Caterpillar Reports Record Sales and Revenues and Profit Per Share for 2008

PEORIA, Ill., Jan. 26 /PRNewswire-FirstCall/ -- Caterpillar Inc. (NYSE: CAT) today announced record sales and revenues of $51.324 billion for 2008, up 14 percent from 2007. Profit per share was $5.66, up 5 percent and profit after tax of $3.557 billion was about flat with 2007. The company also reported record fourth-quarter sales and revenues of $12.923 billion, 6 percent higher than the fourth quarter of 2007. Profit per share for the quarter was $1.08, down 28 percent from the fourth quarter of 2007.

"While 2008 was our sixth consecutive year of record sales and revenues, it was an extraordinarily challenging year," said Caterpillar Chairman and Chief Executive Officer Jim Owens. "Through the first three quarters we experienced booming demand from key global industries, notably mining and energy, and most emerging market countries. Delivery times for many products were extended, and we were focused on increasing production and expediting shipments to meet customer needs," Owens added. "Then we were whipsawed in the fourth quarter as key industries were hit by a rapidly deteriorating global economy and plunging commodity prices. In anticipation of lower demand we encouraged dealers to align inventory with declining volume, and they responded with significant order cancellations, particularly in December."

For the year, sales and revenues increased $6.366 billion- $3.816 billion from higher sales volume, $1.352 billion from improved price realization, $653 million from the effects of currency, $284 million from higher Financial Products revenues and $261 million from the consolidation of Caterpillar Japan Ltd. (Cat Japan). Profit for 2008 was about flat with 2007, with the positive impact of higher price realization, improved sales volume and lower income tax expense about offset by higher operating costs, especially material and freight costs.

Fourth-quarter sales and revenues of $12.923 billion increased $779 million from the fourth quarter of last year. Higher sales volume of $494 million, improved price realization of $308 million, $261 million related to the consolidation of Cat Japan and $19 million from higher Financial Products revenues were partially offset by $303 million of lower sales from the effects of currency. Fourth-quarter profit of $661 million decreased $314 million as significantly higher Machinery and Engines operating costs and a sharp decline in profit related to Financial Products, more than offset a $409 million favorable tax item and favorable price realization.

"Fourth-quarter profit was disappointing, particularly in light of record fourth-quarter sales and revenues and a significant favorable tax adjustment," Owens said. "Fourth-quarter costs included transitional expenses as we moved to lower volumes and initiated production cuts. In addition, Financial Products results were impaired by financial market turbulence. It is now clear that we need to sharply lower our production and costs, and aggressive actions were triggered in December," Owens said.

Outlook

Global economic conditions and key commodity prices have continued to decline significantly. Financial markets remain under stress, and our expectations for 2009 have deteriorated. Uncertainty around the depth and duration of this recession makes it very difficult to forecast sales and revenues. As a result, Caterpillar is rapidly executing strategic "trough" plans and implementing actions throughout the company to deal with a very challenging global business environment. We have initiated actions which will remove about 20,000 workers from our business and every indirect spend dollar will be heavily scrutinized. These actions support lowering our production costs in line with a 25-percent decline in sales volume and reducing Selling, General and Administrative (SG&A) and Research and Development (R&D) costs supporting our Machinery and Engines business by about 15 percent. We are encouraged by government stimulus programs and actions taken by central banks around the world to spur growth. However, economic conditions remain uncertain, and we are planning for 2009 sales and revenues to be in a range of plus or minus 10 percent from $40 billion. At $40 billion in 2009 sales and revenues, the company expects to achieve profit of $2.50 per share, excluding redundancy costs.

"These are very uncertain times, and it's imperative that we focus Team Caterpillar on dramatically reducing production schedules and costs in light of poor economic conditions throughout the world," Owens said. "While it's painful for our employees and suppliers, it's absolutely necessary given economic circumstances. We expect to have most of the actions needed to lower employment and cost levels in place by the end of the first quarter," Owens added.

"Without a doubt, 2009 will be a very tough year, but it's important to remember that economic cycles aren't new, and we will emerge from this even stronger than we are today. Throughout our 83-year history Caterpillar has successfully managed through the Great Depression, several recessions, a world war and numerous other adversities. We're a strong company with a management team that's been through tough times before. We are the global leader, with an unparalleled dealer network. We've strengthened our market position in past recessions, and we have done so over the past few months. In addition, we will continue to invest in product technology and operational efficiency through these tough times," Owens added. "When the economy does recover, the need for better housing, roads and capacity for energy and mining will still be there, and we will be prepared to respond."

Note: Glossary of terms included on pages 33-34; 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 2008 sales and revenues of $51.324 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 October 31, 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


    Fourth Quarter 2008
    (Dollars in millions except per share data)
                              2008          2007       $ Change      % Change
    Machinery and Engines
     Sales                 $12,120       $11,360         $760           7%
    Financial Products
     Revenues                  803           784           19           2%
    Total Sales and
     Revenues               12,923        12,144          779           6%

    Profit After Tax          $661          $975        $(314)        (32)%
    Profit per common
     share - diluted         $1.08         $1.50       $(0.42)        (28)%


Fourth-quarter sales and revenues of $12.923 billion were 6 percent higher than the fourth quarter of 2007. Machinery sales increased 3 percent, Engines sales increased 14 percent, and Financial Products revenues increased 2 percent.

Fourth-quarter profit was $661 million, and profit per share of $1.08 was $0.42 less than the fourth quarter of 2007.

Fourth-quarter profit declined $314 million as higher operating costs more than offset a $409 million favorable tax adjustment and improved price realization.



    Full Year 2008
    (Dollars in millions except per share data)
                             2008          2007        $ Change      % Change
    Machinery and Engines
     Sales                 $48,044       $41,962       $6,082           14%
    Financial Products
     Revenues                3,280         2,996          284            9%
    Total Sales and
     Revenues               51,324        44,958        6,366           14%

    Profit After Tax        $3,557        $3,541          $16            -
    Profit per common
     share - diluted         $5.66         $5.37        $0.29            5%


Machinery and Engines sales improved $6.082 billion driven by growth in emerging markets, our broad global footprint in industries like mining and energy and growth in integrated service businesses. Machinery sales increased 12 percent, and Engines sales increased 19 percent.

Machinery and Engines operating cash flow was $3.560 billion. Machinery and Engines capital expenditures were $2.421 billion, and we repurchased 27.3 million shares of stock at a cost of $1.879 billion.


     Outlook
     --   We expect a very weak year for the world economy, continued declines
          in commodity prices and industry declines in all regions.

     --   Economic conditions remain uncertain, and we are planning for 2009
          sales and revenues to be in a range of plus or minus 10 percent from
          $40 billion.

     --   At $40 billion in 2009 sales and revenues, the company expects to
          achieve profit of $2.50 per share, excluding redundancy costs.

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

                                   page 26.

                              DETAILED ANALYSIS

                  Consolidated Sales and Revenues Comparison
                                2008 vs. 2007
To access this chart, go to http://www.cat.com for the downloadable version of
                        Caterpillar 4Q 2008 earnings.

The chart above graphically illustrates reasons for the change in Consolidated Sales and Revenues between 2007 (at left) and 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. The bar entitled Machinery Volume includes the impact of consolidation of Cat Japan sales. 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 2008 were $51.324 billion, up $6.366 billion, 14 percent, from 2007. Machinery sales volume was up $2.399 billion, driven by strength in developing economies. Engines sales volume increased $1.678 billion due to growth in all major industries, with particular strength in petroleum.

In addition, price realization contributed $1.352 billion, currency had a positive impact on sales of $653 million driven primarily by the stronger euro and Financial Products revenues increased 9 percent.



    Sales and Revenues by Geographic Region

    (Millions of
     dollars)      Total       %Change   North America    %Change       EAME
    2007
    Machinery     $28,359                   $12,596                     $8,588
    Engines(1)     13,603                     5,092                      5,245
    Financial
     Products(2)    2,996                     2,007                        479
                  $44,958                   $19,695                    $14,312



    (Millions of
     dollars)      %Change    Asia/Pacific   %Change   Latin America  %Change
    2007
    Machinery                   $4,026                   $3,149
    Engines(1)                   2,136                    1,130
    Financial
     Products(2)                   240                      270
                                $6,402                   $4,549


    (Millions of
     dollars)      Total       %Change   North America    %Change       EAME
    2008
    Machinery     $31,804          12%      $12,769          1%         $9,220
    Engines(1)     16,240          19%        5,445          7%          6,311
    Financial
     Products(2)    3,280           9%        2,001          -             590
                  $51,324          14%      $20,215          3%        $16,121


    (Millions of
     dollars)      %Change    Asia/Pacific   %Change   Latin America  %Change
    2008
    Machinery          7%       $5,709          42%      $4,106         30%
    Engines(1)        20%        2,910          36%       1,574         39%
    Financial
     Products(2)      23%          361          50%         328         21%
                      13%       $8,980          40%      $6,008         32%

    (1) Does not include internal engines transfers of $2.822 billion and
        $2.549 billion in 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 $308 million and $400 million in 2008 and 2007, respectively.



                               Machinery Sales
 Sales of $31.804 billion increased $3.445 billion, or 12 percent, from 2007.
     --   Excluding the consolidation of Cat Japan, sales volume increased
          $2.138 billion, with the gain occurring in the developing economies
          of Africa/Middle East, Commonwealth of Independent States (CIS),
          Asia/Pacific and Latin America.

     --   Price realization increased $541 million.

     --   Currency benefited sales by $505 million.

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

     --   The consolidation of Cat Japan added $261 million to 2008 sales.

     --   Dealers in all regions reported higher inventories than year-end
          2007 in both dollars and months of supply.

     --   The U.S. economy was in recession throughout 2008, which contributed
          to weaknesses in both construction and quarrying.  Coal mining and
          oil sands development were about the only positives for North
          America.

     --   The euro-zone entered recession in the second quarter and the United
          Kingdom in the third quarter.  As a result of these recessions,
          housing construction declined sharply, nonresidential construction
          weakened and sales volume declined.

     --   Sales improved in the developing regions of Africa/Middle East, CIS,
          Asia/Pacific and Latin America through the first three quarters of
          2008.  However, growth slowed sharply in the fourth quarter in
          response to weakening economies.


     North America - Sales increased $173 million, or 1 percent.

     --   Sales volume decreased $143 million.

     --   Price realization increased $316 million.

     --   Dealers added slightly to reported inventories this year, a contrast
          to more than a billion-dollar reduction in 2007.  Dealers reported
          higher inventories than a year earlier in both dollars and months of
          supply.

     --   Dealers reported significantly lower deliveries to end users, a
          result of the recession in the United States that persisted
          throughout the year.  That recession led to lower sales in most key
          industries other than coal mining and the Canadian oil sands.

     --   U.S. housing starts declined to 904 thousand units, the lowest since
          1945.  Negatives for housing included a severe tightening in
          mortgage lending standards, sharp declines in home prices and more
          than an 11-month supply of unsold new homes.  Canadian housing
          starts declined 6 percent.

     --   Spending for U.S. nonresidential construction increased in response
          to the surge in new orders over the past few years.  However, new
          orders for commercial construction declined 18 percent in 2008.
          Problems for building construction included increased vacancy rates,
          declines in property prices and tighter credit conditions for
          businesses.

     --   New orders for highway construction declined almost 7 percent.
          Unfavorable factors included limited growth in Federal highway
          funding, state and local government budget difficulties and a sharp
          increase in material input prices.

     --   Nonmetals mining and quarry production dropped almost 14 percent in
          response to lower construction activity.

     --   The Central Appalachian coal price rose 90 percent, driven by a
          43-percent increase in U.S. coal exports.  U.S. coal production
          increased 2.2 percent, and Canadian production rose 1.2 percent.  As
          a result, sales of the large tractors used in coal mining surged.

     --   Investment in Canadian oil sands increased 23 percent, benefiting
          from a 38-percent increase in crude oil prices.


     EAME - Sales increased $632 million, or 7 percent.

     --   Sales volume increased $196 million.

     --   Price realization increased $66 million.

     --   Currency benefited sales by $370 million.

     --   Dealers reported year-end 2008 inventories that were significantly
          higher than a year earlier in both dollars and months of supply.

     --   Sales volume dropped in both the euro-zone and the United Kingdom,
          due to recessions and a slowing in construction.

     --   Housing permits in the euro-zone dropped 22 percent, and U.K.
          housing orders fell 35 percent.  High interest rates and home price
          declines in several European countries contributed to weakness in
          housing.

     --   Mining and energy development, as well as increased construction,
          caused sales volume to increase in Africa/Middle East.  Oil prices
          increased 37 percent, and production rose more than 4 percent from a
          year earlier, which led to an increase in drilling.

     --   Sales volume increased significantly in the CIS region, despite
          economic problems that developed in the fourth quarter.  Positive
          factors included low interest rates, increased government spending,
          increased energy prices and higher production of most energy
          commodities.


     Asia/Pacific - Sales increased $1,683 million, or 42 percent.

     --   Sales volume excluding the consolidation of Cat Japan increased
          $1,254 million.

     --   Price realization increased $91 million.

     --   Currency benefited sales by $77 million.

     --   The consolidation of Cat Japan added $261 million to 2008 sales.

     --   Dealers reported year-end 2008 inventories that were significantly
          higher than a year earlier in both dollars and months of supply.

     --   The largest gain in sales volume occurred in China, the result of
          higher sales of locally produced wheel loaders and increased
          construction activity.

     --   Another large gain in sales volume occurred in Indonesia, largely
          due to much higher coal prices.  Indonesia is the world's largest
          exporter of thermal coal, and coal supplies in Asia were very tight
          for most of the year.

     --   Sales volume increased in Australia, primarily due to high metals
          and energy prices.  Capital expenditures for mineral development
          increased 37 percent, and expenditures for coal increased 46
          percent.  Rapid growth in the mining industry stretched
          infrastructure capacity so investment in infrastructure increased 13
          percent.

     --   In India, 11-percent growth in construction and 4 percent higher
          mining output contributed to an increase in sales volume.


     Latin America - Sales increased $957 million, or 30 percent.

     --   Sales volume increased $833 million.

     --   Price realization increased $66 million.

     --   Currency benefited sales by $58 million.

     --   Dealers reported year-end 2008 inventories that were significantly
          higher than a year earlier in both dollars and months of supply.

     --   Brazil had the largest increase in sales volume.  Economic growth
          continued to benefit from interest rate reductions taken in 2007,
          resulting in a 10-percent increase in construction.  Iron ore
          exports increased 62 percent, due to increased production and much
          higher prices.

     --   Sales volume increased sharply in Mexico.  Positives included much
          higher oil prices, increased natural gas production and 3-percent
          growth in construction.

     --   Sales volume growth in Colombia occurred in response to much higher
          coal prices.  In Chile, high copper prices led to an increase in
          sales volume.


                                Engines Sales
 Sales of $16.240 billion increased $2.637 billion, or 19 percent, from 2007.
     --   Sales volume increased $1.678 billion.

     --   Price realization increased $811 million.

     --   Currency benefited sales $148 million.

     --   Geographic mix between regions (included in price realization) was
          $36 million favorable.

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


     North America - Sales increased $353 million, or 7 percent.

     --   Sales volume increased $62 million.

     --   Price realization increased $291 million.

     --   Sales for on-highway truck applications increased 10 percent
          compared to a very weak 2007.  Demand remained below historic norms
          due to the slowing U.S. economy that resulted in a reduction in
          freight tonnage. Also, the impact of the decision to exit the on-
          highway truck business was starting to be felt as Original Equipment
          Manufacturer (OEM) customers reduced their reliance on Caterpillar
          products.

     --   Sales for petroleum engine applications increased 5 percent, driven
          by a slight increase in natural gas and drilling applications.

     --   Sales for marine applications increased 37 percent, with strong
          demand early in the year for supply vessels that support offshore
          drilling.  This more than offset a decline in engine sales for
          pleasure craft.

     --   Sales for industrial applications increased 11 percent.

     --   Sales for electric power applications decreased 2 percent due to
          economic uncertainty and tightening credit conditions.


     EAME - Sales increased $1,066 million, or 20 percent.

     --   Sales volume increased $639 million.

     --   Price realization increased $293 million.

     --   Currency benefited sales by $134 million.

     --   Sales for petroleum applications increased 46 percent based on
          strong demand for engines used in drilling and production.  Turbines
          and turbine-related services increased in support of gas
          transmission and oil and gas production applications in Africa,
          Europe and the Middle East.

     --   Sales for electric power applications increased 18 percent, with
          strong demand for large- and mid-sized generator sets into Africa
          and the Middle East.  Mid-sized generator sets also benefited from
          successful rental development.

     --   Sales for marine applications increased 30 percent in workboats and
          commercial vessels.

     --   Sales for industrial applications increased 6 percent, with strong
          demand for small engines used in the telecom sector.  In addition,
          demand for agricultural applications also improved as a result of
          high agricultural commodity prices.


     Asia/Pacific - Sales increased $774 million, or 36 percent.

     --   Sales volume increased $603 million.

     --   Price realization increased $157 million.

     --   Currency benefited sales by $14 million.

     --   Sales for petroleum applications increased 54 percent to support
          record Chinese drill rig activity and increased demand for Asian
          shipyards in support of offshore drilling.

     --   Sales for marine applications increased 30 percent, with strong
          demand for workboats and offshore shipbuilding.  Large diesel demand
          grew in the offshore and general cargo industries.

     --   Sales of electric power engines increased 18 percent, with increased
          demand from Bangladesh industrial customers, and continued success
          with Chinese coal mine methane customers, for large gas generator
          sets.  Diesel demand resulted from data and telecommunication center
          demand in China, and utility, mining and paper mill demand from
          Indonesia.

     --   Sales for industrial applications increased 62 percent driven by
          sales in Australia into mining and irrigation sectors and by sales
          in New Zealand.


     Latin America - Sales increased $444 million, or 39 percent.

     --   Sales volume increased $410 million.

     --   Price realization increased $34 million.

     --   Sales for petroleum applications increased 61 percent driven by the
          heightened demand for power to support drilling and production in
          Argentina, Venezuela, Mexico and Peru. Turbines and turbine-related
          services increased for oil and gas production and gas transmission
          applications in South America.

     --   Sales of electric power engines increased 37 percent driven by high
          commodity prices and infrastructure investment.

     --   Sales for industrial applications increased 29 percent.  This demand
          was driven by good economic conditions and higher agricultural
          commodity prices.

     --   Sales for on-highway truck applications decreased 7 percent as a
          result of a loss of OEM business in this region.


                         Financial Products Revenues
 Revenues of $3.280 billion increased $284 million, or 9 percent, from 2007.
     --   Growth in average earning assets increased revenues $368 million,
          which was partially offset by a decrease of $175 million due to
          lower interest rates on new and existing finance receivables.

     --   Revenues from earned premiums at Cat Insurance increased $84
          million.


                   Consolidated Operating Profit Comparison
                                 2008 vs 2007
To access this chart, go to http://www.cat.com for the downloadable version of
                        Caterpillar 4Q 2008 earnings.

The chart above graphically illustrates reasons for the change in Consolidated Operating Profit between 2007 (at left) and 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, consolidation of Cat Japan and Machinery and Engines other operating expenses.

Operating Profit

2008 operating profit of $4.448 billion was down $473 million from 2007 as improved price realization and higher sales volume were more than offset by higher costs and the unfavorable impact of currency.

Manufacturing costs increased $1.694 billion compared with 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, and expediting costs related to higher production volume. In addition, manufacturing labor and overhead costs increased to support capacity expansion and velocity initiatives.

SG&A and R&D costs were up $605 million to support significant new product programs and growth.

Currency had a $154 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)     2008         2007       $ Change      % Change

    Machinery(1)            $1,803       $2,758        $(955)         (35)%
    Engines(1)               2,319        1,826          493           27%
    Financial Products         579          690         (111)         (16)%
    Consolidating
     Adjustments              (253)        (353)         100
    Consolidated Operating
     Profit                 $4,448       $4,921        $(473)         (10)%

    (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 $1.803 billion was down $955 million,
          or 35 percent, from 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 $2.319 billion was up $493 million, or
          27 percent, from 2007.  The favorable impacts of improved price
          realization and higher sales volume were partially offset by higher
          costs.

     --   Financial Products operating profit of $579 million was down $111
          million, or 16 percent, from 2007.  The decrease was attributable to
          a $136 million increase in SG&A expenses due primarily to a $95
          million increase in the provision for credit losses at Cat
          Financial, a $105 million impact from decreased net yield of average
          earning assets, partially offset by a $130 million favorable impact
          from higher average earning assets.


     Other Profit/Loss Items

     --   Other income/expense was income of $299 million compared with income
          of $320 million in 2007.  The favorable currency impacts of $79
          million were more than offset by a $50 million unfavorable change in
          mark-to-market adjustments on interest rate derivative contracts at
          Cat Financial and a $37 million impairment of investments in Cat
          Insurance's portfolio as a result of poor market performance.

     --   The provision for income taxes for 2008 reflects an annual tax rate
          of 31.5 percent, excluding the discrete items discussed below,
          compared to a 30-percent rate in 2007.  The increase in the tax rate
          excluding discrete items over 2007 is attributable to changes in our
          geographic mix of profits from a tax perspective.

          The provision for income taxes for 2008 also includes discrete
          benefits of $456 million.  Repatriation of non-U.S. earnings
          resulted in a tax benefit of $409 million due to available foreign
          tax credits in excess of the U.S. tax liability on the dividend.  A
          benefit of $47 million was also recorded in 2008 due to a change in
          tax status of a non-U.S. subsidiary allowing indefinite reinvestment
          of undistributed profits and reversal of U.S. tax previously
          recorded.

     --   Equity in profit/(loss) of unconsolidated affiliated companies was
          income of $37 million compared with income of $73 million in 2007.
          The decrease is primarily related to lower profit at Shin
          Caterpillar Mitsubishi Ltd. (SCM) through the first nine months and
          the absence of profit after the consolidation of Cat Japan.

          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 began consolidating Cat Japan's results of operations
          in the fourth quarter.

Employment

Caterpillar's worldwide employment was 112,887 at the end of 2008, up 11,554 from a year ago. Of the increase, approximately 5,500 were the result of consolidating Cat Japan and about 1,300 were the result of acquisitions. The remaining increase of 4,800 employees primarily supported growth and new product introductions.

Revolving Credit Facilities

Largely driven by a significant decline in pension asset returns, Caterpillar recognized a $3.4 billion year-end charge to other comprehensive income. This non-operational charge caused our consolidated net worth to drop below the covenant level in our $6.85 billion revolving credit facility (Credit Facility). Our corporate bank group has consented to Caterpillar's consolidated net worth level. We have no borrowings under this revolving credit facility.

Cat Financial's profit was negatively impacted by, among other things, deteriorating economic conditions in the fourth quarter. This resulted in a decrease in its quarterly interest coverage ratio to a level below that required in the Credit Facility. This, in addition to Caterpillar's drop in consolidated net worth, resulted in Cat Financial falling below or failing to meet similar covenant requirements in several other loan agreements. Cat Financial's corporate bank group, with respect to the Credit Facility and other loan agreements similarly affected, has consented to Cat Financial's quarterly interest coverage level for the fourth quarter.

2009 Outlook

The financial and banking crisis accelerated in the fourth quarter of 2008 and has significantly impacted economic growth in general and the industries that we serve around the globe. As a result, our outlook for 2009 has worsened.

We expect 2009 will be the weakest year for economic growth in the postwar period. We are expecting recessionary conditions to persist in most of the world throughout the year, with no growth in the world economy.

     --   Preliminary data indicates the world economy fell into recession in
          fourth quarter 2008.  The developed economies of the United States,
          euro-zone, United Kingdom and Japan declined sharply, many
          developing economies slowed, and commodity prices dropped in
          response to weaker demand.

     --   Economic policymakers were distracted by inflationary concerns
          during last summer's surge in commodity prices and were slow to
          respond to economic weaknesses and the credit crisis.  Effective
          actions did not really begin until after the collapse of Lehman
          Brothers in September.  The timing of the response means the world
          economy will likely remain severely depressed through at least the
          middle of 2009.

     --   Central banks in developed economies have cut interest rates to, or
          near, record lows, and several key developing economies have
          responded by lowering rates.   In addition, some countries are
          implementing measures to increase monetary growth, reduce credit
          spreads and drive spending through fiscal stimulus programs, which
          should aid construction.

     --   Most commodity prices dropped below investment threshold levels in
          late 2008, and producers are reducing and delaying investments.  We
          expect this unfavorable environment to persist throughout the year.

     --   We expect 2009 will be a dismal year for the world economy, but
          conditions for much better growth are developing, particularly in
          industries we serve.  Interest rates throughout the world are at
          historically low levels and should eventually be favorable for
          investment.  Despite a higher level of spending over the past few
          years, capacity in the world's infrastructure, mining and energy
          industries is still inadequate or outdated.  Reduced investment in
          2009 is going to leave future capacity even more strained.
          Government stimulus plans are a step in the right direction and
          should help economic growth.

     --   While we are encouraged by actions that have been taken to drive
          economic improvements, we are concerned that the European Central
          Bank and the Bank of Japan are responding too slowly to today's
          economic crisis.  In addition, we are concerned that central banks
          may begin tightening policies at the first sign of economic recovery
          and could create another downturn.

North American economies should decline 1.5 percent in 2009, but we expect the United States will be the first major economy to pull out of recession, sometime in the second half of 2009.

     --   The U.S. economy has been in recession throughout 2008, GDP started
          declining in the third quarter of 2008, and U.S. machinery
          industries that we serve have been declining since early 2006.
          Output likely will decline throughout the second quarter, causing
          this recession to about match the 1981-82 recession in duration and
          severity.

     --   The Federal Funds rate has traded at the lowest level on record, and
          the Fed has indicated it will keep rates low for an extended time.
          So, we assume no rate increases will occur this year.  Despite the
          low Federal Funds rate, credit spreads remain elevated, so the Fed
          is focusing on increasing liquidity and providing funds directly to
          businesses and consumers.  Monetary growth has accelerated at
          unprecedented rates and should eventually encourage more spending,
          possibly in the second half of 2009.

     --   The Obama administration's stimulus program should increase funds
          for infrastructure construction.  Quick passage of the bill could
          increase funding in the second half of 2009, and some improvement in
          infrastructure spending is expected.

     --   Housing affordability is near a record high, and 30-year mortgage
          rates could fall below 4.5 percent this year, helping to stabilize
          housing later in the year.  We expect housing starts will be
          approximately 900 thousand units, about the same as 2008.

     --   Central Appalachian coal prices should average a little more than
          $40 per ton in 2009, which should allow a 0.5 percent increase in
          coal production.

     --   The Canadian economy should decline slightly, prompting the Bank of
          Canada to cut its interest rate another 25 basis points to 0.75
          percent.

We expect European economies to decline 0.9 percent this year. Recessions in both the euro-zone and United Kingdom will likely last most of the year, making the recessions some of the worst in the postwar period.

     --   The Bank of England recently cut interest rates to 1.5 percent, the
          lowest since 1694. The European Central Bank cut interest rates to 2
          percent and boosted monetary growth.  However, the bank has been
          less aggressive in cutting interest rates than other central banks,
          creating the risk of an extended period of weakness.

     --   European governments announced stimulus packages, which will provide
          funds for infrastructure construction.  However, we expect housing
          and nonresidential construction will decline in most European
          countries.

The Japanese economy should decline about 2 percent, remaining in recession for most of the year.

     --   The Bank of Japan recently cut interest rates from 0.3 percent to
          0.1 percent.  However, the short-term interest rate, as in the last
          cycle, has not had a significant impact on improving growth.

     --   The bank has started buying commercial paper and has increased bank
          reserves slightly.  Easing, however, has not been sufficient to
          provide the liquidity for an economic recovery.

     --   Government stimulus packages should boost public construction, but
          private construction likely will continue declining.

Economic growth in the developing economies should average about 3 percent in 2009, the slowest since 2002, but still outperform developed economies.

     --   In recent years, these economies have benefited from lower inflation
          and interest rates, more competitive exports and higher commodity
          prices.  Many of those factors remain more favorable than in past
          downturns.

     --   Key countries, particularly in Asia, have aggressively reversed past
          policy tightening; with interest rates at or below lows earlier this
          decade.  We expect further easing in many countries.

     --   In the past, balance-of-payments problems often prevented these
          countries from adopting expansive economic policies during worldwide
          economic slowdowns.  We do not expect these countries to be as
          severely constrained since many are running surpluses with developed
          countries and have accumulated significant foreign exchange
          reserves.

     --   Most governments have not increased spending in line with increases
          in export and commodity revenues.  As a result, governments will not
          need to cut spending in line with declines in exports and commodity
          revenues.

2009 Sales and Revenues Outlook

The depth and duration of economic decline throughout the world makes it very difficult to forecast sales and revenues. As a result, we are focused on executing our strategic "trough" plans throughout the company.

We are encouraged by the actions of central banks around the world and the prospects of fiscal stimulus. We are optimistic that economic conditions in the United States will stabilize later in the year and may show some signs of recovery. However, we are implementing actions throughout the company to be prepared for a very negative year with sales and revenues in a range of plus or minus 10 percent from $40 billion.

While sales and revenues could be higher than $40 billion in 2009, the economic picture is extremely difficult to predict, and it is prudent to focus the company on actions that will deliver our "trough" profit goal.

We expect significant declines in all geographic regions in most industries. At $40 billion, the sales volume decline, excluding the impact of consolidating Cat Japan, is about 25 percent. Volume related to machines and engines would be down about 30 percent, and sales and revenues of integrated service businesses would be down about 5 percent.

Some improvement in price realization and about $1 billion of additional sales as a result of the consolidation of Cat Japan are partial offsets to the sharp drop in volume.

2009 Profit Outlook

    As a result of sharply declining sales, we expect 2009 profit to drop
significantly from 2008, and we are taking actions to deliver our "trough"
profit target of $2.50 per share, excluding redundancy costs, at $40 billion
in 2009 sales and revenues.  We have initiated actions which will remove about
20,000 workers from our business and every indirect spend dollar will be
heavily scrutinized.  These actions support lowering our production costs in
line with a 25-percent decline in sales volume and reducing SG&A and R&D costs
supporting our Machinery and Engines business collectively by about 15
percent.  Actions include:

     --   Voluntary and involuntary separations and layoffs of about 4,000
          full-time production employees.  Depending on business conditions
          more layoffs may be required as the year unfolds.

     --   Sharp declines in overtime work.  Factory overtime is a key element
          of volume flexibility and many facilities were working high levels
          of overtime through most of 2008.

     --   Several facilities have shortened workweeks, and thousands of
          employees have been, or will be, affected by temporary layoffs and
          full and partial plant shutdowns.

     --   Elimination of almost 8,000 temporary, contract and agency workers.
          While these workers are a key element of our "flexible workforce"
          they are not included among the 112,887 full-time employees at year
          end.

     --   Voluntary separations of about 2,500 support and management
          employees.

     --   Additional layoffs or separations of as many as 5,000 support and
          management employees.

     --   Hiring freezes and suspension of salary increases for most support
          and management employees.

     --   Significant reductions in total compensation for executives / senior
          managers.

     --   At $2.50 profit per share, our short-term incentive plan would not
          trigger payment.

     --   Reduction in indirect expenses of about 15 percent.

     --   Significant reduction in capital expenditures.

     --   Shifting more resources to work on short- and medium-term material
          cost reduction.

     --   Shifting more resources to work on inventory reduction projects.


     Elements of the 2009 Profit Outlook

     --   We expect significantly lower sales volume across all regions and
          most industries.  The consolidation of Cat Japan is expected to add
          about $1 billion to sales, but be negative to profit as a result of
          severe economic decline in Japan.

     --   We are forecasting improved price realization for 2009 as there
          still is cost pressure in the system.

     --   To support our price realization forecast, we are rapidly scaling
          back production to align dealer inventory with demand as we move
          through the year, and we believe the industry is rapidly scaling
          back to minimize inventory as well.

     --   Material costs are expected to increase slightly.  Because material
          costs rose significantly in the second half of 2008 and our material
          costs tend to lag trends in commodities, we expect that year-over-
          year cost comparisons will be negative in the first half of the year
          and will improve in the second half.

     --   We expect efficiency improvement as a result of continued
          implementation of the Cat Production System (CPS) however,
          production volume, particularly in the first quarter, will likely
          drop faster than manufacturing costs as we sharply lower production,
          employment and cost levels.

     --   Excluding Cat Japan, Machinery and Engines SG&A and R&D expenses are
          forecast to decline about 15 percent.  R&D spending in 2009 will be
          primarily focused on new products to meet Tier 4 regulatory
          emissions requirements.

     --   We expect about $500 million of redundancy expense related to
          employment reductions, most of the expense is expected to occur in
          the first quarter.

     --   The tax rate in 2009 is expected to approximate the 2008 rate of
          31.5 percent, excluding discrete tax items.

     --   Financial Products profit before tax is expected to decline by about
          50 percent in 2009 as a result of higher liquidity costs and the
          resulting tighter spreads between the cost of borrowing and Cat
          Financial's lending rates.

Machinery and Engines Cash Flow

Our priorities for the use of cash remain unchanged-a strong balance sheet that helps protect our credit rating, capital to support growth, appropriately funded employee benefit plans, modestly increasing dividends and stock repurchases with excess cash.

     --   For 2009 we expect operating cash flow to hold up better than
          profit, with a significant decline in inventory and lower
          receivables helping to offset the impact of lower profit.

     --   The funded status of our defined benefit pension plans declined in
          2008.  As a result we expect to contribute approximately $1 billion
          in 2009 versus $422 million that was contributed in 2008.

     --   Capital expenditures are expected to be about $1.5 billion in 2009,
          a decline of about 38 percent from 2008.

     --   As a result of current economic conditions, we have temporarily put
          our stock repurchase program on hold.

First Quarter 2009

It's not our practice to provide specific quarterly profit guidance, and we don't intend to start. However, we are in unprecedented times, and some discussion around the first quarter is appropriate.

While we expect the full year of 2009 to be very challenging, profit in the first half, and particularly the first quarter, will be under severe pressure. In fact, a first-quarter loss is possible. There are two primary reasons that profit will be particularly weak early in the year:

     --   First, production volume will be severely depressed and is likely to
          fall faster than dealer sales to end users.  We opened dealer order
          boards around the world in the fourth quarter to allow dealers to
          cancel existing orders in response to deteriorating economic
          conditions.  Dealers reacted and have cut orders substantially.  We
          expect that this will result in further declines in dealer inventory
          in the first quarter at a time of year when dealers normally build
          inventory in preparation for higher sales to end users in the spring
          and summer.  We have announced significant measures to bring
          production, costs and employment down, but given lead times
          necessary for employees, we expect that our production and sales
          will fall faster than costs early in the year.

     --   Second, we expect a substantial charge for redundancy costs, about
          $500 million for the year, with most of it coming in the first
          quarter.


                              DETAILED ANALYSIS

                   Consolidated Sales & Revenues Comparison
                        4th Qtr. 2008 vs 4th Qtr. 2007
To access this chart, go to http://www.cat.com for the downloadable version of
                        Caterpillar 4Q 2008 earnings.

The chart above graphically illustrates reasons for the change in Consolidated Sales and Revenues between fourth quarter 2007 (at left) and fourth 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. The bar entitled Machinery Volume includes the impact of consolidation of Cat Japan sales. 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 fourth quarter 2008 were $12.923 billion, up $779 million, or 6 percent, from fourth quarter 2007. Machinery volume was up $297 million. Excluding Cat Japan, machinery volume was up $36 million. Engines volume was up $458 million, as growth in developing economies more than offset significant weakness in developed economies. Price realization improved $308 million. Financial Products revenues increased $19 million. Currency had a negative impact on sales of $303 million due to the strengthening of the U.S. dollar against most major currencies.



    Sales and Revenues by Geographic Region

    (Millions of
     dollars)       Total     %Change     North America    %Change      EAME
    Fourth Quarter
     2007
    Machinery      $7,460                    $3,112                   $2,322
    Engines(1)      3,900                     1,275                    1,617
    Financial
     Products(2)      784                       494                      150
                  $12,144                    $4,881                   $4,089


    (Millions of
     dollars)       %Change   Asia/Pacific    %Change   Latin America  %Change
    Fourth Quarter
     2007
    Machinery                   $1,194                     $832
    Engines(1)                     654                      354
    Financial
     Products(2)                    62                       78
                                $1,910                   $1,264


    (Millions of
     dollars)       Total        %Change   North America   %Change      EAME
    Fourth Quarter
     2008
    Machinery      $7,675           3%       $2,833         (9)%      $2,013
    Engines(1)      4,445          14%        1,379          8%        1,670
    Financial
     Products(2)      803           2%          490         (1)%         144
                  $12,923           6%       $4,702         (4)%      $3,827


    (Millions of
     dollars)       %Change   Asia/Pacific    %Change   Latin America  %Change
    Fourth Quarter
     2008
    Machinery        (13)%       $1,652          38%      $1,177         41%
    Engines(1)          3%          849          30%         547         55%
    Financial
     Products(2)      (4)%           89          44%          80          3%
                      (6)%       $2,590          36%      $1,804         43%

    (1) Does not include internal engines transfers of $646 million and $652
        million in fourth 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 $66 million and $104 million in fourth quarter 2008 and 2007,
        respectively.



                               Machinery Sales

  Sales of $7.675 billion increased $215 million, or 3 percent, from fourth
                                quarter 2007.

     --   Sales volume increased $36 million, with the gain occurring in the
          developing economies of Africa/Middle East, CIS, Asia/Pacific and
          Latin America.

     --   Price realization increased $85 million.

     --   Currency decreased sales by $167 million.

     --   Geographic mix between regions (included in price realization) was
          $14 million favorable.

     --   The consolidation of Cat Japan sales added $261 million to 2008
          sales.

     --   Dealers in all regions reported higher inventories than year-end
          2007 in both dollars and months of supply.

     --   The financial crisis intensified after the collapse of Lehman
          Brothers in mid September.  Recessions in the developed countries
          worsened, and growth in the developing economies slowed abruptly.
          As a result, dealers reported lower deliveries to end users than a
          year earlier.

     --   The U.S. economy probably declined at the fastest rate in more than
          25 years.  Construction, nonmetals mining and quarrying weakened
          further.  Coal mining and oil sands development were about the only
          positives for North America.

     --   The European economy declined, putting additional downward pressure
          on construction.

     --   Sales volume increased in the developing regions of Africa/Middle
          East, CIS, Asia/Pacific and Latin America, although at a slower rate
          than earlier in the year.  Higher interest rates, the credit crisis,
          lower commodity prices and reduced exports to developed countries
          were the major factors causing this slowing.


     North America - Sales decreased $279 million, or 9 percent.

     --   Sales volume decreased $354 million.

     --   Price realization increased $75 million.

     --   Sales volume declined in line with lower reported dealer deliveries
          to end users.  Dealers added slightly to inventories, leaving them
          higher than a year earlier in both dollars and months of supply.

     --   The U.S. economy was in recession and the bankruptcy of Lehman
          Brothers caused a severe tightening in financial markets.  As a
          result, economic output dropped sharply, and key industries reduced
          machine purchases.

     --   U.S. housing starts fell below a 700 thousand unit annual rate, the
          lowest this cycle, and permits for new construction were even lower.
          Housing starts were depressed by relatively high mortgage interest
          rates, a further tightening in credit, a 10-percent decline in new
          home prices and more than an 11-month supply of unsold new homes.

     --   Orders for U.S. nonresidential construction fell 28 percent below a
          year earlier.  Negatives included limited growth in Federal highway
          funding, higher material input costs, and declines in commercial
          property prices.  Banks further tightened credit standards on
          commercial real estate loans in response to rising delinquencies and
          financial stresses.

     --   Sharp declines in construction caused a 13-percent drop in nonmetals
          mining and quarry production.

     --   Metals mining production increased sharply, but much lower metals
          prices prompted mines to reduce machine purchases.

     --   Coal production increased almost 3 percent, benefiting from
          increased exports and much higher coal prices.  Sales of machines
          used in coal mining increased.

     --   Crude oil prices declined, but to levels that were still attractive
          for investment.


     EAME - Sales decreased $309 million, or 13 percent.

     --   Sales volume decreased $199 million.

     --   Price realization decreased $19 million.

     --   Currency impact decreased sales by $91 million.

     --   Dealers in all regions reported higher inventories than year-end
          2007 in both dollars and months of supply.

     --   Preliminary data suggest recessions in both the euro-zone and the
          United Kingdom worsened in fourth quarter 2008, and dealers reported
          sizable declines in deliveries.

     --   Interest rates remained relatively high, contributing to weakness in
          construction.  Housing permits in the euro-zone were probably down
          more than 20 percent, and U.K. housing orders plunged more than 50
          percent.  Heavy construction in the euro-zone declined 6 percent.

     --   Sales volume increased slightly in Africa/Middle East, ending more
          than 5 years of strong year-on-year growth.

     --   In the CIS, sales volume increased, although at a slower rate than
          earlier in the year.  Russia's economy slowed due to higher interest
          rates, a credit crisis and lower oil revenues.

     --   In both Africa/Middle East and CIS, sales volume in December was
          lower than a year earlier.


     Asia/Pacific - Sales increased $458 million, or 38 percent.

     --   Sales volume increased $235 million.

     --   Price realization increased $17 million.

     --   Currency impact decreased sales by $55 million.

     --   The consolidation of Cat Japan sales added $261 million to 2008
          sales.

     --   Dealers in all regions reported higher inventories than year-end
          2007 in both dollars and months of supply.

     --   Recessions in developed economies caused export growth to slow or
          decline for most countries.  In addition, several countries had
          raised interest rates, which helped slow economic growth.

     --   China's economy slowed, which sharply curtailed growth in sales
          volume.

     --   Higher coal prices contributed to sizable sales volume growth in
          Indonesia.

     --   Mine output expanded in Australia as mining employment increased 30
          percent.  Higher production, along with commodity prices that were
          still attractive for investment, led to increased sales volume.

     --   India had tightened economic policies to cope with inflation and the
          economy slowed in the fourth quarter.  Sales volume increased
          slightly, ending several years of rapid growth.


     Latin America - Sales increased $345 million, or 41 percent.

     --   Sales volume increased $368 million.

     --   Price realization decreased $2 million.

     --   Currency impact decreased sales by $21 million.

     --   Dealers reported higher inventories than year-end 2007 in both
          dollars and months of supply.

     --   The largest gain in sales volume occurred in Chile.  Positives were
          efforts to expand mine production and increased construction.

     --   Higher coal prices boosted sales volume in Colombia.

     --   Although the Mexican economy was sluggish, construction and the
          energy industries expanded.  Sales volume increased sharply.

     --   Interest rate increases in Brazil caused the economy to slow sharply
          in the fourth quarter, with industrial production declining.  The
          world steel industry reduced production in the last half of 2008,
          causing Brazil's iron ore production to drop 5 percent.  As a
          result, growth in sales volume slowed significantly from rates
          experienced during the first three quarters.


                                Engines Sales

  Sales of $4.445 billion increased $545 million, or 14 percent, from fourth
                                quarter 2007.

     --   Sales volume increased $458 million.

     --   Price realization increased $223 million.

     --   Currency impact decreased sales $136 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 strong delivery rates.


     North America - Sales increased $104 million, or 8 percent.

     --   Sales volume increased $22 million.

     --   Price realization increased $82 million.

     --   Sales for petroleum engine applications increased 14 percent due to
          strong demand for gas compression, drilling and well service
          applications.  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 increased 8 percent, driven by
          increases in turbine sales to support power plant projects.

     --   Sales for on-highway truck applications increased 3 percent, when
          compared with a very weak fourth quarter 2007 in the North American
          on-highway heavy-duty truck market.  Demand remained below historic
          norms due to the slow U.S. economy that resulted in a reduction in
          freight tonnage.  Also, the impact of the decision to exit the on-
          highway truck business was starting to be felt as OEM customers
          reduced their reliance on Caterpillar products.

     --   Sales for industrial applications decreased 3 percent due to
          substantially lower demand in construction, material handling and
          auxiliary power units.


     EAME - Sales increased $53 million, or 3 percent.

     --   Sales volume increased $85 million.

     --   Price realization increased $72 million.

     --   Currency impact decreased sales by $104 million.

     --   Sales for industrial applications decreased 16 percent, as demand in
          the construction segments slowed with reduced spending on
          infrastructure development.  This was partially offset by increases
          in agricultural applications.

     --   Sales for marine applications increased 27 percent in workboats and
          commercial vessels to support projects that were driven by high
          commodity prices.

     --   Sales for petroleum applications increased 16 percent based on
          strong demand for engines used in drilling and production.  Turbine
          sales increased for gas transmission and oil and gas production
          applications.

     --   Sales for electric power applications increased 6 percent, with
          strong demand in Africa/Middle East offsetting weaker demand in
          Europe and the CIS and a decrease in turbine sales, which were the
          result of timing of large power plant projects.


    Asia/Pacific - Sales increased $195 million, or 30 percent.

     --   Sales volume increased $170 million.

     --   Price realization increased $57 million.

     --   Currency impact decreased sales by $32 million.

     --   Sales for petroleum applications increased 79 percent to support
          Chinese drill rig activity and increased demand for Asian shipyards
          in support of offshore drilling. Turbine sales increased for gas
          transmission and oil and gas production applications.

     --   Sales for marine applications increased 34 percent, with continued
          strong demand for workboat, offshore and general cargo vessels.

     --   Sales for industrial applications increased 39 percent, as a result
          of higher sales into mining and irrigation sectors in Australia and
          increased sales in New Zealand.

     --   Sales of electric power engines decreased 2 percent.


    Latin America - Sales increased $193 million, or 55 percent.

     --   Sales volume increased $183 million.

     --   Price realization increased $10 million.

     --   Sales for petroleum applications increased 60 percent as turbines
          and turbine-related services increased for gas transmission and oil
          and gas production applications.

     --   Sales of electric power engines increased 82 percent to support
          infrastructure investment.

     --   Sales for on-highway truck applications decreased 42 percent as a
          result of OEM customers working down inventory and a loss of OEM
          business.


                         Financial Products Revenues
Revenues of $803 million increased $19 million, or 2 percent, from the fourth
                                quarter 2007.

     --   Growth in average earning assets increased revenues $56 million,
          which was partially offset by a decrease of $46 million due to lower
          interest rates on new and existing finance receivables.

     --   Revenues from earned premiums at Cat Insurance increased $24
          million.


                   Consolidated Operating Profit Comparison
                        4th Qtr. 2008 vs 4th Qtr. 2007
To access this chart, go to http://www.cat.com for the downloadable version of
                        Caterpillar 4Q 2008 earnings.

The chart above graphically illustrates reasons for the change in Consolidated Operating Profit between fourth quarter 2007 (at left) and fourth 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, consolidation of Cat Japan and Machinery and Engines other operating expenses.

Operating Profit

Operating profit in fourth quarter 2008 of $457 million was $798 million lower than fourth quarter 2007 as improved price realization and higher sales volume were more than offset by higher costs.

Manufacturing costs increased $938 million compared with fourth quarter 2007. The increase was driven by higher material and freight costs, along with manufacturing inefficiencies as costs did not drop in line with a sharp decline in production volume.

SG&A and R&D costs were up $279 million to support significant new product programs and growth initiatives.

    Financial Products operating profit decreased $87 million.



    Operating Profit by Principal Line of Business
    (Millions of dollars)
                         Fourth Quarter Fourth Quarter    $            %
                               2008          2007       Change       Change
    Machinery(1)               $(6)         $619       $(625)        (101)%
    Engines(1)                 438           571        (133)         (23)%
    Financial Products          74           161         (87)         (54)%
    Consolidating
     Adjustments               (49)          (96)         47
    Consolidated Operating
     Profit                   $457        $1,255       $(798)         (64)%

    (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 loss was $6 million compared to an operating
          profit of $619 million in the fourth quarter of 2007.  Substantially
          all of the change was the result of higher manufacturing costs.

     --   Engines operating profit of $438 million was down $133 million, or
          23 percent, from fourth quarter 2007.  Higher costs were partially
          offset by improved price realization and higher sales volume.

     --   Financial Products operating profit of $74 million was down $87
          million, or 54 percent, from fourth quarter 2007.  The decrease was
          primarily attributable to a $57 million impact from decreased net
          yield on average earning assets and a $42 million increase in the
          provision for credit losses at Cat Financial, partially offset by a
          $22 million favorable impact from higher average earning assets.


     Other Profit/Loss Items

     --   Other income/expense was expense of $26 million compared with income
          of $88 million in fourth quarter 2007.  The decrease was primarily
          due to a $47 million unfavorable change in mark-to-market
          adjustments on interest rate derivative contracts at Cat Financial
          and a $37 million impairment of investments in Cat Insurance's
          portfolio as a result of poor market performance.

     --   The provision for income taxes in the fourth quarter of 2008
          reflects an annual tax rate of 31.5 percent, excluding the discrete
          item discussed below, compared to a 30-percent rate in 2007.  The
          increase in the tax rate excluding discrete items over 2007 is
          primarily attributable to a less favorable geographic mix of profits
          from a tax perspective.  Although we expected to lower our annual
          tax rate by approximately one percentage point in the fourth quarter
          due to the renewal of the U.S. research and development tax credit
          in October 2008, this benefit was offset by less favorable fourth
          quarter geographic mix of profits from a tax perspective resulting
          in no change in the estimated tax rate from third quarter 2008.

          The provision for income taxes in the fourth quarter of 2008 also
          includes a discrete benefit of $409 million related to repatriation
          of non-U.S. earnings with available foreign tax credits in excess of
          the U.S. tax liability on the dividend.  This compares to a
          favorable adjustment of $55 million in the fourth quarter 2007
          related to a decrease in the estimated tax rate.

     --   Equity in profit/(loss) of unconsolidated affiliated companies was
          income of $5 million compared with income of $22 million in fourth
          quarter 2007.  The decline reflects the absence of profit at Shin
          Caterpillar Mitsubishi Ltd. (SCM) due to the redemption, on August
          1, 2008, of one-half of Mitsubishi Heavy Industries Ltd.'s (MHI's)
          shares in SCM.

ADD: /FIRST AND FINAL ADD -- AQM008 -- Caterpillar Inc. Earnings/

     Questions and Answers

     Economy / Sales

     Q1:  What are your expectations for U.S. housing?

     A:   We project housing will weaken further in the first half and then
          begin to improve later in the year.  We expect housing starts will
          be approximately 900 thousand units, about the same as 2008.  The
          more than 20-percent decline in home prices since early 2006 and
          recent declines in mortgage interest rates have already improved
          housing affordability to near the record highs reached in the early
          1970s.  We expect mortgage interest rates will decline below 4.5
          percent, further improving affordability.

     Q2:  What's your forecast for key commodity prices in 2009?

     A:   We project West Texas Intermediate crude oil will average a little
          more than $40 per barrel, down from $100 in 2008.  Copper prices
          should average about $1.10 per pound, compared to $3.15 in 2008.
          Both price forecasts are below prices that we believe would be
          attractive to launch new projects.  Our forecast for the Central
          Appalachian coal price is more than $40 per ton in 2009, down from
          $89 in 2008.  That price should be sufficiently high enough to
          encourage about a 0.5 percent increase in coal production in the
          United States.  Coal prices in the rest of the world should also be
          high enough to cause producers to increase output.

     Q3:  What is the forecast for economic growth in China, and how will the
          China stimulus package impact Caterpillar?

     A:   We estimate the Chinese economy will grow about 7.5 percent this
          year, down from 9 percent last year.  The government recently
          announced a $586 billion stimulus package to be spread over two
          years.  Total construction spending last year was about $900
          billion, so the package should help offset the slowing in
          construction that is underway.  We do not anticipate that this
          package, on its own, will stop the recent decline in the Chinese
          machine industry.

     Q4:  How do you expect the U.S. stimulus package to impact Caterpillar?

     A:   Our initial assessment is that the package might have up to $150
          billion in infrastructure-related spending, spread over a two-year
          period.  If enacted quickly, perhaps $50 billion could be spent in
          2009.  That expenditure would represent about 5 percent of total
          U.S. construction spending in 2008 and would likely require some
          increase in equipment purchases to handle the added work in addition
          to increased utilization of the existing machine population.  Other
          measures in the package, such as tax cuts and actions to improve the
          housing industry, could indirectly benefit construction.

     Q5:  How have dealer inventories changed recently, are they too high, and
          what do you expect to happen in 2009?

     A:   The worse-than-expected weakening in dealer deliveries has
          contributed to higher dealer inventories, in both dollars and months
          of supply.  We allowed dealers to cancel orders so that they could
          more quickly adjust inventories to more appropriate amounts.  We
          anticipate dealers will reduce inventories this year around $1.5
          billion, with much of it occurring during the first half.

     Q6:  Can you discuss your order backlog in total for Caterpillar?  How
          has it changed since year-end 2007? Has it deteriorated over the
          past quarter?

     A:   Dealers reported significant slowdowns or declines in deliveries to
          end users in fourth quarter 2008 and reduced their orders.  We also
          allowed dealers to cancel orders.  As a result, our order backlog
          declined significantly in the fourth quarter and ended the year at
          $14.7 billion, well below the year-end 2007 level of $17.8 billion.

     Q7:  Can you address the backlog for mining products?

     A:   We have a mining order backlog today; however, as customers continue
          to "delay" existing and greenfield expansions these orders are
          getting pushed out accordingly.  We are in constant dialogue with
          our customers and dealers and are working through these issues.

          --   In most cases, mining companies are delaying, not cancelling,
               expansion plans.

          --   Both the speed and magnitude of the drop in commodity prices,
               especially base metals, has driven short-term cancellations and
               delays.

          --   Mining companies, like other industries, have increased costs
               to obtain capital.

          --   Some customers are highly leveraged, forcing short-term cost
               shedding and capital preservation.

          --   We expect that global stimulus packages will help improve
               demand and commodity prices.


     Engines

     Q8:  Can you address the backlog and sales prospects for 2009 for large
          engines and turbines?

     A:   The order backlog for turbines has remained strong due to equipment
          order lead times.  While declines have varied by product family and
          model, we have seen a reduction in reciprocating engine backlogs as
          order rates have abruptly declined in all industries and
          cancellations have increased.  As a result, we have made necessary
          production cuts to address these declines and have been able to
          improve availability in all products.  We anticipate weaker sales in
          2009 and will continue to make the appropriate production scheduling
          adjustments as needed.

     Q9:  What impact will your early exit from on-highway truck engines have?

     A:   We began to manage costs down and redeploy resources away from the
          truck engine business in late 2008.  This will continue through the
          first half of 2009 as we fulfill the last customer requirements.  In
          December 2008, we announced a layoff affecting up to 814 of our
          production workforce at the Mossville facility.  This is a result of
          exiting the on-highway engine business, coupled with, lower demand
          for off-highway engines.


     Costs / Employment

     Q10: You are going ahead with the new factories in Texas and Arkansas.
          Why are you continuing with new U.S. capacity expansion?

     A:   The new facility in Texas represents a strategic long-term priority
          for Caterpillar.  The new facility will deliver a state-of-the-art
          engine assembly process focused on producing the high-quality
          products for which Caterpillar is known. The new assembly process
          will be sized appropriately for our continuing off-highway engine
          business and result in a more cost-effective assembly process.  The
          Texas location is also strategically located to the source of major
          engine components and closer to a major seaport for export engines.
          While the current market conditions are challenging, Caterpillar
          must invest now to prepare for the introduction of Tier 4 off-
          highway engines required in the more regulated markets after 2011.

          The new facility in North Little Rock, Arkansas, represents an
          important, long-term strategic step for Caterpillar.  This facility
          will be the North American home for Caterpillar's line of motor
          graders. Manufacturing operations will be state-of-the-art, solely
          dedicated to motor grader production, which will result in more
          cost-effective production of motor graders.  While the current
          economic conditions are challenging, the new facility will support
          the introduction of our Tier 4 compliant motor grader in 2010. The
          move of motor grader production from our Decatur, Illinois, facility
          also frees up space in Decatur to support the long-term growth of
          our large off-highway truck business.  We believe the benefits from
          moving production of our motor grader line will improve
          Caterpillar's long-term competitiveness for both motor graders and
          large off-highway trucks.

     Q11: What do you expect relative to R&D in 2009, and what about spending
          related to Tier 4?

     A:   We expect R&D expenses to decline somewhat in 2009 from 2008 levels.
          Sharper cuts are not likely as we continue to do the product
          development required to meet Tier 4 emissions requirements.  We are
          prioritizing our R&D spending to focus on Tier 4 commitments and to
          fund key technologies that will continue to allow Caterpillar to
          provide industry leading customer value.

     Q12: Summarize the impact of the consolidation of Cat Japan on
          fourth quarter sales and profit.

     A:   The consolidation of Cat Japan added $261 million to fourth
          quarter sales but was about neutral to profit.


     Cash Flow / Financial Position

     Q13: 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 Inc. due to our strong credit rating.  We have been able
          to maintain normal operations and fund our needs.  Caterpillar Inc.
          successfully issued $1.5 billion of long-term debt in early
          December.  The offering generated strong investor demand.  There
          also is strong demand for our commercial paper and we have benefited
          from very low interest rates on commercial paper.

     Q14: There seems to be more cash than usual on your balance sheet, can
          you explain why?

     A:   The enterprise had $2.7 billion of cash at year-end 2008, an
          increase of $1.6 billion from year-end 2007.  We increased our
          short-term borrowings to provide a cushion of extra cash in the
          event that short-term credit markets become disrupted.

     Q15: Can you summarize what happened to your pension and other
          postretirement benefit plans in 2008 and how that impacts 2009?

     A:   Accounting standards require that we recognize the over-funded or
          under-funded status of our pension and other postretirement benefit
          plan liabilities on our balance sheet at the end of each year. Asset
          losses in our pension and postretirement benefit plans were in
          excess of 30 percent in 2008. The funded status of our pension plans
          declined from 93 percent at the end of 2007 to 61 percent at the end
          of 2008. The funded status of our postretirement benefit plans,
          which are not required to be funded, declined from 29 percent to 21
          percent. This increase in unfunded liabilities resulted in a $3.4
          billion charge to Other Comprehensive Income (OCI), which is a
          component of equity, in the fourth quarter of 2008.  This non-cash
          charge to equity negatively affected our debt-to-capital ratio by
          approximately 11 percentage points.  We expect to contribute
          approximately $1 billion to our pension plans in 2009 compared with
          $422 million in 2008.  In addition, we expect our pension and other
          postretirement benefit plan expenses to increase approximately $300
          million in 2009, excluding any impact of redundancy charges.

     Q16: What is your Machinery & Engines debt-to-capital ratio and how has
          it changed over the course of the year?

     A:   The debt-to-capital ratio for Machinery and Engines was 57.9 percent
          at the end of 2008, above our target range of 35 to 45 percent.  The
          $3.4 billion equity reduction from pension and other postretirement
          benefits increased the debt-to-capital ratio 11 percentage points.
          Our extra cash cushion increased short-term debt and added 3
          percentage points to the debt-to-capital ratio.  Additionally, in
          2008 the consolidation of Cat Japan increased the debt-to-capital
          ratio about 7 percent.


     Financial Products

     Q17: Why did Financial Products profit drop in fourth quarter compared to
          fourth-quarter 2007 when revenues were higher? Can you discuss any
          unusual items that affected your fourth-quarter results?

     A:   Financial Products pre-tax loss was $24 million for the fourth
          quarter of 2008, compared with a pre-tax profit of $181 million in
          the fourth quarter of 2007.  At Cat Financial, profitability related
          directly to the portfolio was down $77 million and consisted of a
          decreased net yield on average earning assets and a higher provision
          for credit losses, partially offset by higher average earning
          assets.  In addition, interest rate volatility in the fourth quarter
          resulted in mark-to-market adjustments on interest rate derivative
          contracts, which lowered profit $47 million compared to 2007.  Cat
          Financial also reported a $20 million currency exchange loss in the
          fourth quarter of 2008, compared to a $4 million gain in 2007, and
          due to worse than expected loss experience, recorded a $15 million
          write-down in retained interests related to the securitized asset
          portfolio.  In addition, at Cat Insurance there was a $33 million
          charge related to equity investments within the Cat Insurance
          investment portfolio.

     Q18: Give us an update on the quality of Cat Financial's asset portfolio.
          How are past dues, credit losses and allowances?

     A:   Key portfolio metrics remain somewhat stressed due to global
          economic conditions.  At the end of 2008, past dues were 3.88
          percent compared with 2.36 percent at the end of 2007.  The U.S. has
          not yet shown signs of recovery, and we see continued slowing in
          other geographical locations.  We expect there will be continued
          upward pressure on past dues throughout 2009.

          Bad debt write-offs, net of recoveries, were $61 million for the
          fourth quarter of 2008 compared with $27 million for the fourth
          quarter of 2007; $31 million of the increase was driven by economic
          conditions primarily in North America and $3 million was due to the
          12-percent growth in Cat Financial's average retail finance
          receivable portfolio.  For the full year of 2008, bad debt write-
          offs, net of recoveries, were $121 million compared with $68 million
          for the full year of 2007.

          At the end of 2008, Cat Financial's allowance for credit losses
          totaled $395 million, an increase of $42 million from the end of
          2007.  Of the increase, $28 million is attributable to growth in the
          retail finance receivable portfolio while $14 million resulted from
          the increase in the allowance rate from 1.39 percent to 1.44 percent
          of net finance receivables.

     Q19: How do these asset quality metrics compare with prior recessions?

     A:   At the end of 2008, past dues were 3.88 percent.  As an 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,
          significantly higher than the full-year 2008 rate of 0.48 percent.
          Cat Financial's allowance for credit losses, totaling $395 million
          at the end of 2008, is appropriate for the current and expected
          global economic environment.

     Q20: What are you expecting relative to past dues and losses in 2009?

     A:   Consistent with our 2009 economic outlook and expected further
          weakening of the global economy, we expect past dues and write-offs
          will likely be higher in 2009 compared with 2008.  Cat Financial
          increased the allowance for credit losses to $395 million, or 1.44
          percent of net finance receivables at the end of 2008, which we feel
          is appropriate for the current and expected global economic
          environment.  Should economic conditions worsen beyond expectations,
          additional increases to Cat Financial's allowance for credit losses
          may be needed.

     Q21: Describe your access to debt markets over the past quarter.

     A:   Generally, term debt markets were fragile during the fourth quarter.
          In December 2008, Cat Financial issued $463 million in Cat Power
          Notes in the U.S.  These retail notes are unsecured demand notes
          sold through brokers and dealers. The retail notes' terms range from
          2 to 7 years. Credit spreads were elevated compared with normal
          levels during the fourth quarter.

          Cat Financial did not issue medium-term debt in the fourth quarter.
          Since year-end, the U.S. and certain international debt markets,
          notably Europe, have improved with a corresponding improvement in
          credit spreads.

     Q22: How much commercial paper do you have, and do you have commercial
          paper with maturities beyond a few days?

     A:   Cat Financial has maintained access to commercial paper (CP) markets
          throughout the credit market disruption to fund ongoing operations.
          At year-end 2008, Cat Financial had $5.244 billion in global CP
          outstanding.  Of this amount, 90 percent was in maturities beyond
          one week.  Over the fourth-quarter 2008, CP issuance ranged from
          overnight to three months.  Access has been good in the U.S. and
          satisfactory in Europe and Canada.  Pricing levels have been
          attractive in the U.S. and satisfactory in both Europe and Canada.
          For example, since year-end 2008 Cat Financial has issued 30-day CP
          in the U.S. at 0.2 percent APR, Europe at 2.0 percent APR and Canada
          at 1.4 percent APR.

          The broader prevailing market conditions in Australia and Japan have
          been more challenging, with higher pricing and more limited access.
          Overall, global CP investor response has been positive.

     Q23: Are you backing up your commercial paper with bank lines?  How much?

     A:   Caterpillar Inc. and Cat Financial share a revolving credit facility
          that, in September 2008, was increased by $0.3 billion to $6.85
          billion. The majority of this facility, totaling $5.85 billion, is
          allocated to Cat Financial and is used to backup 100 percent of our
          CP issuance globally.

     Q24: What happens if Cat Financial's access to debt is severely limited
          in 2009?

     A:   If global conditions deteriorate so significantly that access to the
          debt markets becomes unavailable to Cat Financial, it would rely on:
          a) cash flow from its existing retail portfolio approximating $1
          billion per month to assist in retiring debt balances; b)
          utilization of Cat Financial's cash balances, which totaled $1.08
          billion at year-end 2008; and/or c) access to the $6.85 billion
          revolving credit facility shared jointly with Caterpillar Inc. and
          other credit line facilities held by the company.

     Q25: From a competitive standpoint, are you competitive with other
          lenders in financing Cat product, or are margins getting squeezed?

     A:   Cat Financial's overall competitiveness varies depending on the
          specific competitor, type of customer, geographic location,
          transaction amount, type of financial product (e.g. operating lease
          vs. installment sales contract), tenor of transaction and the use of
          below market interest rate programs. Cat Financial is less
          competitive on certain transactions compared to companies with
          access to government-supported funding programs.  Cat Financial
          remains competitive compared with those companies without access to
          government-supported programs and for specific transaction types.

          Cat Financial's net yield on average earning assets was $57 million
          lower in the fourth quarter of 2008 compared with 2007 for a number
          of reasons, including the impacts of intense competition,
          maintaining higher cash balances in the fourth quarter and higher
          levels of past due accounts.

     Q26: What happened with Cat Insurance? Can you describe the fourth-
          quarter write-off in more detail?

     A:   In the fourth quarter of 2008, Cat Insurance recorded a $37 million
          charge for an Other Than Temporary Impairment of the equity
          investments within the Cat Insurance investment portfolio.  Under
          Cat Insurance's policy, management performs an equity-by-equity
          review of investments where the market value is below book value.
          Cat Insurance has a conservative investment philosophy.  At year-
          end, the portfolio mix was approximately 90 percent debt securities
          and approximately 10 percent equity securities.  The fourth-quarter
          adjustment represents the mark-to-market amount for equities whose
          value is not expected to recover in a reasonable timeframe.  While
          the charge in the fourth quarter was appropriate for current market
          conditions, there could be additional write-downs if stock prices
          decline from year-end levels or if the value of those stocks whose
          value is only temporarily impaired fails to recover as expected.

     Q27: Are used equipment prices continuing to fall and how does that
          impact Cat Financial's lease business?

     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 in general used
          equipment prices are continuing to trend lower, we believe that
          current lease residual values are appropriate.  Over the past 10
          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.


     GLOSSARY OF TERMS

     1.   Cat Production System (CPS) -- The Cat 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.

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

     3.   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.

     4.   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) and redeemable noncontrolling interest to the sum of
          Machinery and Engines debt, redeemable noncontrolling interest, and
          stockholders' equity.

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

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

     7.   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 10 to 21,700 horsepower (8 to more than 16 000 kilowatts).
          Turbines range from 1,600 to 30,000 horsepower (1 200 to 22 000
          kilowatts).

     8.   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.

     9.   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.

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

     14.  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.

     15.  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.

     16.  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.

     17.  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.

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 39-44 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)



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

                            Three Months Ended          Twelve Months Ended
                                December 31,                December 31,
                             2008          2007          2008          2007
    Sales and revenues:
      Sales of Machinery
       and Engines         $12,120        $11,360      $48,044      $41,962
      Revenues of
       Financial Products      803            784        3,280        2,996
      Total sales and
       revenues             12,923         12,144       51,324       44,958

    Operating costs:
      Cost of goods sold    10,066          8,920       38,415       32,626
      Selling, general
       and administrative
       expenses              1,305          1,025        4,399        3,821
      Research and
       development expenses    507            357        1,728        1,404
      Interest expense of
       Financial Products      299            293        1,153        1,132
      Other operating
       (income) expenses       289            294        1,181        1,054
      Total operating
       costs                12,466         10,889       46,876       40,037

    Operating profit           457          1,255        4,448        4,921

      Interest expense
       excluding Financial
       Products                 71             60          274          288
      Other income (expense)   (26)            88          299          320

    Consolidated profit
     (loss) before taxes       360          1,283        4,473        4,953

      Provision (benefit)
       for income taxes       (296)           330          953        1,485
      Profit of consolidated
       companies               656            953        3,520        3,468

      Equity in profit (loss)
       of unconsolidated
       affiliated companies      5             22           37           73

    Profit                    $661           $975       $3,557       $3,541


    Profit per common share  $1.10          $1.55        $5.83        $5.55

    Profit per common
     share - diluted(1)      $1.08          $1.50        $5.66        $5.37

    Weighted average common
     shares outstanding
     (millions)
      - Basic                602.1          630.4        610.5        638.2
      - Diluted(1)           610.6          650.8        627.9        659.5

    Cash dividends declared
     per common share         $.84           $.72        $1.62        $1.38

   (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)

                                                   December 31,   December 31,
                                                       2008          2007
    Assets
      Current assets:
        Cash and short-term investments               $2,736         $1,122
        Receivables - trade and other                  9,397          8,249
        Receivables - finance                          9,051          7,503
        Deferred and refundable income taxes           1,223            816
        Prepaid expenses and other current assets        765            583
        Inventories                                    8,781          7,204
      Total current assets                            31,953         25,477

      Property, plant and equipment - net             12,524          9,997
      Long-term receivables - trade and other          1,479            685
      Long-term receivables - finance                 13,944         13,462
      Investments in unconsolidated affiliated
       companies                                          94            598
      Noncurrent deferred and refundable income taxes  3,311          1,553
      Intangible assets                                  511            475
      Goodwill                                         2,261          1,963
      Other assets                                     1,705          1,922
    Total assets                                     $67,782        $56,132

    Liabilities
      Current liabilities:
        S

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 December 31, 2008
                                 (Unaudited)
                            (Millions of dollars)

                                           Supplemental Consolidating Data

                                        Machinery      Financial Consolidating
                         Consolidated  and Engines(1)  Products   Adjustments
    Sales and revenues:
      Sales of Machinery
       and Engines         $12,120      $12,120           $-           $-
      Revenues of
       Financial Products      803            -          869          (66) (2)
      Total sales and
       revenues             12,923       12,120          869          (66)

    Operating costs:
      Cost of goods sold    10,066       10,066            -            -
      Selling, general
       and administrative
       expenses              1,305        1,131          186          (12) (3)
      Research and
       development expenses    507          507            -            -
      Interest expense of
       Financial Products      299            -          305           (6) (4)
      Other operating
       (income) expenses       289          (16)         304            1 (3)
      Total operating
       costs                12,466       11,688          795          (17)

    Operating profit           457          432           74          (49)

      Interest expense
       excluding Financial
       Products                 71           67            -             4 (4)
      Other income (expense)   (26)          19          (98)           53 (5)


    Consolidated profit
     (loss) before taxes       360          384          (24)           -

      Provision (benefit) for
       income taxes           (296)        (267)         (29)           -
      Profit of consolidated
       companies               656          651            5            -

      Equity in profit (loss)
       of unconsolidated
       affiliated companies      5            5            -            -
      Equity in profit of
       Financial Products'
       subsidiaries              -            5            -           (5) (6)

    Profit                    $661         $661           $5          $(5)

    (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 December 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         $11,360      $11,360           $-           $-
      Revenues of
       Financial Products      784            -          888         (104) (2)
      Total sales and
       revenues             12,144       11,360          888         (104)

    Operating costs:
      Cost of goods sold     8,920        8,920            -            -
      Selling, general and
       administrative
       expenses              1,025          887          138            -  (3)
      Research and
       development expenses    357          357            -            -
      Interest expense of
       Financial Products      293            -          295           (2) (4)
      Other operating
       (income) expenses       294            6          294           (6) (3)
      Total operating
       costs                10,889       10,170          727           (8)

    Operating profit         1,255        1,190          161          (96)

      Interest expense
       excluding Financial
       Products                 60           61            -           (1) (4)
      Other income (expense)    88          (27)          20           95  (5)


    Consolidated profit
     (loss) before taxes     1,283        1,102          181            -

      Provision (benefit)
       for income taxes        330          254           76            -
      Profit of consolidated
       companies               953          848          105            -

      Equity in profit (loss)
       of unconsolidated
       affiliated companies     22           21            1            -
      Equity in profit of
       Financial Products'
       subsidiaries              -          106            -         (106) (6)

    Profit                    $975         $975         $106        $(106)

    (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 Twelve Months Ended December 31, 2008
                                 (Unaudited)
                            (Millions of dollars)

                                           Supplemental Consolidating Data

                                        Machinery      Financial Consolidating
                         Consolidated  and Engines(1)  Products   Adjustments
    Sales and revenues:
      Sales of Machinery
       and Engines         $48,044      $48,044           $-           $-
      Revenues of
       Financial Products    3,280            -        3,588         (308) (2)
      Total sales and
       revenues             51,324       48,044        3,588         (308)

    Operating costs:
      Cost of goods sold    38,415       38,415            -            -
      Selling, general and
       administrative
       expenses              4,399        3,812          616          (29) (3)
      Research and
       development expenses  1,728        1,728            -            -
      Interest expense of
       Financial Products    1,153            -        1,162           (9) (4)
      Other operating
       (income) expenses     1,181          (33)       1,231          (17) (3)
      Total operating
       costs                46,876       43,922        3,009          (55)

    Operating profit         4,448        4,122          579         (253)

      Interest expense
       excluding Financial
       Products                274          270            -             4 (4)
      Other income (expense)   299           80         (38)           257 (5)

    Consolidated profit
     (loss) before taxes     4,473        3,932          541            -

      Provision (benefit)
       for income taxes        953          822          131            -
      Profit of
       consolidated
       companies             3,520        3,110          410            -

      Equity in profit (loss)
       of unconsolidated
       affiliated companies     37           38           (1)           -
      Equity in profit of
       Financial Products'
       subsidiaries              -          409            -         (409) (6)

    Profit                  $3,557       $3,557         $409        $(409)


    (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 Twelve Months Ended December 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         $41,962      $41,962           $-           $-
      Revenues of
       Financial Products    2,996            -        3,396         (400) (2)
      Total sales and
       revenues             44,958       41,962        3,396         (400)

    Operating costs:
      Cost of goods sold    32,626       32,626            -            -
      Selling, general and
       administrative
       expenses              3,821        3,356          480          (15) (3)
      Research and
       development expenses  1,404        1,404            -            -
      Interest expense of
       Financial Products    1,132            -        1,137           (5) (4)
      Other operating
       (income) expenses     1,054           (8)       1,089          (27) (3)
      Total operating
       costs                40,037       37,378        2,706          (47)

    Operating profit         4,921        4,584          690         (353)

      Interest expense
       excluding Financial
       Products                288          294            -           (6) (4)
      Other income (expense)   320         (104)          77           347 (5)

    Consolidated profit
     (loss) before taxes     4,953        4,186          767            -


      Provision (benefit)
       for income taxes      1,485        1,220          265            -
      Profit of consolidated
       companies             3,468        2,966          502            -

      Equity in profit (loss)
       of unconsolidated
       affiliated companies     73           69            4            -
      Equity in profit of
       Financial Products'
       subsidiaries              -          506            -         (506) (6)

    Profit                  $3,541       $3,541         $506        $(506)


    (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 Twelve Months Ended December 31, 2008
                                 (Unaudited)
                            (Millions of dollars)

                                           Supplemental Consolidating Data

                                        Machinery      Financial Consolidating
                         Consolidated  and Engines(1)  Products   Adjustments
    Cash flow from
     operating activities:
      Profit                $3,557       $3,557         $409       $(409) (2)
      Adjustments for non-
       cash items:
        Depreciation and
         amortization        1,980        1,225          755           -
        Undistributed
         profit of
         Financial Products      -         (409)           -          409 (3)
        Other                  383          194           55          134 (4)
      Changes in assets and
       liabilities:
        Receivables - trade
         and other            (545)        (471)         (49)        (25)(4,5)
        Inventories           (833)        (833)           -           -
        Accounts payable and
         accrued expenses      656          574           69          13  (4)
        Customer advances      286          286            -           -
        Other assets - net    (470)        (503)        (102)        135  (4)
        Other liabilities -
         net                  (227)         (60)         (33)       (134) (4)
    Net cash provided by
     (used for) operating
     activities              4,787        3,560        1,104         123
    Cash flow from investing
     activities:
      Capital expenditures -
       excluding equipment
       leased to others     (2,445)      (2,421)         (24)          -
      Expenditures for
       equipment leased to
       others               (1,566)           -       (1,588)         22  (4)
      Proceeds from
       disposals of
       property, plant and
       equipment               982           30          952           -  (4)
      Additions to finance
       receivables         (14,031)           -      (37,811)     23,780  (5)
      Collections of
       finance receivables   9,717            -       32,135     (22,418) (5)
      Proceeds from sale of
       finance receivables     949            -        2,459      (1,510) (5)
      Net intercompany
       borrowings                -         (168)          33         135  (6)
      Investments and
       acquisitions (net
       of cash acquired)      (117)        (148)          28           3  (7)
      Proceeds from release
       of security deposit       -            -            -           -
      Proceeds from sale of
       available-for-sale
       securities              357           23          334           -
    Investments in available-
     for-sale securities      (339)         (18)        (321)          -
     Other - net               197          139           58           -  (7)
    Net cash provided by
     (used for) investing
     activities             (6,296)      (2,563)      (3,745)         12
    Cash flow from
     financing activities:
      Dividends paid          (953)        (953)           -           -  (8)
      Common stock issued,
       including treasury
       shares reissued         135          135            -           -  (7)
      Payment for stock
       repurchase derivative
       contracts               (38)         (38)           -           -
      Treasury shares
       purchased            (1,800)      (1,800)           -           -
      Excess tax benefit
       from stock-based
       compensation             56           56            -           -
      Net intercompany
       borrowings                -          (33)         168        (135) (6)
      Proceeds from debt
       issued (original
       maturities greater
       than three months)   17,930        1,673       16,257           -
      Payments on debt
       (original maturities
       greater than three
       months)             (14,439)        (296)     (14,143)          -
      Short-term borrowings
       (original maturities
       three months or
       less)-net             2,074          737        1,337           -
    Net cash provided by
     (used for) financing
     activities              2,965         (519)       3,619        (135)
    Effect of exchange rate
     changes on cash           158          177          (19)          -
    Increase (decrease) in
     cash and short-term
     investments             1,614          655          959           -
    Cash and short-term
     investments at beginning
     of period               1,122          862          260           -
    Cash and short-term
     investments at end of
     period                 $2,736       $1,517       $1,219          $-


    (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 dividends from Financial Products to Machinery and
          Engines.



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

                                           Supplemental Consolidating Data

                                        Machinery      Financial Consolidating
                         Consolidated  and Engines(1)  Products   Adjustments
    Cash flow from
     operating activities:
      Profit                $3,541       $3,541         $506       $(506) (2)
      Adjustments for non-
       cash items:
        Depreciation and
         amortization        1,797        1,093          704           -
        Undistributed
         profit of
         Financial
         Products                -         (256)           -         256  (3)
        Other                  199          114         (267)        352  (4)
      Changes in assets
       and liabilities:
        Receivables - trade
         and other             899         (317)        (105)      1,321 (4,5)
        Inventories           (745)        (745)           -           -
        Accounts payable and
         accrued expenses      618          408          216          (6) (4)
        Customer advances      576          576            -           -
        Other assets - net      66           63           (9)         12  (4)
        Other liabilities -
         net                   984          969           40         (25) (4)
    Net cash provided by
     (used for) operating
     activities              7,935        5,446        1,085       1,404
    Cash flow from investing
     activities:
      Capital expenditures -
       excluding equipment
       leased to others     (1,700)      (1,683)         (17)          -
      Expenditures for
       equipment leased
       to others            (1,340)           -       (1,349)          9  (4)
      Proceeds from
       disposals of
       property, plant and
       equipment               408           14          398          (4) (4)
      Additions to finance
       receivables         (13,946)           -      (36,251)     22,305  (5)
      Collections of
       finance receivables  10,985            -       33,456     (22,471) (5)
      Proceeds from sale of
       finance receivables     866            -        2,378      (1,512) (5)
      Net intercompany
       borrowings                -         (177)           3         174  (6)
      Investments and
       acquisitions (net of
       cash acquired)         (229)        (244)           -          15  (7)
      Proceeds from release
       of security deposit     290          290            -           -
      Proceeds from sale of
       available-for-sale
       securities              282           23          259           -
      Investments in
       available-for-sale
       securities             (485)         (29)        (456)          -
      Other - net              461          122          341          (2) (7)
    Net cash provided by
     (used for) investing
     activities             (4,408)      (1,684)      (1,238)     (1,486)
    Cash flow from
     financing activities:
      Dividends paid          (845)        (845)        (254)        254  (8)
      Common stock issued,
       including treasury
       shares reissued         328          328           (2)          2  (7)
      Payment for stock
       repurchase derivative
       contracts               (56)         (56)           -           -
      Treasury shares
       purchased            (2,405)      (2,405)           -           -
      Excess tax benefit
       from stock-based
       compensation            155          155            -           -
      Net intercompany
       borrowings                -           (3)         177        (174) (6)
      Proceeds from debt
       issued (original
       maturities greater
       than three months)   11,039          224       10,815           -
      Payments on debt
       (original maturities
       greater than three
       months)             (10,888)        (598)     (10,290)          -
      Short-term borrowings
       (original maturities
       three months or
       less)-net              (297)         (41)        (256)          -
    Net cash provided by
     (used for) financing
     activities             (2,969)      (3,241)         190          82
    Effect of exchange
     rate changes on cash       34           22           12           -
    Increase (decrease) in
     cash and short-term
     investments               592          543           49           -
    Cash and short-term
     investments at beginning
     of period                 530          319          211           -
    Cash and short-term
     investments at end of
     period                 $1,122         $862         $260          $-


    (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 dividends from Financial Products to Machinery and
          Engines.

SOURCE Caterpillar Inc.

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