Caterpillar Posts Record First Quarter and Raises 2007 Outlook

PEORIA, Ill., April 20 /PRNewswire-FirstCall/ -- Caterpillar Inc. (NYSE:CAT) today reported record first-quarter profit per share of $1.23, a $0.03 per share improvement from the first quarter of 2006. These results came despite severe weakness in two important North American industries. Sales and revenues of $10.016 billion were also a first-quarter record and were up 7 percent from $9.392 billion in last year's first quarter.

"Despite major headwinds in North America related to housing and the sharp drop in demand for on-highway truck engines, Team Caterpillar stepped up to deliver a solid first quarter," said Chairman and Chief Executive Officer Jim Owens. "Our global reach, the breadth of our product line, the wide reach of the industries we serve and the strength of our diversified service businesses all contributed to our success in the first quarter. While we expected a sales decline in on-highway truck engines and U.S. housing-related markets, the continued strength in most of the other industries we serve and exceptional growth outside North America helped us deliver good results in a tough quarter."

Sales and revenues of $10.016 billion were up $624 million, or 7 percent, compared with $9.392 billion in the first quarter of 2006. The increase was a result of:

    -- $896 million improvement in sales volume outside North America
    -- $389 million of sales from Progress Rail, which was acquired in June of
       2006
    -- $184 million of higher sales related to currency effects
    -- $105 million of improved price realization, despite an unfavorable
       geographic sales mix
    -- $46 million of additional Financial Products revenues

The increase was partially offset by a $996 million decline in sales volume in North America, which was largely a result of the following three factors:

    -- Dealer Machine Inventories -- North American dealers added about
       $600 million to inventory during the first quarter of 2006 and reduced
       inventory slightly in the first quarter of 2007.   While dealer
       inventories usually increase during the first quarter, the improvement
       this year was a joint effort with dealers and is consistent with our
       goal of improving velocity throughout the value chain.

    -- On-highway truck -- a sharp drop in demand for on-highway truck engines

    -- Weak construction activity in North America -- U.S. housing was
       particularly weak.

Profit of $816 million was down $24 million from the first quarter of 2006. Higher core operating costs and a higher tax rate more than offset the favorable effects of improved price realization, a $46 million gain on the sale of a security and the addition of Progress Rail.

Profit per share increased $0.03 -- from $1.20 per share in the first quarter of 2006 to $1.23. The improvement in profit per share was a result of strong cash flow over the past year that was used for stock repurchases, which reduced average diluted share count by 34 million from the first quarter 2006.

"Our focus in 2007 is on execution in the areas of safety, quality and velocity," commented Owens. "Throughout the company, we are using 6 Sigma with the Cat Production System to improve safety and quality, add capacity and improve cost management."

Outlook

We have increased the 2007 outlook for sales and revenues and profit per share. We expect full-year sales and revenues in a range of $42 to $44 billion, up from $41.5 billion in 2006, and profit in a range of $5.30 to $5.80 per share, up from $5.17 per share in 2006. The previous outlook was for sales and revenues of $41.5 to $43.6 billion and profit per share of $5.20 to $5.70.

"With continued strength and diversity of the global industries we serve, our growing diversified service businesses, solid economic growth in the global economy and our focus on relentless execution, we are well-positioned for continued success," Owens said. "We're working hard to execute our strategy and are well on our way to delivering our financial goals for 2010."

(Complete outlook begins on page 11.)

For more than 80 years, Caterpillar Inc. has been making progress possible and driving positive and sustainable change on every continent. With 2006 sales and revenues of $41.517 billion, Caterpillar is the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. The company also is a leading services provider through Caterpillar Financial Services, Caterpillar Remanufacturing Services, Caterpillar Logistics Services and Progress Rail Services. More information is available at http://www.cat.com .

Note: Glossary of terms included on pages 20-21; first occurrence of terms shown in bold italics.

                                  Key Points

    First Quarter 2007
    (Dollars in millions except per share data)

                                 First Quarter   First Quarter    $       %
                                     2006            2007       Change  Change
    Sales of Machinery and
     Engines                    $    8,743      $    9,321     $   578    7%
    Revenues of Financial
     Products                          649             695          46    7%
    Total Sales and Revenues         9,392          10,016         624    7%

    Profit per common share -
     diluted                    $     1.20      $     1.23     $  0.03    3%


    -- Machinery and Engines sales improved $578 million -- $389 million from
       the acquisition of Progress Rail, $184 million related to currency and
       $105 million of price realization -- despite an unfavorable geographic
       sales mix.  Sales volume, excluding Progress Rail, was $100 million
       lower.

    -- Excluding Progress Rail, sales volume declined $996 million in North
       America -- the impact of dealer inventory changes and sharply lower
       demand for machinery used in housing and engines for on-highway truck
       applications.  Outside North America sales volume increased
       $896 million, reflecting strong economic and industry growth.

    -- Operating profit declined $78 million (see page 9).  Higher core
       operating costs were partially offset by higher price realization.

    -- The "Other income (expense)" line includes a $46 million gain on the
       sale of a security.

    -- Machinery and Engines operating cash flow was lower by $294 million.

    -- During the first quarter we repurchased 8 million shares at a cost of
       $511 million.

    -- During April we completed the stock repurchase program authorized in
       October 2003.  Under this program we purchased almost 113 million
       shares for $6.4 billion.


    Full-Year 2007 Outlook
    (Dollars in billions except per share data)

                                2006            Previous           Current
                               Actual         2007 Outlook       2007 Outlook
    Sales and Revenues         $41.5         $41.5 to $43.6       $42 to $44

    Profit Per Share           $5.17         $5.20 to $5.70     $5.30 to $5.80


    -- The outlook for 2007 reflects below trend economic growth in the United
       States and an expectation of Fed interest rate cuts of 50 basis points
       later in 2007.

    -- Weak U.S. housing starts -- 1.5 million in 2007

    -- Continued expectation of a very weak industry for heavy-duty truck
       engines

    -- Continued strength in commodity prices at levels sufficient to
       encourage investment

    -- Solid 2007 economic and industry growth in most of the world outside
       North America

A question and answer section has been included in this release starting on page 16.


    DETAILED ANALYSIS
    First Quarter 2007 vs. First Quarter 2006

                  Consolidated Sales and Revenues Comparison
                       1st Qtr. 2007 vs. 1st Qtr. 2006

To access this chart, go to http://www.cat.com for the downloadable version of Caterpillar 1Q 2007 earnings.

Sales and Revenues

Sales and revenues for first quarter 2007 were $10.016 billion, up $624 million, or 7 percent, from first quarter 2006. Machinery volume including Progress Rail was up $260 million. Excluding Progress Rail, Machinery volume was down $129 million. Engines volume was up $29 million. Currency had a positive impact on sales of $184 million due primarily to the strengthening of the euro. Price realization improved $105 million despite unfavorable geographic mix. In addition, Financial Products revenues increased $46 million.

Sales and Revenues by Geographic Region

    (Millions of               %        North      %                   %
     dollars)        Total   Change    America   Change     EAME     Change
    First Quarter
     2006
    Machinery      $  6,112           $  3,528           $  1,280
    Engines(1)        2,631              1,282                795
    Financial
     Products(2)        649                455                 90
                   $  9,392           $  5,265           $  2,165

    First Quarter
     2007
    Machinery      $  6,501    6%     $  3,078    (13%)  $  1,840      44%
    Engines(1)        2,820    7%        1,168     (9%)     1,003      26%
    Financial
     Products(2)        695    7%          485      7%        102      13%
                   $ 10,016    7%     $  4,731    (10%)  $  2,945      36%


                                Latin         %          Asia/         %
                               America      Change      Pacific      Change
    First Quarter
     2006
    Machinery                 $    582                 $    722
    Engines(1)                     236                      318
    Financial
     Products(2)                    45                       59
                              $    863                 $  1,099

    First Quarter
     2007
    Machinery                 $    692        19%      $    891        23%
    Engines(1)                     250         6%           399        25%
    Financial
     Products(2)                    53        18%            55        (7%)
                              $    995        15%      $  1,345        22%

(1) Does not include internal engines transfers of $621 million and $570

million in first quarter 2007 and 2006, respectively. Internal

engines transfers are valued at prices comparable to those for

unrelated parties.

(2) Does not include internal revenues earned from Machinery and Engines

         of $104 million and $97 million in first quarter 2007 and 2006,
         respectively.

                               Machinery Sales
  Sales of $6.501 billion were $389 million, or 6 percent, higher than first
                                quarter 2006.

    -- Excluding Progress Rail, machine volume decreased $129 million.  Sales
       volume declined in North America but increased in all other regions.

    -- Price realization increased $12 million.

    -- Currency benefited sales by $117 million.

    -- The acquisition of Progress Rail added $389 million to sales in North
       America.

    -- Shipments of some machines were delayed to implement quality
       improvements.

    -- Dealers added very little to inventories during the first quarter, so
       the total value of reported inventories was down slightly from a year
       ago.  Inventories in months of supply were lower than a year earlier in
       all regions.

    -- In North America, sales volume was down significantly from a year
       earlier.  Dealers made sizable reductions to their inventories, and
       reported deliveries declined.  Negative developments include a
       significant decline in housing construction, a slowdown in
       nonresidential construction and a decline in coal production.

    -- Sales volume increased in all regions outside North America, with the
       Europe, Africa/Middle East (EAME) region particularly strong.  Most
       economies grew rapidly, and construction spending increased
       significantly with gains of 10 percent or more fairly common.  Metals
       mining, coal mining and petroleum development also increased,
       contributing to growth in sales.

    -- Metals prices in the first quarter were well above year-earlier prices,
       so dealers increased deliveries to metals mines in almost all regions.
       Industrial production increased rapidly outside North America, metals
       stocks remain low and mine output has increased slowly.


    North America -- Sales decreased $450 million, or 13 percent.

    -- Progress Rail sales were $389 million.  Excluding Progress Rail, sales
       volume declined $851 million.

    -- Price realization increased $12 million.

    -- Machine volume declined from last year as dealers reported lower
       deliveries to end users.  Also, North American dealers added about
       $600 million to inventory during the first quarter of 2006 and reduced
       inventory slightly in the first quarter of 2007.   While dealer
       inventories usually increase during the first quarter, the improvement
       this year was a joint effort with dealers and is consistent with our
       goal of improving velocity throughout the value chain.

    -- Factors contributing to lower machine sales included weak activity in
       several applications, lower output prices in some sectors and tighter
       financial conditions.  The latter increased uncertainty and prompted
       users to delay purchases, even in some applications where activity and
       output prices were favorable.  These factors also caused dealers to add
       fewer machines to their rental fleets.

    -- The steep drop in housing construction continued to depress sales,
       particularly of smaller machines, as home contractors retrenched.
       Prices for new homes declined in the quarter, and the supply of new
       homes in months of sales reached the highest since the 1990/1991
       recession.

    -- Contracts for nonresidential construction dropped 3 percent from a
       strong first quarter 2006.  Commercial and industrial contracting
       slowed abruptly, and delays in passing a federal government budget
       limited the increase in highway funding.

    -- Coal mining had a bad first quarter.  Production declined 3 percent,
       and the Central Appalachian coal price dropped 25 percent.  Utilities
       reduced their coal burn in favor of natural gas last year, and coal
       stockpiles reached a four year high.  Net coal exports also dropped to
       the lowest on record.

    -- Metals mining, quarrying and aggregates continued to do well in the
       first quarter.  Metals prices rose more than 50 percent on average, and
       sand and gravel prices were up 9 percent.  Metals mine production
       increased almost 3 percent in the first quarter.


    EAME -- Sales increased $560 million, or 44 percent.

    -- Sales volume increased $448 million.

    -- Price realization increased $8 million.

    -- Currency benefited sales by $104 million.

    -- Sales volume increased due to large gains occurring throughout the
       region.  Dealers reported much higher deliveries to end users and
       increased inventories to support that growth.  However, reported
       inventories in months of supply were lower than at the end of first
       quarter 2006.

    -- Sales volume in Europe benefited from low interest rates and improved
       economic growth.  Housing construction continued to increase due to
       higher home prices, and mortgage lending in the Eurozone increased
       10 percent.  Nonresidential construction increased in response to
       favorable credit conditions and record corporate profits.

    -- Sales increased significantly in Africa/Middle East, starting the
       fourth consecutive year of rapid growth.  Many countries have
       accumulated sizable foreign exchange holdings and are using these funds
       for infrastructure development.  High commodity prices encouraged
       investment in petroleum, coal and metals mining, and good economic
       growth benefited building construction.  The latest available data show
       that construction increased 20 percent in Turkey and 13 percent in
       South Africa.

    -- Sales in the CIS nearly doubled, starting the seventh consecutive year
       of growth.  Contributing to higher sales in Russia were a 26 percent
       increase in construction and a 4 percent increase in mining.
       Significant sales growth also occurred in Kazakhstan and Ukraine.  In
       Ukraine, mining increased 5 percent and construction 22 percent.


    Latin America -- Sales increased $110 million, or 19 percent.

    -- Sales volume increased $83 million.

    -- Price realization increased $25 million.

    -- Currency benefited sales by $2 million.

    -- Dealers reported much higher deliveries to end users and increased
       inventories slightly to support that growth.  However, reported
       inventories in months of supply were lower than a year earlier.

    -- The region brought inflation under control, allowing central banks to
       reduce interest rates.  Most countries increased export
       competitiveness, and foreign exchange holdings rose 27 percent over the
       past year.  These improvements led to better economic growth.

    -- Better growth, along with increased revenues from energy and metals,
       benefited construction.  Construction spending increased more than
       5 percent in most of the larger economies and was the principal reason
       for increased machine sales.


    Asia/Pacific -- Sales increased $169 million, or 23 percent.

    -- Sales volume increased $126 million.

    -- Price realization increased $32 million.

    -- Currency benefited sales by $11 million.

    -- Dealers reported increased deliveries to end users but reduced
       inventories.  Reported inventories in months of supply declined.

    -- Sales were strong in Australia, the result of growth in nonresidential
       construction and mining.  Nonresidential building permits increased
       36 percent in the first quarter, and exploration expenditures for
       mining increased 25 percent yearly over the past 3 years.

    -- Indonesia turned in a large sales gain as the rebound from the late
       2005 downturn continued.  Interest rates were about 375 basis points
       lower than a year earlier, and mining, boosted by coal exports,
       increased 7 percent.

    -- Strong growth in the Indian economy extended growth in machine sales
       into the sixth year.  Based on the latest available data, construction
       increased 10 percent and mining nearly 4 percent.

    -- Sales in China continued to reflect good growth.  As a result of strong
       economic growth and rising incomes, housing construction increased
       18 percent and office construction nearly 20 percent.  China has a
       large mining sector, and the latest data available indicate coal
       production increased 14 percent and iron ore mining 45 percent.



                                Engines Sales
  Sales of $2.820 billion were $189 million, or 7 percent, higher than first
                                quarter 2006.

    -- Sales volume increased $29 million.

    -- Price realization increased $93 million.

    -- Currency impact benefited sales by $67 million.

    -- Worldwide dealer-reported inventories in dollars and months of supply
       were up but continued to be supported by strong delivery rates.

    -- Price realization in the first quarter 2007 benefited from price
       increases implemented in third quarter 2006 and first quarter
       2007.


    North America -- Sales declined $114 million, or 9 percent.

    -- Sales volume decreased $145 million.

    -- Price realization increased $31 million.

    -- Sales for on-highway truck applications declined 53 percent as the
       industry worked to consume 2006 pre-buy engines, and engine shipments
       decreased to accommodate the transition to 2007 emissions technology
       engines.

    -- Sales for petroleum applications increased 42 percent with widespread
       sustained demand for engines to support compression, drilling and well
       servicing and strong sales of turbines for gas transmission
       applications.

    -- Sales for electric power applications increased 43 percent supported by
       nonresidential construction and technology applications that were
       undergoing completion.

    -- Sales for industrial applications increased 11 percent from demand for
       air compressors, lighting towers and various types of Original
       Equipment Manufacturer (OEM) equipment.

    -- Sales for marine applications increased 15 percent supported by demand
       for workboats.


    EAME -- Sales increased $208 million, or 26 percent.

    -- Sales volume increased $123 million.

    -- Price realization increased $32 million.

    -- Currency impact increased sales by $53 million.

    -- Sales for electric power applications increased 25 percent with strong
       demand for larger generator sets to support infrastructure,
       particularly in the Middle East.

    -- Sales for industrial applications increased 27 percent with widespread
       demand for agriculture and other types of OEM equipment.

    -- Sales for marine applications increased 35 percent with increased
       demand for workboats, commercial oceangoing vessels and cruise ships.

    -- Sales for petroleum applications increased 40 percent, primarily from
       increased demand for turbines and turbine-related services to support
       oil production.


    Latin America -- Sales increased $14 million, or 6 percent.

    -- Sales volume increased $10 million.

    -- Price realization increased $4 million.

    -- Sales for electric power engines increased 48 percent from widespread
       investment supported by strong oil and commodity prices.

    -- Sales for petroleum applications declined 12 percent due to the absence
       of larger project sales of turbines and turbine-related services to
       support production and transmission.

    -- Sales into truck applications declined 18 percent with reduced demand
       for trucks.

    -- Sales into marine and industrial applications remained about flat.


    Asia/Pacific -- Sales increased $81 million, or 25 percent.

    -- Sales volume increased $41 million.

    -- Price realization increased $26 million.

    -- Currency impact benefited sales by $14 million.

    -- Sales for electric power applications increased 34 percent with strong
       demand for natural gas powered engines to support textile manufacturing
       and coal bed methane power plants.

    -- Sales for marine applications increased 37 percent with continued
       strong demand for shipbuilding.

    -- Sales for petroleum applications increased 28 percent with all of the
       increase driven by increased demand for turbines and turbine-related
       services to support production and transmission.

    -- Sales for industrial applications declined 11 percent with reduced
       demand for industrial OEM equipment.


                         Financial Products Revenues
 Revenues of $695 million were an increase of $46 million, or 7 percent, from
                             first quarter 2006.

    -- Growth in average earning assets increased revenues $36 million.

    -- The impact of higher interest rates on new and existing finance
       receivables at Cat Financial added $20 million.


                   Consolidated Operating Profit Comparison
                       1st Qtr. 2007 vs. 1st Qtr. 2006

To access this chart, go to http://www.cat.com for the downloadable version of Caterpillar 1Q 2007 earnings.

Operating Profit

Operating profit in first quarter 2007 decreased $78 million, or 6 percent, from last year, driven by higher core operating costs, partially offset by higher price realization.

Core operating costs rose $207 million from first quarter 2006. Of this increase, $156 million was attributable to higher manufacturing costs. Manufacturing costs include both variable and period costs associated with building our products. Nearly all of the increase in manufacturing costs was attributable to variable costs. The increase in variable manufacturing costs was a result of operating inefficiencies, warranty and higher material costs. Operating inefficiencies were primarily the result of lower production of truck engines. Non-manufacturing core operating costs were up $51 million as a result of higher Selling, General and Administrative (SG&A) and Research and Development (R&D) expenses to support significant new product programs as well as order fulfillment/velocity initiatives.

    Operating Profit by Principal Line of Business

                               First Quarter   First Quarter    $         %
    (Millions of dollars)           2006            2007      Change    Change
    Machinery(1)                $    837        $    717     $  (120)   (14%)
    Engines(1)                       294             347          53     18%
    Financial Products               170             167          (3)    (2%)
    Consolidating Adjustments        (83)            (91)         (8)
    Consolidated Operating
     Profit                     $  1,218        $  1,140     $   (78)    (6%)

    (1)  Caterpillar operations are highly integrated; therefore, the company
         uses a number of allocations to determine lines of business operating
         profit for Machinery and Engines.


    Operating Profit by Principal Line of Business

    -- Machinery operating profit of $717 million was down $120 million, or
       14 percent, from first quarter 2006.  The unfavorable impact of higher
       core operating costs and lower sales volume was partially offset by
       improved price realization.

    -- Engines operating profit of $347 million was up $53 million, or
       18 percent, from first quarter 2006.  The favorable impact of improved
       price realization and higher sales volume was partially offset by
       higher core operating costs.  Continued strength in our commercial
       engines industries has allowed us to more than offset the profit
       decline in the on-highway truck engine industry.

    -- Financial Products operating profit of $167 million was down
       $3 million, or 2 percent, from first quarter 2006.


    Other Profit/Loss Items

    -- Other income/expense was income of $111 million compared with income of
       $43 million in first quarter 2006.  The change was primarily due to a
       $46 million gain on the sale of a security and favorable currency
       gains.

    -- The provision for income taxes in the first quarter reflects an
       estimated annual tax rate of 32 percent for 2007 compared to 31 percent
       for the first quarter 2006 and 29 percent for the full-year 2006.  The
       increase is primarily due to the repeal of Extraterritorial Income
       Exclusion (ETI) benefits in 2007 as well as a change in our geographic
       mix of profits.

Employment

Caterpillar's worldwide employment was 95,334 in first quarter 2007, up 8,350 from 86,984 in first quarter 2006. The increase was primarily due to the addition of approximately 4,650 employees from acquisitions, mainly Progress Rail. In addition, approximately 3,700 employees were added to support growth and new product introductions.

Sales & Revenues Outlook for 2007

We have raised our outlook for 2007 sales and revenues. We expect sales and revenues to be in a range of $42 to $44 billion, up from the previous outlook of $41.5 to $43.6 billion. Using the midpoint of the range, $43 billion, as a reference, this expected increase over 2006 is due to improved price realization, the impact of Progress Rail for a full year and increased Financial Products revenues, partially offset by a decline in Machinery and Engines volume of approximately 2 percent.

    -- The expected decline in machinery and engines volume is in North
       America, a result of a weak U.S. economy, a reduction in dealer machine
       inventories and a sharp drop in North American on-highway engine sales.
       Volume is expected to increase in all other regions.

    -- Global liquidity likely will tighten further in 2007 as European,
       Japanese and some developing country banks raise interest rates
       further.  Rate cuts in North America, expected in the last half of the
       year, will not have much impact in 2007.

    -- Expected monetary tightening will start from an accommodative position,
       so economic growth this year should not be significantly affected.  We
       forecast world economic growth will slow from 4 percent in 2006 to
       about 3.5 percent in 2007.  Growth should slow in all regions but will
       fall below potential only in North America.

    -- The U.S. economy has averaged below trend growth since first quarter
       2006, and we project growth will average about 2 percent this year.
       Weakness has spread from housing, automobile sales and transportation
       into capital goods.  We forecast that sluggish economic growth will
       depress machinery sales this year and pose an additional threat to
       on-highway truck engines.

    -- Prospects outside North America are very positive.  Europe is
       experiencing the best economic growth since 2000, and leading
       indicators and business surveys suggest good growth will continue.

    -- We expect the developing economies will continue their best recovery in
       decades.  Good economic growth is now driving very large gains in
       construction spending and increasing the demand for standby electrical
       power.

    -- Housing construction will decline in the U.S. but should improve in
       other regions.  Outside the U.S. incomes are rising, home prices are
       increasing and credit terms are generally attractive.

    -- Nonresidential construction should grow in most countries, with the
       strongest growth outside the U.S.  High corporate profits, readily
       available credit and increased office rents are positives for building
       construction.  Improved government finances should boost infrastructure
       development.

    -- Iron ore contract prices for the current fiscal year (started April 1)
       settled at a 9.5 percent increase.  Base metals prices held well above
       year-earlier prices in the first quarter, and some metals price indices
       hit record highs in March.  We expect base metals prices will ease over
       coming months but remain attractive for new investment.  Demand remains
       high due to fast growth in industrial production, and inventories are
       low.

    -- After dropping to almost $50 per barrel in January, West Texas
       Intermediate crude oil prices rebounded to a $66 peak in March.
       Surplus production capacity has increased, but prices remain sensitive
       to possible supply disruptions.  We expect that further production
       increases, higher oil inventories and moderation in oil demand will
       result in about a $58 average price in 2007.  That price will be
       attractive for increased exploration, drilling, pipeline expenditures
       and tar sands development, which should benefit both machinery and
       engine sales.

    -- International contracts for thermal coal exports settled with almost a
       6 percent price increase.  Coking coal contract prices declined
       16 percent, however, the new price is still 65 percent higher than the
       2004 price.  Favorable prices and increased coal usage should drive
       increased investments in coalmines, particularly outside North America.

    -- We expect strong demand for marine engines in 2007.  International
       trade is increasing, and ocean shipping rates are much higher than last
       year.  Shipyards are contracting for 2009 berths.

North America (United States and Canada) Machinery and Engines sales are expected to decrease about 11 percent in 2007. We project machinery and engines volume, excluding Progress Rail, will decline.

    -- Data shows the U.S. economy is growing slowly despite the recent
       favorable employment report.  Economic growth averaged a 2.3 percent
       annual rate over the last three quarters of 2006, and recent data
       suggest even slower growth in first quarter 2007.  Growth has been
       below the trend for about a year.

    -- The more cyclically sensitive sectors of the economy, which often
       weaken in advance of the overall economy, are performing poorly.
       Housing starts are down 30 percent from their 2006 peak, light vehicle
       sales are 5 percent below their prior peak, freight movements declined
       more than 2 percent over the past year, manufacturing output has been
       flat since last August and capital spending declined in the fourth
       quarter.  We do not believe these sectors can improve in the current
       economic environment.  Housing, the most distressed sector, has yet to
       show convincing signs of recovery.

    -- We are changing our forecast to reflect growth of about 2 percent in
       2007, down from our previous forecast of 2.5 percent.  The construction
       machine industry, which started declining in second quarter 2006,
       should decline throughout 2007.

    -- A sluggish economy should drive core inflation below 2 percent,
       prompting the Fed to cut interest rates.  The two cuts expected,
       however, are not likely until the second half and would be too late to
       benefit either the economy or our results this year.

    -- Factors contributing to the decline in machinery sales include lower
       activity in some industries and tighter financial conditions.  The
       latter are causing users to delay replacements, even in those
       applications where activity is increasing.  In the first quarter,
       dealers reported lower deliveries to most machine industries.

    -- Housing starts averaged almost 1.5 million units at an annual rate in
       the first quarter of this year, 30 percent lower than a year earlier.
       The sub-prime loan crisis likely will cause mortgage lenders to tighten
       standards, further reducing new home sales.  We are lowering our
       housing start forecast to about 1.5 million units, the lowest since
       1997.  Total housing units supplied, which include mobile homes, should
       be about 1.6 million units, the lowest since 1993.

    -- Nonresidential structures investment barely increased in fourth quarter
       2006, following several quarters of very strong growth.  Although
       contracting has been weak the past few months, leading indicators
       remain positive, and lending is increasing.  We project investment will
       increase about 3 percent in 2007, down from 9 percent growth last year.
       Slower growth likely will be unfavorable for both construction
       machinery and standby electrical power.

    -- Congress authorized a 9 percent increase in federal highway funding for
       the current fiscal year on February 14, 2007.  Until then, continuing
       resolutions had capped funding at a 6 percent increase, which caused
       highway contracts awarded to decline in the first two months of this
       year.  Contracting improved in March and should increase at least
       2 percent for the full year.

    -- Coal production declined 3 percent so far this year, and spot prices
       dropped 25 percent or more.  Electric utilities reduced coal burn,
       stockpiles increased rapidly and international trade deteriorated.
       However, domestic prices are well below international prices, which
       should encourage recent improvements in prices to continue.  We expect
       coal production will increase about 1 percent this year.

    -- Metals mines increased output almost 3 percent in the first quarter,
       and prices were 53 percent higher.  Metals prices should remain
       attractive for new investments in 2007.

    -- The Canadian economy likely will grow about 2 percent in 2007.
       However, tar sands development, the large mining sector and lower
       interest rates should create a more favorable environment for the
       construction machinery industry than in the United States.

    -- The North American on-highway truck industry should decline about
       40 percent this year.  Much of the decline results from truck
       manufacturers, truck dealers and trucking companies depleting
       inventories built to cope with the risks of new diesel engine emission
       standards.  Other problems include a decline in truck freight volume
       and some deterioration in truck carrier profit margins.

EAME Machinery and Engines sales are expected to increase about 19 percent in 2007.

    -- The European Union economy recorded 3.4 percent growth in fourth
       quarter 2006, the best since third quarter 2000.  Surveys of business
       conditions suggest growth will continue but at a slower rate than in
       2006.

    -- The European Central Bank raised its interest rate to 3.75 percent in
       March, and a move to 4 percent seems almost certain.  The Bank of
       England raised its interest rate to 5.25 percent, and another increase
       is possible.

    -- Although interest rates are approaching 2000 peaks, we do not
       anticipate any disruptions to growth in 2007.  Projected economic
       growth of 2.4 percent would be the second-best year since 2000.

    -- Residential construction has been strong for several years due to
       rising home prices and low mortgage interest rates.  Mortgage interest
       rates have risen, and housing permits slowed in the last half of 2006.
       We expect housing construction to continue growing, although slower
       than last year's 5 percent pace.

    -- Growth in nonresidential construction accelerated in 2006, and 2007
       should be a very good year.  Construction surveys are positive, and
       lending to businesses increased almost 13 percent in the first quarter.

    -- We forecast economic growth will be 5 percent in Africa/Middle East
       this year, slightly slower than in 2006.  As in the past, countries
       will benefit from high energy and metals prices and infrastructure
       development.  Africa is gaining favor as a site for both energy and
       metals mine development.

    -- Rapid economic growth is creating inflationary pressures in both Turkey
       and South Africa; central banks likely will maintain tight policies in
       response.  These changes, however, will not likely slow current
       double-digit percentage growth in construction.

    -- We expect the CIS economy will increase over 7 percent this year,
       slightly slower than last year.  Metals mining and energy investment
       should be strong in Russia as well as in several other countries in the
       region.  Governments should invest more in infrastructure development,
       and rising real incomes will lead to more housing construction.

Latin America Machinery and Engines sales are expected to increase about 15 percent in 2007.

    -- Most countries improved economic policies by reducing inflation,
       cutting government budget deficits and increasing exports.  The region
       ran over a $50 billion current account surplus last year and increased
       foreign exchange reserves to almost $320 billion.  These improvements
       allowed central banks to maintain low interest rates, with Brazil still
       having room to reduce rates further.

    -- We do not expect governments to change policies sufficiently to disrupt
       economies this year.  So economic growth should average more than
       4.5 percent, the fourth consecutive year of strong growth.
       Construction spending grew faster than the overall economy last year,
       and that relationship should continue this year.

    -- Early indications are that worldwide mining investment should increase
       10 to 20 percent this year.  Latin America typically receives the
       largest share of those funds, so we expect mining investment will
       increase this year.  In the past, mine production increased less in
       response to higher metals prices than many expected; this year, past
       investments should allow production to increase faster.

    -- Both Argentina and Venezuela are increasing public spending and keeping
       interest rates low relative to inflation.  These policies, while not
       sustainable long term, caused construction to increase 18 percent in
       Argentina and 32 percent in Venezuela.  We do not expect governments to
       reverse policies this year, so construction will continue growing in
       both countries.

Asia/Pacific Machinery and Engines sales are expected to increase about 17 percent in 2007.

    -- Both China and India recently announced plans to slow economic growth,
       which will lead to further tightening.  However, other countries should
       be near the end of their recent policy tightening, and some could lower
       interest rates this year.

    -- Policy changes should not significantly affect 2007 growth.  Interest
       rates should remain low, and most countries will benefit from a fast
       growing world economy.  Regional economic growth should slow to about
       7 percent this year, down from 7.5 percent last year.

    -- The region ran over a $300 billion current account surplus last year,
       with about 75 percent originating in China.  Foreign exchange reserves
       total almost $2.3 trillion, causing difficulties for central banks in
       controlling domestic credit growth.  Asia's exports, which continued to
       increase in early 2007, are creating trade frictions.

    -- Rising trade frictions and pressure to better use reserves should cause
       governments to focus more on internal growth.  That change will occur
       slowly, with benefits for infrastructure development and housing
       construction.

    -- Fast economic growth has driven a need for more construction and
       electric generator sets.   Construction growth has been in excess of
       5 percent in many countries, and we expect good growth in 2007.

    -- Indonesia's recovery in sales should continue this year.  Interest
       rates are much lower than last year, and industrial production is
       recovering.  Mining should do well, benefiting from the country's
       position as the world's second largest coal exporter.

    -- Australia's economy continues to grow below potential, but
       nonresidential construction and mining should be sources of strength
       for our businesses.  We forecast that exports of coal and metals will
       increase in response to favorable prices and that mine development
       expenditures will continue rapid growth.


    Financial Products Revenues

    -- We expect continued growth in Financial Products for 2007.  Revenues
       are expected to increase approximately 12 percent versus 2006,
       primarily due to higher average earning assets in 2007 at Cat Financial
       and increased premiums at Cat Insurance.


    Sales and Revenues Outlook - Midpoint of Range(1)

     (Millions of dollars)                   2006         2007         %
                                            Actual      Outlook      Change
    Machinery and Engines
     North America                      $   20,155   $   18,000      (11%)
     EAME                                   10,287       12,225       19%
     Latin America                           3,646        4,200       15%
     Asia/Pacific                            4,781        5,600       17%

    Total Machinery and Engines             38,869       40,025        3%

    Financial Products(2)                    2,648        2,975       12%

    Total                               $   41,517   $   43,000        4%

    (1)  The Consolidated Operating Profit chart below reflects sales and
         revenues at the midpoint of the range.
    (2)  Does not include revenues earned from Machinery and Engines of $330
         million and $466 million in 2007 and 2006, respectively.


                  Consolidated Operating Profit Comparisons
                            2007 Outlook vs. 2006

To access this chart, go to http://www.cat.com for the downloadable version of Caterpillar 1Q 2007 earnings.

2007 Outlook -- Profit

We expect profit per share to be in the range of $5.30 to $5.80. 2007 is expected to benefit from improved price realization, partially offset by lower sales volume, higher core operating costs and a higher effective tax rate.

    Q&A

    Sales and Revenues / Economic & Industry

    Q1:  Your economic and industry outlook for 2007 has changed somewhat from
         your previous outlook; can you summarize the key differences?

    A:   In the U.S., housing construction worsened in the first quarter of
         this year, and rising mortgage delinquency rates and the potential
         for falling home prices create new uncertainties.  As a result, we
         lowered our forecast of 2007 housing starts from 1.7 million units to
         1.5 million units.

         In the absence of a housing rebound, and with weaknesses in capital
         spending, we believe the U.S. economy is in a period of slow growth.
         We've lowered our forecast of 2007 U.S. economic growth from 2.5
         percent to 2 percent.

         We would like to emphasize that the current weakness in the U.S.
         economy does not change the long-term needs for increased
         construction and mining development in the U.S.  In fact, the current
         downturn will likely add to future needs.  Housing starts are too low
         to meet the needs of a growing population, one year of good growth in
         nonresidential building did not offset more than 20 years of net
         depreciation of existing buildings and an inadequate highway system
         is still a problem for the driving public.

         On the upside, growth outside North America has been even stronger
         than expected.  Two positives from this have been very strong growth
         in construction and better demand for commodities.  Some metals
         prices hit new highs during the quarter.


    Q2:  You have highlighted residential construction in the U.S. as a weak
         spot.  Have you changed your estimates, and can you comment on the
         strength in nonresidential spending in the U.S. and worldwide?

    A:   We reduced our U.S. housing starts forecast from 1.7 million units to
         1.5 million.  Nonresidential contracting started the year slow due to
         weakness in commercial and industrial contracting, probably related
         to housing, and delays in authorizing fiscal year 2007 federal
         highway funding.  The federal budget recently passed, and it provides
         for a 9 percent increase in funding.  So we expect highway contracts
         awarded will increase for the full year.

         Factors that normally support U.S. nonresidential building remain
         positive.  Corporate profits are high, and bank commercial and
         industrial lending increased about 13 percent in the first quarter.
         We do expect some growth in new contracts but at a slower rate than
         last year.

         Outside the U.S., construction has been doing very well.  We expect
         that low interest rates, good profits and continued economic growth
         will support good growth in construction this year.


    Q3:  Mining and oil and gas have been very strong industries for the past
         few years. Can you comment on your expectations going forward from
         here?

    A:   Commodity prices have held up better than expected.  We believe
         prices for most commodities are well above levels favorable for new
         investment, and our first quarter results indicated strong demand for
         our products that support these industries.  We continue to have a
         positive outlook for these industries worldwide.


    Q4:  You said you were expecting dealer machine inventories to decline in
         2007, particularly in North America.  Did that happen in the first
         quarter, and what are your expectations for full-year 2007? What are
         your expectations for dealer inventory outside North America?

    A:   North American dealer inventories decreased in the first quarter, and
         we expect further declines in the remainder of the year.  Outside
         North America, some dealers reduced inventories, but regions with
         fast sales growth, such as EAME, may have an increase in dealer
         inventories during the year.   However, we expect dealers in all
         regions will reduce inventories in months of supply relative to the
         end of 2006.  As availability improves, dealers will have less need
         to stock machines.


    Engines

    Q5:  You expected a significant drop in demand in 2007 for truck engines
         as a result of new emissions requirements.  Did the first quarter
         play out as you expected, and what are your current expectations for
         the full year?

    A:   Caterpillar truck engine sales declined significantly in the first
         quarter, as we had anticipated.  Order rates were somewhat lower than
         we had expected on our 2007 model truck engines as the United States
         truck manufacturers sold a greater number of trucks with 2006 model
         engines than we had anticipated.  However, our truck engine shipments
         to countries outside the United States were stronger than expected.
         Due to the slower first quarter, we anticipate our full-year truck
         engine sales to be slightly lower than planned; the North American
         heavy-duty truck industry forecast (including Mexico) remains
         unchanged at approximately 175,000-180,000 units.


    Q6:  Are you ready with your 2007 emissions-certified truck engines?  Are
         2007 engines currently engineered into all chassis and ready to go
         for your major customers?

    A:   The full Caterpillar on-highway engine product line from C7 to C15 is
         EPA certified at 2007 emissions levels and has completed extensive
         product development and validation.  This includes over 16 million
         miles of in-field validation with customers in a wide range of
         applications.  Engineering integration into our OEMs' chasses is on
         schedule, and we have been shipping product to support vehicle
         phase-in plans.  However, we did experience some delays in
         availability of 2007 products during the first quarter.  The delays
         were impacted by high build rates of our 2006 engines through the end
         of 2006 and a few supply chain challenges as we converted production
         lines to our 2007 model engines.  Some ramp-up issues resulted from
         matching our engine models' ramp-up timing with the specific customer
         demand for our various engines.


    Q7:  Sales and operating profit for engines seems to have held up well
         despite the sharp drop in on-highway truck engines.  Can you comment
         on the strength of the other engine industries?

    A:   As demonstrated in the first quarter, our overall engine business
         remains strong.  We continue to see growth in non-truck engine
         industries.  Energy prices are expected to remain favorable for
         continued investment in oil and gas applications.  Marine
         applications are strong as shipyards are nearly full through 2008 and
         many new contracts are for deliveries into 2009 and 2010.  Oceangoing
         freight rates have dropped from their peak but are still elevated
         compared to historical levels.  In the electric power industry,
         demand continues to be strong, primarily driven by infrastructure
         development with revenues generated from high oil prices and a
         positive investment climate.


    Q8:  We have heard that you have announced some 2008 price increases.  Is
        this true?

    A:   Yes.  We have announced 2008 price increases to our dealers for large
         engine products.  Lead times and strong order demand drove the need
         to announce 2008 price increases.


    Costs / Profit / Acquisitions / Cash Flow

    Q9:  Your outlook for 2007 reflects an increase of $300 million in core
         operating costs from 2006 and a $75 million increase from the
         previous outlook for 2007.  What's causing the increase?

    A:   The increase is related to higher material costs and costs to support
         higher sales and revenues.


    Q10: We hear about continuing cost pressure on material costs from other
         manufacturing companies.  What are your expectations for 2007
         material costs?

    A:   We are experiencing continued cost pressure from higher commodity
         prices such as copper, steel and nickel.  In addition, capacity
         constraints related to large tires and bearings are contributing to
         cost pressure. We expect material costs to increase slightly from
         2006.


    Q11: You expected that sharp declines in on-highway truck and U.S. housing
         industries would impact operating profit about $200 million in the
         first quarter.  Was the impact about as you expected?

    A:   A decline in the on-highway truck and U.S. housing industries had a
         significant impact on our sales and operating efficiencies in first
         quarter 2007 compared to first quarter 2006.  We estimate the
         combined effect of these two industries negatively impacted first
         quarter 2007 operating profit by approximately $130 million compared
         with first quarter 2006.


    Q12: Can you break down your first-quarter core operating costs in more
         detail?

    A:   The following table summarizes the increase in core operating costs
         in first quarter 2007 versus first quarter 2006:

         Core Operating Cost Change           1st Quarter 2007
                                                    vs.
         (Millions of dollars)                1st Quarter 2006
         Manufacturing Costs                   $    156
         SG&A                                        21
         R&D                                         30
                 Total                         $    207

         Core operating costs rose $207 million from first quarter 2006.
         Of this increase, $156 million was attributable to higher
         manufacturing costs.  Manufacturing costs include both period and
         variable costs associated with building our products.  Nearly all of
         the increase in manufacturing costs was attributable to variable
         costs. The increase in variable manufacturing costs was a result of
         operating inefficiencies, warranty and higher material costs. Lower
         production volume of truck engines drove most of the operating
         inefficiencies.  Non-manufacturing core operating costs were up
         $51 million as a result of higher Selling, General and Administrative
         (SG&A) and Research and Development (R&D) expenses to support
         significant new product programs as well as order
         fulfillment/velocity initiatives.


    Q13: Last summer you acquired Progress Rail.  In general, how has it
         performed?

    A:   We are very pleased with the performance of Progress Rail since it
         was acquired in June 2006.  Actual results were better than we had
         projected in both 2006 and in the first quarter of 2007.   Sales,
         operating profit and operating profit as a percent of sales are all
         higher than anticipated at the time of acquisition.   In the first
         quarter of 2007, Progress Rail sales were $389 million.


    Q14: During the first quarter you announced discussions with MHI and SCM
         that you expected to result in Caterpillar owning a majority stake in
         SCM.  What's the status?

    A:   We are currently conducting due diligence and negotiating definitive
         agreements with Mitsubishi Heavy Industries (MHI).  When complete,
         SCM will proceed with the execution of a share redemption for a
         portion of SCM's shares held by MHI.  We anticipate that redemption
         will take place in the fourth quarter of 2007.


    Q15: Can you comment on your new stock repurchase program?

    A:   On February 14th, the Board of Directors approved a new $7.5 billion
         stock repurchase program that we expect to complete within the next
         five years. This is the fourth stock buy-back program since 1995.
         Over that 12-year period, Caterpillar has returned $8.5 billion to
         stockholders through stock repurchase programs. The previous program,
         valued at about $6.4 billion, was approved in October 2003.  We
         completed this buy-back program in April, reducing outstanding shares
         to 640 million.  Total shares repurchased under the program were just
         under 113 million.  We are pleased to have completed this five year
         stock repurchase program 18 months ahead of schedule and have now
         begun repurchasing shares under the new $7.5 billion stock repurchase
         program.


    GLOSSARY OF TERMS

    1.   Cat Production System (CPS)  -- The Caterpillar Production System is
         the common Order-to-Delivery process being implemented enterprise-
         wide to achieve our safety, quality and velocity goals for 2010 and
         beyond.

    2.   Consolidating Adjustments -- Eliminations of transactions between
         Machinery and Engines and Financial Products.

    3.   Core Operating Costs -- Machinery and Engines variable manufacturing
         cost change adjusted for volume and change in period costs.  Excludes
         the impact of currency.

    4.   Currency -- With respect to sales and revenues, currency represents
         the translation impact on sales resulting from changes in foreign
         currency exchange rates versus the U.S. dollar.  With respect to
         operating profit, currency represents the net translation impact on
         sales and operating costs resulting from changes in foreign currency
         exchange rates versus the U.S. dollar.  Currency includes the impacts
         on sales and operating profit for the Machinery and Engines lines of
         business only; currency impacts on Financial Products revenues and
         operating profit are included in the Financial Products portions of
         the respective analyses.  With respect to other income/expense,
         currency represents the effects of forward and option contracts
         entered into by the company to reduce the risk of fluctuations in
         exchange rates and the net effect of changes in foreign currency
         exchange rates on our foreign currency assets and liabilities for
         consolidated results.

    5.   Diversified Service Businesses -- A service business or a business
         containing an important service component.  These businesses include,
         but are not limited to, aftermarket parts, Cat Financial, Cat
         Insurance, Cat Logistics, Cat Reman, Progress Rail, OEM Solutions and
         Solar Turbine Customer Services.

    6.   EAME -- Geographic region including Europe, Africa, the Middle East
         and the Commonwealth of Independent States (CIS).

    7.   Earning Assets -- These assets consist primarily of total finance
         receivables net of unearned income, plus equipment on operating
         leases, less accumulated depreciation at Cat Financial.

    8.   Engines -- A principal line of business including the design,
         manufacture, marketing and sales of engines for Caterpillar
         machinery; electric power generation systems; on-highway vehicles and
         locomotives; marine, petroleum, construction, industrial,
         agricultural and other applications; and related parts.  Also
         includes remanufacturing of Caterpillar engines and a variety of
         Caterpillar machine and engine components and remanufacturing
         services for other companies.  Reciprocating engines meet power needs
         ranging from 5 to 21,500 horsepower (4 to over 16 000 kilowatts).
         Turbines range from 1,600 to 20,500 horsepower (1 200 to 15 000
         kilowatts).

    9.   Financial Products -- A principal line of business consisting
         primarily of Caterpillar Financial Services Corporation (Cat
         Financial), Caterpillar Insurance Holdings, Inc. (Cat Insurance),
         Caterpillar Power Ventures Corporation (Cat Power Ventures) and their
         respective subsidiaries.  Cat Financial provides a wide range of
         financing alternatives to customers and dealers for Caterpillar
         machinery and engines, Solar gas turbines as well as other equipment
         and marine vessels.  Cat Financial also extends loans to customers
         and dealers.  Cat Insurance provides various forms of insurance to
         customers and dealers to help support the purchase and lease of our
         equipment.  Cat Power Ventures is an investor in independent power
         projects using Caterpillar power generation equipment and services.

    10.  Latin America -- Geographic region including Central and South
         American countries and Mexico.

    11.  Machinery -- A principal line of business which includes the design,
         manufacture, marketing and sales of construction, mining and forestry
         machinery-track and wheel tractors, track and wheel loaders,
         pipelayers, motor graders, wheel tractor-scrapers, track and wheel
         excavators, backhoe loaders, log skidders, log loaders, off-highway
         trucks, articulated trucks, paving products, skid steer loaders and
         related parts. Also includes logistics services for other companies
         and the design, manufacture, remanufacture, maintenance and services
         of rail-related products.

    12.  Machinery and Engines (M&E) -- Due to the highly integrated nature of
         operations, it represents the aggregate total of the Machinery and
         Engines lines of business and includes primarily our manufacturing,
         marketing and parts distribution operations.

    13.  Manufacturing Costs -- Manufacturing costs represent the
         volume-adjusted change for variable costs and the absolute dollar
         change for period manufacturing costs.  Variable manufacturing costs
         are defined as having a direct relationship with the volume of
         production.  This includes material costs, direct labor and other
         costs that vary directly with production volume such as freight,
         power to operate machines and supplies that are consumed in the
         manufacturing process.  Period manufacturing costs support production
         but are defined as generally not having a direct relationship to
         short-term changes in volume.  Examples include machine and equipment
         repair, depreciation on manufacturing assets, facility support,
         procurement, factory scheduling, manufacturing planning and
         operations management.

    14.  M&E Other Operating Expenses -- Comprised primarily of gains (losses)
         on disposal of long-lived assets, long-lived asset impairment charges
         and impairment of goodwill.

    15.  Operating Profit -- Sales and revenues minus operating costs.

    16.  Period Costs -- Comprised of Machinery and Engines period
         manufacturing costs, SG&A expense and R&D expense.

    17.  Price Realization -- The impact of net price changes excluding
         currency and new product introductions.  Consolidated price
         realization includes the impact of changes in the relative weighting
         of sales between geographic regions.

    18.  Profit -- Consolidated profit before taxes less provision for income
         taxes plus equity in profit (loss) of unconsolidated affiliated
         companies.

    19.  Sales Volume -- With respect to sales and revenues, sales volume
         represents the impact of changes in the quantities sold for machines,
         engines and parts as well as the incremental revenue impact of new
         product introductions.  With respect to operating profit, sales
         volume represents the impact of changes in the quantities sold for
         machines, engines and parts combined with product mix-the net
         operating profit impact of changes in the relative weighting of
         machines, engines and parts sales with respect to total sales.

    20.  6 Sigma -- On a technical level, 6 Sigma represents a measure of
         variation that achieves 3.4 defects per million opportunities.  At
         Caterpillar, 6 Sigma represents a much broader cultural philosophy to
         drive continuous improvement throughout the value chain.  It is a
         fact-based, data-driven methodology that we are using to improve
         processes, enhance quality, cut costs, grow our business and deliver
         greater value to our customers through Black Belt-led project teams.
         At Caterpillar, 6 Sigma goes beyond mere process improvement-it has
         become the way we work as teams to process business information,
         solve problems and manage our business successfully.

NON-GAAP FINANCIAL MEASURES

The following definition is provided for "non-GAAP financial measures" in connection with Regulation G issued by the Securities and Exchange Commission. This non-GAAP financial measure has no standardized meaning prescribed by U.S. GAAP and therefore is unlikely to be comparable to the calculation of similar measures for other companies. Management does not intend this item to be considered in isolation or as a substitute for the related GAAP measure.

MACHINERY AND ENGINES

Caterpillar defines Machinery and Engines as it is presented in the supplemental data as Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis. Machinery and Engines information relates to the design, manufacture and marketing of our products. Financial Products information relates to the financing to customers and dealers for the purchase and lease of Caterpillar and other equipment. The nature of these businesses is different, especially with regard to the financial position and cash flow items. Caterpillar management utilizes this presentation internally to highlight these differences. We also believe this presentation will assist readers in understanding our business. Pages 26-29 reconcile Machinery and Engines with Financial Products on the equity basis to Caterpillar Inc. Consolidated financial information.

SAFE HARBOR

Certain statements in this release relate to future events and expectations and as such constitute forward-looking statements involving known and unknown factors that may cause actual results of Caterpillar Inc. to be different from those expressed or implied in the forward-looking statements. In this context, words such as "will" and "expect" or other similar words and phrases often identify forward-looking statements made on behalf of Caterpillar. It is important to note that actual results of the company may differ materially from those described or implied in such forward-looking statements based on a number of factors and uncertainties, including, but not limited to, changes in economic conditions; currency exchange or interest rates; political stability; market acceptance of the company's products and services; significant changes in the competitive environment; epidemic diseases; changes in law, regulations and tax rates; and other general economic, business and financing conditions and factors described in more detail in the company's Form 10-K filed with the Securities and Exchange Commission on February 23, 2007. This filing is available on our website at http://www.cat.com/sec_filings. We do not undertake to update our forward- looking statements.

Caterpillar's latest financial results and current outlook are also available via:

    Telephone:
           (800) 228-7717 (Inside the United States and Canada)
           (858) 244-2080 (Outside the United States and Canada)

    Internet:
           http://www.cat.com/investorhttp://www.cat.com/irwebcast (live broadcast/replays of quarterly
           conference call)



                               Caterpillar Inc.
          Condensed Consolidated Statement of Results of Operations
                                 (Unaudited)
                 (Dollars in millions except per share data)

                                                         Three Months Ended
                                                               March 31,
                                                        2007              2006

    Sales and revenues:
     Sales of Machinery and Engines                 $  9,321          $  8,743
     Revenues of Financial Products                      695               649
     Total sales and revenues                         10,016             9,392

    Operating costs:
     Cost of goods sold                                7,136             6,552
     Selling, general and administrative expenses        890               821
     Research and development expenses                   340               307
     Interest expense of Financial Products              271               232
     Other operating expenses                            239               262
     Total operating costs                             8,876             8,174

    Operating profit                                   1,140             1,218

     Interest expense excluding Financial Products        79                68
     Other income (expense)                              111                43

    Consolidated profit before taxes                   1,172             1,193

     Provision for income taxes                          375               370
     Profit of consolidated companies                    797               823

     Equity in profit (loss) of unconsolidated
      affiliated companies                                19                17

    Profit                                          $    816          $    840

    Profit per common share                         $   1.27          $   1.25

    Profit per common share - diluted (1)           $   1.23          $   1.20

    Weighted average common shares outstanding
     (millions)
      - Basic                                          643.9             672.0
      - Diluted (1)                                    665.2             699.1

    Cash dividends declared per common share        $      -          $      -

    (1)  Diluted by assumed exercise of stock-based compensation awards using
         the treasury stock method.



                               Caterpillar Inc.
            Condensed Consolidated Statement of Financial Position
                                 (Unaudited)
                            (Millions of dollars)

    Assets                                         Mar. 31,           Dec. 31,
     Current assets:                                  2007               2006
      Cash and short-term investments           $      607         $      530
      Receivables - trade and other                  8,016              8,607
      Receivables - finance                          6,700              6,804
      Deferred and refundable income taxes             847                733
      Prepaid expenses and other current assets        657                638
      Inventories                                    7,131              6,351
     Total current assets                           23,958             23,663

     Property, plant and equipment - net             8,892              8,851
     Long-term receivables - trade and other           705                860
     Long-term receivables - finance                11,799             11,531
     Investments in unconsolidated affiliated
      companies                                        554                562
     Noncurrent deferred and refundable income
      taxes                                          2,121              1,949
     Intangible assets                                 460                387
     Goodwill                                        1,940              1,904
     Other assets                                    1,819              1,742
    Total assets                                $   52,248         $   51,449

    Liabilities
     Current liabilities:
      S

Certain amounts for prior periods have been reclassified to conform to the current period financial statement presentation.



                               Caterpillar Inc.
                Condensed Consolidated Statement of Cash Flow
                                 (Unaudited)
                            (Millions of dollars)

                                                          Three Months Ended
                                                               March 31,
    Cash flow from operating activities:                  2007           2006
     Profit                                            $   816        $   840
     Adjustments for non-cash items:
      Depreciation and amortization                        412            400
      Other                                                  1             10
     Changes in assets and liabilities:
      Receivables - trade and other                        739           (463)
      Inventories                                         (734)          (618)
      Accounts payable and accrued expenses               (141)           216
      Other assets - net                                   (71)            (4)
      Other liabilities - net                              327            126
    Net cash provided by (used for) operating
     activities                                          1,349            507

    Cash flow from investing activities:
     Capital expenditures - excluding equipment leased
      to others                                           (252)          (233)
     Expenditures for equipment leased to others          (252)          (252)
     Proceeds from disposals of property, plant and
      equipment                                            106            208
     Additions to finance receivables                   (2,553)        (2,346)
     Collections of finance receivables                  2,359          2,220
     Proceeds from the sale of finance receivables          40             17
     Investments and acquisitions (net of cash acquired)  (153)            (4)
     Proceeds from sale of available-for-sale securities    62             76
     Investments in available-for-sale securities         (124)          (118)
     Other - net                                           140            117
    Net cash provided by (used for) investing activities  (627)          (315)

    Cash flow from financing activities:
     Dividends paid                                       (193)          (168)
     Common stock issued, including treasury shares
      reissued                                              73            253
     Treasury shares purchased                            (511)          (738)
     Excess tax benefit from stock-based compensation       26            101
     Proceeds from debt issued (original maturities
      greater than three months)                         1,875          2,084
     Payments on debt (original maturities greater than
      three months)                                     (3,028)        (2,830)
     Short-term borrowings (original maturities three
      months or less)-- net                              1,107            806
    Net cash provided by (used for) financing activities  (651)          (492)
    Effect of exchange rate changes on cash                  6             (2)
    Increase (decrease) in cash and short-term
     investments                                            77           (302)

    Cash and short-term investments at beginning of
     period                                                530          1,108
    Cash and short-term investments at end of period   $   607        $   806

Certain amounts for prior periods have been reclassified to conform to the current period financial statement presentation.

All short-term investments, which consist primarily of highly liquid investments with original maturities of three months or less, are considered to be cash equivalents.



                               Caterpillar Inc.
                 Supplemental Data for Results of Operations
                  For The Three Months Ended March 31, 2007
                                 (Unaudited)
                            (Millions of dollars)

                                           Supplemental Consolidating Data

                                          Machinery    Financial Consolidating
                          Consolidated  and Engines(1) Products   Adjustments

    Sales and revenues:
     Sales of Machinery
      and Engines            $ 9,321      $ 9,321      $     -     $    -
     Revenues of Financial
      Products                   695            -          799       (104)(2)
     Total sales and revenues 10,016        9,321          799       (104)

    Operating costs:
     Cost of goods sold        7,136        7,136            -          -
     Selling, general and
      administrative expenses    890          785          110         (5)(3)
     Research and development
      expenses                   340          340            -          -
     Interest expense of
      Financial Products         271            -          272         (1)(4)
     Other operating expenses    239           (4)         250         (7)(3)
     Total operating costs     8,876        8,257          632        (13)

    Operating profit           1,140        1,064          167        (91)

     Interest expense excluding
      Financial Products          79           80            -         (1)(4)
     Other income (expense)      111            -           21         90 (5)

    Consolidated profit
     before taxes              1,172          984          188          -

     Provision for income taxes  375          313           62          -
     Profit of consolidated
      companies                  797          671          126          -

     Equity in profit (loss) of
      unconsolidated affiliated
      companies                   19           18            1          -
     Equity in profit of
      Financial Products'
      subsidiaries                 -          127            -        (127)(6)

    Profit                   $   816      $   816      $   127     $  (127)

    (1)  Represents Caterpillar Inc. and its subsidiaries with Financial
         Products accounted for on the equity basis.
    (2)  Elimination of Financial Products' revenues earned from Machinery and
         Engines.
    (3)  Elimination of net expenses recorded by Machinery and Engines paid to
         Financial Products.
    (4)  Elimination of interest expense recorded between Financial Products
         and Machinery and Engines.
    (5)  Elimination of discount recorded by Machinery and Engines on
         receivables sold to Financial Products and of interest earned between
         Machinery and Engines and Financial Products.
    (6)  Elimination of Financial Products' profit due to equity method of
         accounting.



                               Caterpillar Inc.
                 Supplemental Data for Results of Operations
                  For The Three Months Ended March 31, 2006
                                 (Unaudited)
                            (Millions of dollars)

                                            Supplemental Consolidating Data

                                          Machinery    Financial Consolidating
                          Consolidated  and Engines(1) Products   Adjustments

    Sales and revenues:
     Sales of Machinery
      and Engines            $ 8,743      $ 8,743      $    -      $    -
     Revenues of Financial
      Products                   649            -         746         (97)(2)
     Total sales and revenues  9,392        8,743         746         (97)

    Operating costs:
     Cost of goods sold        6,552        6,552           -           -
     Selling, general and
      administrative expenses    821          724         103          (6)(3)
     Research and development
      expenses                   307          307           -           -
     Interest expense of
      Financial Products         232            -         233          (1)(4)
     Other operating expenses    262           29         240          (7)(3)
     Total operating costs     8,174        7,612         576         (14)

    Operating profit           1,218        1,131         170         (83)

     Interest expense excluding
      Financial Products          68           68           -           -
     Other income (expense)       43          (51)         11          83(5)

    Consolidated profit before
     taxes                     1,193        1,012         181           -

     Provision for income taxes  370          309          61           -
     Profit of consolidated
      companies                  823          703         120           -

     Equity in profit (loss) of
      unconsolidated affiliated
      companies                   17           16           1           -
     Equity in profit of
      Financial Products'
      subsidiaries                 -          121           -        (121)(6)

    Profit                   $   840      $   840      $  121      $ (121)

    (1)  Represents Caterpillar Inc. and its subsidiaries with Financial
         Products accounted for on the equity basis.
    (2)  Elimination of Financial Products' revenues earned from Machinery and
         Engines.
    (3)  Elimination of net expenses recorded by Machinery and Engines paid to
         Financial Products.
    (4)  Elimination of interest expense recorded between Financial Products
         and Machinery and Engines.
    (5)  Elimination of discount recorded by Machinery and Engines on
         receivables sold to Financial Products and of interest earned between
         Machinery and Engines and Financial Products.
    (6)  Elimination of Financial Products' profit due to equity method of
         accounting.



                               Caterpillar Inc.
                       Supplemental Data for Cash Flow
                  For The Three Months Ended March 31, 2007
                                 (Unaudited)
                            (Millions of dollars)

                                            Supplemental Consolidating Data

                                          Machinery    Financial Consolidating
                          Consolidated  and Engines(1) Products   Adjustments

    Cash flow from operating
     activities:
     Profit                  $   816      $   816      $  127      $ (127)(2)
     Adjustments for
      non-cash items:
      Depreciation and
       amortization              412          248         164           -
      Undistributed profit of
       Financial Products          -         (127)          -         127 (3)
      Other                        1          (25)        (57)         83 (4)
     Changes in assets and
      liabilities:
      Receivables - trade and
       other                     739          (49)         45         743(4/5)
      Inventories               (734)        (734)          -           -
      Accounts payable and
       accrued expenses         (141)        (168)        (28)         55 (4)
      Other assets - net         (71)         (64)          4         (11)(4)
      Other liabilities - net    327          327         (11)         11 (4)
    Net cash provided by
     (used for) operating
     activities                1,349          224         244         881
    Cash flow from investing
     activities:
     Capital expenditures -
      excluding equipment
      leased to others          (252)        (249)         (3)          -
     Expenditures for equipment
      leased to others          (252)           -        (255)          3 (4)
     Proceeds from disposals of
      property, plant and
      equipment                  106           13          93           -
     Additions to finance
      receivables             (2,553)           -      (7,910)      5,357 (5)
     Collections of finance
      receivables              2,359            -       8,281      (5,922)(5)
     Proceeds from the sale of
      finance receivables         40            -         359        (319)(5)
     Net intercompany borrowings   -           33        (222)        189 (6)
     Investments and acquisitions
      (net of cash acquired)    (153)        (153)          -           -
     Proceeds from sale of
      available-for-sale
      securities                  62            3          59           -
     Investments in
      available-for-sale
      securities                (124)          (4)       (120)          -
     Other - net                 140           50          92          (2)(7)
    Net cash provided by
     (used for) investing
     activities                 (627)        (307)        374        (694)
    Cash flow from financing
     activities:
     Dividends paid             (193)        (193)          -           -
     Common stock issued,
      including treasury shares
      reissued                    73           73          (2)          2 (7)
     Treasury shares purchased  (511)        (511)          -           -
     Excess tax benefit from
      stock-based compensation    26           26           -           -
     Net intercompany borrowings   -          222         (33)       (189)(6)
     Proceeds from debt issued
      (original maturities
      greater than three
      months)                  1,875           26        1,849          -
     Payments on debt (original
      maturities greater than
      three months)           (3,028)         (28)       (3,000)        -
     Short-term borrowings
      (original maturities
      three months or less)
      -- net                   1,107          482           625         -
    Net cash provided by
     (used for) financing
     activities                 (651)          97          (561)     (187)
    Effect of exchange rate
     changes on cash               6            4             2         -
    Increase (decrease) in cash
     and short-term investments   77           18            59         -
    Cash and short-term
     investments at beginning
     of period                   530          319           211         -
    Cash and short-term
     investments at end of
     period                  $   607      $   337        $  270    $    -

    (1)  Represents Caterpillar Inc. and its subsidiaries with Financial
         Products accounted for on the equity basis.
    (2)  Elimination of Financial Products' profit after tax due to equity
         method of accounting.
    (3)  Non-cash adjustment for the undistributed earnings from Financial
         Products.
    (4)  Elimination of non-cash adjustments and changes in assets and
         liabilities related to consolidated reporting.
    (5)  Reclassification of Cat Financial's cash flow activity from investing
         to operating for receivables that arose from the sale of inventory.
    (6)  Net proceeds and payments to/from Machinery and Engines and Financial
         Products.
    (7)  Change in investment and common stock related to Financial Products.



                               Caterpillar Inc.
                       Supplemental Data for Cash Flow
                  For The Three Months Ended March 31, 2006
                                 (Unaudited)
                            (Millions of dollars)


                                            Supplemental Consolidating Data

                                          Machinery    Financial Consolidating
                          Consolidated  and Engines(1) Products   Adjustments

    Cash flow from
     operating activities:
     Profit                  $   840      $   840        $  121    $ (121)(2)
     Adjustments for
      non-cash items:
      Depreciation and
       amortization              400          235          165         -
      Undistributed profit of
       Financial Products          -         (121)           -       121 (3)
      Other                       10            7          (84)       87 (4)
     Changes in assets and
      liabilities:
      Receivables - trade and
       other                    (463)        (175)          50      (338)(4,5)
      Inventories               (618)        (618)           -         -
      Accounts payable and
       accrued expenses          216          225          (14)        5 (4)
      Other assets - net          (4)          (7)          (7)       10 (4)
      Other liabilities - net    126          132            5       (11)(4)
    Net cash provided by (used
     for) operating activities   507          518          236      (247)
    Cash flow from investing activities:
     Capital expenditures -
      excluding equipment leased
      to others                 (233)        (226)          (7)        -
     Expenditures for equipment
      leased to others          (252)           -         (257)        5 (4)
     Proceeds from disposals of
      property, plant and
      equipment                  208            3          205         -
     Additions to finance
      receivables             (2,346)           -        (8,566)   6,220 (5)
     Collections of finance
      receivables              2,220            -         7,946   (5,726)(5)
     Proceeds from the sale of
      finance receivables         17            -           272     (255)(5)
     Net intercompany borrowings   -          102             3     (105)(6)
     Investments and acquisitions
      (net of cash acquired)      (4)          (4)            -        -
     Proceeds from sale of
      available-for-sale
      securities                  76            4            72        -
     Investments in
      available-for-sale
      securities                (118)         (14)         (104)       -
     Other - net                 117           14           115      (12)(7)
    Net cash provided by (used
     for) investing activities  (315)        (121)         (321)     127
    Cash flow from financing
     activities:
     Dividends paid             (168)        (168)            -        -
     Common stock issued,
      including treasury shares
      reissued                   253          253           (12)      12 (7)
     Treasury shares purchased  (738)        (738)            -        -
     Excess tax benefit from
      stock-based compensation   101          101             -        -
     Net intercompany borrowings   -           (3)         (102)     105 (6)
     Proceeds from debt issued
      (original maturities
      greater than three
      months)                  2,084           29         2,055        -
     Payments on debt (original
      maturities greater than
      three months)           (2,830)          (7)       (2,823)       -
     Short-term borrowings
      (original maturities
      three months or less)
      -- net                     806         (174)          980        -
    Net cash provided by
     (used for) financing
     activities                 (492)        (707)           98      117
    Effect of exchange rate
     changes on cash              (2)           7           (12)       3 (8)
    Increase (decrease) in cash
     and short-term investments (302)        (303)            1        -
    Cash and short-term
     investments at beginning
     of period                 1,108          951           157        -
    Cash and short-term
     investments at end of
     period                  $   806      $   648        $  158    $   -

Certain amounts have been reclassified to conform to the current period financial statement presentation.

    (1)  Represents Caterpillar Inc. and its subsidiaries with Financial
         Products accounted for on the equity basis.
    (2)  Elimination of Financial Products' profit after tax due to equity
         method of accounting.
    (3)  Non-cash adjustment for the undistributed earnings from Financial
         Products.
    (4)  Elimination of non-cash adjustments and changes in assets and
         liabilities related to consolidated reporting.
    (5)  Reclassification of Cat Financial's cash flow activity from investing
         to operating for receivables that arose from the sale of inventory.
    (6)  Net proceeds and payments to/from Machinery and Engines and Financial
         Products.
    (7)  Change in investment and common stock related to Financial Products.
    (8)  Elimination of the effect of exchange on intercompany balances.

Source: Caterpillar Inc.

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