Table of Contents ▪ In EAME, sales were about flat as lower sales volume across several countries in the region was offset by favorable price realization and favorable currency impacts from a stronger euro. Lower sales volume was driven by lower end-user demand, partially offset by the impact of changes in dealer inventories. Dealers decreased inventories more during the fourth quarter of 2019 than during the fourth quarter of 2020. ▪ Sales decreased in Asia/Pacific primarily due to lower sales volume and unfavorable price realization, partially offset by favorable currency impacts from both a stronger Chinese yuan and Australian dollar. The decrease in sales was mainly driven by China, where higher end-user demand was more than offset by unfavorable impacts from changes in dealer inventories. This was partially offset by higher demand in several other countries. Construction Industries’ profit was $630 million in the fourth quarter of 2020, a decrease of $29 million, or 4 percent, compared with $659 million in the fourth quarter of 2019. The decrease was mainly due to lower sales volume and higher warranty expense, partially offset by favorable impact of cost absorption and lower SG&A/R&D expenses. Cost absorption was favorable as inventory increased during the fourth quarter of 2020, compared with a decrease during the fourth quarter of 2019. SG&A/R&D expenses benefited from reduced short-term incentive compensation expense and other cost reductions related to lower sales volumes. Construction Industries’ profit as a percent of total sales was 14.0 percent in the fourth quarter of 2020, compared with 13.1 percent in the fourth quarter of 2019. Resource Industries’ total sales were $2.180 billion in the fourth quarter of 2020, a decrease of $215 million, or 9 percent, compared with $2.395 billion in the fourth quarter of 2019. The decrease was due to lower end-user demand for equipment and aftermarket parts. End-user demand was lower for heavy construction and quarry and aggregates and was also lower in mining, but to a lesser extent. Resource Industries’ profit was $273 million in the fourth quarter of 2020, an increase of $12 million, or 5 percent, compared with $261 million in the fourth quarter of 2019. The increase was mainly due to favorable manufacturing costs and lower SG&A/R&D expenses which was mostly offset by lower sales volume. Favorable manufacturing costs reflected favorable variable labor and burden, impact of cost absorption, period manufacturing costs and material costs. Cost absorption was favorable as inventory decreased in the fourth quarter of 2019 compared with being about flat in the fourth quarter of 2020. SG&A/R&D expenses, along with period manufacturing costs, benefited from lower short-term incentive compensation expense, other cost-reduction actions implemented and benefits from prior restructuring programs. Resource Industries’ profit as a percent of total sales was 12.5 percent in the fourth quarter of 2020, compared with 10.9 percent in the fourth quarter of 2019. Resource Industries Energy & Transportation’s total sales were $4.811 billion in the fourth quarter of 2020, a decrease of $1.138 billion, or 19 percent, compared with $5.949 billion in the fourth quarter of 2019. Sales declined across all applications. ▪ Oil and Gas – Sales decreased mainly due to lower demand in North America for reciprocating engines used in gas compression and well servicing. In addition, sales were lower for turbines and turbine-related services. ▪ Power Generation – Sales decreased primarily due to lower sales volume in small reciprocating engines, turbines and turbine-related services and engine aftermarket parts. ▪ Industrial – Sales decreased due to lower demand across all regions. 40 Energy & Transportation Sales by Application (Millions of dollars) Fourth Quarter 2020 Fourth Quarter 2019 $ Change % Change Oil and Gas $ 1,079  $ 1,523  $ (444) (29 %) Power Generation 1,180  1,294  (114) (9 %) Industrial 736  908  (172) (19 %) Transportation 1,035  1,441  (406) (28 %) External Sales 4,030  5,166  (1,136) (22 %) Inter-Segment 781  783  (2) — % Total Sales $ 4,811  $ 5,949  $ (1,138) (19 %)