Caterpillar Reports Record Third-Quarter Sales and Revenues; Reaffirms Full-Year Outlook

PEORIA, Ill., Oct. 21 /PRNewswire-FirstCall/ -- Caterpillar Inc. (NYSE: CAT) today announced record third-quarter sales and revenues of $12.981 billion, 13 percent higher than third quarter 2007 sales and revenues of $11.442 billion. Profit per share for the third quarter 2008 was $1.39, down $0.01 from profit per share of $1.40 in the third quarter of 2007.

"We are pleased to have set a new third-quarter sales and revenues record, particularly considering the recessionary conditions in North America and growing weakness in Europe and Japan," said Chairman and Chief Executive Officer Jim Owens. "Demand in emerging markets and commodity prices at levels that encourage investment in mining and energy have helped offset negative economic conditions in much of the developed world," Owens added.

"Recent financial market turbulence has focused attention on the financial strength of businesses of all kinds," Owens said. "Caterpillar has a strong balance sheet, a solid credit rating and we've had access to the capital we need to run our business. That includes our captive finance company, Caterpillar Financial Services Corporation (Cat Financial). We are pleased to report that despite difficult market conditions, Cat Financial has had good access to capital and continues to offer lending options to our customers. It's a tough environment, but we have a conservative business model which prudently manages risk and a great team that's executing well at Cat Financial. When the dust settles, I'm confident that our customers and stockholders will be well served by Cat Financial's long-standing, sound lending practices," Owens said.

Sales and revenues of $12.981 billion increased $1.539 billion from the third quarter of last year, $833 million from sales volume, $385 million from improved price realization, $262 million from the effects of currency and $59 million from higher Financial Products revenues. The geographic mix of sales continued to shift outside North America with sales and revenues increasing 22 percent in other regions compared to 3 percent inside North America. Sales and revenues outside North America represent 60 percent of total sales and revenues in the third quarter -- up from 56 percent of the total one year ago.

Profit of $868 million was down $59 million from $927 million in the third quarter of 2007, a 6 percent decline, and profit per share was $1.39, a decrease of $0.01 from profit per share of $1.40 for the third quarter of 2007. The decrease was the result of higher manufacturing costs, primarily for materials.

"We expected that material and freight costs would increase in the second half of 2008, and they did in the third quarter. Higher material costs, especially for steel, were the most significant headwind we faced in the quarter," said Owens.

Outlook

Caterpillar is maintaining its full-year outlook for 2008. The company

expects sales and revenues to top $50 billion, up from $44.958 billion in 2007, and profit per share of about $6.00 per share, up from $5.37 per share in 2007.

"The 2009 economic outlook is extremely uncertain at this time, with substantial turmoil in financial markets and unprecedented government intervention around the world," Owens said. "Our current outlook for 2009 calls for sales and revenues to be about flat with our full-year 2008 results. In 2009 we expect pockets of strength in global mining, energy markets and in the area of emerging market infrastructure development to offset acute weakness in North America, Europe and Japan. Further, we are confident that our integrated service businesses, which have grown significantly this year, will offer revenue and earnings support in the coming year. That said, given the recent economic turmoil, we will issue our 2009 profit per share outlook with our year-end release in January. The world has experienced significant turbulence in financial markets, and we expect this will slow world economic growth over the next three or four quarters. While we are encouraged by the coordinated response by governments and central banks around the world and believe the actions they've taken will restore global liquidity, the depth and duration of economic decline and the timing and strength of the recovery are very uncertain. Caterpillar is prepared for volatility, and we remain very positive about our longer-term growth prospects. With our financial strength, global manufacturing and distribution network, our focus on the Caterpillar Production System powered by 6 Sigma and our diversified business portfolio, Caterpillar is poised to strengthen its global leadership position during this challenging period," Owens added.

Note: Glossary of terms included on pages 23-24; first occurrence of terms shown in bold italics.

For more than 80 years, Caterpillar Inc. has been making progress possible and driving positive and sustainable change on every continent. With 2007 sales and revenues of $44.958 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.

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," "would," "expect," "anticipate," "should" 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, (i) adverse change in general economic conditions; (ii) adverse change in the industries Caterpillar serves including construction, infrastructure, mining, energy, marine and electric power generation; (iii) Caterpillar's ability to manage material, including steel, and freight costs; (iv) Caterpillar's ability to generate cash from operations, secure external funding for its operations and manage its liquidity needs; (v) material adverse change in customers' access to liquidity and capital; (vi) currency exchange or interest rates changes; (vii) political stability; (viii) market acceptance of the company's products and services; (ix) significant changes in the competitive environment; (x)epidemic diseases; (xi) severe change in weather conditions negatively impacting operations; (xii) changes in law, regulations and tax rates; and (xiii) other general economic, business and financing conditions and factors described in more detail in the company's Form 10-Q filed with the Securities and Exchange Commission on August 1, 2008. This filing is available on our website at http://www.cat.com/sec_filings. We do not undertake to update our forward-looking statements.

                                  Key Points

     Third Quarter 2008
     --   Third-quarter sales and revenues of $12.981 billion were the highest
          third quarter on record and 13 percent higher than the third quarter
          of 2007.

     --   Third-quarter profit was $868 million, and profit per share of $1.39
          was $0.01 less than the third quarter of 2007.

     --   The percent of sales and revenues outside North America continued to
          increase, with 60 percent of total sales and revenues outside North
          America this quarter compared with 56 percent in the third quarter
          last year.



    (Dollars in millions except per share data)

                      Third Quarter  Third Quarter
                           2008          2007      $ Change       % Change
    Machinery and
     Engines  Sales      $12,148       $10,668       $1,480           14%
    Financial Products
     Revenues                833           774           59            8%
    Total Sales and
     Revenues             12,981        11,442        1,539           13%

    Profit After Tax        $868          $927         $(59)          (6)%
    Profit per common
     share - diluted       $1.39         $1.40       $(0.01)          (1)%


Machinery and Engines (M&E) sales improved $1.480 billion despite the weakening in developed economies. The strength of emerging markets, our broad global footprint in industries like mining and energy and growth in integrated service businesses were positive. Machinery sales increased 13 percent, and Engines sales increased 16 percent.

Profit per share declined $0.01, primarily driven by higher costs partially offset by improved price realization and higher sales volume.

Machinery and Engines operating cash flow was $2.343 billion for the first nine months of 2008.

Outlook

     --   Caterpillar is maintaining its full-year outlook for 2008.  The
          company expects sales and revenues to top $50 billion, up from
          $44.958 billion in 2007, and profit per share of about $6.00 per
          share, up from $5.37 per share in 2007.

     --   Our preliminary outlook for 2009 reflects sales and revenues at
          about the same level as 2008.

     --   We will provide an outlook for 2009 profit per share in January
          2009.

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

                                   page 17.



                              DETAILED ANALYSIS

                  Third Quarter 2008 vs. Third Quarter 2007

                  Consolidated Sales and Revenues Comparison
                       3rd Qtr. 2008 vs.  3rd Qtr. 2007
To access this chart, go to http://www.cat.com for the downloadable version of
                         Caterpillar 3Q2008 earnings.

The chart above graphically illustrates reasons for the change in Consolidated Sales and Revenues between third quarter 2007 (at left) and third quarter 2008 (at right). Items favorably impacting sales and revenues appear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting sales and revenues appear as downward stair steps with dollar amounts reflected in parentheses above each bar. Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees.

Sales and Revenues

Sales and revenues for third quarter 2008 were $12.981 billion, up $1.539 billion, or 13 percent, from third quarter 2007. Machinery volume was up $591 million, and Engines volume was up $242 million, both driven by growth in emerging markets and our broad global footprint in industries like mining and energy. Price realization improved $385 million, and currency had a positive impact on sales of $262 million. In addition, Financial Products revenues increased $59 million.



    Sales and Revenues by Geographic Region

    (Millions of
     dollars)          Total   %Change   North America  %Change  EAME  %Change
    Third Quarter 2007
    Machinery         $7,123               $3,156              $2,166
    Engines(1)         3,545                1,311               1,362
    Financial
     Products(2)         774                  520                 118
                     $11,442               $4,987              $3,646



    (Millions of dollars)  Asia/Pacific    %Change   Latin America    %Change
    Third Quarter 2007
    Machinery                 $999                        $802
    Engines(1)                 608                         264
    Financial Products(2)       63                          73
                            $1,670                      $1,139

    (Millions of
     dollars)          Total   %Change   North America  %Change  EAME  %Change
    Third Quarter
     2008
    Machinery         $8,051      13%      $3,245          3%   $2,270     5%
    Engines(1)         4,097      16%       1,400          7%    1,617    19%
    Financial
     Products(2)         833       8%         491         (6)%     150    27%
                     $12,981      13%      $5,136          3%   $4,037    11%


    (Millions of dollars)  Asia/Pacific    %Change   Latin America    %Change
    Third Quarter 2008
    Machinery               $1,437            44%       $1,099          37%
    Engines(1)                 757            25%          323          22%
    Financial Products(2)      108            71%           84          15%
                            $2,302            38%       $1,506          32%

    (1)  Does not include internal engines transfers of $738 million and
         $629 million in third quarter 2008 and 2007, 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 $64 million and $89 million in third quarter 2008 and 2007,
         respectively.



                               Machinery Sales

Sales of $8.051 billion increased $928 million, or 13 percent, from third quarter 2007.

     --   Sales volume increased $591 million, with the gain coming from
          developing economies.  Most developed economies were weak, with
          several entering into recession.

     --   Price realization increased $164 million.

     --   Currency benefited sales by $173 million.

     --   Geographic mix between regions (included in price realization) was
          $3 million favorable.

     --   Dealers reported higher inventories in all regions, which was a
          positive for sales volume.  Inventories in months of supply were
          slightly higher than a year earlier, with Asia Pacific the only
          region to show a decrease.

     --   In North America, sales volume declined in response to weak U.S.
          construction and quarrying.  Higher coal and crude oil prices
          benefited coal mining and oil sands development.

     --   Sales volume in Europe declined sharply from a year earlier as
          economies in the euro-zone and the United Kingdom were very weak.
          Both residential and nonresidential construction declined.

     --   Sales increased in the developing regions of Africa/Middle East, the
          Commonwealth of Independent States (CIS), Asia/Pacific and Latin
          America where most countries maintained healthy economic growth and
          increased exports.  Higher commodity prices and increased production
          of these commodities boosted government revenues resulting in
          continued construction spending and investment in oil, coal and
          metals production capacity.


     North America - Sales increased $89 million, or 3 percent.

     --   Sales volume decreased $18 million.

     --   Price realization increased $107 million.

     --   Sales volume declined in response to lower demand from end users,
          particularly in the United States. Dealers reported higher
          inventories than a year earlier in both dollars and months of
          supply.

     --   The decline in sales volume resulted from ongoing weaknesses in
          construction and construction-related industries such as quarrying
          and forestry.  Energy-related industries, such as coal mining and
          oil sands, contributed positively.

     --   U.S. housing starts declined 32 percent from a year earlier, and the
          median price of new homes dropped more than 5 percent. Lower
          employment, high mortgage interest rates, declining home prices and
          excessive stocks of unsold homes caused the decline in new
          construction.

     --   Orders for nonresidential construction declined 12 percent.
          Negatives included rising vacancy rates, declining property prices,
          tighter credit conditions for businesses and increased pressure on
          state and local government budgets.

     --   The decline in construction in the United States caused nonmetals
          mining and quarry production to drop almost 16 percent from third
          quarter 2007.

     --   Coal prices more than doubled from a year earlier following price
          increases in Asia.  U.S. coal production increased 3 percent,
          largely to accommodate substantial increases in exports which rose
          more than 50 percent in the first half of the year.  Higher coal
          prices are encouraging Canadian miners to increase capital
          expenditures more than 70 percent this year.

     --   Oil prices averaged more than $115 per barrel in the quarter, which
          made further development of Canada's oil sands attractive.  Capital
          expenditures should increase about 23 percent this year, the fifth
          consecutive year with an increase in excess of 20 percent.


     EAME - Sales increased $104 million, or 5 percent.

     --   Sales volume decreased $17 million.  Lower volume in Europe offset
          gains in both Africa/Middle East and the CIS.

     --   Price realization increased $17 million.

     --   Currency benefited sales by $104 million.

     --   Dealers reduced inventories during the quarter, which is normal, but
          inventories at the end of the quarter were higher than a year
          earlier in both dollars and months of supply.

     --   Sales declined significantly in both the euro-zone and the United
          Kingdom.  The combination of financial market turmoil, high interest
          rates and strong currencies caused these economies to slow abruptly.
          Some economies within the euro-zone were in recession.

     --   Slower growth and high interest rates weakened construction.
          Housing permits in the euro-zone were down 22 percent in the first
          half, and in the United Kingdom third-quarter housing orders fell
          44 percent from a year earlier.  Third-quarter infrastructure
          construction in the euro-zone declined almost 4 percent.

     --   The sales increase in Africa/Middle East occurred largely in the oil
          producing countries.  Oil production increased almost 5 percent from
          a year earlier, and prices were up more than 70 percent.  Higher oil
          revenues enabled countries to spend more on construction and
          increase the drill rig count by 3 percent.

     --   Sales volume expanded in most countries in the CIS region.  The
          increase in oil prices offset a decline in production, allowing
          governments to spend more for construction.  Other positives
          included higher metals and coal prices.


     Asia/Pacific - Sales increased $438 million, or 44 percent.

     --   Sales volume increased $382 million.

     --   Price realization increased $20 million.

     --   Currency benefited sales by $36 million.

     --   Dealers reported much higher inventories, which benefited sales.
          However, months of supply were slightly lower than a year earlier.

     --   Sales also benefited from higher customer demand as reported by
          dealers.  Good economic growth and favorable commodity prices led to
          increased demand, with most of the gain concentrated in China,
          Indonesia and Australia.

     --   Sales volume increased substantially in China, the result of the
          introduction of locally produced wheel loaders this year and growth
          in both construction and mining.  Spending increased 33 percent for
          housing construction and 18 percent for commercial construction.
          Coal production was up 14 percent, and iron ore production rose
          3 percent.

     --   Indonesia, the world's largest thermal coal exporter, benefited from
          much higher coal prices.  Construction has been increasing at about
          an 8 percent annual rate.

     --   High interest rates in Australia slowed economic growth and caused
          the housing sector to decline.  However, higher coal and iron ore
          prices led to more than 50 percent increases in exploration
          expenditures for both these commodities.  In addition,
          infrastructure construction increased 11 percent in the first half,
          in part to alleviate transportation problems resulting from
          increased mine output.


     Latin America - Sales increased $297 million, or 37 percent.

     --   Sales volume increased $247 million.

     --   Price realization rose $17 million.

     --   Currency benefited sales by $33 million.

     --   Dealers reported significant additions to inventories during the
          quarter, which contributed to the gain in sales volume.  Inventories
          were higher than a year ago in both dollars and months of supply.
          Inventories had been low, so the increase returned months of supply
          to more normal rates and supports future growth in dealer
          deliveries.

     --   Brazil was the biggest contributor to sales volume growth.  Although
          interest rates increased this year, the economy continued to benefit
          from the large rate reductions during the past two years.  As a
          result, construction increased over 9 percent in the first half.
          The country's large commodity sector grew rapidly, with oil
          production up more than 5 percent and mining output up more than 8
          percent.

     --   In Mexico, energy revenues rose substantially due to higher oil
          prices and a 14 percent increase in natural gas production.  These
          higher revenues, along with some growth in construction, led to a
          large gain in sales volume.

     --   Sales volume increased in Colombia, largely as a result of much
          higher coal prices.


                                Engines Sales
  Sales of $4.097 billion increased $552 million, or 16 percent, from third
                                quarter 2007.

     --   Sales volume increased $242 million.

     --   Price realization increased $221 million.

     --   Currency benefited sales $89 million.

     --   Geographic mix between regions (included in price realization) was
          $2 million favorable.

     --   Dealer-reported inventories were up, and months of supply were up
          slightly, supporting stronger delivery rates.


     North America - Sales increased $89 million, or 7 percent.

     --   Sales volume increased $9 million.

     --   Price realization increased $80 million.

     --   Sales for marine applications increased 68 percent, with strong
          demand for petroleum supply vessels to support offshore drilling.

     --   Sales for industrial applications increased 30 percent in small- and
          medium-sized product due to increased demand in agricultural and
          mining applications as a result of high commodity prices.

     --   Sales for on-highway truck applications increased 7 percent, which
          resulted from a slight improvement in the North American on-highway
          heavy-duty truck market compared with a very weak third quarter
          2007.

     --   Sales for petroleum engine applications declined 3 percent due to a
          temporary pause in North American drill rig production.  Turbine
          sales for gas transmission projects were down due to timing of
          customer project schedules.  This was partially offset by an
          increase in turbine-related services.

     --   Sales for electric power applications were about the same as the
          third quarter of 2007.


     EAME - Sales increased $255 million, or 19 percent.

     --   Sales volume increased $95 million.

     --   Price realization increased $85 million.

     --   Currency benefited sales by $75 million.

     --   Sales for electric power applications increased 20 percent, with
          strong demand in Africa/Middle East offsetting weaker demand in
          Europe and the CIS.

     --   Sales for marine applications increased 49 percent to support higher
          demand for workboats and commercial vessels.

     --   Sales for industrial applications increased 12 percent, with strong
          demand for agriculture and mining support equipment.

     --   Sales for petroleum applications increased 8 percent based on strong
          demand for engines used in drilling and production.  Turbine-related
          services were up as well but were offset by a decline in shipments
          of turbines for oil and gas production projects in the Middle East
          due to timing of customer project schedules.


     Asia/Pacific - Sales increased $149 million, or 25 percent.

     --   Sales volume increased $88 million.

     --   Price realization increased $47 million.

     --   Currency benefited sales by $14 million.

     --   Sales for marine applications increased 49 percent, with continued
          strong demand for workboat and offshore shipbuilding.

     --   Sales of electric power engines increased 32 percent, with strong
          demand in gas generator sets for industrial power in Bangladesh and
          with demand for data and telecommunication centers in China.

     --   Sales for petroleum applications increased 11 percent in support of
          Chinese drill rig builders that continue to manufacture at record
          levels and to support increased demand from Asian shipyards in
          support of offshore drilling.  Sales of turbine-related services
          increased but were offset by a decline in shipments of turbines for
          oil and gas production projects due to timing of customer project
          schedules.


     Latin America - Sales increased $59 million, or 22 percent.

     --   Sales volume increased $52 million.

     --   Price realization increased $7 million.

     --   Sales for petroleum applications increased 44 percent driven by
          strong demand for on-site power generation to support oil production
          across the region and to support drilling in Venezuela.  Turbines
          and turbine-related services increased for oil and gas production
          applications in Mexico.

     --   Sales of electric power engines increased 24 percent as strong
          demand was driven by high commodity prices and infrastructure
          investment.

     --   Sales for on-highway truck applications decreased 57 percent as a
          result of Original Equipment Manufacturer (OEM) customers working
          down inventory that was accumulated prior to emission law changes in
          the region.


                         Financial Products Revenues
 Revenues of $833 million increased $59 million, or 8 percent, from the third
                                quarter 2007.

     --   Growth in average earning assets increased revenues $101 million,
          which was partially offset by a decrease of $59 million due to lower
          interest rates on new and existing finance receivables.

     --   Revenues from earned premiums at Cat Insurance increased
          $20 million.


                   Consolidated Operating Profit Comparison
                       3rd Qtr. 2008 vs. 3rd Qtr. 2007
To access this chart, go to http://www.cat.com for the downloadable version of
                         Caterpillar 3Q2008 earnings.

The chart above graphically illustrates reasons for the change in Consolidated Operating Profit between third quarter 2007 (at left) and third quarter 2008 (at right). Items favorably impacting operating profit appear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting operating profit appear as downward stair steps with dollar amounts reflected in parentheses above each bar. Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees. The bar entitled Other includes the operating profit impact of consolidating adjustments and Machinery and Engines other operating expenses.

Operating Profit

Operating profit in third quarter 2008 of $1.173 billion was $140 million lower than third quarter 2007 as improved price realization and higher sales volume were more than offset by higher costs and the unfavorable impact of currency.

Manufacturing costs rose $442 million compared with third quarter 2007. The majority of the manufacturing cost increase was driven by higher material and freight costs. Material costs increased due to higher steel and commodity prices, and freight costs increased primarily due to higher fuel prices. In addition, manufacturing labor and overhead costs increased to support capacity expansion and velocity initiatives.

Selling, General and Administrative (SG&A) and Research and Development (R&D) costs were up $158 million to support significant new product programs and growth.

Currency had a $65 million unfavorable impact on operating profit as the benefit to sales was more than offset by the negative impact on costs.



    Operating Profit by Principal Line of Business
    (Millions of dollars)

                         Third Quarter  Third Quarter      $              %
                             2008            2007        Change         Change
    Machinery(1)             $464            $681       $(217)           (32)%
    Engines(1)                616             529          87             16%
    Financial Products        144             178         (34)           (19)%
    Consolidating
     Adjustments              (51)            (75)         24
    Consolidated
     Operating Profit      $1,173          $1,313       $(140)           (11)%

    (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 $464 million was down $217 million, or
          32 percent, from third quarter 2007.  Improved price realization and
          higher sales volume were more than offset by higher costs and the
          unfavorable impact of currency.

     --   Engines operating profit of $616 million was up $87 million, or
          16 percent, from third quarter 2007.  Improved price realization
          and higher sales volume were partially offset by higher costs.

     --   Financial Products operating profit of $144 million was down
          $34 million, or 19 percent, from third quarter 2007.  The decrease
          was primarily attributable to a $38 million impact from decreased
          net yield on average earnings assets, a $17 million increase in SG&A
          expenses and a $13 million increase in the provision for credit
          losses at Cat Financial, partially offset by a $40 million favorable
          impact from higher average earning assets.


     Other Profit/Loss Items

     --   Other income/expense was income of $138 million compared with income
          of $51 million in third quarter 2007.  The increase was primarily
          due to the favorable impacts of currency.

     --   The provision for income taxes in the third quarter of 2008 reflects
          an estimated annual tax rate of 31.5 percent compared to an actual
          rate of 30.5 percent for the third quarter 2007 and 30 percent for
          the full-year 2007.  The increase over 2007 is attributable to
          expected changes in our geographic mix of profits from a tax
          perspective and the expiration of the U.S. research and development
          tax credit.  The renewal of the U.S. research and development tax
          credit in October 2008 will be reflected in the fourth quarter as a
          reduction of approximately one percentage point in the estimated
          annual tax rate.

     --   Equity in profit/(loss) of unconsolidated affiliated companies was
          income of $11 million compared with income of $27 million in the
          third quarter of 2007.  The decline reflects lower profit at Shin
          Caterpillar Mitsubishi Ltd. (SCM) and the absence of profit due to
          the sale of our investment in A.S.V. Inc. during the first quarter
          2008.

          On August 1, 2008, SCM redeemed one-half of Mitsubishi Heavy
          Industries Ltd.'s (MHI's) shares in SCM for $464 million.
          Caterpillar now owns 67 percent of the renamed entity, Caterpillar
          Japan Ltd.  We consolidated Cat Japan's balance sheet on September
          30, 2008.  We will begin consolidating Cat Japan's results of
          operations in the fourth quarter.

Employment

Caterpillar's worldwide employment was 112,104 at the end of the third quarter 2008, up 12,327 from a year ago. Of the increase, approximately 4,700 were the result of consolidating Cat Japan and about 1,500 were the result of acquisitions. The remaining increase of approximately 6,100 employees primarily supported increased volumes, growth and new product introductions.

Outlook

Economic Outlook

The financial crisis, which has been ongoing for more than a year, intensified significantly in September. The developed economies of North America, Europe and Japan were already struggling, and recent tightening in credit conditions indicate that developed economies will deteriorate further in the coming months. Recent coordinated interest rate cuts in both North America and Europe suggest that governments and central banks are replacing anti-inflation policies with actions to address financial turmoil and slowing economies.

Developing economies have been largely immune to the financial crisis, but some problems are emerging. Financing difficulties stopped several infrastructure projects, and some banking systems, such as in Russia, experienced disruptions. These impacts, along with some policy tightening, point to slower growth in these countries as well.

The current financial crisis is the worst in years, and the factors driving it are different than previous recessions. This uniqueness means very little historical experience is available to guide our planning. While we are outlining our preliminary economic outlook below, we are monitoring events closely and new developments may require adjustments to our assumptions and conclusions in the future.

Overall, we expect world economic growth will slow from 3.8 percent in 2007 to 2.8 percent in 2008. Our preliminary projection for 2009 is for less than 2.5 percent growth, the slowest since 2002.

North American economies should grow a little less than 1.5 percent in 2008 and less than 1 percent in 2009.

     --   U.S. gross domestic product (GDP) may have increased slightly during
          the third quarter, but employment has declined all year.  Declining
          employment and growing weaknesses in consumer spending lead us to
          believe the National Bureau of Economic Research will eventually
          declare a recession is underway.

     --   Credit markets are not functioning properly, with commercial paper
          outstanding declining rapidly, key interest rate spreads reaching
          the highest in years and banks tightening lending standards.  These
          disruptions almost certainly mean the economy will slow sharply in
          coming quarters.

     --   The government enacted a comprehensive plan, which will allow the
          U.S. Treasury Department to buy distressed assets, inject capital
          into banks and support the Fed in directly providing credit.
          Government spending should increase substantially and eventually
          benefit economic growth.

     --   The Fed is now aggressively addressing financial problems.  Most
          important, it cut its interest rate target to 1.5 percent and
          injected significant funding into the banking system.  We believe
          the Fed will soon cut interest rates to 1 percent or lower and
          provide even more funds to banks.

     --   In the meantime, the Fed indicated it would provide credit directly,
          helping to offset disruptions.  It announced it would buy commercial
          paper, and other actions are likely.

     --   The adoption of highly expansive economic policies should correct
          current financial and economic problems.  However, these policies
          will take time to work, and we do not expect meaningful improvement
          before late 2009.

     --   The Canadian economy is near recession, and the Bank of Canada
          participated in the recent round of coordinated interest rate
          reductions.  We expect further interest rate reductions, but the
          economy will remain weak throughout 2009.

Economic growth in Europe should slow to near 1.5 percent this year and drop close to 1 percent in 2009.

     --   The euro-zone economy declined in the second quarter, and survey
          data indicated further deterioration in the third quarter.  The U.K.
          economy is also weakening.  We believe much of Europe will be in
          recession by the end of the year.

     --   Many European governments reacted to banking crises by taking
          capital positions in banks and guaranteeing bank deposits.  Several
          central banks also participated in the coordinated 50 basis point
          interest rate reduction.

     --   Despite those positive moves, European interest rates are well above
          levels that were needed to start the last recovery in Europe.
          Moving rates much lower, which we think will be necessary, could
          take considerable time.

     --   We are not planning on an economic recovery in Europe in 2009.


    The Japanese economy should grow about 0.5 percent in both 2008 and 2009.

     --   The Bank of Japan tightened economic policies last year, adopting a
          more severe position than existed prior to the last recovery in
          Japan.  As a result, the economy declined in the second quarter and
          is now probably in recession.

     --   Despite a weak economy, the central bank has not eased policy
          significantly.  As a result, we do not expect a recovery in Japan in
          2009.

Economic growth in the developing economies should average about 6 percent in 2008 and then slow to 5.5 percent in 2009.

     --   Developing economies have experienced significant growth over the
          past few years as a result of much lower inflation, substantially
          lower interest rates, very competitive exports and favorable
          commodity prices.  Many of those factors remain in place today.

     --   Commodity prices declined sharply over the past few weeks from very
          high levels.  We assume prices will ease further but not so low that
          producers will sharply curtail investments.  Most governments did
          not increase spending nearly as much as revenues increased, so they
          will not be forced to cut infrastructure spending simply because
          commodity prices are lower.

     --   Many developing countries had been tightening economic policies to
          slow inflation.  Some, such as China, have already reversed
          policies, and we believe the ongoing financial crisis will cause
          others to slow, or even reverse policies.  As a result, domestic
          economies should hold up fairly well, helping offset weaknesses in
          exports.

     --   In the past, these developing economies encountered problems in
          paying for imports since they ran deficits with developed countries.
          This is not likely in the coming year since these countries have
          been running large surpluses with developed countries and have
          accumulated large reserves.

     --   We expect that most developing economies will respond to internal
          financial difficulty by using reserves and sovereign wealth funds to
          maintain economic growth.  Russia has already responded in that way
          to internal financial challenges.

Based on the above factors, we expect developing economies will have fewer problems in 2009 than developed economies.

2008 Sales and Revenues and Profit Outlook

Sales and revenues in the first three quarters of 2008 have been well above last year, and the order board supports continued sales growth in the fourth quarter. In addition, Cat Japan's sales will be consolidated in the fourth quarter.

                           2008 Sales and Revenues

To access this chart, go to http://www.cat.com for the downloadable version of
                         Caterpillar 3Q2008 earnings.

We continue to expect full year 2008 sales and revenues to be more than $50 billion and profit per share to be about $6.00.

Preliminary 2009 Outlook

For 2009, our preliminary forecast is for sales and revenues to be about the same as in 2008. The positive factors related to our preliminary 2009 outlook include:

     --   Rapid growth in the developing countries' industry opportunities
          over the past seven years means this opportunity is now larger than
          that in the developed economies.  We expect that industry
          opportunity in developing economies, while slowing, will still grow
          in 2009, helping to offset sharp declines in the developed
          economies.

     --   For several years, the mining and energy sectors have demanded more
          large machines, engines and turbines than manufacturers could
          provide.  As a result, equipment fleets have aged.  We believe that
          planned investments by mining and energy companies, coupled with the
          need to replace aged equipment, should support continuing strong
          demand for mining and energy-related products in 2009.

     --   Most dealers are reporting inventories that are appropriate for
          their deliveries.  We do not anticipate a need for dealers to
          sharply reduce inventories in 2009.

     --   2009 will include a full year of Cat Japan sales.

     --   Growth opportunities in service areas, like Progress Rail and Cat
          Logistics, should increase in 2009.

     --   Price increases announced for 2009 are also expected to be positive
          for sales next year.

Our 2009 preliminary outlook for sales and revenues is subject to the uncertainty of the current global economic environment, and we expect the positive factors noted above to be about offset by continuing sharp declines in industry demand in all developed economies -- particularly in construction and construction-related sectors.

As a result of the uncertainties associated with current global economic circumstances we will provide an outlook for 2009 profit per share in our January 2009 release.

     Questions and Answers

     Economy / Sales / Outlook

     Q1:  When do you predict a recovery in U.S. housing?

     A:   Housing sales have shown signs of stabilizing, and the inventory of
          unsold new homes has been declining.  We expect that Fed interest
          rate reductions and the U.S. Treasury's plans to buy bank preferred
          shares will help lower mortgage interest rates and encourage banks
          to ease lending standards.  Those changes should make a recovery in
          housing possible in late 2009.

     Q2:  Commodity prices have tumbled over the past quarter.  How is that
          affecting 2008 sales, and what are the implications for next year
          and beyond?

     A:   Since the end of second quarter 2008, West Texas Intermediate oil
          prices dropped from over $135 per barrel to near $70; copper prices
          dropped from almost $3.90 per pound to under $2.20.  Those declines
          are large but are from historically high levels.  The current
          investment cycle was already underway in early 2005 when the oil
          price was a little over $40 and copper was $1.40.  As such, current
          prices remain favorable for investment.

          A weakening world economy could continue to push prices down and
          impact producers' investment plans.  However, we believe production
          capacities remain below long-term needs for most energy commodities
          and metals, and our data suggests equipment used in these industries
          has aged.  As a result, we expect most commodity prices will remain
          attractive for investment and that most producers will continue to
          invest to meet long-term needs.

     Q3:  European economies have declined rapidly.  What does that mean for
          Caterpillar sales this year and next?

     A:   Our sales volume in Europe declined below year-earlier levels in
          both the second and third quarters of this year.  We believe that
          many European economies will be in recession by the end of the year
          and will remain depressed throughout 2009.  So, we expect sales
          volume in Europe will decline in 2009.

     Q4:  Are you expecting a worldwide recession in 2009?

     A:   Currently we believe much of the developed world will be in
          recession but that the developing economies will continue to grow at
          a rate that would be positive for our sales and revenues.
          Therefore, despite recession in the developed world, we do not
          anticipate a worldwide economic collapse as occurred in the early
          1980s.

     Q5:  Sales to emerging market countries in Asia, Latin America, the
          Middle East and Africa have been very positive for Caterpillar.  Can
          that continue in this economic environment?  Do you expect growth to
          slow?

     A:   Up until now, developing countries have been largely immune from the
          financial crisis that has swept the developed economies.  Our sales
          growth in these countries was robust through the third quarter, and
          our near-term order position is strong. Several factors leave us
          cautiously optimistic about 2009 prospects:  (1) these countries
          have not focused as intensely on fighting inflation as have the
          developed countries, (2) some countries have eased monetary policy,
          and we expect others will follow, (3) developing countries have
          increased infrastructure spending well within the limits of income
          growth, (4) many of these countries have accumulated sizeable
          savings in official reserves or sovereign wealth funds, and (5)
          collectively they are in a stronger financial position than in
          advance of past downturns.  However, recessions in developed
          countries will slow developing country exports, and the financial
          crisis will cause some delays or cancellations of infrastructure
          projects.  After assessing these factors, we are forecasting a
          slowing in both economic growth and our sales but not recessionary
          conditions in developing countries.

     Q6:  Can you comment on your expectations for China's economy over the
          next year?

     A:   China started tightening economic policy in 2006, and growth is
          slowing from almost 12 percent last year to a little over 10 percent
          this year.  The government has begun easing policies, and we expect
          that to help.  We expect growth will slow somewhat next year but at
          a level that supports an increase in our sales in China.

     Q7:  Why aren't you providing a profit outlook for 2009?

     A:   The economic environment has changed significantly over the past
          month.  At this point in our planning process, we develop our
          preliminary outlook for the coming year using a comprehensive
          bottoms-up, business unit forecast.  We've taken the recent events
          into account in developing our outlook for sales and revenues, but
          we have more work to do in operational planning for 2009.  We expect
          to provide a profit outlook with our year-end release in January.


     Costs / Margin

     Q8:  What do you expect for material costs next year?  How about the
          fourth quarter of 2008?

     A:   While we expect the rate of increase to slow or to reverse for some
          commodities given the third quarter's record highs, we still expect
          to experience cost increases in fourth quarter 2008 and on average
          for 2009. We plan to continue to minimize the impact of these
          increases as much as possible through cost reduction and other
          efforts to help offset sustained commodity driven price increases.

     Q9:  Do you expect that the Cat Production System (CPS) will result in
          manufacturing cost reductions that we will clearly see in 2009
          results?

     A:   We are very confident that we are on the right path with CPS and
          that it will provide significant improvements in safety, quality,
          velocity and costs.  That said, we've not provided an outlook for
          2009 profit.  We expect to be in a better position to do that with
          our year-end release in January.

     Q10: What cost actions are you taking in response to turmoil in credit
          markets and the potential for a difficult recession in much of the
          world?

     A:   We will continue to monitor the current economic situation and
          assess its impact on Caterpillar.  Each of our divisions has
          specific trough action plans to prioritize spending and investment
          in uncertain times with declining volume.  Some divisions within
          Caterpillar are already executing these plans as their markets are
          already in recession.  We are closely watching the business
          environment and are ready to execute plans in other divisions if the
          situation requires it.


     Engines

     Q11: What's the status of your various initiatives with Navistar?

     A:   We are continuing to work cooperatively with Navistar on a broad
          range of strategic initiatives since the announcement of our
          strategic alliance in June 2008.


     Cat Financial

     Q12: Give us an update on the quality of your asset portfolio.  How are
          past dues, credit losses and allowances?

     A:   At the end of the third quarter, past dues were 3.64 percent
          compared with 2.36 percent at the end of 2007 and 2.52 percent at
          the end of third quarter 2007.  The increase in past dues began with
          the downturn in the U.S. housing market, but has recently spread to
          Europe as global credit challenges continue.  We expect there will
          be continued upward pressure on past dues throughout the remainder
          of 2008.

          Bad debt write-offs net of recoveries were $22 million for the third
          quarter of 2008 compared with $15 million for the third quarter of
          2007.  This increase has been driven by economic conditions in North
          America and a 17 percent growth in Cat Financial's average retail
          finance receivable portfolio.  For the first nine months of 2008,
          bad debt write-offs net of recoveries were $61 million compared with
          $41 million for the first nine months of 2007.  As a percentage of
          Cat Financial's retail portfolio, we expect that bad debt write-offs
          through the remainder of 2008 will be higher than 2007, but near
          historical averages.

          At the end of the third quarter 2008, Cat Financial's allowance for
          credit losses totaled $390 million, an increase of $52 million from
          the third quarter of 2007.  Of the increase, $46 million is
          attributable to growth in the retail finance receivable portfolio
          while $6 million resulted from the increase in the allowance rate
          from 1.39 percent to 1.41 percent of net finance receivables.

     Q13: How do these asset quality metrics compare with prior recessions?

     A:   As a historical comparison, total Cat Financial past dues during the
          last U.S. recession were 4.78 percent at their peak at the end of
          the first quarter of 2002.  Total write-offs net of recoveries for
          the full-year of 2002 were 0.69 percent of our average retail
          portfolio, or more than double the annualized September 2008
          year-to-date rate of 0.32 percent.  Cat Financial's allowance for
          credit losses, totaling $390 million at the end of the third quarter
          of 2008, is appropriate for the current and expected global economic
          environment.

     Q14: Describe your access to debt markets over the past quarter,
          particularly over the past 6 weeks?

     A:   Cat Financial has maintained access to commercial paper markets
          throughout the recent credit market disruption to fund ongoing
          operations.  Over the last 6 weeks, commercial paper maturities have
          typically ranged from overnight to 1 and 2 months.  Global term debt
          market conditions have been challenging, however Cat Financial has
          been able to fund its portfolio needs.

     Q15: How much commercial paper do you have, and do you have commercial
          paper with maturities beyond a few days?

     A:   At the end of the third quarter, Cat Financial had approximately
          $5.0 billion in commercial paper outstanding.  Of this amount,
          86 percent, or $4.3 billion, had maturities beyond one week.

     Q16: Are you backing up your commercial paper with bank lines?  If so,
          how much?

     A:   Cat Financial shares a $6.85 billion revolving credit facility with
          Caterpillar Inc. that was increased in September 2008 by
          $0.3 billion.  The majority of this facility, totaling $5.85
          billion, is allocated to Cat Financial and serves to provide 100
          percent backup for commercial paper issuance globally.

     Q17: I know you've been in the market recently with medium term notes.
          Can you describe market interest in your offering -- were the notes
          oversubscribed?  Can you discuss your recent experience with credit
          spreads and how that compares with rates over the past year?

     A:   In September, Cat Financial successfully demonstrated access to the
          U.S. term debt market during a period of highly volatile market
          conditions.  The Medium Term Note (MTN) transaction was originally
          targeted at $500 million and was increased to $1.3 billion after
          strong investor interest that totaled nearly $3 billion.  This Cat
          Financial funding transaction, which occurred on September 23, 2008,
          represented the first investment grade transaction in the U.S. bond
          market in nearly two weeks.  Credit spreads and all-in coupon rates
          achieved for this 5- and 10-year fixed rate MTN issuance were higher
          than historical levels and reflected the broader market conditions.
          Subsequent U.S. corporate investment-grade MTN issuances in late
          September and early October have reflected comparatively wider
          credit spreads and higher interest rate coupon levels than the
          recent Cat Financial transaction.

          As a historical comparison, Cat Financial's credit spread over
          applicable U.S. Treasuries for 10-year MTN issuance in August 2007
          to September 2008 has increased 195 basis points (from 130bps to
          325bps).  During this same period, the Merrill Lynch single-A rated
          bond index increased 331 basis points (133bps to 464bps).

     Q18: "Credit Default Swaps" for captive finance companies have been in
          the news. What are they and how have they impacted Cat Financial?

     A:   A credit default swap (CDS) is a derivative that allows investors to
          "insure" against credit loss on a transaction.  This credit risk
          protection is purchased from a selling counterparty to cover risk
          exposure in the event of default by a third-party.  Investors may
          choose to purchase protection against issuer default on underlying
          investments utilizing these credit derivatives.  Issuers of
          corporate debt have recently experienced elevated CDS levels due to
          the broader concerns related to credit market conditions.  This
          impact has been seen across all industries and has been a factor in
          the wider credit spreads required by investors on new term debt
          investments.  Likewise, higher CDS pricing levels have been a factor
          in the wider credit spreads Cat Financial has recently experienced
          on term debt issuance.  In general, Cat Financial CDS levels have
          remained lower than other finance companies and banks in the recent
          market.

     Q19: Are used equipment prices falling and what impact could this have on
          Cat Financial?

     A:   Cat Financial has had a consistent approach to underwriting over a
          number of years and has a very diversified portfolio serving
          multiple industries.  Residuals are established by model based on a
          range of factors including: the application, expected usage, lease
          term and past remarketing experience.  While used equipment prices
          are continuing to trend lower, we believe that residual values are
          appropriate.  Over the past ten years Cat Financial's gain or loss
          on terminations has not been significant to profitability and has
          averaged about 1 percent of Cat Financial's profit before tax.   In
          addition, Cat Financial's recent experience is consistent with its
          historical performance.


     Cash / Capacity / Capital Expenditures

     Q20: How much Caterpillar stock did you repurchase in the third quarter?

     A:   In the third quarter we repurchased 5.9 million shares at a cost of
          $388 million.  Through September 2008, we have spent $3.65 billion
          of the $7.5 billion authorized.  We repurchase stock as part of our
          cash deployment process under our Board-authorized $7.5 billion
          stock repurchase program which expires on December 31, 2011.

     Q21: When did SCM execute its share repurchase, when did you begin
          consolidating SCM and what's the impact on your third-quarter
          financial statements?

     A:   On August 1, 2008, SCM redeemed one-half of Mitsubishi Heavy
          Industries Ltd.'s (MHI's) shares in SCM for $464 million.
          Caterpillar now owns 67 percent of the renamed entity, Caterpillar
          Japan Ltd.  We consolidated Cat Japan's balance sheet on September
          30, 2008.  The consolidation resulted in a net increase in assets of
          approximately $2.4 billion (primarily $1.3 billion of property,
          plant and equipment, $0.6 billion of receivables,
          $0.6 billion of inventory and $0.3 billion of goodwill and
          intangibles, partially offset by a $0.5 billion reduction in
          investment in unconsolidated affiliates) and a net increase in
          liabilities of $2.1 billion, including $1.4 billion in debt.  We
          will begin consolidating Cat Japan's results of operations in the
          fourth quarter.  This will result in higher Caterpillar sales in the
          fourth quarter, but we expect it will have little impact on fourth
          quarter profit.

     Q22: Given the uncertainty in global markets, how will you manage your
          liquidity and cash deployment going forward?

     A:   We have a strong balance sheet.  Our debt-to-capital ratio is in the
          middle of our target range.  We have capacity to fund growth,
          contribute to our benefit plans, pay dividends and repurchase stock.
          We have a well-established cash deployment strategy that maintains
          our financial strength.  We are constantly evaluating business and
          economic conditions and will flex our use of cash as needed to
          maximize long-term stockholder value.

     Q23: Outside of Cat Financial, what has been Caterpillar's recent
          experience with debt markets? Do you have access to capital?

     A:   The problems in the credit markets have had limited impact on
          Caterpillar due to our strong credit rating.  We have been able to
          maintain normal operations and fund our needs.  We have had
          consistent demand for our commercial paper and believe we can issue
          long-term debt as needed.

     Q24: What's your M&E debt-to-capital ratio and where is it relative to
          your target range?

     A:   The debt-to-capital ratio for Machinery and Engines was 40 percent
          at the end of the third quarter, within our current target range of
          35 to 45 percent.  The consolidation of Cat Japan added $1.4 billion
          of debt and increased the debt-to-capital ratio 6 percentage points.
          We are positioned in the middle of our target range and have
          capacity in our debt-to-capital ratio to accommodate our 2009 needs.


     GLOSSARY OF TERMS

     1.   A.S.V. Inc. -- A company in which Caterpillar previously held a 23
          percent equity investment.  This investment was sold in February
          2008.

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

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

     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.   Debt-to-Capital Ratio -- A key measure of financial strength used by
          both management and our credit rating agencies.  The metric is a
          ratio of Machinery and Engines debt (short-term borrowings plus
          long-term debt) to the sum of Machinery and Engines debt and
          stockholders' equity.

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

     7.   Earning Assets -- Assets consisting 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
          machinery and engine components and remanufacturing services for
          other companies.  Reciprocating engines meet power needs ranging
          from 5 to 21,500 horsepower (4 to more than 16 000 kilowatts).
          Turbines range from 1,600 to 30,000 horsepower (1 200 to 22 000
          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.  Integrated 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, Progress Rail, Solar Turbines Customer Services, Cat
          Logistics, OEM Solutions and Cat Reman.

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

     12.  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.

     13.  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.

     14.  Machinery and Engines Other Operating Expenses -- Comprised
          primarily of gains (losses) on disposal of long-lived assets and
          long-lived asset impairment charges.

     15.  Manufacturing Costs -- Represent the volume-adjusted change for
          manufacturing costs.  Manufacturing costs are defined as material
          costs and labor and overhead costs related to the production
          process.  Excludes the impact of currency.

     16.  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.

     17.  Sales Volume -- With respect to sales and revenues, sales volume
          represents the impact of changes in the quantities sold for
          machinery and engines 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
          machinery and engines combined with product mix-the net operating
          profit impact of changes in the relative weighting of machinery and
          engines sales with respect to total sales.

     18.  Shin Caterpillar Mitsubishi Ltd. (SCM) -- Formerly a 50/50 joint
          venture between Caterpillar and Mitsubishi Heavy Industries Ltd.
          (MHI).  On August 1, 2008, SCM redeemed one-half of MHI's shares.
          Caterpillar now owns 67 percent of the renamed entity, Caterpillar
          Japan Ltd.

     19.  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 29-34 reconcile Machinery and
          Engines with Financial Products on the equity basis to Caterpillar
          Inc. consolidated financial information.

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

SOURCE Caterpillar Inc.

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