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## CONSOLIDATED OPERATING PROFIT 

<img src='content_image/1047928.jpg'>

The chart above graphically illustrates reasons for the change in consolidated operating profit between 2019 (at left) and 2020 (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 $4.553 billion in 2020, a decrease of $3.737 billion, or 45 percent, compared with $8.290 billion in 2019. The decrease was due to lower sales volume and unfavorable price realization, partially offset by lower SG&A/R&D expenses and favorable manufacturing costs. 

Lower SG&A/R&D expenses reflected reduced short-term incentive compensation expense and other cost reductions related to lower sales volumes. 

Favorable manufacturing costs were mostly driven by lower period manufacturing costs and material costs, partially offset by higher warranty expense. Period manufacturing costs declined primarily due to a reduction in short-term incentive compensation expense and other cost reductions related to lower sales volumes. 

Short-term incentive compensation expense is directly related to financial and operational performance, measured against targets set annually. In the first quarter, in response to the continued global economic uncertainty due to the COVID-19 pandemic, Caterpillar suspended 2020 short-term incentive compensation plans for many employees and all senior executives. As a result, no short-term incentive compensation expense was recognized during 2020, compared with about $700 million during 2019. 

For 2021, we expect short-term incentive compensation expense will be about $900 million. 

Operating profit margin was 10.9 percent in 2020, compared with 15.4 percent in 2019. 

