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Caterpillar Posts Record Second-Quarter Sales and Revenues; Reaffirms Full-Year Profit Per Share Outlook

Continued strength outside North America offsets weakness in on-highway truck engines and North American construction

PEORIA, Ill., July 20 /PRNewswire-FirstCall/ -- Caterpillar Inc. (NYSE: CAT) today reported record second-quarter sales and revenues of $11.356 billion. The company also reported profit of $823 million, or $1.24 per share, for the second quarter ending June 30, 2007.

"We're pleased with second-quarter sales and revenues which demonstrated the strength of our global reach. Sales growth outside of North America largely offset the impact of the planned decline in North American dealer machine inventories, the severe drop in demand for on-highway truck engines and weakness in North American construction markets," said Chairman and Chief Executive Officer Jim Owens. "Sales and revenues were up 7 percent from last year's second quarter. The strength of economies outside of North America, our broad global footprint and growth in diversified service businesses all helped us deliver higher sales."

Sales and revenues of $11.356 billion increased $751 million from the second quarter of 2006. The increase was a result of:

  • $943 million improvement in sales volume outside North America
  • $411 million of sales from Progress Rail, which was acquired in June of 2006
  • $198 million of higher sales related to the impact of currency
  • $168 million of improved price realization, despite an unfavorable geographic sales mix
  • $94 million of additional Financial Products revenues.

The increase was partially offset by a $1.063 billion decline in physical sales volume in North America, which was largely a result of the following three factors:

  • Dealer Machine Inventories -- North American dealers reduced inventory, as planned, by about $800 million during the second quarter of 2007 as compared with a $200 million reduction in the second quarter of 2006. The improvement this year is a joint effort with dealers, is a key element of the Cat Production System (CPS) and is consistent with our goal of improving velocity throughout the value chain.
  • On-highway truck -- a $366 million drop in on-highway truck engine sales.
  • Weak construction activity in North America, notably U.S. housing related markets, resulted in lower sales.

Profit of $823 million was down $223 million from the second quarter of 2006, and profit per share (PPS) decreased $0.28 -- from $1.52 per share in the second quarter of 2006 to $1.24.

"Disappointing earnings in the second quarter were attributable to the sharp negative swing in on-highway truck engine profitability, weakness in North American machine sales, continued selected supply chain disruptions and higher material costs," said Owens. "Manufacturing costs were also higher, in part, due to transitional costs associated with the launch of the Cat Production System," added Owens.

"While costs were a challenge, we were pleased with the spectacular sales growth outside North America and the performance of our engine businesses other than on-highway truck. As we look forward, we're encouraged by the strength of our order board overall, particularly for our large machines and engines," said Owens.

Outlook

Caterpillar is maintaining its full-year outlook for profit per share. The company expects full-year sales and revenues of about $44 billion, up from $41.5 billion in 2006, and profit in a range of $5.30 to $5.80 per share, up from $5.17 per share in 2006.

"With six months under our belt we're confident in the top-line and have adjusted our expectation for sales and revenues to about $44 billion," said Owens. "While we have more work to do on costs, we are maintaining our per share profit outlook of between $5.30 and $5.80 for the full year. We expect core operating cost comparisons to improve and are taking action to lower discretionary spending. However, we'll continue to aggressively implement the Cat Production System. We know that CPS deployment and 6 Sigma discipline are the keys to realizing our 2010 targets for safety, quality, velocity and PPS growth.

"Given the substantial investments that we are making in new product technology, expanded capacity, CPS deployment and selective acquisitions, I'm more confident than ever that we'll deliver solid top-line growth and our goal of 15-20 percent average annual growth in PPS to 2010. Our leadership team is committed to delivering these results, and we have a good line of sight to achieving these goals," Owens said.

(Complete outlook begins on page 12.)

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

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


                                  Key Points

    Second Quarter 2007
    (Dollars in millions except
     per share data)
                                       Second    Second
                                       Quarter   Quarter      $         %
                                        2006      2007      Change    Change

    Machinery and Engines Sales        $9,956   $10,613      $657       7%
    Financial Products Revenues           649       743        94      14%
    Total Sales and Revenues           10,605    11,356       751       7%

    Profit                             $1,046      $823     $(223)    -21%

    Profit per common share - diluted   $1.52     $1.24    $(0.28)    -18%


    -- Machinery and Engines sales improved $657 million despite the impact of
       planned declines in North American dealer machine inventories, the
       severe drop in demand for on-highway truck engines and weakness in
       North American construction sales. The strength of economies outside
       North America, our broad global footprint and growth in diversified
       service businesses, including the acquisition of Progress Rail, were
       positive.

    -- Core operating cost increases were primarily attributable to higher
       manufacturing costs.  The increase in manufacturing costs was due
       primarily to operating inefficiencies and higher material costs.
       Operating inefficiencies were the result of a significant decline in
       on-highway truck engine production, selected supply chain challenges,
       inefficiencies related to new product introductions and capacity
       increases.  Our manufacturing costs were also up from last year's
       levels due to transitional costs associated with the launch of the Cat
       Production System.  Selling, General and Administrative (SG&A) and
       Research and Development (R&D) combined as a percent of sales remained
       essentially flat with last year.

    -- During the second quarter 6.6 million shares were repurchased at a cost
       of $506 million.



    Full-Year 2007 Outlook
    (Dollars in billions except
     per share data)
                                         2006     Previous         Current
                                        Actual   2007 Outlook    2007 Outlook

    Sales and Revenues                  $41.5   $42.0 to $44.0    About $44
    Profit per common share -
     diluted                            $5.17   $5.30 to $5.80  $5.30 to $5.80


    -- Sales outside North America are expected to be up 24 percent from 2006,
       or about $4.5 billion -- more than offsetting a $2.4 billion, or 12
       percent, decline in North America.  This reflects solid 2007 economic
       and industry growth in most of the world outside North America.

    -- Below trend economic growth in the United States for 2007 -- Gross
       Domestic Product (GDP) of about 2.1 percent

    -- Weak U.S. housing starts -- 1.4 million in 2007

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

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

    -- $0.4 billion increase from 2006 in Revenues of Financial Products

    -- The outlook for profit per share reflects an improvement in core
       operating cost comparisons during the second half of the year.

A question and answer section has been included in this release starting on page 17.

    DETAILED ANALYSIS
    Second Quarter 2007 vs. Second Quarter 2006

                  Consolidated Sales and Revenues Comparison
                       2nd Qtr. 2007 vs. 2nd Qtr. 2006

To access this chart, go to http://www.cat.com for the downloadable version of Caterpillar 2Q 2007 earnings.

Sales and Revenues

Sales and revenues for second quarter 2007 were $11.356 billion, up $751 million, or 7 percent, from second quarter 2006. Machinery volume including Progress Rail was up $203 million. Excluding Progress Rail, Machinery volume was down $208 million. Engines volume was up $88 million. Currency had a positive impact on sales of $198 million due primarily to the strengthening of the euro. Price realization improved $168 million despite unfavorable geographic mix. In addition, Financial Products revenues increased $94 million.


    Sales and Revenues by Geographic Region

                                   %    North       %                 %
                          Total  Change America   Change     EAME   Change
    (Millions of dollars)
    Second Quarter 2006
    Machinery            $6,875         $3,764             $1,680
    Engines(1)            3,081          1,447                998
    Financial
     Products(2)            649            458                 95
                        $10,605         $5,669             $2,773

    Second Quarter 2007
    Machinery            $7,275   6%    $3,250    (14%)    $2,260     35%
    Engines(1)            3,338   8%     1,338     (8%)     1,263     27%
    Financial
     Products(2)            743  14%       508     11%        109     15%
                        $11,356   7%    $5,096    (10%)    $3,632     31%


                             Latin          %          Asia/          %
                            America       Change      Pacific       Change
    Second Quarter 2006
    (Millions of dollars)
    Machinery                 $667                      $764
    Engines(1)                 233                       403
    Financial
     Products(2)                48                        48
                              $948                    $1,215
    Second Quarter 2007
    Machinery                 $823          23%         $942          23%
    Engines(1)                 262          12%          475          18%
    Financial
     Products(2)                66          38%           60          25%
                            $1,151          21%       $1,477          22%

    (1) Does not include internal engines transfers of $647 million and
        $599 million in second quarter 2007 and 2006, respectively.  Internal
        engines transfers are valued at prices comparable to those for
        unrelated parties.
    (2) Does not include internal revenues earned from Machinery and Engines
        of $103 million and $119 million in second quarter 2007 and 2006,
        respectively.



                               Machinery Sales
Sales were $7.275 billion in second quarter 2007, an increase of $400 million,
                   or 6 percent, from second quarter 2006.

    -- Excluding Progress Rail, machine volume decreased $208 million.  Sales
       volume declined in North America but increased in all other regions.

    -- Price realization increased $62 million.

    -- Currency benefited sales by $135 million.

    -- Geographic mix between regions (included in price realization) was
       $59 million unfavorable due to a decrease in North American sales
       compared to second quarter 2006.

    -- The acquisition of Progress Rail added $411 million to sales in North
       America.

    -- A primary driver of the decline in sales volume was the joint
       undertaking with dealers to reduce their inventories.  Dealers reported
       inventories at the end of the quarter lower than a year earlier in both
       dollars and months of supply.

    -- Sales volume declined significantly in North America due to sizable
       reductions in dealer inventories and an unfavorable economic
       environment for key industries in the United States.  Problems included
       a severe downturn in housing construction, a decline in contracting for
       both nonresidential building and highway construction and much lower
       coal production.

    -- As in the first quarter, sales volume increased in all regions outside
       North America with the Europe, Africa and the Middle East (EAME) region
       particularly strong.  Interest rates generally remained favorable, and
       most economies experienced strong growth.  Higher commodity prices
       improved budget revenues for many governments, particularly in emerging
       markets.  As a result, construction grew in many countries, often 10
       percent or more.

    -- Throughout the world, including the United States, metals mining and
       petroleum remained favorable for machine sales.  Metals prices
       continued to rise during the quarter and were well above year earlier
       prices.  Oil and natural gas prices, although not much different from a
       year earlier, remained extremely favorable for new investment.  Both
       drill rig and pipeline activity increased.

    -- Coal mining was favorable, except in the United States.  International
       contract prices for thermal coal increased 6 percent, and output
       increased in the major producing countries of China, Indonesia and
       South Africa.


    North America - Sales declined $514 million, or 14 percent.

    -- Progress Rail sales were $411 million.  Excluding Progress Rail, sales
       volume decreased $922 million.

    -- The major contributor to lower sales volume was a joint effort to
       significantly reduce dealer inventories to improve velocity and better
       cope with weaker economic conditions.  Dealer inventories declined
       almost $800 million in the second quarter compared to a decline of
       about $200 million in second quarter 2006.  As a result, reported
       dealer inventories at the end of the quarter were well below a year
       earlier in both dollars and months of supply.

    -- Price realization decreased $3 million.

    -- The economic environment facing many key industries in the United
       States was unfavorable.  Activity declined in some sectors, output
       prices fell in others and uncertainty about the future increased.  As a
       result, users curtailed fleet expansions and delayed replacement
       purchases, even in some applications where activity and output prices
       were favorable.  In addition, dealers added fewer units to their rental
       fleets and let existing fleets age.

    -- Housing construction continued to decline in the second quarter.
       Housing starts in the United States were 21 percent lower than in
       second quarter 2006.  New home prices declined, and the inventory of
       unsold homes remained above normal.  Mortgage interest rates increased
       during the quarter, and lenders tightened standards.

    -- Nonresidential building construction underway remains strong, but
       contracting for new projects slowed abruptly, possibly in response to
       lower returns on industrial and retail projects and fewer new home
       developments.  Compared to a year earlier, contracts awarded for
       commercial and industrial construction declined almost 7 percent, and
       those for institutional buildings fell 19 percent.

    -- Highway contracts awarded in the second quarter, net of inflation, were
       almost 7 percent lower than a year earlier.  Delays in passing the
       federal government budget limited the increase in federal funding early
       in the year.

    -- Coal production fell 6 percent from second quarter 2006, depressing
       sales of machines used in coal mining.  Electric utilities increased
       output slightly more than 1 percent and continued shifting fuel usage
       towards natural gas.  At the start of the quarter, coal stockpiles were
       almost 20 percent higher than a year earlier.  Spot coal prices
       improved during the quarter but still averaged more than 10 percent
       lower than a year earlier.

    -- Metals mining and petroleum were favorable since metals, oil and
       natural gas prices were attractive for investment.  In addition, metals
       mine output increased almost 2 percent, and pipeline activity
       strengthened.


    EAME - Sales increased $580 million, or 35 percent.

    -- Sales volume increased $405 million.

    -- Price realization increased $72 million.

    -- European currencies strengthened against the U.S. dollar and benefited
       sales by $103 million.

    -- The gain in sales volume resulted largely from increases in deliveries
       to end users, as reported by dealers.  Dealers also increased
       inventories to support that growth, but reported inventories in months
       of supply were lower than a year earlier.

    -- Sales volume in Europe continued to benefit from good economic growth.
       Housing permits have declined, but both nonresidential and
       infrastructure construction grew rapidly.  Total construction activity
       has increased about 7 percent this year.  Within the Eurozone, improved
       corporate profits and increased lending to businesses contributed to
       growth in nonresidential construction.  Governments also increased
       capital spending, which benefited infrastructure construction.

    -- Sales volume increased rapidly in Africa/Middle East, with most
       countries participating in that growth.  Favorable crude oil prices
       encouraged a 15 percent increase in drill rig activity, and high metals
       prices led to more mine development.  Higher coal prices caused South
       African coal production to increase more than 7 percent this year.
       Favorable commodity prices, along with greater output, let governments
       increase foreign exchange holdings more than 20 percent and expand
       spending.  Significant construction activity is underway; year-to-date
       construction increased 17 percent in South Africa, 16 percent in Turkey
       and 10 percent in Egypt.  Infrastructure booms are underway in several
       Middle Eastern countries.

    -- Sales volume in the Commonwealth of Independent State (CIS) nearly
       doubled with the gain largely occurring in Russia.  Higher commodity
       prices and low interest rates allowed strong economic growth and
       improved the government's budget.  The Russian government raised
       expenditures more than 35 percent year to date, increased the budget
       surplus and increased foreign exchange reserves more than 60 percent.
       As a result, construction has increased 25 percent year to date.


    Latin America - Sales increased $156 million, or 23 percent.

    -- Sales volume increased $132 million.

    -- Price realization rose $13 million.

    -- Currency benefited sales by $11 million.

    -- Dealers increased machine inventories in anticipation of stronger
       customer demand which accounted for the growth in sales volume.
       However, reported inventories in months of supply were about even with
       last year's low supply figures.

    -- Dealers reported a slight decline in deliveries compared to second
       quarter last year, which was the highest quarter on record.  Economic
       factors impacting sales remained positive.

    -- Most governments kept inflation under control, allowing them to
       maintain low interest rates.  Regional exports grew about 13 percent,
       and governments increased foreign exchange reserves 25 percent.  These
       factors contributed to good growth in construction.

    -- Favorable prices encouraged increased mining output.  Chile, the
       world's largest copper producer, increased exports 24 percent year to
       date, and Brazil, a major iron ore producer, increased exports 35
       percent.


    Asia/Pacific - Sales increased $178 million, or 23 percent.

    -- Sales volume increased $118 million.

    -- Price realization increased $39 million.

    -- Currency benefited sales by $21 million.

    -- The gain in sales volume resulted from an increase in deliveries to end
       users as reported by dealers.  Dealers reduced reported inventories
       during the quarter, leaving them lower than last year in terms of both
       dollars and months of supply.

    -- China and India both raised interest rates, but those changes had
       little impact on economic growth.  Most other countries either held
       rates steady or lowered them.  As a result, regional economic growth
       likely continued near a 7 percent rate.  Construction increased
       rapidly, with 11 percent growth in both Australia and India.  In China,
       year-to-date spending on housing construction increased 30 percent, and
       spending on office construction rose 29 percent.

    -- Mining benefited from higher metals and coal prices.  Australia
       increased exploration spending 40 percent in the first quarter, and
       mine production increased 13 percent.  Year to date, China's production
       of coal rose 12 percent, and Indonesia, a major coal exporter, had a
       49 percent increase in all mineral exports.


                                Engines Sales
Sales were $3.338 billion in second quarter 2007, an increase of $257 million,
                   or 8 percent, from second quarter 2006.

    -- Sales volume increased $88 million.

    -- Price realization increased $106 million.

    -- Currency benefited sales by $63 million.

    -- Geographic mix between regions (included in price realization) was
       $12 million favorable.

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

    -- Significant increases in sales for electric power, petroleum, marine
       and industrial applications have more than offset a $380 million
       decline in on-highway truck engine sales.

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


    North America - Sales decreased $109 million, or 8 percent.

    -- Sales volume decreased $141 million.

    -- Price realization increased $32 million.

    -- Sales for on-highway truck applications declined $366 million due to
       less than anticipated demand for the 2007 model year engines and
       continuing transition of several original equipment manufacturers
       (OEMs) to the 2007 emissions technology engines.

    -- Sales for petroleum applications increased 47 percent due to high oil
       and gas commodity prices leading to strong engine demand from
       exploration and production companies along with success from gas
       pipeline and storage construction projects.  Turbine sales increased
       with strong sales in North American natural gas transmission.

    -- Sales for electric power applications increased 41 percent supported by
       data center installations.


    EAME - Sales increased $265 million, or 27 percent.

    -- Sales volume increased $184 million.

    -- Price realization increased $34 million.

    -- Currency benefited sales by $47 million.

    -- Sales for electric power applications increased 32 percent with strong
       demand for large gas units and Middle East rental fleet expansion.
       Turbines increased with sales into large power plant projects.

    -- Sales for petroleum applications increased 50 percent based on
       widespread demand for engines used in drilling applications and
       turbines and turbine-related services to support oil production.

    -- Sales for marine applications increased 24 percent with increased
       demand for workboats, commercial oceangoing vessels and cruise ships.

    -- Sales for industrial applications increased 9 percent with widespread
       demand for agriculture and other types of OEM equipment.


    Latin America - Sales increased $29 million, or 12 percent.

    -- Sales volume increased $26 million.

    -- Price realization increased $3 million.

    -- Sales for electric power engines increased 61 percent from widespread
       investment supported by strong oil and commodity prices.

    -- Sales into truck applications declined 48 percent as a result of
       reduced demand.  Latin American truck facilities decreased exports of
       trucks destined for North America.

    -- Sales for marine applications more than tripled due to increased
       workboat activity, which supports the petroleum industry.


    Asia/Pacific - Sales increased $72 million, or 18 percent.

    -- Sales volume increased $31 million.

    -- Price realization increased $25 million.

    -- Currency benefited sales by $16 million.

    -- Sales for petroleum applications increased 30 percent as Chinese drill
       rig builders manufactured at record levels for domestic and export use.

    -- Sales for marine applications increased 54 percent with continued
       strong demand for workboat and offshore shipbuilding.  Large diesel
       demand grew in the offshore and general cargo industries.

    -- Sales for electric power applications decreased by 24 percent driven by
       delays in securing financing for several key projects.

    -- Sales for industrial applications increased 60 percent with widespread
       demand for engines used in agriculture and other types of OEM
       applications.


                          Financial Product Revenues
Revenues were $743 million in second quarter 2007, an increase of $94 million,
                   or 14 percent, from second quarter 2006.

    -- Growth in average earning assets increased revenues $40 million.

    -- The impact of higher interest rates on new and existing finance
       receivables benefited revenues $30 million.

    -- Other revenues increased $16 million due to the absence of a write-down
       of a marine-related asset in second quarter 2007 compared to second
       quarter 2006.

    -- Revenues from earned premiums at Cat Insurance increased $14 million.


                   Consolidated Operating Profit Comparison
                       2nd Qtr. 2007 vs. 2nd Qtr. 2006

To access this chart, go to http://www.cat.com for the downloadable version of Caterpillar 2Q 2007 earnings.

Operating Profit

Operating profit in second quarter 2007 decreased $266 million, or 18 percent, from last year, driven by higher core operating costs, partially offset by higher price realization.

Core Operating costs rose $435 million from second quarter 2006. Of this increase, $394 million was due to increased manufacturing costs. The increase in manufacturing costs was due primarily to operating inefficiencies and higher material costs. Operating inefficiencies were the result of a significant decline in on-highway truck engine production, selected supply chain challenges, inefficiencies related to new product introductions and capacity increases. Our manufacturing costs were also up from last year's levels due to transitional costs associated with the launch of the Cat Production System. SG&A and R&D combined as a percent of sales remained essentially flat with last year.

Manufacturing and non-manufacturing costs were impacted about equally by a second quarter 2007 charge of $44 million to recognize previously unrecorded liabilities related to a subsidiary pension plan.



    Operating Profit by Principal Line of Business

                                        Second   Second
                                        Quarter  Quarter     $        %
                                         2006     2007     Change   Change
    (Millions of dollars)
    Machinery(1)                         $986      $741    $(245)    (25%)
    Engines(1)                            435       379      (56)    (13%)
    Financial Products                    157       184       27      17%
    Consolidating Adjustments             (99)      (91)       8
    Consolidated Operating Profit      $1,479    $1,213    $(266)    (18%)

    (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 $741 million was down $245 million, or
       25 percent, from second quarter 2006.  Improved price realization was
       offset by the unfavorable impact of lower sales volume and higher core
       operating costs.

    -- Engines operating profit of $379 million was down $56 million, or
       13 percent, from second quarter 2006.  Higher sales volume and improved
       price realization were offset by higher core operating costs including
       a $44 million charge to recognize previously unrecorded liabilities
       related to a subsidiary pension plan.  Continued strength in our
       commercial engines industries has allowed us to offset much of the
       profit decline in the on-highway truck engine industry.

    -- Financial Products operating profit of $184 million was up $27 million,
       or 17 percent, from second quarter 2006. The increase was primarily
       attributable to a $26 million impact from improved net yield on average
       earning assets and the absence of a $16 million write-down of a marine-
       related asset, partially offset by an $11 million decrease in operating
       profit at Cat Insurance due to higher claims experience.


    Other Profit/Loss Items

    -- Other income/(expense) was $70 million of income compared with
       $50 million of income in second quarter 2006.  The improvement was due
       to favorable impacts of currency.

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

    -- Equity in profit/(loss) of unconsolidated affiliated companies was
       income of $5 million compared with income of $32 million in the second
       quarter of 2006.  As previously announced, we are currently negotiating
       definitive agreements with Mitsubishi Heavy Industries that would
       result in Caterpillar owning a majority stake in Shin Caterpillar
       Mitsubishi Ltd. (SCM). Second quarter equity in profit/(loss) of
       unconsolidated affiliated companies reflects a $13 million after-tax
       charge for net adjustments that were identified during our due
       diligence procedures. Lower profit at SCM also contributed to the
       decrease.


    Employment

Caterpillar's worldwide employment was 96,315 at the end of the second quarter, up 4,001, or 4 percent, from a year ago. Of the increase, about 1,000 were the result of acquisitions, about 2,000 were salaried and management employees and 1,000 were hourly employees.

Sales & Revenues Outlook for 2007

We are raising our projection of 2007 sales and revenues to about $44 billion, or a 6 percent increase, from 2006. The previous outlook was a range of $42 to $44 billion. The expected improvement from 2006 is from increased volume outside North America, price realization, the impact of Progress Rail and currency impacts. North American machinery and engines sales volume, net of Progress Rail, is expected to be down.

Sales outside North America are expected to be up about $4.5 billion, or 24 percent -- more than offsetting a $2.4 billion, or 12 percent, decline in North America. This improvement reflects a continued strong economic performance outside North America.

    -- We expect dealers to further reduce inventories in the second half of
       this year, mostly in North America and EAME.  Dealers should end the
       year with inventories well below last year, both in dollars and months
       of supply.

    -- North America will continue to be a weak area in the second half, the
       result of further dealer inventory reductions, a sharp drop in North
       American on-highway engine sales and unfavorable economic conditions
       for many key industries.  The likely improvement in second-quarter
       economic growth and the Fed's continuing focus on inflation concerns
       prompted us to drop our forecast of interest rate cuts in the second
       half.

    -- The North American machine industry continued to decline in the second
       quarter despite the improvement in the economy.  Without interest rate
       relief, we believe economic growth will slow again in the last half,
       and the machine industry will decline further.  Housing, nonresidential
       construction and coal mining will likely remain weak.

    -- Fortunately, economies outside North America should remain robust.
       Central banks raised interest rates in the first half, and additional
       increases in the second half are likely.  However, in most countries,
       rates remain low relative to inflation, and economies should grow
       almost as fast as last year.

    -- Data for the early months of 2007 indicate strong growth in
       construction in most countries outside North America.  For the year,
       nonresidential building construction should do well -- office rents are
       up, employment is increasing and business profits are good.  Improved
       government budgets should mean increased spending to upgrade inadequate
       infrastructures.  Housing construction likely will slow since permits
       are declining in Europe and Australia.

    -- Coal mining should do well outside North America.  Contract prices for
       thermal coal increased 6 percent on April 1, and spot prices have
       traded above contract prices.  Major producing countries increased
       production early this year, and our forecasts for economic growth
       indicate coal demand will increase this year.  Transportation problems,
       not demand, are likely to limit coal production.

    -- Metals mining should do well throughout the world, including the United
       States.  Prices of most metals increased over the first half of this
       year, and we expect only moderate easing in the last half.  The past
       surge in investment should finally result in more consistent growth in
       mine output this year.

    -- West Texas Intermediate crude oil prices averaged $61.55 per barrel in
       the first half, and we expect it will average about $63 for the year.
       That price will be attractive for increased exploration, drilling,
       pipeline expenditures and tar sands development which should benefit '
       both machine and engine sales.

    -- Contract rates for oceangoing vessels are up this year with the Baltic
       Exchange Dry Index more than double last year's rate.  Shipyards are
       contracting for 2009 berths, so demand for marine engines should be
       strong this year.

North America (United States and Canada) Machinery and Engines sales are expected to decrease about 12 percent in 2007.

    -- We expect dealers will continue to reduce machine inventories in the
       second half, although not as much as in the first half.

    -- The North American on-highway truck industry should decline about
       40 percent this year.  Most of this decline is a correction for advance
       buying and inventory building undertaken last year to cope with the
       risks of new diesel engine emission standards.  However, declining
       freight volume and some deterioration in truck carrier profit margins
       have emerged as additional negative factors.

    -- Recent economic data suggest that U.S. economic growth will rebound
       from the depressed rate of the first quarter, perhaps achieving
       3 percent or better growth in the second quarter.  This improvement
       means the Fed is unlikely to reduce interest rates this year.

    -- Without interest rate relief, we believe the second-quarter improvement
       will prove temporary, and economic growth will slow to 2.5 percent or
       less in the second half.  For the year, we project the economy will
       grow a little more than 2 percent.  As in the past four quarters,
       industries critical to our businesses are likely to fare worse than the
       overall economy, and the machine industry should decline further in the
       second half.  Slow economic growth would also unfavorably impact demand
       for marine pleasure craft engines and standby electric power.

    -- The housing industry took a tremendous battering this past year as
       housing starts plunged 30 percent from the 2006 peak.  The recent
       increase in mortgage interest rates, tighter lending standards,
       declining home prices and an overhang of unsold homes suggest even
       lower starts in the second half.  We reduced our forecast of 2007
       starts to near 1.4 million units.  Total housing units supplied,
       including mobile homes, should be about 1.5 million units -- the lowest
       since 1992.

    -- Although nonresidential building contracting declined in the first
       half, leading indicators for this sector are positive, and businesses
       are borrowing more money.  We project some recovery in the second half
       so that contracting for the full year will be about even with last
       year.  However, the lack of any growth would be unfavorable for
       construction machinery demand.

    -- Late authorization of federal highway funding means states should have
       an opportunity to accelerate requests for funds in coming months.  We
       expect that highway contracts awarded will increase in the last half of
       2007, resulting in 2 percent growth for the full year.  The budget
       proposal for the next fiscal year (starts October 1) calls for only a
       3 percent increase in federal funding which could keep contractors
       cautious about buying new machines.

    -- Electric utilities have large coal stockpiles and appear to be reducing
       coal burn in favor of natural gas, so we expect coal production will
       decline almost 2 percent this year.  Lower coal production, mine
       permitting delays and environmental concerns could discourage mining
       investment the rest of this year.

    -- We expect metals mining production will increase almost 3 percent this
       year and expect most metals prices will decline moderately over the
       last half.  However, prices should remain high enough to make new
       investments profitable.

    -- Oil and natural gas prices should remain attractive for new investments
       this year.  As a result, we expect increased opportunities for machine
       sales into pipelines and turbine and engine sales for gas compression,
       drill rigs and well servicing equipment.

    -- The Canadian economy likely will grow more than 2 percent this year.
       Increased construction, tar sands development and mining growth should
       create a more favorable environment for the construction machinery
       industry than in the United States.

EAME Machinery and Engines sales are expected to increase about 29 percent in 2007.

    -- Dealers built inventories in the first half to prepare for increased
       customer demand.  As they complete deliveries to customers, we expect
       reported inventories will decline sharply in coming months.

    -- Regional growth should exceed 3 percent this year, slightly slower than
       last year.  Europe, Africa/Middle East and the CIS should have above-
       average growth in both their economies and construction.  The good
       growth should benefit machine sales and demand for standby electric
       power.

    -- The European Union economy grew at more than a 3 percent rate in the
       first quarter, and both business surveys and leading indicators suggest
       continued good growth.  We project growth for the full year will be
       about 2.5 percent.

    -- Both the European Central Bank and the Bank of England raised interest
       rates this year, and we expect one more increase from both in the last
       half.  Although rate increases have not slowed economies, currencies
       have strengthened.

    -- Construction was strong in the first half, and we expect growth will
       continue.  Residential building permits declined, and business surveys
       suggest housing construction will soften.  However, both nonresidential
       and infrastructure construction should strengthen.  Industrial capacity
       utilization reached 84.4 percent in the second quarter, highest since
       1990, and businesses have good profits.  Government finances improved,
       allowing increased capital expenditures.

    -- We forecast economic growth will be about 5.5 percent in Africa/Middle
       East this year, the same as in 2006.  Countries will benefit from high
       energy, metals and agriculture prices and increased production of many
       of these commodities.  Most governments improved budgets and are
       allocating more funds to infrastructure development.

    -- Inflation rates in both Turkey and South Africa are higher than central
       banks like, and both will continue high interest rate policies.
       However, construction has been strong in both countries, and we
       anticipate good growth for the year.  South Africa should also increase
       production of coal and copper.

    -- We expect the CIS economy will grow more than 7 percent this year,
       slightly slower than last year.  The Russian government's budget is in
       excellent shape, which should allow further large increases in spending
       for infrastructure development and housing construction.  Favorable
       oil, natural gas and metals prices should drive capacity investments in
       these industries.  The Ukrainian economy is growing rapidly, and
       construction, which was up 12 percent year to date, should continue
       growing.

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

    -- We project the Latin American economy will grow almost 5 percent this
       year, compared to 5.5 percent growth last year.  Favorable interest
       rates and better economic growth should support good construction
       growth in most countries.  Mining investment surged sharply the past
       few years, and production began to improve in the first half of this
       year.  We expect mining investment and production to increase this
       year.

    -- Brazil steadily lowered interest rates from a peak of 19.75 percent in
       2005 to 12 percent in June, and we expect another 50 basis point
       reduction in the last half of 2007.  Lower interest rates should result
       in faster economic growth this year and an improvement in construction
       activity.  Mining, which was up 5 percent year to date, should have
       good growth this year.

    -- Economic growth in Chile improved this year, and we forecast better
       growth than last year despite a recent reversal of an interest rate
       reduction.  Copper mining increased in the first quarter, so the
       industry should be able to recover from two years of decline.
       Construction, which rose 7 percent so far this year, should also be up.

    -- We expect Mexico's economy to slow significantly this year, the result
       of declining oil production and little growth in exports to the United
       States.  Construction, which rose 2 percent year to date, likely will
       remain sluggish.

Asia/Pacific Machinery and Engines sales are expected to increase about 20 percent in 2007.

    -- Regional growth should be about 7.5 percent this year, down slightly
       from last year.  Favorable interest rates, good growth in construction
       and increased mining investment should all support growth in machinery
       and engine sales.

    -- China has raised both reserve requirements and interest rates several
       times to slow economic growth and contain inflation.  So far these
       actions have not had much impact, and we forecast economic growth of
       about 10.5 percent this year, marginally lower than in 2006.
       Construction and coal mining were up year to date about 25 percent and
       12 percent, respectively, and both should continue rapid growth.

    -- Australian economic growth improved in the first quarter, which should
       prompt the central bank to raise interest rates.  However,
       nonresidential building permits indicate such construction should grow
       this year, and mining investment should be up significantly.  Growth in
       mining production likely will be limited by transportation capacity.

    -- Indonesia's recovery in sales should continue in the second half.
       Interest rates declined 150 basis points this year, and economic growth
       was almost 6 percent in the first quarter.  Both mining and
       construction should have good years.

    -- The Indian economy started the year strong, with growth of 9 percent
       overall, 7 percent for mining and 11 percent for construction.
       Inflation is back within target, so the central bank should be on hold
       for the rest of the year.  Businesses remain confident, and interest
       rates seem low relative to inflation.  As a result, we project that
       construction and mining will do well.


    Financial Products Revenues

    -- We expect continued growth in Financial Products for 2007.  Revenues
       are expected to increase approximately 13 percent versus 2006,
       primarily due to higher average earning assets and interest rates at
       Cat Financial and increased premiums at Cat Insurance.



    Sales and Revenues Outlook - Midpoint of Range(1)

                                      2006           2007             %
    (Millions of dollars)            Actual         Outlook         Change
    Machinery and Engines
      North America                 $20,155         $17,800          (12%)
      EAME                           10,287          13,250           29%
      Latin America                   3,646           4,200           15%
      Asia/Pacific                    4,781           5,750           20%

    Total Machinery and Engines      38,869          41,000            5%

    Financial Products(2)             2,648           3,000           13%

    Total                           $41,517         $44,000            6%

    (1) The Consolidated Operating Profit chart below reflects sales and
        revenues at $44 billion.

    (2) Does not include revenues earned from Machinery and Engines of
        $380 million and $466 million in 2007 and 2006, respectively.



                 Consolidated Operating Profit Comparison(1)
                            2007 Outlook vs. 2006

To access this chart, go to http://www.cat.com for the downloadable version of Caterpillar 2Q 2007 earnings.

2007 Outlook - Profit

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

    Questions and Answers
    Sales and Revenues / Economic & Industry

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

    A:    We made several changes.  We dropped our forecast of U.S. interest
          rate cuts in the second half.  The prospect of better economic
          growth in the second quarter means that the Fed will not be facing
          the challenge of reacting to two consecutive quarters of weak
          economic growth.  Consequently, the Fed will feel more comfortable
          in holding rates steady in an effort to reduce inflation.

          Without interest rate relief, many key industries in the United
          States face continued unfavorable economic conditions.  Housing
          construction is the most distressed, and we reduced our forecast for
          new starts from 1.5 million units in 2007 to about 1.4 million
          units.  Nonresidential construction and coal mining will likely
          remain weak.  Overall, we adjusted U.S. economic growth upward
          slightly, from 2 percent growth in 2007 to a little more than
          2 percent.

          More positively, economic growth outside North America appears
          slightly more favorable than we expected in the last report.  That
          improvement occurs even though interest rates are higher than what
          we assumed in the previous outlook.

          Metals and energy price forecasts are higher in this forecast than
          in the previous outlook.  Prices increased more in the first half
          than we expected, so the moderation in prices that we still expect
          will start from a higher base.

    Q2:   You have highlighted residential construction in the United States
          as a weak spot and have lowered your estimates.  Can you comment on
          your expectations for residential and nonresidential spending in the
          United States and worldwide?

    A:    U.S. residential construction looks even more distressed now than
          three months ago, the result of higher mortgage interest rates,
          falling new home prices, tighter lending standards and limited
          progress in reducing the stock of unsold new homes.  Consequently,
          we reduced the housing start forecast for this year from 1.5 million
          units to approximately 1.4 million units.

          U.S. nonresidential contracting declined year to date even though
          some of the supporting factors remained positive -- office rents
          were up, business profits were good, lending to businesses increased
          and federal highway funding was up.  Weakness in building ontracting
          possibly resulted from lower returns on commercial investments and
          fewer new home developments.  Delays in passing the federal budget
          limited the release of highway funds early in the year.  We expect
          very little growth in nonresidential construction this year, which
          could cause contractors to be cautious about buying new machines.

          Outside the United States prospects for nonresidential construction
          are favorable.  Office rents are up, business profits are high, and
          improved government budgets are allowing more spending on
          infrastructure.

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

    A:    These industries were strong in the first half of this year, and we
          expect continued strength in the last half.  Metals, oil and natural
          gas prices are well above levels that are attractive for investment
          and should remain favorable the rest of the year.  Investments in
          both metals mining and energy development should increase this year.
          We project these industries will be strong worldwide, including in
          the United States.

    Q4:   You are expecting price realization of $850 million for 2007.   Can
          you comment on your projected improvement in the second half of
          2007?

    A:    Year-over-year price realization is expected to increase in the
          second half of 2007.  Factors driving this increase include: timing
          of merchandising program spending and stronger sales volume in the
          second half of 2007 as well as weak price realization in the fourth
          quarter of 2006.

    Q5:   You said you were expecting dealer machine inventories to decline in
          2007, particularly in North America.  Can you comment on the status
          during the second quarter?  What are your expectations for the full
          year 2007?  What are your expectations for dealer inventory outside
          North America?

    A:    Dealers made excellent progress in reducing their machine
          inventories in the second quarter.  Reported inventories at the end
          of the quarter were lower than a year earlier in months of supply in
          all regions except Latin America.  In Latin America, months of
          supply were the same as last year, which was a low figure already.

          We project that North American dealers will further reduce
          inventories in the second half of this year so that reported
          inventories will be less than at the end of 2006 in both dollars and
          months supply.  Dealers outside North America likely will increase
          inventories to manage the strong increase in demand expected this
          year.  However, reported inventories in months of supply should end
          the year lower than at the end of 2006.


    Engines

    Q6:   How has the severe decline in on-highway truck engine sales impacted
          overall engine sales and operating profit?

    A:    The impact of the decline in truck engine sales has had a
          significant negative effect on overall engine sales and operating
          profit.  Overall engine sales in the quarter are up $257 million,
          despite a decline in truck-related sales of $380 million ($366
          million in North America).  Sales of electric power, petroleum,
          marine and industrial engines were up $637 million and reflect
          continued end market strength in those areas.

          Engine operating profit declined $56 million from the second quarter
          of 2006.  The negative impact of the drop in on-highway truck was
          about $150 million, and we had a charge of $44 million to recognize
          previously unrecorded liabilities related to a subsidiary pension
          plan.  Excluding the impact from truck engines and the pension
          charge, engines operating profit rose about $140 million.

    Q7:   You expected a significant drop in demand in 2007 sales of truck
          engines as a result of new emissions requirements.  How has second-
          quarter demand come in relative to your expectations?

    A:    The transition at our truck OEM customers to the 2007 model year
          engine has been slower than anticipated.  The impact of the 2006
          engines in OEMs' inventories has reduced the demand for the 2007
          product.  Also, getting our differentiated solution engineered into
          the various OEMs' chassis is taking longer than planned, but we feel
          the transient regeneration capability of our engine will be the
          solution of choice versus some of our competitors.  Our market share
          in the second half of 2007 should benefit from full availability at
          all major OEMs, and we expect our market share to return to more
          traditional levels.

    Q8:   What are your current expectations for the full year for the heavy-
          duty North American truck industry?

    A:    For 2007, we are still anticipating a heavy-duty North American
          truck industry of 175,000 to 180,000 units.  Through the first half
          of 2007, we estimate that heavy-duty truck production is off
          40 percent from the first half of last year, compared to the
          68 percent unit reduction in our heavy-duty truck engine production.

    Q9:   We understand that you've invested to increase production capacity
          of large 3500 series engines.  What's the status?  Will your
          production capability in the second half of the year be higher than
          the first half?

    A:    The capacity increase program is on schedule.  The additional
          capacity will begin in third quarter of this year, and we will
          continue increasing capacity during the next three years.

    Q10:  When will you be ready to talk about your technology for the 2010
          on-highway emissions changes?

    A:    Caterpillar plans for 2010 emissions technology are ongoing.  Our
          path continues to be in-cylinder emission reduction through the
          suite of ACERT(R) technologies, including advanced aftertreatment
          capability.

    Q11:  Are dealer reported inventories for engines at levels you think are
          appropriate overall?

    A:    Yes.  Comparing second quarter 2007 to a year earlier, dealer
          reported inventories in constant dollars and months of supply were
          up, but continued to be supported by strong delivery rates.

    Q12:  We have heard that you have had technical problems with your new
          on-highway engines.  How has the quality of the 2007 engines
          compared with previous releases?

    A:    We are highly satisfied with our projected 2007 engine reliability.
          The 2007 ACERT(R) engines are equal to or better than our 2006
          models and compare favorably with the historical levels that have
          resulted in the JD Power Customer Satisfaction awards for
          Caterpillar truck engines six years in a row.


    Costs / Profit / Cash Flow

    Q13:  Your outlook for core operating costs for 2007 has increased.  It's
          higher than your first-quarter outlook of $300 million.  What is
          causing the increase?

    A:    Our outlook for core operating costs for 2007 has increased to
          $700 million.  Material costs are expected to be about $150 million
          higher than originally forecast.  Truck engine-related production
          inefficiencies have been worse than expected, primarily due to lower
          than anticipated volume.  In addition, manufacturing inefficiencies
          related to supply chain disruption and our focus on improving
          Order-to-Delivery processes and capacity expansion initiatives
          essential to achieving our strategic goals have resulted in higher
          costs.

    Q14:  We hear about continuing cost pressure on material costs.  What are
          your expectations for 2007?

    A:    We now expect material costs to be up about 1 percent this year.  We
          had expected overall material cost increases to be minimal in 2007.
          Commodities, like nickel and aluminum, are higher than we expected,
          and some component suppliers are pushing through higher prices than
          we planned.

    Q15:  You've said before that you expect efficiency benefits from the
          implementation of the Cat Production System.  However, your factory
          efficiencies do not seem to be getting better.  Can you comment?

    A:    We are implementing enterprise wide changes to our Order-to-Delivery
          process in an effort to achieve our safety, quality and velocity
          goals for 2010 and beyond.  As we have deployed Cat Production
          System methodologies, we have also introduced additional quality
          procedures.  These procedures are intended to resolve problems prior
          to customer delivery and to introduce corrective actions in our
          factories. The combination of CPS implementation and additional
          quality procedures has resulted in some cost increase.

    Q16:  Can you break down your second quarter core operating costs in more
          detail?

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


              Core Operating Cost Change                  2nd Quarter 2007
                                                                vs.
              (Millions of dollars)                       2nd Quarter 2006

              Manufacturing Costs                             $ 394
              SG&A                                               41
              R&D                                                 0
                Total                                         $ 435



          Core operating costs rose $435 million from second quarter 2006.  Of
          this increase, $394 million was attributable to higher manufacturing
          costs.  The increase in manufacturing costs was primarily due to
          operating inefficiencies and higher material costs.  Operating
          inefficiencies were the result of a significant decline in on-
          highway truck engine production, selected supply chain challenges,
          inefficiencies related to new product introductions and capacity
          increases.  Our manufacturing costs were also up from last year's
          levels due to transitional costs associated with the launch of the
          Cat Production System.  SG&A and R&D combined as a percent of sales
          remained essentially flat with last year.

          Manufacturing and non-manufacturing costs were impacted about
          equally by a second quarter 2007 charge of $44 million to recognize
          previously unrecorded liabilities related to a subsidiary pension
          plan.

    Q17:  Core operating costs were up $435 million in the second quarter and
          $642 million year to date.  Based on your full-year outlook, what
          does this mean for costs in the second half of the year?

    A:    We expect 2007 core operating costs to be $700 million higher than
          full year 2006.  Operationally, the first half of 2007 included a
          significant number of new product introductions that tend to
          temporarily slow production.  The second half of 2007 includes much
          less new product introduction.  We are taking action to address the
          lower volumes forecasted for truck engines, and we are focused on
          improving our operating efficiencies through the Cat Production
          System.  Cost comparisons with the second half of 2006 should
          improve.  Costs increased in the second half of 2006 and included an
          expense for a legal dispute settlement.  We are also taking action
          to lower discretionary spending.

    Q18:  Can you comment on first-half operating cash flow and expectations
          for the remainder of 2007?

    A:    In the first half of 2007, Machinery and Engines generated
          $1.477 billion of operating cash flow. While we do not provide an
          outlook on cash flow, the second half of 2007 should benefit from
          higher profit and improved inventory performance as compared to the
          first half.  This will allow us to continue to maintain a strong
          financial position and deliver an excellent return for stockholders.

    Q19:  Can you comment on cash deployment in the first half of 2007?

    A:    Our priorities for the use of cash are:

           -- Maintain a strong financial position
           -- Fund profitable growth
           -- Maintain well-funded pension plans
           -- Consistently increase dividends
           -- Repurchase common stock.


          The solid Machinery and Engines operating cash flow through second
          quarter 2007 was primarily used for:

           -- Financial position strength; the debt-to-debt-plus-equity ratio
              for Machinery and Engines was 37.2 percent at the end of second
              quarter, well within our current target range of 35 to
              45 percent. This strong financial position provides flexibility
              to take advantage of future opportunities.

           -- Capital Expenditures, $575 million, primarily for additional
              capacity including replacement of older machines and to support
              new product introductions

           -- Acquisitions, $181 million, primarily to grow our
              remanufacturing operations

           -- Maintain well-funded pension plans; during the first half of
              2007, $33 million of contributions were made to global pension
              plans.  Due to the well-funded status of our pension plans,
              required contributions over the next three years are expected to
              be limited.

           -- Dividends, $386 million.  The quarterly dividend rate was
              increased 20 percent to $0.36 per share in June; this is our
              third consecutive year of a 20 percent or greater dividend
              increase and our fourteenth consecutive increase in the annual
              dividend.

           -- Stock repurchase, $1.017 billion for 14.7 million shares, of
              which 6.2 million shares were repurchased under the recently
              announced  $7.5 billion stock repurchase program.


    Q20:  Last summer you acquired Progress Rail.  In general, how has it
          performed?

    A:    We are very pleased with the performance of Progress Rail since it
          was acquired in June 2006.  Actual results were better than we had
          projected in both 2006 and in the first half of 2007.   Sales,
          operating profit and operating profit as a percent of sales are all
          higher than anticipated at the time of acquisition.   In the second
          quarter of 2007, Progress Rail sales were $411 million.
    GLOSSARY OF TERMS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


    NON-GAAP FINANCIAL MEASURES

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

MACHINERY AND ENGINES

Caterpillar defines Machinery and Engines as it is presented in the supplemental data as Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis. Machinery and Engines information relates to the design, manufacture and marketing of our products. Financial Products information relates to the financing to customers and dealers for the purchase and lease of Caterpillar and other equipment. The nature of these businesses is different, especially with regard to the financial position and cash flow items. Caterpillar management utilizes this presentation internally to highlight these differences. We also believe this presentation will assist readers in understanding our business. Pages 29-34 reconcile Machinery and Engines with Financial Products on the equity basis to Caterpillar Inc. Consolidated financial information.

SAFE HARBOR

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

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

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

    Internet:
    http://www.cat.com/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    Six Months Ended
                                          June 30,            June 30,
                                      2007       2006      2007      2006

    Sales and revenues:
      Sales of Machinery
       and Engines                   $10,613    $9,956   $19,934   $18,699
      Revenues of
       Financial Products                743       649     1,438     1,298
      Total sales and revenues        11,356    10,605    21,372    19,997

    Operating costs:
      Cost of goods sold               8,300     7,416    15,436    13,968
      Selling, general and
       administrative expenses           968       881     1,858     1,702
      Research and development
       expenses                          350       343       690       650
      Interest expense of
       Financial Products                279       256       550       488
      Other operating expenses           246       230       485       492
      Total operating costs           10,143     9,126    19,019    17,300

    Operating profit                   1,213     1,479     2,353     2,697

      Interest expense excluding
       Financial Products                 80        66       159       134
      Other income (expense)              70        50       181        93

    Consolidated profit before taxes   1,203     1,463     2,375     2,656

      Provision for income taxes         385       449       760       819
      Profit of consolidated companies   818     1,014     1,615     1,837

      Equity in profit (loss) of
       unconsolidated affiliated
       companies                           5        32        24        49

    Profit                              $823    $1,046    $1,639    $1,886

    Profit per common share            $1.28     $1.58     $2.55     $2.83

    Profit per common share -
     diluted (1)                       $1.24     $1.52     $2.47     $2.72

    Weighted average common
     shares outstanding (millions)
     - Basic                           640.5     662.1     642.4     666.7
     - Diluted (1)                     662.8     688.5     664.3     693.8

    Cash dividends declared
     per common share                   $.66      $.55      $.66      $.55


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



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

    Assets                                               June 30,    Dec. 31,
      Current assets:                                      2007        2006
        Cash and short-term investments                    $562       $530
        Receivables - trade and other                     7,835      8,607
        Receivables - finance                             6,821      6,804
        Deferred and refundable income taxes              1,055        733
        Prepaid expenses and other current assets           751        638
        Inventories                                       7,106      6,351
      Total current assets                               24,130     23,663

      Property, plant and equipment - net                 9,127      8,851
      Long-term receivables - trade and other               706        860
      Long-term receivables - finance                    12,711     11,531
      Investments in unconsolidated
       affiliated companies                                 551        562
      Noncurrent deferred and refundable
       income taxes                                       2,111      1,949
      Intangible assets                                     467        387
      Goodwill                                            1,937      1,904
      Other assets                                        1,766      1,742
    Total assets                                        $53,506    $51,449

    Liabilities
      Current liabilities:
        Short-term borrowings:
          -- Machinery and Engines                         $436       $165
          -- Financial Products                           5,280      4,990
        Accounts payable                                  4,130      4,085
        Accrued expenses                                  2,952      2,923
        Accrued wages, salaries and
         employee benefits                                  814        938
        Customer advances                                 1,275        921
        Dividends payable                                   230        194
        Other current liabilities                           803      1,145
        Long-term debt due within one year:
          -- Machinery and Engines                          469        418
          -- Financial Products                           3,416      4,043
      Total current liabilities                          19,805     19,822

      Long-term debt due after one year:
          -- Machinery and Engines                        3,670      3,694
          -- Financial Products                          14,285     13,986
      Liability for postemployment benefits               5,906      5,879
      Other liabilities                                   2,009      1,209
    Total liabilities                                    45,675     44,590
    Stockholders' equity
      Common stock                                        2,655      2,465
      Treasury stock                                     (8,154)    (7,352)
      Profit employed in the business                    15,951     14,593
      Accumulated other comprehensive income             (2,621)    (2,847)
    Total stockholders' equity                            7,831      6,859
    Total liabilities and stockholders' equity          $53,506    $51,449

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



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

                                                          Six Months Ended
                                                              June 30,
    Cash flow from operating activities:                  2007        2006
      Profit                                             $1,639     $1,886
      Adjustments for non-cash items:
        Depreciation and amortization                       849        802
        Other                                                71         94
      Changes in assets and liabilities:
        Receivables - trade and other                       987       (762)
        Inventories                                        (691)      (755)
        Accounts payable and accrued expenses               (46)       356
        Other assets - net                                 (300)        23
        Other liabilities - net                             727        277
    Net cash provided by (used for)
     operating activities                                 3,236      1,921

    Cash flow from investing activities:
      Capital expenditures - excluding
       equipment leased to others                          (582)      (552)
      Expenditures for equipment leased to others          (621)      (532)
      Proceeds from disposals of property,
       plant and equipment                                  208        319
      Additions to finance receivables                   (6,356)    (5,114)
      Collections of finance receivables                  5,233      4,079
      Proceeds from the sale of finance receivables          84        980
      Investments and acquisitions
       (net of cash acquired)                              (174)      (419)
      Proceeds from sale of available-for-sale
       securities                                           119        219
      Investments in available-for-sale securities         (217)      (296)
      Other - net                                           285        167
    Net cash provided by (used for)
     investing activities                                (2,021)    (1,149)

    Cash flow from financing activities:
      Dividends paid                                       (386)      (335)
      Common stock issued, including
       treasury shares reissued                             223        349
      Treasury shares purchased                          (1,017)    (2,411)
      Excess tax benefit from stock-based
       compensation                                          97        147
      Proceeds from debt issued (original
       maturities greater than three months)              5,259      5,033
      Payments on debt (original maturities
       greater than three months)                        (5,453)    (5,595)
      Short-term borrowings (original maturities
       three months or less)--net                            86      1,564
    Net cash provided by (used for)
     financing activities                                (1,191)    (1,248)
    Effect of exchange rate changes on cash                   8         16
    Increase (decrease) in cash and
     short-term investments                                  32       (460)

    Cash and short-term investments at
     beginning of period                                    530      1,108
    Cash and short-term investments at end of period       $562       $648

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 June 30, 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         $10,613      $10,613          $--        $--
      Revenues of
       Financial Products      743           --          846       (103)(2)
      Total sales and
       revenues             11,356       10,613          846       (103)

    Operating costs:
      Cost of goods sold     8,300        8,300           --         --
      Selling, general and
       administrative
       expenses                968          853          120         (5)(3)
      Research and
       development expenses    350          350           --         --
      Interest expense of
       Financial Products      279           --          279         --
      Other operating
       expenses                246          (10)         263         (7)(3)
      Total operating costs 10,143        9,493          662        (12)

    Operating profit         1,213        1,120          184        (91)

      Interest expense
       excluding Financial
       Products                 80           83           --         (3)(4)
      Other income (expense)    70          (36)          18         88(5)

    Consolidated profit
     before taxes            1,203        1,001          202         --

      Provision for
       income taxes            385          316           69         --
      Profit of consolidated
       companies               818          685          133         --
      Equity in profit (loss)
       of unconsolidated
       affiliated companies      5            4            1         --

      Equity in profit of
       Financial Products'
       subsidiaries             --          134           --       (134)(6)
    Profit                    $823         $823         $134      $(134)

    (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 June 30, 2006
                                 (Unaudited)
                            (Millions of dollars)

                                            Supplemental Consolidating Data
                                         Machinery    Financial  Consolidating
                         Consolidated  and Engines(1)  Products   Adjustments

    Sales and revenues:
      Sales of Machinery
       and Engines          $9,956       $9,956          $--        $--
      Revenues of Financial
       Products                649           --          768       (119)(2)
      Total sales and
       revenues             10,605        9,956          768       (119)

    Operating costs:
      Cost of goods sold     7,416        7,416           --         --
      Selling, general and
       administrative
       expenses                881          777          113         (9)(3)
      Research and
       development expenses    343          343           --         --
      Interest expense of
       Financial Products      256           --          259         (3)(4)
      Other operating
       expenses                230          (1)          239         (8)(3)
      Total operating costs  9,126        8,535          611        (20)

    Operating profit         1,479        1,421          157        (99)

      Interest expense
       excluding Financial
       Products                 66          70            --         (4)(4)
      Other income (expense)    50         (80)           35         95(5)

    Consolidated profit
     before taxes            1,463        1,271          192         --
      Provision for
       income taxes            449          384           65         --
      Profit of consolidated

       companies             1,014          887          127         --

      Equity in profit (loss)
       of unconsolidated
       affiliated companies     32           32           --         --
      Equity in profit of
       Financial Products'
       subsidiaries             --          127           --       (127)(6)
    Profit                  $1,046       $1,046         $127      $(127)

    (1) Represents Caterpillar Inc. and its subsidiaries with Financial
        Products accounted for on the equity basis.

    (2) Elimination of Financial Products' revenues earned from Machinery and
        Engines.

    (3) Elimination of net expenses recorded by Machinery and Engines paid to
        Financial Products.

    (4) Elimination of interest expense recorded between Financial Products
        and Machinery and Engines.

    (5) Elimination of discount recorded by Machinery and Engines on
        receivables sold to Financial Products and of interest earned between
        Machinery and Engines and Financial Products.

    (6) Elimination of Financial Products' profit due to equity method of
        accounting.



                               Caterpillar Inc.
                 Supplemental Data for Results of Operations
                    For The Six Months Ended June 30, 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         $19,934      $19,934          $--        $--
      Revenues of Financial
       Products              1,438           --        1,645       (207)(2)
      Total sales and
       revenues             21,372       19,934        1,645       (207)

    Operating costs:
      Cost of goods sold    15,436       15,436           --         --
      Selling, general and
       administrative
       expenses              1,858        1,638          230        (10)(3)
      Research and
       development expenses    690          690           --         --
      Interest expense of
       Financial Products      550           --          551         (1)(4)
      Other operating
       expenses                485          (14)         513        (14)(3)
      Total operating
       costs                19,019       17,750        1,294        (25)
    Operating profit         2,353        2,184          351       (182)

      Interest expense
       excluding Financial
       Products                159          163           --        (4)(4)
      Other income (expense)   181          (36)          39       178(5)

    Consolidated profit
     before taxes            2,375        1,985          390        --

      Provision for
       income taxes            760          629          131        --
      Profit of consolidated
       companies             1,615        1,356          259        --

      Equity in profit
       (loss) of
       unconsolidated
       affiliated companies     24           22            2        --
      Equity in profit of
       Financial Products'
       subsidiaries             --          261           --      (261)(6)
    Profit                  $1,639       $1,639         $261     $(261)

    (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 Six Months Ended June 30, 2006
                                 (Unaudited)
                            (Millions of dollars)

                                            Supplemental Consolidating Data
                                         Machinery    Financial  Consolidating
                         Consolidated  and Engines(1)  Products   Adjustments
    Sales and revenues:
      Sales of Machinery
       and Engines         $18,699      $18,699          $--        $--
      Revenues of Financial
       Products              1,298           --        1,514       (216)(2)
      Total sales and
       revenues             19,997       18,699        1,514       (216)

    Operating costs:
      Cost of goods sold    13,968       13,968           --         --
      Selling, general and
       administrative
       expenses              1,702        1,501          216        (15)(3)
      Research and
       development expenses    650          650           --         --
      Interest expense of
       Financial Products      488           --          492         (4)(4)
      Other operating
       expenses                492           28          479        (15)(3)
      Total operating costs 17,300       16,147        1,187        (34)


    Operating profit         2,697        2,552          327       (182)

      Interest expense
       excluding Financial
       Products                134          138           --         (4)(4)
      Other income (expense)    93        (131)           46        178(5)

    Consolidated profit
     before taxes            2,656        2,283          373         --

      Provision for income
       taxes                   819          693          126         --
      Profit of consolidated
       companies             1,837        1,590          247         --
      Equity in profit
       (loss) of
       unconsolidated
       affiliated companies     49           48            1         --
      Equity in profit of
       Financial Products'
       subsidiaries             --          248           --       (248)(6)
    Profit                  $1,886       $1,886         $248      $(248)

    (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 Six Months Ended June 30, 2007
                                 (Unaudited)
                            (Millions of dollars)

                                            Supplemental Consolidating Data
                                         Machinery    Financial  Consolidating
                         Consolidated  and Engines(1)  Products   Adjustments

    Cash flow from operating
     activities:
      Profit                $1,639       $1,639         $261      $(261)(2)
      Adjustments for
       non-cash items:
        Depreciation and
         amortization          849          512          337         --
        Undistributed profit
         of Financial Products  --         (261)          --        261(3)
        Other                   71           47         (146)       170(4)
      Changes in assets

       and liabilities:
        Receivables - trade
         and other             987          (57)         (20)     1,064(4/5)
        Inventories           (691)        (691)          --         --
        Accounts payable
         and accrued
         expenses              (46)        (146)          36         64(4)
        Other assets - net    (300)        (255)           2        (47)(4)
        Other liabilities
         - net                 727          689            8         30(4)
    Net cash provided by
     (used for) operating
     activities              3,236        1,477          478      1,281
    Cash flow from
     investing activities:
      Capital expenditures
       - excluding equipment
       leased to others       (582)        (575)          (7)        --
      Expenditures for
       equipment leased
       to others              (621)          --         (627)         6(4)
      Proceeds from disposals
       of property, plant
       and equipment           208           13          196         (1)(4)
      Additions to finance
       receivables          (6,356)          --      (17,369)    11,013(5)
      Collections of
       finance receivables   5,233           --       16,846    (11,613)(5)
      Proceeds from the sale
       of finance receivables   84           --          777       (693)(5)
      Net intercompany
       borrowings               --           35          (29)        (6)(6)
      Investments and
       acquisitions (net
       of cash acquired)      (174)        (181)          --          7(7)
      Proceeds from sale of
       available-for-sale
       securities              119            7          112         --
      Investments in
       available-for-sale
       securities             (217)          (8)        (209)        --
      Other - net              285           81          206         (2)(7)
    Net cash provided by
     (used for) investing
     activities             (2,021)        (628)        (104)    (1,289)
    Cash flow from
     financing activities:
      Dividends paid          (386)        (386)          --         --
      Common stock issued,
       including treasury
       shares reissued         223          223           (2)         2(7)
      Treasury shares
       purchased            (1,017)      (1,017)          --         --
      Excess tax benefit
       from stock-based
       compensation             97           97           --         --
      Net intercompany
       borrowings               --           29          (35)         6(6)
      Proceeds from debt
       issued (original
       maturities greater
       than three months)    5,259           43        5,216         --
      Payments on debt
       (original maturities

       greater than
       three months)        (5,453)         (49)      (5,404)        --
      Short-term borrowings
       (original maturities
       three months or
       less)--net               86          267         (181)        --
    Net cash provided by
     (used for) financing
     activities             (1,191)        (793)        (406)         8
    Effect of exchange
     rate changes on cash        8            4            4         --
    Increase (decrease) in
     cash and short-term
     investments                32           60          (28)        --
    Cash and short-term
     investments at beginning
     of period                 530          319          211         --
    Cash and short-term
     investments at end
     of period                $562         $379         $183        $--

    (1) Represents Caterpillar Inc. and its subsidiaries with Financial
        Products accounted for on the equity basis.

    (2) Elimination of Financial Products' profit after tax due to equity
        method of accounting.

    (3) Non-cash adjustment for the undistributed earnings from Financial
        Products.

    (4) Elimination of non-cash adjustments and changes in assets and
        liabilities related to consolidated reporting.

    (5) Reclassification of Cat Financial's cash flow activity from investing
        to operating for receivables that arose from the sale of inventory.

    (6) Net proceeds and payments to/from Machinery and Engines and Financial
        Products.

    (7) Change in investment and common stock related to Financial Products.



                               Caterpillar Inc.
                       Supplemental Data for Cash Flow
                    For The Six Months Ended June 30, 2006
                                 (Unaudited)
                            (Millions of dollars)

                                            Supplemental Consolidating Data
                                         Machinery    Financial  Consolidating
                         Consolidated  and Engines(1)  Products   Adjustments
    Cash flow from
     operating activities:
      Profit                $1,886       $1,886         $248      $(248)(2)
      Adjustments for
       non-cash items:
        Depreciation and
         amortization          802          470          332         --
        Undistributed profit
         of Financial
         Products               --         (248)          --        248(3)
        Other                   94           90         (186)       190(4)
      Changes in assets
       and liabilities:
        Receivables - trade
         and other            (762)         (53)           7       (716)(4,5)
        Inventories           (755)        (755)          --         --
        Accounts payable and
         accrued expenses      356          271           72         13(4)
        Other assets - net      23            9           (5)        19(4)
        Other liabilities
         - net                 277          273           31        (27)(4)
    Net cash provided by
     (used for) operating
     activities              1,921        1,943          499       (521)
    Cash flow from investing
     activities:
      Capital expenditures -
       excluding equipment
       leased to others       (552)        (536)         (27)        11(4)
      Expenditures for
       equipment leased to
       others                 (532)          --         (548)        16(4)
      Proceeds from disposals
       of property, plant and
       equipment               319           20          310        (11)(4)
      Additions to finance
       receivables          (5,114)          --      (18,013)    12,899(5)
      Collections of
       finance receivables   4,079           --       15,969    (11,890)(5)
      Proceeds from the
       sale of finance
       receivables             980           --        1,484       (504)(5)
      Net intercompany
       borrowings               --           36         (383)       347(6)
      Investments and
       acquisitions (net
       of cash acquired)      (419)        (419)          --         --
      Proceeds from sale of
       available-for-sale
       securities              219           13          206         --
      Investments in
       available-for-sale
       securities             (296)         (30)        (266)        --
      Other - net              167           13          166        (12)(7)
    Net cash provided by
     (used for) investing
     activities             (1,149)        (903)      (1,102)       856
    Cash flow from
     financing activities:
      Dividends paid          (335)        (335)          --         --
      Common stock issued,
       including treasury
       shares reissued         349          349          (12)        12(7)
      Treasury shares
       purchased            (2,411)      (2,411)          --         --
      Excess tax benefit
       from stock-based
       compensation            147          147           --         --
      Net intercompany
       borrowings               --          383          (36)      (347)(6)
      Proceeds from debt
       issued (original
       maturities greater
       than three months)    5,033          102        4,931         --
      Payments on debt
       (original maturities
       greater than three
       months)              (5,595)        (501)      (5,094)        --
      Short-term borrowings
       (original maturities
       three months or
       less)--net            1,564          721          843         --
    Net cash provided by
     (used for) financing

     activities             (1,248)      (1,545)         632       (335)
    Effect of exchange rate
     changes on cash            16            9            7         --
    Increase (decrease) in
     cash and short-term
     investments              (460)        (496)          36         --
    Cash and short-term
     investments at
     beginning of period     1,108          951          157         --
    Cash and short-term
     investments at end
     of period                $648         $455         $193        $--

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

    (1) Represents Caterpillar Inc. and its subsidiaries with Financial
        Products accounted for on the equity basis.

    (2) Elimination of Financial Products' profit after tax due to equity
        method of accounting.

    (3) Non-cash adjustment for the undistributed earnings from Financial
        Products.

    (4) Elimination of non-cash adjustments and changes in assets and
        liabilities related to consolidated reporting.

    (5) Reclassification of Cat Financial's cash flow activity from investing
        to operating for receivables that arose from the sale of inventory.

    (6) Net proceeds and payments to/from Machinery and Engines and Financial
        Products.

    (7) Change in investment and common stock related to Financial Products.

SOURCE Caterpillar Inc.
07/20/2007 AA AQF006

PRNewswire -- July 20/

4907 07/20/2007 07:31 EDT http://www.prnewswire.com