Questions and Answers Economy / Sales Q1: What are your expectations for U.S. housing? A: We project housing will weaken further in the first half and then begin to improve later in the year. We expect housing starts will be approximately 900 thousand units, about the same as 2008. The more than 20-percent decline in home prices since early 2006 and recent declines in mortgage interest rates have already improved housing affordability to near the record highs reached in the early 1970s. We expect mortgage interest rates will decline below 4.5 percent, further improving affordability. Q2: What's your forecast for key commodity prices in 2009? A: We project West Texas Intermediate crude oil will average a little more than $40 per barrel, down from $100 in 2008. Copper prices should average about $1.10 per pound, compared to $3.15 in 2008. Both price forecasts are below prices that we believe would be attractive to launch new projects. Our forecast for the Central Appalachian coal price is more than $40 per ton in 2009, down from $89 in 2008. That price should be sufficiently high enough to encourage about a 0.5 percent increase in coal production in the United States. Coal prices in the rest of the world should also be high enough to cause producers to increase output. Q3: What is the forecast for economic growth in China, and how will the China stimulus package impact Caterpillar? A: We estimate the Chinese economy will grow about 7.5 percent this year, down from 9 percent last year. The government recently announced a $586 billion stimulus package to be spread over two years. Total construction spending last year was about $900 billion, so the package should help offset the slowing in construction that is underway. We do not anticipate that this package, on its own, will stop the recent decline in the Chinese machine industry. Q4: How do you expect the U.S. stimulus package to impact Caterpillar? A: Our initial assessment is that the package might have up to $150 billion in infrastructure-related spending, spread over a two-year period. If enacted quickly, perhaps $50 billion could be spent in 2009. That expenditure would represent about 5 percent of total U.S. construction spending in 2008 and would likely require some increase in equipment purchases to handle the added work in addition to increased utilization of the existing machine population. Other measures in the package, such as tax cuts and actions to improve the housing industry, could indirectly benefit construction. Q5: How have dealer inventories changed recently, are they too high, and what do you expect to happen in 2009? A: The worse-than-expected weakening in dealer deliveries has contributed to higher dealer inventories, in both dollars and months of supply. We allowed dealers to cancel orders so that they could more quickly adjust inventories to more appropriate amounts. We anticipate dealers will reduce inventories this year around $1.5 billion, with much of it occurring during the first half. Q6: Can you discuss your order backlog in total for Caterpillar? How has it changed since year-end 2007? Has it deteriorated over the past quarter? A: Dealers reported significant slowdowns or declines in deliveries to end users in fourth quarter 2008 and reduced their orders. We also allowed dealers to cancel orders. As a result, our order backlog declined significantly in the fourth quarter and ended the year at $14.7 billion, well below the year-end 2007 level of $17.8 billion. Q7: Can you address the backlog for mining products? A: We have a mining order backlog today; however, as customers continue to "delay" existing and greenfield expansions these orders are getting pushed out accordingly. We are in constant dialogue with our customers and dealers and are working through these issues. -- In most cases, mining companies are delaying, not cancelling, expansion plans. -- Both the speed and magnitude of the drop in commodity prices, especially base metals, has driven short-term cancellations and delays. -- Mining companies, like other industries, have increased costs to obtain capital. -- Some customers are highly leveraged, forcing short-term cost shedding and capital preservation. -- We expect that global stimulus packages will help improve demand and commodity prices. Engines Q8: Can you address the backlog and sales prospects for 2009 for large engines and turbines? A: The order backlog for turbines has remained strong due to equipment order lead times. While declines have varied by product family and model, we have seen a reduction in reciprocating engine backlogs as order rates have abruptly declined in all industries and cancellations have increased. As a result, we have made necessary production cuts to address these declines and have been able to improve availability in all products. We anticipate weaker sales in 2009 and will continue to make the appropriate production scheduling adjustments as needed. Q9: What impact will your early exit from on-highway truck engines have? A: We began to manage costs down and redeploy resources away from the truck engine business in late 2008. This will continue through the first half of 2009 as we fulfill the last customer requirements. In December 2008, we announced a layoff affecting up to 814 of our production workforce at the Mossville facility. This is a result of exiting the on-highway engine business, coupled with, lower demand for off-highway engines. Costs / Employment Q10: You are going ahead with the new factories in Texas and Arkansas. Why are you continuing with new U.S. capacity expansion? A: The new facility in Texas represents a strategic long-term priority for Caterpillar. The new facility will deliver a state-of-the-art engine assembly process focused on producing the high-quality products for which Caterpillar is known. The new assembly process will be sized appropriately for our continuing off-highway engine business and result in a more cost-effective assembly process. The Texas location is also strategically located to the source of major engine components and closer to a major seaport for export engines. While the current market conditions are challenging, Caterpillar must invest now to prepare for the introduction of Tier 4 off- highway engines required in the more regulated markets after 2011. The new facility in North Little Rock, Arkansas, represents an important, long-term strategic step for Caterpillar. This facility will be the North American home for Caterpillar's line of motor graders. Manufacturing operations will be state-of-the-art, solely dedicated to motor grader production, which will result in more cost-effective production of motor graders. While the current economic conditions are challenging, the new facility will support the introduction of our Tier 4 compliant motor grader in 2010. The move of motor grader production from our Decatur, Illinois, facility also frees up space in Decatur to support the long-term growth of our large off-highway truck business. We believe the benefits from moving production of our motor grader line will improve Caterpillar's long-term competitiveness for both motor graders and large off-highway trucks. Q11: What do you expect relative to R&D in 2009, and what about spending related to Tier 4? A: We expect R&D expenses to decline somewhat in 2009 from 2008 levels. Sharper cuts are not likely as we continue to do the product development required to meet Tier 4 emissions requirements. We are prioritizing our R&D spending to focus on Tier 4 commitments and to fund key technologies that will continue to allow Caterpillar to provide industry leading customer value. Q12: Summarize the impact of the consolidation of Cat Japan on fourth quarter sales and profit. A: The consolidation of Cat Japan added $261 million to fourth quarter sales but was about neutral to profit. Cash Flow / Financial Position Q13: Outside of Cat Financial, what has been Caterpillar's recent experience with debt markets? Do you have access to capital? A: The problems in the credit markets have had limited impact on Caterpillar Inc. due to our strong credit rating. We have been able to maintain normal operations and fund our needs. Caterpillar Inc. successfully issued $1.5 billion of long-term debt in early December. The offering generated strong investor demand. There also is strong demand for our commercial paper and we have benefited from very low interest rates on commercial paper. Q14: There seems to be more cash than usual on your balance sheet, can you explain why? A: The enterprise had $2.7 billion of cash at year-end 2008, an increase of $1.6 billion from year-end 2007. We increased our short-term borrowings to provide a cushion of extra cash in the event that short-term credit markets become disrupted. Q15: Can you summarize what happened to your pension and other postretirement benefit plans in 2008 and how that impacts 2009? A: Accounting standards require that we recognize the over-funded or under-funded status of our pension and other postretirement benefit plan liabilities on our balance sheet at the end of each year. Asset losses in our pension and postretirement benefit plans were in excess of 30 percent in 2008. The funded status of our pension plans declined from 93 percent at the end of 2007 to 61 percent at the end of 2008. The funded status of our postretirement benefit plans, which are not required to be funded, declined from 29 percent to 21 percent. This increase in unfunded liabilities resulted in a $3.4 billion charge to Other Comprehensive Income (OCI), which is a component of equity, in the fourth quarter of 2008. This non-cash charge to equity negatively affected our debt-to-capital ratio by approximately 11 percentage points. We expect to contribute approximately $1 billion to our pension plans in 2009 compared with $422 million in 2008. In addition, we expect our pension and other postretirement benefit plan expenses to increase approximately $300 million in 2009, excluding any impact of redundancy charges. Q16: What is your Machinery & Engines debt-to-capital ratio and how has it changed over the course of the year? A: The debt-to-capital ratio for Machinery and Engines was 57.9 percent at the end of 2008, above our target range of 35 to 45 percent. The $3.4 billion equity reduction from pension and other postretirement benefits increased the debt-to-capital ratio 11 percentage points. Our extra cash cushion increased short-term debt and added 3 percentage points to the debt-to-capital ratio. Additionally, in 2008 the consolidation of Cat Japan increased the debt-to-capital ratio about 7 percent. Financial Products Q17: Why did Financial Products profit drop in fourth quarter compared to fourth-quarter 2007 when revenues were higher? Can you discuss any unusual items that affected your fourth-quarter results? A: Financial Products pre-tax loss was $24 million for the fourth quarter of 2008, compared with a pre-tax profit of $181 million in the fourth quarter of 2007. At Cat Financial, profitability related directly to the portfolio was down $77 million and consisted of a decreased net yield on average earning assets and a higher provision for credit losses, partially offset by higher average earning assets. In addition, interest rate volatility in the fourth quarter resulted in mark-to-market adjustments on interest rate derivative contracts, which lowered profit $47 million compared to 2007. Cat Financial also reported a $20 million currency exchange loss in the fourth quarter of 2008, compared to a $4 million gain in 2007, and due to worse than expected loss experience, recorded a $15 million write-down in retained interests related to the securitized asset portfolio. In addition, at Cat Insurance there was a $33 million charge related to equity investments within the Cat Insurance investment portfolio. Q18: Give us an update on the quality of Cat Financial's asset portfolio. How are past dues, credit losses and allowances? A: Key portfolio metrics remain somewhat stressed due to global economic conditions. At the end of 2008, past dues were 3.88 percent compared with 2.36 percent at the end of 2007. The U.S. has not yet shown signs of recovery, and we see continued slowing in other geographical locations. We expect there will be continued upward pressure on past dues throughout 2009. Bad debt write-offs, net of recoveries, were $61 million for the fourth quarter of 2008 compared with $27 million for the fourth quarter of 2007; $31 million of the increase was driven by economic conditions primarily in North America and $3 million was due to the 12-percent growth in Cat Financial's average retail finance receivable portfolio. For the full year of 2008, bad debt write- offs, net of recoveries, were $121 million compared with $68 million for the full year of 2007. At the end of 2008, Cat Financial's allowance for credit losses totaled $395 million, an increase of $42 million from the end of 2007. Of the increase, $28 million is attributable to growth in the retail finance receivable portfolio while $14 million resulted from the increase in the allowance rate from 1.39 percent to 1.44 percent of net finance receivables. Q19: How do these asset quality metrics compare with prior recessions? A: At the end of 2008, past dues were 3.88 percent. As an historical comparison, total Cat Financial past dues during the last U.S. recession were 4.78 percent at their peak at the end of the first quarter of 2002. Total write-offs, net of recoveries for the full year of 2002 were 0.69 percent of our average retail portfolio, significantly higher than the full-year 2008 rate of 0.48 percent. Cat Financial's allowance for credit losses, totaling $395 million at the end of 2008, is appropriate for the current and expected global economic environment. Q20: What are you expecting relative to past dues and losses in 2009? A: Consistent with our 2009 economic outlook and expected further weakening of the global economy, we expect past dues and write-offs will likely be higher in 2009 compared with 2008. Cat Financial increased the allowance for credit losses to $395 million, or 1.44 percent of net finance receivables at the end of 2008, which we feel is appropriate for the current and expected global economic environment. Should economic conditions worsen beyond expectations, additional increases to Cat Financial's allowance for credit losses may be needed. Q21: Describe your access to debt markets over the past quarter. A: Generally, term debt markets were fragile during the fourth quarter. In December 2008, Cat Financial issued $463 million in Cat Power Notes in the U.S. These retail notes are unsecured demand notes sold through brokers and dealers. The retail notes' terms range from 2 to 7 years. Credit spreads were elevated compared with normal levels during the fourth quarter. Cat Financial did not issue medium-term debt in the fourth quarter. Since year-end, the U.S. and certain international debt markets, notably Europe, have improved with a corresponding improvement in credit spreads. Q22: How much commercial paper do you have, and do you have commercial paper with maturities beyond a few days? A: Cat Financial has maintained access to commercial paper (CP) markets throughout the credit market disruption to fund ongoing operations. At year-end 2008, Cat Financial had $5.244 billion in global CP outstanding. Of this amount, 90 percent was in maturities beyond one week. Over the fourth-quarter 2008, CP issuance ranged from overnight to three months. Access has been good in the U.S. and satisfactory in Europe and Canada. Pricing levels have been attractive in the U.S. and satisfactory in both Europe and Canada. For example, since year-end 2008 Cat Financial has issued 30-day CP in the U.S. at 0.2 percent APR, Europe at 2.0 percent APR and Canada at 1.4 percent APR. The broader prevailing market conditions in Australia and Japan have been more challenging, with higher pricing and more limited access. Overall, global CP investor response has been positive. Q23: Are you backing up your commercial paper with bank lines? How much? A: Caterpillar Inc. and Cat Financial share a revolving credit facility that, in September 2008, was increased by $0.3 billion to $6.85 billion. The majority of this facility, totaling $5.85 billion, is allocated to Cat Financial and is used to backup 100 percent of our CP issuance globally. Q24: What happens if Cat Financial's access to debt is severely limited in 2009? A: If global conditions deteriorate so significantly that access to the debt markets becomes unavailable to Cat Financial, it would rely on: a) cash flow from its existing retail portfolio approximating $1 billion per month to assist in retiring debt balances; b) utilization of Cat Financial's cash balances, which totaled $1.08 billion at year-end 2008; and/or c) access to the $6.85 billion revolving credit facility shared jointly with Caterpillar Inc. and other credit line facilities held by the company. Q25: From a competitive standpoint, are you competitive with other lenders in financing Cat product, or are margins getting squeezed? A: Cat Financial's overall competitiveness varies depending on the specific competitor, type of customer, geographic location, transaction amount, type of financial product (e.g. operating lease vs. installment sales contract), tenor of transaction and the use of below market interest rate programs. Cat Financial is less competitive on certain transactions compared to companies with access to government-supported funding programs. Cat Financial remains competitive compared with those companies without access to government-supported programs and for specific transaction types. Cat Financial's net yield on average earning assets was $57 million lower in the fourth quarter of 2008 compared with 2007 for a number of reasons, including the impacts of intense competition, maintaining higher cash balances in the fourth quarter and higher levels of past due accounts. Q26: What happened with Cat Insurance? Can you describe the fourth- quarter write-off in more detail? A: In the fourth quarter of 2008, Cat Insurance recorded a $37 million charge for an Other Than Temporary Impairment of the equity investments within the Cat Insurance investment portfolio. Under Cat Insurance's policy, management performs an equity-by-equity review of investments where the market value is below book value. Cat Insurance has a conservative investment philosophy. At year- end, the portfolio mix was approximately 90 percent debt securities and approximately 10 percent equity securities. The fourth-quarter adjustment represents the mark-to-market amount for equities whose value is not expected to recover in a reasonable timeframe. While the charge in the fourth quarter was appropriate for current market conditions, there could be additional write-downs if stock prices decline from year-end levels or if the value of those stocks whose value is only temporarily impaired fails to recover as expected. Q27: Are used equipment prices continuing to fall and how does that impact Cat Financial's lease business? A: Cat Financial has had a consistent approach to underwriting over a number of years and has a very diversified portfolio serving multiple industries. Residuals are established by model based on a range of factors including: the application, expected usage, lease term and past remarketing experience. While in general used equipment prices are continuing to trend lower, we believe that current lease residual values are appropriate. Over the past 10 years, Cat Financial's gain or loss on terminations has not been significant to profitability and has averaged about 1 percent of Cat Financial's profit before tax. In addition, Cat Financial's recent experience is consistent with its historical performance. GLOSSARY OF TERMS 1. Cat Production System (CPS) -- The Cat Production System is the common Order-to-Delivery process being implemented enterprise-wide to achieve our safety, quality, velocity, earnings and growth goals for 2010 and beyond. 2. Consolidating Adjustments -- Eliminations of transactions between Machinery and Engines and Financial Products. 3. Currency -- With respect to sales and revenues, currency represents the translation impact on sales resulting from changes in foreign currency exchange rates versus the U.S. dollar. With respect to operating profit, currency represents the net translation impact on sales and operating costs resulting from changes in foreign currency exchange rates versus the U.S. dollar. Currency includes the impacts on sales and operating profit for the Machinery and Engines lines of business only; currency impacts on Financial Products revenues and operating profit are included in the Financial Products portions of the respective analyses. With respect to other income/expense, currency represents the effects of forward and option contracts entered into by the company to reduce the risk of fluctuations in exchange rates and the net effect of changes in foreign currency exchange rates on our foreign currency assets and liabilities for consolidated results. 4. Debt-to-Capital Ratio -- A key measure of financial strength used by both management and our credit rating agencies. The metric is a ratio of Machinery and Engines debt (short-term borrowings plus long-term debt) and redeemable noncontrolling interest to the sum of Machinery and Engines debt, redeemable noncontrolling interest, and stockholders' equity. 5. EAME -- Geographic region including Europe, Africa, the Middle East and the Commonwealth of Independent States (CIS). 6. Earning Assets -- Assets consisting primarily of total finance receivables net of unearned income, plus equipment on operating leases, less accumulated depreciation at Cat Financial. 7. Engines -- A principal line of business including the design, manufacture, marketing and sales of engines for Caterpillar machinery; electric power generation systems; on-highway vehicles and locomotives; marine, petroleum, construction, industrial, agricultural and other applications and related parts. Also includes remanufacturing of Caterpillar engines and a variety of Caterpillar machinery and engine components and remanufacturing services for other companies. Reciprocating engines meet power needs ranging from 10 to 21,700 horsepower (8 to more than 16 000 kilowatts). Turbines range from 1,600 to 30,000 horsepower (1 200 to 22 000 kilowatts). 8. Financial Products -- A principal line of business consisting primarily of Caterpillar Financial Services Corporation (Cat Financial), Caterpillar Insurance Holdings, Inc. (Cat Insurance), Caterpillar Power Ventures Corporation (Cat Power Ventures) and their respective subsidiaries. Cat Financial provides a wide range of financing alternatives to customers and dealers for Caterpillar machinery and engines, Solar gas turbines as well as other equipment and marine vessels. Cat Financial also extends loans to customers and dealers. Cat Insurance provides various forms of insurance to customers and dealers to help support the purchase and lease of our equipment. Cat Power Ventures is an investor in independent power projects using Caterpillar power generation equipment and services. 9. Integrated Service Businesses -- A service business or a business containing an important service component. These businesses include, but are not limited to, aftermarket parts, Cat Financial, Cat Insurance, Progress Rail, Solar Turbines Customer Services, Cat Logistics, OEM Solutions and Cat Reman. 10. Latin America -- Geographic region including Central and South American countries and Mexico. 11. Machinery -- A principal line of business which includes the design, manufacture, marketing and sales of construction, mining and forestry machinery -- track and wheel tractors, track and wheel loaders, pipelayers, motor graders, wheel tractor-scrapers, track and wheel excavators, backhoe loaders, log skidders, log loaders, off-highway trucks, articulated trucks, paving products, skid steer loaders and related parts. Also includes logistics services for other companies and the design, manufacture, remanufacture, maintenance and services of rail-related products. 12. Machinery and Engines (M&E) -- Due to the highly integrated nature of operations, it represents the aggregate total of the Machinery and Engines lines of business and includes primarily our manufacturing, marketing and parts distribution operations. 13. Machinery and Engines Other Operating Expenses -- Comprised primarily of gains (losses) on disposal of long-lived assets, long- lived asset impairment charges and employee severance charges. 14. Manufacturing Costs -- Represent the volume-adjusted change for manufacturing costs. Manufacturing costs are defined as material costs and labor and overhead costs related to the production process. Excludes the impact of currency. 15. Price Realization -- The impact of net price changes excluding currency and new product introductions. Consolidated price realization includes the impact of changes in the relative weighting of sales between geographic regions. 16. Sales Volume -- With respect to sales and revenues, sales volume represents the impact of changes in the quantities sold for machinery and engines as well as the incremental revenue impact of new product introductions. With respect to operating profit, sales volume represents the impact of changes in the quantities sold for machinery and engines combined with product mix-the net operating profit impact of changes in the relative weighting of machinery and engines sales with respect to total sales. 17. Shin Caterpillar Mitsubishi Ltd. (SCM) -- Formerly a 50/50 joint venture between Caterpillar and Mitsubishi Heavy Industries Ltd. (MHI). On August 1, 2008, SCM redeemed one-half of MHI's shares. Caterpillar now owns 67 percent of the renamed entity, Caterpillar Japan Ltd. NON-GAAP FINANCIAL MEASURES The following definition is provided for "non-GAAP financial measures" in connection with Regulation G issued by the Securities and Exchange Commission. This non-GAAP financial measure has no standardized meaning prescribed by U.S. GAAP and therefore is unlikely to be comparable to the calculation of similar measures for other companies. Management does not intend this item to be considered in isolation or as a substitute for the related GAAP measure: Machinery and Engines - Caterpillar defines Machinery and Engines as it is presented in the supplemental data as Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis. Machinery and Engines information relates to the design, manufacture and marketing of our products. Financial Products information relates to the financing to customers and dealers for the purchase and lease of Caterpillar and other equipment. The nature of these businesses is different, especially with regard to the financial position and cash flow items. Caterpillar management utilizes this presentation internally to highlight these differences. We also believe this presentation will assist readers in understanding our business. Pages 39-44 reconcile Machinery and Engines with Financial Products on the equity basis to Caterpillar Inc. consolidated financial information. Caterpillar's latest financial results and current outlook are also available via: Telephone: (800) 228-7717 (Inside the United States and Canada) (858) 244-2080 (Outside the United States and Canada) Internet: http://www.cat.com/investorhttp://www.cat.com/irwebcast (live broadcast/replays of quarterly conference call) Caterpillar Inc. Condensed Consolidated Statement of Results of Operations (Unaudited) (Dollars in millions except per share data) Three Months Ended Twelve Months Ended December 31, December 31, 2008 2007 2008 2007 Sales and revenues: Sales of Machinery and Engines $12,120 $11,360 $48,044 $41,962 Revenues of Financial Products 803 784 3,280 2,996 Total sales and revenues 12,923 12,144 51,324 44,958 Operating costs: Cost of goods sold 10,066 8,920 38,415 32,626 Selling, general and administrative expenses 1,305 1,025 4,399 3,821 Research and development expenses 507 357 1,728 1,404 Interest expense of Financial Products 299 293 1,153 1,132 Other operating (income) expenses 289 294 1,181 1,054 Total operating costs 12,466 10,889 46,876 40,037 Operating profit 457 1,255 4,448 4,921 Interest expense excluding Financial Products 71 60 274 288 Other income (expense) (26) 88 299 320 Consolidated profit (loss) before taxes 360 1,283 4,473 4,953 Provision (benefit) for income taxes (296) 330 953 1,485 Profit of consolidated companies 656 953 3,520 3,468 Equity in profit (loss) of unconsolidated affiliated companies 5 22 37 73 Profit $661 $975 $3,557 $3,541 Profit per common share $1.10 $1.55 $5.83 $5.55 Profit per common share - diluted(1) $1.08 $1.50 $5.66 $5.37 Weighted average common shares outstanding (millions) - Basic 602.1 630.4 610.5 638.2 - Diluted(1) 610.6 650.8 627.9 659.5 Cash dividends declared per common share $.84 $.72 $1.62 $1.38 (1) Diluted by assumed exercise of stock-based compensation awards using the treasury stock method. Caterpillar Inc. Condensed Consolidated Statement of Financial Position (Unaudited) (Millions of dollars) December 31, December 31, 2008 2007 Assets Current assets: Cash and short-term investments $2,736 $1,122 Receivables - trade and other 9,397 8,249 Receivables - finance 9,051 7,503 Deferred and refundable income taxes 1,223 816 Prepaid expenses and other current assets 765 583 Inventories 8,781 7,204 Total current assets 31,953 25,477 Property, plant and equipment - net 12,524 9,997 Long-term receivables - trade and other 1,479 685 Long-term receivables - finance 13,944 13,462 Investments in unconsolidated affiliated companies 94 598 Noncurrent deferred and refundable income taxes 3,311 1,553 Intangible assets 511 475 Goodwill 2,261 1,963 Other assets 1,705 1,922 Total assets $67,782 $56,132 Liabilities Current liabilities: Short-term borrowings: -- Machinery and Engines $1,632 $187 -- Financial Products 6,997 5,281 Accounts payable 4,827 4,723 Accrued expenses 4,121 3,178 Accrued wages, salaries and employee benefits 1,242 1,126 Customer advances 1,898 1,442 Dividends payable 253 225 Other current liabilities 1,027 951 Long-term debt due within one year: -- Machinery and Engines 330 180 -- Financial Products 5,036 4,952 Total current liabilities 27,363 22,245 Long-term debt due after one year: -- Machinery and Engines 5,862 3,639 -- Financial Products 15,678 14,190 Liability for postemployment benefits 9,975 5,059 Other liabilities 2,293 2,116 Total liabilities 61,171 47,249 Redeemable noncontrolling interest 524 - Stockholders' equity Common stock 3,057 2,744 Treasury stock (11,217) (9,451) Profit employed in the business 19,826 17,398 Accumulated other comprehensive income (5,579) (1,808) Total stockholders' equity 6,087 8,883 Total liabilities, redeemable noncontrolling interest and stockholders' equity $67,782 $56,132 Caterpillar Inc. Condensed Consolidated Statement of Cash Flow (Unaudited) (Millions of dollars) Twelve Months Ended December 31, 2008 2007 Cash flow from operating activities: Profit $3,557 $3,541 Adjustments for non-cash items: Depreciation and amortization 1,980 1,797 Other 383 199 Changes in assets and liabilities: Receivables - trade and other (545) 899 Inventories (833) (745) Accounts payable and accrued expenses 656 618 Customer advances 286 576 Other assets - net (470) 66 Other liabilities - net (227) 984 Net cash provided by (used for) operating activities 4,787 7,935 Cash flow from investing activities: Capital expenditures - excluding equipment leased to others (2,445) (1,700) Expenditures for equipment leased to others (1,566) (1,340) Proceeds from disposals of property, plant and equipment 982 408 Additions to finance receivables (14,031) (13,946) Collections of finance receivables 9,717 10,985 Proceeds from sale of finance receivables 949 866 Investments and acquisitions (net of cash acquired) (117) (229) Proceeds from release of security deposit - 290 Proceeds from sale of available-for-sale securities 357 282 Investments in available-for-sale securities (339) (485) Other - net 197 461 Net cash provided by (used for) investing activities (6,296) (4,408) Cash flow from financing activities: Dividends paid (953) (845) Common stock issued, including treasury shares reissued 135 328 Payment for stock repurchase derivative contracts (38) (56) Treasury shares purchased (1,800) (2,405) Excess tax benefit from stock-based compensation 56 155 Proceeds from debt issued (original maturities greater than three months) 17,930 11,039 Payments on debt (original maturities greater than three months) (14,439) (10,888) Short-term borrowings (original maturities three months or less)-net 2,074 (297) Net cash provided by (used for) financing activities 2,965 (2,969) Effect of exchange rate changes on cash 158 34 Increase (decrease) in cash and short-term investments 1,614 592 Cash and short-term investments at beginning of period 1,122 530 Cash and short-term investments at end of period $2,736 $1,122 Certain amounts for prior periods have been reclassified to conform to the current period financial statement presentation. All short-term investments, which consist primarily of highly liquid investments with original maturities of three months or less, are considered to be cash equivalents. Caterpillar Inc. Supplemental Data for Results of Operations For The Three Months Ended December 31, 2008 (Unaudited) (Millions of dollars) Supplemental Consolidating Data Machinery Financial Consolidating Consolidated and Engines(1) Products Adjustments Sales and revenues: Sales of Machinery and Engines $12,120 $12,120 $- $- Revenues of Financial Products 803 - 869 (66) (2) Total sales and revenues 12,923 12,120 869 (66) Operating costs: Cost of goods sold 10,066 10,066 - - Selling, general and administrative expenses 1,305 1,131 186 (12) (3) Research and development expenses 507 507 - - Interest expense of Financial Products 299 - 305 (6) (4) Other operating (income) expenses 289 (16) 304 1 (3) Total operating costs 12,466 11,688 795 (17) Operating profit 457 432 74 (49) Interest expense excluding Financial Products 71 67 - 4 (4) Other income (expense) (26) 19 (98) 53 (5) Consolidated profit (loss) before taxes 360 384 (24) - Provision (benefit) for income taxes (296) (267) (29) - Profit of consolidated companies 656 651 5 - Equity in profit (loss) of unconsolidated affiliated companies 5 5 - - Equity in profit of Financial Products' subsidiaries - 5 - (5) (6) Profit $661 $661 $5 $(5) (1) Represents Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis. (2) Elimination of Financial Products' revenues earned from Machinery and Engines. (3) Elimination of net expenses recorded by Machinery and Engines paid to Financial Products. (4) Elimination of interest expense recorded between Financial Products and Machinery and Engines. (5) Elimination of discount recorded by Machinery and Engines on receivables sold to Financial Products and of interest earned between Machinery and Engines and Financial Products. (6) Elimination of Financial Products' profit due to equity method of accounting. Caterpillar Inc. Supplemental Data for Results of Operations For The Three Months Ended December 31, 2007 (Unaudited) (Millions of dollars) Supplemental Consolidating Data Machinery Financial Consolidating Consolidated and Engines(1) Products Adjustments Sales and revenues: Sales of Machinery and Engines $11,360 $11,360 $- $- Revenues of Financial Products 784 - 888 (104) (2) Total sales and revenues 12,144 11,360 888 (104) Operating costs: Cost of goods sold 8,920 8,920 - - Selling, general and administrative expenses 1,025 887 138 - (3) Research and development expenses 357 357 - - Interest expense of Financial Products 293 - 295 (2) (4) Other operating (income) expenses 294 6 294 (6) (3) Total operating costs 10,889 10,170 727 (8) Operating profit 1,255 1,190 161 (96) Interest expense excluding Financial Products 60 61 - (1) (4) Other income (expense) 88 (27) 20 95 (5) Consolidated profit (loss) before taxes 1,283 1,102 181 - Provision (benefit) for income taxes 330 254 76 - Profit of consolidated companies 953 848 105 - Equity in profit (loss) of unconsolidated affiliated companies 22 21 1 - Equity in profit of Financial Products' subsidiaries - 106 - (106) (6) Profit $975 $975 $106 $(106) (1) Represents Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis. (2) Elimination of Financial Products' revenues earned from Machinery and Engines. (3) Elimination of net expenses recorded by Machinery and Engines paid to Financial Products. (4) Elimination of interest expense recorded between Financial Products and Machinery and Engines. (5) Elimination of discount recorded by Machinery and Engines on receivables sold to Financial Products and of interest earned between Machinery and Engines and Financial Products. (6) Elimination of Financial Products' profit due to equity method of accounting. Caterpillar Inc. Supplemental Data for Results of Operations For The Twelve Months Ended December 31, 2008 (Unaudited) (Millions of dollars) Supplemental Consolidating Data Machinery Financial Consolidating Consolidated and Engines(1) Products Adjustments Sales and revenues: Sales of Machinery and Engines $48,044 $48,044 $- $- Revenues of Financial Products 3,280 - 3,588 (308) (2) Total sales and revenues 51,324 48,044 3,588 (308) Operating costs: Cost of goods sold 38,415 38,415 - - Selling, general and administrative expenses 4,399 3,812 616 (29) (3) Research and development expenses 1,728 1,728 - - Interest expense of Financial Products 1,153 - 1,162 (9) (4) Other operating (income) expenses 1,181 (33) 1,231 (17) (3) Total operating costs 46,876 43,922 3,009 (55) Operating profit 4,448 4,122 579 (253) Interest expense excluding Financial Products 274 270 - 4 (4) Other income (expense) 299 80 (38) 257 (5) Consolidated profit (loss) before taxes 4,473 3,932 541 - Provision (benefit) for income taxes 953 822 131 - Profit of consolidated companies 3,520 3,110 410 - Equity in profit (loss) of unconsolidated affiliated companies 37 38 (1) - Equity in profit of Financial Products' subsidiaries - 409 - (409) (6) Profit $3,557 $3,557 $409 $(409) (1) Represents Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis. (2) Elimination of Financial Products' revenues earned from Machinery and Engines. (3) Elimination of net expenses recorded by Machinery and Engines paid to Financial Products. (4) Elimination of interest expense recorded between Financial Products and Machinery and Engines. (5) Elimination of discount recorded by Machinery and Engines on receivables sold to Financial Products and of interest earned between Machinery and Engines and Financial Products. (6) Elimination of Financial Products' profit due to equity method of accounting. Caterpillar Inc. Supplemental Data for Results of Operations For The Twelve Months Ended December 31, 2007 (Unaudited) (Millions of dollars) Supplemental Consolidating Data Machinery Financial Consolidating Consolidated and Engines(1) Products Adjustments Sales and revenues: Sales of Machinery and Engines $41,962 $41,962 $- $- Revenues of Financial Products 2,996 - 3,396 (400) (2) Total sales and revenues 44,958 41,962 3,396 (400) Operating costs: Cost of goods sold 32,626 32,626 - - Selling, general and administrative expenses 3,821 3,356 480 (15) (3) Research and development expenses 1,404 1,404 - - Interest expense of Financial Products 1,132 - 1,137 (5) (4) Other operating (income) expenses 1,054 (8) 1,089 (27) (3) Total operating costs 40,037 37,378 2,706 (47) Operating profit 4,921 4,584 690 (353) Interest expense excluding Financial Products 288 294 - (6) (4) Other income (expense) 320 (104) 77 347 (5) Consolidated profit (loss) before taxes 4,953 4,186 767 - Provision (benefit) for income taxes 1,485 1,220 265 - Profit of consolidated companies 3,468 2,966 502 - Equity in profit (loss) of unconsolidated affiliated companies 73 69 4 - Equity in profit of Financial Products' subsidiaries - 506 - (506) (6) Profit $3,541 $3,541 $506 $(506) (1) Represents Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis. (2) Elimination of Financial Products' revenues earned from Machinery and Engines. (3) Elimination of net expenses recorded by Machinery and Engines paid to Financial Products. (4) Elimination of interest expense recorded between Financial Products and Machinery and Engines. (5) Elimination of discount recorded by Machinery and Engines on receivables sold to Financial Products and of interest earned between Machinery and Engines and Financial Products. (6) Elimination of Financial Products' profit due to equity method of accounting. Caterpillar Inc. Supplemental Data for Cash Flow For The Twelve Months Ended December 31, 2008 (Unaudited) (Millions of dollars) Supplemental Consolidating Data Machinery Financial Consolidating Consolidated and Engines(1) Products Adjustments Cash flow from operating activities: Profit $3,557 $3,557 $409 $(409) (2) Adjustments for non- cash items: Depreciation and amortization 1,980 1,225 755 - Undistributed profit of Financial Products - (409) - 409 (3) Other 383 194 55 134 (4) Changes in assets and liabilities: Receivables - trade and other (545) (471) (49) (25)(4,5) Inventories (833) (833) - - Accounts payable and accrued expenses 656 574 69 13 (4) Customer advances 286 286 - - Other assets - net (470) (503) (102) 135 (4) Other liabilities - net (227) (60) (33) (134) (4) Net cash provided by (used for) operating activities 4,787 3,560 1,104 123 Cash flow from investing activities: Capital expenditures - excluding equipment leased to others (2,445) (2,421) (24) - Expenditures for equipment leased to others (1,566) - (1,588) 22 (4) Proceeds from disposals of property, plant and equipment 982 30 952 - (4) Additions to finance receivables (14,031) - (37,811) 23,780 (5) Collections of finance receivables 9,717 - 32,135 (22,418) (5) Proceeds from sale of finance receivables 949 - 2,459 (1,510) (5) Net intercompany borrowings - (168) 33 135 (6) Investments and acquisitions (net of cash acquired) (117) (148) 28 3 (7) Proceeds from release of security deposit - - - - Proceeds from sale of available-for-sale securities 357 23 334 - Investments in available- for-sale securities (339) (18) (321) - Other - net 197 139 58 - (7) Net cash provided by (used for) investing activities (6,296) (2,563) (3,745) 12 Cash flow from financing activities: Dividends paid (953) (953) - - (8) Common stock issued, including treasury shares reissued 135 135 - - (7) Payment for stock repurchase derivative contracts (38) (38) - - Treasury shares purchased (1,800) (1,800) - - Excess tax benefit from stock-based compensation 56 56 - - Net intercompany borrowings - (33) 168 (135) (6) Proceeds from debt issued (original maturities greater than three months) 17,930 1,673 16,257 - Payments on debt (original maturities greater than three months) (14,439) (296) (14,143) - Short-term borrowings (original maturities three months or less)-net 2,074 737 1,337 - Net cash provided by (used for) financing activities 2,965 (519) 3,619 (135) Effect of exchange rate changes on cash 158 177 (19) - Increase (decrease) in cash and short-term investments 1,614 655 959 - Cash and short-term investments at beginning of period 1,122 862 260 - Cash and short-term investments at end of period $2,736 $1,517 $1,219 $- (1) Represents Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis. (2) Elimination of Financial Products' profit after tax due to equity method of accounting. (3) Non-cash adjustment for the undistributed earnings from Financial Products. (4) Elimination of non-cash adjustments and changes in assets and liabilities related to consolidated reporting. (5) Reclassification of Cat Financial's cash flow activity from investing to operating for receivables that arose from the sale of inventory. (6) Net proceeds and payments to/from Machinery and Engines and Financial Products. (7) Change in investment and common stock related to Financial Products. (8) Elimination of dividends from Financial Products to Machinery and Engines. Caterpillar Inc. Supplemental Data for Cash Flow For The Twelve Months Ended December 31, 2007 (Unaudited) (Millions of dollars) Supplemental Consolidating Data Machinery Financial Consolidating Consolidated and Engines(1) Products Adjustments Cash flow from operating activities: Profit $3,541 $3,541 $506 $(506) (2) Adjustments for non- cash items: Depreciation and amortization 1,797 1,093 704 - Undistributed profit of Financial Products - (256) - 256 (3) Other 199 114 (267) 352 (4) Changes in assets and liabilities: Receivables - trade and other 899 (317) (105) 1,321 (4,5) Inventories (745) (745) - - Accounts payable and accrued expenses 618 408 216 (6) (4) Customer advances 576 576 - - Other assets - net 66 63 (9) 12 (4) Other liabilities - net 984 969 40 (25) (4) Net cash provided by (used for) operating activities 7,935 5,446 1,085 1,404 Cash flow from investing activities: Capital expenditures - excluding equipment leased to others (1,700) (1,683) (17) - Expenditures for equipment leased to others (1,340) - (1,349) 9 (4) Proceeds from disposals of property, plant and equipment 408 14 398 (4) (4) Additions to finance receivables (13,946) - (36,251) 22,305 (5) Collections of finance receivables 10,985 - 33,456 (22,471) (5) Proceeds from sale of finance receivables 866 - 2,378 (1,512) (5) Net intercompany borrowings - (177) 3 174 (6) Investments and acquisitions (net of cash acquired) (229) (244) - 15 (7) Proceeds from release of security deposit 290 290 - - Proceeds from sale of available-for-sale securities 282 23 259 - Investments in available-for-sale securities (485) (29) (456) - Other - net 461 122 341 (2) (7) Net cash provided by (used for) investing activities (4,408) (1,684) (1,238) (1,486) Cash flow from financing activities: Dividends paid (845) (845) (254) 254 (8) Common stock issued, including treasury shares reissued 328 328 (2) 2 (7) Payment for stock repurchase derivative contracts (56) (56) - - Treasury shares purchased (2,405) (2,405) - - Excess tax benefit from stock-based compensation 155 155 - - Net intercompany borrowings - (3) 177 (174) (6) Proceeds from debt issued (original maturities greater than three months) 11,039 224 10,815 - Payments on debt (original maturities greater than three months) (10,888) (598) (10,290) - Short-term borrowings (original maturities three months or less)-net (297) (41) (256) - Net cash provided by (used for) financing activities (2,969) (3,241) 190 82 Effect of exchange rate changes on cash 34 22 12 - Increase (decrease) in cash and short-term investments 592 543 49 - Cash and short-term investments at beginning of period 530 319 211 - Cash and short-term investments at end of period $1,122 $862 $260 $- (1) Represents Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis. (2) Elimination of Financial Products' profit after tax due to equity method of accounting. (3) Non-cash adjustment for the undistributed earnings from Financial Products. (4) Elimination of non-cash adjustments and changes in assets and liabilities related to consolidated reporting. (5) Reclassification of Cat Financial's cash flow activity from investing to operating for receivables that arose from the sale of inventory. (6) Net proceeds and payments to/from Machinery and Engines and Financial Products. (7) Change in investment and common stock related to Financial Products. (8) Elimination of dividends from Financial Products to Machinery and Engines. DATASOURCE: Caterpillar Inc. Web site: http://www.cat.com/

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