Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide information that will assist the reader in understanding the company’s Consolidated Financial Statements, the changes in certain key items in those financial statements between select periods and the primary factors that accounted for those changes. In addition, we discuss how certain accounting principles, policies and critical estimates affect our Consolidated Financial Statements. Our discussion also contains certain forward-looking statements related to future events and expectations. This MD&A should be read in conjunction with our discussion of cautionary statements and significant risks to the company’s business under Item 1A. Risk Factors of the 2025 Form 10-K.
Highlights for the full-year 2025 include:
• Sales and revenues for 2025 were $67.589 billion, an increase of $2.780 billion, or 4 percent, compared with $64.809 billion for 2024. Sales were higher in Power & Energy , about flat in Resource Industries and slightly lower in Construction Industries .
• Operating profit as a percent of sales and revenues was 16.5 percent in 2025, compared with 20.2 percent in 2024. Adjusted operating profit margin was 17.2 percent in 2025, compared with 20.7 percent in 2024.
• Profit per share for 2025 was $18.81, and excluding the items in the table below, adjusted profit per share was $19.06. Profit per share for 2024 was $22.05, and excluding the items in the table below, adjusted profit per share was $21.90.
• Enterprise operating cash flow was $11.7 billion in 2025. Caterpillar ended 2025 with $10.0 billion of enterprise cash.
In order for our results to be more meaningful to our readers, we have separately quantified the impact of significant items.
Full Year 2025
Full Year 2024
(Dollars in millions except per share data)
Profit Before Taxes
Profit
Per Share
Profit Before Taxes
Profit
Per Share
Profit
Other restructuring (income) costs
Pension/OPEB mark-to-market (gains) losses
Restructuring (income) costs - divestitures of certain non-U.S. entities
Tax law change related to currency translation
Adjusted profit
A detailed reconciliation of GAAP to non-GAAP financial measures is included on pages 48 - 49.
OVERVIEW
Total sales and revenues for 2025 were $67.589 billion, an increase of $2.780 billion, or 4 percent, compared with $64.809 billion for 2024. The increase reflected higher sales volume , partially offset by unfavorable price realization . Higher sales volume was primarily driven by higher sales of equipment to end users. Profit per share was $18.81 in 2025, compared with profit per share of $22.05 in 2024. Profit was $8.884 billion in 2025, compared with $10.792 billion in 2024. The decrease was mainly due to unfavorable manufacturing costs and unfavorable price realization, partially offset by the profit impact of higher sales volume. Unfavorable manufacturing costs largely reflected the impact of higher tariffs.
Trends and Economic Conditions
Outlook for Key End Markets
In Construction Industries, we expect another year of sales of equipment to end users growth in 2026 compared to 2025, supported by elevated order rates and a robust backlog. The outlook for North America remains positive, as sales of equipment to end users should grow moderately compared to 2025 with construction spending remaining healthy due to Infrastructure Investment and Jobs Act (IIJA) funding and other critical infrastructure programs. We also anticipate accelerated investment in data centers, which will further bolster overall construction spending. In 2026, dealer rental fleet loading and dealer's rental revenue are both projected to increase, compared to 2025. In EAME , economic conditions in Europe are expected to strengthen, and construction activity in Africa and the Middle East is projected to remain strong. In Asia Pacific, outside of China, moderate economic conditions are expected in 2026. We anticipate positive momentum in China from low levels, with growth in the above 10-ton excavator industry in 2026. Growth in Latin America is expected to continue in 2026 at a similar rate to 2025.
Table of Contents
In Resource Industries, sales of equipment to end users is expected to increase in 2026 as compared to 2025, primarily driven by rising demand for copper and gold, and positive growth trends in heavy construction and quarry and aggregates. In mining, most key commodities remain above investment thresholds, and customer product utilization is high while the age of the fleet remains elevated. With modest increases in commodity prices projected in 2026, we expect rebuild activity to increase slightly compared to 2025.
In Power & Energy, we anticipate growth in Power Generation for both reciprocating engines and turbines and turbine-related services in 2026, driven by increasing energy demand to support data center build-out related to cloud computing and generative Artificial Intelligence (AI). Additionally, we are starting to see orders for prime power trend higher as data center customers look for alternative power solutions to keep pace with their growth. After reaching record levels in 2025, Oil & Gas is expected to see moderate growth in 2026. Reciprocating engine sales are expected to increase, driven by strong demand in gas compression applications. For turbines and turbine-related services used in Oil & Gas applications, we expect another year of strong sales in 2026 comparable to our record 2025 performance as backlog remains healthy, with continued solid order and inquiry activity. Demand for products in Industrial applications is expected to grow moderately in 2026 as we see continued recovery from previous lows. In Transportation, we anticipate growth in rail services and locomotive deliveries in 2026 compared to 2025.
Full-Year 2026 Company Trends and Expectations
Our expectations assume the Rail division within Power & Energy, as was the case through year-end 2025. In March 2026, we will file a Form 8-K recasting historical periods to reflect the movement of the Rail division to Resource Industries. This will establish an appropriate baseline for evaluating future segment-level performance and expectations. If necessary, we will also update any segment specific forward-looking assumptions impacted by this change. There will be no impact on the enterprise-wide assumptions due to the Rail division recast.
For the full-year 2026, we anticipate sales and revenues to grow around the top end of our 5 to 7 percent compound annual growth rate (CAGR) target, as compared to 2025. The strong backlog coupled with healthy end markets supports our expectations for sales volume growth in all three primary segments, as well as favorable price realization of about 2 percent of sales and revenues. We expect machine dealer inventory to increase in 2026 and offset the $500 million decrease in 2025. Services revenues are also expected to grow in 2026 as compared to 2025.
Based on the incremental tariffs announced in 2025 and in place by January 29, 2026, we expect the impact from tariffs to be around $2.6 billion in 2026, which is $800 million higher than incurred in 2025. If we do not take the mitigating actions we plan to take in 2026, the impact from tariffs could be around 20 percent higher. We remain confident that we will manage the impact of tariffs over time.
In 2026, we expect restructuring costs of approximately $300 million to $350 million and capital expenditures of around $3.5 billion. We anticipate our 2026 estimated annual effective tax rate to be 23.0 percent, excluding discrete items.
First-Quarter 2026 Company Trends and Expectations
In the first quarter of 2026 as compared to the first quarter of 2025, we expect stronger sales and revenues primarily due to higher sales volume and favorable price realization. We expect higher sales volume to be mainly driven by higher sales of equipment to end users and by the impact from changes in machine dealer inventories . We expect machine dealer inventory to increase in excess of $1.0 billion during the first quarter of 2026, aligning with the seasonal pattern, compared to roughly flat levels in the first quarter of 2025.
In the first quarter of 2026 as compared to the first quarter of 2025, we anticipate strong sales growth in Construction Industries, primarily due to higher sales volume and favorable price realization. We expect higher sales volume to be driven by higher sales of equipment to end users and by the impact from changes in dealer inventories. We expect a more typical seasonal dealer inventory build in the first quarter of 2026 as compared to the first quarter of 2025. In Resource Industries, we anticipate strong sales growth in the first quarter of 2026 as compared to the first quarter of 2025, primarily due to higher sales volume. We expect higher sales volume to be driven by higher sales of equipment to end users and by the impact from changes in dealer inventories. We also expect price realization for the first quarter of 2026 to be about flat as compared to the first quarter of 2025. In Power & Energy, we anticipate sales growth in the first quarter of 2026 as compared to the first quarter of 2025, driven by strength in Power Generation and Oil & Gas, and favorable price realization. We expect sales in the first quarter of 2026 will be the lowest of the year and lower than the fourth quarter of 2025, aligned with typical seasonal pattern.
We expect the impact from incremental tariffs to be around $800 million in the first quarter of 2026, which is similar to the fourth quarter of 2025. We anticipate around 50 percent of the incremental tariff costs will be in Construction Industries, 20 percent in Resource Industries and 30 percent in Power & Energy.
Table of Contents
In the first quarter of 2026 as compared to the first quarter of 2025, excluding the impact from incremental tariff costs, we expect the profit impact of higher sales volume and favorable price realization will be partially offset by higher manufacturing costs and higher selling, general and administrative (SG&A) and research & development (R&D) expenses.
In the first quarter of 2026 as compared to the first quarter of 2025, in Construction Industries, excluding the impact from incremental tariff costs, we anticipate favorable price realization and the profit impact of higher sales volume will be partially offset by higher manufacturing costs. In Resource Industries, excluding the impact from incremental tariff costs, we anticipate the profit impact of higher sales volume will be more than offset by unfavorable manufacturing costs and higher SG&A/R&D expenses. We also anticipate an unfavorable mix of products in Resource Industries. In Power & Energy, excluding the impact from incremental tariff costs, we anticipate the profit impact of higher sales volume and favorable price realization will be partially offset by higher manufacturing costs.
Global Business Conditions
We continue to monitor a variety of external factors around the world, such as supply chain disruptions, inflationary cost, labor pressures and the impact of trade policies. Areas of particular focus include transportation, certain components and raw materials. We continue to work to minimize supply chain challenges that may impact our ability to meet customer demand. We continue to assess the environment to determine if additional actions need to be taken.
Risk Factors
Risk factors are disclosed within Item 1A. Risk Factors of the 2025 Form 10-K.
Notes:
• Glossary of terms included on pages 36 - 38; first occurrence of terms shown in bold italics.
• Information on non-GAAP financial measures is included on pages 48 - 49.
• Some amounts within this report are rounded to the millions or billions and may not add. In addition, the sum of the components reported across periods may not equal the total amount reported year-to-date due to rounding.
Table of Contents
2025 COMPARED WITH 2024
CONSOLIDATED SALES AND REVENUES
The chart above graphically illustrates reasons for the change in consolidated sales and revenues between 2024 (at left) and 2025 (at right). Caterpillar management utilizes these charts internally to visually communicate with the company’s board of directors and employees.
Total sales and revenues for 2025 were $67.589 billion, an increase of $2.780 billion, or 4 percent, compared with $64.809 billion in 2024. The increase was primarily driven by higher sales volume of $3.389 billion, partially offset by unfavorable price realization of $817 million. The increase in sales volume was mainly driven by higher sales of equipment to end users.
Sales were higher in Power & Energy, about flat in Resource Industries and slightly lower in Construction Industries.
North America sales increased 6 percent due to higher sales volume, partially offset by unfavorable price realization. The increase in sales volume was mainly driven by higher sales of equipment to end users.
Sales increased 4 percent in Latin America primarily due to higher sales volume, partially offset by unfavorable currency impacts related to the Brazilian real. The increase in sales volume was mainly driven by higher sales of equipment to end users.
EAME sales increased 4 percent mainly due to higher sales volume and favorable currency impacts related to the euro, partially offset by unfavorable price realization. The increase in sales volume was primarily driven by the impact from changes in dealer inventories. Dealer inventory increased in 2025, compared to a decrease in 2024.
Asia/Pacific sales decreased 2 percent primarily due to unfavorable currency impacts related to the Australian dollar, and lower sales volume. The decrease in sales volume was mainly driven by lower sales of equipment to end users.
Total dealer inventory increased about $900 million during 2025, compared to an increase of about $400 million during 2024. Machine dealer inventory decreased about $500 million during 2025, compared to a decrease of about $700 million during 2024. Dealers are independent, and the reasons for changes in their inventory levels vary, including their expectations of future demand and product delivery times. Dealers’ demand expectations take into account seasonal changes, macroeconomic conditions, machine rental rates and other factors. Delivery times can vary based on availability of product from Caterpillar factories and product distribution centers. We expect machine dealer inventory to increase in 2026 and offset the $500 million decrease in 2025.
Table of Contents
Sales and Revenues by Segment
(Millions of dollars)
Sales
Volume
Price
Realization
Currency
Inter-Segment/Other
Change
Change
Construction Industries
Resource Industries
Power & Energy
All Other Segment
Corporate Items and Eliminations
Machinery, Power & Energy
Financial Products Segment
Corporate Items and Eliminations
Financial Products Revenues
Consolidated Sales and Revenues
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
Construction Industries
Resource Industries
Power & Energy
All Other Segment
Corporate Items and Eliminations
Machinery, Power & Energy
Financial Products Segment
Corporate Items and Eliminations
Financial Products Revenues
Consolidated Sales and Revenues
Construction Industries
Resource Industries
Power & Energy
All Other Segment
Corporate Items and Eliminations
Machinery, Power & Energy
Financial Products Segment
Corporate Items and Eliminations
Financial Products Revenues
Consolidated Sales and Revenues
1 Includes revenues from Machinery, Power & Energy of $712 million and $711 million in 2025 and 2024, respectively.
Table of Contents
CONSOLIDATED OPERATING PROFIT
The chart above graphically illustrates reasons for the change in consolidated operating profit between 2024 (at left) and 2025 (at right). Caterpillar management utilizes these charts internally to visually communicate with the company’s board of directors and employees. The bar entitled Other includes consolidating adjustments and Machinery, Power & Energy other operating (income) expenses .
Operating profit was $11.151 billion in 2025, a decrease of $1.921 billion, or 15 percent, compared with $13.072 billion in 2024. The decrease was primarily due to unfavorable manufacturing costs of $2.148 billion and unfavorable price realization of $817 million, partially offset by the profit impact of higher sales volume of $1.218 billion. Unfavorable manufacturing costs largely reflected the impact of higher tariffs.
Operating profit margin was 16.5 percent in 2025, compared with 20.2 percent in 2024.
Profit (Loss) by Segment
(Millions of dollars)
Change
Change
Construction Industries
Resource Industries
Power & Energy
All Other Segment
Corporate Items and Eliminations
Machinery, Power & Energy
Financial Products Segment
Corporate Items and Eliminations
Financial Products
Consolidating Adjustments
Consolidated Operating Profit
Table of Contents
Other Profit/Loss and Tax Items
• Interest expense excluding Financial Products in 2025 was $502 million, compared with $512 million in 2024.
• Other income (expense) in 2025 was income of $892 million, compared with income of $813 million in 2024.
• The effective tax rate for 2025 was 24.0 percent compared to 19.7 percent for 2024. Excluding the discrete items discussed below, the annual effective tax rate was 24.1 percent for 2025 compared to 22.2 percent for 2024. The increase from 2024 was primarily due to changes in U.S. tax incentives.
The company recorded a discrete tax charge of $41 million in 2025, compared to discrete tax benefits of $47 million in 2024, to reflect changes in estimates related to prior years. The company also recorded a tax charge of $68 million related to $294 million of mark-to-market gains for remeasurement of pension and other postretirement benefit (OPEB) plans in 2025, compared to a tax charge of $43 million related to $154 million of mark-to-market gains in 2024. In addition, a discrete tax benefit of $50 million was recorded in 2025, compared with a $57 million benefit in 2024, for the settlement of stock-based compensation awards with associated tax deductions in excess of cumulative U.S. GAAP compensation expense. In 2024, the company recorded a discrete tax benefit of $224 million for a tax law change related to currency translation. The 2024 annual effective tax rate excluded the impact of losses of $164 million for the divestitures of certain non-U.S. entities with related tax benefits of $54 million.
Please see a reconciliation of GAAP to non-GAAP financial measures on pages 48-49.
Construction Industries
Construction Industries’ total sales were $25.060 billion in 2025, a decrease of $395 million, or 2 percent, compared with $25.455 billion in 2024. The decrease was primarily due to unfavorable price realization of $1.136 billion, partially offset by higher sales volume of $568 million. The increase in sales volume was mainly driven by higher sales of equipment to end users, partially offset by the impact from changes in dealer inventories. Dealer inventory decreased during 2025, compared with an increase in 2024.
• In North America, sales decreased due to unfavorable price realization, partially offset by higher sales volume. Higher sales volume was primarily driven by higher sales of equipment to end users, partially offset by the impact from changes in dealer inventories. Dealer inventory decreased during 2025, compared with an increase in 2024.
• Sales decreased in Latin America due to lower sales volume, unfavorable price realization and unfavorable currency impacts primarily related to the Brazilian real. Lower sales volume was mainly driven by the impact from changes in dealer inventories. Dealer inventory increased less during 2025 than during 2024.
• In EAME, sales increased due to higher sales volume and favorable currency impacts primarily related to the euro, partially offset by unfavorable price realization. Higher sales volume was mainly driven by the impact from changes in dealer inventories. Dealer inventory increased during 2025, compared with a decrease in 2024.
• Sales decreased in Asia/Pacific due to unfavorable price realization, lower sales volume and unfavorable currency impacts primarily related to the Australian dollar. Lower sales volume was mainly driven by lower sales of equipment to end users.
Construction Industries’ profit was $4.675 billion in 2025, a decrease of $1.490 billion, or 24 percent, compared with $6.165 billion in 2024. The decrease was mainly due to unfavorable price realization of $1.136 billion and unfavorable manufacturing costs of $671 million, partially offset by the profit impact of higher sales volume of $315 million. Unfavorable manufacturing costs largely reflected the impact of higher tariffs.
Construction Industries’ profit as a percent of total sales was 18.7 percent in 2025, compared with 24.2 percent in 2024.
Resource Industries
Resource Industries’ total sales were $12.474 billion in 2025, an increase of $3 million, or about flat, compared with $12.471 billion in 2024. Higher sales volume of $403 million was mostly offset by unfavorable price realization of $272 million and unfavorable currency impacts of $46 million, primarily related to the Australian dollar. Higher sales volume was mainly driven by the impact from changes in dealer inventories. Dealer inventory decreased less during 2025 than during 2024.
Resource Industries’ profit was $1.988 billion in 2025, a decrease of $550 million, or 22 percent, compared with $2.538 billion in 2024. The decrease was mainly due to unfavorable manufacturing costs of $302 million and unfavorable price realization of $272 million. Unfavorable manufacturing costs largely reflected the impact of higher tariffs.
Resource Industries’ profit as a percent of total sales was 15.9 percent for 2025, compared with 20.4 percent for 2024.
Table of Contents
Power & Energy
Sales by Application
(Millions of dollars)
Change
Change
Oil and Gas
Power Generation
Industrial
Transportation
External Sales
Inter-Segment
Total Sales
Power & Energy’s total sales were $32.201 billion in 2025, an increase of $3.347 billion, or 12 percent, compared with $28.854 billion in 2024. The increase was primarily due to higher sales volume of $2.401 billion and favorable price realization of $592 million.
• Oil and Gas – Sales increased in turbines and turbine-related services. The increase was partially offset by lower sales of reciprocating engines, primarily engines used in gas compression applications.
• Power Generation – Sales increased in large reciprocating engines, primarily data center applications. Turbines and turbine-related services increased as well.
• Industrial – Sales increased in EAME, partially offset by decreased sales in North America, Latin America and Asia/Pacific.
• Transportation – Sales decreased in marine, partially offset by increased sales in rail services.
Power & Energy’s profit was $6.418 billion in 2025, an increase of $682 million, or 12 percent, compared with $5.736 billion in 2024. The increase was mainly due to the profit impact of higher sales volume of $972 million and favorable price realization of $592 million, partially offset by unfavorable manufacturing costs of $919 million. Unfavorable manufacturing costs primarily reflected the impact of higher tariffs.
Power & Energy’s profit as a percent of total sales was 19.9 percent in 2025 and 2024.
Financial Products Segment
Financial Products’ segment revenues were $4.220 billion in 2025, an increase of $167 million, or 4 percent, compared with $4.053 billion in 2024. The increase was primarily due to a favorable impact from higher average earning assets of $222 million driven by North America, partially offset by an unfavorable impact from lower average financing rates of $68 million across all regions except Latin America.
Financial Products’ segment profit was $966 million in 2025, an increase of $34 million, or 4 percent, compared with $932 million in 2024. The increase was mainly due to a favorable impact from higher average earning assets of $90 million, partially offset by the absence of an insurance settlement of $33 million in 2024, and an unfavorable impact from higher provision for credit losses at Cat Financial of $31 million.
Corporate Items and Eliminations
Expense for corporate items and eliminations was $2.291 billion in 2025, an increase of $580 million from 2024, primarily driven by increased expenses due to timing differences, higher corporate costs and unfavorable restructuring income/costs.
2024 COMPARED WITH 2023
For discussions related to the consolidated sales and revenue and consolidated operating profit between 2024 and 2023, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024, which was filed with the United States Securities and Exchange Commission on February 14, 2025 and hereby incorporated by reference.
Table of Contents
RESTRUCTURING COSTS
In 2026, we expect to incur about $300 million to $350 million of restructuring costs. We expect that prior restructuring actions will result in an incremental benefit to operating costs, primarily Costs of goods sold and SG&A expenses, of about $40 million in 2026 compared with 2025.
Additional information related to restructuring costs is included in Note 24 — "Restructuring income/costs" of Part II, Item 8 "Financial Statements and Supplemental Data."
GLOSSARY OF TERMS
1. Adjusted Operating Profit Margin – Operating profit excluding restructuring income/costs as a percent of sales and revenues.
2. Adjusted Profit Per Share – Profit per share excluding restructuring income/costs, pension and OPEB mark-to-market gains/losses, and a discrete tax benefit for a tax law change related to currency translation in 2024.
3. All Other Segment – Primarily includes activities such as: business strategy; product management and development; parts distribution; integrated logistics solutions; electronics and control systems; 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; research and development for automation, electronics and software for machines and engines 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, Power & Energy 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; cold planers; compactors; compact track loaders; forestry machines; material handlers; motor graders; pipelayers; road reclaimers; skid steer loaders; telehandlers; track-type loaders; track-type tractors (small, medium); track excavators (mini, small, medium, large); wheel excavators; wheel loaders (compact, small, medium); 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, Power & Energy 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 Eurasia.
10. Earning Assets – Assets consisting primarily of total finance receivables net of unearned income, plus equipment on operating leases net of accumulated depreciation at Cat Financial.
11. 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.
12. Financial Products Segment – Provides financing alternatives to customers and dealers around the world for Caterpillar products and services, as well as financing for power generation facilities that incorporate Caterpillar products. Financing plans include operating and finance leases, revolving charge accounts, installment sale contracts, repair/rebuild financing, working capital loans and wholesale financing plans. The segment also provides insurance and risk management products
Table of Contents
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, Power & Energy, 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.
13. Latin America – A geographic region including Central and South American countries and Mexico.
14. Machinery, Power & Energy (MP&E) – The company defines MP&E as Caterpillar Inc. and its subsidiaries, excluding Financial Products. MP&E’s information relates to the design, manufacturing and marketing of its products.
15. Machinery, Power & Energy Other Operating (Income) Expenses – Comprised primarily of gains/losses on disposal of long-lived assets, gains/losses on divestitures and legal settlements and accruals.
16. 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.
17. 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.
18. Pension and Other Postemployment Benefits (OPEB) – The company’s defined-benefit pension and postretirement benefit plans.
19. Power & Energy – 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 as well as product support of on-highway engines. 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 Caterpillar machines; electrified powertrain and zero-emission power sources and service solutions development; and diesel-electric and hybrid 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.
20. Price Realization – The impact of net price changes excluding currency and new product introductions. Price realization includes geographic mix of sales, which is the impact of changes in the relative weighting of sales prices between geographic regions.
21. Resource Industries – A segment primarily responsible for supporting customers using machinery in mining, heavy construction and quarry and aggregates. Responsibilities include business strategy, product design, product management and development, manufacturing, marketing and sales and product support. The product portfolio includes large track-type tractors; large mining trucks; hard rock vehicles; 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; wide-body trucks; select work tools; machinery components; wear and maintenance components and related parts. In addition to equipment, Resource Industries also 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 component design and manufacturing and research and development for hydraulic systems and cabs.
22. Restructuring income/costs – May include costs for employee separation, long-lived asset impairments, contract terminations and (gains)/losses on divestitures. 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).
Table of Contents
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, Power & Energy 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, Power & Energy 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, Power & Energy sales with respect to total sales. The impact of sales volume on segment profit includes inter-segment sales.
24. Services – Machinery, Power & Energy services revenues include, but are not limited to, aftermarket parts and other service-related revenues and exclude most Financial Products revenues, discontinued products and captive dealer services.
LIQUIDITY AND CAPITAL RESOURCES
Sources of funds
We generate significant capital resources from operating activities, which are the primary source of funding for our MP&E operations. Funding for these businesses is also available from commercial paper and long-term debt issuances. Financial Products’ operations are funded primarily from commercial paper, term debt issuances and collections from its existing portfolio. During 2025, we had positive operating cash flow within both our MP&E and Financial Products' operations. On a consolidated basis, we ended 2025 with $9.980 billion of cash, an increase of $3.091 billion from year-end 2024. In addition, MP&E invests in available-for-sale debt securities and bank time deposits that are considered highly liquid and are available for current operations. These MP&E securities were $1.230 billion as of December 31, 2025 and are included in Prepaid expenses and other current assets and Other assets in the Consolidated Statement of Financial Position. We intend to maintain a strong cash and liquidity position.
Consolidated operating cash flow for 2025 was $11.739 billion, down $296 million compared to 2024. The decrease was primarily due to lower profit before taxes, adjusted for non-cash items, partially offset by lower cash taxes paid and changes in accrued wages, salaries, and employee benefits.
Total debt as of December 31, 2025 was $43.330 billion, an increase of $4.921 billion from year-end 2024. Debt related to MP&E increased $2.213 billion in 2025 primarily due to the issuance of new debt in the second quarter of 2025. MP&E issued $1.700 billion of ten-year bonds at 5.2 percent and $300 million of thirty-year bonds at 5.5 percent. The proceeds from the offering will be used for general corporate purposes, which may include the repayment of existing indebtedness. Debt related to Financial Products increased by $3.818 billion, of which $1.000 billion is related to intercompany borrowings with MP&E.
As of December 31, 2025, we had three global credit facilities with a syndicate of banks totaling $11.500 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 MP&E as of December 31, 2025 was $2.875 billion. Information on our Credit Facility is as follows:
• In August 2025, we entered into a new 364-day facility. The 364-day facility of $3.500 billion (of which $875 million is available to MP&E) expires in August 2026.
• In August 2025, we amended and extended the three-year facility (as amended and restated, the "three-year facility"). The three-year facility of $3.000 billion (of which $750 million is available to MP&E) expires in August 2028.
• In August 2025, we amended and extended the five-year facility (as amended and restated, the "five-year facility"). The five-year facility of $5.000 billion (of which $1.250 billion is available to MP&E) expires in August 2030.
At December 31, 2025, Caterpillar’s consolidated net worth was $21.388 billion, which was above the $9.000 billion required under the Credit Facility. The consolidated net worth is defined as the consolidated shareholders' equity including preferred stock but excluding the pension and other postretirement benefits balance within AOCI.
Table of Contents
At December 31, 2025, Cat Financial’s covenant interest coverage ratio was 1.53 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 fiscal quarter for the prior four consecutive fiscal quarter period, required by the Credit Facility.
In addition, at December 31, 2025, Cat Financial’s six-month covenant leverage ratio was 7.65 to 1 and year-end covenant leverage ratio was 8.21 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 December 31, 2025, there were no borrowings under the Credit Facility.
The aforementioned financial covenants are being reported as calculated under the Credit Facility and not pursuant to U.S. GAAP. Please refer to the credit agreements governing the Credit Facility filed as an exhibit to our periodic reports for further information related to the calculation thereof. For risks related to our indebtedness and compliance with these covenants, please refer to the risk factor "Restrictive covenants in our debt agreements could limit our financial and operating flexibility" set forth in Part I, Item 1A of this Form 10-K.
Our total credit commitments and available credit as of December 31, 2025 were:
December 31, 2025
(Millions of dollars)
Consolidated
Machinery,
Power & Energy
Financial
Products
Credit lines available:
Global credit facilities
Other external
Total credit lines available
Less: Commercial paper outstanding
Less: Utilized credit
Available credit
The other consolidated credit lines with banks as of December 31, 2025 totaled $4.337 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. Fitch maintains a "high-A" debt rating, while Moody’s and S&P maintain a “mid-A” debt rating. A downgrade of our credit ratings by any of the major credit rating agencies could 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, MP&E’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.
Table of Contents
We facilitate voluntary supplier finance programs (the “Programs”) through participating financial institutions. We account for the 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 the Programs will have a significant impact on our liquidity. Additional information related to the Programs is included in Note 19 — "Supplier finance programs" of Part II, Item 8 "Financial Statements and Supplementary Data".
Material cash requirements for contractual obligations
We believe our balances of cash and cash equivalents of $9.980 billion and available-for-sale debt securities of $1.230 billion as of December 31, 2025, along with cash generated by ongoing operations and continued access to debt markets, will be sufficient to satisfy our cash requirements over the next 12 months and beyond.
We have committed cash outflows related to postretirement benefit obligations, long-term debt and operating lease agreements. See Notes 12, 14 and 20, respectively, of Part II, Item 8 “Financial Statements and Supplementary Data” for additional information.
We have short-term obligations related to the purchase of goods and services made in the ordinary course of business. These consist of invoices received and recorded as liabilities as of December 31, 2025, but scheduled for payment in 2026 of $8.968 billion. In addition, we have contractual obligations for material and services on order at December 31, 2025, but not yet invoiced or delivered, of $9.633 billion.
We also have long-term contractual obligations primarily for logistics services agreements; systems support, software licenses and development contracts; information technology consulting contracts; outsourcing contracts for benefit plan administration and long-term commitments entered into with key suppliers for minimum purchase quantities. These obligations total $2.399 billion, with $695 million due in the next 12 months.
Machinery, Power & Energy
Net cash provided by operating activities was $12.278 billion in 2025, compared with $11.437 billion in 2024. The increase was primarily due to lower working capital requirements and lower cash taxes paid. These were partially offset by lower profit before taxes, adjusted for non-cash items. Within working capital, changes in customer advances, accounts payable, and accrued wages, salaries, and employee benefits favorably impacted cash flow, partially offset by changes in inventories and receivables.
Net cash used by investing activities in 2025 was $2.870 billion, compared with net cash provided of $133 million in 2024. The change was primarily due to lower proceeds from maturities and sale of securities, primarily due to time deposit maturities in 2024; increased activity related to intercompany lending with Financial Products; and an increase in capital expenditures.
Net cash used for financing activities during 2025 was $6.184 billion, compared with $11.417 billion in 2024. The change was primarily due to lower payments to repurchase common stock, higher proceeds from debt issued and lower payments on debt in 2025 compared to 2024.
While our short-term priorities for the use of cash may vary from time to time as business needs and conditions dictate, our resource allocation framework 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 commitments and strategic growth initiatives assessed using the Operating & Execution Model. Then, we intend to return capital to shareholders through dividend growth and share repurchases. Additional information on the resource allocation framework 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 resource allocation framework and the various methodologies used by the major credit rating agencies.
Operating & Execution Model used to assess operational commitments and strategic growth initiatives — Capital expenditures were $2.794 billion during 2025, compared to $1.988 billion in 2024. We expect MP&E’s capital expenditures in 2026 to be about $3.5 billion. We made $381 million of contributions to our pension and OPEB plans during 2025. In comparison, we made $271 million of contributions to our pension and OPEB plans in 2024. We expect to make approximately $360 million of contributions to our pension and OPEB plans in 2026.
Table of Contents
We intend to utilize our liquidity and debt capacity to fund initiatives targeted to drive long term profitable growth focused on our three strategic growth pillars. Our strategic growth pillars are commercial excellence, advanced technology leadership and transforming how we work. These pillars work together to drive sustainable growth, innovation and operational efficiency for Caterpillar and our customers.
On February 3, 2026, the Federal Court of Australia approved Caterpillar's acquisition of RPMGlobal Holdings Limited, an Australian based software company. The transaction is expected to close in the final two weeks of February with a purchase price of approximately $790 million, excluding cash acquired. RPMGlobal is a leading provider of mining software solutions with deep domain expertise in mining technology enablement and data-driven software solutions at every stage of the mining lifecycle.
Return to shareholders — Our goal is to return substantially all MP&E free cash flow to shareholders over time in the form of dividends and share repurchases, while maintaining our mid-A rating.
MP&E 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 MP&E free cash flow as cash from MP&E operations less capital expenditures, excluding discretionary pension and other postretirement benefit plan contributions.
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 corporate cash flow, the company's liquidity needs, the economic outlook, and the health and stability of global credit markets to determine whether to maintain or change the quarterly dividend. In December 2025, the Board of Directors approved maintaining our quarterly dividend representing $1.51 per share, and we continue to expect our strong financial position to support the dividend. Dividends paid totaled $2.749 billion in 2025.
Our share repurchase plans are subject to the company’s resource allocation framework and are evaluated on an ongoing basis considering the financial condition of the company, corporate cash flow, the company's liquidity needs, the economic outlook, 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 May 2022, the Board approved a share repurchase authorization (the 2022 Authorization) of up to $15.0 billion of Caterpillar common stock effective August 1, 2022 with no expiration. In June 2024, the Board approved an additional share repurchase authorization (the 2024 Authorization) of up to $20.0 billion of Caterpillar common stock, effective June 12, 2024, with no expiration. In 2025, we repurchased $5.190 billion of Caterpillar common stock. As of December 31, 2025, the 2022 Authorization was fully utilized and $14.937 billion remained under the 2024 Authorization. Caterpillar's basic shares outstanding as of December 31, 2025 were approximately 465 million.
Financial Products
Net cash provided by operating activities was $1.074 billion in 2025, compared with $1.445 billion in 2024. Net cash used for investing activities was $3.870 billion in 2025, compared with $2.787 billion used in 2024. The change was primarily due to portfolio-related activity. Net cash provided by financing activities was $2.705 billion in 2025, compared with $1.206 billion in 2024. The change was primarily due to increased intercompany borrowings from MP&E and external borrowings.
Off-balance sheet arrangements
We are a party to certain off-balance sheet arrangements, primarily in the form of guarantees. Information related to guarantees appears in Note 21 — “Guarantees and product warranty” of Part II, Item 8 “Financial Statements and Supplementary Data.”
RECENT ACCOUNTING PRONOUNCEMENTS
For a discussion of recent accounting pronouncements, see Note 1J — “New accounting guidance” of Part II, Item 8 “Financial Statements and Supplementary Data.”
Table of Contents
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts. The more significant estimates include: residual values for leased assets, fair values for goodwill impairment tests, warranty liability, reserves for product liability and insurance losses, postretirement benefits, post-sale discounts, credit losses and income taxes. We have incorporated many years of data into the determination of each of these estimates and we have not historically experienced significant adjustments. We review these assumptions at least annually with the Audit Committee of the Board of Directors. Following are the methods and assumptions used in determining our estimates and an indication of the risks inherent in each.
Residual values for leased assets — We determine the residual value of Cat Financial’s leased equipment based on its estimated end-of-term market value. We estimate the residual value of leased equipment at the inception of the lease based on a number of factors, including historical wholesale market sales prices, past remarketing experience and any known significant market/product trends. We also consider the following critical factors in our residual value estimates: lease term, market size and demand, total expected hours of usage, machine configuration, application, location, model changes, quantities, third-party residual guarantees and contractual customer purchase options.
Upon termination of the lease, the equipment is either purchased by the lessee or sold to a third-party, in which case we may record a gain or a loss for the difference between the estimated residual value and the sale proceeds.
During the term of our leases, we monitor residual values. For operating leases, we record adjustments to depreciation expense reflecting changes in residual value estimates prospectively on a straight-line basis. For finance leases, we recognize residual value adjustments through a reduction of finance revenue over the remaining lease term.
We evaluate the carrying value of equipment on operating leases for potential impairment when we determine a triggering event has occurred. When a triggering event occurs, we perform a test for recoverability by comparing projected undiscounted future cash flows to the carrying value of the equipment on operating leases. If the test for recoverability identifies a possible impairment, we measure the fair value of the equipment on operating leases in accordance with the fair value measurement framework. We recognize an impairment charge for the amount by which the carrying value of the equipment on operating leases exceeds its estimated fair value.
At December 31, 2025, the aggregate residual value of equipment on operating leases was $1.57 billion. Without consideration of other factors such as third-party residual guarantees or contractual customer purchase options, a 10 percent non-temporary decrease in the market value of our equipment subject to operating leases would reduce residual value estimates and result in the recognition of approximately $65 million of additional annual depreciation expense.
Fair values for goodwill impairment tests — We test goodwill for impairment annually, at the reporting unit level, and whenever events or circumstances make it more likely than not that an impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell all or a portion of a reporting unit. We perform our annual goodwill impairment test as of October 1 and monitor for interim triggering events on an ongoing basis.
We review goodwill for impairment utilizing either a qualitative assessment or a quantitative goodwill impairment test. If we choose to perform a qualitative assessment and determine the fair value more likely than not exceeds the carrying value, no further evaluation is necessary. For reporting units where we perform the quantitative goodwill impairment test, we compare the fair value of each reporting unit, which we primarily determine using an income approach based on the present value of discounted cash flows, to the respective carrying value, which includes goodwill. If the fair value of the reporting unit exceeds its carrying value, we do not consider the goodwill impaired. If the carrying value is higher than the fair value, we recognize the difference as an impairment loss.
For reporting units where we perform a quantitative goodwill impairment test, the process requires valuation of the respective reporting unit, which we primarily determine using an income approach based on a discounted five year forecasted cash flow with a year-five residual value. We compute the residual value using the constant growth method, which values the forecasted cash flows in perpetuity. The assumptions about future cash flows and growth rates are based on each reporting unit's long-term forecast and are subject to review and approval by senior management. A reporting unit’s discount rate is a risk-adjusted weighted average cost of capital, which we believe approximates the rate from a market participant’s perspective. The estimated fair value could be impacted by changes in market conditions, interest rates, growth rates, tax rates, costs, pricing and capital expenditures. We categorize the fair value determination as Level 3 in the fair value hierarchy due to its use of internal projections and unobservable measurement inputs.
The Company completed its annual goodwill impairment tests in the fourth quarter of 2025. Based on those tests, the fair value of each reporting unit was substantially above its respective carrying value, including goodwill, resulting in no impairment charges. Caterpillar's market capitalization has remained significantly above the net book value of the Company.
Table of Contents
An unfavorable change in our expectations for the financial performance of our reporting units, particularly long-term growth and profitability, would reduce the fair value of our reporting units. The demand for our equipment and related parts is highly cyclical and significantly impacted by commodity prices, although the impact may vary by reporting unit. The energy and mining industries are major users of our products, including the mineral extraction, oil and natural gas industries. Decisions to purchase our products are dependent upon the performance of those industries, which in turn are dependent in part on commodity prices. Lower commodity prices or industry specific circumstances that have a negative impact to the valuation assumptions may reduce the fair value of our reporting units. Should such events occur and it becomes more likely than not that a reporting unit’s fair value has fallen below its carrying value, we will perform an interim goodwill impairment test(s), in addition to the annual impairment test. Future impairment tests may result in a goodwill impairment, depending on the outcome of the quantitative impairment test. We would report a goodwill as a non-cash charge to earnings.
Product warranty liability — At the time we recognize a sale, we record estimated future warranty costs. We determine the 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. Warranty costs may differ from those estimated if actual claim rates are higher or lower than our historical rates.
Product liability and insurance loss reserve — We determine these reserves based upon reported claims in process of settlement and actuarial estimates for losses incurred but not reported. Loss reserves, including incurred but not reported reserves, are based on estimates, and ultimate settlements may vary significantly from such estimates due to increased claims frequency or severity over historical levels. The amount of these reserves totaled $1.6 billion and $1.5 billion at December 31, 2025 and 2024, respectively. The majority of the balance in both 2025 and 2024 consisted of unearned insurance premiums.
Postretirement benefits — We sponsor defined benefit pension plans and/or other postretirement benefit plans (retirement healthcare and life insurance) to employees in many of our locations throughout the world. There are assumptions used in the accounting for these defined benefit plans that include discount rate, expected return on plan assets, expected rate of compensation increase, the future health care cost trend rate, mortality and other economic and demographic assumptions. The actuarial assumptions we use may change or differ significantly from actual results, which may result in a material impact to our consolidated financial statements.
The effects of actual results differing from our assumptions and the effects of changing assumptions are considered actuarial gains or losses. We utilize a mark-to-market approach in recognizing actuarial gains or losses immediately through earnings upon the annual remeasurement in the fourth quarter, or on an interim basis as triggering events warrant remeasurement.
Primary actuarial assumptions were determined as follows:
• The discount rate is used to discount the future benefit obligations back to today’s dollars. The U.S. discount rate is based on a benefit cash flow-matching approach and represents the rate at which our benefit obligations could effectively be settled as of our measurement date, December 31. The benefit cash flow-matching approach involves analyzing Caterpillar’s projected cash flows against a high quality bond yield curve, calculated using a wide population of corporate Aa bonds available on the measurement date. We use a similar approach to determine the assumed discount rate for our most significant non-U.S. plans. In estimating the service and interest cost components of net periodic benefit cost, we utilize a full yield curve approach in determining a discount rate. This approach applies the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. Discount rates are sensitive to changes in interest rates.
• The expected rate of return on plan assets is based on our estimate of long-term returns for equities and fixed income securities weighted by the allocation of our plan assets. This rate is impacted by changes in general market conditions, but because it represents a long-term rate, it is not significantly impacted by short-term market swings. Changes in our allocation of plan assets would also impact this rate. For example, a shift to more fixed income securities would lower the rate. The expected return on plan assets is based on asset allocations as of our measurement date, December 31.
• We use the expected rate of compensation increase to develop benefit obligations using projected pay at retirement. It represents average long-term salary increases. This rate is influenced by our long-term compensation policies.
• The assumed health care cost trend rate represents the rate at which costs are assumed to increase and is based on historical and expected experience. Changes in our projections of future health care costs due to general economic conditions and those specific to health care (e.g., technology driven cost changes) will impact this trend rate.
• We use the mortality assumption to estimate the life expectancy of plan participants.
Table of Contents
Postretirement Benefit Plan Actuarial Assumptions Sensitivity
The effects of a one percentage-point change in certain actuarial assumptions on 2025 pension and OPEB costs and obligations are as follows:
2025 Benefit Cost Increase (Decrease)
Year-end Benefit Obligation Increase (Decrease)
(Millions of dollars)
One percentage-
point increase
One percentage-
point decrease
One percentage-
point increase
One percentage-
point decrease
U.S. Pension Benefits: 1
Discount rate
Expected return on plan assets
Non-U.S. Pension Benefits:
Discount rate
Expected rate of compensation increase
Expected return on plan assets
Other Postretirement Benefits:
Discount rate
Expected rate of compensation increase
Expected return on plan assets
1 Effective December 31, 2019, all U.S. pension benefits were frozen, and accordingly the expected rate of compensation increase assumption is no longer applicable.
Actuarial Assumptions
U.S. Pension Benefits
Non-U.S. Pension Benefits
Other Postretirement Benefits
Weighted-average assumptions used to determine benefit obligation, end of year:
Discount rate
Expected rate of compensation increase 1
Weighted-average assumptions used to determine net periodic benefit cost:
Discount rate used to measure service cost 1
Discount rate used to measure interest cost
Expected rate of return on plan assets
Expected rate of compensation increase 1
Health care cost trend rates at year-end:
Health care cost trend rate for next year
Rate that the cost trend rate gradually declines to
Year that the cost trend rate reaches ultimate rate
1 Effective December 31, 2019, all U.S. pension benefits were frozen, and accordingly this assumption is no longer applicable.
See Note 12 — “Postemployment benefit plans” of Part II, Item 8 “Financial Statement and Supplemental Data” for further information regarding the accounting for postretirement benefits.
Table of Contents
Post-sale discount reserve — We provide discounts to dealers through merchandising programs. We have numerous programs that are designed to promote the sale of our products. The most common dealer programs provide a discount when the dealer sells a product to a targeted end user. The amount of accrued post-sale discounts was $2.5 billion and $2.2 billion at December 31, 2025 and 2024, respectively. The reserve represents discounts that we expect to pay on previously sold units and is reviewed at least quarterly. We adjust the reserve if discounts paid differ from those estimated. Historically, those adjustments have not been material.
Allowance for credit losses — The allowance for credit losses is management’s estimate of expected losses over the life of our finance receivables portfolio calculated using loss forecast models that take into consideration historical credit loss experience, current economic conditions and forecasts and scenarios that capture country and industry-specific economic factors. In addition, we consider qualitative factors not able to be fully captured in our loss forecast models, including borrower-specific and company-specific factors. These qualitative factors are subjective and require a degree of management judgment.
We measure the allowance for credit losses on a collective (pool) basis when similar risk characteristics exist and on an individual basis when we determine that similar risk characteristics do not exist. We identify finance receivables for individual evaluation based on past due status and information available about the customer, such as financial statements, news reports and published credit ratings, as well as general information regarding industry trends and the economic environment in which our customers operate. The allowance for credit losses attributable to finance receivables that are individually evaluated is primarily based on the fair value of the collateral for collateral-dependent receivables. In determining collateral value, we estimate the current fair market value of the collateral less selling costs. We also consider credit enhancements such as additional collateral and contractual third-party guarantees.
While management believes it has exercised prudent judgment and applied reasonable assumptions, there can be no assurance that in the future, changes in economic conditions or other factors would not cause changes in the financial health of our customers. If the financial health of our customers deteriorates, the timing and level of payments received could be impacted and therefore, could result in a change to our estimated losses.
Income taxes — We are subject to the income tax laws of the many jurisdictions in which we operate. These tax laws are complex, and the manner in which they apply to our facts is sometimes open to interpretation. In establishing the provision for income taxes, we must make judgments about the application of these inherently complex tax laws. Our income tax positions and analysis are based on currently enacted tax law. Future changes in tax law or related interpretations could significantly impact the provision for income taxes, the amount of taxes payable, and the deferred tax asset and liability balances. Changes in tax law are reflected in the period of enactment with related interpretations considered in the period received.
Despite our belief that our tax return positions are consistent with applicable tax laws, we believe that taxing authorities could challenge certain positions. Settlement of any challenge can result in no change, a complete disallowance, or some partial adjustment reached through negotiations or litigation. We record tax benefits for uncertain tax positions based upon management’s evaluation of the information available at the reporting date. To be recognized in the financial statements, a tax benefit must be at least more likely than not of being sustained based on technical merits. The benefit for positions meeting the recognition threshold is measured as the largest benefit more likely than not of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Significant judgment is required in making these determinations and adjustments to unrecognized tax benefits may be necessary to reflect actual taxes payable upon settlement. Adjustments related to positions impacting the effective tax rate affect the provision for income taxes. Adjustments related to positions impacting the timing of deductions impact deferred tax assets and liabilities.
Deferred tax assets generally represent tax benefits for tax deductions or credits available in future tax returns. Certain estimates and assumptions are required to determine whether it is more likely than not that all or some portion of the benefit of a deferred tax asset will not be realized. In making this assessment, management analyzes the trend of U.S. GAAP earnings and estimates the impact of future taxable income, reversing temporary differences and available prudent and feasible tax planning strategies. We give less weight in this analysis to mark-to-market adjustments to remeasure our pension and OPEB plans as we do not consider these adjustments indicative of ongoing earnings trends. Should a change in facts or circumstances lead to a change in judgment about the ultimate realizability of a deferred tax asset, we record or adjust the related valuation allowance in the period that the change in facts and circumstances occurs, along with a corresponding increase or decrease in the provision for income taxes.
Additional information related to income taxes is included in Note 6 — “Income taxes” of Part II, Item 8 “Financial statements and Supplementary Data.”
OTHER MATTERS
Information related to legal proceedings appears in Note 22 — "Environmental and legal matters" of Part II, Item 8 “Financial Statements and Supplementary Data.”
Table of Contents
RETIREMENT BENEFITS
We recognize mark-to-market gains and losses immediately through earnings upon the remeasurement of our pension and OPEB plans. Mark-to-market gains and losses represent the effects of actual results differing from our assumptions and the effects of changing assumptions. Changes in discount rates and differences between the actual return on plan assets and the expected return on plan assets generally have the largest impact on mark-to-market gains and losses.
The table below summarizes the amounts of net periodic benefit cost recognized for 2025, 2024 and 2023, respectively, and includes expected cost for 2026.
(Millions of dollars)
2026 Expected
U.S. Pension Benefits
Non-U.S. Pension Benefits
Other Postretirement Benefits
Mark-to-market loss (gain)
Total net periodic benefit cost (benefit)
1 Expected net periodic benefit cost (benefit) does not include an estimate for mark-to-market gains or losses.
• Expected decrease in expense in 2026 compared to 2025 — Excluding the impact of mark-to-market gains and losses, our net periodic benefit cost is expected to decrease $78 million in 2026. This expected decrease is primarily due to lower interest cost in 2026 as a result of lower discount rates at the end of 2025.
• Decrease in expense in 2025 compared to 2024 — Primarily due to higher mark-to-market gains in 2025 compared to 2024, higher expected return on plan assets in 2025 and lower interest cost in 2025 as a result of higher discount rates at the end of 2024 creating a lower obligation base.
• Decrease in expense in 2024 compared to 2023 — Primarily due to higher mark-to-market gains in 2024 compared to 2023, lower interest cost in 2024 as a result of lower discount rates at year-end 2023 and a higher expected return on plan assets due to a higher asset base at year-end 2023 compared to year-end 2022.
The primary factors that resulted in mark-to-market losses (gains) for 2025, 2024 and 2023 are described below. We include the net mark-to-market losses (gains) in Other income (expense) in the Results of Operations.
• 2025 net mark-to-market gain of $294 million — Primarily due to a higher actual return on plan assets compared to the expected return on plan assets (U.S. pension plans had an actual rate of return of 10.1 percent compared to an expected rate of return of 6.3 percent) and changes to certain demographic assumptions related to our U.S. other postretirement benefit plans. This was partially offset by lower discount rates at the end of 2025 compared to the end of 2024.
• 2024 net mark-to-market gain of $154 million — Primarily due to higher discount rates at the end of 2024 compared to the end of 2023. This was partially offset by a lower actual return on plan assets compared to the expected return on plan assets (U.S. pension plans had an actual rate of return of 0.7 percent compared to an expected rate of return of 5.7 percent).
• 2023 net mark-to-market gain of $97 million — Primarily due to higher actual return on plan assets compared to the expected return on plan assets (U.S. pension plans had an actual rate of return of 10.4 percent compared to an expected rate of return of 5.8 percent) and favorable claims experience related to our other postretirement benefit plans. This was partially offset by lower discount rates at the end of 2023 compared to the end of 2022.
Table of Contents
SENSITIVITY
Foreign Exchange Rate Sensitivity
MP&E operations 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. Based on the anticipated and firmly committed cash inflow and outflow for our MP&E operations for the next 12 months and the foreign currency derivative instruments in place at year-end, a hypothetical 10 percent weakening of the U.S. dollar relative to all other currencies would adversely affect our expected 2026 cash flow for our MP&E operations by approximately $135 million. Last year, similar assumptions and calculations yielded a potential $77 million adverse impact on 2025 cash flow. We determine our net exposures by calculating the difference in cash inflow and outflow by currency and adding or subtracting outstanding foreign currency derivative instruments. We multiply these net amounts by 10 percent to determine the sensitivity.
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. Since 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, a 10 percent change in the value of the U.S. dollar relative to all other currencies would not have a material effect on our consolidated financial position, results of operations or cash flow. Neither our policy nor the effect of a 10 percent change in the value of the U.S. dollar has changed from that reported at the end of last year.
The effect of the hypothetical change in exchange rates ignores the effect this movement may have on other variables, including competitive risk. If it were possible to quantify this competitive impact, the results would probably be different from the sensitivity effects shown above. In addition, it is unlikely that all currencies would uniformly strengthen or weaken relative to the U.S. dollar. In reality, some currencies may weaken while others may strengthen. Our primary exposure (excluding competitive risk) is to exchange rate movements in the Australian dollar, Chinese yuan, Euro, Indian rupee and Mexican peso.
Interest Rate Sensitivity
For our MP&E operations, we have the option to use interest rate contracts to lower the cost of borrowed funds by attaching fixed-to-floating interest rate contracts to fixed-rate debt, and by entering into forward rate agreements on future debt issuances. A hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would have a minimal impact to the 2026 pre-tax earnings of MP&E. Last year, similar assumptions and calculations yielded a minimal impact to 2025 pre-tax earnings.
For our Financial Products operations, we use interest rate derivative instruments primarily to meet our match-funding objectives and strategies. We have a match-funding policy that addresses the interest rate risk by aligning the interest rate profile (fixed or floating rate and duration) of our debt portfolio with the interest rate profile of our finance receivable portfolio within a predetermined range 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 finance receivable portfolio. Match funding reduces the volatility of margins between interest-bearing assets and interest-bearing liabilities, regardless of which direction interest rates move.
In order to properly manage sensitivity to changes in interest rates, Financial Products measures the potential impact of different interest rate assumptions on pre-tax earnings. All on-balance sheet positions, including derivative financial instruments, are included in the analysis. The primary assumptions included in the analysis are that there are no new fixed rate assets or liabilities, the proportion of fixed rate debt to fixed rate assets remains unchanged and the level of floating rate assets and debt remain constant. An analysis of the December 31, 2025 balance sheet, using these assumptions, estimates the impact of a 100 basis point immediate and sustained adverse change in interest rates to have a minimal impact on 2026 pre-tax earnings. Last year, similar assumptions and calculations yielded a minimal impact to 2025 pre-tax earnings.
This analysis does not necessarily represent our current outlook of future market interest rate movement, nor does it consider any actions management could undertake in response to changes in interest rates. Accordingly, no assurance can be given that actual results would be consistent with the results of our estimate.
Table of Contents
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 four significant items in order for our results to be meaningful to our readers. These items consist of (i) other restructuring income/costs, (ii) pension and OPEB mark-to-market gains/losses resulting from plan remeasurements, (iii) restructuring income/costs related to the divestitures of certain non-U.S. entities in 2024 and (iv) a discrete tax benefit for a tax law change related to currency translation in 2024. We do not consider these items indicative of earnings from ongoing business activities and believe the non-GAAP measures will provide investors with useful perspective on underlying business results and trends and aids with assessing our period-over-period results.
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
Profit
Profit per Share
Twelve Months Ended December 31, 2025 - U.S. GAAP
Other restructuring (income) costs
Pension/OPEB mark-to-market (gains) losses
Twelve Months Ended December 31, 2025 - Adjusted
Twelve Months Ended December 31, 2024 - U.S. GAAP
Restructuring (income) costs - divestitures of certain non-U.S. entities
Other restructuring (income) costs
Pension/OPEB mark-to-market (gains) losses
Tax law change related to currency translation
Twelve Months Ended December 31, 2024 - Adjusted
We believe it is important to separately disclose our annual effective tax rate, excluding discrete items for our results to be meaningful to our readers. The annual effective tax rate is discussed using non-GAAP financial measures that exclude the effects of amounts associated with discrete items recorded fully in the quarter they occur. These items consist of (i) pension and OPEB mark-to-market gains/losses resulting from plan remeasurements, (ii) the impact of changes in estimates related to prior years, (iii) the settlement of stock-based compensation awards with associated tax deductions in excess of cumulative U.S. GAAP compensation expense, (iv) a discrete tax benefit for a tax law change related to currency translation in 2024 and (v) restructuring income/costs related to the divestitures of certain non-U.S. entities in 2024. We believe the non-GAAP measures will provide investors with useful perspective on underlying business results and trends and aids with assessing the company's period-over-period results.
Table of Contents
A reconciliation of our effective tax rate to annual effective tax rate, excluding discrete items is below:
(Millions of dollars)
Profit Before Taxes
Provision (Benefit) for Income Taxes
Effective Tax Rate
Twelve Months Ended December 31, 2025 - U.S. GAAP
Pension/OPEB mark-to-market (gains) losses
Changes in estimates related to prior years
Excess stock-based compensation
Annual effective tax rate, excluding discrete items
Other restructuring (income) costs
Changes in estimates related to prior years
Excess stock-based compensation
Twelve Months Ended December 31, 2025 - Adjusted
Twelve Months Ended December 31, 2024 - U.S. GAAP
Restructuring (income) costs - divestitures of certain non-U.S. entities
Pension/OPEB mark-to-market (gains) losses
Tax law change related to currency translation
Change in estimates related to prior years
Excess stock-based compensation
Annual effective tax rate, excluding discrete items
Other restructuring (income) costs
Changes in estimates related to prior years
Excess stock-based compensation
Twelve Months Ended December 31, 2024 - Adjusted
In addition, we provide a calculation of MP&E 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 MP&E free cash flow to the most directly comparable GAAP measure, net cash provided by operating activities are as follows:
Millions of dollars
Twelve Months Ended December 31,
MP&E net cash provided by operating activities 1
MP&E capital expenditures
MP&E free cash flow
1 See reconciliation of MP&E net cash provided by operating activities to consolidated net cash provided by operating activities on page 53.
Table of Contents
Supplemental Consolidating Data
We are providing supplemental consolidating data for the purpose of additional analysis. We have grouped the data as follows:
Consolidated – Caterpillar Inc. and its subsidiaries.
Machinery, Power & Energy – We define MP&E as it is presented in the supplemental data as Caterpillar Inc. and its subsidiaries, excluding Financial Products. MP&E'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 MP&E and Financial Products.
The nature of the MP&E 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 51 to 53 reconcile MP&E and Financial Products to Caterpillar Inc. consolidated financial information.
Table of Contents
Supplemental Data for Results of Operations
For The Years Ended December 31,
Supplemental consolidating data
Consolidated
Machinery,
Power & Energy
Financial
Products
Consolidating
Adjustments
(Millions of dollars)
Sales and revenues:
Sales of Machinery, Power & Energy
Revenues of Financial Products
Total sales and revenues
Operating costs:
Cost of goods sold
Selling, general and administrative expenses
Research and development expenses
Interest expense of Financial Products
Other operating (income) expenses
Total operating costs
Operating profit
Interest expense excluding Financial Products
Other income (expense)
Consolidated profit before taxes
Provision (benefit) for income taxes
Profit of consolidated companies
Equity in profit (loss) of unconsolidated affiliated companies
Profit of consolidated and affiliated companies
Less: Profit (loss) attributable to noncontrolling interests
Profit 7
1 Elimination of Financial Products' revenues earned from MP&E.
2 Elimination of net expenses recorded between MP&E and Financial Products.
3 Elimination of interest expense recorded between Financial Products and MP&E.
4 Elimination of discount recorded by MP&E on receivables sold to Financial Products and of interest earned between MP&E and Financial Products as well as dividends paid by Financial Products to MP&E.
5 Elimination of equity profit (loss) earned from Financial Products’ subsidiaries partially owned by MP&E subsidiaries.
6 Elimination of noncontrolling interest profit (loss) recorded by Financial Products for subsidiaries partially owned by MP&E subsidiaries.
7 Profit attributable to common shareholders.
Table of Contents
Supplemental Data for Financial Position
At December 31,
Supplemental consolidating data
Consolidated
Machinery,
Power & Energy
Financial
Products
Consolidating
Adjustments
(Millions of dollars)
Assets
Current assets:
Cash and cash equivalents
Receivables - trade and other
Receivables - finance
Prepaid expenses and other current assets
Inventories
Total current assets
Property, plant and equipment - net
Long-term receivables - trade and other
Long-term receivables - finance
Noncurrent deferred and refundable income taxes
Intangible assets
Goodwill
Other assets
Total assets
Liabilities
Current liabilities:
Short-term borrowings
Accounts payable
Accrued expenses
Accrued wages, salaries and employee benefits
Customer advances
Dividends payable
Other current liabilities
Long-term debt due within one year
Total current liabilities
Long-term debt due after one year
Liability for postemployment benefits
Other liabilities
Total liabilities
Commitments and contingencies
Shareholders’ equity
Common stock
Treasury stock
Profit employed in the business
Accumulated other comprehensive income (loss)
Noncontrolling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity
1 Elimination of receivables between MP&E and Financial Products.
2 Reclassification of MP&E’s trade receivables purchased by Financial Products and Financial Products’ wholesale inventory receivables.
3 Elimination of MP&E's insurance premiums that are prepaid to Financial Products.
4 Reclassification of Financial Products’ other assets to property, plant and equipment.
5 Reclassification reflecting required netting of deferred tax assets/liabilities by taxing jurisdiction.
6 Elimination of other intercompany assets and liabilities between MP&E and Financial Products.
7 Elimination of payables between MP&E and Financial Products.
8 Reclassification of Financial Products’ payables to customer advances.
9 Elimination of prepaid insurance in Financial Products’ other liabilities.
10 Elimination of debt between MP&E and Financial Products.
11 Eliminations associated with MP&E’s investments in Financial Products’ subsidiaries.
Table of Contents
Supplemental Data for Cash Flow
For the Years Ended December 31,
Supplemental consolidating data
Consolidated
Machinery,
Power & Energy
Financial
Products
Consolidating
Adjustments
(Millions of dollars)
Cash flow from operating activities:
Profit of consolidated and affiliated companies
Adjustments to reconcile profit to net cash provided by operating activities:
Depreciation and amortization
Actuarial (gain) loss on pension and postretirement benefits
Provision (benefit) for deferred income taxes
(Gain) loss on divestiture
Other
Changes in assets and liabilities, net of acquisitions and divestitures:
Receivables - trade and other
Inventories
Accounts payable
Accrued expenses
Accrued wages, salaries and employee benefits
Customer advances
Other assets - net
Other liabilities - net
Net cash provided by (used for) operating activities
Cash flow from investing activities:
Capital expenditures - excluding equipment leased to others
Expenditures for equipment leased to others
Proceeds from disposals of leased assets and property, plant and equipment
Additions to finance receivables
Collections of finance receivables
Net intercompany purchased receivables
Proceeds from sale of finance receivables
Additions to intercompany receivables (original maturities greater than three months)
Collections of intercompany receivables (original maturities greater than three months)
Net intercompany borrowings
Investments and acquisitions (net of cash acquired)
Proceeds from sale of businesses and investments (net of cash sold)
Proceeds from maturities and sale of securities
Investments in securities
Other - net
Net cash provided by (used for) investing activities
Cash flow from financing activities:
Dividends paid
Common stock issued, and other stock compensation transactions, net
Payments to purchase common stock
Excise tax paid on purchases of common stock
Proceeds from intercompany borrowings (original maturities greater than three months)
Payments on intercompany borrowings (original maturities greater than three months)
Net intercompany borrowings
Proceeds from debt issued (original maturities greater than three months)
Payments on debt (original maturities greater than three months)
Short-term borrowings - net (original maturities three months or less)
Other - net
Net cash provided by (used for) financing activities
Effect of exchange rate changes on cash
Increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
1 Elimination of equity profit earned from Financial Products’ subsidiaries partially owned by MP&E 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 proceeds and payments to/from MP&E and Financial Products.
5 Elimination of dividend activity between Financial Products and MP&E.
Table of Contents
