Global Strength Powers Caterpillar to Record Sales and Profit; Company Reaffirms 2008 Outlook for Another Year of Record Sales and Profit

PEORIA, Ill., Jan. 25 /PRNewswire-FirstCall/ -- Caterpillar Inc. today announced the fifth straight year of record sales and revenues and the fourth consecutive year of record profit. For 2007, sales and revenues were $44.958 billion, up 8 percent, and profit per share was $5.37, up 4 percent from 2006. The company also reported record fourth-quarter sales and revenues of $12.144 billion, 10 percent higher than the fourth quarter of 2006, and profit per share of $1.50, up 14 percent from a year ago.

"Our broad global footprint has enabled us to benefit from strong economic growth outside the United States, as global markets for mining, energy and infrastructure development are booming," said Chairman and Chief Executive Officer Jim Owens. "I'm very pleased with our overall 8 percent growth in sales and revenues in a year when end markets in the United States were so weak. When you consider that North American dealers took machine inventories down $1.1 billion in 2007, our sales story is even more impressive."

For the year, sales and revenues increased $3.441 billion -- $1.271 billion from higher sales volume including $775 million from the acquisition of Progress Rail, $932 million from improved price realization, $890 million from the effects of currency and $348 million from higher Financial Products revenues. 2007 profit reflected price realization and higher sales volume offset by higher core operating costs. Machinery and Engines operating cash flow of $5.446 billion was up 18 percent from 2006 and was an all-time record. As a result of record Machinery and Engines operating cash flows over the past three years, our financial position remained very strong with a year-end debt- to-capital ratio for Machinery and Engines of 31.2 percent.

For the fourth quarter, sales and revenues increased $1.141 billion -- $392 million from improved price realization, $334 million from the effects of currency, $306 million from higher sales volume and $109 million from higher Financial Products revenues. Fourth-quarter profit increased $93 million. The increase was due to improved price realization and higher volume, partially offset by higher core operating costs.

Outlook

In 2008, the company expects another record year with sales and revenues increasing 5 to 10 percent and profit per share increasing 5 to 15 percent from 2007.

"It's gratifying to be able to maintain an outlook for 2008 that reflects continued growth and all-time records for sales and revenues and profit at a time when we're expecting recessionary conditions to persist in key markets we serve in the United States. We're starting 2008 with a very strong order backlog, particularly for larger products like industrial gas turbines, large reciprocating engines and mining trucks," Owens commented. "While we expect anemic growth in the U.S. economy, we continue to see positive conditions for our sales in most of the rest of the world.

"In 2008, we'll be stepping up Research and Development (R&D) for new products and capital investment to increase capacity around the world. We expect the world's robust investment in infrastructure to continue well into the next decade, and we'll need more capacity to serve our customers. Our internal focus will be on continuing our global deployment of the Caterpillar Production System (CPS) with 6 Sigma. While we'll face challenges in 2008, I'm confident Team Caterpillar will continue to drive us toward our 2010 goals."

Note: Glossary of terms included on pages 28-29; first occurrence of terms shown in bold italics.

For more than 80 years, Caterpillar Inc. has been making progress possible and driving positive and sustainable change on every continent. With 2007 sales and revenues of $44.958 billion, Caterpillar is the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. The company also is a leading services provider through Caterpillar Financial Services, Caterpillar Remanufacturing Services, Caterpillar Logistics Services and Progress Rail Services. More information is available at: http://www.cat.com/.

SAFE HARBOR

Certain statements in this release relate to future events and expectations and as such constitute forward-looking statements involving known and unknown factors that may cause actual results of Caterpillar Inc. to be different from those expressed or implied in the forward-looking statements. In this context, words such as "will," "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 http://www.cat.com/sec_filings. We do not undertake to update our forward- looking statements.

Key Points Fourth Quarter 2007 -- Fourth-quarter sales and revenues of $12.144 billion were 10 percent higher than fourth quarter of 2006. -- Driven by the continued strength outside North America, Machinery sales increased 13 percent, Engines sales increased 5 percent and Financial Products revenues rose 16 percent from a year ago. -- Profit was $975 million, or $1.50 per share -- 14 percent higher than the fourth quarter of 2006. Full Year 2007 (Dollars in millions except per share data) 2006 2007 $ Change % Change Machinery and Engines Sales $38,869 $41,962 $3,093 8% Financial Products Revenues 2,648 2,996 348 13% Total Sales and Revenues 41,517 44,958 3,441 8% Profit After Tax $3,537 $3,541 $4 - Profit per common share - diluted $5.17 $5.37 $0.20 4%

Machinery and Engines sales improved $3.093 billion despite the impact of the severe drop in demand for on-highway truck engines and weakness in North American construction sales. The strength of economies outside the United States, our broad global footprint and growth in integrated service businesses contributed to an 8 percent growth in sales. The diversity and strength of our full range of engine products more than offset the impact of the severe decline in on-highway truck engines.

Profit per share improved 4 percent as a result of stock repurchases in 2007 and the increase in profit.

Machinery and Engines operating cash flow of $5.446 billion was the highest in company history, up $833 million from 2006. This strong cash flow allowed us to increase capital expenditures, make strategic acquisitions, increase the quarterly dividend by 20 percent and aggressively repurchase shares.

2008 Outlook (Dollars in billions except per share data) 2006 2007 2008 Outlook Sales and Revenues $41.5 $45.0 Up 5 - 10% Profit per common share - diluted $5.17 $5.37 Up 5 - 15% -- We are maintaining our 2008 outlook of sales and revenues up 5 to 10 percent and profit per share up 5 to 15 percent, as compared to 2007. -- We are forecasting 2008 to be the sixth consecutive year of record sales and revenues driven by strength in the economies outside North America, strong worldwide engine demand and a slight rebound in on-highway truck engine sales. These factors will more than offset continued weakness in the North American machinery market. -- We expect 2008 to be the fifth consecutive year of record profit per share, a reflection of our broad global footprint and diverse products and services.

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

page 22. DETAILED ANALYSIS 2007 vs. 2006 Consolidated Sales and Revenues Comparison 2007 vs. 2006

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

The chart above graphically illustrates reasons for the change in Consolidated Sales and Revenues between 2006 (at left) and 2007 (at right). Items favorably impacting sales and revenues appear as upward stair steps with the corresponding Dollar amounts above each bar, while items negatively impacting sales and revenues appear as downward stair steps with dollar amounts reflected in parentheses above each bar. The bar entitled Machinery Volume includes the change in Progress Rail sales. Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees.

Sales and Revenues

Sales and revenues for 2007 were $44.958 billion, up $3.441 billion, or 8 percent, from 2006. 2007 machinery sales were up 9 percent as strong growth outside North America and a full year of Progress Rail more than offset a weak U.S. construction market. Machinery volume was up $1.289 billion. Excluding Progress Rail, machinery volume was up $514 million. Although sales volume increased moderately, the geographic shift in sales was significant. North American machinery sales were down 11 percent; machinery sales outside of North America were up 33 percent.

Engines sales increased 6 percent despite the 59 percent decline in North American on-highway truck engines. Sales volume was down slightly as growth in engines sales to industries like oil and gas, electric power, industrial and marine nearly offset the volume decline in on-highway truck engines.

In addition, price realization was more than 2 percent despite an unfavorable geographic mix. Currency had a positive impact on sales of $890 million driven primarily by the stronger euro. Financial Products revenues were up 13 percent.

Sales and Revenues by Geographic Region North (Millions of dollars) Total %Change America %Change EAME %Change 2006 Machinery $26,062 $14,215 $6,223 Engines(1) 12,807 5,940 4,064 Financial Products(2) 2,648 1,852 377 $41,517 $22,007 10,664 Latin Asia/ (Millions of dollars) America %Change Pacific %Change 2006 Machinery 2,544 $3,080 Engines(1) 1,102 1,701 Financial Products(2) 195 224 $3,841 $5,005 (Millions of dollars) Total %Change America %Change EAME %Change 2007 Machinery $28,359 9% 12,596 (11%) 8,588 38% Engines(1) 13,603 6% 5,092 (14%) 5,245 29% Financial Products(2) 2,996 13% 2,007 8% 479 27% $44,958 8% 19,695 (11%) 14,312 34% Latin Asia/ (Millions of dollars) America %Change Pacific %Change 2007 Machinery 3,149 24% 4,026 31% Engines(1) 1,130 3% 2,136 26% Financial Products(2) 270 38% 240 7% 4,549 18% 6,402 28% (1) Does not include internal engines transfers of $2.549 billion and $2.310 billion in 2007 and 2006, respectively. Internal engines transfers are valued at prices comparable to those for unrelated parties. (2) Does not include revenues earned from Machinery and Engines of $400 million and $466 million in 2007 and 2006, respectively. Machinery Sales Sales of $28.359 billion were an increase of $2.297 billion, or 9 percent, from 2006. -- Excluding Progress Rail, machinery volume increased $514 million. Sales volume decreased in North America but increased in all other regions. -- Price realization increased $410 million. -- Currency benefited sales by $598 million. -- Geographic mix between regions (included in price realization) was $182 million unfavorable. -- The acquisition of Progress Rail added $775 million. -- North American dealers reduced reported inventories substantially in 2007, taking them well below a year earlier in months of supply. Inventories in months of supply declined in most other regions as well. -- Economic factors, primarily in the United States, contributed to lower sales volume in North America. These factors included the collapse in housing construction, weakness in nonresidential construction contracts in the last half of 2007 and a decline in quarry and aggregate production. -- Sales volume increased in the rest of the world, offsetting weakness in North America. Positives included relatively low interest rates, good economic growth and continued growth in construction. -- Metals mining was positive in many countries throughout the world. Metals prices increased, and mining companies increased exploration spending by more than 40 percent. -- Oil prices increased about 10 percent, and natural gas prices increased 4 percent. Production and drilling increased in many regions, and pipeline construction increased. -- Transportation problems, particularly in Australia, contributed to a significant increase in international coal prices. The impact on sales volume varied -- negative for Australia and the United States but positive elsewhere. North America - Sales decreased $1,619 million, or 11 percent. -- Sales volume excluding Progress Rail decreased $2,540 million. -- Price realization increased $146 million. -- Progress Rail increased sales $775 million. -- Dealers reduced their reported inventories by about $1.1 billion in 2007 compared to a $300 million increase in 2006. Dealer inventories at the end of the year were well below a year earlier in both dollars and months of supply. -- An unfavorable economic environment caused output to decline in many key industries in the United States, prompting users to curtail fleet expansions. In addition, dealers added fewer units to their rental fleets and let existing fleets age. -- Output prices for some industries, such as housing and coal mining, softened. Reduced profitability and tighter credit likely caused some users to delay replacement purchases. -- The housing industry weakened throughout the year, with starts down 26 percent in 2007. Tighter lending standards, a large number of unsold homes and a sharp drop in home sales caused builders to reduce construction. -- Nonresidential construction spending increased 18 percent, however, contracts awarded for new construction declined about 2 percent. Employment in nonresidential construction also weakened in the last half of the year. Factors that contributed to this weakening included tighter standards for commercial and industrial loans, higher corporate bond spreads and a decline in business cash flows. -- Spot coal prices declined leading to a 3 percent decline in coal production. Electric utilities reduced coal usage, and stockpiles increased. More positively, coal exports rebounded more than 15 percent as a result of U.S. prices falling well below international prices. -- Metals mining, oil sands and pipeline construction remained positive. Average metals prices increased more than 40 percent, and mines in both Canada and the United States increased production. Canada increased crude oil production 7 percent. Shipments of line pipe in the United States increased 14 percent. EAME - Sales increased $2,365 million, or 38 percent. -- Sales volume increased $1,729 million. -- Price realization increased $202 million. -- Currency benefited sales by $434 million. -- Dealers reported significant increases in demand and increased inventories to support that stronger demand -- a positive for sales volume. Dealer inventories in months of supply ended the year slightly higher than a year earlier. -- Sales volume increased in Europe in response to positive economic growth and large gains in both nonresidential building and infrastructure construction. These sectors benefited from increased business profits, a 13 percent increase in business borrowing and higher government capital expenditures. However, housing permits declined 8 percent due to higher lending rates for home purchases and some moderation in home prices. -- Africa/Middle East turned in another year of very positive volume growth. Interest rates changed little over the past year, and most stock markets boomed. Exports increased significantly, allowing the region to increase its foreign exchange holdings 22 percent. Higher oil prices encouraged increased drilling in both Africa and the Middle East, and both Turkey and South Africa experienced more than 10 percent growth in construction. -- Sales volume in the Commonwealth of Independent States (CIS) increased rapidly for the seventh consecutive year, with large gains occurring in Russia, Ukraine and Kazakhstan. All three governments increased spending more than 20 percent, and monetary policies were extremely expansive. Regional oil production increased more than 4 percent, and Russia increased construction 23 percent. Latin America - Sales increased $605 million, or 24 percent. -- Sales volume increased $466 million. -- Price realization increased $87 million. -- Currency benefited sales by $52 million. -- Dealers reported much higher demand and built inventory to support that demand. Reported inventories increased in dollars but declined in months of supply. -- Sales volume increased significantly in Brazil, the result of a 200 basis point reduction in interest rates and an improvement in economic growth. Better economic growth contributed to an increase of about 4 percent in construction spending, and higher metals prices led to a 4 percent increase in mine production. -- Most other countries raised interest rates slightly, and economic growth was near 5 percent. As a result, construction increased 9 percent in Chile, 12 percent in both Colombia and Venezuela and 16 percent in Peru. -- Mines increased exploration spending 38 percent in response to higher metals prices and increased production. -- Higher oil prices and declining production caused increased drilling, a positive for sales volume. Asia/Pacific - Sales increased $946 million, or 31 percent. -- Sales volume increased $677 million. -- Price realization increased $157 million. -- Currency benefited sales by $112 million. -- Dealers reported higher demand for machines and inventories declined. As a result, inventories in months of supply were well below those at the end of 2006. -- Central banks kept interest rates low, and many governments increased spending. These developments produced more than 8 percent economic growth, and stock markets boomed. Construction increased more than 20 percent in China, 11 percent in India and 9 percent in Australia. -- Australian thermal coal spot prices increased 30 percent due to continued strong demand and supply problems. Increased coal production and prices contributed to a substantial sales gain in Indonesia. China increased coal production 12 percent. -- Higher metals prices and a 56 percent increase in mine exploration spending benefited sales volume growth. Mine production increased almost 11 percent in Indonesia, 6 percent in India and 5 percent in Australia. Engines Sales

Sales of $13.603 billion were an increase of $796 million, or 6 percent, from

2006. -- Sales volume decreased $18 million. -- Price realization increased $522 million. -- Currency benefited sales $292 million. -- Geographic mix between regions (included in price realization) was $29 million favorable. -- Dealer reported inventories in dollars were up; months of supply were down as the inventories were supported by strong delivery rates. North America - Sales decreased $848 million, or 14 percent. -- Sales volume decreased $1.037 billion. -- Price realization increased $189 million. -- Sales for on-highway truck applications declined 59 percent with less than anticipated demand for the 2007 model-year engines. This was due to the reduction in tonnage hauled and freight rates realized by on-highway carriers. This has also been impacted by the transition of several Original Equipment Manufacturers (OEMs) to the 2007 emissions technology engines. -- Sales for petroleum applications increased 39 percent due to strong demand in gas compression and exploration, along with success from gas pipeline and storage construction projects. The increase in turbines and turbine-related services reflects additional customer spending for natural gas pipelines and compression equipment. -- Sales for electric power applications increased 22 percent as demand for large generator sets increased to support data center installations, which offset a slight decline in smaller units. EAME - Sales increased $1.181 billion, or 29 percent. -- Sales volume increased $756 million. -- Price realization increased $186 million. -- Currency benefited sales by $239 million. -- Sales for electric power applications increased 29 percent, with strong demand for gas units in Russia, expanded scope of project business and growth in power modules. Turbines and turbine-related services increased to support power generation. -- Sales for petroleum applications increased 42 percent based on widespread demand for engines used in drilling and production applications. Turbines and turbine-related services increased to support rising oil production and gas transmission demand. -- Sales for industrial applications increased 20 percent, with widespread demand for agriculture and other types of OEM equipment driven by good economic conditions. -- Sales for marine applications increased 30 percent, with increased demand for workboats, commercial oceangoing vessels and cruise ships. Latin America - Sales increased $28 million, or 3 percent. -- Sales volume decreased $5 million. -- Price realization increased $32 million. -- Currency benefited sales by $1 million. -- Sales for electric power engines increased 35 percent from strong growth across Latin America, driven by high oil and gas prices and investment in infrastructure as energy shortages continued in several key markets. -- Sales into truck applications declined 44 percent with reduced demand. Latin American truck facilities decreased exports of trucks destined for the United States. Asia/Pacific - Sales increased $435 million, or 26 percent. -- Sales volume increased $297 million. -- Price realization increased $86 million. -- Currency benefited sales by $52 million. -- Sales for petroleum applications increased 34 percent as Chinese drill rig builders continue to manufacture at record levels for domestic and export use. Turbines and turbine-related services increased to support oil production and gas pipeline compression demand. -- Sales for marine applications increased 47 percent, with continued strong demand for workboat and offshore shipbuilding. Large diesel demand grew in the offshore and general cargo applications. -- Sales of electric power engines increased 6 percent due to shipments of larger generator sets into Asia. Financial Products Revenues

Revenues of $2.996 billion were an increase of $348 million, or 13 percent,

from 2006. -- Growth in average earning assets increased revenues $234 million. -- Revenues from earned premiums at Cat Insurance increased $64 million. -- The impact of higher interest rates on new and existing finance receivables added $58 million. Consolidated Operating Profit Comparison 2007 vs. 2006

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

The chart above graphically illustrates reasons for the change in Consolidated Operating Profit between 2006 (at left) and 2007 (at right). Items favorably impacting operating profit appear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting operating profit appear as downward stair steps with dollar amounts reflected in parentheses above each bar. Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees. The bar entitled Consolidating Adjustments/M&E Other Operating Expense includes the operating profit impact of Progress Rail.

Operating Profit

Operating profit in 2007 of $4.921 billion was equal to 2006 as higher price realization and sales volume were offset by higher core operating costs.

Core operating costs rose $1.232 billion from 2006. Of this increase, $1.225 billion 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 supply chain challenges, capacity increases, factory repair and maintenance and a significant decline in on-highway truck engine production. Also, we incurred additional costs for new product introductions and costs to enhance customer- delivered quality. Wage and benefit increases as well as increased warranty and depreciation also contributed to higher manufacturing costs. In 2007, Selling, General and Administrative (SG&A) and R&D expenses were essentially flat with 2006. The impact of higher wage and benefit costs was offset by the absence of approximately $70 million of 2006 expense related to a settlement of various legal disputes with Navistar.

Currency had a $73 million unfavorable impact on operating profit as the benefit to sales was more than offset by the negative impact on costs.

Operating Profit by Principal Line of Business $ % (Millions of dollars) 2006 2007 Change Change Machinery(1) $3,027 $2,758 $(269) (9%) Engines(1) 1,630 1,826 196 12% Financial Products 670 690 20 3% Consolidating Adjustments (406) (353) 53 Consolidated Operating Profit $4,921 $4,921 $- - (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 $2.758 billion was down $269 million, or 9 percent, from 2006. Higher core operating costs were partially offset by improved price realization, higher sales volume and the addition of Progress Rail. The geographic mix of sales had an unfavorable impact on price realization. -- Engines operating profit of $1.826 billion was up $196 million, or 12 percent, from 2006. The favorable impacts of improved price realization and positive mix of product were partially offset by higher core operating costs and the unfavorable impacts of currency. Growth in demand for electric power, petroleum, marine and industrial applications more than offset the profit decline related to the drop in demand for on-highway truck engines. -- Financial Products operating profit of $690 million was up $20 million, or 3 percent, from 2006. The increase was primarily attributable to a $42 million impact from improved net yield on average earning assets and a $34 million impact from higher average earning assets, partially offset by a $29 million increase in the provision for credit losses at Cat Financial and a $24 million decrease in operating profit at Cat Insurance due to higher claims experience. Other Profit/Loss Items -- Other income/expense was income of $320 million compared with income of $214 million in 2006. The change was primarily driven by a $46 million gain on the sale of a security, the favorable impacts of currency and other items that were individually insignificant. -- The provision for income taxes for 2007 reflects an annual tax rate of 30 percent compared to a 29 percent rate in 2006. The increase over 2006 is primarily due to the repeal of Extraterritorial Income Exclusion (ETI) benefits in 2007 partially offset by a more favorable geographic mix of profits from a tax perspective. Employment

Caterpillar's worldwide employment was 101,333 in 2007, up 6,740 from 94,593 in 2006. Of the increase, about 3,400 employees were added via acquisitions, and about 1,800 hourly and 1,500 salaried and management employees were added to support higher volumes, growth and new product introductions.

2008 Outlook Economic Outlook

We expect 2008 economic growth in most of the world outside the United States to be slightly slower than 2007. We expect growth in the United States to remain weak, with recession a definite threat. Recent economic data and Federal Reserve Board comments confirm this growing concern.

Specific economic and industry assumptions include: U.S. interest rates: The Fed recently indicated that a weakening economy is more of a threat than inflation and that it is prepared to move aggressively on interest rates. We assume the federal funds rate will end the year below 3 percent. U.S. economic growth: We forecast the economy will grow 1 percent in 2008, slow enough that the National Bureau of Economic Research may eventually decide that a recession occurred. We expect construction will likely remain distressed in 2008. If the Fed continues to cut interest rates as we expect and the U.S. government takes action to stimulate economic growth, 2008 could be the bottom of this U.S. machinery cycle. U.S. housing: Housing starts should slow from 1.35 million in 2007 to 1.1 million in 2008. We expect continued downward pressure on the industry from a large inventory of unsold homes, tighter lending standards, increased home repossessions and lower home prices. U.S. nonresidential construction: New contracts awarded should decline more than 4 percent in 2008, continuing a weakness that developed in the last half of 2007. Negatives include tighter lending standards, reduced corporate cash flows, rising vacancy rates and a smaller increase in federal highway funding. U.S. coal: This sector showed some improvement in fourth quarter 2007, and further recovery should occur in 2008. We expect the recent rebound in coal prices and increased coal exports to drive the turnaround. European interest rates: Financial markets are unsettled in Europe, and we expect this will prompt the European Central Bank to hold interest rates at 4 percent for the rest of the year and the Bank of England to cut interest rates again to 5.25 percent. European economic growth: Our forecast is for 2.3 percent growth in 2008, down from 2.7 percent in 2007. Both nonresidential building and infrastructure construction should improve, however housing declined in 2007 and should do so again in 2008. Developing economies: The robust recoveries in these economies should last throughout 2008. Our forecasts are for 5.5 percent growth in Africa/Middle East, 7 percent in the CIS, 4.5 percent in Latin America and 7.5 percent in Asia/Pacific. Those growth rates are close to those of the past two years and should encourage further growth in construction. Metals mining: World demand for metals should increase, and inventories remain tight. We expect prices for most metals will remain attractive for new investment. Oil and Gas: The world's spare oil production capacity remains low, and oil prices should average higher in 2008. Higher prices should drive increased exploration, drilling, pipeline expenditures and tar sands development, which should benefit both machinery and engine sales. Electric Power: Rapid growth in oil producing and commodity exporting nations should drive generator set demand. Increased business investment in Europe should benefit demand for standby power. Marine: Demand should benefit from increased world trade and favorable freight rates. Shipyards are already contracting for 2009 and later berths. Sales and Revenues Outlook

We're expecting 2008 to be another record year with sales and revenues up 5 to 10 percent from 2007. From a geographic perspective, we expect continued strength outside North America and below average growth in North America.

Sales and Revenues 2008 vs. 2007

To access this map, go to http://www.cat.com/ for the downloadable version of Caterpillar 4Q 2007 earnings.

North America is expected to be the weakest region for growth in 2008. A weak U.S. economy in general and the hard-hit housing sector in particular are key negative drivers. However, there are areas where we expect improvement in North America in 2008.

-- Sales related to energy and metals mining remain strong and are expected to improve again in 2008. -- While sales to U.S. coal mines were depressed in 2007, rising coal prices and increasing exports are driving expected improvements in 2008. -- In 2007, dealers reduced their machine inventories by about $1.1 billion, resulting in company sales to North American dealers lower than dealer sales to end customers. While we expect dealer sales to end users to decline again in 2008, company sales will benefit as a result of substantially lower forecasted changes to dealer inventories than we experienced in 2007. -- While the industry for on-highway truck engines is still very weak as a result of very slow growth in the U.S. economy, we expect our sales to improve from the depressed levels of 2007. -- Canada remains strong, driven by high commodity prices

Sales are expected to increase in the range of 8 to 13 percent outside North America. Strong rest of world sales are being driven by solid economic growth in most regions, commodity prices for metals, minerals and energy at levels that encourage our customers to invest and continued investment in infrastructure throughout much of the world.

The sales outlook for 2008 includes improved price realization of about 2 percent and about 1.5 percent positive impact related to currency as a result of further weakening of the U.S. dollar.

We expect continued growth in Financial Products for 2008. Revenues are expected to increase approximately 8 percent versus 2007, primarily due to higher average earning assets at Cat Financial and increased premiums at Cat Insurance.

Profit Outlook

The 2008 profit outlook is an increase in profit per share in the range of 5 to 15 percent from 2007. Key elements of the change in profit per share include:

-- Price realization improving about 2 percent -- Higher sales volume driven by continued growth outside North America -- An overall increase in core operating costs of 2 to 2.5 percent -- in line with our estimate of inflation -- Material costs are expected to increase 1 to 1.5 percent -- below our estimate of inflation. -- R&D expenses are forecast to increase 15 to 20 percent to support a significant investment in new products for the future, most notably new products to meet Tier IV emissions requirements. -- Period manufacturing, including depreciation expense, will be higher as a result of additional capital installations to support increased production capacity and the replacement of aging equipment. Machinery and Engines capital expenditures are expected to be about $2.3 billion in 2008. -- SG&A expenses are expected to increase as a result of inflation and continued growth, but at a slower rate than sales. -- Variable manufacturing labor and overhead costs are expected to be relatively flat with 2007 as inflationary cost increases should be about offset by modest improvements in operating efficiency driven by our continued implementation of CPS. We expect that deployment of CPS will have a positive impact on costs that will continue to grow over the next few years. -- Currency is expected to have a slightly negative impact on operating profit as the benefit to sales will be offset by the negative impact on costs. -- The tax rate is expected to be about 31.5 percent in 2008, a 1.5 percentage point increase from 2007, due in large part to the expiration of the U.S. research and development tax credit. DETAILED ANALYSIS Fourth Quarter 2007 vs. Fourth Quarter 2006 Consolidated Sales and Revenues Comparison 4th Qtr. 2007 vs. 4th Qtr. 2006

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

The chart above graphically illustrates reasons for the change in Consolidated Sales and Revenues between fourth quarter 2006 (at left) and fourth quarter 2007 (at right). Items favorably impacting sales and revenues appear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting sales and revenues appear as downward stair steps with dollar amounts reflected in parentheses above each bar. The bar entitled Machinery Volume includes the change in Progress Rail sales. Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees.

Sales and Revenues

Sales and revenues for fourth quarter 2007 were $12.144 billion, up $1.141 billion, or 10 percent, from fourth quarter 2006. Weakness in the U.S. construction market and volume declines in the on-highway truck engine market were more than offset by Machinery sales growth outside North America and Engines sales growth in oil and gas, electric power, industrial and marine markets. While sales in North America were down 11 percent, sales outside of North America were up 31 percent.

In addition, price realization contributed $392 million. Currency had a positive impact on sales of $334 million driven primarily by the stronger euro. Financial Products revenues were up 16 percent.

Sales and Revenues by Geographic Region North (Millions of dollars) Total %Change America %Change EAME %Change Fourth Quarter 2006 Machinery $6,603 $3,353 $1,753 Engines(1) 3,725 1,650 1,193 Financial Products(2) 675 468 97 $11,003 $5,471 $3,043 Latin Asia/ (Millions of dollars) America %Change Pacific %Change Fourth Quarter 2006 Machinery $645 $852 Engines(1) 384 498 Financial Products(2) 53 57 $1,082 $1,407 North (Millions of dollars) Total %Change America %Change EAME %Change Fourth Quarter 2007 Machinery $7,460 13% $3,112 (7%) $2,322 32% Engines(1) 3,900 5% 1,275 (23%) 1,617 36% Financial Products(2) 784 16% 494 6% 150 55% $12,144 10% $4,881 (11%) $4,089 34% Latin Asia/ America %Change Pacific %Change Fourth Quarter 2007 Machinery $832 29% $1,194 40% Engines(1) 354 (8%) 654 31% Financial Products(2) 78 47% 62 9% $1,264 17% $1,910 36% (1) Does not include internal engines transfers of $652 million and $577 million in fourth quarter 2007 and 2006, respectively. Internal engines transfers are valued at prices comparable to those for unrelated parties. (2) Does not include internal revenues earned from Machinery and Engines of $104 million and $124 million in fourth quarter 2007 and 2006, respectively. Machinery Sales -- Sales were $7.460 billion in fourth quarter 2007, an increase of $857 million, or 13 percent, from fourth quarter 2006. -- Sales volume increased $429 million. -- Price realization increased $205 million. -- Currency benefited sales by $223 million. -- Geographic mix between regions (included in price realization) was $28 million unfavorable. -- Reported changes in dealer inventories were overall a slight negative for sales volume. Dealers in most regions increased inventories but not as much as in fourth quarter 2006. -- As has been the case in recent quarters, unfavorable economic factors caused a sizable decline in sales volume in North America. These declines were largely the result of weaknesses in housing and nonresidential construction. Coal mining showed some improvement in the fourth quarter, and metals, oil and natural gas industries continued to be positive. -- Sales volume in other regions increased sufficiently to offset the decline in North America. Sales in Europe continued to increase in response to good growth in nonresidential construction. -- Developing countries continued to account for most of the sales volume growth outside North America. Brazil's past interest rate cuts have strengthened the economy and allowed a significant gain in sales. Russia was another major contributor, with sales benefiting from increased investments in energy, metals and construction. Strong sales growth continued in China despite reported government actions to slow the economy. -- Higher oil prices contributed to sizable sales growth in a number of oil producing countries in Africa/Middle East. North America - Sales decreased $241 million, or 7 percent. -- Sales volume decreased $327 million. -- Price realization increased $86 million. -- Dealer-reported inventories increased slightly in the fourth quarter, ending three quarters of significant reductions. Dealer inventories at the end of the quarter were well below a year earlier in both dollars and months of supply. -- The decline in sales volume was a result of unfavorable economic conditions in key industries. Output declines prompted users to curtail fleet expansions, and dealers added fewer units to their rental fleets. -- Housing construction was a negative, with starts down 26 percent from a year earlier. The inventory of unsold new homes increased by almost three months to more than nine months, and the median new home price declined more than 4 percent. -- New contracts awarded for nonresidential construction dropped more than 15 percent in the fourth quarter, and the number of workers employed in nonresidential construction declined almost 1 percent. -- The Central Appalachian spot coal price increased almost 17 percent from a year earlier, and coal production increased slightly. Coal exports in October, the latest month available, were 28 percent higher than a year earlier. These improvements led to a recovery in sales of some products used in coal mining such as large track-type tractors. -- Metals prices increased more than 30 percent from a year earlier, and crude oil prices approached $100 per barrel. As a result, mining investment, pipeline construction and oil sands investment benefited sales volumes. EAME - Sales increased $569 million, or 32 percent. -- Sales volume increased $360 million. -- Price realization increased $62 million. -- Currency benefited sales by $147 million. -- Dealer-reported inventories increased in the fourth quarter; inventories in months of supply ended the quarter slightly higher than a year earlier. -- In Europe, strength in nonresidential construction offset softness in housing permits. The credit crisis forced the European Central Bank to inject liquidity and halted plans to raise interest rates. Business sentiment remained sufficiently positive to allow higher sales in most key countries. -- Sales volume increased in Africa/Middle East in response to high oil prices, good economic growth and increased construction activity. Significant sales growth occurred in South Africa in response to a large increase in construction, and there were also increases in a number of oil-producing countries. -- Sales volume also grew significantly in the CIS, largely in Russia. Sales in that country benefited from low interest rates, much higher government spending, increased oil production and more coal production. Construction in the fourth quarter increased 19 percent from the year earlier quarter. Latin America - Sales increased $187 million, or 29 percent. -- Sales volume increased $135 million. -- Price realization increased $27 million. -- Currency benefited sales by $25 million. -- Dealers reported a decline in inventories in the fourth quarter, which took inventories in months of supply below a year earlier. -- Much of the sales volume growth occurred in Brazil. Sizable interest rate reductions over the past two years improved economic growth and construction spending. Mining, particularly iron ore, benefited sales. -- Gains occurred in other countries in response to more construction or increased mining investment. Asia/Pacific - Sales increased $342 million, or 40 percent. -- Sales volume increased $233 million. -- Price realization increased $58 million. -- Currency benefited sales by $51 million. -- Dealer-reported inventories increased slightly more than a year earlier. Dollar inventories were lower than 2006, so inventories in months of supply were well below those at the end of 2006. -- China was the largest contributor to sales growth. Despite numerous actions taken to slow the economy, growth continued to be strong and construction increased more than 20 percent relative to 2006. Mining was also strong, with coal mining up 9 percent and iron ore production up 8 percent. -- Indonesia reduced interest rates and continued to develop its coal mining industry, leading to much higher sales. -- Sizable sales volume gains occurred in India. Positives included rapid economic growth, an 11 percent increase in construction and an 8 percent increase in mining. Engines Sales

Sales were $3.900 billion in fourth quarter 2007, an increase of $175 million,

or 5 percent, from fourth quarter 2006. -- Sales volume decreased $123 million. -- Price realization increased $187 million. -- Currency benefited sales by $111 million. -- Geographic mix between regions (included in price realization) was $12 million favorable. -- Dealer reported inventories in dollars were up; months of supply were down as the inventories were supported by strong delivery rates. North America - Sales decreased $375 million, or 23 percent. -- Sales volume decreased $441 million. -- Price realization increased $66 million. -- Sales for on-highway truck applications declined 67 percent as the truck industry demand for new trucks was down due to the reduction in tonnage hauled and freight rates realized by on-highway carriers. -- Sales for petroleum applications increased 37 percent due to strong demand in gas compression, which overcame a small reduction in new drill rig build rates. Turbine sales benefited from increased customer spending for natural gas pipelines and compression equipment. -- Sales for industrial applications decreased 21 percent as the demand for small construction equipment was adversely affected by the severe decline in the U.S. housing market. EAME - Sales increased $424 million, or 36 percent. -- Sales volume increased $268 million. -- Price realization increased $68 million. -- Currency benefited sales by $88 million. -- Sales for electric power applications increased 46 percent with strong demand for medium-sized units selling into Africa/Middle East and Russia. Turbines and turbine-related services increased to support power generation. -- Sales for industrial applications increased 27 percent with strong demand for agriculture and other types of OEM equipment. This demand has been driven by good economic conditions. -- Sales for marine applications increased 40 percent with higher demand for workboats, commercial oceangoing vessels and cruise ships. -- Sales for petroleum applications increased 27 percent based on strong demand for engines used in drilling and production. Turbine-related services increased to support rising oil production and gas transmission demand. Latin America - Sales decreased $30 million, or 8 percent. -- Sales volume decreased $40 million. -- Price realization increased $10 million. -- Sales into truck applications declined 58 percent reflecting reduced demand. Latin American truck facilities decreased exports of trucks destined for the United States. -- Sales for petroleum applications increased 4 percent as turbine-related services increased to support rising oil production. -- Sales for electric power engines decreased 6 percent due to timing of shipments of product into Latin America. Asia/Pacific - Sales increased $156 million, or 31 percent. -- Sales volume increased $102 million. -- Price realization increased $31 million. -- Currency benefited sales by $23 million. -- Sales for marine applications increased 58 percent, with continued strong demand for workboat and offshore shipbuilding. Large diesel demand grew in the offshore and general cargo industries. -- Sales for petroleum applications increased 38 percent as Chinese drill rig builders continue to manufacture at record high levels for domestic and export use. Turbines and turbine-related services increased to support oil production and natural gas pipeline compression demand. -- Sales of electric power engines increased 18 percent with the successful launch of new medium-sized units and increased demand in India. Financial Products Revenues Revenues were $784 million in fourth quarter 2007, an increase of $109 million, or 16 percent, from fourth quarter 2006. -- Growth in average earning assets increased revenues $85 million. -- Revenues from earned premiums at Cat Insurance increased $26 million. Consolidated Operating Profit Comparison 4th Q 2007 vs. 4th Q 2006

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

The chart above graphically illustrates reasons for the change in Consolidated Operating Profit between fourth quarter 2006 (at left) and fourth quarter 2007 (at right). Items favorably impacting operating profit appear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting operating profit appear as downward stair steps with dollar amounts reflected in parentheses above each bar. Caterpillar management utilizes these charts internally to visually communicate with its Board and employees. The bar titled Consolidating Adjustments/M&E Other Operating Expense includes the operating profit impact of Progress Rail.

Operating Profit

Operating profit in fourth quarter 2007 increased $109 million, or 10 percent, from 2006, driven by higher price realization and sales volume, partially offset by increased core operating costs.

Core operating costs rose $296 million from fourth quarter 2006 driven by higher manufacturing costs. The increase in manufacturing costs was primarily due to operating inefficiencies, higher material costs and increased depreciation. Operating inefficiencies were the result of supply chain challenges, capacity increases, factory repair and maintenance and costs to enhance customer delivered quality. SG&A and R&D were down $59 million from fourth quarter 2006. Lower spending more than offset the impact of higher wage and benefits.

Currency had a $24 million unfavorable impact on operating profit, as the benefit to sales was more than offset by the negative impact on costs.

Operating Profit by Principal Line of Business $ % (Millions of dollars) Fourth Quarter Fourth Quarter Change Change 2006 2007 Machinery(1) $579 $619 $40 7% Engines(1) 502 571 69 14% Financial Products 172 161 (11) (6%) Consolidating Adjustments (107) (96) 11 Consolidated Operating Profit $1,146 $1,255 $109 10% (1) Caterpillar operations are highly integrated; therefore, the company uses a number of allocations to determine lines of business operating profit for Machinery and Engines. Operating Profit by Principal Line of Business -- Machinery operating profit of $619 million was up $40 million, or 7 percent, from fourth quarter 2006. Price realization and higher sales volume were partially offset by higher core operating costs. -- Engines operating profit of $571 million was up $69 million, or 14 percent, from fourth quarter 2006. The favorable impacts of improved price realization and positive mix of product were partially offset by higher core operating costs and lower sales volume. -- Financial Products operating profit of $161 million decreased $11 million, or 6 percent, from fourth quarter 2006. The decrease was primarily attributable to an $18 million increase in the provision for credit losses and a $6 million decrease in miscellaneous revenue items, partially offset by a $14 million impact from higher average earning assets at Cat Financial. Other Profit/Loss Items -- Other income/(expense) was $88 million of income compared with $49 million of income in fourth quarter 2006. The change was primarily due to the favorable impacts of currency and other items that were individually insignificant. -- The provision for income taxes in the fourth quarter reflects an annual tax rate of 30 percent as compared to a 29 percent rate in 2006. The increase over 2006 is primarily due to the repeal of ETI benefits in 2007 offset by a more favorable geographic mix of profits from a tax perspective.

A favorable adjustment of $55 million was recorded this quarter related to the first nine months of 2007 as a result of a decrease in the estimated annual tax rate from 31.5 to 30 percent, primarily due to changes in our geographic mix of profits. This compares to a favorable adjustment of $75 million in the fourth quarter of 2006.