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# Caterpillar Inc. (CAT) — Business, Risks and Management's Discussion Sources: FY2025 Annual Report on Form 10-K (accession 0000018230-26-000008, filed 2026-02-13) and the Quarterly Report on Form 10-Q for the quarter ended June 30, 2026 (accession 0000018230-26-000046, filed 2026-08-05). Governance and organizational items are drawn from the company's Current Reports on Form 8-K filed during 2026 where noted. --- ## Business *From the FY2025 10-K, accession 0000018230-26-000008.* Caterpillar was organized as Caterpillar Tractor Co. in California in 1925 and reorganized as Caterpillar Inc. in Delaware in 1986. On 2025 sales and revenues of $67.589 billion, it is the world's largest manufacturer of construction and mining equipment, off-highway diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. It sells through one of the largest independent global dealer networks and finances customer purchases through its captive, Cat Financial. **How the company is organized.** Caterpillar reports along two lines of business and five operating segments, four of which are reportable: - **Machinery, Power & Energy (MP&E)** — Caterpillar and subsidiaries excluding Financial Products; the design, manufacture and marketing of products. Comprises three primary reportable segments plus an All Other Segment. - **Financial Products** — the finance and insurance subsidiaries, primarily Caterpillar Financial Services Corporation (Cat Financial) and Caterpillar Insurance Holdings Inc. **Construction Industries** supports customers using machinery in infrastructure and building construction; the bulk of machine sales go into heavy and general construction, rental, quarry and aggregates and mining. Customer priorities differ by market — purchase price dominates in developing economies (addressed in part with the differentiated SEM brand), owning-and-operating cost over machine life dominates in developed markets. The product line runs from mini excavators and skid steers to motor graders, wheel loaders and large track excavators, plus parts and work tools. Global competitors include CASE (CNH), Deere Construction & Forestry, Doosan Bobcat, Hitachi Construction Machinery, Hyundai, JCB, Kobelco, Komatsu, Kubota, Sany and Volvo Construction Equipment; in China it also competes with LiuGong, Longking, XCMG, SDLG and Shantui. **Resource Industries** supports mining, heavy construction and quarry and aggregates — surface and underground mining equipment used to extract and haul copper, iron ore, coal, oil sands, aggregates and gold, plus work tools, components, wear parts and related services. It also sells technology: fleet management, equipment analytics, autonomous machine capability, safety services and mining performance solutions. Caterpillar argues its control of the integration and design of key machine components is a competitive advantage. Surface competitors include Deere, Epiroc, Hitachi, Komatsu, Liebherr, Sandvik and Volvo; underground, Epiroc, Komatsu and Sandvik. **Power & Energy** supports oil and gas, power generation, marine, rail and industrial applications, including power for Caterpillar's own machines. The portfolio spans reciprocating engines, generator sets, integrated systems, turbines and turbine-related services, electrified powertrain and zero-emission power, engine and component remanufacturing, and (through year-end 2025) diesel-electric locomotives and rail products. Emissions regulation requires continuing product investment, and compliance in developing markets is complicated by rapidly evolving, unevenly enforced local rules. Principal competitors are Cummins, Deutz, Rolls-Royce Power Systems and Siemens Energy, with Volvo Penta, FPT Industrial, INNIO, GE Vernova, Kawasaki, Everllence (formerly MAN Energy Solutions) and Weichai in selected markets, packagers such as Aggreko, Generac, Rehlko and Baker Hughes, and — in rail — Wabtec, Greenbrier, Voestalpine, Vossloh, Alstom and Siemens Mobility. **Segment realignment effective January 1, 2026.** Responsibility for locomotives (diesel-electric, hybrid and battery-electric), components and other rail-related products and services, including remanufacturing and leasing, moved from Power & Energy to Resource Industries. The company announced the realignment on November 4, 2025, implemented it on January 1, 2026, and furnished recast historical quarterly and annual segment data for 2025 and 2024 on Form 8-K on March 26, 2026 (accession 0000018230-26-000013, Exhibit 99.1). Segment information for 2025 has been retrospectively adjusted in the 2026 quarterly reports to conform to the 2026 presentation. Because the FY2025 10-K was published before that recast, its Resource Industries and Power & Energy figures differ from the ones now in force; both bases are set out and reconciled under *Management's discussion — full-year 2025* below. A separate, earlier change effective July 1, 2025 moved wear and maintenance components and related parts from the All Other Segment to Resource Industries, and moved electronics and control systems, together with research and development for machine and engine automation, electronics and software, from Resource Industries to the All Other Segment. Those transfers are already embedded in the FY2025 figures the 10-K reports (the 10-K retrospectively adjusted 2024 and 2023 to conform to the 2025 presentation). The January 1, 2026 Rail move is therefore the single reason the FY2025 segment figures shown in the 10-K are not directly comparable to 2026 segment reporting. On segment naming: neither the 10-K nor the 10-Q discloses a renaming of any segment, and both present the Power & Energy segment under that name for every period shown. In Caterpillar's quarterly earnings materials the name Power & Energy first appears with the fourth-quarter 2025 release furnished on Form 8-K on January 29, 2026 (accession 0000018230-26-000003); the first-, second- and third-quarter 2025 releases (accessions 0000018230-25-000013, 0000018230-25-000037 and 0000018230-25-000043) used Energy & Transportation for the same segment. **Financial Products / Cat Financial.** Cat Financial is a wholly owned finance subsidiary providing retail and wholesale financing to customers and dealers worldwide for Caterpillar products and services, plus financing for power generation facilities incorporating Caterpillar products, and it purchases short-term wholesale trade receivables from Caterpillar. Products include loans, revolving charge accounts, tax and non-tax leases, dealer wholesale (inventory and rental fleet) financing and dealer retail loans. Most activity is in North America. Cat Financial has provided financing for Caterpillar products for over 40 years and typically retains a security interest in retail-financed equipment. Its competitive position is materially enhanced by joint merchandising programs with Caterpillar and its dealers, under which Caterpillar or the dealer funds an amount at inception that Cat Financial recognizes as revenue over the financing term. Competitors include Wells Fargo Equipment Finance, Banc of America Leasing, BNP Paribas Leasing Solutions, ANZ and Société Générale, as well as captives such as John Deere Capital, Komatsu Financial, Volvo Financial Services and Kubota Credit — many of which run below-market rate programs funded by their manufacturer parents. Cat Financial runs a match-funding policy that aligns the interest-rate profile (fixed/floating and duration) of its debt with its receivables portfolio, using interest rate derivatives. Insurance Services comprises Caterpillar Insurance Company (Missouri-domiciled property and casualty, licensed in 50 states, D.C. and Guam, with a Zurich branch), Caterpillar Life Insurance Company (Missouri, life/accident/health, reinsures a VEBA trust stop-loss policy), Caterpillar Insurance Co. Ltd. (Bermuda captive covering general liability, property, auto, cargo and international employee benefits) and Caterpillar Insurance Services Corporation (a Tennessee agency). Programs cover contractual liability on service contracts, cargo reinsurance, contractors' equipment physical damage, corporate general/employer/auto/property liability, and international employee benefit reinsurance. **Distribution.** Machines are sold principally through 150 dealers — 41 in the United States and 109 outside — serving 190 countries. Reciprocating engines are sold through the dealer network and to other OEMs; Perkins Engines sells through 86 distributors in 183 countries and FG Wilson generator systems through 108 distributors in 159 countries. Turbines and locomotives are sold directly to end customers by company sales forces. Dealers are independent and non-exclusive, but Caterpillar products are usually their principal business; the standard sales-and-service agreement grants a territory, purchase and service rights and a trademark license in exchange for promotion, staffing, product improvement programs and record-keeping obligations, and is terminable at will by either party on 90 days' written notice. Caterpillar owns and operates Nippon Caterpillar Division in Japan, covering roughly 80% of that market, reported in the All Other Segment. **Backlog.** Firm backlog was approximately $51.2 billion at December 31, 2025 versus $30.0 billion at December 31, 2024, up across all primary segments with the largest increase in Power & Energy. About $19.3 billion of the year-end 2025 backlog was not expected to be filled during 2026. **Inputs and supply.** Caterpillar buys unformed materials (largely steel products), rough castings and forgings and finished ready-to-assemble components, domestically and internationally, machining and assembling some components in-house. It monitors supplier financial viability, capacity flexibility, business continuity, quality and delivery, and notes that demand increases or supply chain disruptions have at times constrained parts and components. It owns many patents and trademarks but does not regard the business as dependent on any single patent or group of patents. **People.** About 118,000 full-time employees at December 31, 2025 (51,600 in the U.S., 66,400 outside; by region: North America 52,100, Asia/Pacific 26,900, Latin America 22,300, EAME 16,700), up from 112,900 a year earlier. 7,972 U.S. hourly production employees were covered by collective bargaining agreements with unions including the UAW, the International Association of Machinists and the United Steelworkers. The 2025 recordable injury frequency rate was 0.41, versus 0.43 in 2024. **Strategy.** In 2025 Caterpillar introduced a revised strategy anchored on a new mission — "Solving our customers' toughest challenges" — with three profitable-growth pillars: Commercial Excellence, Advanced Technology Leader and Transform How We Work, built on a foundation of Operational Excellence and the Operating & Execution model. **Environmental posture.** Caterpillar is regulated by federal, state and international environmental laws governing use, transport and disposal of substances and control of emissions, which shape product development (notably internal-combustion engine air-emissions standards) and require continuing R&D and capital spending. It is engaged in remedial activities at a number of locations, generally with other companies; the amount recorded for environmental remediation is not material. **Leadership and board (2026).** Joseph E. Creed is Chief Executive Officer and, effective April 1, 2026, Chairman of the Board, following the resignation of D. James Umpleby III (Executive Chairman; CEO 2017–2025) and a reduction in board size from ten to nine directors (Form 8-K filed 2026-01-06, accession 0001104659-26-001346). The board appointed Kyle Epley Chief Financial Officer on April 7, 2026, effective May 1, 2026, succeeding Andrew R.J. Bonfield, who remains an employee through retirement on October 1, 2026; Mr. Epley, a Caterpillar employee since 1996, previously led the Global Finance Services Division and served as corporate controller (announced April 8, 2026; Form 8-K accession 0001104659-26-042062, filed 2026-04-10). Lynn Good was nominated as a director on April 7, 2026 with an effective appointment date of August 1, 2026 (Form 8-K accession 0001104659-26-042621, filed 2026-04-13) and was elected at the June 10, 2026 annual meeting, at which all directors were elected and PricewaterhouseCoopers LLP was ratified as auditor (Form 8-K accession 0001104659-26-072929). --- ## Risk factors *Condensed from Item 1A of the FY2025 10-K, accession 0000018230-26-000008.* **Macroeconomic.** - *Cyclicality and end-market sensitivity.* Demand is cyclical and falls sharply in periods of weak government and business investment, low business confidence, high real interest rates, tighter credit, perceived or actual industry overcapacity and lower consumer spending. Prolonged weakness also raises expense through higher allowances for doubtful accounts and potential goodwill and asset impairments. Energy, transportation and mining customers buy on expected commodity dynamics; commodity price volatility can be abrupt, and when capital budgets are cut customers extend preventive maintenance and delay overhauls, reducing aftermarket parts demand as well. Infrastructure spending, commercial construction and housing starts materially drive results. - *Catastrophic events.* Earthquake, fire, flood, severe weather, power or telecom failure, pandemic, cyber-attack, war or terrorism could disrupt the workforce, systems, production and distribution, cause material and component shortages, logistics constraints and labor inefficiencies, and increase demand uncertainty and inflationary pressure. Insurance may not cover all costs. - *Input costs and supply chain.* Caterpillar is a significant user of steel and other commodities; price increases hurt results unless offset by pricing, productivity, cost programs or hedging. Supplier production problems (including semiconductors) or delivery disruptions impair the ability to meet customer commitments. In the opposite case — demand below expectations — excess inventories and additional costs weigh on profitability. - *Monetary and fiscal policy.* Central bank rate changes affect demand for residential and nonresidential structures and for energy and mined products, customers' ability to finance machine purchases, the optimal fleet retention period and suppliers' ability to finance production. Liquidity and credit policy shifts, currency moves driven by policy (which can make product from a given manufacturing country uncompetitive), reductions in public spending and tax changes (depreciation lives, after-tax returns) all bear on results. - *Political and country risk.* Operations depend on products made, bought and sold across many countries, some with political and economic instability. Named exposures: conflicting and changing laws and policies; currency restrictions and limits on repatriation of earnings; new or additional tariffs or quotas; withdrawal from or modification of trade agreements; new trade and economic sanctions; war or terrorism; and civil unrest. Freight and fuel cost swings and shipping/receiving capacity limits at key ports also matter. **Operational.** - *Product development and market fit.* Success depends on maintaining key dealer relationships, meeting customer quality/performance/price expectations, effective sales and marketing, leading-edge innovation and enforceable IP protection, and meeting regulatory requirements including engine exhaust emission rules. - *Competition and pricing.* Share can be lost to aggressive competitor pricing or product strategies, product or manufacturing difficulties, failure to price competitively or to produce at competitive cost, or an unexpected build-up in competitors' new machine or dealer-owned rental fleets that pressures rental rates and used equipment prices. Customer rejection of announced price increases, changes in discount requirements, or a weak pricing environment would hurt results, as would adverse geographic and product mix. - *Cybersecurity.* Caterpillar relies on IT systems and networks, some managed by third parties, and stores sensitive business, customer, dealer, supplier and employee data. Threats are increasing in frequency and sophistication and include attacks targeting customer data and the security, integrity and reliability of hardware and software installed in products. The company has experienced cybersecurity threats, vulnerabilities and attacks; to date these have not had a material impact on financial condition, results or liquidity. Potential consequences of a future material incident include reputational damage, litigation, government enforcement, disruption, unauthorized release or corruption of data, diminished value of R&D investment and higher protection and remediation costs; insurance may be inadequate. Data handling is also subject to GDPR, the California Consumer Privacy Act and similar regimes with significant penalties. - *Dealer and OEM inventory behavior.* Because finished products are sold primarily through independent dealers and directly to OEMs, their inventory decisions can move Caterpillar's sales away from end-user demand in either direction — postponed purchases when their inventory is high, lost time-sensitive sales when it is too low. - *Acquisitions, joint ventures and divestitures.* Diligence may fail to uncover valuation issues or loss contingencies; post-closing there may be impairment charges, duplicate facility costs, litigation and other liabilities. Acquisition financing through debt or equity could reduce earnings, worsen leverage measures or dilute shareholders. In divestitures, Caterpillar may indemnify buyers and retain financial involvement through guarantees, so weak performance by divested businesses can still affect results. - *Labor.* Employees in a number of countries are covered by collective bargaining agreements of varying duration. Failure to renegotiate could bring strikes or work stoppages; general country strikes unrelated to Caterpillar's business are also possible, as are stoppages at unionized customers and suppliers. - *Unexpected events.* War, terrorism, civil unrest, fire, tornado, tsunami, hurricane, earthquake, flood and severe weather could damage or close manufacturing or distribution facilities, disrupt component supply and delay product transport; existing insurance may not cover all resulting costs. **Financial.** - *Liquidity and market access.* Meeting cash requirements long-term requires substantial liquidity and varied funding sources. Market volatility, counterparty credit risk shifts, government intervention and downturns can reduce access to capital and credit markets for Caterpillar and for its customers, dealers and suppliers; customers with less access to capital buy fewer machines. - *Credit ratings.* Borrowing costs and market access for both Caterpillar and Cat Financial depend on short- and long-term ratings, which reflect net worth, profitability, interest coverage and leverage. A downgrade would raise borrowing costs and could restrict access to the commercial paper market. - *Financial services industry risk.* Cat Financial finances a significant share of global sales; inability to access funds would hurt the enterprise. In a deteriorating environment Cat Financial could face materially higher financing costs, be unable to fund growth or meet debt service, and might have to draw committed lending agreements. Market disruption could weaken customer confidence and payment patterns, increasing delinquencies, defaults, write-offs and provisions; loss estimation depends heavily on management judgment about economic forecasts; and counterparty banks' own performance could be impaired. - *Interest rates and market liquidity.* Rate moves influence borrowing costs, returns on financial investments and derivative valuations. Many Cat Financial loans are fixed-rate; others use floating benchmarks including SOFR. Match funding, selective derivatives and a diversified funding program mitigate but do not eliminate the risk, and hedges may prove ineffective. For Insurance Services, equity and bond market declines would reduce investment portfolio value and earnings. - *Credit quality.* Delinquencies, repossessions and net losses at Cat Financial depend on industry and economic conditions, capital availability, customer management quality, commodity prices, political events and collateral values. - *Currency.* Costs and revenues are denominated in different currencies; hedging protects against adverse moves but forgoes favorable ones, and company outlooks assume no exchange rate movement, so currency swings can cause actual results to differ materially. Currency controls can impair conversion to dollars and remittance of dividends by foreign subsidiaries; devaluations diminish the value of local-currency funds. - *Debt covenants.* Credit facilities and debt securities contain restrictive covenants, including a minimum consolidated net worth, limits on liens and sale-leasebacks, restrictions on transfers of property and on consolidation and merger; Cat Financial has additionally agreed to a maximum leverage ratio, a minimum interest coverage ratio and not to terminate, amend or modify its support agreement with Caterpillar. Breach could accelerate outstanding amounts, trigger debt redemption obligations, terminate unused commitments, cause lenders to refuse further credit and lead to rating downgrades. - *Pension funding.* Adverse credit or capital market moves can drive actual pension asset returns below projections and raise contribution requirements, funded through cash, borrowings or shares. Caterpillar uses a liability-driven investment strategy to align the interest-rate sensitivity of assets and obligations. **Legal and regulatory.** - *Trade and anti-corruption laws.* International operations are subject to import/export laws administered by U.S. Customs and Border Protection, the Bureau of Industry and Security, the Office of Antiboycott Compliance, the Directorate of Defense Trade Controls and OFAC, plus foreign equivalents; violations can bring investigation, civil and criminal penalties and limits on the ability to import, export or provide services. Embargoes and sanctions add exposure. The FCPA and similar foreign anti-corruption laws prohibit improper payments to foreign officials; enforcement has increased substantially, and violations by employees, intermediaries or joint venture partners can bring severe sanctions and reputational harm. - *International trade policy.* Import quotas, capital controls and tariffs — imposed by individual governments or trade blocs — affect demand, competitive position and market access. More restrictive policies (detailed inspections, higher tariffs, new barriers) in large markets, "buy national" policies or retaliation against them would hurt results. - *Taxes.* Results can be affected by shifts in the mix of earnings between jurisdictions with different statutory rates, overall profitability, changes in tax laws, treaties, rates, accounting principles, deferred tax asset and liability valuations, and the amount of earnings indefinitely reinvested outside the U.S., as well as by audits and examinations of previously filed returns and continuing assessment of tax exposures. - *Litigation and investigations.* Caterpillar faces claims, lawsuits and government investigations worldwide related to product design, manufacture and performance liability (including claimed asbestos exposure), contracts, employment, environmental matters, intellectual property, tax and securities. Regulators periodically review the industries in which it operates, which can lead to enforcement actions, fines, penalties or private claims. Subsequent developments may require payments in excess of recorded reserves. - *Financial services regulation.* Cat Financial is highly regulated where it operates; in the U.S. certain activities fall under the Dodd-Frank Act. Additional regulatory cost or operational constraints, in the U.S. or internationally, could adversely affect results. - *Environmental and climate regulation.* Facilities, operations and products face increasingly stringent global environmental laws covering noise and air emissions, soil releases, water discharges and the generation, handling, storage, transport, treatment and disposal of hazardous and non-hazardous waste. Some laws impose strict, retroactive and joint-and-several remediation liability, including for the conduct of prior operators or third parties. Changes to environmental or climate laws — notably greenhouse gas rules — could require new or additional investment in product design, raise compliance expenditures and increase energy and raw material costs. - *Exclusive forum bylaw.* Caterpillar's amended and restated bylaws designate the Delaware Court of Chancery as the exclusive forum for derivative actions, fiduciary duty claims, claims arising under the DGCL or the charter/bylaws, and internal-affairs claims, which could deter claims or limit shareholders' choice of forum. The provision does not contract exclusive federal or concurrent jurisdiction for federal securities law actions. **Legal matters actually disclosed.** Operations in Brazil are subject to complex labor, tax, customs and other laws, and Caterpillar is periodically in litigation over their application, including tax and customs disputes with federal, state and municipal authorities relating to export activities of Caterpillar Brasil Ltda; outcomes cannot be predicted or losses reasonably estimated, but the company does not currently expect a material adverse effect. Other unresolved actions arising in the normal course (product liability including claimed asbestos exposure, contracts, employment, environmental, intellectual property, non-income taxes, securities) carry an aggregate range of reasonably possible losses in excess of accrued liabilities that is not material. U.S. federal income tax returns for 2017–2019 were under IRS examination as of the 10-K. --- ## Management's discussion — full-year 2025 *From Item 7 of the FY2025 10-K, accession 0000018230-26-000008. The segment figures in this section are the ones the 10-K itself printed — before the January 1, 2026 move of the Rail division from Power & Energy to Resource Industries. Caterpillar has since recast its 2025 and 2024 segment results for that move, and the recast figures — not the ones below — are the comparatives against which 2026 results should be read. The reconciliation is set out immediately below.* **Reading the 2025 segment figures: as reported versus recast.** On November 4, 2025 Caterpillar announced that responsibility for locomotives, rail components and rail-related products and services would move from Power & Energy to Resource Industries effective January 1, 2026. The FY2025 10-K was published on the old basis, with Rail still inside Power & Energy. On March 26, 2026 the company furnished recast historical segment data for 2025 and 2024 on Form 8-K (accession 0000018230-26-000013, Exhibit 99.1), and that recast is the basis on which its 2026 quarterly reports present both the current periods and the 2025 comparatives. Two of the four reportable segments change materially: | FY2025 | As printed in the 10-K | Recast (accession 0000018230-26-000013, Ex. 99.1) | | --- | --- | --- | | Resource Industries — sales | $12.474bn | $15.920bn | | Resource Industries — profit | $1.988bn (15.9% margin) | $2.151bn (13.5% margin) | | Power & Energy — sales | $32.201bn | $28.624bn | | Power & Energy — profit | $6.418bn (19.9% margin) | $6.256bn (21.9% margin) | FY2024 was recast the same way, to Resource Industries sales of $15.745 billion and profit of $2.676 billion and Power & Energy sales of $25.506 billion and profit of $5.598 billion. Construction Industries ($25.060 billion of 2025 sales, $4.675 billion of profit) and Financial Products ($4.220 billion and $966 million) are unchanged by the move. The transfer is not quite a wash at the total level — Resource Industries gains $3.446 billion of 2025 sales while Power & Energy gives up $3.577 billion — the $131 million difference reflecting sales between Rail and the rest of Resource Industries that are now internal to one segment. Caterpillar did not recast 2023, so no 2023 segment figures exist on the current basis. The prose that follows keeps the 10-K's own numbers because it is a summary of what management wrote in that year's MD&A; readers comparing 2025 with 2026 should use the recast column. **Headline.** Sales and revenues of $67.589 billion, up $2.780 billion or 4% from $64.809 billion in 2024, with higher sales volume of $3.389 billion partly offset by unfavorable price realization of $817 million; volume growth was mainly higher sales of equipment to end users. Operating profit fell 15% to $11.151 billion from $13.072 billion, and operating margin fell to 16.5% from 20.2% (adjusted operating margin 17.2% versus 20.7%). Profit was $8.884 billion versus $10.792 billion; profit per share $18.81 versus $22.05 (adjusted $19.06 versus $21.90). The profit decline was driven by unfavorable manufacturing costs of $2.148 billion — **largely the impact of higher tariffs** — and unfavorable price realization of $817 million, partly offset by $1.218 billion of profit from higher volume. Enterprise operating cash flow was $11.7 billion and the company ended 2025 with $10.0 billion of enterprise cash. **By geography.** North America sales +6% (volume up, price down); Latin America +4% (volume up, Brazilian real unfavorable); EAME +4% (volume and euro favorable, price unfavorable — the volume gain came mainly from dealer inventory, which rose in 2025 versus a 2024 decline); Asia/Pacific −2% (Australian dollar and lower volume). Total dealer inventory rose about $900 million in 2025 versus about $400 million in 2024, while machine dealer inventory fell about $500 million (versus about $700 million in 2024); management expected machine dealer inventory to rise in 2026 and offset the 2025 decrease. **Construction Industries.** Sales $25.060 billion, down $395 million or 2%, as unfavorable price realization of $1.136 billion outweighed $568 million of higher volume. Profit fell 24% to $4.675 billion from $6.165 billion on the price decline plus $671 million of unfavorable manufacturing costs largely reflecting tariffs; margin 18.7% versus 24.2%. **Resource Industries** (as reported; $15.920 billion of sales and $2.151 billion of profit on the recast basis). Sales $12.474 billion, essentially flat (+$3 million), with $403 million of higher volume mostly offset by $272 million of unfavorable price and $46 million of currency. Profit fell 22% to $1.988 billion from $2.538 billion on $302 million of unfavorable manufacturing costs (largely tariffs) and the price decline; margin 15.9% versus 20.4%. **Power & Energy** (as reported; $28.624 billion of sales and $6.256 billion of profit on the recast basis). Sales $32.201 billion, up $3.347 billion or 12%, on $2.401 billion of volume and $592 million of favorable price. Oil and gas: turbines and turbine-related services up, partly offset by lower reciprocating engines in gas compression. Power generation: large reciprocating engines up, primarily data center applications, with turbines also higher. Industrial: up in EAME, down elsewhere. Transportation: marine down, rail services up. Profit rose 12% to $6.418 billion, with $972 million of volume profit and $592 million of price partly offset by $919 million of unfavorable manufacturing costs primarily from tariffs; margin 19.9%, unchanged from 2024. **Financial Products.** Segment revenues $4.220 billion, up 4%, on $222 million of benefit from higher average earning assets (driven by North America) less $68 million from lower average financing rates. Segment profit $966 million, up 4%, helped by $90 million from higher earning assets and hurt by the absence of a $33 million 2024 insurance settlement and a $31 million higher provision for credit losses. **Corporate items and eliminations** expense was $2.291 billion, $580 million higher than 2024 on timing differences, higher corporate costs and unfavorable restructuring. **Below the line.** MP&E interest expense $502 million (2024: $512 million). Other income $892 million (2024: $813 million). Effective tax rate 24.0% versus 19.7%; excluding discrete items, 24.1% versus 22.2%, with the increase primarily from changes in U.S. tax incentives. Discrete items included a $41 million charge for prior-year estimate changes, a $68 million charge on $294 million of pension/OPEB mark-to-market gains, and a $50 million benefit on stock compensation settlements. The 2025 mark-to-market gain of $294 million came mainly from U.S. pension plans returning 10.1% against a 6.3% expected return and demographic assumption changes on U.S. OPEB plans, partly offset by lower year-end discount rates. **Liquidity and capital allocation.** Consolidated cash ended 2025 at $9.980 billion, up $3.091 billion, plus $1.230 billion of MP&E available-for-sale debt securities and bank time deposits. Consolidated operating cash flow was $11.739 billion, down $296 million on lower pretax profit adjusted for non-cash items, partly offset by lower cash taxes and changes in accrued wages. Total debt was $43.330 billion, up $4.921 billion; MP&E debt rose $2.213 billion, reflecting a second-quarter 2025 issuance of $1.700 billion of ten-year bonds at 5.2% and $300 million of thirty-year bonds at 5.5%; Financial Products debt rose $3.818 billion, of which $1.000 billion was intercompany. Three global credit facilities total $11.500 billion (364-day $3.500 billion expiring August 2026; three-year $3.000 billion expiring August 2028; five-year $5.000 billion expiring August 2030), with $2.875 billion allocated to MP&E and no borrowings outstanding at year end. Consolidated net worth for covenant purposes was $21.388 billion against a $9.000 billion requirement; Cat Financial's covenant interest coverage was 1.53 to 1 (minimum 1.15) and its year-end leverage 8.21 to 1 (maximum 10). Fitch rated the company "high-A" and Moody's and S&P "mid-A". Other consolidated bank credit lines totaled $4.337 billion. Short-term purchase obligations scheduled for 2026 payment were $8.968 billion, with a further $9.633 billion of material and services on order but not yet invoiced, and $2.399 billion of long-term contractual obligations ($695 million due within 12 months). MP&E operating cash flow was $12.278 billion (2024: $11.437 billion). Capital expenditures were $2.794 billion (2024: $1.988 billion), with 2026 MP&E capex expected around $3.5 billion. Pension and OPEB contributions were $381 million, with about $360 million expected in 2026. Caterpillar's stated resource allocation framework is: maintain a strong financial position supporting a mid-A rating; fund operational commitments and strategic growth initiatives assessed through the Operating & Execution model; then return capital via dividend growth and share repurchases, with the goal of returning substantially all MP&E free cash flow over time. In December 2025 the Board approved maintaining the quarterly dividend at $1.51 per share; dividends paid totaled $2.749 billion. Caterpillar repurchased $5.190 billion of stock in 2025; the 2022 $15.0 billion authorization was fully utilized and $14.937 billion remained under the June 2024 $20.0 billion authorization. Basic shares outstanding were approximately 465 million at year end. First-quarter 2025 accelerated share repurchase agreements for $3.0 billion delivered about 5.7 million shares initially, with roughly 2.4 million additional shares on final settlement in the fourth quarter of 2025. **Restructuring.** Total restructuring costs were $448 million in 2025 (2024: $359 million; 2023: $780 million), including $106 million of employee separations, $30 million of divestitures and $291 million of other costs — the 2025 charges included write-downs in the value of Rail division inventory. Management expected $300–350 million of restructuring costs in 2026 and about $40 million of incremental operating-cost benefit from prior actions. **Critical accounting estimates** highlighted are residual values for leased assets (the aggregate residual value of equipment on operating leases was $1.57 billion at December 31, 2025; a 10% non-temporary market value decline would add roughly $65 million of annual depreciation), goodwill (annual test as of October 1; the 2025 test found each reporting unit's fair value substantially above carrying value with no impairment), product warranty liability, product liability and insurance loss reserves ($1.6 billion, mostly unearned insurance premiums), postretirement benefits (mark-to-market recognition through earnings on annual fourth-quarter remeasurement), post-sale discount reserves ($2.5 billion), allowance for credit losses and income taxes. **Market risk sensitivities.** A hypothetical 10% weakening of the U.S. dollar against all currencies would adversely affect expected 2026 MP&E cash flow by approximately $135 million (prior-year equivalent: $77 million). Primary currency exposures are the Australian dollar, Chinese yuan, euro, Indian rupee and Mexican peso. A hypothetical 100 basis point adverse move across the yield curve would have minimal impact on 2026 pre-tax earnings for either MP&E or Financial Products. **Management's 2026 outlook as given in the 10-K.** Sales and revenues were expected to grow around the top end of the 5–7% compound annual growth rate target, with volume growth in all three primary segments and favorable price realization of about 2% of sales and revenues, supported by the strong backlog and healthy end markets; services revenues were also expected to grow. Based on incremental tariffs announced in 2025 and in place by January 29, 2026, the tariff impact was expected to be around **$2.6 billion in 2026**, $800 million higher than 2025, and roughly 20% higher still absent planned mitigating actions. First-quarter 2026 tariff impact was expected around $800 million (about 50% in Construction Industries, 30% in Power & Energy, 20% in Resource Industries). Restructuring costs of $300–350 million, capital expenditures around $3.5 billion and a 23.0% annual effective tax rate excluding discrete items were expected. By end market: Construction Industries — another year of end-user sales growth on elevated order rates and robust backlog, positive North America on IIJA funding and accelerating data center investment, higher dealer rental fleet loading, strengthening Europe, strong Africa and Middle East construction, moderate Asia Pacific ex-China, growth in China's above-10-ton excavator industry from low levels; Resource Industries — end-user sales up on rising copper and gold demand and heavy construction and quarry/aggregates, with most key commodities above investment thresholds, high product utilization, an elevated fleet age and slightly higher rebuild activity; Power & Energy — growth in power generation for both reciprocating engines and turbines driven by energy demand for data center build-out tied to cloud computing and generative AI, rising prime power orders, moderate oil and gas growth after record 2025, moderate growth in industrial, and growth in rail services and locomotive deliveries. --- ## Current quarter — three and six months ended June 30, 2026 *From the Form 10-Q for the quarter ended June 30, 2026, accession 0000018230-26-000046.* **Second quarter.** Total sales and revenues were $20.543 billion, up $3.974 billion or **24%** from $16.569 billion, driven by higher sales volume of $3.1 billion and favorable price realization of $595 million; sales were higher across all three primary segments. Operating profit was $4.295 billion, up 50% from $2.860 billion; operating margin 20.9% versus 17.3% (adjusted 21.9% versus 17.6%). Profit was $3.593 billion, up 65% from $2.179 billion; profit per share $7.77 versus $4.62 (adjusted $8.17 versus $4.72). Operating profit included **$392 million of expected IEEPA tariff recoveries** (described under *Tariffs and the IEEPA reversal* below). Enterprise cash ended the quarter at $6.7 billion. **First half.** Sales and revenues $37.958 billion, up $7.140 billion or 23%, on $5.4 billion of volume and $1.0 billion of favorable price. Operating profit $7.380 billion, up 36%; operating margin 19.4% versus 17.6% (adjusted 20.1% versus 17.9%). Profit per share $13.23 versus $8.82 (adjusted $13.70 versus $8.97). Enterprise operating cash flow was $6.2 billion. **Geography (second quarter).** North America +39% on volume and price; Latin America +10% on volume; EAME +15% on volume and a favorable euro; Asia/Pacific +4% on the Australian dollar and price. Total dealer inventory rose $600 million in the quarter (versus $100 million a year earlier), with Construction Industries dealer inventory up $400 million against a $300 million decline in the prior-year quarter. For the first half, dealer inventory rose $2.6 billion versus $200 million a year earlier, of which Construction Industries accounted for $1.9 billion (against a $400 million decline in the 2025 half). **Power & Energy.** Second-quarter sales $8.238 billion, up 17%, on $736 million of volume, $212 million of price and $200 million of higher inter-segment sales. Power generation rose in large reciprocating engines and in turbines and turbine-related services, primarily data center applications; oil and gas rose in gas compression engines and reciprocating engine aftermarket parts (partly offset by lower well-servicing engines) and in turbines and turbine services; industrial rose in North America and EAME. Segment profit $2.027 billion, up 30%, with $457 million of volume profit and $212 million of price partly offset by $149 million of unfavorable manufacturing costs reflecting higher period manufacturing costs; margin 24.6% versus 22.1%. First-half sales $15.269 billion (+19%), profit $3.477 billion (+22%), margin 22.8% versus 22.2%. **Construction Industries.** Second-quarter sales $8.346 billion, up **35%**, on $1.8 billion of volume and $309 million of favorable price, with volume driven mainly by higher sales of equipment to end users; sales rose in all four regions. Segment profit $1.947 billion, up 57%, primarily on volume; margin 23.3% versus 20.1%. First-half sales $15.507 billion (+36%), profit $3.482 billion (+54%), margin 22.5% versus 19.9%. **Resource Industries.** Second-quarter sales $4.648 billion, up 20%, primarily on higher end-user equipment sales; rail sales rose on higher international locomotive deliveries and rail services. Segment profit $693 million, up 23%, with $269 million of volume profit partly offset by $158 million of unfavorable manufacturing costs (higher period manufacturing costs); margin 14.9% versus 14.5%. First half tells a weaker story: sales $8.445 billion (+12%) but profit $1.071 billion, **down 10%**, as $376 million of unfavorable manufacturing costs (largely higher tariff costs) and $113 million of higher SG&A/R&D outweighed $333 million of volume profit and $36 million of price; first-half margin 12.7% versus 15.7%. **Financial Products.** Second-quarter segment revenues $1.145 billion, up 10% on higher average earning assets; segment profit $328 million, up 32%, helped by $44 million from earning assets, $22 million from Insurance Services equity securities and $21 million of higher Insurance Services margins, partly offset by a $22 million higher provision for credit losses. Credit quality improved: past dues at Cat Financial were 1.31% versus 1.62% a year earlier; net write-offs $20 million versus $18 million; the allowance for credit losses was $294 million, or 0.84% of finance receivables, at June 30, 2026 (0.86% at both March 31, 2026 and year-end 2025). First-half revenues $2.241 billion (+9%), profit $573 million (+24%). **Corporate items and eliminations** expense was $518 million in the quarter, $84 million lower year over year, helped by timing differences (which carried the majority of the IEEPA tariff recoveries) and favorable segment-methodology differences, partly offset by higher corporate costs, higher restructuring costs and unfavorable deferred compensation fair value adjustments. **Below the line.** MP&E interest expense $135 million in the quarter (versus $126 million) on higher average debt. Other income was $398 million versus $84 million, driven by favorable foreign currency, total return swap contracts and investment and interest income. The quarterly effective tax rate was 23.1% versus 23.0%; excluding discrete items the estimated annual rate was 23.0% in both years. Second-quarter 2026 restructuring costs were $202 million (versus $59 million), including a **$139 million loss on the divestiture of certain non-U.S. entities** with no related tax benefit; first-half restructuring costs were $243 million. **Tariffs and the IEEPA reversal.** On **February 20, 2026 the U.S. Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act (IEEPA) on goods imported into the United States were unauthorized.** From 2025 until U.S. Customs and Border Protection ceased collecting IEEPA tariffs in 2026, Caterpillar's total IEEPA tariff costs were approximately **$1.0 billion**. During the second quarter of 2026, CBP launched the CAPE system enabling submission of certain IEEPA refund claims; the $392 million of expected recoveries noted above covers claims submitted and accepted, recorded in trade and other receivables and as a credit to cost of goods sold, for both the three and six months ended June 30, 2026. The company continues to assess availability, timing and amounts of further claims for the remaining IEEPA amounts paid; those were not deemed probable as of June 30, 2026. **Order backlog.** Approximately **$72.1 billion** at the end of the second quarter of 2026, about **$9.4 billion higher than the first quarter of 2026** and up across all three primary segments, with the largest increase in Power & Energy. Approximately $29.2 billion of that backlog was not expected to be filled within the following twelve months. **Liquidity.** Enterprise cash was $6.713 billion at June 30, 2026, down $3.267 billion from year-end 2025, plus $1.517 billion of MP&E available-for-sale debt securities and bank time deposits. Consolidated operating cash flow for the first half was $6.241 billion, up $1.830 billion year over year on higher pretax profit adjusted for non-cash items. Total debt was $45.146 billion, up $1.816 billion from year end; MP&E debt was essentially flat (down $7 million) while Financial Products debt rose $1.839 billion. The three global credit facilities remained at $11.500 billion with $2.875 billion allocated to MP&E and no borrowings outstanding; other external bank credit lines totaled $4.250 billion. Covenant consolidated net worth was $19.463 billion against the $9.000 billion requirement; Cat Financial's covenant interest coverage was 1.54 to 1 and its six-month leverage ratio 7.96 to 1. Caterpillar reports that Fitch and Moody's maintain a "high-A" debt rating and S&P a "mid-A" debt rating; the FY2025 10-K reported Moody's at "mid-A" at year-end 2025, and neither filing discloses a rating action. Supplier finance program obligations confirmed to participating financial institutions and included in accounts payable were $1.15 billion at June 30, 2026 versus $936 million at December 31, 2025. MP&E operating cash flow was $7.011 billion in the first half versus $3.862 billion a year earlier. MP&E investing used $2.195 billion versus $1.530 billion, mainly on the RPMGlobal acquisition and securities activity. Financing used $8.158 billion versus $4.050 billion, on higher buybacks and lower debt proceeds. Capital expenditures were $1.313 billion in the half (2025: $1.287 billion), with full-year 2026 MP&E capex still expected around $3.5 billion; pension and OPEB contributions were $282 million with about $360 million expected for the year. **Capital returns.** In June 2026 the Board approved an **8% increase in the quarterly dividend to $1.63 per share**; dividends paid in the first half were $1.399 billion. Caterpillar deployed $6.522 billion of cash on repurchases in the first half (7.0 million shares at an aggregate cost of $4.9 billion recognized as repurchased), leaving **$8.415 billion** available under the June 2024 $20.0 billion authorization; basic shares outstanding were approximately 460 million at June 30, 2026. In the first quarter of 2026 the company entered accelerated share repurchase agreements for $4.50 billion, advancing the full amount and receiving about 4.8 million shares (roughly 70% of the estimated final count, valued at $3.15 billion); in the second quarter it entered further ASR agreements for $1.00 billion, advancing the full amount and receiving about 0.8 million shares (roughly 75% of the estimated final count, valued at $750 million). Second-quarter purchases under the program — open-market plus shares delivered under the second-quarter ASR agreements — totaled 1,414,325 shares at an aggregate cost of $1.2 billion. **Acquisition completed in the period.** On **February 17, 2026 Caterpillar completed the acquisition of RPMGlobal Holdings Limited**, a Brisbane-headquartered Australian mining software company, for a purchase price of approximately **$733 million, net of $53 million of acquired cash**, financed with available cash and reported within Resource Industries. Tangible assets acquired were $78 million (primarily $53 million cash and $18 million receivables); finite-lived intangibles were $110 million of developed intellectual property, $85 million of customer relationships and $5 million of trade names, amortized straight-line over a weighted-average life of about 10 years; liabilities assumed were about $38 million; goodwill was $546 million, of which $523 million is expected to be tax-deductible. The allocation is preliminary pending final fair value appraisals. Pro forma results would not be materially different from reported results. **Management's outlook as of the second-quarter report.** - *Third quarter 2026:* strong sales and revenues growth versus the third quarter of 2025, driven by higher volume and favorable price realization in each primary segment, with volume mainly from higher end-user equipment sales across all three. Strong sales growth expected in Power & Energy (power generation and oil and gas, with modest industrial recovery), Construction Industries (volume and price, partly offset by dealer inventory changes — a slight dealer inventory increase is expected, modestly smaller than in the third quarter of 2025) and Resource Industries (volume plus services revenue growth, with favorable price realization but less so than in the second quarter). Volume and price gains are expected to be partly offset by unfavorable manufacturing costs and higher SG&A/R&D. **Tariff costs of around $600 million** are anticipated in the quarter, similar to the third quarter of 2025, with about 50% in Construction Industries and 25% each in Power & Energy and Resource Industries. - *Full-year 2026:* sales and revenues growth **in the mid-to-high teens** versus 2025 — an increase from the "top end of the 5–7% CAGR target" framing in the 10-K — with strong growth across each primary segment on volume and price, and growth in services revenues. Second-half sales are expected to exceed the first half on normal seasonality. A more typical Construction Industries dealer inventory decline of over $1.0 billion is expected in the fourth quarter, with year-end 2026 Construction Industries dealer inventory still above year-end 2025, producing an unfavorable dealer-inventory contribution to Construction Industries volume in the second half versus the second half of 2025. **Excluding expected IEEPA tariff recoveries, 2026 tariff costs are now expected at around $2.2 billion** (down from around $2.6 billion in the 10-K), and the outlook assumes no additional IEEPA recoveries in the second half. Restructuring costs of approximately $300–350 million, capital expenditures of approximately $3.5 billion and a 23.0% annual effective tax rate excluding discrete items are still expected. Management notes continued progress on capacity expansion plans, with higher throughput expected in the second half of 2026. - *End markets:* Power & Energy demand remains strong in both power generation (data center build-out for cloud computing and generative AI, plus rising prime power demand) and oil and gas (moderate growth, strong gas compression demand, healthy turbine backlog with solid order and inquiry activity); industrial applications to grow moderately. Construction Industries growth is supported by strong order rates, healthy North American construction spending on IIJA funding with the remainder to be spent over the next few years and non-residential investment in critical infrastructure, heavy construction and data centers, plus continued dealer rental fleet loading growth including additional loading for Major Projects in the third quarter; Europe stable, Africa strong, the Middle East challenged with limited expected impact on EAME end-user sales, softer conditions in Asia Pacific ex-China and moderate conditions in China with growth in the above-10-ton excavator industry from low levels. Resource Industries shows robust order rates and strong backlog growth, with end-user sales rising on copper and gold demand and heavy construction and quarry and aggregates; most key commodities remain above investment thresholds, product utilization is high, fleet age elevated, and rebuild activity is now expected to increase moderately (up from "slightly" in the 10-K), with rail services and locomotive deliveries both expected to grow. There were no material changes to the risk factors previously disclosed in the FY2025 10-K, and no significant changes to critical accounting estimates. --- ## Subsequent events *From the Form 10-Q for the quarter ended June 30, 2026, accession 0000018230-26-000046, and the FY2025 10-K, accession 0000018230-26-000008.* **After June 30, 2026:** - **Early termination and settlement of the second-quarter 2026 accelerated share repurchase agreements.** In July 2026 Caterpillar was notified of the early termination of the ASR agreements it entered into during the second quarter of 2026 (aggregate $1.00 billion, with $1.00 billion advanced and approximately 0.8 million shares received at inception). Upon final settlement the company received approximately **0.3 million additional shares**. The Form 10-Q for the quarter ended June 30, 2026 discloses no other post-period events — no subsequent-events note was required, and no acquisitions, divestitures, financings or litigation outcomes are reported as occurring after June 30, 2026. **Post-period events disclosed in the FY2025 10-K (all since completed or superseded, and reflected in the 2026 interim results above):** - **RPMGlobal Holdings Limited acquisition.** The 10-K disclosed that on February 3, 2026 the Federal Court of Australia approved the acquisition, at a purchase price of approximately **$790 million excluding cash acquired**, with closing expected in the final two weeks of February 2026. It closed on February 17, 2026 at approximately $733 million net of $53 million of acquired cash, as set out under the current quarter above. - **Medium-term note issuance.** Medium-term notes of $1.75 billion maturing in the first quarter of 2026 were excluded from current maturities of long-term debt at December 31, 2025 because of a **$1.75 billion issuance of medium-term notes on January 8, 2026**, of which $1.25 billion matures in 2028 and $500 million in 2031.