Table of Contents Other Profit/Loss Items Construction Industries Resource Industries • Interest expense excluding Financial Products  in the fourth quarter of 2018 was $99 million, a decrease of $70 million primarily due to an early debt retirement in the fourth quarter of 2017. • Other income/expense  in the fourth quarter of 2018 was a loss of $417 million, compared with a loss of $107 million in the fourth quarter of 2017. The unfavorable change was primarily a result of an increase in mark-to-market losses related to  pension and other postemployment benefit (OPEB)  plans and an unfavorable impact from equity securities. • The  provision for income taxes  in the fourth quarter of 2018 reflects an annual effective tax rate of 24.1 percent, compared with 27.7 percent for the full year of 2017, excluding the items discussed below. The decrease was primarily due to the reduction in the U.S. corporate tax rate beginning January 1, 2018, along with other changes in the geographic mix of profits from a tax perspective. • In North America, the sales increase was driven by higher demand for new equipment, with about half due to an increase in dealer inventories. The increase in demand was primarily to support oil and gas activities, including pipelines, and non-residential building construction activities. Favorable price realization also contributed to the sales improvement. • Construction activities remained at low levels in Latin America. • Sales increased in EAME as infrastructure, road and non-residential building construction activities drove higher demand in Europe, partially offset by weakness in the Middle East. • Sales in Asia/Pacific declined due to lower demand in China, partially offset by higher demand in a few other countries in the region. Unfavorable currency impacts also contributed to the sales decline. The provision for income taxes in the fourth quarter of 2018 and 2017 also included non-cash benefits of $63 million and $111 million, respectively, from reductions in the valuation allowance against U.S. state deferred tax assets due to improved profits in the United States. The provision for income taxes in the fourth quarter of 2018 also included a $50 million increase related to the $2.371 billion charge recorded in the fourth quarter of 2017 due to the enactment of U.S. tax reform legislation. In addition, a tax benefit of $4 million was recorded in the fourth quarter of 2018, compared with $19 million in the fourth quarter of 2017, for the settlement of stock-based compensation awards with associated tax deductions in excess of cumulative U.S. GAAP compensation expense. The provision for income taxes in the fourth quarter of 2018 and 2017 also included a $8 million charge and a $130 million benefit, respectively, related to the change from the third-quarter estimated annual tax rate. Construction Industries’ total sales were $5.705 billion in the fourth quarter of 2018, compared with $5.295 billion in the fourth quarter of 2017. The increase was mostly due to higher sales volume for construction equipment. Favorable price realization was mostly offset by unfavorable currency impacts due to a stronger U.S. dollar. Construction Industries’ profit was $845 million in the fourth quarter of 2018, compared with $837 million in the fourth quarter of 2017. The increase in profit was a result of favorable price realization and higher sales volume, mostly offset by higher manufacturing costs, including material, freight, labor costs and the absence of Brazil incentives. Construction Industries’ profit as a percent of total sales was 14.8 percent in the fourth quarter of 2018, compared with 15.8 percent in the fourth quarter of 2017. Resource Industries’ total sales were $2.797 billion in the fourth quarter of 2018, an increase of $489 million from the fourth quarter of 2017. The increase was primarily due to higher demand for both mining and heavy construction equipment, including quarry and aggregate. Mining activities were robust as commodity market fundamentals remained positive, and increased non-residential construction activities drove higher sales. Resource Industries’ profit was $400 million in the fourth quarter of 2018, compared with $210 million in the fourth quarter of 2017. The improvement was mostly due to higher sales volume and favorable price realization, partially offset by higher material and freight costs. Resource Industries’ profit as a percent of total sales was 14.3 percent in the fourth quarter of 2018, compared with 9.1 percent in the fourth quarter of 2017. 35