Ticker Price Market Cap Beta Div Yield EPS (ttm) P/E (ttm) P/S (ttm) ROE (ttm)

CAT 27.47 16.52B 1.52 5.90% 5.67 4.85 0.32 57.83

Bull Story: -Worlds leading manufacturer of construction and mining equipment -High returns on equity -Growth overseas and in emerging markets Bear Story: -Potential shrinking demand for construction equipment -Greater volatility in consumer markets

Caterpillar Inc. is a manufacturer of construction and agricultural machinery based in Peoria, Illinois. Caterpillar operates in three different lines of business: Machinery, Engines, and Financial Products. Caterpillar is an attractive opportunity for Trinity University Student Managed Fund. WHY? -Consistent sales growth -Possess a large market share in the United States -Continued expansion into the Foreign markets -Possesses a strong brand name -SMF is underweighted in industrial goods -CAT consistently beats the S&P 500 in the long run -Very strong financials -Great upside potential -Continuous exploration for new growth opportunities. The Investors Rachel Brill Andy Quirin Andrew Shane

Profitability Liquidity Ratios Debt Asset Management Valuation Ratios Ratios Management Gross Margin 25.2 Quick Ratio 0.88 Debt/Equity 10.14 Total Asset TO 0.76 P/E 4.85 Operating Margin Net Margin ROA ROI 12.5 Current Ratio 6.86 5.19 15.5 1.21 Times Interest Earned 4.75 Fixed Asset TO 4.1 P/S 0.32

Working Capital TO Average Collection Inventory TO

9.22 P/CF 138 P/B 5.84

2.93 4.87

Recommendation: Purchase Full Position (1,000 Shares)

Table of Contents
1. Qualita*veAnalysis a. Overview 3 b. ExtendedSWOTAnalysis 4 c. CompanyTimeline 5 d. RecentHeadlines 5 e. Management 6 f. Compe*tors 6 g. Compe**veAdvantageTheMoat 7 h. InvestorRela*ons 7 i. CATvs.S&PPerformance 8 j. AnalystRecommenda*ons 9 2. FinancialRa*oAnalysis a. ProtabilityAnalysis 10 b. LiquidityAnalysis 10 c. AssetManagementAnalysis 11 d. DebtManagementAnalysis 11 e. ExtendedDuPontAnalysis 11 3. Valua*onModels a. BaseProForma 12 b. FCFFValua*on14 c. RappaportsModel15 d. Salesvs.NCFOGrowthEvalua*on15 e. InvestmentSummaryandRecommenda*on 15 4. Appendix a. AnnualIncomeStatement 16 b. AnnualBalanceSheet 17 c. AnnualStatementofCashFlows 18 5.ValueLineReport 20

Overview12
Caterpillar is the largest maker of construction and mining equipment, diesel and natural gas engines, and industrial turbines in the world. Their products, services and technologies fall into three lines of business: machinery, engines, and financial products. Caterpillars financial services are provided through Caterpillar Financial Services, Caterpillar Remanufacturing Services, Caterpillar Logistics Services, and Progress Rail Services. Caterpillar is a world leader in terms of building the worlds infrastructure and enabling progress for millions of people around the globe. For more than 80 years CAT as been making progress possible and driving positive and sustainable change on every continent. More than 101,000 employees More than 120,000 dealer employees Thousands of suppliers doing business on every continent 1,600 outlets worldwide provide rental services 3,500 locations in over 180 countries
Machinery Engines Financial

Caterpillars machinery business Caterpillars engines business designs, Caterpillars Financial Products engages in the design, manufacture, manufactures, markets, and sells business provides various financing marketing, and sale of construction, engines for its machinery; electric alternatives to customers and dealers mining, and forestry machinery, such power generation systems; on-highway for the companys machinery and as track and wheel tractors, track and vehicles and locomotives; marine, engines, solar gas turbines, and other wheel loaders, pipelayers, motor petroleum, construction, industrial, equipment and marine vessels, as well graders, wheel tractor-scrapers, track agricultural, and other applications; as offers loans to customers and and wheel excavators, backhoe loaders, and related parts. This business also dealers. This business also provides log skidders, log loaders, off-highway remanufactures engines, and various various forms of insurance to trucks, articulated trucks, paving machine and engine components, as customers and dealers to support the products, skid steer loaders, and related well as provides remanufacturing purchase and lease of its equipment; parts. This business also involves in the services for other companies. and invests in independent power design, manufacture, remanufacture, projects using Caterpillars power maintenance, and services of railgeneration equipment and services. related products, as well as offers logistics services.

2007 Worldwide Sales and Revenues (in millions)

La*nAmerica 10.12% NorthAmerica 43.81% Asia/Pacic 14.24%

Europe/Africa/MiddleEast 31.83%

CAT.com Finance

2 Yahoo

2007 Exports from the US by Geographic Region (in millions)

AsiaPacic 23.13% Europe/Africa/MiddleEast 40.08%

La*nAmerica 21.99% Canada 14.80%

Extended SWOT Analysis

Strengths: Worlds leading manufacturer of construction and mining equipment A Credit Rating High returns on equity Long run CAT outperforms the S&P Diversified product mix between manufacturing construction equipment, and integrated services Weaknesses: Shrinking profit margins over the last four years Large and growing long term debt Average collection period are long possibly signaling people defaulting on their payments Opportunities: New areas of growth and expansion overseas and in emerging markets Earmarks for infrastructure spending in US bailout Potential period of high growth during market recovery Threats: Profit losses due to exchange rate risk with international expansion Difficulties in obtaining credit to finance operations in current financial market Varying tax rates as CAT expands internationally Shrinkage in the housing market and demand for new construction Slower-than-expected economic growth Weaker non-residential construction Volatility in agriculture, mining and energy commodities, and power markets. Industry Structure: Barriers to Entry: New entrants face extremely high barriers of entry when competing with CAT. Costs to develop the product and service lines, supplier chain and dealer base and brand equity would take considerable time and capital to match for a new entrant. Number and Sizes of Firms: There are few large firms in the construction and mining equipment manufacturing business. Overall Elasticity of Demand: Overall elasticity of demand in the industry is high during times of market growth and slow during recessionary times. The industry is highly cyclical. Product Differentiation: Each firm offers similar consumer goods to all customers. Unlike other firms however, CAT offers specialized financing that other firms do not. Strategy: Pricing: CAT prices are competitive with its competitors.

Advertising: CAT relies on its high brand equity. Each piece of its equipment is painted the recognizable yellow color and has the CAT letters displayed on the side. Capacity: CAT has been operating under capacity for the last few years Quality: Quality is very high with products, CAT offers remanufacturing, servicing, logistical services and financing on all of their products. Performance: Profitability: CAT has had declining margins in the last few years. As demand for the housing and construction markets have waned in the past years, CATs margins have continued to shrink. Despite getting smaller, CATs margins are still highly competitive with their competitors. Cost Minimization: CAT has struggled with cost minimization. CATs debt has continued to increase, increasing their annual interest expenses. As CAT continues to draw on its credit line, these interest expenses will continue to grow and cut CATs margins. Innovativeness: CATs innovativeness is evident in the profitability of its diversified segments. CAT has expanded beyond purely manufacturing equipment and bolsters its sales with its services divisions. Their differentiated segments have given CAT multiple cash flows to draw from and kept the company growing in new directions. Broader Societal Expectations: CAT is expected to offer highly reliable construction equipment at a reasonable price to aid with building projects both internationally and domestic.

Timeline3
1890: Benjamin Holt and Daniel Best experimented with various forms of steam tractors for use in farming. They did so separately, with separate companies. 1904: Holt's first steam track-type tractor. 1906: Holt's first gas track-type tractor. 1925: The Holt Manufacturing Company and the C. L. Best Tractor Co. merge to form Caterpillar Tractor Co. 1940: The Caterpillar product line now included motor graders, blade graders, elevating graders, terraces and electrical generating sets. 1950: Caterpillar Tractor Co. Ltd. in Great Britain is established, the first of many overseas operations created to help manage foreign exchange shortages, tariffs, import controls and better serve customers around the world. 1986: The Caterpillar Tractor Co. changes its name to Caterpillar Inc. - a more accurate reflection of the enterprise's growing diversity. 1990: CAT decentralized its structure, reorganizing into business units responsible for return on assets and customer satisfaction. 2006: Benjamin Holt, one of Caterpillar Inc.'s founding fathers and designer of the first track-type tractor was recognized for his ingenuity and entrepreneurial spirit with an induction into the National Inventors Hall of Fame.

Headlines
March 4, 2009: CAT shares seen higher on news of Chinese economic stimulus package, which includes infrastructure spending. January 26, 2009: EPS estimates drop from $1.50 to $1.08 (Q4 estimates) due to higher operating costs. These high costs are due to transitional expenses moving to lower volumes and production cuts. January 26, 2009: S&P reiterates STRONG BUY (they see a challenging first half as economic policy implementation takes time to gain traction, but CAT is in the bottom half of the business cylce, and well positioned for growth in the second half) December 23, 2008: S&P reiterates STRONG BUY (CAT announces planned cost cutting measures including high wage reductions: despite these negatives, S&P thinks CAT is well positioned for growth once economic conditions bottom, especially due to the economic stimulus packages focused around infrastructure).

CAT.com

Management4
James W. Owens (age 63): Chief Executive Officer and Chairman. After joining the company in 1972 as a corporate economist, he has held numerous management positions. In December 2003, the Caterpillar Board of Directors named Owens vice chairman and appointed him chairman and chief executive officer effective February 1, 2004. Owens, a native of Elizabeth City, North Carolina, graduated from North Carolina State University, in 1973 with a Ph.D. in economics. He is a director of Alcoa Inc. in Pittsburgh, Pennsylvania and IBM Corporation in Armonk, New York. Owens is a director of the Peterson Institute for International Economics; Chairman of the International Trade and Investment Task Force of the Business Roundtable; Vice Chairman of The Business Council; and a member of the President's Advisory Committee for Trade Policy and Negotiations. David B. Burritt (age 53): Chief Financial Officer, VP of Global Financing and Strategy. He has responsibility for Accounting; Audit & Compliance; Tax; Treasury; Investor Relations; Product Source Planning; Strategic Investments and Support; and Finance Transformation. Burritt joined Caterpillar in 1978 as an accountant. From 2001 until 2002, he helped lead Caterpillar's 6 Sigma implementation as the 6 Sigma deployment champion. He was named corporate controller in late 2002 and introduced the company's transparent financial reporting initiative - a key component of Caterpillar's Sarbanes-Oxley compliance that aligns Caterpillar's internal and external reporting processes.

Competitors56
CNH Global: CNH Global engages in the engineering, manufacturing, marketing, and distribution of a range of agricultural and construction equipment worldwide. It operates in three segments: Agricultural Equipment, Construction Equipment, and Financial Services. The Agricultural Equipment segment primarily manufactures agricultural tractors, combine harvesters, hay and forage equipment, seeding and planting equipment, tillage equipment, and sprayers, as well as cotton picker packagers, and grape and sugar cane harvesters. The Construction Equipment segment manufactures heavy equipment, such as crawler and wheeled excavators, wheel loaders, graders, dozers, and articulated haul trucks for various applications. The Financial Services segment provides financial products and services, including retail financing for the purchase or lease of the companys new and used products, as well as for the other manufacturers products; and other retail financing programs. CNH Global sells and distributes its products primarily through a network of dealers and distributors in approximately 170 countries. The company was founded in 1991 and is based in Amsterdam, the Netherlands. CNH Global N.V. is a subsidiary of Fiat Netherlands Holding N.V. Deere and Co: The company, one of the world's two largest makers of farm equipment (CNH Global is the other), is also a leading producer of construction, forestry, industrial, and lawn-care equipment. It is famous for its "Nothing Runs Like A Deere" brand marketing campaign. While the global financial crisis dented the company's sales in commercial and consumer equipment, Deere's agricultural equipment sales continued strong and remained highly profitable. Deere makes 60% of its sales in North America. Komatsu: This diversified company is the world's #2 construction equipment maker, behind Caterpillar. Komatsu makes building and mining equipment ranging from bulldozers and wheel loaders to dump trucks and debris crushers. Komatsu also makes industrial machinery, such as laser-cutting machines and sheetmetal presses. A civil engineering and construction division makes prefabricated structures and offers contracting and real-estate sales and leasing services. Other products include generators, light armored vehicles, and diesel engines. Komatsu means "little pine tree" in Japanese.

Hoovers Finance

5 Yahoo 6

Hoovers

MOAT/Competitive Advantage7
Caterpillar is already recognized as the worlds leader, however Caterpillars long term strategy sets them even farther away from their competitors. Their long term strategy, Vision 2020, details their plan to become an even more admired global leader in addition to the continued additions to their shareholder value. This vision includes goals of attaining top line growth of $60 billion by 2010, technology leadership in the field, a determined focus on process improvement, and compound EPS growth. Their competitive edge is achieved by leveraging industry-wide technological advances that provide customers with innovative products, services, and solutions. Caterpillars global dealer network spans over 200 countries. This wide span of locations allows Caterpillar to address their customers equipment and servicing needs in a timely and convenient manner. These efficient solutions allow customers to become more sustainable and dependable in their respective industries.

Investor Relations
On Tuesday, March 17th, 2009, we contacted investor relations with the following questions. After leaving a message, they returned our call within half an hour and were extremely helpful. Traci Bramwell answered all our questions fully and invited us to call her back or send them an email if we had further questions. Her contact information is included below:
Investor Relations: Traci Bramwell Bramwell_Traci_N@CAT.com 100 NE Adams Street Peoria, IL 61629-5310 Tel: 309.675.4549 Fax: 309.675.4457

Q: A: Q: A: Q: A: Q: A:

Has the current financial crisis impacted CATs sales growth? Our products are geared towards growth, expansion, and development. This doesnt occur when economies are depressed and will slow our sales until the economy picks back up. Are you expecting an increase in sales due to the Infrastructure earmarks tagged in the bailout? That is a definite benefit for CAT. However actually timing of that money and how that will translate to new sales to CAT is difficult to foresee. Were more excited about the impacts of the stimulus for the world economy. Who do you see as your biggest competitors? It depends on the segments, for our overall machinery Komatsu Ltd ADS in Japan is our largest competitor. What makes CAT stand out from its competitors, what is its competitive advantage? We have two main advantages. First, CAT is one of the only construction manufacturing businesses with their own financial products divisions. CAT Financial is highly conservative, only finance cat equipment, know our customers well, and have very little risk involved. Theyre the best. Second but even more important is our dealer pool. Our dealers are independently owned, work very closely with the company, some generate 3+ billion in sales, far and above any competitors. Theyre extremely loyal and have worked really well with our company for generations. Who are your main customers? What percentage of your revenue do they make up? We do not disclose our customers. However they are pretty diversified and no single customer makes up more than 5% of our total revenues. How much of CATs revenues are made up of international sales? More than 50%, were currently expanding internationally. Which areas are you looking to expand internationally?

Q: A: Q: A: Q:
7

CAT.com

A: Q: A: Q: A: Q: A:

Definitely in China. We have two facilities being built and purchased a small company SEM. We are also expanding in emerging markets and in Latin America. What percentage of your revenues do Cat Finance & Insurance, Cat Logistics, Cat Remanufacturing make up? These three segments make up our Integrated Services branch. Total, they generate between 34-36% of all total revenues. Which one of your market segments do you feel is the strongest? Our Finance and Aftermarket Parts and Service Your revenues have been growing upwards of 17% in the last five years. Do you perceive this trend continuing despite the current economic crisis? Weve made models depicting worst case scenarios showing sales growth declining upwards to 50% for a very short period. This is tied mainly to CAT financial due to our ability (or lack there of) to borrow in the market place. Were currently borrowing at a higher rate, and were passing that extra cost onto customers. Also, some of our competitors have qualified for government security backed programs that were not qualified for. CATs shares outstanding have been decreasing steadily over several decades. Is CAT prepared to continue to buy back shares in todays market? In our last SEC report, we announced we are going to suspended our stock buy-back program. What do you expect CATs Long term debt to be in 2009 and 2010? Im really able to disclose that information. Competitive rates have been higher than historical averages.CAT Financial releases increases in interest rates in each report. Your tax rate has jumped between 27-32% recently, what do you use as your corporate tax rate in 2009? Varies based on mix of products and where do sell them, should resemble last year. What are the biggest challenges that will CAT face in the upcoming year? There are a few things. IT may be difficult to keep profitability high for CAT Financial depending on market has affected our pension program and contributing to that. Currently the US and Europe Housing market have been highly depressed along with the overall NA and Europe economic environment. This is a worldwide cyclical business and we will follow the markets globally.

Q: A: Q: A: Q: A: Q: A:

CAT vs. S&P500 Price Performance8

One Year

8 Yahoo

Finance

Five Years

Over the past five years, CAT has readily outperformed the market, growing upwards of 100% beyond the S&P. However, beginning around October 2008, CATs performance sunk as the housing market slowed and recession surmounted. We are predicting CAT to return to outperforming the market with the stimulus earmarked from the bailout for infrastructure projects taken into consideration.

Analyst Recommendations9

Standard & Poors

For the last two years, analyst opinion continues to stay consistently between Buy/Hold and Hold regions. Standard and Poors recommends CAT with a STRONG BUY. They say We see CAT benefiting from international central governments substantially increasing infrastructure spending to stimulate ailing economies, notably China, U.S., Australia and the in Europe, partially offset by reduced Cap Ex by energy and mining companies and the ongoing weakness in the U.S. residential and commercial construction market10. Contrarily Market Edge projects this company as a SELL. Some of their reasons include: 1. Chart pattern indicates a Strong Downward Trend. 2. Relative Strength is Bearish. 3. Up/Down volume pattern indicates that the stock is under Distribution. 4. The 50 day Moving Average is falling which is Bearish. 11

Ratios
Historical Profitability Dec 05 Gross Margin Operating Margin Net Profit Margin Return on Assets Return on Investment Return on Equity CAT Dec 06 Dec 07 Dec 08 CAT TTM 13.21% 6.86% 5.19% 15.47% 57.83% Comparative CNH TTM DE TTM KMTUY TTM

26.92% 28.83% 27.43% 25.15% 12.53% 14.32% 13.46% 13.21% 7.65% 8.32% 7.71% 6.86% 5.91% 6.79% 6.18% 5.19% 14.39% 19.74% 14.02% 15.47% 32.98% 50.39% 39.04% 57.83%

25.15% 23.87% 30.40% 29.07% 9.59% 14.03% 14.84% 3.50% 6.65% 9.31% 2.35% 4.57% 9.92% 8.15% 12.39% 28.71% 8.87% 28.80% 23.54%

Profitability shows room for improvement for CAT. Over the last four years, CATs margins have been steadily decreasing and future decreases would continue to hurt the company. However, compared to there competitors, CATs margins seem average. CAT operates more efficiently than CNH and DE, but has a noticeably smaller margin than KMTUY. Where CAT lacks on its margins, it makes up for in its ROE. CATs ROE more than doubles even its closest competitors, making it a prime investment choice.
Historical Liquidity Dec 05 Quick Ratio Current Ratio 0.92 1.19 CAT Dec 06 0.87 1.20 Dec 07 0.82 1.15 Dec 08 0.88 1.21 CAT TTM 0.88 1.21 Comparative CNH TTM 0.87 1.18 DE TTM 0.63 0.89 KMTUY TTM 0.88 1.48

CAT liquidity is very comparable to its competitors. Despite keeping up with industry standards, CAT could do a better job of keeping more current assets on hand in comparison to current liabilities. This may be in part due to CAT keeping a portion of its cash paying down its long term debt.

10 11

Standard & Poors Market Edge CAT Second Opinion Weekly Report

10

Historical Asset Management Dec 05 Total Asset Turnover Fixed Asset Turnover Working Capital Turnover Average Collection Period Inventory Turnover 0.77 4.55 9.83 143.75 6.96 CAT Dec 06 0.82 4.69 10.81 138.07 6.54 Dec 07 0.80 Dec 08 0.76 CAT TTM 0.76

Comparative CNH TTM 0.67 7.90 7.90 167.00 4.58 DE TTM 0.69 4.99 -16.74 54.13 7.40 KMTUY TTM 1.07 4.57 5.44 92.64 4.33

4.50 4.10 4.10 13.91 9.22 9.22 134.51 137.62 137.62 6.24 5.84 5.84

Overall CAT presents relatively strong asset management capabilities. Although the industry having relatively low asset turnovers, CAT has the industry leading working capital turnover. CAT has a surprisingly high average collection period. Considering current economic conditions and the competitive nature of acquiring capital, CAT should strive to decrease collection periods to be closer to DE and KMTUY.
Debt Management Debt/Equity Ratio Times Interest Earned Historical CAT Dec 05 Dec 06 Dec 07 Dec 08 4.58 6.42 5.32 10.14 4.43 4.58 4.26 4.75 Comparative CNH DE TTM TTM 2.77 5.31 2.18 3.57

CAT TTM 10.14 4.75

KMTUY TTM 0.88 1.48

CATs D/E ratio has continued to rise over the past several years. This can be attributed to CATs share buy-back program which is has used to purchase shares back every year decreasing the total amount of equity as well as increases in borrowing. Despite CAT having a large amount of long term debt, they maintain an A credit rating and have used debt effectively in the past to run their operation. In addition, CAT has had growing TIER for the last several years, and is significantly higher than its competitors. We feel that both of these things attribute to CAT having strong debt management.
Historical CAT Dec 05 Dec 06 Dec 07 Dec 08 7.65% 8.32% 7.71% 6.86% 0.77 0.82 0.80 0.76 5.58 7.42 6.32 11.14 32.98% 50.39% 39.04% 57.83% Comparative CAT CNH DE KMTUY TTM TTM TTM TTM 6.86% 3.50% 6.65% 9.31% 0.76 0.67 0.69 1.07 11.14 3.77 6.31 2.37 57.83% 8.87% 28.80% 23.54%

DuPont Analysis Net Profit Margin Total Asset Turnover Equity Multiplier Return on Equity

Its very important to look at the breakdown of CATs ROE. CAT has a competitive net profit margin and total asset turnover in comparison to its peers as well as the highest equity multiplier. Even CATs weakest ROE of 32.98% in Dec 05 is higher than DE its closest competitor.

Pro Forma Analysis

Following is our Income Statement Pro Forma Analysis. We present three models (Base, Pessimistic, and Optimistic) with 8%, 0%, and 14% respectively. Value line predicted forward looking growth of 10%, so we felt 8% offered a very conservative outlook. It should be pointed out that even with 0% sales growth, the company still has 11% potential upside. COGS and Depreciation/Amortization is calculated based on a four-year historical average. We used a 30% tax rate based on Investor Relation recommendations. For each year forecasted we took NI and divided by current shares outstanding to find predicted EPS. Shares have continuously decreased every year, but CAT announced in its last 10-K that it would temporarily cease its share buy-back program. We took the projected EPS for 2009 and multiplied it by the current TTM P/E of 4.86 to get each predicted stock price. Between 0 14% growth, CAT is expected to have between 11-27% upside.

11

Pro Forma Base Case

Caterpillar Inc. Pro Forma Income Statement Base Forecast (In $ Millions, except EPS) Actual 2006 2007 2008 2009 14.25% 8.29% 14.16% 8.00% 41517 44958 51324 55429.9 29549 32626 38415 40418.8 11968 12332 12909 15011.1 4422 4482 4147 5407.9 1602 1797 1980 2186.4 5944 6053 6782 7416.7 -1083 -1100 -2309 -1572.2 4861 4953 4473 5844.5 1405 1485 953 1753.3 3456 3468 3520 4091.1 5.17 645.8 6463 5.37 624 6750 5.66 601.5 6453 6.8 601.5 8030.9 4.86 6.8 33.06 27.47 20%

Growth Rate Revenue Cost of Goods Sold Gross Profit Total Operating Expenses Depreciation and Amortization Operating Income Other Income, net Income Before Taxes Income Taxes Net Income EPS, Diluted Shares Outstanding (mil.) EBITDA

2005 20.12% 36339 26558 9781 3752 1477 4552 -651 3901 1120 2781 4.04 670.9 5378

2010 8.00% 59864.3 43652.3 16212.0 5840.6 2361.4 8010.0 -1698.0 6312.0 1893.6 4418.4 7.3 601.5 8673.4

Forecasted 2011 2012 8.00% 8.00% 64653.5 69825.7 47144.5 50916.1 17508.9 18909.6 6307.8 6812.4 2550.3 2754.3 8650.8 9342.9 -1833.8 -1980.5 6817.0 7362.4 2045.1 2208.7 4771.9 5153.7 7.9 601.5 8.6 601.5

2013 8.00% 75411.8 54989.4 20422.4 7357.4 2974.6 10090.3 -2139.0 7951.4 2385.4 5565.9 9.3 601.5

2014 8.00% 81444.7 59388.5 22056.2 7946.0 3212.6 10897.6 -2310.1 8587.5 2576.2 6011.2 10.0 601.5

9367.3 10116.7 10926.0 11800.1

P/E Valuation TTM P/E 2009 EPS Estimated Price Current Price Potential Upside

Pessimistic
Caterpillar Inc. Pro Forma Income Statement Pessimistic Forecast (In $ Millions, except EPS) Actual 2006 2007 2008 2009 14.25% 8.29% 14.16% 0.00% 41517 44958 51324 51324.0 29549 32626 38415 37424.9 11968 12332 12909 13899.1 4422 4482 4147 5007.3 1602 1797 1980 2024.5 5944 6053 6782 6867.3 -1083 -1100 -2309 -1455.8 4861 4953 4473 5411.6 1405 1485 953 1623.5 3456 3468 3520 3788.1 5.17 645.8 6463 5.37 624 6750 5.66 601.5 6453 6.3 601.5 7436.0

Growth Rate Revenue Cost of Goods Sold Gross Profit Total Operating Expenses Depreciation and Amortization Operating Income Other Income, net Income Before Taxes Income Taxes Net Income EPS, Diluted Shares Outstanding (mil.) EBITDA

2005 20.12% 36339 26558 9781 3752 1477 4552 -651 3901 1120 2781 4.04 670.9 5378

2010 0.00% 51324.0 37424.9 13899.1 5007.3 2024.5 6867.3 -1455.8 5411.6 1623.5 3788.1 6.3 601.5 7436.0

Forecasted 2011 2012 0.00% 0.00% 51324.0 51324.0 37424.9 37424.9 13899.1 13899.1 5007.3 5007.3 2024.5 2024.5 6867.3 6867.3 -1455.8 -1455.8 5411.6 5411.6 1623.5 1623.5 3788.1 3788.1 6.3 601.5 7436.0 6.3 601.5 7436.0

2013 0.00% 51324.0 37424.9 13899.1 5007.3 2024.5 6867.3 -1455.8 5411.6 1623.5 3788.1 6.3 601.5 7436.0

2014 0.00% 51324.0 37424.9 13899.1 5007.3 2024.5 6867.3 -1455.8 5411.6 1623.5 3788.1 6.3 601.5 7436.0

12

P/E Valuation TTM P/E 2009 EPS Estimated Price Current Price Potential Upside 4.86 6.3 30.61 27.47 11%

Optimistic
Caterpillar Inc. Pro Forma Income Statement Optimistic Forecast (In $ Millions, except EPS) Actual 2006 2007 2008 2009 14.25% 8.29% 14.16% 14.00% 41517 44958 51324 58509.4 29549 32626 38415 42664.3 11968 12332 12909 15845.0 4422 4482 4147 5708.4 1602 1797 1980 2307.9 5944 6053 6782 7828.7 -1083 -1100 -2309 -1659.6 4861 4953 4473 6169.2 1405 1485 953 1850.8 3456 3468 3520 4318.4 5.17 645.8 6463 5.37 624 6750 5.66 601.5 6453 7.2 601.5 8477.1 4.86 7.2 34.89 27.47 27%

Growth Rate Revenue Cost of Goods Sold Gross Profit Total Operating Expenses Depreciation and Amortization Operating Income Other Income, net Income Before Taxes Income Taxes Net Income EPS, Diluted Shares Outstanding (mil.) EBITDA

2005 20.12% 36339 26558 9781 3752 1477 4552 -651 3901 1120 2781 4.04 670.9 5378

2010 14.00% 66700.7 48637.3 18063.3 6507.6 2631.0 8924.8 -1891.9 7032.9 2109.9 4923.0 8.2 601.5

Forecasted 2011 2012 14.00% 14.00% 76038.8 86684.2 55446.6 63209.1 20592.2 23475.1 7418.6 8457.2 2999.4 3419.3 10174.2 11598.6 -2156.8 -2458.7 8017.5 9139.9 2405.2 2742.0 5612.2 6397.9 9.3 601.5 10.6 601.5

2013 2014 14.00% 14.00% 98820.0 112654.8 72058.4 82146.5 26761.6 30508.3 9641.2 10991.0 3898.0 4443.7 13222.4 15073.6 -2802.9 -3195.3 10419.5 11878.2 3125.8 3563.5 7293.6 8314.8 12.1 601.5 13.8 601.5 16321.9

9663.9 11016.8 12559.2 14317.5

P/E Valuation TTM P/E 2009 EPS Estimated Price Current Price Potential Upside

13

Free Cash Flow to the Firm Analysis

Net Sales Growth EBITDA Tax Rate EBITDA(1-Tax Rate) Plus: Depreciation*(Tax Rate) Less: Fixed Cap. Investments Less: Working Cap. Investments Free Cash Flow to the Firm PV of FCFF Sum of PV of FCFF Terminal Value gL= 4% Value in 2013 VL=(FCFF0*(1+gL))/(WACC-gL) VL= 67,277.95 PV of Terminal Value = $48,195.71 Discounted Free Cash Flow to the Firm Dec 05 Dec 06 Dec 07 Dec 08 FY 2009E FY 2010E FY 2011E FY 2012E 36,339.00 41,517.00 44,958.00 51,324.00 57,482.88 64,380.83 70,818.91 77,900.80 20.12% 14.25% 8.29% 14.16% 12.00% 12.00% 10.00% 10.00% 5,378.00 6,463.00 6,750.00 6,453.00 8,328.37 9,327.77 10,260.55 11,286.60 28.71% 28.90% 29.98% 21.31% 30.00% 30.00% 30.00% 30.00% 3,833.94 4,594.97 4,726.23 5,078.15 5,829.86 6,529.44 7,182.38 7,900.62 424.06 463.03 538.77 421.85 684.32 766.44 843.08 927.39 2,415.00 2,675.00 3,040.00 4,011.00 4,028.61 4,512.05 4,963.25 5,459.58 -948.00 143.00 -609.00 2,332.00 243.63 272.87 300.15 330.17 2,240.00 2,834.00 -843.00 2,241.93 2,510.97 2,762.06 3,038.27 2,062.56 2,125.24 2,150.73 2,176.52 8,515.04 Target Price PV of FCFF 2009-2012 PV of Terminal Value PV of FCFF +Cash and Cash Equivalents - Long-term Debt PV of Equity Common Stock Offered (mil.) Target Price Current Price Upside Potential 8,515.04 48,195.71 56,710.75 2,736.00 22,834.00 36,612.75 601.53 60.87 27.47 124.44% WACC 7.00% 8.00% 8.70% 9.00% 10.00% 11.00% 12.00% Target Price Upside Potential 114.9 77.5 60.87 55.07 40.12 29.45 21.45 318.27% 182.13% 121.59% 100.47% 46.05% 7.21% -21.91%

To calculate the discounted cash flow, the weighted average cost of capital was calculated. The cost of debt was pulled form Caterpillars 10-K based on the weighted average cost of long term debt. The cost of equity was calculated with a fifteen year average of the 10 year treasury bond as the risk free rate and the expected market return as a five year expected growth for the sector as predicted by analysts from Yahoo!Finance. The risk free rate was 4.70%, the market rate of return was 11.12%, and the weighted average cost of debt was 4.26%. WACC come out to be 8.70%. Because this seems to be a particularly low WACC, we created a situational analysis for different values of WACC to see if Caterpillar was still an attractive opportunity for SMF to invest in. As it is clearly shown, Caterpillars WACC would have to increase by nearly 50% to be overvalued and an unreasonable investment.

14

Rappaports Model
In addition to a DCF using FCFF to calculate CATs price, we also used Rappaports model to calculate CATs intrinsic value. To calculate the value drivers, we used a five-year average for growth. We took more recent two-year averages for EBIT margin, changes in NWC and P&E because we felt the more current numbers were more relevant. We used a WACC of 8.7% calculated using the CAPM to calculate cost of equity and cost of debt from the last 10-K report. Using these value drivers we calculated operating cash flows of 587 M, 684 M, and 797 M for 2009, 2010, and 2011. Taking the 2011 OCF, we calculated residual value to be 69,386 M. Discounting these numbers by our 8.7% WACC amounted to an intrinsic value of $58,408 M or $19.11 per share. We then calculated Market Value by multiplying Net Income by the TTM P/E ratio and calculated $16,717 M or $5.47 per share. This suggests that CATs highly undervalued because its intrinsic value is 3.5x as large as its perceived market value.
Value Drivers g EBIT Margin t NWC P&E WACC 17% 11% 30% 9% 36% 9%

Calculations of OCF OCF1 587.22 OCF2 684.11 OCF3 796.99 RV IV IV/Share MV MV/Share 69386.66 58408.48 19.11 16717.9 5.47

Sales vs. NCFO Growth Evaluation

This chart compares CATs sales growth versus its NCFO growth. Over the last two years NCFO has grown at over 200% while sales growth has risen around 10%. Despite this massive growth in net cash flow from operations, ROI has been decreasing each year as the firms break even ROI has increased. This decrease in CATs ROI is mainly contributed to large recent increases in the companys long term debt. Due to the these increases in the CATs long term debt in 2008, CAT could not meet its BEROI . This could pose potential danger for CAT as it expands both domestically and internationally if it doesnt better control its invested capital. Due to the housing market and construction slow down in the current recessionary environment, money has become more scarce and the cost of debt has become more expensive in the current market which could pose a potential problem for CAT control interest expense.

Market Growth Evaluation 2008 2007 2006 Sales 48044 41962 38869 gSales 14.50% 7.96% NCFO 2736 1122 530 gNCFO 244% 217% ROI 15.0% 18.0% 20.0% BEROI 25.0% 15.0% Max g 8.0% 9.9% 11.0%

Investment Recommendation
As shown by the multiple valuations and explanations of Caterpillars business, CAT presents a strong investment opportunity for SMF. Caterpillars consistent growth along with their relative strength compared to their competitors indicate that CAT is well poised to recover from the current recession. The ratios indicate their relative strength compared to their competitors while the valutaitons capture the extent of the upside potential. Because of Amazons outperformance of the S&P 500 in the long run and financial strengths, it would be beneficial to SMF to purchase a full share of Caterpillar.

15

Financial Statements
Caterpillar Inc.

Consolidated Income Statement

(Dollars in millions except per share data)

2008

Sales and revenues:

2007

2006

Sales of Machinery and Engines Revenues of Financial Products Total sales and revenues

48044 3280 51324

41962 2996 44958

38869 2648 41517

Operating costs:

Cost of goods sold Selling, general and administrative expenses Research and development expenses Interest expense of Financial Products Other operating (income) expenses Total operating costs

38415 4399 1728 1153 1181 46876

32626 3821 1404 1132 1054 40037

29549 3706 1347 1023 971 36596

Operating prot

4448

4921

4921

Interest expense excluding Financial Products Other income (expense)

274 299

288 320

274 214

Consolidated prot before taxes

4473

4953

4861

Provision for income taxes Prot of consolidated companies

953 3520

1485 3468

1405 3456

Equity in prot (loss) of unconsolidated afliated companies

37

73

81

Prot

3557

3541

3537

Prot per common share

5.83

5.55

5.37

Prot per common share diluted 1

5.66

5.37

5.17

Weighted-average common shares outstanding (millions)

- Basic - Diluted 1

610.5 627.9

638.2 659.5

658.7 683.8

Cash dividends declared per common share

1.62

1.38

1.15

Consolidated Balance Sheet

(Dollars in millions)

2008

Assets

2007
$

2006

Current assets:

Cash and short-term investments Receivables trade and other Receivables nance Deferred and refundable income taxes Prepaid expenses and other current assets Inventories

2736 9397 8731 1223 765 8781 31633

1122 8249 7503 816 583 7204 25477

530 8607 6804 733 638 6351 23663

Total current assets

Property, plant and equipment net Long-term receivables trade and other Long-term receivables nance Investments in unconsolidated afliated companies Noncurrent deferred and refundable income taxes Intangible assets Goodwill Other assets

12524 1479 14264 94 3311 511 2261 1705 67782

9997 685 13462 598 1553 475 1963 1922 56132

8851 860 11531 562 1949 387 1904 1742 51449

Total assets

Liabilities

Current liabilities:

Short-term borrowings:

Machinery and Engines Financial Products

1632 5577 4827 4121 1242 1898 253 1027

187 5281 4723 3178 1126 1442 225 951

165 4990 4085 2923 938 921 194 1145

Accounts payable Accrued expenses Accrued wages, salaries and employee benets Customer advances Dividends payable Other current liabilities Long-term debt due within one year:

Machinery and Engines Financial Products

456 5036 26069

180 4952 22245

418 4043 19822

Total current liabilities

Long-term debt due after one year:

Machinery and Engines Financial Products

5736 17098 9975 2293 61171

3639 14190 5059 2116 47249

3694 13986 5879 1209 44590

Liability for postemployment benets Other liabilities

Total liabilities

Commitments and contingencies (Notes 22 and 23) Redeemable noncontrolling interest (Note 25) Stockholders equity

524

Common stock of $1.00 par:

Authorized shares:900,000,000 Issued shares:(2008, 2007 and 2006 814,894,624) at paid-in amount

3057

2744

2465

Treasury stock (2008 213,367,983 shares; 2007 190,908,490 shares and 2006 169,086,448 shares) at cost

(11,217)

(9,451)

(7,352)

Prot employed in the business Accumulated other comprehensive income

19826 (5,579) 6087 67782

17398 (1,808) 8883 56132

14593 (2,847) 6859 51449

Total stockholders equity Total liabilities, redeemable noncontrolling interest and stockholders equity

Consolidated Statement of Cash Flow

(Millions of dollars)

2008

2007

2006

Cash ow from operating activities:

Prot Adjustments for non-cash items:

3557

3541

3537

Depreciation and amortization Other

1980 383

1797 199

1602 197

Changes in assets and liabilities:

Receivables trade and other Inventories Accounts payable and accrued expenses Customer advances Other assets net Other liabilities net

(545) (833) 656 286 (470) (227) 4787

899 (745) 618 576 66 984 7935

(148 (827 670 511 (262 519 5799

Net cash provided by (used for) operating activities

Cash ow from investing activities:

Capital expenditures excluding equipment leased to others Expenditures for equipment leased to others Proceeds from disposals of property, plant and equipment Additions to nance receivables Collections of nance receivables Proceeds from sale of nance receivables Investments and acquisitions (net of cash acquired) Proceeds from release of security deposit Proceeds from sale of available-for-sale securities Investments in available-for-sale securities Other net

(2,445) (1,566) 982 (14,031) 9717 949 (117) 357 (339) 197 (6,296)

(1,700) (1,340) 408 (13,946) 10985 866 (229) 290 282 (485) 461 (4,408)

(1,593 (1,082 572 (10,522 8094 1067 (513 539 (681 18 323 (3,796

Net cash provided by (used for) investing activities

Consolidated Statement of Cash Flow

(Millions of dollars)

2008

2007

2006

Cash ow from operating activities:

Prot Adjustments for non-cash items:

3557

3541

3537

Depreciation and amortization Other

1980 383

1797 199

1602 197

Changes in assets and liabilities:

Receivables trade and other Inventories Accounts payable and accrued expenses Customer advances Other assets net Other liabilities net

(545) (833) 656 286 (470) (227) 4787

899 (745) 618 576 66 984 7935

(148 (827 670 511 (262 519 5799

Net cash provided by (used for) operating activities

Cash ow from investing activities:

Capital expenditures excluding equipment leased to others Expenditures for equipment leased to others Proceeds from disposals of property, plant and equipment Additions to nance receivables Collections of nance receivables Proceeds from sale of nance receivables Investments and acquisitions (net of cash acquired) Proceeds from release of security deposit Proceeds from sale of available-for-sale securities Investments in available-for-sale securities Other net

(2,445) (1,566) 982 (14,031) 9717 949 (117) 357 (339) 197 (6,296)

(1,700) (1,340) 408 (13,946) 10985 866 (229) 290 282 (485) 461 (4,408)

(1,593 (1,082 572 (10,522 8094 1067 (513 539 (681 323 (3,796

Net cash provided by (used for) investing activities

Cash ow from nancing activities:

Dividends paid Common stock issued, including treasury shares reissued Payment for stock repurchase derivative contracts Treasury shares purchased Excess tax benet from stock-based compensation Proceeds from debt issued (original maturities greater than three months):

(953) 135 (38) (1,800) 56

(845) 328 (56) (2,405) 155

(726 414 (3,208 169

Machinery and Engines Financial Products

1673 16257

224 10815

1445 9824

Payments on debt (original maturities greater than three months):

Machinery and Engines Financial Products

(296) (14,143) 2074 2965

(598) (10,290) (297) (2,969)

(839 (9,536 (136 (2,593

Short-term borrowings (original maturities three months or less) net

Net cash provided by (used for) nancing activities

19

TIMELINESS SAFETY TECHNICAL

CATERPILLAR INC. NYSE-CAT

3 2 3
Lowered 10/10/08 Raised 7/30/04
High: Low: 30.8 18.1

RECENT PRICE
33.2 21.0 27.6 14.8

Trailing: 6.8 RELATIVE DIVD RATIO 8.0 (Median: 15.0) P/E RATIO 0.68 YLD 4.1% 41.40 P/E
28.4 19.9 30.0 16.9 42.5 20.6 49.4 34.3 59.9 41.3 82.0 57.1 87.0 58.0 86.0 32.0

VALUE LINE
Target Price Range 2011 2012 2013
200 160

30.4 19.5

LEGENDS 6.5 x C ash F low p sh . . . . Relative Price Strength Raised 1/9/09 2-for-1 split 7/97 BETA 1.30 (1.00 = Marke t) 2-for-1 split 7/05 Options: Yes 2011-13 PROJECTIONS Shaded area : prior recession Annl Total Lat est recession began 12/07

2-for-1

Price Gain Return High 120 (+190%) 33% Low 85 (+105%) 23% Insider Decisions
to Buy Options to Sell F 0 2 0 M 0 1 0 A 0 4 2 M 0 3 3 J 0 0 0 J 0 1 2 A 0 2 1 S 0 1 2

O 0 1 0

100 80 60 50 40 30
% TOT. RETURN 12/08

20

Institutional Decisions
1Q2008 2Q2008 3Q2008 387 386 341 to Buy to Sell 463 467 508 Hlds(000) 433649 433229 409932

Percent shares traded

18 12 6

T H IS STOCK

VL ARITH. INDEX

1 yr. 3 yr. 5 yr.

-36.8 -17.9 18.7

-37.4 -26.7 -8.2

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
12.62 14.25 17.87 20.71 21.70 25.71 29.36 27.72 29.38 29.78 29.27 33.11 44.11 54.17 .54 1.66 2.04 2.34 2.70 3.26 3.33 2.66 3.02 2.87 2.93 3.62 5.00 6.46 d.27 .84 1.18 1.43 1.77 2.19 2.06 1.32 1.51 1.16 1.15 1.62 2.88 4.04 .08 .08 .16 .30 .39 .48 .58 .64 .67 .70 .70 .71 .80 .96 .79 .78 .87 .88 1.01 1.50 1.78 1.28 1.35 1.60 2.58 2.57 3.08 3.60 1.95 2.70 3.63 4.37 5.41 6.36 7.18 7.69 8.15 8.17 7.95 8.84 10.89 12.57 807.62 814.89 801.77 776.06 761.40 736.02 714.40 710.78 686.79 686.75 688.51 687.52 685.87 670.87 -10.9 11.5 10.3 9.8 11.2 12.3 20.6 12.8 21.0 20.9 18.8 13.9 12.6 -.64 .75 .69 .61 .65 .64 1.17 .83 1.08 1.14 1.07 .73 .67 1.2% .8% 1.2% 2.0% 2.2% 1.9% 2.3% 2.4% 3.5% 2.9% 2.9% 2.3% 2.0% 1.9%
CAPITAL STRUCTURE as of 9/30/08 Total Debt $34.2 bill. Due in 5 Yrs $21.5 bill. LT Debt $19.8 bill. LT Interest $1.0 bill. Incl. $15.5 bill. in debt held by Financial Products division. (LT interest earned: 6.4x; Total interest coverage: 4.8x) (67% of Capl) Leases, Uncapitalized Annual rentals $248.0 mill. Pension Assets-12/07 $13.2 bill. Oblig. $13.1 bill. Pfd Stock None Common Stock 603,233,837 shs. (624.8 mill. diluted shs.) MARKET CAP: $25.0 billion (Large Cap) CURRENT POSITION 2006 2007 9/30/08 ($MILL.) Cash Assets 530 1122 2138 Receivables 14972 15752 17674 Inventory (LIFO) 6351 7204 9290 Other 1240 1399 1422 Current Assets 23093 25477 30524 Accts Payable 4085 4723 5149 Debt Due 9616 10600 14370 Other 5551 6922 7841 Current Liab. 19252 22245 27360

VALUE LINE PUB., INC.

11-13
116.95 15.55 10.25 2.50 6.60 33.05 560.00 10.0 .65 2.4% 65500 19.5% 2650 6045 33.0% 9.2% 4600 21000 18500 16.5% 32.5% 25.0% 24%

64.29 73.22 85.85 83.05 Sales per sh 8.03 8.64 9.60 8.90 Cash Flow per sh 5.25 5.32 5.95 5.00 Earnings per sh A 1.15 1.38 1.62 1.74 Divds Decld per sh B 4.14 4.95 6.65 6.25 Capl Spending per sh 10.62 14.47 16.65 18.65 Book Value per sh C 645.81 613.99 600.00 590.00 Common Shs Outstg D 13.1 13.7 11.0 Avg Annl P/E Ratio .71 .72 .70 Relative P/E Ratio 1.7% 1.9% 2.5% Avg Annl Divd Yield 41517 18.3% 1602.0 3587.0 28.9% 8.6% 3841.0 17680 6859.0 16.3% 52.3% 41.7% 20% 44958 17.5% 1797.0 3509.0 30.0% 7.8% 3232.0 17829 8883.0 14.8% 39.5% 30.0% 24% 51500 16.0% 2000 3750 31.0% 7.3% 3500 20000 10000 14.0% 37.5% 27.5% 26% 49000 15.5% 2150 3100 30.0% 6.3% 3600 20250 11000 11.5% 28.0% 18.5% 34% Sales ($mill) Operating Margin Depreciation ($mill) E Net Profit ($mill) Income Tax Rate Net Profit Margin Working Capl ($mill) Long-Term Debt ($mill) Shr. Equity ($mill) Return on Total Capl Return on Shr. Equity Retained to Com Eq All Divds to Net Prof

20977 19702 20175 20450 20152 22763 17.2% 15.2% 17.1% 15.3% 15.2% 15.4% 865.0 945.0 1022.0 1169.0 1220.0 1347.0 1513.0 946.0 1053.0 805.0 798.0 1139.0 30.6% 32.0% 29.3% 31.4% 28.0% 27.0% 7.2% 4.8% 5.2% 3.9% 4.0% 5.0% 3514.0 3556.0 3953.0 3124.0 3284.0 4170.0 9404.0 9928.0 11334 11291 11596 14078 5131.0 5465.0 5600.0 5611.0 5472.0 6078.0 12.6% 8.4% 8.4% 7.1% 6.2% 6.9% 29.5% 17.3% 18.8% 14.3% 14.6% 18.7% 21.7% 9.2% 10.6% 5.9% 5.8% 10.7% 26% 47% 44% 59% 60% 43%

30251 15.4% 1397.0 2035.0 27.0% 6.7% 4646.0 15837 7467.0 9.8% 27.3% 20.1% 26%

36339 16.6% 1477.0 2854.0 28.7% 7.9% 3698.0 15677 8432.0 13.1% 33.8% 26.5% 22%

BUSINESS: Caterpillar Incorporated is the worlds largest producer of earthmoving equipment. Major markets include road building, mining, logging, agriculture, petroleum, and general construction. Products include tractors, scrapers, graders, compactors, loaders, off-highway truck engines, and pipelayers. Also makes diesel & turbine engines and lift trucks. Foreign sales about 60%; research &

development: 3.1% of sales. 2007 depreciation rate: 9.4%. Has about 112,105 employees. Officers & directors own 1.2% of common stock; Capital Research and Management Co., 6.94% (4/08 proxy). Chairman & CEO: James W. Owens. Incorporated: Delaware. Address: 100 N.E. Adams St., Peoria, Illinois 61629. Telephone: 309-675-1000. Internet: www.cat.com.

At Caterpillar, a top-line decline might be tough to avoid in 2009. Last ANNUAL RATES Past Past Estd 05-07 fall, management was reasonably confiof change (per sh) 10 Yrs. 5 Yrs. to 11-13 dent that it could hold sales flat this year, Sales 11.0% 16.5% 10.5% despite a weakening global economy and Cash Flow 11.0% 21.5% 12.5% Earnings 10.5% 31.0% 13.0% tight credit markets. It was thought that Dividends 11.5% 11.0% 14.0% price hikes, strength in the mining and enBook Value 9.0% 9.0% 17.5% ergy sectors, infrastructure development QUARTERLY SALES ($ mill.) CalFull in emerging markets, and the reclassificaendar Mar.31 Jun.30 Sep.30 Dec.31 Year tion of Caterpillar Japan results (from the 2005 8339 9360 8977 9663 36339 equity to consolidated method) would off2006 9392 10605 10517 11003 41517 set a drop in equipment sales to North 2007 10016 11356 11442 12144 44958 America, Europe and Japan. In the closing 2008 11796 13624 12981 13099 51500 2009 11200 12500 12300 13000 49000 months of 2008, however, mining and energy customers became cautious about EARNINGS PER SHARE A CalFull their purchases, given a sharp erosion in endar Mar.31 Jun.30 Sep.30 Dec.31 Year commodities prices. Too, developing na2005 .82 1.08 .94 1.20 4.04 tions are trimming their infrastructure 2006 1.20 1.52 1.21 1.32 5.25 budgets, in light of contracting cash 2007 1.18 1.24 1.40 1.50 5.32 2008 1.44 1.74 1.39 1.38 5.95 reserves. Planned economic stimulus pro2009 1.10 1.30 1.25 1.35 5.00 grams around the world should lend support, but probably wont have a measurQUARTERLY DIVIDENDS PAID B CalFull able impact on CATs results until late endar Mar.31 Jun.30 Sep.30 Dec.31 Year this year or in 2010. We expect about a 5% 2005 .205 .205 .25 .25 .91 top-line decline in 2009 from estimated 2006 .25 .25 .30 .30 1.10 record sales of $51.5 billion in 2008. 2007 .30 .30 .36 .36 1.32 Share net may fall this year, as well. 2008 .36 .36 .42 .42 1.56 In the past couple of quarters, CATs mar2009
(A) Primary earnings through 1996, then diluted. Excludes net nonrecurring gain (losses): 92, ($2.75); 93, (4); 03, (6); 06, (8); 1Q, 07, 5. Includes 15 in restructuring and Challenger Tractor sale charges in 01. Next earnings report due late Apr. (B) Dividends historically paid around the 20th of Feb., May, Aug., Nov. Divd reinvestment

gins have suffered from high raw material and freight expenses. A recent easing in commodities (metals) and fuel prices should bring relief in the coming months. To protect profitability, the company is implementing temporary production cutbacks, laying off support staff and some line employees, and reducing top-executive and management compensation. Also, Six Sigma cost & efficiency measures continue to be utilized, and production, when possible, is being transferred to economical, low-tax locations. CAT is prepared to turn to draconian restructuring actions should the sales situation markedly deteriorate, a scenario we dont currently anticipate. This year, we look for the net margin to narrow by 100 basis points, to 6.3%, and share net to fall $0.95, to $5.00. Solid cash flow and strong finances will help the company to get through these difficult times. Theres good opportunity here for investors with a 3- to 5-year view. Once the global economy stabilizes, mature and developing nations likely will reaccelerate infrastructure development, auguring well for CATs long-term results. David M. Reimer January 23, 2009
Companys Financial Strength Stocks Price Stability Price Growth Persistence Earnings Predictability A+ 70 85 75

plan available. (C) Includes intangibles. In 07: $2.44 bill., $3.97/sh. (D) In millions, adjusted for splits. (E) Accelerated basis.

2009, Va lue Line Publishing, Inc. All rights reserved. F actua l ma t eria l is obt a ined from sources be lieved to be re liable and is provided without w arranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publica tion is strictly for subscriber s own, non-commercia l, int erna l use . No part of it may be reproduced, resold, stored or transmitt ed in any print ed, electronic or other form, or used for genera ting or marke ting any print ed or electronic publica tion, service or product.

To subscribe call 1-800-833-0046.

20