stock of the registrant were outstanding.

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Part I. Financial Information
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	45
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	74
Item 4.	Controls and Procedures	74

Part II. Other Information
Item 1.	Legal Proceedings	75
Item 1A.	Risk Factors	75
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	75
Item 3.	Defaults Upon Senior Securities	*
Item 4.	Mine Safety Disclosures	*
Item 5.	Other Information	*
Item 6.	Exhibits	76

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

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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 June 30
	2022		2021
Sales and revenues:
Sales of Machinery, Energy & Transportation	$	13,539	$	12,193
Revenues of Financial Products	708		696
Total sales and revenues	14,247		12,889

Operating costs:
Cost of goods sold	9,975		8,881
Selling, general and administrative expenses	1,425		1,364
Research and development expenses	480		446
Interest expense of Financial Products	120		116
Other operating (income) expenses	303		293
Total operating costs	12,303		11,100

Operating profit	1,944		1,789

Interest expense excluding Financial Products	108		120
Other income (expense)	260		201

Consolidated profit before taxes	2,096		1,870

Provision (benefit) for income taxes	427		470
Profit of consolidated companies	1,669		1,400

Equity in profit (loss) of unconsolidated affiliated companies	4		14

Profit of consolidated and affiliated companies	1,673		1,414

Less: Profit (loss) attributable to noncontrolling interests	—		1

Profit 1	$	1,673	$	1,413

Profit per common share	$	3.15	$	2.58

Profit per common share – diluted 2	$	3.13	$	2.56

Weighted-average common shares outstanding (millions)
– Basic	531.0		547.9
– Diluted 2	534.1		552.1

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.

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Caterpillar Inc.

Consolidated Statement of Comprehensive Income

(Unaudited)

(Dollars in millions)


	Three Months Ended June 30
	2022		2021

Profit of consolidated and affiliated companies	$	1,673	$	1,414
Other comprehensive income (loss), net of tax (Note 13):
Foreign currency translation:	(659)		99
Pension and other postretirement benefits:	(1)		(7)
Derivative financial instruments:	(86)		43
Available-for-sale securities:	(43)		1

Total other comprehensive income (loss), net of tax	(789)		136
Comprehensive income	884		1,550
Less: comprehensive income attributable to the noncontrolling interests	—		1
Comprehensive income attributable to shareholders	$	884	$	1,549

See accompanying notes to Consolidated Financial Statements.

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Caterpillar Inc.

Consolidated Statement of Results of Operations

(Unaudited)

(Dollars in millions except per share data)


	Six Months Ended June 30
	2022		2021
Sales and revenues:
Sales of Machinery, Energy & Transportation	$	26,425	$	23,384
Revenues of Financial Products	1,411		1,392
Total sales and revenues	27,836		24,776

Operating costs:
Cost of goods sold	19,534		16,893
Selling, general and administrative expenses	2,771		2,603
Research and development expenses	937		820
Interest expense of Financial Products	226		241
Other operating (income) expenses	569		616
Total operating costs	24,037		21,173

Operating profit	3,799		3,603

Interest expense excluding Financial Products	217		262
Other income (expense)	513		526

Consolidated profit before taxes	4,095		3,867

Provision (benefit) for income taxes	896		945
Profit of consolidated companies	3,199		2,922

Equity in profit (loss) of unconsolidated affiliated companies	11		23

Profit of consolidated and affiliated companies	3,210		2,945

Less: Profit (loss) attributable to noncontrolling interests	—		2

Profit 1	$	3,210	$	2,943

Profit per common share	$	6.03	$	5.38

Profit per common share – diluted 2	$	5.99	$	5.33

Weighted-average common shares outstanding (millions)
– Basic	532.6		547.1
– Diluted 2	536.1		551.8

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.

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Caterpillar Inc.

Consolidated Statement of Comprehensive Income

(Unaudited)

(Dollars in millions)


	Six Months Ended June 30
	2022		2021

Profit of consolidated and affiliated companies	$	3,210	$	2,945
Other comprehensive income (loss), net of tax (Note 13):
Foreign currency translation:	(774)		(248)
Pension and other postretirement benefits:	(2)		(15)
Derivative financial instruments:	(63)		12
Available-for-sale securities:	(107)		(15)

Total other comprehensive income (loss), net of tax	(946)		(266)
Comprehensive income	2,264		2,679
Less: comprehensive income attributable to the noncontrolling interests	—		2
Comprehensive income attributable to shareholders	$	2,264	$	2,677

See accompanying notes to Consolidated Financial Statements.

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Caterpillar Inc.

Consolidated Statement of Financial Position

(Unaudited)

(Dollars in millions)


	June 30, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	6,014	$	9,254
Receivables – trade and other	8,393		8,477
Receivables – finance	8,922		8,898

Prepaid expenses and other current assets	2,772		2,788
Inventories	15,881		14,038
Total current assets	41,982		43,455

Property, plant and equipment – net	11,744		12,090
Long-term receivables – trade and other	1,197		1,204
Long-term receivables – finance	12,372		12,707

Noncurrent deferred and refundable income taxes	2,121		1,840
Intangible assets	889		1,042
Goodwill	6,195		6,324
Other assets	4,607		4,131
Total assets	$	81,107	$	82,793

Liabilities
Current liabilities:
Short-term borrowings:
Machinery, Energy & Transportation	$	—	$	9
Financial Products	5,002		5,395
Accounts payable	8,092		8,154
Accrued expenses	3,782		3,757
Accrued wages, salaries and employee benefits	1,772		2,242
Customer advances	1,608		1,087
Dividends payable	633		595
Other current liabilities	2,333		2,256
Long-term debt due within one year:
Machinery, Energy & Transportation	124		45
Financial Products	5,617		6,307
Total current liabilities	28,963		29,847

Long-term debt due after one year:
Machinery, Energy & Transportation	9,589		9,746
Financial Products	16,630		16,287
Liability for postemployment benefits	5,160		5,592
Other liabilities	5,006		4,805
Total liabilities	65,348		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: (6/30/22 and 12/31/21 – 814,894,624) at paid-in amount	6,464		6,398
Treasury stock (6/30/22 – 286,985,481 shares; 12/31/21 – 279,006,573 shares) at cost	(29,501)		(27,643)
Profit employed in the business	41,263		39,282
Accumulated other comprehensive income (loss)	(2,499)		(1,553)
Noncontrolling interests	32		32
Total shareholders’ equity	15,759		16,516
Total liabilities and shareholders’ equity	$	81,107	$	82,793

See accompanying notes to Consolidated Financial Statements.

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Caterpillar Inc.

Consolidated Statement of Changes in Shareholders’ Equity

(Unaudited)

(Dollars in millions)


	Common stock		Treasury stock		Profit employed in the business		Accumulated other comprehensive income (loss)		Noncontrolling interests		Total
Three Months Ended June 30, 2021
Balance at March 31, 2021	$	6,215	$	(25,049)	$	36,697	$	(1,290)	$	44	$	16,617
Profit of consolidated and affiliated companies	—		—		1,413		—		1		1,414
Foreign currency translation, net of tax	—		—		—		99		—		99
Pension and other postretirement benefits, net of tax	—		—		—		(7)		—		(7)
Derivative financial instruments, net of tax	—		—		—		43		—		43
Available-for-sale securities, net of tax	—		—		—		1		—		1

Dividends declared 1	—		—		(1,176)		—		—		(1,176)

Common shares issued from treasury stock for stock-based compensation: 869,892	(2)		60		—		—		—		58
Stock-based compensation expense	69		—		—		—		—		69

Common shares repurchased: 1,161,955 2	—		(251)		—		—		—		(251)
Other	11		—		—		—		2		13
Balance at June 30, 2021	$	6,293	$	(25,240)	$	36,934	$	(1,154)	$	47	$	16,880

Three Months Ended June 30, 2022
Balance at March 31, 2022	$	6,281	$	(28,326)	$	40,820	$	(1,710)	$	32	$	17,097
Profit of consolidated and affiliated companies	—		—		1,673		—		—		1,673
Foreign currency translation, net of tax	—		—		—		(659)		—		(659)
Pension and other postretirement benefits, net of tax	—		—		—		(1)		—		(1)
Derivative financial instruments, net of tax	—		—		—		(86)		—		(86)
Available-for-sale securities, net of tax	—		—		—		(43)		—		(43)

Dividends declared 1	—		—		(1,230)		—		—		(1,230)

Common shares issued from treasury stock for stock-based compensation: 416,751	4		28		—		—		—		32
Stock-based compensation expense	67		—		—		—		—		67
Common shares repurchased: 5,860,813 2	—		(1,204)		—		—		—		(1,204)

Other	112		1		—		—		—		113
Balance at June 30, 2022	$	6,464	$	(29,501)	$	41,263	$	(2,499)	$	32	$	15,759

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

2 See Note 12 for additional information.

See accompanying notes to Consolidated Financial Statements.

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Caterpillar Inc.

Consolidated Statement of Changes in Shareholders’ Equity

(Unaudited)

(Dollars in millions)


	Common stock		Treasury stock		Profit employed in the business		Accumulated other comprehensive income (loss)		Noncontrolling interests		Total
Six Months Ended June 30, 2021
Balance at December 31, 2020	$	6,230	$	(25,178)	$	35,167	$	(888)	$	47	$	15,378




Profit of consolidated and affiliated companies	—		—		2,943		—		2		2,945
Foreign currency translation, net of tax	—		—		—		(248)		—		(248)
Pension and other postretirement benefits, net of tax	—		—		—		(15)		—		(15)
Derivative financial instruments, net of tax	—		—		—		12		—		12
Available-for-sale securities, net of tax	—		—		—		(15)		—		(15)

Dividends declared 1	—		—		(1,176)		—		—		(1,176)
Distribution to noncontrolling interests	—		—		—		—		(2)		(2)
Common shares issued from treasury stock for stock-based compensation: 3,329,575	(65)		188		—		—		—		123
Stock-based compensation expense	111		—		—		—		—		111

Common shares repurchased: 1,161,955 2	—		(251)		—		—		—		(251)
Other	17		1		—		—		—		18
Balance at June 30, 2021	$	6,293	$	(25,240)	$	36,934	$	(1,154)	$	47	$	16,880

Six Months Ended June 30, 2022
Balance at December 31, 2021	$	6,398	$	(27,643)	$	39,282	$	(1,553)	$	32	$	16,516




Profit of consolidated and affiliated companies	—		—		3,210		—		—		3,210
Foreign currency translation, net of tax	—		—		—		(774)		—		(774)
Pension and other postretirement benefits, net of tax	—		—		—		(2)		—		(2)
Derivative financial instruments, net of tax	—		—		—		(63)		—		(63)
Available-for-sale securities, net of tax	—		—		—		(107)		—		(107)

Dividends declared 1	—		—		(1,229)		—		—		(1,229)

Common shares issued from treasury stock for stock-based compensation: 1,454,219	(61)		65		—		—		—		4
Stock-based compensation expense	107		—		—		—		—		107

Common shares repurchased: 9,432,497 2	—		(1,924)		—		—		—		(1,924)
Other	20		1		—		—		—		21
Balance at June 30, 2022	$	6,464	$	(29,501)	$	41,263	$	(2,499)	$	32	$	15,759

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

2 See Note 12 for additional information.

See accompanying notes to Consolidated Financial Statements.

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Caterpillar Inc.

Consolidated Statement of Cash Flow

(Unaudited)

(Millions of dollars)


	Six Months Ended June 30
	2022		2021
Cash flow from operating activities:
Profit of consolidated and affiliated companies	$	3,210	$	2,945
Adjustments for non-cash items:
Depreciation and amortization	1,110		1,173

Provision (benefit) for deferred income taxes	(283)		68
Other	49		(20)
Changes in assets and liabilities, net of acquisitions and divestitures:
Receivables – trade and other	283		(343)
Inventories	(2,003)		(1,179)
Accounts payable	427		893
Accrued expenses	(80)		22
Accrued wages, salaries and employee benefits	(445)		618
Customer advances	514		49
Other assets – net	86		(47)
Other liabilities – net	(322)		(133)
Net cash provided by (used for) operating activities	2,546		4,046

Cash flow from investing activities:
Capital expenditures – excluding equipment leased to others	(586)		(419)
Expenditures for equipment leased to others	(688)		(681)
Proceeds from disposals of leased assets and property, plant and equipment	468		636
Additions to finance receivables	(6,705)		(6,203)
Collections of finance receivables	6,519		5,580
Proceeds from sale of finance receivables	21		27
Investments and acquisitions (net of cash acquired)	(36)		(398)
Proceeds from sale of businesses and investments (net of cash sold)	1		28
Proceeds from sale of securities	1,204		276
Investments in securities	(2,118)		(500)
Other – net	32		(63)
Net cash provided by (used for) investing activities	(1,888)		(1,717)

Cash flow from financing activities:
Dividends paid	(1,187)		(1,126)
Common stock issued, including treasury shares reissued	4		123
Common shares repurchased	(1,924)		(251)

Proceeds from debt issued (original maturities greater than three months):
Machinery, Energy & Transportation	—		494
Financial Products	4,015		4,412
Payments on debt (original maturities greater than three months):
Machinery, Energy & Transportation	(13)		(1,902)
Financial Products	(4,233)		(4,064)
Short-term borrowings – net (original maturities three months or less)	(553)		1,460
Other – net	—		(2)
Net cash provided by (used for) financing activities	(3,891)		(856)
Effect of exchange rate changes on cash	(7)		3
Increase (decrease) in cash, cash equivalents and restricted cash	(3,240)		1,476
Cash, cash equivalents and restricted cash at beginning of period	9,263		9,366
Cash, cash equivalents and restricted cash at end of period	$	6,023	$	10,842

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. A. Nature of operations

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

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

Financial Products – We define Financial Products as our finance and insurance subsidiaries, primarily Caterpillar Financial Services Corporation (Cat Financial) and Caterpillar Insurance Holdings Inc. (Insurance Services). Financial Products’ information relates to the financing to customers and dealers for the purchase and lease of Caterpillar and other equipment.

B. Basis of presentation

In the opinion of management, the accompanying unaudited financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of (a) the consolidated results of operations for the three and six months ended June 30, 2022 and 2021, (b) the consolidated comprehensive income for the three and six months ended June 30, 2022 and 2021, (c) the consolidated financial position at June 30, 2022 and December 31, 2021, (d) the consolidated changes in shareholders’ equity for the three and six months ended June 30, 2022 and 2021 and (e) the consolidated cash flow for the six months ended June 30, 2022 and 2021. The financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (U.S. GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).

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

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

Cat Financial has end-user customers and dealers that are variable interest entities (VIEs) of which we are not the primary beneficiary. Our maximum exposure to loss from our involvement with these VIEs is limited to the credit risk inherently present in the financial support that we have provided. These risks were 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.

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3. Sales and revenue contract information

Trade receivables represent amounts due from dealers and end users for the sale of our products, and include amounts due from wholesale inventory financing provided by Cat Financial for a dealer’s purchase of inventory. We recognize trade receivables from dealers (including wholesale inventory financing) and end users in Receivables – trade and other and Long-term receivables – trade and other in the Consolidated Statement of Financial Position. Trade receivables from dealers and end users were $6,953 million, $7,267 million and $6,310 million as of June 30, 2022, December 31, 2021 and December 31, 2020, respectively. Long-term trade receivables from dealers and end users were $474 million, $624 million and $657 million as of June 30, 2022, December 31, 2021 and December 31, 2020, respectively.

We invoice in advance of recognizing the sale of certain products. We recognize advanced customer payments as a contract liability in Customer advances and Other liabilities in the Consolidated Statement of Financial Position. Contract liabilities were $2,060 million, $1,557 million and $1,526 million as of June 30, 2022, December 31, 2021 and December 31, 2020, respectively. We reduce the contract liability when revenue is recognized. During the three and six months ended June 30, 2022, we recognized $220 million and $657 million, respectively, of revenue that was recorded as a contract liability at the beginning of 2022. During the three and six months ended June 30, 2021, we recognized $241 million and $674 million, respectively, of revenue that was recorded as a contract liability at the beginning of 2021.

As of June 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 $9.4 billion, with about one-half of the amount expected to be completed and revenue recognized in the twelve months following June 30, 2022. We have elected the practical expedient not to disclose unsatisfied performance obligations with an original contract duration of one year or less. Contracts with an original duration of one year or less are primarily sales to dealers for machinery, engines and replacement parts.

See Note 16 for further disaggregated sales and revenues information.

4. Stock-based compensation

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

We recognized pretax stock-based compensation expense of $67 million and $107 million for the three and six months ended June 30, 2022, respectively, and $69 million and $111 million for the three and six months ended June 30, 2021, respectively.

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



	Six Months Ended June 30, 2022					Six Months Ended June 30, 2021
	Shares Granted	Weighted-Average Fair Value Per Share		Weighted-Average Grant Date Stock Price		Shares Granted	Weighted-Average Fair Value Per Share		Weighted-Average Grant Date Stock Price
Stock options	1,029,202	$	51.69	$	196.70	1,084,821	$	56.30	$	219.76
RSUs	484,025	$	196.70	$	196.70	448,311	$	219.76	$	219.76
PRSUs	258,900	$	196.70	$	196.70	266,894	$	219.76	$	219.76

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



	Grant Year
	2022	2021
Weighted-average dividend yield	2.60%	2.60%
Weighted-average volatility	31.7%	32.9%
Range of volatilities	25.3% - 36.8%	29.2% - 45.8%
Range of risk-free interest rates	1.03% - 2.00%	0.06% - 1.41%
Weighted-average expected lives	8 years	8 years

As of June 30, 2022, the total remaining unrecognized compensation expense related to nonvested stock-based compensation awards was $230 million, which will be amortized over the weighted-average remaining requisite service periods of approximately 1.8 years.

5. Derivative financial instruments and risk management

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

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

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

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

Foreign Currency Exchange Rate Risk

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

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

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

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

Interest Rate Risk

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

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

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

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

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

Commodity Price Risk

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

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

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

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


(Millions of dollars)	Fair Value
	June 30, 2022				December 31, 2021
	Assets1		Liabilities2		Assets1		Liabilities2
Designated derivatives
Foreign exchange contracts	$	464	$	(167)	$	228	$	(64)
Interest rate contracts	98		(160)		38		(15)
Total	$	562	$	(327)	$	266	$	(79)

Undesignated derivatives
Foreign exchange contracts	$	98	$	(100)	$	46	$	(42)
Commodity contracts	32		(25)		30		(9)
Total	$	130	$	(125)	$	76	$	(51)

1 Assets are classified on the Consolidated Statement of Financial Position as Receivables - trade and other or Long-term receivables - trade and other.
2 Liabilities are classified on the Consolidated Statement of Financial Position as Accrued expenses or Other liabilities.

The total notional amounts of the derivative instruments as of June 30, 2022 and December 31, 2021 were $22.5 billion and $18.9 billion, respectively. The notional amounts of the derivative financial instruments do not represent amounts exchanged by the parties. We calculate the amounts exchanged by the parties by referencing the notional amounts and by other terms of the derivatives, such as foreign currency exchange rates, interest rates or commodity prices.

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


(Millions of dollars)	Three Months Ended June 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	$	33	$	(47)	$	186	$	16	$	323	$	(32)
Interest rate contracts	9		7		21		1		(2)		(7)
Commodity contracts	(48)		45		—		—		—		—
Total	$	(6)	$	5	$	207	$	17	$	321	$	(39)

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

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(Millions of dollars)	Six Months Ended June 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	$	(30)	$	31	$	177	$	88	$	349	$	97
Interest rate contracts	17		13		77		8		(9)		(18)
Commodity contract	45		65		—		—		—		—
Total	$	32	$	109	$	254	$	96	$	340	$	79

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

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


(Millions of dollars)	Carrying Value of the Hedged Liabilities				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Value of the Hedged Liabilities
	June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021
Long-term debt due within one year	$	749	$	755	$	(1)	$	5
Long-term debt due after one year	3,350		1,304		(125)		(2)
Total	$	4,099	$	2,059	$	(126)	$	3

We enter into International Swaps and Derivatives Association (ISDA) master netting agreements within ME&T and Financial Products that permit the net settlement of amounts owed under their respective derivative contracts. Under these master netting agreements, net settlement generally permits the company or the counterparty to determine the net amount payable for contracts due on the same date and in the same currency for similar types of derivative transactions. The master netting agreements generally 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 generally not required of the counterparties or of our company under the master netting agreements. As of June 30, 2022 and December 31, 2021, no cash collateral was received or pledged under the master netting agreements.

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


(Millions of dollars)	June 30, 2022				December 31, 2021
	Assets		Liabilities		Assets		Liabilities
Gross Amounts Recognized	$	692	$	(452)	$	342	$	(130)
Financial Instruments Not Offset	(283)		283		(114)		114
Cash Collateral Received	—		—		—		—
Net Amount	$	409	$	(169)	$	228	$	(16)

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6. Inventories

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



(Millions of dollars)	June 30, 2022		December 31, 2021
Raw materials	$	6,129	$	5,528
Work-in-process	1,604		1,318
Finished goods	7,850		6,907
Supplies	298		285
Total inventories	$	15,881	$	14,038

7. Intangible assets and goodwill

A. Intangible assets

Intangible assets were comprised of the following:



		June 30, 2022
(Millions of dollars)	Weighted Amortizable Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net
Customer relationships	16	$	2,220	$	(1,593)	$	627
Intellectual property	12	1,473		(1,256)		217
Other	16	131		(86)		45
Total finite-lived intangible assets	14	$	3,824	$	(2,935)	$	889


		December 31, 2021
	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

Amortization expense for the three and six months ended June 30, 2022 was $71 million and $143 million, respectively. Amortization expense for the three and six months ended June 30, 2021 was $76 million and $153 million, respectively. Amortization expense related to intangible assets is expected to be:


(Millions of dollars)

Remaining Six Months of 2022	2023	2024	2025	2026	Thereafter
$141	$224	$166	$156	$86	$116

B. Goodwill

No goodwill was impaired during the six months ended June 30, 2022 or 2021.

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



(Millions of dollars)	December 31, 2021		Acquisitions		Other Adjustments 1		June 30, 2022
Construction Industries
Goodwill	$	302	$	—	$	(27)	$	275
Impairments	(22)		—		—		(22)
Net goodwill	280		—		(27)		253
Resource Industries
Goodwill	4,182		—		(66)		4,116
Impairments	(1,175)		—		—		(1,175)
Net goodwill	3,007		—		(66)		2,941
Energy & Transportation
Goodwill	2,985		25		(54)		2,956
All Other 2
Goodwill	52		—		(7)		45
Consolidated total
Goodwill	7,521		25		(154)		7,392
Impairments	(1,197)		—		—		(1,197)
Net goodwill	$	6,324	$	25	$	(154)	$	6,195

1 Other adjustments are comprised primarily of foreign currency translation.

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

8. Investments in debt and equity securities

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

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

The cost basis and fair value of available-for-sale debt securities with unrealized gains and losses included in equity (AOCI in the Consolidated Statement of Financial Position) were as follows:

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Available-for-sale debt securities	June 30, 2022						December 31, 2021
(Millions of dollars)	Cost Basis		Unrealized Pretax Net Gains (Losses)		Fair Value		Cost Basis		Unrealized Pretax Net Gains (Losses)		Fair Value
Government debt
U.S. treasury bonds	$	10	$	—	$	10	$	10	$	—	$	10
Other U.S. and non-U.S. government bonds	57		(2)		55		61		—		61

Corporate bonds
Corporate bonds	2,106		(77)		2,029		1,027		19		1,046
Asset-backed securities	185		(4)		181		175		1		176

Mortgage-backed debt securities
U.S. governmental agency	384		(17)		367		319		6		325
Residential	3		—		3		4		—		4
Commercial	138		(6)		132		98		1		99
Total available-for-sale debt securities	$	2,883	$	(106)	$	2,777	$	1,694	$	27	$	1,721


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

	June 30, 2022
	Less than 12 months 1				12 months or more 1				Total
(Millions of dollars)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Government debt
Other U.S. and non-U.S. government bonds	$	29	$	1	$	6	$	—	$	35	$	1


Corporate bonds
Corporate bonds	1,812		69		73		9		1,885		78
Asset-backed securities	130		5		4		—		134		5

Mortgage-backed debt securities
U.S. governmental agency	292		15		23		3		315		18

Commercial	101		7		1		—		102		7
	$	2,364	$	97	$	107	$	12	$	2,471	$	109


	December 31, 2021
	Less than 12 months 1				12 months or more 1				Total
(Millions of dollars)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Corporate bonds
Corporate bonds	$	270	$	4	$	33	$	1	$	303	$	5


Mortgage-backed debt securities
U.S. governmental agency	89		1		22		—		111		1


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

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

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

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The cost basis and fair value of available-for-sale debt securities at June 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.


	June 30, 2022
(Millions of dollars)	Cost Basis		Fair Value
Due in one year or less	$	591	$	587
Due after one year through five years	1,403		1,348
Due after five years through ten years	290		269
Due after ten years	74		71
U.S. governmental agency mortgage-backed securities	384		367
Residential mortgage-backed securities	3		3
Commercial mortgage-backed securities	138		132
Total debt securities – available-for-sale	$	2,883	$	2,777


Sales of available-for-sale debt securities:
	Three Months Ended June 30				Six Months Ended June 30
(Millions of dollars)	2022		2021		2022		2021
Proceeds from the sale of available-for-sale securities	$	174	$	125	$	270	$	225
Gross gains from the sale of available-for-sale securities	—		2		1		2
Gross losses from the sale of available-for-sale securities	—		—		1		—

In addition, we had $659 million and $964 million of investments in time deposits classified as held-to-maturity debt securities as of June 30, 2022 and December 31, 2021, respectively. All these investments mature within one year and we include them in Prepaid expenses and other current assets in the Consolidated Statement of Financial Position. We record held-to-maturity debt securities at amortized cost, which approximates fair value.

For the three months ended June 30, 2022 and 2021, the net unrealized gains (losses) for equity securities held at June 30, 2022 and 2021 were $(48) million and $21 million, respectively. For the six months ended June 30, 2022 and 2021, the net unrealized gains (losses) for equity securities held at June 30, 2022 and 2021 were $(59) million and $38 million, respectively.

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9. Postretirement benefits

A. Pension and postretirement benefit costs


	U.S. Pension Benefits				Non-U.S. Pension Benefits				Other Postretirement Benefits
	June 30				June 30				June 30
(Millions of dollars)	2022		2021		2022		2021		2022		2021
For the three months ended:
Components of net periodic benefit cost:
Service cost	$	—	$	—	$	12	$	15	$	25	$	25
Interest cost	101		83		18		13		20		16
Expected return on plan assets	(168)		(179)		(33)		(33)		(2)		(1)
Amortization of prior service cost (credit)	—		—		—		—		(2)		(10)


Net periodic benefit cost (benefit) 1	$	(67)	$	(96)	$	(3)	$	(5)	$	41	$	30

For the six months ended:
Components of net periodic benefit cost:
Service cost	$	—	$	—	$	25	$	29	$	50	$	50
Interest cost	201		165		36		27		40		32
Expected return on plan assets	(335)		(358)		(67)		(65)		(6)		(3)
Amortization of prior service cost (credit)	—		—		—		—		(3)		(20)


Net periodic benefit cost (benefit) 1	$	(134)	$	(193)	$	(6)	$	(9)	$	81	$	59

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

We made $45 million and $255 million of contributions to our pension and other postretirement plans during the three and six months ended June 30, 2022. We currently anticipate full-year 2022 contributions of approximately $357 million.

B. Defined contribution benefit costs

Total company costs related to our defined contribution plans, which are included in Operating Costs in the Consolidated Statement of Results of Operations, were as follows:



	Three Months Ended June 30				Six Months Ended June 30
(Millions of dollars)	2022		2021		2022		2021
U.S. Plans	$	34	$	115	$	149	$	240
Non-U.S. Plans	27		28		56		54
	$	61	$	143	$	205	$	294

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

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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 June 30				Six Months Ended June 30
(Millions of dollars)	2022		2021		2022		2021
Finance lease revenue	$	109	$	124	$	221	$	249
Operating lease revenue	271		281		549		575
Total	$	380	$	405	$	770	$	824

We present revenues net of sales and other related taxes.

11. Guarantees and product warranty

Caterpillar dealer performance guarantees

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

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

Supplier consortium performance guarantee

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

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

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


(Millions of dollars)	June 30, 2022		December 31, 2021
Caterpillar dealer performance guarantees	$	186	$	747

Supplier consortium performance guarantee	17		242

Other guarantees	177		232
Total guarantees	$	380	$	1,221

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Cat Financial provides guarantees to purchase certain loans of Caterpillar dealers from a special-purpose corporation (SPC) that qualifies as a variable interest entity. The purpose of the SPC is to provide short-term working capital loans to Caterpillar dealers. This SPC issues commercial paper and uses the proceeds to fund its loan program. Cat Financial receives a fee for providing this guarantee. Cat Financial is the primary beneficiary of the SPC as its guarantees result in Cat Financial having both the power to direct the activities that most significantly impact the SPC’s economic performance and the obligation to absorb losses, and therefore Cat Financial has consolidated the financial statements of the SPC. As of June 30, 2022 and December 31, 2021, the SPC’s assets of $939 million and $888 million, respectively, were primarily comprised of loans to dealers, and the SPC’s liabilities of $939 million and $888 million, respectively, were primarily comprised of commercial paper. The assets of the SPC are not available to pay Cat Financial’s creditors. Cat Financial may be obligated to perform under the guarantee if the SPC experiences losses. No loss has been experienced or is anticipated under this loan purchase agreement.

We determine our product warranty liability by applying historical claim rate experience to the current field population and dealer inventory. Generally, we base historical claim rates on actual warranty experience for each product by machine model/engine size by customer or dealer location (inside or outside North America). We develop specific rates for each product shipment month and update them monthly based on actual warranty claim experience.

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


	First Six Months
(Millions of dollars)	2022		2021
Warranty liability, beginning of period	$	1,689	$	1,612
Reduction in liability (payments)	(388)		(442)
Increase in liability (new warranties)	350		515
Warranty liability, end of period	$	1,651	$	1,685

12. Profit per share



Computations of profit per share:	Three Months Ended June 30				Six Months Ended June 30
(Dollars in millions except per share data)	2022		2021		2022		2021
Profit for the period (A) 1	$	1,673	$	1,413	$	3,210	$	2,943
Determination of shares (in millions):
Weighted-average number of common shares outstanding (B)	531.0		547.9		532.6		547.1
Shares issuable on exercise of stock awards, net of shares assumed to be purchased out of proceeds at average market price	3.1		4.2		3.5		4.7
Average common shares outstanding for fully diluted computation (C) 2	534.1		552.1		536.1		551.8
Profit per share of common stock:
Assuming no dilution (A/B)	$	3.15	$	2.58	$	6.03	$	5.38
Assuming full dilution (A/C) 2	$	3.13	$	2.56	$	5.99	$	5.33
Shares outstanding as of June 30 (in millions)					527.9		547.5

1 Profit attributable to common shareholders.
2 Diluted by assumed exercise of stock-based compensation awards using the treasury stock method.

For the three and six months ended June 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.

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. As of June 30, 2022, $175 million remained available under the 2018 Authorization.

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For the three and six months ended June 30, 2022, we repurchased 5.9 million and 9.4 million shares of Caterpillar common stock, respectively, at an aggregate cost of $1.2 billion and $1.9 billion, respectively. For the three and six months ended June 30, 2021, we repurchased 1.2 million shares of Caterpillar common stock, at an aggregate cost of $251 million. We made these purchases through a combination of accelerated stock repurchase agreements with third-party financial institutions and open market transactions.

In May 2022, the Board approved a new share repurchase authorization of up to $15.0 billion of Caterpillar common stock effective August 1, 2022, with no expiration.

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:

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	Three Months Ended June 30				Six Months Ended June 30
(Millions of dollars)	2022		2021		2022		2021
Foreign currency translation:
Beginning balance	$	(1,623)	$	(1,257)	$	(1,508)	$	(910)


Gains (losses) on foreign currency translation	(632)		92		(736)		(231)
Less: Tax provision /(benefit)	27		(7)		38		17
Net gains (losses) on foreign currency translation	(659)		99		(774)		(248)
(Gains) losses reclassified to earnings	—		—		—		—
Less: Tax provision /(benefit)	—		—		—		—
Net (gains) losses reclassified to earnings	—		—		—		—
Other comprehensive income (loss), net of tax	(659)		99		(774)		(248)
Ending balance	$	(2,282)	$	(1,158)	$	(2,282)	$	(1,158)



Pension and other postretirement benefits
Beginning balance	$	(63)	$	(40)	$	(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	(2)		(10)		(3)		(20)
Less: Tax provision /(benefit)	(1)		(3)		(1)		(5)
Net amortization of prior service (credit) cost	(1)		(7)		(2)		(15)
Other comprehensive income (loss), net of tax	(1)		(7)		(2)		(15)
Ending balance	$	(64)	$	(47)	$	(64)	$	(47)
Derivative financial instruments
Beginning balance	$	20	$	(31)	$	(3)	$	—


Gains (losses) deferred	207		17		254		96
Less: Tax provision /(benefit)	26		3		36		19
Net gains (losses) deferred	181		14		218		77
(Gains) losses reclassified to earnings	(321)		39		(340)		(79)
Less: Tax provision /(benefit)	(54)		10		(59)		(14)
Net (gains) losses reclassified to earnings	(267)		29		(281)		(65)
Other comprehensive income (loss), net of tax	(86)		43		(63)		12
Ending balance	$	(66)	$	12	$	(66)	$	12




Available-for-sale securities
Beginning balance	$	(44)	$	38	$	20	$	54


Gains (losses) deferred	(54)		3		(133)		(18)
Less: Tax provision /(benefit)	(11)		1		(26)		(4)
Net gains (losses) deferred	(43)		2		(107)		(14)
(Gains) losses reclassified to earnings	—		(2)		—		(2)
Less: Tax provision /(benefit)	—		(1)		—		(1)
Net (gains) losses reclassified to earnings	—		(1)		—		(1)
Other comprehensive income (loss), net of tax	(43)		1		(107)		(15)
Ending balance	$	(87)	$	39	$	(87)	$	39

Total AOCI Ending Balance at June 30	$	(2,499)	$	(1,154)	$	(2,499)	$	(1,154)

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14. Environmental and legal matters

The Company is regulated by federal, state and international environmental laws governing its use, transport and disposal of substances and control of emissions. In addition to governing our manufacturing and other operations, these laws often impact the development of our products, including, but not limited to, required compliance with air emissions standards applicable to internal combustion engines. We have made, and will continue to make, significant research and development and capital expenditures to comply with these emissions standards.

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

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

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

15. Income taxes

The provision for income taxes for the six months ended June 30, 2022, reflected an estimated annual tax rate of 23.5 percent, compared with 26 percent for the six months ended June 30, 2021, excluding the discrete items discussed below. The comparative tax rate for full-year 2021 was approximately 23 percent.

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In the six months ended June 30, 2022, the company recorded discrete tax benefits of $49 million for a prior year tax adjustment due to a change in estimate. In addition, the company recorded a discrete tax benefit of $18 million for the settlement of stock-based compensation awards with associated tax deductions in excess of cumulative U.S. GAAP compensation expense, compared with a $60 million benefit for the six months ended June 30, 2021.

In Revenue Agent’s Reports issued at the end of the field examinations of our U.S. income tax returns for 2007 to 2012 including the impact of a loss carryback to 2005, the Internal Revenue Service has proposed to tax in the United States profits earned from certain parts transactions by Caterpillar SARL (CSARL) based on the examination team’s application of the “substance-over-form” or “assignment-of-income” judicial doctrines. We are vigorously contesting the proposed increases to tax and penalties for these years of approximately $2.3 billion. We believe that the relevant transactions complied with applicable tax laws and did not violate judicial doctrines. We have filed U.S. income tax returns on this same basis for years after 2012. Based on the information currently available, we do not anticipate a significant change to our unrecognized tax benefits for this position within the next 12 months. We currently believe the ultimate disposition of this matter will not have a material adverse effect on our consolidated financial position, liquidity or results of operations.

16. Segment information

A. Basis for segment information

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

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

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

B. Description of segments

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

Construction Industries: A segment primarily responsible for supporting customers using machinery in infrastructure and building construction applications. Responsibilities include business strategy, product design, product management and development, manufacturing, marketing and sales and product support. The product portfolio includes asphalt pavers; backhoe loaders; compactors; cold planers; compact track and multi-terrain loaders; mini, small, medium and large track excavators; forestry machines; material handlers; motor graders; pipelayers; road reclaimers; skid steer loaders; telehandlers; small and medium track-type tractors; track-type loaders; wheel excavators; compact, small and medium wheel loaders; and related parts and work tools. Inter-segment sales are a source of revenue for this segment.

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Resource Industries: A segment primarily responsible for supporting customers using machinery in mining, heavy construction and quarry and aggregates. Responsibilities include business strategy, product design, product management and development, manufacturing, marketing and sales and product support. The product portfolio includes large track-type tractors; large mining trucks; hard rock vehicles; longwall miners; electric rope shovels; draglines; hydraulic shovels; rotary drills; large wheel loaders; off-highway trucks; articulated trucks; wheel tractor scrapers; wheel dozers; landfill compactors; soil compactors; select work tools; machinery components; electronics and control systems and related parts. In addition to equipment, Resource Industries also develops and sells technology products and services to provide customers fleet management, equipment management analytics, autonomous machine capabilities, safety services and mining performance solutions. Resource Industries also manages areas that provide services to other parts of the company, including strategic procurement, lean center of excellence, integrated manufacturing, research and development for hydraulic systems, automation, electronics and software for Cat machines and engines. Inter-segment sales are a source of revenue for this segment.

Energy & Transportation: A segment primarily responsible for supporting customers using reciprocating engines, turbines, diesel-electric locomotives and related services across industries serving Oil and Gas, Power Generation, Industrial and Transportation applications, including marine- and rail-related businesses. Responsibilities include business strategy, product design, product management, development and testing manufacturing, marketing and sales and product support. The product and services portfolio includes turbines, centrifugal gas compressors, and turbine-related services; reciprocating engine-powered generator sets; integrated systems and solutions used in the electric power generation industry; reciprocating engines, drivetrain and integrated systems and solutions for the marine and oil and gas industries; reciprocating engines, drivetrain and integrated systems and solutions supplied to the industrial industry as well as Cat machinery; electrified powertrain and zero-emission power sources and service solutions development; and diesel-electric locomotives and components and other rail-related products and services, including remanufacturing and leasing. Responsibilities also include the remanufacturing of Caterpillar reciprocating engines and components and remanufacturing services for other companies; and product support of on-highway vocational trucks for North America. Inter-segment sales are a source of revenue for this segment.

Financial Products Segment: Provides financing alternatives to customers and dealers around the world for Caterpillar products and services, as well as financing for vehicles, power generation facilities and marine vessels that, in most cases, incorporate Caterpillar products. Financing plans include operating and finance leases, installment sale contracts, repair/rebuild financing, working capital loans and wholesale financing plans. The segment also provides insurance and risk management products and services that help customers and dealers manage their business risk. Insurance and risk management products offered include physical damage insurance, inventory protection plans, extended service coverage and maintenance plans for machines and engines, and dealer property and casualty insurance. The various forms of financing, insurance and risk management products offered to customers and dealers help support the purchase and lease of Caterpillar equipment. The segment also earns revenues from ME&T, but the related costs are not allocated to operating segments. Financial Products’ segment profit is determined on a pretax basis and includes other income/expense items.

All Other operating segment: Primarily includes activities such as: business strategy; product management and development; manufacturing and sourcing of filters and fluids, undercarriage, ground-engaging tools, fluid transfer products, precision seals, rubber sealing and connecting components primarily for Cat® products; parts distribution; integrated logistics solutions; distribution services responsible for dealer development and administration, including a wholly owned dealer in Japan; dealer portfolio management and ensuring the most efficient and effective distribution of machines, engines and parts; brand management and marketing strategy; and digital investments for new customer and dealer solutions that integrate data analytics with state-of-the-art digital technologies while transforming the buying experience. Results for the All Other operating segment are included as a reconciling item between reportable segments and consolidated external reporting.

C. Segment measurement and reconciliations

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

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

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

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

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

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

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

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

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

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

•Restructuring costs: May include costs for employee separation, long-lived asset impairments and contract terminations. These costs are included in Other operating (income) expenses except for defined-benefit plan curtailment losses and special termination benefits, which are included in Other income (expense). Restructuring costs also include other exit-related costs, which may consist of accelerated depreciation, inventory write-downs, building demolition, equipment relocation and project management costs and LIFO inventory decrement benefits from inventory liquidations at closed facilities, all of which are primarily included in Cost of goods sold. See Note 20 for more information.

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

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

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

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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 June 30, 2022
Construction Industries	$	3,006	$	635	$	1,202	$	1,148	$	5,991		$	42	$	6,033
Resource Industries	1,027		466		489		913		2,895			66		2,961
Energy & Transportation	2,277		382		1,215		766		4,640			1,065		5,705
Financial Products Segment	505		87		97		109		798		1	—		798
Total sales and revenues from reportable segments	6,815		1,570		3,003		2,936		14,324			1,173		15,497
All Other operating segment	18		—		5		15		38			80		118
Corporate Items and Eliminations	(62)		(23)		(10)		(20)		(115)			(1,253)		(1,368)
Total Sales and Revenues	$	6,771	$	1,547	$	2,998	$	2,931	$	14,247		$	—	$	14,247

Three Months Ended June 30, 2021
Construction Industries	$	2,498	$	430	$	1,291	$	1,384	$	5,603		$	53	$	5,656
Resource Industries	799		487		525		660		2,471			76		2,547
Energy & Transportation	1,992		250		1,196		682		4,120			855		4,975
Financial Products Segment	488		65		96		125		774		1	—		774
Total sales and revenues from reportable segments	5,777		1,232		3,108		2,851		12,968			984		13,952
All Other operating segment	11		1		4		18		34			94		128
Corporate Items and Eliminations	(69)		(12)		(10)		(22)		(113)			(1,078)		(1,191)
Total Sales and Revenues	$	5,719	$	1,221	$	3,102	$	2,847	$	12,889		$	—	$	12,889

1 Includes revenues from Construction Industries, Resource Industries, Energy & Transportation and All Other operating segment of $108 million and $92 million in the three months ended June 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
Six Months Ended June 30, 2022
Construction Industries	$	5,726	$	1,262	$	2,479	$	2,610	$	12,077		$	71	$	12,148
Resource Industries	2,045		865		1,083		1,661		5,654			137		5,791
Energy & Transportation	4,215		692		2,399		1,366		8,672			2,071		10,743
Financial Products Segment	1,008		160		193		220		1,581		1	—		1,581
Total sales and revenues from reportable segments	12,994		2,979		6,154		5,857		27,984			2,279		30,263
All Other operating segment	36		—		10		31		77			159		236
Corporate Items and Eliminations	(122)		(39)		(21)		(43)		(225)			(2,438)		(2,663)
Total Sales and Revenues	$	12,908	$	2,940	$	6,143	$	5,845	$	27,836		$	—	$	27,836

Six Months Ended June 30, 2021
Construction Industries	$	4,624	$	822	$	2,372	$	3,226	$	11,044		$	71	$	11,115
Resource Industries	1,456		892		999		1,221		4,568			157		4,725
Energy & Transportation	3,774		506		2,289		1,209		7,778			1,704		9,482
Financial Products Segment	964		127		196		248		1,535		1	—		1,535
Total sales and revenues from reportable segments	10,818		2,347		5,856		5,904		24,925			1,932		26,857
All Other operating segment	24		1		7		40		72			186		258
Corporate Items and Eliminations	(132)		(23)		(18)		(48)		(221)			(2,118)		(2,339)
Total Sales and Revenues	$	10,710	$	2,325	$	5,845	$	5,896	$	24,776		$	—	$	24,776

1 Includes revenues from Construction Industries, Resource Industries, Energy & Transportation and All Other operating segment of $208 million and $176 million in the six months ended June 30, 2022 and 2021, respectively.

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


Energy & Transportation External Sales
	Three Months Ended June 30				Six Months Ended June 30
(Millions of dollars)	2022		2021		2022		2021
Oil and gas	$	1,232	$	1,137	$	2,180	$	2,052
Power generation	1,186		1,052		2,198		2,015
Industrial	1,117		899		2,137		1,712
Transportation	1,105		1,032		2,157		1,999
Energy & Transportation External Sales	$	4,640	$	4,120	$	8,672	$	7,778


Reconciliation of Consolidated profit before taxes:

(Millions of dollars)	Three Months Ended June 30				Six Months Ended June 30
	2022		2021		2022		2021
Profit from reportable segments:
Construction Industries	$	989	$	1,029	$	2,046	$	2,071
Resource Industries	355		349		716		661
Energy & Transportation	659		738		1,197		1,413
Financial Products Segment	217		243		455		487
Total profit from reportable segments	2,220		2,359		4,414		4,632
Profit from All Other operating segment	31		(10)		34		(7)
Cost centers	28		11		38		32
Corporate costs	(304)		(202)		(502)		(387)
Timing	53		(124)		(45)		(190)
Restructuring costs	(28)		(25)		(41)		(89)
Methodology differences:
Inventory/cost of sales	101		7		269		7
Postretirement benefit expense	130		86		211		154
Stock-based compensation expense	(67)		(69)		(107)		(111)
Financing costs	(94)		(109)		(194)		(239)
Currency	156		50		262		236
Other income/expense methodology differences	(97)		(72)		(178)		(121)
Other methodology differences	(33)		(32)		(66)		(50)
Total consolidated profit before taxes	$	2,096	$	1,870	$	4,095	$	3,867

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Reconciliation of Assets:

(Millions of dollars)	June 30, 2022		December 31, 2021
Assets from reportable segments:
Construction Industries	$	5,193	$	4,547
Resource Industries	5,732		5,962
Energy & Transportation	9,509		9,253
Financial Products Segment	34,339		34,860
Total assets from reportable segments	54,773		54,622
Assets from All Other operating segment	1,623		1,678
Items not included in segment assets:
Cash and cash equivalents	5,213		8,428
Deferred income taxes	2,012		1,735
Goodwill and intangible assets	4,802		4,859
Property, plant and equipment – net and other assets	4,640		4,056
Inventory methodology differences	(2,847)		(2,656)
Liabilities included in segment assets	11,403		10,777
Other	(512)		(706)
Total assets	$	81,107	$	82,793


Reconciliation of Depreciation and amortization:
(Millions of dollars)
	Three Months Ended June 30				Six Months Ended June 30
	2022		2021		2022		2021
Depreciation and amortization from reportable segments:
Construction Industries	$	57	$	59	$	115	$	118
Resource Industries	91		101		183		200
Energy & Transportation	135		142		269		284
Financial Products Segment	185		191		373		387
Total depreciation and amortization from reportable segments	468		493		940		989
Items not included in segment depreciation and amortization:
All Other operating segment	58		60		116		122
Cost centers	22		24		43		50
Other	5		10		11		12
Total depreciation and amortization	$	553	$	587	$	1,110	$	1,173

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Reconciliation of Capital expenditures:
(Millions of dollars)
	Three Months Ended June 30				Six Months Ended June 30
	2022		2021		2022		2021
Capital expenditures from reportable segments:
Construction Industries	$	43	$	36	$	75	$	64
Resource Industries	42		34		64		57
Energy & Transportation	100		143		277		224
Financial Products Segment	334		361		575		589
Total capital expenditures from reportable segments	519		574		991		934
Items not included in segment capital expenditures:
All Other operating segment	46		32		62		47
Cost centers	16		—		25		19
Timing	16		(15)		208		109
Other	(2)		5		(12)		(9)
Total capital expenditures	$	595	$	596	$	1,274	$	1,100

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 allowance for credit losses. Cat Financial's portfolio segments and related methods for estimating expected credit 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 49 months with an average remaining term of approximately 26 months as of June 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's collection efforts fail to bring a defaulted account current, Cat Financial generally can repossess the financed equipment, after satisfying local legal requirements, and sell it within the Caterpillar dealer network or 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 six months ended June 30, 2022, Cat Financial's forecasts for the markets in which it operates reflected a continuation of the trend of relatively low unemployment rates and delinquencies. However, high inflation rates and commodity prices are weakening the global economic growth. The company believes the 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.

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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 six months ended June 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 and a similar method for assessing and monitoring credit risk. Cat Financial's classes, which align with management reporting for credit losses, are as follows:

•North America - Finance receivables originated in the United States and Canada.

•EAME - Finance receivables originated in Europe, Africa, the Middle East and the Commonwealth of Independent States.

•Asia/Pacific - Finance receivables originated in Australia, New Zealand, China, Japan, Southeast Asia and 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 judgment of management, they are considered uncollectible (generally upon repossession of the collateral). The amount of the write-off is determined by comparing the fair value of the collateral, less cost to sell, to the 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 June 30, 2022						Three Months Ended June 30, 2021
	Customer		Dealer		Total		Customer		Dealer		Total
Beginning balance	$	271	$	81	$	352	$	393	$	44	$	437
Write-offs	(18)		—		(18)		(68)		—		(68)
Recoveries	18		—		18		14		—		14
Provision for credit losses 1	22		1		23		13		—		13
Other	(3)		—		(3)		2		—		2
Ending balance	$	290	$	82	$	372	$	354	$	44	$	398

	Six Months Ended June 30, 2022						Six Months Ended June 30, 2021
Allowance for Credit Losses:	Customer		Dealer		Total		Customer		Dealer		Total
Beginning balance	$	251	$	82	$	333	$	431	$	44	$	475

Write-offs	(38)		—		(38)		(102)		—		(102)
Recoveries	30		—		30		24		—		24
Provision for credit losses 1	48		—		48		3		—		3
Other	(1)		—		(1)		(2)		—		(2)
Ending balance	$	290	$	82	$	372	$	354	$	44	$	398








Finance Receivables	$	19,888	$	1,764	$	21,652	$	19,848	$	2,663	$	22,511


1 Excludes provision for credit losses on unfunded commitments and other miscellaneous receivables.

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Credit quality of finance receivables

At origination, Cat Financial evaluates credit risk based on a variety of credit quality factors including prior payment experience, customer financial information, credit ratings, loan-to-value ratios, probabilities of default, industry trends, macroeconomic factors and other internal metrics. On an ongoing basis, Cat Financial monitors credit quality based on past-due status as there is a meaningful correlation between the past-due status of customers and the risk of 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

The tables below summarize the aging category of Cat Financial's amortized cost of finance receivables in the Customer portfolio segment by origination year:

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(Millions of dollars)	June 30, 2022
	2022		2021		2020		2019		2018		Prior		Revolving Finance Receivables		Total Finance Receivables
North America
Current	$	2,316	$	3,996	$	2,021	$	991	$	382	$	103	$	218	$	10,027
31-60 days past due	13		31		23		14		6		2		5		94
61-90 days past due	4		10		6		4		2		2		3		31
91+ days past due	2		17		13		9		10		5		3		59

EAME
Current	642		1,204		624		397		232		104		—		3,203
31-60 days past due	4		11		9		5		—		1		—		30
61-90 days past due	1		8		5		1		1		—		—		16
91+ days past due	1		19		15		6		2		1		—		44

Asia/Pacific
Current	631		939		517		146		35		7		—		2,275
31-60 days past due	3		15		14		7		1		—		—		40
61-90 days past due	—		6		7		3		1		—		—		17
91+ days past due	1		3		6		6		1		—		—		17

Mining
Current	384		699		270		237		134		156		31		1,911
31-60 days past due	—		—		—		1		4		—		—		5
61-90 days past due	—		—		—		—		—		—		—		—
91+ days past due	—		—		1		6		11		4		—		22

Latin America
Current	422		513		214		108		33		19		—		1,309
31-60 days past due	1		8		5		2		5		—		—		21
61-90 days past due	1		2		2		2		—		1		—		8
91+ days past due	—		12		15		7		14		18		—		66

Caterpillar Power Finance
Current	17		96		145		80		32		177		111		658
31-60 days past due	—		—		—		—		—		—		—		—
61-90 days past due	—		—		—		—		—		5		—		5
91+ days past due	—		1		—		—		—		29		—		30


Totals by Aging Category
Current	$	4,412	$	7,447	$	3,791	$	1,959	$	848	$	566	$	360	$	19,383
31-60 days past due	21		65		51		29		16		3		5		190
61-90 days past due	6		26		20		10		4		8		3		77
91+ days past due	4		52		50		34		38		57		3		238
Total Customer	$	4,443	$	7,590	$	3,912	$	2,032	$	906	$	634	$	371	$	19,888

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(Millions of dollars)	December 31, 2021
	2021		2020		2019		2018		2017		Prior		Revolving Finance Receivables		Total Finance Receivables
North America
Current	$	4,792	$	2,596	$	1,426	$	630	$	182	$	32	$	182	$	9,840
31-60 days past due	27		32		20		12		4		1		5		101
61-90 days past due	7		8		5		3		1		1		5		30
91+ days past due	9		17		12		13		5		4		5		65

EAME
Current	1,499		836		577		352		140		26		—		3,430
31-60 days past due	5		4		3		1		1		—		—		14
61-90 days past due	3		3		3		1		—		—		—		10
91+ days past due	3		11		2		2		—		2		—		20

Asia/Pacific
Current	1,271		803		307		71		16		2		—		2,470
31-60 days past due	10		14		10		2		—		—		—		36
61-90 days past due	3		7		4		1		—		—		—		15
91+ days past due	2		10		10		3		—		—		—		25

Mining
Current	851		347		307		193		36		161		36		1,931
31-60 days past due	6		—		—		—		—		—		—		6
61-90 days past due	1		—		—		—		4		—		—		5
91+ days past due	—		1		8		9		3		1		—		22

Latin America
Current	617		299		160		70		17		18		—		1,181
31-60 days past due	4		7		3		3		1		—		—		18
61-90 days past due	3		3		1		1		—		—		—		8
91+ days past due	4		9		9		7		7		14		—		50

Caterpillar Power Finance
Current	117		145		97		70		180		104		101		814
31-60 days past due	—		—		—		—		—		—		—		—
61-90 days past due	—		—		—		—		—		—		—		—
91+ days past due	—		—		—		—		—		44		—		44


Totals by Aging Category
Current	$	9,147	$	5,026	$	2,874	$	1,386	$	571	$	343	$	319	$	19,666
31-60 days past due	52		57		36		18		6		1		5		175
61-90 days past due	17		21		13		6		5		1		5		68
91+ days past due	18		48		41		34		15		65		5		226
Total Customer	$	9,234	$	5,152	$	2,964	$	1,444	$	597	$	410	$	334	$	20,135

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.

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Dealer

As of June 30, 2022, Cat Financial's total amortized cost of finance receivables within the Dealer portfolio segment was current, with the exception of $73 million that were 91+ days past due in Latin America, all of which were originated in 2017. As of December 31, 2021, Cat Financial's total amortized cost of finance receivables within the Dealer portfolio segment was current, with the exception of $78 million that was 91+ days past due in Latin America, all of which was originated in 2017.

Non-accrual finance receivables

Recognition of income is suspended and the finance receivable is placed on non-accrual status when management determines that collection of future income is not probable. Contracts on non-accrual status are generally more than 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 finance receivable is on non-accrual status are applied to interest and principal in accordance with the contractual 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:



	June 30, 2022						December 31, 2021
	Amortized Cost						Amortized Cost
(Millions of dollars)	Non-accrual With an Allowance		Non-accrual Without an Allowance		91+ Still Accruing		Non-accrual With an Allowance		Non-accrual Without an Allowance		91+ Still Accruing

North America	$	39	$	6	$	15	$	47	$	9	$	12
EAME	49		1		20		18		1		2
Asia/Pacific	12		—		7		19		—		7
Mining	23		2		—		8		1		14
Latin America	70		—		1		52		4		1
Caterpillar Power Finance	20		12		—		40		11		—
Total	$	213	$	21	$	43	$	184	$	26	$	36

There was $1 million of interest income recognized during the three months ended June 30, 2022 and 2021 for customer finance receivables on non-accrual status. There was $5 million and $6 million of interest income recognized during the six months ended June 30, 2022 and 2021, respectively, for customer finance receivables on non-accrual status.

As of June 30, 2022 and December 31, 2021, finance receivables in Cat Financial's Dealer portfolio segment on non-accrual status were $73 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 of June 30, 2022 and December 31, 2021 and no interest income was recognized on dealer finance receivables on non-accrual status during the three and six months ended June 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.

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There were no finance receivables modified as TDRs during the three and six months ended June 30, 2022 and 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 June 30, 2022				Three Months Ended June 30, 2021
	Pre-TDR Amortized Cost		Post-TDR Amortized Cost		Pre-TDR Amortized Cost		Post-TDR Amortized Cost
Customer
North America	$	1	$	1	$	4	$	4



Latin America	—		—		6		6
Caterpillar Power Finance	3		2		16		16
Total	$	4	$	3	$	26	$	26

	Six Months Ended June 30, 2022				Six Months Ended June 30, 2021
	Pre-TDR Amortized Cost		Post-TDR Amortized Cost		Pre-TDR Amortized Cost		Post-TDR Amortized Cost
North America	$	1	$	1	$	4	$	4
EAME	1		1		—		—

Mining	—		—		11		5
Latin America	—		—		6		6
Caterpillar Power Finance	9		8		16		16
Total	$	11	$	10	$	37	$	31

The Post-TDR amortized costs in the Customer portfolio segment with a payment default (defined as 91+ days past due) which had been modified within twelve months prior to the default date, were as follows:



(Millions of dollars)	Three Months Ended June 30				Six Months Ended June 30
Customer	2022		2021		2022		2021
North America	$	—	$	—	$	—	$	1

Asia/Pacific	—		2		—		6
Mining	—		—		5		—
Latin America	—		15		—		15
Caterpillar Power Finance	—		—		—		5
Total	$	—	$	17	$	5	$	27

18. Fair value disclosures

A. Fair value measurements

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

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

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

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

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

We classify fair value measurements according to the lowest level input or value-driver that is significant to the 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 an obligation (either by a counterparty or Caterpillar) will not be fulfilled. For financial assets traded in an active market (Level 1 and certain Level 2), the nonperformance risk is included in the market price. For certain other financial assets and liabilities (certain Level 2 and Level 3), our fair value calculations have been adjusted accordingly.

Investments in debt and equity securities

We have investments in certain debt and equity securities that are recorded at fair value. Fair values for our U.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 bonds, corporate bonds 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 also have investments in time deposits classified as held-to-maturity debt securities. The fair value of these investments is based upon valuations observed in less active markets than Level 1. These investments have 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

The fair value of interest rate contracts is primarily based on a standard industry accepted valuation model that utilizes 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 standard industry accepted valuation models that discount cash flows resulting from the differential between the contract price and the market-based forward rate.

See Note 5 for additional information.

Assets and liabilities measured on a recurring basis at fair value included in our Consolidated Statement of Financial Position as of June 30, 2022 and December 31, 2021 were as follows:

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	June 30, 2022
(Millions of dollars)	Level 1		Level 2		Level 3		Measured at NAV		Total Assets / Liabilities, at Fair Value
Assets
Debt securities
Government debt
U.S. treasury bonds	$	10	$	—	$	—	$	—	$	10
Other U.S. and non-U.S. government bonds	—		55		—		—		55
Corporate bonds
Corporate bonds	—		2,029		—		—		2,029
Asset-backed securities	—		181		—		—		181
Mortgage-backed debt securities
U.S. governmental agency	—		367		—		—		367
Residential	—		3		—		—		3
Commercial	—		132		—		—		132
Total debt securities	10		2,767		—		—		2,777
Equity securities
Large capitalization value	189		—		—		—		189
Smaller company growth	42		—		—		—		42
REIT	—		—		—		197		197
Total equity securities	231		—		—		197		428
Derivative financial instruments - assets
Foreign currency contracts - net	—		295		—		—		295

Commodity contracts - net	—		7		—		—		7
Total assets	$	241	$	3,069	$	—	$	197	$	3,507
Liabilities
Derivative financial instruments - liabilities

Interest rate contracts - net	$	—	$	62	$	—	$	—	$	62

Total liabilities	$	—	$	62	$	—	$	—	$	62

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	December 31, 2021
(Millions of dollars)	Level 1		Level 2		Level 3		Measured at NAV		Total Assets / Liabilities, at Fair Value
Assets
Debt securities
Government debt
U.S. treasury bonds	$	10	$	—	$	—	$	—	$	10
Other U.S. and non-U.S. government bonds	—		61		—		—		61
Corporate bonds
Corporate bonds	—		1,046		—		—		1,046
Asset-backed securities	—		176		—		—		176
Mortgage-backed debt securities
U.S. governmental agency	—		325		—		—		325
Residential	—		4		—		—		4
Commercial	—		99		—		—		99
Total debt securities	10		1,711		—		—		1,721
Equity securities
Large capitalization value	217		—		—		—		217
Smaller company growth	98		—		—		—		98
REIT	—		—		—		167		167
Total equity securities	315		—		—		167		482
Derivative financial instruments - assets
Foreign currency contracts - net	—		168		—		—		168
Interest rate contracts - net	—		23		—		—		23
Commodity contracts - net	—		21		—		—		21
Total Assets	$	325	$	1,923	$	—	$	167	$	2,415

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, or the observable market price of the receivable. In determining collateral value, Cat Financial estimates the current fair market value of the collateral less selling costs. Cat Financial had loans carried at fair value of $98 million and $100 million as of June 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 Fair value measurements section above, we use the following methods and assumptions to estimate the fair value of our financial instruments:

Cash and cash equivalents

Carrying amount approximates fair value. We classify cash and cash equivalents as Level 1. See Consolidated 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. 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.

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Wholesale inventory receivables

We estimate fair value by discounting the future cash flows using current rates, representative of receivables with similar remaining maturities.

Short-term borrowings

Carrying amount approximates fair value. We classify short-term borrowings as Level 1. See Consolidated Statement 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:



	June 30, 2022				December 31, 2021
(Millions of dollars)	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Fair Value Levels	Reference
Assets
Finance receivables – net (excluding finance leases 1 )	$	13,952	$	13,528	$	13,837	$	13,836	3	Note 17
Wholesale inventory receivables – net (excluding finance leases 1)	791		755		773		753		3

Liabilities
Long-term debt (including amounts due within one year)
Machinery, Energy & Transportation	9,713		9,881		9,791		12,420		2
Financial Products	22,247		21,710		22,594		22,797		2

1 Represents finance leases and failed sale leasebacks of $7,614 million and $8,083 million at June 30, 2022 and December 31, 2021, respectively.

19. Other income (expense)


	Three Months Ended June 30				Six Months Ended June 30
(Millions of dollars)	2022		2021		2022		2021
Investment and interest income	$	25	$	21	$	46	$	44
Foreign exchange gains (losses) 1	224		(32)		271		63
License fee income	37		32		69		57
Net periodic pension and OPEB income (cost), excluding service cost	66		111		134		222
Gains (losses) on securities	(47)		17		(59)		42
Miscellaneous income (loss)	(45)		52		52		98
Total	$	260	$	201	$	513	$	526

1 Includes gains (losses) from foreign exchange derivative contracts. See Note 5 for further details.

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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 explicit approval by the company. For involuntary programs, we recognize eligible costs when management has approved the program, the affected employees have been properly notified and the costs are estimable.

Restructuring costs for the three and six months ended June 30, 2022 and 2021 were as follows:



(Millions of dollars)	Three Months Ended June 30				Six Months Ended June 30
	2022		2021		2022		2021
Employee separations 1	$	18	$	17	$	23	$	62

Long-lived asset impairments 1	5		(7)		5		4

Other 2	5		15		13		23
Total restructuring costs	$	28	$	25	$	41	$	89


1 Recognized in Other operating (income) expenses.
2 Represents 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.

For both the six months ended June 30, 2022 and 2021, the restructuring costs were primarily related to actions 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)	Six Months Ended June 30
	2022		2021
Liability balance, beginning of period	$	61	$	164
Increase in liability (separation charges)	23		62
Reduction in liability (payments)	(50)		(82)
Liability balance, end of period	$	34	$	144

Most of the liability balance at June 30, 2022 is expected to be paid in 2022.

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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. 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 second quarter of 2022 include:

•Total sales and revenues for the second quarter of 2022 were $14.247 billion, an increase of $1.358 billion, or 11 percent, compared with $12.889 billion in the second quarter of 2021. Sales were higher across the three primary segments.

•Operating profit margin was 13.6 percent for the second quarter of 2022, compared with 13.9 percent for the second quarter of 2021. Adjusted operating profit margin was 13.8 percent for the second quarter of 2022, compared with 14.1 percent for the second quarter of 2021.

•Second-quarter 2022 profit per share was $3.13, and excluding the items in the table below, adjusted profit per share was $3.18. Second-quarter 2021 profit per share was $2.56 and, excluding the items in the table below, adjusted profit per share was $2.60.

•Caterpillar ended the second quarter of 2022 with $6.0 billion of enterprise cash.

Highlights for the six months ended June 30, 2022 include:

•Total sales and revenues were $27.836 billion for the six months ended June 30, 2022, an increase of $3.060 billion, or 12 percent, compared with $24.776 billion for the six months ended June 30, 2021.

•Operating profit margin was 13.6 percent for the six months ended June 30, 2022, compared with 14.5 percent for the six months ended June 30, 2021. Adjusted operating profit margin was 13.8 percent for the six months ended June 30, 2022, compared with 14.9 percent for the six months ended June 30, 2021.

•Profit per share for the six months ended June 30, 2022, was $5.99 and, excluding the items in the table below, adjusted profit per share was $6.06. Profit per share for the six months ended June 30, 2021, was $5.33, and excluding the items in the table below, adjusted profit per share was $5.47.

•Enterprise operating cash flow was $2.5 billion for the six months ended June 30, 2022.

•In order for our results to be more meaningful to our readers, we have separately quantified the impact of several significant items. A detailed reconciliation of GAAP to non-GAAP financial measures is included on page 64.



	Three Months Ended June 30, 2022				Three Months Ended June 30, 2021				Six Months Ended June 30, 2022				Six Months Ended June 30, 2021
(Dollars in millions except per share data)	Profit Before Taxes		Profit Per Share		Profit Before Taxes		Profit Per Share		Profit Before Taxes		Profit Per Share		Profit Before Taxes		Profit Per Share
Profit	$	2,096	$	3.13	$	1,870	$	2.56	$	4,095	$	5.99	$	3,867	$	5.33
Restructuring costs	28		0.05		25		0.04		41		0.07		89		0.14
Adjusted profit	$	2,124	$	3.18	$	1,895	$	2.60	$	4,136	$	6.06	$	3,956	$	5.47

Overview

Total sales and revenues for the second quarter of 2022 were $14.247 billion, an increase of $1.358 billion, or 11 percent, compared with $12.889 billion in the second 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, Australian dollar and Japanese yen. The increase in sales volume was driven by services, partially offset by lower sales of equipment to end users. Sales were higher across the three primary segments.

Second-quarter 2022 profit per share was $3.13, compared with $2.56 profit per share in the second quarter of 2021. Profit per share for both quarters included restructuring costs. Profit for the second quarter of 2022 was $1.673 billion, an increase of $260 million, or 18%, compared with $1.413 billion for the second quarter of 2021. The increase was primarily due to favorable price realization and higher sales volume, partially offset by unfavorable manufacturing costs. Unfavorable manufacturing costs largely reflected higher material and freight costs.

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Global Business Conditions:

We continue to monitor a variety of external factors including the ongoing impact of the COVID-19 pandemic around the world, 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.

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 64.

•Certain amounts may not add due to rounding.

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Consolidated Results of Operations

THREE MONTHS ENDED JUNE 30, 2022 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2021

CONSOLIDATED SALES AND REVENUES

The chart above graphically illustrates reasons for the change in consolidated sales and revenues between the second quarter of 2021 (at left) and the second quarter of 2022 (at right). Caterpillar management utilizes these charts internally to visually communicate with the company’s Board of Directors and employees.

Sales were higher across the three primary segments.

North America sales increased 20 percent due to favorable price realization and services. Lower sales of equipment to end users was mostly offset by the impact of changes in dealer inventories. Dealers decreased inventories more during the second quarter of 2021 than during the second quarter of 2022.

Sales increased 27 percent in Latin America due to higher sales of equipment to end users, favorable price realization and services, partially offset by the impact of changes in dealer inventories. Dealers increased inventories during the second quarter of 2021, compared with a decrease during the second quarter of 2022.

EAME sales decreased 3 percent due to unfavorable currency impacts, primarily related to the euro and British pound, and the impact of changes in dealer inventories, partially offset by favorable price realization. Dealers increased inventories during the second quarter of 2021, compared with a decrease during the second quarter of 2022.

Asia/Pacific sales increased 4 percent driven by favorable price realization and services, partially offset by unfavorable currency impacts, related to the Australian dollar and Japanese yen, and lower sales of equipment to end users.

Dealers decreased inventories by $400 million during the second quarter of 2022 and during the second quarter of 2021. Dealers are independent, and the reasons for changes in their inventory levels vary, including their expectations of future demand and product delivery times. Dealers’ demand expectations take into account seasonal changes, macroeconomic conditions, machine rentals and other factors. Delivery times can vary based on availability of product from Caterpillar factories and product distribution centers. We do not expect a significant increase in dealer inventory in 2022.

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Sales and Revenues by Segment
(Millions of dollars)	Second Quarter 2021		Sales Volume		Price Realization		Currency		Inter-Segment / Other		Second Quarter 2022		$ Change		% Change

Construction Industries	$	5,656	$	(25)	$	535	$	(122)	$	(11)	$	6,033	$	377	7	%
Resource Industries	2,547		140		317		(33)		(10)		2,961		414		16	%
Energy & Transportation	4,975		363		260		(103)		210		5,705		730		15	%
All Other Segment	128		4		1		(1)		(14)		118		(10)		(8	%)
Corporate Items and Eliminations	(1,113)		17		(8)		1		(175)		(1,278)		(165)
Machinery, Energy & Transportation Sales	12,193		499		1,105		(258)		—		13,539		1,346		11	%

Financial Products Segment	774		—		—		—		24		798		24		3	%
Corporate Items and Eliminations	(78)		—		—		—		(12)		(90)		(12)
Financial Products Revenues	696		—		—		—		12		708		12		2	%

Consolidated Sales and Revenues	$	12,889	$	499	$	1,105	$	(258)	$	12	$	14,247	$	1,358	11	%


Sales and Revenues by Geographic Region


	North America				Latin America				EAME				Asia/Pacific				External Sales and Revenues					Inter-Segment				Total Sales and Revenues
(Millions of dollars)	$		% Chg		$		% Chg		$		% Chg		$		% Chg		$			% Chg		$		% Chg		$		% Chg
Second Quarter 2022
Construction Industries	$	3,006	20	%	$	635	48	%	$	1,202	(7	%)	$	1,148	(17	%)	$	5,991		7	%	$	42	(21	%)	$	6,033	7	%
Resource Industries	1,027		29	%	466		(4	%)	489		(7	%)	913		38	%	2,895			17	%	66		(13	%)	2,961		16	%
Energy & Transportation	2,277		14	%	382		53	%	1,215		2	%	766		12	%	4,640			13	%	1,065		25	%	5,705		15	%
All Other Segment	18		64	%	—		(100	%)	5		25	%	15		(17	%)	38			12	%	80		(15	%)	118		(8	%)
Corporate Items and Eliminations	(20)				(2)				—				(3)				(25)					(1,253)				(1,278)
Machinery, Energy & Transportation Sales	6,308		20	%	1,481		27	%	2,911		(3	%)	2,839		4	%	13,539			11	%	—		—		13,539		11	%

Financial Products Segment	505		3	%	87		34	%	97		1	%	109		(13	%)	798		1	3	%	—		—		798		3	%
Corporate Items and Eliminations	(42)				(21)				(10)				(17)				(90)					—				(90)
Financial Products Revenues	463		3	%	66		22	%	87		—	%	92		(12	%)	708			2	%	—		—		708		2	%

Consolidated Sales and Revenues	$	6,771	18	%	$	1,547	27	%	$	2,998	(3	%)	$	2,931	3	%	$	14,247		11	%	$	—	—		$	14,247	11	%

Second Quarter 2021
Construction Industries	$	2,498			$	430			$	1,291			$	1,384			$	5,603				$	53			$	5,656
Resource Industries	799				487				525				660				2,471					76				2,547
Energy & Transportation	1,992				250				1,196				682				4,120					855				4,975
All Other Segment	11				1				4				18				34					94				128
Corporate Items and Eliminations	(31)				(1)				(1)				(2)				(35)					(1,078)				(1,113)
Machinery, Energy & Transportation Sales	5,269				1,167				3,015				2,742				12,193					—				12,193

Financial Products Segment	488				65				96				125				774		1			—				774
Corporate Items and Eliminations	(38)				(11)				(9)				(20)				(78)					—				(78)
Financial Products Revenues	450				54				87				105				696					—				696

Consolidated Sales and Revenues	$	5,719			$	1,221			$	3,102			$	2,847			$	12,889				$	—			$	12,889

1 Includes revenues from Machinery, Energy & Transportation of $108 million and $92 million in the second quarter of 2022 and 2021, respectively.

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CONSOLIDATED OPERATING PROFIT

The chart above graphically illustrates reasons for the change in consolidated operating profit between the second quarter of 2021 (at left) and the second quarter of 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 includes consolidating adjustments and Machinery, Energy & Transportation other operating (income) expenses.

Operating profit for the second quarter of 2022 was $1.944 billion, an increase of $155 million, or 9 percent, compared with $1.789 billion in the second quarter of 2021. The increase was primarily due to favorable price realization and higher sales volume, partially offset by higher manufacturing costs and higher selling, general and administrative (SG&A) and research and development (R&D) expenses. Unfavorable manufacturing costs largely reflected higher material and freight costs. The increase in SG&A/R&D expenses was mainly driven by investments aligned with the company's strategy for profitable growth and higher short-term incentive compensation expense.

Short-term incentive compensation expense was about $500 million in the second quarter of 2022, compared to about $400 million in the second quarter of 2021.

Operating profit margin was 13.6 percent for the second quarter of 2022, compared with 13.9 percent for the second quarter of 2021.


Profit (Loss) by Segment
(Millions of dollars)	Second Quarter 2022		Second Quarter 2021		$ Change		% Change
Construction Industries	$	989	$	1,029	$	(40)	(4	%)
Resource Industries	355		349		6		2	%
Energy & Transportation	659		738		(79)		(11	%)
All Other Segment	31		(10)		41		n/a
Corporate Items and Eliminations	(230)		(453)		223
Machinery, Energy & Transportation	1,804		1,653		151		9	%

Financial Products Segment	217		243		(26)		(11	%)
Corporate Items and Eliminations	17		(29)		46
Financial Products	234		214		20		9	%
Consolidating Adjustments	(94)		(78)		(16)
Consolidated Operating Profit	$	1,944	$	1,789	$	155	9	%

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.

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Other Profit/Loss and Tax Items

▪Interest expense excluding Financial Products in the second quarter of 2022 was $108 million, compared with $120 million in the second quarter of 2021. The decrease was due to lower average debt outstanding during the second quarter of 2022, compared with the second quarter of 2021.

▪Other income (expense) in the second quarter of 2022 was income of $260 million, compared with income of $201 million in the second quarter of 2021. The change was primarily driven by favorable impacts from foreign currency exchange, partially offset by unfavorable impacts from commodity hedges, unrealized losses on marketable securities and lower pension and other postemployment benefit (OPEB) plan income.

▪The provision for income taxes for the second quarter of 2022 reflected an estimated annual tax rate of 23.5 percent, compared with 26 percent for the second quarter of 2021, excluding the discrete items discussed below. The comparative tax rate for full-year 2021 was approximately 23 percent.

In the second quarter of 2022, the company recorded a $10 million benefit due to the change from the first-quarter estimated annual tax rate of 24 percent. In addition, the company recorded discrete tax benefits of $55 million primarily for a prior year tax adjustment due to a change in estimate, compared with a $17 million benefit in the second quarter of 2021 for the settlement of stock-based compensation awards with associated tax deductions in excess of cumulative U.S. GAAP compensation expense.

Construction Industries

Construction Industries’ total sales were $6.033 billion in the second quarter of 2022, an increase of $377 million, or 7 percent, compared with $5.656 billion in the second quarter of 2021. The increase was due to favorable price realization, partially offset by unfavorable currency impacts primarily related to the euro, Japanese yen and Australian dollar. Sales volume decreased slightly as lower sales of equipment to end users was mostly offset by higher sales of aftermarket parts.

▪In North America, sales increased due to favorable price realization and higher sales volume. Higher sales volume was driven by the impact from changes in dealer inventories. Dealer inventory decreased more during the second quarter of 2021 than during the second quarter of 2022.

▪Sales increased in Latin America primarily due to higher sales volume and favorable price realization. Higher sales volume was driven by higher sales of equipment to end users, partially offset by the impact from changes in dealer inventories. Dealer inventory decreased during the second quarter of 2022, compared with an increase during the second quarter of 2021.

▪In EAME, sales decreased due to lower sales volume and unfavorable currency impacts primarily related to the euro, partially offset by favorable price realization. Lower sales volume was primarily driven by the impact from changes in dealer inventories. Dealer inventory decreased during the second quarter of 2022, compared with an increase during the second quarter of 2021.

▪Sales decreased in Asia/Pacific mainly due to lower sales volume and unfavorable currency impacts primarily related to the Japanese yen and Australian dollar, partially offset by favorable price realization. Lower sales volume was driven by lower sales of equipment to end users, primarily in China.

Construction Industries’ profit was $989 million in the second quarter of 2022, a decrease of $40 million, or 4 percent, compared with $1.029 billion in the second quarter of 2021. Favorable price realization was offset by unfavorable manufacturing costs and lower sales volume. Unfavorable manufacturing costs largely reflected higher material and freight costs.

Construction Industries’ profit as a percent of total sales was 16.4 percent in the second quarter of 2022, compared with 18.2 percent in the second quarter of 2021.

Resource Industries

Resource Industries’ total sales were $2.961 billion in the second quarter of 2022, an increase of $414 million, or 16 percent, compared with $2.547 billion in the second quarter of 2021. The increase was primarily due to favorable price realization and higher sales volume. The increase in sales volume was due to higher sales of aftermarket parts.

Resource Industries’ profit was $355 million in the second quarter of 2022, an increase of $6 million, or 2 percent, compared with $349 million in the second quarter of 2021. Unfavorable manufacturing costs were offset by favorable price realization and higher sales volume. Unfavorable manufacturing costs largely reflected higher material and freight costs.

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Resource Industries’ profit as a percent of total sales was 12.0 percent in the second quarter of 2022, compared with 13.7 percent in the second quarter of 2021.

Energy & Transportation


Sales by Application
(Millions of dollars)	Second Quarter 2022		Second Quarter 2021		$ Change		% Change
Oil and Gas	$	1,232	$	1,137	$	95	8	%
Power Generation	1,186		1,052		134		13	%
Industrial	1,117		899		218		24	%
Transportation	1,105		1,032		73		7	%
External Sales	4,640		4,120		520		13	%
Inter-segment	1,065		855		210		25	%
Total Sales	$	5,705	$	4,975	$	730	15	%

Energy & Transportation’s total sales were $5.705 billion in the second quarter of 2022, an increase of $730 million, or 15 percent, compared with $4.975 billion in the second quarter of 2021. Sales increased across all applications and inter-segment sales.

•Oil and Gas – Sales increased due to higher sales of reciprocating engine aftermarket parts and engines used in well servicing and gas compression applications, primarily in North America, partially offset by lower sales for turbines and turbine-related services.

•Power Generation – Sales rose due to higher sales volume in small reciprocating engine applications, reciprocating engine aftermarket parts and turbines and turbine-related services.

•Industrial – Sales were up due to higher sales volumes across all regions.

•Transportation – Sales increased in reciprocating engines aftermarket parts and rail services.

Energy & Transportation’s profit was $659 million in the second quarter of 2022, a decrease of $79 million, or 11 percent, compared with $738 million in the second quarter of 2021. The decrease was mainly due to unfavorable manufacturing costs and higher SG&A/R&D expenses, partially offset by favorable price realization and higher sales volume. Unfavorable manufacturing costs largely reflected higher material and freight costs. 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 11.6 percent in the second quarter of 2022, compared with 14.8 percent in the second quarter of 2021.

Financial Products Segment

Financial Products’ segment revenues were $798 million in the second quarter of 2022, an increase of $24 million, or 3 percent, compared with $774 million in the second quarter of 2021.The increase was primarily due to a favorable impact from returned or repossessed equipment in North America and higher average financing rates in Latin America, partially offset by lower average earning assets in Asia/Pacific.

Financial Products’ segment profit was $217 million in the second quarter of 2022, a decrease of $26 million, or 11 percent, compared with $243 million in the second quarter of 2021. The decrease was mainly due to an unfavorable impact from equity securities in Insurance Services and a higher provision for credit losses at Cat Financial, partially offset by a favorable impact from returned or repossessed equipment.

At the end of the second quarter of 2022, past dues at Cat Financial were 2.19 percent, compared with 2.58 percent at the end of the second quarter of 2021. The decrease in past dues was mostly driven by the Caterpillar Power Finance, EAME and North America portfolios. Write-offs, net of recoveries, were less than $1 million for the second quarter of 2022, compared with $54 million for the second quarter of 2021. As of June 30, 2022, Cat Financial's allowance for credit losses totaled $376 million, or 1.41% of finance receivables, compared with $357 million, or 1.29 percent of finance receivables at March 31, 2022. The increase in allowance for credit losses included a higher reserve for the Russia and Ukraine portfolios. The allowance for credit losses at year-end 2021 was $337 million, or 1.22 percent of finance receivables.

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Corporate Items and Eliminations

Expense for corporate items and eliminations was $213 million in the second quarter of 2022, a decrease of $269 million from the second quarter of 2021, primarily driven by lower expenses due to timing differences, favorable impacts of segment reporting methodology and a favorable change in fair value adjustments related to deferred compensation plans, partially offset by higher corporate costs.

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SIX MONTHS ENDED JUNE 30, 2022 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2021

CONSOLIDATED SALES AND REVENUES

The chart above graphically illustrates reasons for the change in consolidated sales and revenues between the six months ended June 30, 2021 (at left) and the six months ended June 30, 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 were $27.836 billion for the six months ended June 30, 2022, an increase of $3.060 billion, or 12 percent, compared with $24.776 billion for the six months ended June 30, 2021. The increase was primarily due to favorable price realization and higher sales volume, partially offset by unfavorable currency impacts related to the euro, Australian dollar and Japanese yen. The increase in sales volume was driven by services and the impact from changes in dealer inventories, partially offset by lower sales of equipment to end users. Dealers increased inventories about $900 million during the six months ended June 30, 2022, compared with an increase of $300 million during the six months ended June 30, 2021.

Sales were higher in the three primary segments.

North America sales increased 22 percent driven by favorable price realization, services and the impact from changes in dealer inventories. Dealers decreased inventories during the six months ended June 30, 2021, compared with an increase during the six months ended June 30, 2022.

Sales increased 27 percent in Latin America due to favorable price realization, services and higher sales of equipment to end users.

EAME sales increased 5 percent due to favorable price realization, services, higher sales of equipment to end users and the impact from changes in dealer inventories, partially offset by unfavorable currency impacts related to the euro and British pound. Dealers increased inventories more during the six months ended June 30, 2022, than during the six months ended June 30, 2021.

Asia/Pacific sales were about flat as lower sales of equipment to end users and unfavorable currency impacts related to the Australian dollar and Japanese yen were mostly offset by favorable price realization and services.

Dealers increased inventories about $900 million during the six months ended June 30, 2022, compared with an increase of $300 million during the six months ended June 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 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. We do not expect a significant increase in dealer inventory in 2022.

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Sales and Revenues by Segment
(Millions of dollars)	Six Months Ended June 30, 2021		Sales Volume		Price Realization		Currency		Inter-Segment / Other		Six Months Ended June 30, 2022		$ Change		% Change

Construction Industries	$	11,115	$	300	$	956	$	(223)	$	—	$	12,148	$	1,033	9	%
Resource Industries	4,725		667		486		(67)		(20)		5,791		1,066		23	%
Energy & Transportation	9,482		696		375		(177)		367		10,743		1,261		13	%
All Other Segment	258		6		1		(2)		(27)		236		(22)		(9	%)
Corporate Items and Eliminations	(2,196)		32		(9)		—		(320)		(2,493)		(297)
Machinery, Energy & Transportation Sales	23,384		1,701		1,809		(469)		—		26,425		3,041		13	%

Financial Products Segment	1,535		—		—		—		46		1,581		46		3	%
Corporate Items and Eliminations	(143)		—		—		—		(27)		(170)		(27)
Financial Products Revenues	1,392		—		—		—		19		1,411		19		1	%

Consolidated Sales and Revenues	$	24,776	$	1,701	$	1,809	$	(469)	$	19	$	27,836	$	3,060	12	%


Sales and Revenues by Geographic Region


	North America				Latin America				EAME				Asia/Pacific				External Sales and Revenues					Inter-Segment				Total Sales and Revenues
(Millions of dollars)	$		% Chg		$		% Chg		$		% Chg		$		% Chg		$			% Chg		$		% Chg		$		% Chg
Six Months Ended June 30, 2022
Construction Industries	$	5,726	24	%	$	1,262	54	%	$	2,479	5	%	$	2,610	(19	%)	$	12,077		9	%	$	71	—	%	$	12,148	9	%
Resource Industries	2,045		40	%	865		(3	%)	1,083		8	%	1,661		36	%	5,654			24	%	137		(13	%)	5,791		23	%
Energy & Transportation	4,215		12	%	692		37	%	2,399		5	%	1,366		13	%	8,672			11	%	2,071		22	%	10,743		13	%
All Other Segment	36		50	%	—		(100	%)	10		43	%	31		(23	%)	77			7	%	159		(15	%)	236		(9	%)
Corporate Items and Eliminations	(44)				(1)				(2)				(8)				(55)					(2,438)				(2,493)
Machinery, Energy & Transportation Sales	11,978		22	%	2,818		27	%	5,969		5	%	5,660		(1	%)	26,425			13	%	—		—	%	26,425		13	%

Financial Products Segment	1,008		5	%	160		26	%	193		(2	%)	220		(11	%)	1,581		1	3	%	—		—	%	1,581		3	%
Corporate Items and Eliminations	(78)				(38)				(19)				(35)				(170)					—				(170)
Financial Products Revenues	930		3	%	122		16	%	174		(3	%)	185		(10	%)	1,411			1	%	—		—	%	1,411		1	%

Consolidated Sales and Revenues	$	12,908	21	%	$	2,940	26	%	$	6,143	5	%	$	5,845	(1	%)	$	27,836		12	%	$	—	—	%	$	27,836	12	%

Six Months Ended June 30, 2021
Construction Industries	$	4,624			$	822			$	2,372			$	3,226			$	11,044				$	71			$	11,115
Resource Industries	1,456				892				999				1,221				4,568					157				4,725
Energy & Transportation	3,774				506				2,289				1,209				7,778					1,704				9,482
All Other Segment	24				1				7				40				72					186				258
Corporate Items and Eliminations	(70)				(1)				(1)				(6)				(78)					(2,118)				(2,196)
Machinery, Energy & Transportation Sales	9,808				2,220				5,666				5,690				23,384					—				23,384

Financial Products Segment	964				127				196				248				1,535		1			—				1,535
Corporate Items and Eliminations	(62)				(22)				(17)				(42)				(143)					—				(143)
Financial Products Revenues	902				105				179				206				1,392					—				1,392

Consolidated Sales and Revenues	$	10,710			$	2,325			$	5,845			$	5,896			$	24,776				$	—			$	24,776

1 Includes revenues from Machinery, Energy & Transportation of $208 million and $176 million in the six months ended June 30, 2022 and 2021, respectively.

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CONSOLIDATED OPERATING PROFIT

The chart above graphically illustrates reasons for the change in consolidated operating profit between the six months ended June 30, 2021 (at left) and the six months ended June 30, 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 includes consolidating adjustments and Machinery, Energy & Transportation’s other operating (income) expenses.

Operating profit for the six months ended June 30, 2022, was $3.799 billion, an increase of $196 million, or 5 percent, compared with $3.603 billion for the six months ended June 30, 2021. The increase was 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 primarily reflected higher material and freight costs. 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 and higher short-term incentive compensation expense.

Short-term incentive compensation expense is directly related to financial and operational performance, measured against targets set annually. Expense for the six months ended June 30, 2022, was about $800 million, compared with about $700 million for the six months ended June 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 13.6 percent for the six months ended June 30, 2022, compared with 14.5 percent for the six months ended June 30, 2021.


Profit by Segment
(Millions of dollars)	Six Months Ended June 30, 2022		Six Months Ended June 30, 2021		$ Change		% Change
Construction Industries	$	2,046	$	2,071	$	(25)	(1	%)
Resource Industries	716		661		55		8	%
Energy & Transportation	1,197		1,413		(216)		(15	%)
All Other Segment	34		(7)		41		n/a
Corporate Items and Eliminations	(474)		(821)		347
Machinery, Energy & Transportation	3,519		3,317		202		6	%

Financial Products Segment	455		487		(32)		(7	%)
Corporate Items and Eliminations	—		(48)		48
Financial Products	455		439		16		4	%
Consolidating Adjustments	(175)		(153)		(22)
Consolidated Operating Profit	$	3,799	$	3,603	$	196	5	%

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.

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Other Profit/Loss and Tax Items

▪Interest expense excluding Financial Products for the six months ended June 30, 2022, was $217 million, compared with $262 million for the six months ended June 30, 2021. The decrease was due to lower average debt outstanding during the six months ended June 30, 2022, compared with the six months ended June 30, 2021.

▪Other income (expense) for the six months ended June 30, 2022, was income of $513 million, about flat compared with income of $526 million for the six months June 30, 2021. Favorable impacts from foreign currency exchange were offset by unrealized losses on marketable securities and lower pension and OPEB income.

▪The provision for income taxes for the six months ended June 30, 2022, reflected an estimated annual tax rate of 23.5 percent, compared with 26 percent for the six months ended June 30, 2021, excluding the discrete items discussed below. The comparative tax rate for full-year 2021 was approximately 23 percent.

Construction Industries

Construction Industries’ total sales were $12.148 billion for the six months ended June 30, 2022, an increase of $1.033 billion, or 9 percent, compared with $11.115 billion for the six months ended June 30, 2021. The increase was due to favorable price realization and higher sales volume, partially offset by unfavorable currency impacts related to the euro, Japanese yen and Australian dollar. The increase in sales volume was driven by the impact from changes in dealer inventories and higher sales of aftermarket parts, partially offset by lower sales of equipment to end users. Dealers increased inventories more during the six months ended June 30, 2022, than during the six months ended June 30, 2021.

•In North America, sales increased due to favorable price realization, the impact from changes in dealer inventories and higher sales of equipment to end users and aftermarket parts. Dealers decreased inventories during the six months ended June 30, 2021, compared with remaining about flat during the six months ended June 30, 2022.

•Sales increased in Latin America primarily due to higher sales of equipment to end users and favorable price realization.

•In EAME, sales increased due to favorable price realization and higher sales of equipment to end users, partially offset by unfavorable currency impacts related to the euro and the impacts from changes in dealer inventories. Dealers increased inventories more during the six months ended June 30, 2021, than during the six months ended June 30, 2022.

•Sales decreased in Asia/Pacific due to lower sales of equipment to end users and unfavorable currency impacts related to the Japanese yen and Australian dollar, partially offset by favorable price realization, higher sales of aftermarket parts and the impact from changes in dealer inventories. Dealers increased inventories more during the six months ended June 30, 2022, than during the six months ended June 30, 2021.

Construction Industries’ profit was $2.046 billion for the six months ended June 30, 2022, about flat compared with $2.071 billion for the six months ended June 30, 2021. Unfavorable manufacturing costs were offset by favorable price realization. Unfavorable manufacturing costs largely reflected higher material and freight costs.

Construction Industries’ profit as a percent of total sales was 16.8 percent for the six months ended June 30, 2022, compared with 18.6 percent for the six months ended June 30, 2021.

Resource Industries

Resource Industries’ total sales were $5.791 billion for the six months ended June 30, 2022, an increase of $1.066 billion, or 23 percent, compared with $4.725 billion for the six months ended June 30, 2021. The increase was due to higher sales volume and favorable price realization. The increase in sales volume was driven by higher sales of aftermarket parts, the impact from changes in dealer inventories and higher sales of equipment to end users. Dealers increased inventories more during the six months ended June 30, 2022, than during the six months ended June 30, 2021.

Resource Industries’ profit was $716 million for the six months ended June 30, 2022, an increase of $55 million, or 8 percent, compared with $661 million for the six months ended June 30, 2021. Unfavorable manufacturing costs were more than offset by favorable price realization and higher sales volume. Unfavorable manufacturing costs largely reflected higher material and freight costs.

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Resource Industries’ profit as a percent of total sales was 12.4 percent for the six months ended June 30, 2022, compared with 14.0 percent for the six months ended June 30, 2021.

Energy & Transportation


Sales by Application
(Millions of dollars)	Six Months Ended June 30, 2022		Six Months Ended June 30, 2021		$ Change		% Change
Oil and Gas	$	2,180	$	2,052	$	128	6	%
Power Generation	2,198		2,015		183		9	%
Industrial	2,137		1,712		425		25	%
Transportation	2,157		1,999		158		8	%
External Sales	8,672		7,778		894		11	%
Inter-Segment	2,071		1,704		367		22	%
Total Sales	$	10,743	$	9,482	$	1,261	13	%

Energy & Transportation’s total sales were $10.743 billion for the six months ended June 30, 2022, an increase of $1.261 billion, or 13 percent, compared with $9.482 billion for the six months ended June 30, 2021. Sales increased across all applications and inter-segment sales.

•Power Generation – Sales increased due to higher sales volume in small reciprocating engine applications.

•Industrial – Sales were up due to higher sales volumes across all regions.

•Transportation – Sales increased primarily in reciprocating engine aftermarket parts and rail services.

Energy & Transportation’s profit was $1.197 billion for the six months ended June 30, 2022, a decrease of $216 million, or 15 percent, compared with $1.413 billion for the six months ended June 30, 2021. The decrease was due to unfavorable manufacturing costs and higher SG&A/R&D expenses, partially offset by favorable price realization and higher sales volume. Unfavorable manufacturing costs largely reflected higher freight and material costs. 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 11.1 percent for the six months ended June 30, 2022, compared with 14.9 percent for the six months ended June 30, 2021.

Financial Products Segment

Financial Products’ segment revenues were $1.581 billion for the six months ended June 30, 2022, an increase of $46 million, or 3 percent, compared with $1.535 billion for the six months ended June 30, 2021. The increase was primarily due to a favorable impact from returned or repossessed equipment in North America.

Financial Products’ segment profit was $455 million for the six months ended June 30, 2022, a decrease of $32 million, or 7 percent, compared with $487 million for the six months ended June 30, 2021. The decrease was mainly due to an unfavorable impact from equity securities in Insurance Services and a higher provision for credit losses at Cat Financial, partially offset by a favorable impact from returned or repossessed equipment.

Corporate Items and Eliminations

Expense for corporate items and eliminations was $474 million for the six months ended June 30, 2022, a decrease of $395 million from the six months ended June 30, 2021, primarily driven by favorable impacts of segment reporting methodology, lower expenses due to timing differences and a favorable change in fair value adjustments related to deferred compensation plans, partially offset by higher corporate costs.

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RESTRUCTURING COSTS

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

Additional information related to restructuring costs is included in Note 20 - "Restructuring Costs" of Part I, Item 1 "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.All Other Segment – Primarily includes activities such as: business strategy; product management and development; manufacturing and sourcing of filters and fluids, undercarriage, ground-engaging tools, fluid transfer products, precision seals, rubber sealing and connecting components primarily for Cat® products; parts distribution; integrated logistics solutions; distribution services responsible for dealer development and administration, including a wholly owned dealer in Japan; dealer portfolio management and ensuring the most efficient and effective distribution of machines, engines and parts; brand management and marketing strategy; and digital investments for new customer and dealer solutions that integrate data analytics with state-of-the-art digital technologies while transforming the buying experience.

4.Consolidating Adjustments – Elimination of transactions between Machinery, Energy & Transportation and Financial Products.

5.Construction Industries – A segment primarily responsible for supporting customers using machinery in infrastructure and building construction applications. Responsibilities include business strategy, product design, product management and development, manufacturing, marketing and sales and product support. The product portfolio includes asphalt pavers; backhoe loaders; compactors; cold planers; compact track and multi-terrain loaders; mini, small, medium and large track excavators; 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.

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 – With respect to sales and revenues, currency represents the translation impact on sales resulting from changes in foreign currency exchange rates versus the U.S. dollar. With respect to operating profit, currency represents the net translation impact on sales and operating costs resulting from changes in foreign currency exchange rates versus the U.S. dollar. Currency only includes the impact on sales and operating profit for the Machinery, Energy & Transportation line of business; currency impacts on Financial Products revenues and operating profit are included in the Financial Products portions of the respective analyses. With respect to other income/expense, currency represents the effects of forward and option contracts entered into by the company to reduce the risk of fluctuations in exchange rates (hedging) and the net effect of changes in foreign currency exchange rates on our foreign currency assets and liabilities for consolidated results (translation).

8.Dealer Inventories – Represents dealer machine and engine inventories, excluding aftermarket parts.

9.EAME – A geographic region including Europe, Africa, the Middle East and the Commonwealth of Independent States (CIS).

10.Earning Assets – Assets consisting primarily of total finance receivables net of unearned income, plus equipment on operating leases, less accumulated depreciation at Cat Financial.

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11.Energy & Transportation – A segment primarily responsible for supporting customers using reciprocating engines, turbines, diesel-electric locomotives and related services across industries serving Oil and Gas, Power Generation, Industrial and Transportation applications, including marine- and rail-related businesses. Responsibilities include business strategy, product design, product management, development and testing manufacturing, marketing and sales and product support. The product and services portfolio includes turbines, centrifugal gas compressors, and turbine-related services; reciprocating engine-powered generator sets; integrated systems and solutions used in the electric power generation industry; reciprocating engines, drivetrain and integrated systems and solutions for the marine and oil and gas industries; reciprocating engines, drivetrain and integrated systems and solutions supplied to the industrial industry as well as Cat machinery; electrified powertrain and zero-emission power sources and service solutions development; and diesel-electric locomotives and components and other rail-related products and services, including remanufacturing and leasing. Responsibilities also include the remanufacturing of Caterpillar reciprocating engines and components and remanufacturing services for other companies; and product support of on-highway vocational trucks for North America.

12.Financial Products – The company defines Financial Products as our finance and insurance subsidiaries, primarily Caterpillar Financial Services Corporation (Cat Financial) and Caterpillar Insurance Holdings Inc. (Insurance Services). Financial Products’ information relates to the financing to customers and dealers for the purchase and lease of Caterpillar and other equipment.

13.Financial Products Segment – Provides financing alternatives to customers and dealers around the world for Caterpillar products and services, as well as financing for vehicles, power generation facilities and marine vessels that, in most cases, incorporate Caterpillar products. Financing plans include operating and finance leases, installment sale contracts, repair/rebuild financing, working capital loans and wholesale financing plans. The segment also provides insurance and risk management products and services that help customers and dealers manage their business risk. Insurance and risk management products offered include physical damage insurance, inventory protection plans, extended service coverage and maintenance plans for machines and engines, and dealer property and casualty insurance. The various forms of financing, insurance and risk management products offered to customers and dealers help support the purchase and lease of Caterpillar equipment. The segment also earns revenues from Machinery, Energy & Transportation, but the related costs are not allocated to operating segments. Financial Products’ segment profit is determined on a pretax basis and includes other income/expense items.

14.Latin America – A geographic region including Central and South American countries and Mexico.

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

16.Machinery, Energy & Transportation Other Operating (Income) Expenses – Comprised primarily of gains/losses on disposal of long-lived assets, gains/losses on divestitures and legal settlements and accruals.

17.Manufacturing Costs – Manufacturing costs exclude the impacts of currency and represent the volume-adjusted change for variable costs and the absolute dollar change for period manufacturing costs. Variable manufacturing costs are defined as having a direct relationship with the volume of production. This includes material costs, direct labor and other costs that vary directly with production volume, such as freight, power to operate machines and supplies that are consumed in the manufacturing process. Period manufacturing costs support production but are defined as generally not having a direct relationship to short-term changes in volume. Examples include machinery and equipment repair, depreciation on manufacturing assets, facility support, procurement, factory scheduling, manufacturing planning and operations management.

18.Mark-to-market gains/losses – Represents the net gain or loss of actual results differing from the company’s assumptions and the effects of changing assumptions for our defined benefit pension and OPEB plans. These gains and losses are immediately recognized through earnings upon the annual remeasurement in the fourth quarter, or on an interim basis as triggering events warrant remeasurement.

19.Pension and Other Postemployment Benefits (OPEB) – The company’s defined-benefit pension and postretirement benefit plans.

20.Price Realization – The impact of net price changes excluding currency and new product introductions. Price realization includes geographic mix of sales, which is the impact of changes in the relative weighting of sales prices between geographic regions.

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21.Resource Industries – A segment primarily responsible for supporting customers using machinery in mining, heavy construction and quarry and aggregates. Responsibilities include business strategy, product design, product management and development, manufacturing, marketing and sales and product support. The product portfolio includes large track-type tractors; large mining trucks; hard rock vehicles; longwall miners; electric rope shovels; draglines; hydraulic shovels; rotary drills; large wheel loaders; off-highway trucks; articulated trucks; wheel tractor scrapers; wheel dozers; landfill compactors; soil compactors; select work tools; machinery components; electronics and control systems and related parts. In addition to equipment, Resource Industries also develops and sells technology products and services to provide customers fleet management, equipment management analytics, autonomous machine capabilities, safety services and mining performance solutions. Resource Industries also manages areas that provide services to other parts of the company, including strategic procurement, lean center of excellence, integrated manufacturing, research and development for hydraulic systems, automation, electronics and software for Cat machines and engines.

22.Restructuring Costs – May include costs for employee separation, long-lived asset impairments and contract terminations. These costs are included in Other operating (income) expenses except for defined-benefit plan curtailment losses and special termination benefits, which are included in Other income (expense). Restructuring costs also include other exit-related costs, which may consist of accelerated depreciation, inventory write-downs, building demolition, equipment relocation and project management costs and LIFO inventory decrement benefits from inventory liquidations at closed facilities, all of which are primarily included in Cost of goods sold.

23.Sales Volume – With respect to sales and revenues, sales volume represents the impact of changes in the quantities sold for Machinery, Energy & Transportation as well as the incremental sales impact of new product introductions, including emissions-related product updates. With respect to operating profit, sales volume represents the impact of changes in the quantities sold for Machinery, Energy & Transportation combined with product mix as well as the net operating profit impact of new product introductions, including emissions-related product updates. Product mix represents the net operating profit impact of changes in the relative weighting of Machinery, Energy & Transportation sales with respect to total sales. The impact of sales volume on segment profit includes inter-segment sales.

24.Services – Enterprise services include, but are not limited to, aftermarket parts, Financial Products revenues and other service-related revenues. Machinery, Energy & Transportation segments exclude most Financial Products revenues.

LIQUIDITY AND CAPITAL RESOURCES

Sources of funds

We generate significant capital resources from operating activities, which are the primary source of funding for our ME&T operations. Funding for these businesses is also available from commercial paper and long-term debt issuances. Financial Products’ operations are funded primarily from commercial paper, term debt issuances and collections from its existing portfolio. On a consolidated basis, we had positive operating cash flow in the first six months of 2022 and ended the second quarter with $6.01 billion of cash, a decrease of $3.24 billion from year-end 2021. In addition, ME&T has invested in available-for-sale debt securities and bank time deposits with varying maturity dates within one year that are considered highly liquid and are available for current operations. These securities are included in Prepaid expenses and other current assets and Other assets in the Consolidated Statement of Financial Position and were $1.64 billion at the end of June 30, 2022. We intend to maintain a strong cash and liquidity position.

Consolidated operating cash flow for the first six months of 2022 was $2.55 billion, down $1.50 billion compared to the same period a year ago. The decrease was primarily due to payments for short-term incentive compensation in the first quarter of 2022. In addition, there were increased working capital requirements during the first six 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 accounts receivable and customer advances.

Total debt as of June 30, 2022 was $36.96 billion, a decrease of $827 million from year-end 2021. Debt related to ME&T decreased $83 million in the first six months of 2022 while debt related to Financial Products decreased $740 million.

As of June 30, 2022, we had three global credit facilities with a syndicate of banks totaling $10.50 billion (Credit Facility) available in the aggregate to both Caterpillar and Cat Financial for general liquidity purposes. Based on management’s allocation decision, which can be revised from time to time, the portion of the Credit Facility available to ME&T as of June 30, 2022 was $2.75 billion. Information on our Credit Facility is as follows:

•The 364-day facility of $3.15 billion (of which $825 million is available to ME&T) expires on September 1, 2022.

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•The three-year facility, as amended and restated in September 2021, of $2.73 billion (of which $715 million is available to ME&T) expires in September 2024.

•The five-year facility, as amended and restated in September 2021, of $4.62 billion (of which $1.21 billion is available to ME&T) expires in September 2026.

At June 30, 2022, Caterpillar’s consolidated net worth was $15.82 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 June 30, 2022, Cat Financial’s covenant interest coverage ratio was 2.56 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 June 30, 2022, Cat Financial’s six-month covenant leverage ratio was 7.36 to 1. This was below the maximum ratio of debt to net worth of 10 to 1, calculated (1) on a monthly basis as the average of the leverage ratios determined on the last day of each of the six preceding calendar months and (2) at each December 31, required by the Credit Facility.

In the event Caterpillar or Cat Financial does not meet one or more of their respective financial covenants under the Credit Facility in the future (and are unable to obtain a consent or waiver), the syndicate of banks may terminate the commitments allocated to the party that does not meet its covenants. Additionally, in such event, certain of Cat Financial’s other lenders under other loan agreements where similar financial covenants or cross default provisions are applicable may, at their election, choose to pursue remedies under those loan agreements, including accelerating the repayment of outstanding borrowings. At June 30, 2022, there were no borrowings under the Credit Facility.

Our total credit commitments and available credit as of June 30, 2022 were:


	June 30, 2022
(Millions of dollars)	Consolidated		Machinery, Energy & Transportation		Financial Products
Credit lines available:
Global credit facilities	$	10,500	$	2,750	$	7,750
Other external	3,280		182		3,098
Total credit lines available	13,780		2,932		10,848
Less: Commercial paper outstanding	(4,572)		—		(4,572)
Less: Utilized credit	(620)		—		(620)
Available credit	$	8,588	$	2,932	$	5,656

The other external consolidated credit lines with banks as of June 30, 2022 totaled $3.28 billion. These committed and uncommitted credit lines, which may be eligible for renewal at various future dates or have no specified expiration date, are used primarily by our subsidiaries for local funding requirements. Caterpillar or Cat Financial may guarantee subsidiary borrowings under these lines.

We receive debt ratings from the major credit rating agencies. Moody’s, Fitch and S&P maintain a “mid-A” debt rating. A downgrade of our credit ratings by any of the major credit rating agencies would result in increased borrowing costs and could make access to certain credit markets more difficult. In the event economic conditions deteriorate such that access to debt markets becomes unavailable, ME&T’s operations would rely on cash flow from operations, use of existing cash balances, borrowings from Cat Financial and access to our committed credit facilities. Our Financial Products’ operations would rely on cash flow from its existing portfolio, existing cash balances, access to our committed credit facilities and other credit line facilities of Cat Financial, and potential borrowings from Caterpillar. In addition, we maintain a support agreement with Cat Financial, which requires Caterpillar to remain the sole owner of Cat Financial and may, under certain circumstances, require Caterpillar to make payments to Cat Financial should Cat Financial fail to maintain certain financial ratios.

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We facilitate voluntary supply chain finance programs (the “Programs”) through participating financial institutions. The Programs are available to a wide range of suppliers and allows them the option to manage their cash flow. We are not a party to the agreements between the participating financial institutions and the suppliers in connection with the Programs. The range of payment terms we negotiate with our suppliers is consistent, irrespective of whether a supplier participates in the Programs. The amounts payable to participating financial institutions for suppliers who voluntarily participate in the Programs and included in accounts payable in the Consolidated Statement of Financial Position were $872 million and $822 million at June 30, 2022 and December 31, 2021, respectively. The amounts settled through the Programs and paid to participating financial institutions were $2.6 billion and $1.9 billion during the first six months of 2022 and 2021, 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 $1.29 billion in the first six months of 2022, compared with net cash provided of $3.80 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. In addition, there were increased working capital requirements and lower profit adjusted for non-cash items during the first six 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.

Net cash used by investing activities in the first six months of 2022 was $1.24 billion, compared with net cash provided of $85 million in the first six months of 2021. The change was primarily due to decreased activity related to intercompany lending with Financial Products and increases in net investment activity. During the first six months of 2022, we had net investment activity of $710 million which included $1.00 billion in debt securities partially offset by net proceeds from maturing time deposits of $300 million.

Net cash used for financing activities during the first six months of 2022 was $3.26 billion, compared with net cash used of $2.67 billion in the same period of 2021. The change was primarily due to higher share repurchases in the first six months of 2022 compared to the same period in 2021 partially offset by the absence of repayment of maturing debt and lower proceeds from debt issuances, which occurred in the first half of 2021.

While our short-term priorities for the use of cash may vary from time to time as business needs and conditions dictate, our long-term cash deployment strategy is focused on the following priorities. Our top priority is to maintain a strong financial position in support of a mid-A rating. Next, we intend to fund operational requirements and commitments. Then, we intend to fund priorities that profitably grow the company and return capital to shareholders through dividend growth and share repurchases. Additional information on cash deployment is as follows:

Strong financial position – Our top priority is to maintain a strong financial position in support of a mid-A rating. We track a diverse group of financial metrics that focus on liquidity, leverage, cash flow and margins which align with our cash deployment actions and the various methodologies used by the major credit rating agencies.

Operational excellence and commitments – Capital expenditures were $594 million during the first six months of 2022, compared to $430 million for the same period in 2021. We expect ME&T’s capital expenditures in 2022 to be about $1.5 billion. We made $255 million of contributions to our pension and other postretirement benefit plans during the first six months of 2022. We currently anticipate full-year 2022 contributions of approximately $357 million. In comparison, we made $160 million of contributions to our pension and other postretirement benefit plans during the first six months of 2021.

Fund strategic growth initiatives and return capital to shareholders – We intend to utilize our liquidity and debt capacity to fund targeted investments that drive long-term profitable growth focused in the areas of expanded offerings and services, including acquisitions.

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

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Our share repurchase plans are subject to the company’s cash deployment priorities and are evaluated on an ongoing basis considering the financial condition of the company and the economic outlook, corporate cash flow, the company’s liquidity needs, and the health and stability of global credit markets. The timing and amount of future repurchases may vary depending on market conditions and investing priorities. In July 2018, the Board of Directors approved an authorization to repurchase up to $10.0 billion of Caterpillar common stock (the 2018 Authorization) effective January 1, 2019, with no expiration. In the first six months of 2022, we repurchased $1.92 billion of Caterpillar common stock, with $175 million remaining under the 2018 Authorization as of June 30, 2022. In May 2022, the Board approved a new share repurchase authorization of up to $15 billion of Caterpillar common stock effective August 1, 2022, with no expiration. Our basic shares outstanding as of June 30, 2022 were approximately 528 million.

Each quarter, our Board of Directors reviews the company’s dividend for the applicable quarter. The Board evaluates the financial condition of the company and considers the economic outlook, corporate cash flow, the company’s liquidity needs, and the health and stability of global credit markets to determine whether to maintain or change the quarterly dividend. In June 2022, the Board of Directors approved an 8 percent increase in the quarterly dividend to $1.20 per share, and we continue to expect our strong financial position to support the dividend. Dividends paid totaled $1.19 billion in the first six months of 2022.

Financial Products

Financial Products operating cash flow was $735 million in the first six months of 2022, compared with $636 million for the same period a year ago. Net cash used for investing activities was $125 million for the first six months of 2022, compared with net cash used of $839 million for the same period in 2021. The change was primarily due to portfolio related activity. Net cash used for financing activities was $630 million for the first six months of 2022 compared with net cash provided of $464 million for the same period in 2021. The change was primarily due to lower portfolio funding requirements.

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

Information related to legal proceedings appears in Note 14—Environmental and Legal Matters of Part II, Item 8 “Financial Statements and Supplementary Data.”

Order Backlog

At the end of the second quarter of 2022, the dollar amount of backlog believed to be firm was approximately $28.5 billion, about $2.0 billion higher than the first quarter of 2022. The order backlog increase was primarily driven by Energy & Transportation. Of the total backlog at June 30, 2022, approximately $5.3 billion was not expected to be filled in the following twelve months.

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NON-GAAP FINANCIAL MEASURES

We provide the following definitions for the non-GAAP financial measures used in this report. These non-GAAP financial 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.

We believe it is important to separately quantify the profit impact of one significant item in order for our results to be meaningful to our readers. This item consists of (i) 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)	Operating Profit		Operating Profit Margin		Profit Before Taxes		Provision (Benefit) for Income Taxes		Effective Tax Rate		Profit		Profit per Share

Three Months Ended June 30, 2022 - U.S. GAAP	$	1,944	13.6	%	$	2,096	$	427	20.4	%	$	1,673	$	3.13
Restructuring costs	28		0.2	%	28		2		10.0	%	26		$	0.05

Three Months Ended June 30, 2022 - Adjusted	$	1,972	13.8	%	$	2,124	$	429	20.2	%	$	1,699	$	3.18

Three Months Ended June 30, 2021 - U.S. GAAP	$	1,789	13.9	%	$	1,870	$	470	25.1	%	$	1,413	$	2.56
Restructuring costs	25		0.2	%	25		3		15.0	%	22		$	0.04

Three Months Ended June 30, 2021 - Adjusted	$	1,814	14.1	%	$	1,895	$	473	25.0	%	$	1,435	$	2.60

Six Months Ended June 30, 2022- U.S. GAAP	$	3,799	13.6	%	$	4,095	$	896	21.9	%	$	3,210	$	5.99
Restructuring costs	41		0.2	%	41		4		10.0	%	37		$	0.07

Six Months Ended June 30, 2022 - Adjusted	$	3,840	13.8	%	$	4,136	$	900	21.8	%	$	3,247	$	6.06

Six Months Ended June 30, 2021 - U.S. GAAP	$	3,603	14.5	%	$	3,867	$	945	24.4	%	$	2,943	$	5.33
Restructuring costs	89		0.4	%	89		13		15.0	%	76		$	0.14

Six Months Ended June 30, 2021 - Adjusted	$	3,692	14.9	%	$	3,956	$	958	24.2	%	$	3,019	$	5.47

Reconciliations of ME&T free cash flow to the most directly comparable GAAP measure, net cash provided by operating activities are as follows:



(Millions of dollars)	Six Months Ended June 30
		2022		2021
ME&T net cash provided by operating activities 1		$	1,289	$	3,799

ME&T capital expenditures		(594)		(430)
ME&T free cash flow		$	695	$	3,369
1 See reconciliation of ME&T net cash provided by operating activities to consolidated net cash provided by operating activities on pages 72 - 73.

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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.

Pages 66 to 73 reconcile ME&T and Financial Products to Caterpillar Inc. consolidated financial information. Certain amounts for prior periods have been reclassified to conform to the current period presentation.

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Caterpillar Inc.

Supplemental Data for Results of Operations

For the Three Months Ended June 30, 2022

(Unaudited)

(Millions of dollars)


			Supplemental Consolidating Data
	Consolidated		Machinery, Energy & Transportation		Financial Products		Consolidating Adjustments
Sales and revenues:
Sales of Machinery, Energy & Transportation	$	13,539	$	13,539	$	—	$	—
Revenues of Financial Products	708		—		828		(120)		1
Total sales and revenues	14,247		13,539		828		(120)

Operating costs:
Cost of goods sold	9,975		9,978		—		(3)		2
Selling, general and administrative expenses	1,425		1,261		167		(3)		2
Research and development expenses	480		480		—		—
Interest expense of Financial Products	120		—		120		—
Other operating (income) expenses	303		16		307		(20)		2
Total operating costs	12,303		11,735		594		(26)

Operating profit	1,944		1,804		234		(94)

Interest expense excluding Financial Products	108		108		—		—
Other income (expense)	260		180		(14)		94		3

Consolidated profit before taxes	2,096		1,876		220		—

Provision (benefit) for income taxes	427		374		53		—
Profit of consolidated companies	1,669		1,502		167		—

Equity in profit (loss) of unconsolidated affiliated companies	4		7		—		(3)		4


Profit of consolidated and affiliated companies	1,673		1,509		167		(3)

Less: Profit (loss) attributable to noncontrolling interests	—		—		3		(3)		5

Profit 6	$	1,673	$	1,509	$	164	$	—

1Elimination of Financial Products’ revenues earned from ME&T.

2Elimination of net expenses recorded by ME&T paid to Financial Products.

3Elimination 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.

4Elimination of equity profit (loss) earned from Financial Products’ subsidiaries partially owned by ME&T subsidiaries.

5Elimination of noncontrolling interest profit (loss) recorded by Financial Products for subsidiaries partially owned by ME&T subsidiaries.

6Profit attributable to common shareholders.

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Caterpillar Inc.

Supplemental Data for Results of Operations

For the Six Months Ended June 30, 2022

(Unaudited)

(Millions of dollars)


			Supplemental Consolidating Data
	Consolidated		Machinery, Energy & Transportation		Financial Products		Consolidating Adjustments
Sales and revenues:
Sales of Machinery, Energy & Transportation	$	26,425	$	26,425	$	—	$	—
Revenues of Financial Products	1,411		—		1,641		(230)		1
Total sales and revenues	27,836		26,425		1,641		(230)

Operating costs:
Cost of goods sold	19,534		19,538		—		(4)		2
Selling, general and administrative expenses	2,771		2,443		339		(11)		2
Research and development expenses	937		937		—		—
Interest expense of Financial Products	226		—		226		—
Other operating (income) expenses	569		(12)		621		(40)		2
Total operating costs	24,037		22,906		1,186		(55)

Operating profit	3,799		3,519		455		(175)

Interest expense excluding Financial Products	217		217		—		—
Other income (expense)	513		337		1		175		3

Consolidated profit before taxes	4,095		3,639		456		—

Provision (benefit) for income taxes	896		786		110		—
Profit of consolidated companies	3,199		2,853		346		—

Equity in profit (loss) of unconsolidated affiliated companies	11		15		—		(4)		4


Profit of consolidated and affiliated companies	3,210		2,868		346		(4)

Less: Profit (loss) attributable to noncontrolling interests	—		—		4		(4)		5

Profit 6	$	3,210	$	2,868	$	342	$	—

1Elimination of Financial Products’ revenues earned from ME&T.

2Elimination of net expenses recorded by ME&T paid to Financial Products.

3Elimination 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.

4Elimination of equity profit (loss) earned from Financial Products’ subsidiaries partially owned by ME&T subsidiaries.

5Elimination of noncontrolling interest profit (loss) recorded by Financial Products for subsidiaries partially owned by ME&T subsidiaries.

6Profit attributable to common shareholders.

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Caterpillar Inc.

Supplemental Data for Results of Operations

For the Three Months Ended June 30, 2021

(Unaudited)

(Millions of dollars)


			Supplemental Consolidating Data
	Consolidated		Machinery, Energy & Transportation		Financial Products		Consolidating Adjustments
Sales and revenues:
Sales of Machinery, Energy & Transportation	$	12,193	$	12,193	$	—	$	—
Revenues of Financial Products	696		—		796		(100)		1
Total sales and revenues	12,889		12,193		796		(100)

Operating costs:
Cost of goods sold	8,881		8,884		—		(3)		2
Selling, general and administrative expenses	1,364		1,210		159		(5)		2
Research and development expenses	446		446		—		—
Interest expense of Financial Products	116		—		116		—
Other operating (income) expenses	293		—		307		(14)		2
Total operating costs	11,100		10,540		582		(22)

Operating profit	1,789		1,653		214		(78)

Interest expense excluding Financial Products	120		120		—		—
Other income (expense)	201		445		28		(272)		3

Consolidated profit before taxes	1,870		1,978		242		(350)

Provision (benefit) for income taxes	470		415		55		—
Profit of consolidated companies	1,400		1,563		187		(350)

Equity in profit (loss) of unconsolidated affiliated companies	14		17		—		(3)		4


Profit of consolidated and affiliated companies	1,414		1,580		187		(353)

Less: Profit (loss) attributable to noncontrolling interests	1		1		3		(3)		5

Profit 6	$	1,413	$	1,579	$	184	$	(350)

1Elimination of Financial Products’ revenues earned from ME&T.

2Elimination of net expenses recorded by ME&T paid to Financial Products.

3Elimination 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.

4Elimination of equity profit (loss) earned from Financial Products’ subsidiaries partially owned by ME&T subsidiaries.

5Elimination of noncontrolling interest profit (loss) recorded by Financial Products for subsidiaries partially owned by ME&T subsidiaries.

6Profit attributable to common shareholders.

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Caterpillar Inc.

Supplemental Data for Results of Operations

For the Six Months Ended June 30, 2021

(Unaudited)

(Millions of dollars)


			Supplemental Consolidating Data
	Consolidated		Machinery, Energy & Transportation		Financial Products		Consolidating Adjustments
Sales and revenues:
Sales of Machinery, Energy & Transportation	$	23,384	$	23,384	$	—	$	—
Revenues of Financial Products	1,392		—		1,584		(192)		1
Total sales and revenues	24,776		23,384		1,584		(192)

Operating costs:
Cost of goods sold	16,893		16,897		—		(4)		2
Selling, general and administrative expenses	2,603		2,324		283		(4)		2
Research and development expenses	820		820		—		—
Interest expense of Financial Products	241		—		241		—
Other operating (income) expenses	616		26		621		(31)		2
Total operating costs	21,173		20,067		1,145		(39)

Operating profit	3,603		3,317		439		(153)

Interest expense excluding Financial Products	262		262		—		—
Other income (expense)	526		676		47		(197)		3

Consolidated profit before taxes	3,867		3,731		486		(350)

Provision (benefit) for income taxes	945		827		118		—
Profit of consolidated companies	2,922		2,904		368		(350)

Equity in profit (loss) of unconsolidated affiliated companies	23		29		—		(6)		4


Profit of consolidated and affiliated companies	2,945		2,933		368		(356)

Less: Profit (loss) attributable to noncontrolling interests	2		2		6		(6)		5

Profit 6	$	2,943	$	2,931	$	362	$	(350)

1Elimination of Financial Products’ revenues earned from ME&T.

2Elimination of net expenses recorded by ME&T paid to Financial Products.

3Elimination 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.

4Elimination of equity profit (loss) earned from Financial Products’ subsidiaries partially owned by ME&T subsidiaries.

5Elimination of noncontrolling interest profit (loss) recorded by Financial Products for subsidiaries partially owned by ME&T subsidiaries.

6Profit attributable to common shareholders.

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Caterpillar Inc.

Supplemental Data for Financial Position

At June 30, 2022

(Unaudited)

(Millions of dollars)


			Supplemental Consolidating Data
	Consolidated		Machinery, Energy & Transportation		Financial Products		Consolidating Adjustments
Assets
Current assets:
Cash and cash equivalents	$	6,014	$	5,213	$	801	$	—
Receivables – trade and other	8,393		3,422		541		4,430		1,2
Receivables – finance	8,922		—		13,499		(4,577)		2

Prepaid expenses and other current assets	2,772		2,706		320		(254)		3
Inventories	15,881		15,881		—		—
Total current assets	41,982		27,222		15,161		(401)

Property, plant and equipment – net	11,744		7,852		3,892		—
Long-term receivables – trade and other	1,197		324		398		475		1,2
Long-term receivables – finance	12,372		—		12,877		(505)		2

Noncurrent deferred and refundable income taxes	2,121		2,644		109		(632)		4
Intangible assets	889		889		—		—
Goodwill	6,195		6,195		—		—
Other assets	4,607		3,801		2,005		(1,199)		5
Total assets	$	81,107	$	48,927	$	34,442	$	(2,262)

Liabilities
Current liabilities:
Short-term borrowings	$	5,002	$	—	$	5,002	$	—

Accounts payable	8,092		8,008		231		(147)		6
Accrued expenses	3,782		3,398		384		—
Accrued wages, salaries and employee benefits	1,772		1,737		35		—
Customer advances	1,608		1,608		—		—
Dividends payable	633		633		—		—
Other current liabilities	2,333		1,865		745		(277)		4,7
Long-term debt due within one year	5,741		124		5,617		—
Total current liabilities	28,963		17,373		12,014		(424)

Long-term debt due after one year	26,219		9,619		16,630		(30)		8
Liability for postemployment benefits	5,160		5,160		—		—
Other liabilities	5,006		4,179		1,517		(690)		4
Total liabilities	65,348		36,331		30,161		(1,144)
Commitments and contingencies
Shareholders’ equity
Common stock	6,464		6,464		919		(919)		9
Treasury stock	(29,501)		(29,501)		—		—
Profit employed in the business	41,263		37,029		4,223		11		9
Accumulated other comprehensive income (loss)	(2,499)		(1,430)		(1,069)		—
Noncontrolling interests	32		34		208		(210)		9
Total shareholders’ equity	15,759		12,596		4,281		(1,118)
Total liabilities and shareholders’ equity	$	81,107	$	48,927	$	34,442	$	(2,262)

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.

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Caterpillar Inc.

Supplemental Data for Financial Position

At December 31, 2021

(Unaudited)

(Millions of dollars)


			Supplemental Consolidating Data
	Consolidated		Machinery, Energy & Transportation		Financial Products		Consolidating Adjustments
Assets
Current assets:
Cash and cash equivalents	$	9,254	$	8,428	$	826	$	—
Receivables – trade and other	8,477		3,279		435		4,763		1,2
Receivables – finance	8,898		—		13,828		(4,930)		2

Prepaid expenses and other current assets	2,788		2,567		358		(137)		3
Inventories	14,038		14,038		—		—
Total current assets	43,455		28,312		15,447		(304)

Property, plant and equipment – net	12,090		8,172		3,918		—
Long-term receivables – trade and other	1,204		375		204		625		1,2
Long-term receivables – finance	12,707		—		13,358		(651)		2


Noncurrent deferred and refundable income taxes	1,840		2,396		105		(661)		4
Intangible assets	1,042		1,042		—		—
Goodwill	6,324		6,324		—		—
Other assets	4,131		3,388		1,952		(1,209)		5
Total assets	$	82,793	$	50,009	$	34,984	$	(2,200)

Liabilities
Current liabilities:
Short-term borrowings	$	5,404	$	9	$	5,395	$	—

Accounts payable	8,154		8,079		242		(167)		6
Accrued expenses	3,757		3,385		372		—
Accrued wages, salaries and employee benefits	2,242		2,186		56		—
Customer advances	1,087		1,086		1		—
Dividends payable	595		595		—		—
Other current liabilities	2,256		1,773		642		(159)		4,7
Long-term debt due within one year	6,352		45		6,307		—
Total current liabilities	29,847		17,158		13,015		(326)

Long-term debt due after one year	26,033		9,772		16,287		(26)		8
Liability for postemployment benefits	5,592		5,592		—		—
Other liabilities	4,805		4,106		1,425		(726)		4
Total liabilities	66,277		36,628		30,727		(1,078)
Commitments and contingencies
Shareholders’ equity
Common stock	6,398		6,398		919		(919)		9
Treasury stock	(27,643)		(27,643)		—		—
Profit employed in the business	39,282		35,390		3,881		11		9
Accumulated other comprehensive income (loss)	(1,553)		(799)		(754)		—
Noncontrolling interests	32		35		211		(214)		9
Total shareholders’ equity	16,516		13,381		4,257		(1,122)
Total liabilities and shareholders’ equity	$	82,793	$	50,009	$	34,984	$	(2,200)

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.

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Caterpillar Inc.

Supplemental Data for Cash Flow

For the Six Months Ended June 30, 2022

(Unaudited)

(Millions of dollars)


			Supplemental Consolidating Data
	Consolidated		Machinery, Energy & Transportation		Financial Products		Consolidating Adjustments
Cash flow from operating activities:
Profit of consolidated and affiliated companies	$	3,210	$	2,868	$	346	$	(4)	1
Adjustments for non-cash items:
Depreciation and amortization	1,110		715		395		—



Provision (benefit) for deferred income taxes	(283)		(232)		(51)		—
Other	49		(54)		(93)		196		2
Changes in assets and liabilities, net of acquisitions and divestitures:
Receivables – trade and other	283		(32)		12		303		2,3
Inventories	(2,003)		(2,003)		—		—
Accounts payable	427		396		11		20		2
Accrued expenses	(80)		(89)		9		—
Accrued wages, salaries and employee benefits	(445)		(428)		(17)		—
Customer advances	514		515		(1)		—
Other assets – net	86		(44)		(25)		155		2
Other liabilities – net	(322)		(323)		149		(148)		2
Net cash provided by (used for) operating activities	2,546		1,289		735		522

Cash flow from investing activities:
Capital expenditures – excluding equipment leased to others	(586)		(583)		(5)		2		2
Expenditures for equipment leased to others	(688)		(11)		(683)		6		2
Proceeds from disposals of leased assets and property, plant and equipment	468		43		433		(8)		2
Additions to finance receivables	(6,705)		—		(7,175)		470		3
Collections of finance receivables	6,519		—		6,896		(377)		3
Net intercompany purchased receivables	—		—		615		(615)		3
Proceeds from sale of finance receivables	21		—		21		—
Net intercompany borrowings	—		—		3		(3)		4
Investments and acquisitions (net of cash acquired)	(36)		(36)		—		—
Proceeds from sale of businesses and investments (net of cash sold)	1		1		—		—
Proceeds from sale of securities	1,204		1,014		190		—
Investments in securities	(2,118)		(1,724)		(394)		—
Other – net	32		58		(26)		—
Net cash provided by (used for) investing activities	(1,888)		(1,238)		(125)		(525)

Cash flow from financing activities:
Dividends paid	(1,187)		(1,187)		—		—
Common stock issued, including treasury shares reissued	4		4		—		—
Common shares repurchased	(1,924)		(1,924)		—		—

Net intercompany borrowings	—		(3)		—		3		4
Proceeds from debt issued (original maturities greater than three months)	4,015		—		4,015		—
Payments on debt (original maturities greater than three months)	(4,246)		(13)		(4,233)		—
Short-term borrowings – net (original maturities three months or less)	(553)		(141)		(412)		—

Net cash provided by (used for) financing activities	(3,891)		(3,264)		(630)		3
Effect of exchange rate changes on cash	(7)		—		(7)		—
Increase (decrease) in cash, cash equivalents and restricted cash	(3,240)		(3,213)		(27)		—
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	$	6,023	$	5,220	$	803	$	—

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.

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Caterpillar Inc.

Supplemental Data for Cash Flow

For the Six Months Ended June 30, 2021

(Unaudited)

(Millions of dollars)


			Supplemental Consolidating Data
	Consolidated		Machinery, Energy & Transportation		Financial Products		Consolidating Adjustments
Cash flow from operating activities:
Profit of consolidated and affiliated companies	$	2,945	$	2,933	$	368	$	(356)	1,5
Adjustments for non-cash items:
Depreciation and amortization	1,173		772		401		—


Provision (benefit) for deferred income taxes	68		111		(43)		—
Other	(20)		74		(169)		75		2
Changes in assets and liabilities, net of acquisitions and divestitures:
Receivables – trade and other	(343)		(206)		11		(148)		2,3
Inventories	(1,179)		(1,180)		—		1		2
Accounts payable	893		871		2		20		2
Accrued expenses	22		93		(71)		—
Accrued wages, salaries and employee benefits	618		593		25		—
Customer advances	49		49		—		—
Other assets – net	(47)		(154)		15		92		2
Other liabilities – net	(133)		(157)		97		(73)		2
Net cash provided by (used for) operating activities	4,046		3,799		636		(389)

Cash flow from investing activities:
Capital expenditures – excluding equipment leased to others	(419)		(417)		(7)		5		2
Expenditures for equipment leased to others	(681)		(13)		(670)		2		2
Proceeds from disposals of leased assets and property, plant and equipment	636		49		595		(8)		2
Additions to finance receivables	(6,203)		—		(6,680)		477		3
Collections of finance receivables	5,580		—		6,095		(515)		3
Net intercompany purchased receivables	—		—		(78)		78		3
Proceeds from sale of finance receivables	27		—		27		—
Net intercompany borrowings	—		1,000		2		(1,002)		4
Investments and acquisitions (net of cash acquired)	(398)		(398)		—		—
Proceeds from sale of businesses and investments (net of cash sold)	28		28		—		—
Proceeds from sale of securities	276		35		241		—
Investments in securities	(500)		(225)		(275)		—
Other – net	(63)		26		(89)		—
Net cash provided by (used for) investing activities	(1,717)		85		(839)		(963)

Cash flow from financing activities:
Dividends paid	(1,126)		(1,126)		(350)		350		5
Common stock issued, including treasury shares reissued	123		123		—		—
Common shares repurchased	(251)		(251)		—		—

Net intercompany borrowings	—		(2)		(1,000)		1,002		4
Proceeds from debt issued (original maturities greater than three months)	4,906		494		4,412		—
Payments on debt (original maturities greater than three months)	(5,966)		(1,902)		(4,064)		—
Short-term borrowings – net (original maturities three months or less)	1,460		(6)		1,466		—
Other – net	(2)		(2)		—		—
Net cash provided by (used for) financing activities	(856)		(2,672)		464		1,352
Effect of exchange rate changes on cash	3		(5)		8		—
Increase (decrease) in cash, cash equivalents and restricted cash	1,476		1,207		269		—
Cash, cash equivalents and restricted cash at beginning of period	9,366		8,822		544		—
Cash, cash equivalents and restricted cash at end of period	$	10,842	$	10,029	$	813	$	—

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.

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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 information required by this Item is incorporated by reference from Note 5 – “Derivative financial instruments and risk 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’s disclosure controls and procedures, as that term is defined in Rule 13a-15(e) under the Securities Exchange Act of 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

During the second quarter of 2022, there has been no change in the company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information required by this Item is incorporated by reference from Note 14 – “Environmental and legal matters” included in Part I, Item 1 of this Form 10-Q.

Item 1A. Risk Factors

There have been no material changes to the risk factors we previously disclosed in our Annual Report on Form 10-K for the 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 Purchased2,3,4	Average Price Paid per Share2,3,4		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares that May Yet be Purchased under the Program (in billions)1
April 1-30, 2022	466,166	$	206.40	466,166	$	1.278
May 1-31, 2022	3,594,000	$	210.83	3,594,000	$	0.520
June 1-30, 2022	1,800,647	$	191.70	1,800,647	$	0.175
Total	5,860,813	$	204.60	5,860,813

1 In July 2018, the Board approved a share repurchase authorization of up to $10.0 billion of Caterpillar common stock effective January 1, 2019, with no expiration (the 2018 Authorization). As of June 30, 2022, $175 million remained available under the 2018 Authorization.
2 During the first quarter of 2022, we entered into an ASR with a third-party financial institution to purchase $500 million of our common stock. In February 2022, upon payment of the $500 million to the financial institution, we received 2.0 million shares. In April 2022, upon final settlement of the ASR, we received an additional 0.4 million shares. In total, we repurchased 2.4 million shares under this ASR at an average price per share of $206.37.
3 During the second quarter of 2022, we entered into an ASR with a third-party financial institution to purchase $750 million of our common stock. In May 2022, upon payment of the $750 million to the financial institution, we received 2.8 million shares. In June 2022, upon final settlement of the ASR, we received an additional 0.8 million shares. In total, we repurchased 3.6 million shares under this ASR at an average price per share of $207.16.
4 In May and June of 2022, we repurchased 0.8 million and 1.0 million shares respectively, for an aggregate of $353 million in open market transactions at an average price per share of $206.25 and $193.36, respectively. In April of 2022, we repurchased a minimal number of shares in open market transactions as illustrated in the above table.

Non-U.S. Employee Stock Purchase Plans

As of June 30, 2022, we had 28 employee stock purchase plans (the “EIP Plans”) that are administered outside the United States for our non-U.S. employees, which had approximately 13,000 active participants in the aggregate. During the second quarter of 2022, approximately 73,000 shares of Caterpillar common stock were purchased by the EIP Plans pursuant to the terms of such plans.

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Item 6. Exhibits



3.1						Bylaws of Caterpillar Inc . (inco r p orated by reference to Current R eport on Form 8-K dated June 14, 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.

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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.


August 3, 2022	/s/ D. James Umpleby III	Chairman of the Board and Chief Executive Officer
	D. James Umpleby III



August 3, 2022	/s/ Andrew R.J. Bonfield	Chief Financial Officer
	Andrew R.J. Bonfield



August 3, 2022	/s/ Suzette M. Long	Chief Legal Officer and General Counsel
	Suzette M. Long



August 3, 2022	/s/ William E. Schaupp	Vice President and Chief Accounting Officer
	William E. Schaupp