CATERPILLAR INC 10-K

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 2024 Form 10-K. Highlights for the full-year 2024 include: • Sales and revenues for 2024 were $64.809 billion, a decrease of $2.251 billion, or 3 percent, compared with $67.060 billion for 2023. In the three primary segments, sales were lower in Construction Industries and Resource Industries and higher in Energy & Transportation . • Operating profit as a percent of sales and revenues was 20.2 percent in 2024, compared with 19.3 percent in 2023. Adjusted operating profit margin was 20.7 percent in 2024, compared with 20.5 percent in 2023. • Profit per share for 2024 was $22.05, and excluding the items in the table below, adjusted profit per share was $21.90. Profit per share for 2023 was $20.12, and excluding the items in the table below, adjusted profit per share was $21.21. • In order for our results to be more meaningful to our readers, we have separately quantified the impact of several significant items. A detailed reconciliation of GAAP to non-GAAP financial measures is included on pages 47 - 48. Full Year 2024 Full Year 2023 (Dollars in millions except per share data) Profit Before Taxes Profit Per Share Profit Before Taxes Profit Per Share Profit $ 13,373 $ 22.05 $ 13,050 $ 20.12 Restructuring (income) costs - divestitures of certain non-U.S. entities 164 0.22 — — Other restructuring (income) costs 195 0.32 194 0.30 Pension/OPEB mark-to-market (gains) losses (154) (0.23) (97) (0.14) Tax law change related to currency translation — (0.46) — — Restructuring costs - Longwall divestiture — — 586 1.14 Deferred tax valuation allowance adjustments — — — (0.21) Adjusted profit $ 13,578 $ 21.90 $ 13,733 $ 21.21 • Enterprise operating cash flow was $12.0 billion in 2024. Caterpillar ended 2024 with $6.9 billion of enterprise cash. OVERVIEW Total sales and revenues for 2024 were $64.809 billion, a decrease of $2.251 billion, or 3 percent, compared with $67.060 billion for 2023. The decrease reflected lower sales volume , partially offset by favorable price realization . Lower sales volume was primarily driven by lower sales of equipment to end users. Profit per share was $22.05 in 2024, compared with profit per share of $20.12 in 2023. Profit was $10.792 billion in 2024, compared with $10.335 billion in 2023. The profit impact of lower sales volume was more than offset by favorable price realization and the absence of the impact of the divestiture of the company's Longwall business in 2023. Trends and Economic Conditions Outlook for Key End Markets Our results continue to reflect the benefit of the diversity of our end markets. In Construction Industries, we expect moderately lower sales of equipment to end users in North America in 2025 compared to 2024. Construction spend in North America remains healthy, primarily driven by large, multi-year projects and government-related infrastructure investments supported by funding from the Infrastructure Investment and Jobs Act (IIJA). Although we anticipate the combined non-residential and residential construction spend in 2025 to remain similar to 2024 levels, our current planning assumptions reflect lower demand for new equipment in 2025 as compared to 2024. We also expect lower dealer rental fleet loading in 2025 compared to 2024, although dealer rental revenue is expected to grow. We remain positive about the medium- and long-term outlook in North America. In Asia Pacific, outside of China, we expect soft economic conditions to 27 Table of Contents continue into 2025. We anticipate China to remain at relatively low levels for the excavator industry above 10-tons. In EAME , we anticipate that weak economic conditions in Europe will continue, and we anticipate a healthy level of construction activity in Africa and in the Middle East in 2025. Construction activity in Latin America is expected to moderately decline in 2025 as compared to 2024. We also anticipate the ongoing benefit of our services initiatives will positively impact Construction Industries in 2025. In Resource Industries, we anticipate lower sales of equipment to end users in 2025 compared to 2024, partially offset by higher services revenues, including robust rebuild activity. Customers continue to display capital discipline, although key commodities remain above investment thresholds. Customer product utilization remains high, the number of parked trucks remains relatively low, the age of the fleet remains elevated, and our autonomous solutions continue to see strong customer acceptance. We continue to believe the energy transition will support increased commodity demand over time, expanding our total addressable market and providing further opportunities for long-term profitable growth. In Energy & Transportation, demand is expected to remain strong in Power Generation, as we expect growth for both reciprocating engines and turbines and turbine-related services in 2025 as compared to 2024. Overall strength in Power Generation, for both prime and backup power applications, continues to be driven by increasing energy demands to support data center growth related to cloud computing and generative artificial intelligence (AI). Through continued focus on improving manufacturing efficiencies, along with initial stages of our investment to increase large engine output capability, we expect growth in reciprocating engines for Power Generation in 2025. We also expect growth in turbines and turbine-related services for Power Generation, driven by increased customer demand. For Oil and Gas, we expect moderate growth in 2025 as compared to 2024. We expect reciprocating engines and services to be slightly down in 2025 due to continuing capital discipline by our customers, industry consolidation and efficiency improvements in our customers’ operations. We expect growth for turbines and turbine-related services in Oil & Gas in 2025 as compared to 2024. For turbines and turbine-related services used in Oil & Gas applications, backlog remains strong, and we see continued healthy order and inquiry activity. Demand for products in Industrial applications in 2025 is expected to remain at a relatively low level, similar to 2024. In Transportation, we anticipate growth in 2025, driven by rail services. Full-Year 2025 Company Trends and Expectations For the full-year 2025, we anticipate sales and revenues will be slightly lower compared to 2024, primarily driven by lower sales volume and unfavorable price realization. We expect lower sales in Construction Industries and Resource Industries to be partially offset by higher sales in Energy & Transportation. Currently, we do not anticipate a significant change in machine dealer inventories in 2025. Services revenues increased in 2024, and we expect services revenues to grow across all three primary segments in 2025. For Construction Industries, we expect lower sales, including unfavorable price realization. In Resource Industries, we anticipate slightly lower sales, driven by unfavorable price realization and slightly lower sales volume. In Energy and Transportation, we expect an increase in sales driven by higher sales volume and favorable price realization. In 2025, we anticipate unfavorable price realization and higher depreciation costs. We expect Other income (expense) to be unfavorable in 2025 as compared to 2024, primarily due to lower interest income as well as the absence of favorable foreign currency impacts. We do not anticipate translation movements in our expectations. In 2025, we expect restructuring costs of approximately $150 million to $200 million and expect capital expenditures of about $2.5 billion. We anticipate the annual effective tax rate, excluding discrete items, to be 23.0 percent in 2025. First-Quarter 2025 Company Trends and Expectations In the first quarter of 2025, we expect lower sales and revenues as compared to the first quarter of 2024, primarily due to the unfavorable impact from changes in machine dealer inventories and unfavorable machine price realization. We expect machine dealer inventory to increase less during the first quarter of 2025 as compared to the $1.1 billion increase in the first quarter of 2024. In a typical year, we see our lowest sales of the year in the first quarter. In 2025, we anticipate that trend to continue but be more pronounced as sales in the first quarter should account for a lower percentage of full year sales than is typical, mainly due to our expectations for changes in dealer inventories and price realization for machines. In Energy & Transportation, we expect normal seasonality with sales growing throughout the year. In the first quarter of 2025 as compared to the first quarter of 2024, we anticipate lower sales in Construction Industries primarily due to lower sales of equipment to end users, an unfavorable impact from changes in dealer inventories and unfavorable price realization. In Resource Industries, we expect lower sales primarily due to lower sales volume and unfavorable price realization. In Energy & Transportation, we anticipate similar sales in the first quarter of 2025 as compared to the first quarter of 2024, as continued strength in Power Generation is expected to be offset by lower sales in Oil & Gas and in Transportation. We expect favorable price realization for Energy & Transportation in the first quarter of 2025. 28 Table of Contents In the first quarter of 2025, we expect the profit impact from lower machine sales volume and unfavorable machine price realization to be partially offset by favorable price realization in Energy & Transportation. In Construction Industries and in Resource Industries, we expect an unfavorable profit impact from lower sales volume and unfavorable price realization in the first quarter of 2025 as compared to the first quarter of 2024. In Energy & Transportation, we expect unfavorable manufacturing costs and the impact of an unfavorable mix of products to be partially offset by favorable price realization. Global Business Conditions We continue to monitor a variety of external factors around the world, such as supply chain disruptions, inflationary cost and labor pressures. Areas of particular focus include 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 2024 Form 10-K. Notes: • Glossary of terms included on pages 35 - 37; first occurrence of terms shown in bold italics. • Information on non-GAAP financial measures is included on pages 47 - 48. • 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. 29 Table of Contents 2024 COMPARED WITH 2023 CONSOLIDATED SALES AND REVENUES The chart above graphically illustrates reasons for the change in consolidated sales and revenues between 2023 (at left) and 2024 (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 2024 were $64.809 billion, a decrease of $2.251 billion, or 3 percent, compared with $67.060 billion in 2023. The decrease was primarily driven by lower sales volume of $3.543 billion, partially offset by favorable price realization of $1.238 billion. The decrease in sales volume was mainly driven by lower sales of equipment to end users. In addition, changes in dealer inventories had an unfavorable impact to sales volume. Dealer inventory increased less during 2024 than during 2023. In the three primary segments, sales were lower in Construction Industries and Resource Industries and higher in Energy & Transportation. North America sales decreased 1 percent primarily due to lower sales volume, partially offset by favorable price realization. The decrease in sales volume was mainly due to the impact from changes in dealer inventories. Dealer inventory increased less during 2024 than during 2023. Sales increased 1 percent in Latin America. Unfavorable currency impacts related to the Brazilian real were more than offset by higher sales volume and favorable price realization. The increase in sales volume was primarily due to the impact from changes in dealer inventories. Dealer inventory increased during 2024, compared to a decrease during 2023. EAME sales decreased 10 percent primarily due lower sales volume. The decrease in sales volume was mainly driven by lower sales of equipment to end users. Asia/Pacific sales decreased 6 percent primarily due to lower sales volume. The decrease in sales volume was mainly driven by the impact from changes in dealer inventories. Dealer inventory decreased in 2024, compared to an increase in 2023. Total dealer inventory increased about $400 million during 2024, compared to an increase of about $2.1 billion during 2023. Machine dealer inventory decreased about $700 million during 2024, compared to an increase of $700 million during 2023. 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 do not expect a significant change in machine dealer inventories in 2025. 30 Table of Contents Sales and Revenues by Segment (Millions of dollars) 2023 Sales Volume Price Realization Currency Inter-Segment/Other 2024 $ Change % Change Construction Industries $ 27,418 $ (1,737) $ (70) $ (143) $ (13) $ 25,455 $ (1,963) (7 %) Resource Industries 13,583 (1,603) 405 (28) 32 12,389 (1,194) (9 %) Energy & Transportation 28,001 (142) 900 (25) 120 28,854 853 3 % All Other Segment 449 (17) 5 (1) (11) 425 (24) (5 %) Corporate Items and Eliminations (5,582) (44) (2) (4) (128) (5,760) (178) Machinery, Energy & Transportation 63,869 (3,543) 1,238 (201) — 61,363 (2,506) (4 %) Financial Products Segment 3,785 — — — 268 4,053 268 7 % Corporate Items and Eliminations (594) — — — (13) (607) (13) Financial Products Revenues 3,191 — — — 255 3,446 255 8 % Consolidated Sales and Revenues $ 67,060 $ (3,543) $ 1,238 $ (201) $ 255 $ 64,809 $ (2,251) (3 %) 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 2024 Construction Industries $ 14,576 (5%) $ 2,553 11% $ 4,315 (18%) $ 3,900 (11%) $ 25,344 (7%) $ 111 (10%) $ 25,455 (7 %) Resource Industries 4,561 (13%) 2,077 2% 1,804 (13%) 3,576 (8%) 12,018 (9%) 371 9% 12,389 (9 %) Energy & Transportation 13,005 9% 1,763 (11%) 5,787 (2%) 3,533 2% 24,088 3% 4,766 3% 28,854 3 % All Other Segment 56 (14%) — 100% 12 (33%) 50 2% 118 (10%) 307 (3%) 425 (5 %) Corporate Items and Eliminations (150) (6) (25) (24) (205) (5,555) (5,760) Machinery, Energy & Transportation 32,048 (1%) 6,387 1% 11,893 (10%) 11,035 (6%) 61,363 (4%) — —% 61,363 (4 %) Financial Products Segment 2,702 11% 402 (3%) 505 3% 444 1% 4,053 1 7% — —% 4,053 7 % Corporate Items and Eliminations (353) (81) (82) (91) (607) — (607) Financial Products Revenues 2,349 12% 321 (5%) 423 4% 353 1% 3,446 8% — —% 3,446 8 % Consolidated Sales and Revenues $ 34,397 (1%) $ 6,708 1% $ 12,316 (10%) $ 11,388 (6%) $ 64,809 (3%) $ — —% $ 64,809 (3 %) 2023 Construction Industries $ 15,343 $ 2,307 $ 5,254 $ 4,390 $ 27,294 $ 124 $ 27,418 Resource Industries 5,256 2,040 2,069 3,879 13,244 339 13,583 Energy & Transportation 11,982 1,983 5,929 3,461 23,355 4,646 28,001 All Other Segment 65 (1) 18 49 131 318 449 Corporate Items and Eliminations (133) (3) (5) (14) (155) (5,427) (5,582) Machinery, Energy & Transportation 32,513 6,326 13,265 11,765 63,869 — 63,869 Financial Products Segment 2,440 416 491 438 3,785 1 — 3,785 Corporate Items and Eliminations (347) (77) (83) (87) (594) — (594) Financial Products Revenues 2,093 339 408 351 3,191 — 3,191 Consolidated Sales and Revenues $ 34,606 $ 6,665 $ 13,673 $ 12,116 $ 67,060 $ — $ 67,060 1 Includes revenues from Machinery, Energy & Transportation of $711 million and $690 million in 2024 and 2023, respectively. 31 Table of Contents CONSOLIDATED OPERATING PROFIT The chart above graphically illustrates reasons for the change in consolidated operating profit between 2023 (at left) and 2024 (at right). Caterpillar management utilizes these charts internally to visually communicate with the company’s board of directors and employees. The bar entitled Other includes consolidating adjustments and Machinery, Energy & Transportation other operating (income) expenses . Operating profit was $13.072 billion in 2024, an increase of $106 million, or 1 percent, compared with $12.966 billion in 2023. The profit impact of lower sales volume of $1.298 billion, higher selling, general and administrative (SG&A) and research and development (R&D) expenses of $201 million, and higher restructuring costs of $165 million were more than offset by favorable price realization of $1.238 billion, the absence of the impact of the divestiture of the company's Longwall business in 2023 of $586 million and favorable manufacturing costs of $246 million. The increase in SG&A/R&D expenses was primarily driven by investments aligned with strategic initiatives. Favorable manufacturing costs largely reflected lower freight. For the twelve months ended December 31, 2024, restructuring costs increased primarily due to the divestitures of certain non-U.S. entities. Operating profit margin was 20.2 percent in 2024, compared with 19.3 percent in 2023. Profit (Loss) by Segment (Millions of dollars) 2024 2023 $ Change % Change Construction Industries $ 6,165 $ 6,975 $ (810) (12 %) Resource Industries 2,533 2,834 (301) (11 %) Energy & Transportation 5,736 4,936 800 16 % All Other Segment 48 18 30 167 % Corporate Items and Eliminations (1,384) (2,104) 720 Machinery, Energy & Transportation 13,098 12,659 439 3 % Financial Products Segment 932 909 23 3 % Corporate Items and Eliminations (327) 14 (341) Financial Products 605 923 (318) (34 %) Consolidating Adjustments (631) (616) (15) Consolidated Operating Profit $ 13,072 $ 12,966 $ 106 1 % 32 Table of Contents Other Profit/Loss and Tax Items • Interest expense excluding Financial Products in 2024 was $512 million, compared with $511 million in 2023. • Other income (expense) in 2024 was income of $813 million, compared with income of $595 million in 2023. The change was primarily driven by favorable foreign currency impacts, favorable impacts from pension and other postemployment benefit (OPEB) plan costs and higher mark-to-market gains for remeasurement of pension and OPEB plans. • The effective tax rate for 2024 was 19.7 percent compared to 21.3 percent for 2023. Excluding the discrete items discussed below, the annual effective tax rate was 22.2 percent for 2024 compared to 21.4 percent for 2023. The increase from 2023 was primarily related to changes in the geographic mix of profits from a tax perspective. 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 excludes the impact of losses of $164 million for the divestitures of certain non-U.S. entities with related tax benefits of $54 million. The 2023 annual effective tax rate excludes the impact of the nondeductible loss of $586 million related to the divestiture of the company’s Longwall business. The company also recorded a tax charge of $43 million related to $154 million of mark-to-market gains for remeasurement of pension and OPEB plans in 2024, compared to a tax charge of $26 million related to $97 million of mark-to-market gains in 2023. In 2024, the company recorded discrete tax benefits of $47 million to reflect changes in estimates related to prior years. In addition, a discrete tax benefit of $57 million was recorded in 2024 and 2023 for the settlement of stock-based compensation awards with associated tax deductions in excess of cumulative U.S. GAAP compensation expense. In 2023, the company recorded a discrete tax benefit of $88 million due to a change in the valuation allowance for certain non-U.S. deferred tax assets. Construction Industries Construction Industries’ total sales were $25.455 billion in 2024, a decrease of $1.963 billion, or 7 percent, compared with $27.418 billion in 2023. The decrease was primarily due to lower sales volume. The decrease in sales volume was mainly driven by lower sales of equipment to end users. • In North America, sales decreased due to lower sales volume. Lower sales volume was primarily driven by the impact from changes in dealer inventories. Dealer inventory increased less during 2024 than during 2023. • Sales increased in Latin America primarily due to higher sales volume, partially offset by unfavorable price realization and unfavorable currency impacts primarily related to the Brazilian real. Higher sales volume was mainly driven by the impact from changes in dealer inventories. Dealer inventory increased during 2024, compared with a decrease during 2023. • In EAME, sales decreased primarily due to lower sales volume. Lower sales volume was mainly due to lower sales of equipment to end users. • Sales decreased in Asia/Pacific primarily due to lower sales volume and unfavorable currency impacts, primarily related to the Japanese yen. Lower sales volume was mainly driven by the impact from changes in dealer inventories. Dealer inventory decreased during 2024, compared with an increase during 2023. Construction Industries’ profit was $6.165 billion in 2024, a decrease of $810 million, or 12 percent, compared with $6.975 billion in 2023. The decrease was mainly due to the profit impact of lower sales volume. Construction Industries’ profit as a percent of total sales was 24.2 percent in 2024, compared with 25.4 percent in 2023. Resource Industries Resource Industries’ total sales were $12.389 billion in 2024, a decrease of $1.194 billion, or 9 percent, compared with $13.583 billion in 2023. The decrease was primarily due to lower sales volume, partially offset by favorable price realization. Sales volume decreased primarily due to lower sales of equipment to end users. Resource Industries’ profit was $2.533 billion in 2024, a decrease of $301 million, or 11 percent, compared with $2.834 billion in 2023. The decrease was mainly due to the profit impact of lower sales volume of $655 million, partially offset by favorable price realization of $405 million. Resource Industries’ profit as a percent of total sales was 20.4 percent for 2024, compared with 20.9 percent for 2023. 33 Table of Contents Energy & Transportation Sales by Application (Millions of dollars) 2024 2023 $ Change % Change Oil and Gas $ 6,980 $ 6,988 $ (8) — % Power Generation 7,756 6,362 1,394 22 % Industrial 3,990 4,871 (881) (18 %) Transportation 5,362 5,134 228 4 % External Sales 24,088 23,355 733 3 % Inter-Segment 4,766 4,646 120 3 % Total Sales $ 28,854 $ 28,001 $ 853 3 % Energy & Transportation’s total sales were $28.854 billion in 2024, an increase of $853 million, or 3 percent, compared with $28.001 billion in 2023. The increase was primarily due to favorable price realization. • Oil and Gas – Sales were about flat. Decreased sales in reciprocating engines used in well servicing applications were offset by increased sales in reciprocating engines used in gas compression applications and increased sales for turbines and turbine-related services. • Power Generation – Sales increased in large reciprocating engines, primarily data center applications. Turbines and turbine-related services increased as well. • Industrial – Sales decreased in EAME and North America. • Transportation – Sales increased in marine and rail services, partially offset by lower sales of reciprocating engine aftermarket parts. Energy & Transportation’s profit was $5.736 billion in 2024, an increase of $800 million, or 16 percent, compared with $4.936 billion in 2023. The increase was mainly due to favorable price realization. Energy & Transportation’s profit as a percent of total sales was 19.9 percent in 2024, compared with 17.6 percent in 2023. Financial Products Segment Financial Products’ segment revenues were $4.053 billion in 2024, an increase of $268 million, or 7 percent, compared with $3.785 billion in 2023. The increase was primarily due to a favorable impact from higher average financing rates across all regions of $153 million and a favorable impact from higher average earning assets of $127 million driven by North America. Financial Products’ segment profit was $932 million in 2024, an increase of $23 million, or 3 percent, compared with $909 million in 2023. The increase was mainly due to a favorable impact from higher average earning assets of $54 million, an insurance settlement of $33 million, and a favorable impact from equity securities of $32 million. These favorable impacts were partially offset by an increase in SG&A expenses of $54 million and an unfavorable impact from returned or repossessed equipment of $34 million. Corporate Items and Eliminations Expense for corporate items and eliminations was $1.711 billion in 2024, a decrease of $379 million from 2023, primarily driven by the absence of the divestiture of the company's Longwall business in 2023, partially offset by unfavorable impacts of segment reporting methodology differences. 2023 COMPARED WITH 2022 For discussions related to the consolidated sales and revenue and consolidated operating profit between 2023 and 2022, 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, 2023, which was filed with the United States Securities and Exchange Commission on February 16, 2024 and hereby incorporated by reference. 34 Table of Contents RESTRUCTURING COSTS In 2025, we expect to incur about $150 million to $200 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 $25 million in 2025 compared with 2024. 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, a discrete tax benefit for a tax law change related to currency translation, pension and OPEB mark-to-market gains/losses and certain deferred tax valuation allowance adjustments in 2023. 3. All Other Segment – Primarily includes activities such as: business strategy; product management and development; manufacturing and sourcing of wear and maintenance components primarily for Cat® products; parts distribution; integrated logistics solutions; distribution services responsible for dealer development and administration, including a wholly owned dealer in Japan; dealer portfolio management and ensuring the most efficient and effective distribution of machines, engines and parts; brand management and marketing strategy; and digital investments for new customer and dealer solutions that integrate data analytics with state-of-the-art digital technologies while transforming the buying experience. 4. Consolidating Adjustments – Elimination of transactions between Machinery, Energy & Transportation and Financial Products. 5. Construction Industries – A segment primarily responsible for supporting customers using machinery in infrastructure and building construction applications. Responsibilities include business strategy, product design, product management and development, manufacturing, marketing and sales and product support. The product portfolio includes asphalt pavers; backhoe loaders; 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, Energy & Transportation line of business; currency impacts on Financial Products revenues and operating profit are included in the Financial Products portions of the respective analyses. With respect to other income/expense, currency represents the effects of forward and option contracts entered into by the company to reduce the risk of fluctuations in exchange rates (hedging) and the net effect of changes in foreign currency exchange rates on our foreign currency assets and liabilities for consolidated results (translation). 8. Dealer Inventories – Represents dealer machine and engine inventories, excluding aftermarket parts. 9. EAME – A geographic region including Europe, Africa, the Middle East and 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. Energy & Transportation – A segment primarily responsible for supporting customers using reciprocating engines, turbines, diesel-electric locomotives and related services across industries serving Oil and Gas, Power Generation, Industrial and Transportation applications, including marine- and rail-related businesses 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 35 Table of Contents 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 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. 12. Financial Products – The company defines Financial Products as our finance and insurance subsidiaries, primarily Caterpillar Financial Services Corporation (Cat Financial) and Caterpillar Insurance Holdings Inc. (Insurance Services). Financial Products’ information relates to the financing to customers and dealers for the purchase and lease of Caterpillar and other equipment. 13. Financial Products Segment – Provides financing alternatives to customers and dealers around the world for Caterpillar products and services, as well as financing for power generation facilities that, in most cases, 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 and services that help customers and dealers manage their business risk. Insurance and risk management products offered include physical damage insurance, inventory protection plans, extended service coverage and maintenance plans for machines and engines, and dealer property and casualty insurance. The various forms of financing, insurance and risk management products offered to customers and dealers help support the purchase and lease of Caterpillar equipment. The segment also earns revenues from Machinery, Energy & Transportation, but the related costs are not allocated to operating segments. Financial Products’ segment profit is determined on a pretax basis and includes other income/expense items. 14. Latin America – A geographic region including Central and South American countries and Mexico. 15. Machinery, Energy & Transportation (ME&T) – The company defines ME&T as Caterpillar Inc. and its subsidiaries, excluding Financial Products. ME&T’s information relates to the design, manufacturing and marketing of its products. 16. Machinery, Energy & Transportation Other Operating (Income) Expenses – Comprised primarily of gains/losses on disposal of long-lived assets, gains/losses on divestitures and legal settlements and accruals. 17. Manufacturing Costs – Manufacturing costs exclude the impacts of currency and represent the volume-adjusted change for variable costs and the absolute dollar change for period manufacturing costs. Variable manufacturing costs are defined as having a direct relationship with the volume of production. This includes material costs, direct labor and other costs that vary directly with production volume, such as freight, power to operate machines and supplies that are consumed in the manufacturing process. Period manufacturing costs support production but are defined as generally not having a direct relationship to short-term changes in volume. Examples include machinery and equipment repair, depreciation on manufacturing assets, facility support, procurement, factory scheduling, manufacturing planning and operations management. 18. Mark-to-market gains/losses – Represents the net gain or loss of actual results differing from the company’s assumptions and the effects of changing assumptions for our defined benefit pension and OPEB plans. These gains and losses are immediately recognized through earnings upon the annual remeasurement in the fourth quarter, or on an interim basis as triggering events warrant remeasurement. 19. Pension and Other Postemployment Benefits (OPEB) – The company’s defined-benefit pension and postretirement benefit plans. 20. Price Realization – The impact of net price changes excluding currency and new product introductions. Price realization includes geographic mix of sales, which is the impact of changes in the relative weighting of sales prices between geographic regions. 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; electronics and control systems and related parts. In addition to equipment, Resource Industries also develops and sells technology products and services to provide customers fleet management, equipment management analytics, autonomous machine capabilities, safety services and mining performance solutions. Resource Industries also manages areas that provide services to other parts of the company, including strategic procurement, lean center of excellence, integrated manufacturing, research and development for hydraulic systems, automation, electronics and software for Caterpillar machines and engines. 36 Table of Contents 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). Restructuring costs also include other exit-related costs, which may consist of accelerated depreciation, inventory write-downs, building demolition, equipment relocation and project management costs and LIFO inventory decrement benefits from inventory liquidations at closed facilities, all of which are primarily included in Cost of goods sold. 23. Sales Volume – With respect to sales and revenues, sales volume represents the impact of changes in the quantities sold for Machinery, Energy & Transportation as well as the incremental sales impact of new product introductions, including emissions-related product updates. With respect to operating profit, sales volume represents the impact of changes in the quantities sold for Machinery, Energy & Transportation combined with product mix as well as the net operating profit impact of new product introductions, including emissions-related product updates. Product mix represents the net operating profit impact of changes in the relative weighting of Machinery, Energy & Transportation sales with respect to total sales. The impact of sales volume on segment profit includes inter-segment sales. 24. Services – Machinery, Energy & Transportation 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 ME&T operations. Funding for these businesses is also available from commercial paper and long-term debt issuances. Financial Products’ operations are funded primarily from commercial paper, term debt issuances and collections from its existing portfolio. During 2024, we had positive operating cash flow within both our ME&T and Financial Products' operations. On a consolidated basis, we ended 2024 with $6.89 billion of cash, a decrease of $89 million from year-end 2023. In addition, ME&T invests in available-for-sale debt securities and bank time deposits that are considered highly liquid and are available for current operations. These ME&T securities were $1.98 billion as of December 31, 2024 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 2024 was $12.04 billion, down $850 million compared to 2023. The decrease was primarily due to changes in accrued wages, salaries, and employee benefits, and higher cash taxes paid. These were partially offset by lower working capital requirements. Within working capital, changes in accounts payable, customer advances, and receivables favorably impacted cash flow, partially offset by changes in accrued expenses. Total debt as of December 31, 2024 was $38.41 billion, an increase of $531 million from year-end 2023. Debt related to ME&T decreased $893 million in 2024. Debt related to Financial Products increased by $1.54 billion due to portfolio funding requirements. As of December 31, 2024, we had three global credit facilities with a syndicate of banks totaling $10.50 billion (Credit Facility) available in the aggregate to both Caterpillar and Cat Financial for general liquidity purposes. Based on management’s allocation decision, which can be revised from time to time, the portion of the Credit Facility available to ME&T as of December 31, 2024 was $2.75 billion. Information on our Credit Facility is as follows: • In August 2024, we entered into a new 364-day facility. The 364-day facility of $3.15 billion (of which $825 million is available to ME&T) expires in August 2025. • In August 2024, we amended and extended the three-year facility (as amended and restated, the "three-year facility"). The three-year facility of $2.73 billion (of which $715 million is available to ME&T) expires in August 2027. • In August 2024, we amended and extended the five-year facility (as amended and restated, the "five-year facility"). The five-year facility of $4.62 billion (of which $1.21 billion is available to ME&T) expires in August 2029. At December 31, 2024, Caterpillar’s consolidated net worth was $19.56 billion, which was above the $9.00 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. 37 Table of Contents At December 31, 2024, Cat Financial’s covenant interest coverage ratio was 1.41 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, 2024, Cat Financial’s six-month covenant leverage ratio was 7.25 to 1 and year-end covenant leverage ratio was 7.37 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, 2024, 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, 2024 were: December 31, 2024 (Millions of dollars) Consolidated Machinery, Energy & Transportation Financial Products Credit lines available: Global credit facilities $ 10,500 $ 2,750 $ 7,750 Other external 4,062 610 3,452 Total credit lines available 14,562 3,360 11,202 Less: Commercial paper outstanding (3,946) — (3,946) Less: Utilized credit (687) — (687) Available credit $ 9,929 $ 3,360 $ 6,569 The other consolidated credit lines with banks as of December 31, 2024 totaled $4.06 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, ME&T’s operations would rely on cash flow from operations, use of existing cash balances, borrowings from Cat Financial and access to our committed credit facilities. Our Financial Products’ operations would rely on cash flow from its existing portfolio, existing cash balances, access to our committed credit facilities and other credit line facilities of Cat Financial, and potential borrowings from Caterpillar. In addition, we maintain a support agreement with Cat Financial, which requires Caterpillar to remain the sole owner of Cat Financial and may, under certain circumstances, require Caterpillar to make payments to Cat Financial should Cat Financial fail to maintain certain financial ratios. 38 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 $6.89 billion and available-for-sale debt securities of $1.98 billion as of December 31, 2024, 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, 2024, but scheduled for payment in 2025 of $7.68 billion. In addition, we have contractual obligations for material and services on order at December 31, 2024, but not yet invoiced or delivered, of $6.69 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 $1.63 billion, with $762 million due in the next 12 months. Machinery, Energy & Transportation Net cash provided by operating activities was $11.44 billion in 2024, compared with $11.69 billion in 2023. The decrease was primarily due to changes in accrued wages, salaries, and employee benefits, higher cash taxes paid, and changes in other liabilities. These were partially offset by decreased working capital requirements. Within working capital, changes in receivables, accounts payable, and customer advances favorably impacted cash flow partially offset by changes in accrued expenses. Net cash provided by investing activities in 2024 was $133 million, compared with net cash used of $3.92 billion in 2023. The change was due to lower new investments in securities and higher proceeds from maturities and sale of securities, primarily due to time deposit maturities in 2024. Net cash used for financing activities during 2024 was $11.42 billion, compared with $7.65 billion in 2023. The change was primarily due to higher payments to repurchase shares and debt repayments in 2024. While our short-term priorities for the use of cash may vary from time to time as business needs and conditions dictate, our long-term cash deployment strategy is focused on the following priorities. Our top priority is to maintain a strong financial position in support of a mid-A rating. Next, we intend to fund operational requirements and commitments. Then, we intend to fund priorities that profitably grow the company and return capital to shareholders through dividend growth and share repurchases. Additional information on cash deployment is as follows: Strong financial position — Our top priority is to maintain a strong financial position in support of a mid-A rating. We track a diverse group of financial metrics that focus on liquidity, leverage, cash flow and margins which align with our cash deployment actions and the various methodologies used by the major credit rating agencies. Operational excellence and commitments — Capital expenditures were $1.99 billion during 2024, compared to $1.66 billion in 2023. We expect ME&T’s capital expenditures in 2025 to be about $2.5 billion. We made $271 million of contributions to our pension and OPEB plans during 2024. In comparison, we made $361 million of contributions to our pension and OPEB plans in 2023. We expect to make approximately $354 million of contributions to our pension and OPEB plans in 2025. 39 Table of Contents Fund strategic growth initiatives and return capital to shareholders — We intend to utilize our liquidity and debt capacity to fund targeted investments that drive long-term profitable growth focused in the areas of expanded offerings, services and sustainability, including acquisitions. As part of our capital allocation strategy, ME&T free cash flow is a liquidity measure we use to determine the cash generated and available for financing activities including debt repayments, dividends and share repurchases. We define ME&T free cash flow as cash from ME&T operations less capital expenditures, excluding discretionary pension and other postretirement benefit plan contributions. A goal of our capital allocation strategy is to return substantially all ME&T free cash flow to shareholders over time in the form of dividends and share repurchases, while maintaining our mid-A rating. 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 2024, the Board of Directors approved maintaining our quarterly dividend representing $1.41 per share, and we continue to expect our strong financial position to support the dividend. Dividends paid totaled $2.65 billion in 2024. Our share repurchase plans are subject to the company’s cash deployment priorities and are evaluated on an ongoing basis considering the financial condition of the company, 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 2024, we repurchased $7.7 billion of Caterpillar common stock, with $20.1 billion remaining under the 2022 and 2024 Authorizations as of December 31, 2024. Caterpillar's basic shares outstanding as of December 31, 2024 were approximately 478 million. Financial Products Net cash provided by operating activities was $1.45 billion in 2024, compared with $1.11 billion in 2023. Net cash used for investing activities was $2.79 billion in 2024, compared with $1.42 billion used in 2023. The change was primarily due to portfolio related activity and the divestiture of a non-U.S. entity. Net cash provided by financing activities was $1.21 billion in 2024, compared with net cash provided of $278 million in 2023. The change was primarily due to higher net inflows from external borrowings partially offset by higher dividends paid to Caterpillar in 2024. 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.” 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 40 Table of Contents 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, 2024, the aggregate residual value of equipment on operating leases was $1.55 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 $70 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. We completed our annual assessment of goodwill in the fourth quarter of 2024 and determined that there was no impairment of goodwill. Caterpillar's market capitalization has remained significantly above the net book value of the Company. An unfavorable change in our expectations for the financial performance of our reporting units, particularly long-term growth and profitability, would reduce the fair value of our reporting units. The demand for our equipment and related parts is highly cyclical and significantly impacted by commodity prices, although the impact may vary by reporting unit. The energy and mining industries are major users of our products, including the mineral extraction, oil and natural gas industries. Decisions to purchase our products are dependent upon the performance of those industries, which in turn are dependent in part on commodity prices. Lower commodity prices or industry specific circumstances that have a negative impact to the valuation assumptions may reduce the fair value of our reporting units. Should such events occur and it becomes more likely than not that a reporting unit’s fair value has fallen below its carrying value, we will perform an interim goodwill impairment test(s), in addition to the annual impairment test. Future impairment tests may result in a goodwill impairment, depending on the outcome of the quantitative impairment test. We would report a goodwill impairment as a non-cash charge to earnings. 41 Table of Contents 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 $1.5 billion and $1.4 billion at December 31, 2024 and 2023, respectively. The majority of the balance in both 2024 and 2023 consisted of unearned insurance premiums. Postretirement benefits — We sponsor defined benefit pension plans and/or other postretirement benefit plans (retirement healthcare and life insurance) to employees in many of our locations throughout the world. There are assumptions used in the accounting for these defined benefit plans that include discount rate, expected return on plan assets, expected rate of compensation increase, the future health care trend rate, mortality and other economic and demographic assumptions. The actuarial assumptions we use may change or differ significantly from actual results, which may result in a material impact to our consolidated financial statements. The effects of actual results differing from our assumptions and the effects of changing assumptions are considered actuarial gains or losses. We utilize a mark-to-market approach in recognizing actuarial gains or losses immediately through earnings upon the annual remeasurement in the fourth quarter, or on an interim basis as triggering events warrant remeasurement. Primary actuarial assumptions were determined as follows: • We use the assumed discount rate to discount future benefit obligations back to today’s dollars. The U.S. discount rate is based on a benefit cash flow-matching approach and represents the rate at which our benefit obligations could effectively be settled as of our measurement date, December 31. The benefit cash flow-matching approach involves analyzing Caterpillar’s projected cash flows against a high quality bond yield curve, calculated using a wide population of corporate Aa bonds available on the measurement date. We use a similar approach to determine the assumed discount rate for our most significant non-U.S. plans. In estimating the service and interest cost components of net periodic benefit cost, we utilize a full yield curve approach in determining a discount rate. This approach applies the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. Discount rates are sensitive to changes in interest rates. • The expected long-term 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 the fair value of plan 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 trend rate represents the rate at which health care costs are assumed to increase and is based on historical and expected experience. Changes in our projections of future health care costs due to general economic conditions and those specific to health care (e.g., technology driven cost changes) will impact this trend rate. • We use the mortality assumption to estimate the life expectancy of plan participants. 42 Table of Contents Postretirement Benefit Plan Actuarial Assumptions Sensitivity The effects of a one percentage-point change in certain actuarial assumptions on 2024 pension and OPEB costs and obligations are as follows: 2024 Benefit Cost Increase (Decrease) Year-end Benefit Obligation Increase (Decrease) (Millions of dollars) One percentage- point increase One percentage- point decrease One percentage- point increase One percentage- point decrease U.S. Pension Benefits: 1 Assumed discount rate $ 56 $ (70) $ (1,011) $ 1,187 Expected long-term rate of return on plan assets (123) 123 — — Non-U.S. Pension Benefits: Assumed discount rate 8 (11) (315) 387 Expected rate of compensation increase 4 (4) 28 (24) Expected long-term rate of return on plan assets (32) 32 — — Other Postretirement Benefits: Assumed discount rate 5 (6) (184) 213 Expected rate of compensation increase — — 1 (1) Expected long-term rate of return on plan assets (1) 1 — — 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 2024 2023 2022 2024 2023 2022 2024 2023 2022 Weighted-average assumptions used to determine benefit obligation, end of year: Discount rate 5.6 % 5.0 % 5.4 % 4.1 % 3.9 % 4.3 % 5.6 % 5.1 % 5.4 % Rate of compensation increase 1 — % — % — % 2.2 % 2.3 % 2.3 % 4.0 % 4.0 % 4.0 % Weighted-average assumptions used to determine net periodic benefit cost: Discount rate used to measure service cost 1 — % — % — % 3.6 % 3.8 % 1.7 % 5.1 % 5.4 % 2.8 % Discount rate used to measure interest cost 5.0 % 5.2 % 2.3 % 3.9 % 4.2 % 1.7 % 5.0 % 5.3 % 2.2 % Expected rate of return on plan assets 5.7 % 5.8 % 4.0 % 5.1 % 5.2 % 3.1 % 7.4 % 7.4 % 6.9 % Rate of compensation increase 1 — % — % — % 2.3 % 2.3 % 2.0 % 4.0 % 4.0 % 4.0 % Health care cost trend rates at year-end: Health care trend rate assumed for next year 6.0 % 6.2 % 6.5 % Rate that the cost trend rate gradually declines to 4.7 % 4.7 % 4.7 % Year that the cost trend rate reaches ultimate rate 2030 2030 2030 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. 43 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 $2.2 billion and $2.1 billion at December 31, 2024 and 2023, 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 receivable 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 based on the present value of expected future cash flows discounted at the receivables' effective interest rate, the fair value of the collateral for collateral-dependent receivables or the observable market price of the receivable. In determining collateral value, 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.” 44 Table of Contents 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.” 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 2024, 2023 and 2022, respectively, and includes expected cost for 2025. (Millions of dollars) 2025 Expected 2024 2023 2022 U.S. Pension Benefits $ (108) $ (74) $ (33) $ (268) Non-U.S. Pension Benefits (2) (4) 2 (10) Other Postretirement Benefits 173 177 188 161 Mark-to-market loss (gain) — 1 (154) (97) (606) Total net periodic benefit cost (benefit) $ 63 $ (55) $ 60 $ (723) 1 Expected net periodic benefit cost (benefit) does not include an estimate for mark-to-market gains or losses. • Expected decrease in expense in 2025 compared to 2024 — Excluding the impact of mark-to-market gains and losses, our net periodic benefit cost is expected to decrease $36 million in 2025. This expected decrease is primarily due to lower interest cost in 2025 as a result of higher discount rates at the end of 2024 creating a lower obligation base (U.S. pension plans year-end 2024 obligation was $12.2 billion compared to a year-end 2023 obligation of $13.1 billion) and a higher expected return on assets in 2025 (U.S. pension plans expected rate of return on plans assets is 6.3 percent for 2025 compared to 5.7 percent for 2024; however, this increase is muted due to a lower asset base at year-end 2024 of $11.9 billion compared to $12.7 billion at year-end 2023). • 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. • Increase in expense in 2023 compared to 2022 — Primarily due to lower mark-to-market gains in 2023 compared to 2022 and higher interest cost in 2023 as a result of higher discount rates at year-end 2022. The primary factors that resulted in mark-to-market losses (gains) for 2024, 2023 and 2022 are described below. We include the net mark-to-market losses (gains) in Other income (expense) in the Results of Operations. • 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. • 2022 net mark-to-market gain of $606 million — Primarily due to higher discount rates at the end of 2022 compared to the end of 2021. 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 loss rate of (22.6) percent compared to an expected rate of return of 4.0 percent). 45 Table of Contents SENSITIVITY Foreign Exchange Rate Sensitivity ME&T 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 ME&T 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 2025 cash flow for our ME&T operations by approximately $77 million. Last year, similar assumptions and calculations yielded a potential $200 million adverse impact on 2024 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 ME&T 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 2025 pre-tax earnings of ME&T. Last year, similar assumptions and calculations yielded a minimal impact to 2024 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, 2024 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 2025 pre-tax earnings. Last year, similar assumptions and calculations yielded a minimal impact to 2024 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. 46 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 six significant items in order for our results to be meaningful to our readers. These items consist of (i) restructuring income/costs related to the divestitures of certain non-U.S. entities in 2024, (ii) other restructuring income/costs, (iii) pension and OPEB mark-to-market gains/losses resulting from plan remeasurements, (iv) a discrete tax benefit for a tax law change related to currency translation in 2024, (v) restructuring costs related to the divestiture of the company's Longwall business in 2023 and (vi) certain deferred tax valuation allowance adjustments in 2023. 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, 2024 - U.S. GAAP $ 13,072 20.2 % $ 13,373 $ 2,629 $ 10,792 $ 22.05 Restructuring (income) costs - divestitures of certain non-U.S. entities 164 0.2 % 164 54 110 0.22 Other restructuring (income) costs 195 0.3 % 195 46 149 0.32 Pension/OPEB mark-to-market (gains) losses — — % (154) (43) (111) (0.23) Tax law change related to currency translation — — % — 224 (224) (0.46) Twelve Months Ended December 31, 2024 - Adjusted $ 13,431 20.7 % $ 13,578 $ 2,910 $ 10,716 $ 21.90 Twelve Months Ended December 31, 2023 - U.S. GAAP $ 12,966 19.3 % $ 13,050 $ 2,781 $ 10,335 $ 20.12 Restructuring costs - Longwall divestiture 586 0.9 % 586 — 586 1.14 Other restructuring (income) costs 194 0.3 % 194 48 146 0.30 Pension/OPEB mark-to-market (gains) losses — — % (97) (26) (71) (0.14) Deferred tax valuation allowance adjustments — — % — 106 (106) (0.21) Twelve Months Ended December 31, 2023 - Adjusted $ 13,746 20.5 % $ 13,733 $ 2,909 $ 10,890 $ 21.21 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) restructuring income/costs related to the divestitures of certain non-U.S. entities in 2024, (ii) pension and OPEB mark-to-market gains/losses resulting from plan remeasurements, (iii) a discrete tax benefit for a tax law change related to currency translation in 2024, (iv) the impact of changes in estimates related to prior years in 2024, (v) a settlement of stock-based compensation awards with associated tax deductions in excess of cumulative U.S. GAAP compensation expense, (vi) restructuring costs related to divestiture of the company's Longwall business in 2023 and (vii) deferred tax valuation allowance adjustments in 2023. 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. A reconciliation of our effective tax rate to annual effective tax rate, excluding discrete items is below: 47 Table of Contents (Millions of dollars) Profit Before Taxes Provision (Benefit) for Income Taxes Effective Tax Rate Twelve Months Ended December 31, 2024 - U.S. GAAP $ 13,373 $ 2,629 19.7 % Restructuring (income) costs - divestitures of certain non-U.S. entities 164 54 Pension/OPEB mark-to-market (gains) losses (154) (43) Tax law change related to currency translation — 224 Changes in estimates related to prior years — 47 Excess stock-based compensation — 57 Annual effective tax rate, excluding discrete items $ 13,383 $ 2,968 22.2 % Changes in estimates related to prior years — (47) Excess stock-based compensation — (57) Other restructuring (income) costs 195 46 Twelve Months Ended December 31, 2024 - Adjusted $ 13,578 $ 2,910 Twelve Months Ended December 31, 2023 - U.S. GAAP $ 13,050 $ 2,781 21.3 % Restructuring costs - Longwall divestiture 586 — Pension/OPEB mark-to-market (gains) losses (97) (26) Deferred tax valuation allowance adjustments — 88 Excess stock-based compensation — 57 Annual effective tax rate, excluding discrete items $ 13,539 $ 2,900 21.4 % Deferred tax valuation allowance adjustments — 18 Excess stock-based compensation — (57) Other restructuring (income) costs 194 48 Twelve Months Ended December 31, 2023 - Adjusted $ 13,733 $ 2,909 In addition, we provide a calculation of ME&T free cash flow as we believe it is an important measure for investors to determine the cash generation available for financing activities including debt repayments, dividends and share repurchases. Reconciliations of ME&T 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, 2024 2023 ME&T net cash provided by operating activities 1 $ 11,437 $ 11,688 ME&T capital expenditures (1,988) (1,663) ME&T free cash flow $ 9,449 $ 10,025 1 See reconciliation of ME&T net cash provided by operating activities to consolidated net cash provided by operating activities on page 52. 48 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, Energy & Transportation – We define ME&T as it is presented in the supplemental data as Caterpillar Inc. and its subsidiaries, excluding Financial Products. ME&T's information relates to the design, manufacturing and marketing of our products. Financial Products – We define Financial Products as it is presented in the supplemental data as our finance and insurance subsidiaries, primarily Caterpillar Financial Services Corporation (Cat Financial) and Cat Insurance Holdings Inc. (Insurance Services). Financial Products’ information relates to the financing to customers and dealers for the purchase and lease of Caterpillar and other equipment. Consolidating Adjustments – Eliminations of transactions between ME&T and Financial Products. The nature of the ME&T and Financial Products businesses is different, especially with regard to the financial position and cash flow items. Caterpillar management utilizes this presentation internally to highlight these differences. We believe this presentation will assist readers in understanding our business. Pages 50 to 52 reconcile ME&T and Financial Products to Caterpillar Inc. consolidated financial information. 49 Table of Contents Supplemental Data for Results of Operations For The Years Ended December 31, Supplemental consolidating data Consolidated Machinery, Energy & Transportation Financial Products Consolidating Adjustments (Millions of dollars) 2024 2023 2022 2024 2023 2022 2024 2023 2022 2024 2023 2022 Sales and revenues: Sales of Machinery, Energy & Transportation $ 61,363 $ 63,869 $ 56,574 $ 61,363 $ 63,869 $ 56,574 $ — $ — $ — $ — $ — $ — Revenues of Financial Products 3,446 3,191 2,853 — — — 4,212 3,927 3,376 (766) 1 (736) 1 (523) 1 Total sales and revenues 64,809 67,060 59,427 61,363 63,869 56,574 4,212 3,927 3,376 (766) (736) (523) Operating costs: Cost of goods sold 40,199 42,767 41,350 40,206 42,776 41,356 — — — (7) 2 (9) 2 (6) 2 Selling, general and administrative expenses 6,667 6,371 5,651 5,881 5,696 4,999 786 704 672 — (29) 2 (20) 2 Research and development expenses 2,107 2,108 1,814 2,107 2,108 1,814 — — — — — — Interest expense of Financial Products 1,286 1,030 565 — — — 1,286 1,032 565 — (2) 2 — Goodwill impairment charge — — 925 — — 925 — — — — — — Other operating (income) expenses 1,478 1,818 1,218 71 630 47 1,535 1,268 1,249 (128) 2 (80) 2 (78) 2 Total operating costs 51,737 54,094 51,523 48,265 51,210 49,141 3,607 3,004 2,486 (135) (120) (104) Operating profit 13,072 12,966 7,904 13,098 12,659 7,433 605 923 890 (631) (616) (419) Interest expense excluding Financial Products 512 511 443 518 511 444 — — — (6) 3 — (1) 3 Other income (expense) 813 595 1,291 728 340 1,374 85 (16) (26) — 271 4 (57) 4 Consolidated profit before taxes 13,373 13,050 8,752 13,308 12,488 8,363 690 907 864 (625) (345) (475) Provision (benefit) for income taxes 2,629 2,781 2,067 2,663 2,560 1,858 (34) 221 209 — — — Profit of consolidated companies 10,744 10,269 6,685 10,645 9,928 6,505 724 686 655 (625) (345) (475) Equity in profit (loss) of unconsolidated affiliated companies 44 63 19 44 67 26 — — — — (4) 5 (7) 5 Profit of consolidated and affiliated companies 10,788 10,332 6,704 10,689 9,995 6,531 724 686 655 (625) (349) (482) Less: Profit (loss) attributable to noncontrolling interests (4) (3) (1) (5) (4) (1) 1 5 7 — (4) 6 (7) 6 Profit 7 $ 10,792 $ 10,335 $ 6,705 $ 10,694 $ 9,999 $ 6,532 $ 723 $ 681 $ 648 $ (625) $ (345) $ (475) 1 Elimination of Financial Products' revenues earned from ME&T. 2 Elimination of net expenses recorded between ME&T and Financial Products. 3 Elimination of interest expense recorded between Financial Products and ME&T. 4 Elimination of discount recorded by ME&T on receivables sold to Financial Products and of interest earned between ME&T and Financial Products as well as dividends paid by Financial Products to ME&T. 5 Elimination of equity profit (loss) earned from Financial Products’ subsidiaries partially owned by ME&T subsidiaries. 6 Elimination of noncontrolling interest profit (loss) recorded by Financial Products for subsidiaries partially owned by ME&T subsidiaries. 7 Profit attributable to common shareholders. 50 Table of Contents Supplemental Data for Financial Position At December 31, Supplemental consolidating data Consolidated Machinery, Energy & Transportation Financial Products Consolidating Adjustments (Millions of dollars) 2024 2023 2024 2023 2024 2023 2024 2023 Assets Current assets: Cash and cash equivalents $ 6,889 $ 6,978 $ 6,165 $ 6,106 $ 724 $ 872 $ — $ — Receivables - trade and other 9,282 9,310 3,463 3,971 688 570 5,131 1,2 4,769 1,2 Receivables - finance 9,565 9,510 — — 14,957 14,499 (5,392) 2 (4,989) 2 Prepaid expenses and other current assets 3,119 4,586 2,872 4,327 401 341 (154) 3 (82) 3 Inventories 16,827 16,565 16,827 16,565 — — — — Total current assets 45,682 46,949 29,327 30,969 16,770 16,282 (415) (302) Property, plant and equipment - net 13,361 12,680 9,531 8,694 3,830 3,986 — — Long-term receivables - trade and other 1,225 1,238 500 565 86 85 639 1,2 588 1,2 Long-term receivables - finance 13,242 12,664 — — 14,048 13,299 (806) 2 (635) 2 Noncurrent deferred and refundable income taxes 3,312 2,816 3,594 3,360 118 148 (400) 4 (692) 4 Intangible assets 399 564 399 564 — — — — Goodwill 5,241 5,308 5,241 5,308 — — — — Other assets 5,302 5,257 4,050 4,218 2,277 2,082 (1,025) 5 (1,043) 5 Total assets $ 87,764 $ 87,476 $ 52,642 $ 53,678 $ 37,129 $ 35,882 $ (2,007) $ (2,084) Liabilities Current liabilities: Short-term borrowings $ 4,393 $ 4,643 $ — $ — $ 4,393 $ 4,643 $ — $ — Accounts payable 7,675 7,906 7,619 7,827 331 314 (275) 6,7 (235) 6,7 Accrued expenses 5,243 4,958 4,589 4,361 654 597 — — Accrued wages, salaries and employee benefits 2,391 2,757 2,335 2,696 56 61 — — Customer advances 2,322 1,929 2,305 1,912 3 2 14 7 15 7 Dividends payable 674 649 674 649 — — — — Other current liabilities 2,909 3,123 2,388 2,583 696 647 (175) 4,8 (107) 4,8 Long-term debt due within one year 6,665 8,763 46 1,044 6,619 7,719 — — Total current liabilities 32,272 34,728 19,956 21,072 12,752 13,983 (436) (327) Long-term debt due after one year 27,351 24,472 8,731 8,626 18,787 15,893 (167) 9 (47) 9 Liability for postemployment benefits 3,757 4,098 3,757 4,098 — — — — Other liabilities 4,890 4,675 3,977 3,806 1,344 1,607 (431) 4 (738) 4 Total liabilities 68,270 67,973 36,421 37,602 32,883 31,483 (1,034) (1,112) Commitments and contingencies Shareholders’ equity Common stock 6,941 6,403 6,941 6,403 905 905 (905) 10 (905) 10 Treasury stock (44,331) (36,339) (44,331) (36,339) — — — — Profit employed in the business 59,352 51,250 54,787 46,783 4,555 4,457 10 10 10 10 Accumulated other comprehensive income (loss) (2,471) (1,820) (1,182) (783) (1,289) (1,037) — — Noncontrolling interests 3 9 6 12 75 74 (78) 10 (77) 10 Total shareholders’ equity 19,494 19,503 16,221 16,076 4,246 4,399 (973) (972) Total liabilities and shareholders’ equity $ 87,764 $ 87,476 $ 52,642 $ 53,678 $ 37,129 $ 35,882 $ (2,007) $ (2,084) 1 Elimination of receivables between ME&T and Financial Products. 2 Reclassification of ME&T’s trade receivables purchased by Financial Products and Financial Products’ wholesale inventory receivables. 3 Elimination of ME&T's insurance premiums that are prepaid to Financial Products. 4 Reclassification reflecting required netting of deferred tax assets/liabilities by taxing jurisdiction. 5 Elimination of other intercompany assets and liabilities between ME&T and Financial Products. 6 Elimination of payables between ME&T and Financial Products. 7 Reclassification of Financial Products’ payables to customer advances. 8 Elimination of prepaid insurance in Financial Products’ other liabilities. 9 Elimination of debt between ME&T and Financial Products. 10 Eliminations associated with ME&T’s investments in Financial Products’ subsidiaries. 51 Table of Contents Supplemental Data for Statement of Cash Flow For the Years Ended December 31, Supplemental consolidating data Consolidated Machinery, Energy & Transportation Financial Products Consolidating Adjustments (Millions of dollars) 2024 2023 2024 2023 2024 2023 2024 2023 Cash flow from operating activities: Profit of consolidated and affiliated companies $ 10,788 $ 10,332 $ 10,689 $ 9,995 $ 724 $ 686 $ (625) 1,5 $ (349) 1,5 Adjustments to reconcile profit to net cash provided by operating activities: Depreciation and amortization 2,153 2,144 1,368 1,361 785 783 — — Actuarial (gain) loss on pension and postretirement benefits (154) (97) (154) (97) — — — — Provision (benefit) for deferred income taxes (621) (592) (327) (576) (294) (16) — — (Gain) loss on divestiture 164 572 (46) 572 210 — — — Other 564 375 355 444 (388) (577) 597 2 508 2 Changes in assets and liabilities, net of acquisitions and divestitures: Receivables - trade and other (160) (437) 413 (367) 207 61 (780) 2,3 (131) 2,3 Inventories (414) (364) (400) (360) — — (14) 2 (4) 2 Accounts payable (282) (754) (200) (836) (41) 41 (41) 2 41 2 Accrued expenses 191 796 78 690 113 106 — — Accrued wages, salaries and employee benefits (363) 486 (358) 474 (5) 12 — — Customer advances 370 80 369 78 1 2 — — Other assets—net (97) (95) (188) 94 48 (110) 43 2 (79) 2 Other liabilities—net (104) 439 (162) 216 85 118 (27) 2 105 2 Net cash provided by (used for) operating activities 12,035 12,885 11,437 11,688 1,445 1,106 (847) 91 Cash flow from investing activities: Capital expenditures—excluding equipment leased to others (1,988) (1,597) (1,952) (1,624) (41) (22) 5 2 49 2 Expenditures for equipment leased to others (1,227) (1,495) (36) (39) (1,211) (1,466) 20 2 10 2 Proceeds from disposals of leased assets and property, plant and equipment 722 781 35 55 698 781 (11) 2 (55) 2 Additions to finance receivables (15,409) (15,161) — — (16,845) (17,321) 1,436 3 2,160 3 Collections of finance receivables 13,608 14,034 — — 14,707 15,634 (1,099) 3 (1,600) 3 Net intercompany purchased receivables — — — — 129 1,080 (129) 3 (1,080) 3 Proceeds from sale of finance receivables 83 63 — — 83 63 — — Net intercompany borrowings — — — — 21 10 (21) 4 (10) 4 Investments and acquisitions (net of cash acquired) (34) (75) (34) (75) — — — — Proceeds from sale of businesses and investments (net of cash sold) (61) (4) 92 (4) (153) — — — Proceeds from maturities and sale of securities 3,155 1,891 2,795 1,642 360 249 — — Investments in securities (1,495) (4,405) (909) (3,982) (586) (423) — — Other—net 193 97 142 106 51 (9) — — Net cash provided by (used for) investing activities (2,453) (5,871) 133 (3,921) (2,787) (1,424) 201 (526) Cash flow from financing activities: Dividends paid (2,646) (2,563) (2,646) (2,563) (625) (425) 625 5 425 5 Common stock issued, including treasury shares reissued 20 12 20 12 — — — — Payments to purchase common stock (7,697) (4,975) (7,697) (4,975) — — — — Excise tax paid on purchases of common stock (40) — (40) — — — — — Net intercompany borrowings — — (21) (10) — — 21 4 10 4 Proceeds from debt issued (original maturities greater than three months) 10,283 8,257 — — 10,283 8,257 — — Payments on debt (original maturities greater than three months) (9,316) (6,318) (1,032) (106) (8,284) (6,212) — — Short-term borrowings - net (original maturities three months or less) (168) (1,345) — (3) (168) (1,342) — — Other—net (1) — (1) — — — — — Net cash provided by (used for) financing activities (9,565) (6,932) (11,417) (7,645) 1,206 278 646 435 Effect of exchange rate changes on cash (106) (110) (94) (60) (12) (50) — — Increase (decrease) in cash, cash equivalents and restricted cash (89) (28) 59 62 (148) (90) — — Cash, cash equivalents and restricted cash at beginning of period 6,985 7,013 6,111 6,049 874 964 — — Cash, cash equivalents and restricted cash at end of period $ 6,896 $ 6,985 $ 6,170 $ 6,111 $ 726 $ 874 $ — $ — 1 Elimination of equity profit earned from Financial Products’ subsidiaries partially owned by ME&T subsidiaries. 2 Elimination of non-cash adjustments and changes in assets and liabilities related to consolidated reporting. 3 Reclassification of Financial Products’ cash flow activity from investing to operating for receivables that arose from the sale of inventory. 4 Elimination of net proceeds and payments to/from ME&T and Financial Products. 5 Elimination of dividend activity between Financial Products and ME&T. 52 Table of Contents