v3.26.1
Fair Value Disclosures
 3 Months Ended
Mar. 31, 2026
Fair Value Disclosures [Abstract]  
Fair Value Disclosures Fair value disclosures
 
    A. Fair value measurements
 
The guidance on fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.  This guidance also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques.  Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions.  In accordance with this guidance, fair value measurements are classified under the following hierarchy:
 
•Level 1 — Quoted prices for identical instruments in active markets.

•Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets.

•Level 3 — Model-derived valuations in which one or more significant inputs or significant value-drivers are unobservable.

When available, we use quoted market prices to determine fair value, and we classify such measurements within Level 1.  In some cases where market prices are not available, we make use of observable market based inputs to calculate fair value, in which case the measurements are classified within Level 2.  If quoted or observable market prices are not available, fair value is based upon valuations in which one or more significant inputs are unobservable, including internally developed models that use, where possible, current market-based parameters such as interest rates, yield curves and currency rates.  These measurements are classified within Level 3.
We classify fair value measurements according to the lowest level input or value-driver that is significant to the valuation.  We may therefore classify a measurement within Level 3 even though there may be significant inputs that are readily observable.

Fair value measurement includes the consideration of nonperformance risk.  Nonperformance risk refers to the risk that an obligation (either by a counterparty or Caterpillar) will not be fulfilled.  For financial assets traded in an active market (Level 1 and certain Level 2), the nonperformance risk is included in the market price.  For certain other financial assets and liabilities (certain Level 2 and Level 3), our fair value calculations have been adjusted accordingly.
 
Investments in debt and equity securities
We have investments in certain debt and equity securities that are recorded at fair value.  Fair values for our U.S. treasury bonds and large capitalization value and smaller company growth equity securities are based upon valuations for identical instruments in active markets.  Fair values for other government debt securities, corporate debt securities and mortgage-backed debt securities are based upon models that take into consideration such market-based factors as recent sales, risk-free yield curves and prices of similarly rated bonds.

In addition, Insurance Services has an equity investment in a real estate investment trust (REIT) which is recorded at fair value based on the net asset value (NAV) of the investment and is not classified within the fair value hierarchy.

See Note 8 for additional information on our investments in debt and equity securities.

Derivative financial instruments
The fair value of interest rate contracts is primarily based on a standard industry accepted valuation model that utilizes the appropriate market-based forward swap curves and zero-coupon interest rates to determine discounted cash flows.  The fair value of foreign currency and commodity forward, option and cross currency contracts is based on standard industry accepted valuation models that discount cash flows resulting from the differential between the contract price and the market-based forward rate. The fair value of total return swap contracts is primarily based on valuing the underlying securities or funds using pricing by industry providers and the average Secured Overnight Financing Rate (SOFR) plus a spread.

See Note 5 for additional information.
Assets and liabilities measured on a recurring basis at fair value included in our Consolidated Statement of Financial Position as of March 31, 2026 and December 31, 2025 were as follows:
March 31, 2026
 (Millions of dollars)
Level 1Level 2Level 3Measured at NAVTotal
Assets / Liabilities,
at Fair Value
Assets    
Debt securities    
Government debt securities    
U.S. treasury bonds$10 $— $— $— $10 
Other U.S. and non-U.S. government bonds— 70 — — 70 
Corporate debt securities    
Corporate bonds and other debt securities— 2,540 — — 2,540 
Asset-backed securities— 272 — — 272 
Mortgage-backed debt securities    
U.S. governmental agency— 570 — — 570 
Residential— 4 — — 4 
Commercial— 155 — — 155 
Total debt securities10 3,611 — — 3,621 
Equity securities    
Large capitalization value280 — — — 280 
Smaller company growth61 — — — 61 
REIT— — — 176 176 
Total equity securities341 — — 176 517 
Derivative financial instruments - assets
Foreign currency contracts - net— 160 — — 160 
Commodity contracts - net— 31 — — 31 
Total assets$351 $3,802 $— $176 $4,329 
Liabilities    
Derivative financial instruments - liabilities
Interest rate contracts - net$— $52 $— $— $52 
Total return swap contracts - net— 41 — — 41 
Total liabilities$— $93 $— $— $93 
 
December 31, 2025
 (Millions of dollars)
Level 1Level 2Level 3Measured at NAVTotal
Assets / Liabilities,
at Fair Value
Assets    
Debt securities    
Government debt securities    
U.S. treasury bonds$10 $— $— $— $10 
Other U.S. and non-U.S. government bonds— 74 — — 74 
Corporate debt securities    
Corporate bonds and other debt securities— 2,480 — — 2,480 
Asset-backed securities— 273 — — 273 
Mortgage-backed debt securities   
U.S. governmental agency— 572 — — 572 
Residential— 1 — — 1 
Commercial— 139 — — 139 
Total debt securities10 3,539 — — 3,549 
Equity securities    
Large capitalization value283 — — — 283 
Smaller company growth65 — — — 65 
REIT— — — 174 174 
Total equity securities348 — — 174 522 
Derivative financial instruments - assets
Foreign currency contracts - net— 204 — — 204 
Commodity contracts - net— 8 — — 8 
Total assets$358 $3,751 $— $174 $4,283 
Liabilities    
Derivative financial instruments - liabilities
Interest rate contracts - net$— $40 $— $— $40 
Total return swap contracts - net— 1 — — 1 
Total liabilities$— $41 $— $— $41 

In addition to the amounts above, certain Cat Financial loans are subject to measurement at fair value on a nonrecurring basis and are classified as Level 3 measurements. A loan is measured at fair value when management determines that collection of contractual amounts due is not probable and the loan is individually evaluated. In these cases, an allowance for credit losses may be established based either on the present value of expected future cash flows discounted at the receivables' effective interest rate, the fair value of the collateral for collateral-dependent receivables, or the observable market price of the receivable. In determining the collateral value, Cat Financial estimates the current fair market value of the collateral less selling costs. Cat Financial had loans carried at fair value of $71 million and $63 million as of March 31, 2026 and December 31, 2025, respectively.  
 
    B. Fair values of financial instruments
 
In addition to the methods and assumptions we use to record the fair value of financial instruments as discussed in the Fair value measurements section above, we use the following methods and assumptions to estimate the fair value of our financial instruments:

Cash and cash equivalents
Carrying amount approximates fair value. We classify cash and cash equivalents as Level 1. See Consolidated Statement of Financial Position.
 
Restricted cash and short-term investments
Carrying amount approximates fair value.  We include restricted cash and short-term investments in Prepaid expenses and other current assets in the Consolidated Statement of Financial Position. We classify these instruments as Level 1. See Note 8 for additional information.
 
Finance receivables
We estimate fair value by discounting the future cash flows using current rates, representative of receivables with similar remaining maturities.
 
Wholesale inventory receivables
We estimate fair value by discounting the future cash flows using current rates, representative of receivables with similar remaining maturities.
 
Short-term borrowings
Carrying amount approximates fair value. We classify short-term borrowings as Level 1. See Consolidated Statement of Financial Position.
 
Long-term debt
We estimate fair value for fixed and floating rate debt based on quoted market prices.

Our financial instruments not carried at fair value were as follows:
 
 March 31, 2026December 31, 2025 
(Millions of dollars)
Carrying
 Amount
Fair
 Value
Carrying
 Amount
Fair
 Value
Fair Value LevelsReference
Assets     
Finance receivables – net (excluding finance leases 1)
$18,049 $17,607 $17,922 $17,648 3Note 17
Wholesale inventory receivables – net (excluding finance leases 1)
1,897 1,833 1,931 1,871 3
Liabilities     
Long-term debt (including amounts due within one year)
    
Machinery, Power & Energy$10,706 $10,178 $10,713 $10,363 2 
Financial Products27,631 27,611 27,103 27,204 2 

1    Represents finance leases and failed sale leasebacks of $6,918 million and $7,189 million at March 31, 2026 and December 31, 2025, respectively.