Table of Contents CONSOLIDATED OPERATING PROFIT The chart above graphically illustrates reasons for the change in consolidated operating profit between the fourth quarter of 2018 (at left) and the fourth quarter of 2019 (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 for the fourth quarter of 2019 was $1.850 billion, a decrease of $33 million, or 2 percent, compared with $1.883 billion in the fourth quarter of 2018. The decrease was primarily due to lower sales volume, mostly offset by lower SG&A and R&D expenses and higher profit from Financial Products. Lower SG&A/R&D expenses were mostly due to a reduction in short-term incentive compensation expense and timing of R&D expenses. Financial Products’ operating profit was higher, primarily due to lower provisions for credit losses related to the Cat Power Finance portfolio compared with the fourth quarter of 2018. In addition, favorable manufacturing costs were mostly offset by unfavorable price realization. Manufacturing costs decreased primarily due to lower period manufacturing and material costs, partially offset by higher warranty expense. Period manufacturing costs declined mainly due to lower short-term incentive compensation and the favorable impact of restructuring and cost-reduction actions. Short-term incentive compensation expense was about $120 million in the fourth quarter of 2019, compared with about $310 million in the fourth quarter of 2018. Operating profit margin in the fourth quarter of 2019 was 14.1 percent, compared with 13.1 percent in the fourth quarter of 2018. 35