100 NE Adams Street Peoria, Illinois 61629

Notice of Annual Meeting of Stockholders Wednesday, June 9, 2010 1:30 p.m. — Central Daylight Time

Northern Trust Building 50 South LaSalle Street Chicago, Illinois 60675

April 30, 2010

Dear fellow stockholder:

On behalf of the board of directors (Board), you are cordially invited to attend the 2010 Caterpillar Inc. annual meeting of stockholders (Annual Meeting) to:

Elect directors;
Ratify our Independent Registered Public Accounting Firm;
Act on Company proposals;
Act on properly presented stockholder proposals; and
Conduct any other business properly brought before the meeting.

We have elected to furnish proxy materials for the Annual Meeting to stockholders via the Internet. We believe the use of the Securities and Exchange Commission's e-proxy rule will expedite stockholders' receipt of the proxy materials, lower the costs and reduce the environmental impact of our Annual Meeting. On April 30, 2010, we mailed a notice to most stock holders containing instructions on how to access the proxy materials and vote online. All other stockholders were sent a copy of the proxy materials by mail or e-mail. See page 1 of this proxy statement for more information on e-proxy and instructions on how you can (i) receive a paper copy of the proxy materials if you received a notice by mail, or (ii) elect to receive your proxy materials over the Internet or by e-mail, if you received them by mail this year.

You must have an admission ticket to attend the Annual Meeting. Procedures for requesting an admission ticket are detailed on page 70 of this proxy statement. Attendance and voting is limited to stockholders of record at the close of business on April 12, 2010.

Sincerely yours,

James W. Owens Chairman

PART ONE — Information about E-proxy, Meeting Attendance and Voting Matters
Internet Availability of Proxy Materials 1
Frequently Asked Questions Regarding Meeting Attendance and Voting 1

PART TWO — Corporate Governance Information
Corporate Governance Guidelines 5
Composition of the Board 5
Related Party Transaction Approval Process 9
Director Independence Determinations 10
Process for Identifying and Evaluating Potential Directors 11
Board Leadership Structure 12
Board's Role in Risk Oversight 12
Board Meetings and Committees 13
Communication with the Board 14
Code of Ethics 15
Audit Committee Report 15
Audit Fees and Approval Process 16
Governance Committee 18
PART THREE — Proposals to be Voted on at the 2010 Annual Meeting

Company Proposals
Proposal 1 — Election of Directors 19
Proposal 2 — Ratification of our Independent Registered Public Accounting Firm 20
Proposal 3 — Amend 2006 Long-Term Incentive Plan 21
Proposal 4 — Amend Restated Certificate of Incorporation and Bylaws to Provide for Annual Election of Directors 27
Proposal 5 — Amend Restated Certificate of Incorporation and Bylaws to Eliminate Supermajority Voting Requirements 29
Stockholder Proposals
Proposal 6 — Independent Chairman of the Board 31 Caterpillar Response 32
Proposal 7 — Review of Global Corporate Standards 33 Caterpillar Response 34
Proposal 8 — Special Stockholder Meetings 35 Caterpillar Response 36

PART FOUR — Other Important Information

Persons Owning More than Five Percent of Caterpillar Common Stock 37
Caterpillar Common Stock Owned by Executive Officers and Directors 38
Compensation
Compensation Discussion and Analysis 39
Compensation Committee Report 56
Executive Compensation Tables 57
Potential Payments Upon Termination or Change in Control 64
Director Compensation 67
Compensation Risk 69
Other Matters
Section 16(a) Beneficial Ownership Reporting Compliance 69
Director Legal Proceedings 69
Matters Raised at the Meeting not Included in this Statement 69
Admission and Ticket Request Procedure 70
Appendix A — Proposed Amendments to 2006 Long-Term Incentive Plan 71
Appendix B — Proposed Amendments to Restated Certificate of Incorporation 86
Appendix C — Proposed Amendments to Bylaws 88
Appendix D — General and Financial Information — 2009A-1

PART ONE — Information about E-proxy, Meeting Attendance and Voting Matters

Internet Availability of Proxy Materials

As permitted by e-proxy rules adopted by the Securities and Exchange Commission (SEC), Caterpillar Inc. (Caterpillar, the Company, we or us) is providing, in most cases, the proxy materials for its Annual Meeting electronically via the Internet or e-mail. On April 30, 2010, we initiated delivery of proxy materials to our stockholders of record as of the close of business on April 12, 2010 in one of three ways: 1) a notice containing instructions on how to access proxy materials via the Internet (Internet Notice), 2) a paper copy mailing (Paper Mailing) or 3) an e-mail distribution. If you received an Internet Notice, you will not receive a printed copy of the proxy materials in the mail. Instead, the Internet Notice provides instructions on how to access the proxy materials and vote online or by telephone. If you received an Internet Notice and would like to receive a printed copy of the proxy materials or elect to receive the materials via e-mail in the future, please follow the instructions included in the Internet Notice. If you received a Paper Mailing and would like to register to receive an Internet Notice or an e-mail regarding availability of proxy materials in the future, you can do so by any of the following methods:

Internet Go to www.eproxyaccess.com/cat2010 and follow the registration instructions.
Telephone From within the United States or Canada, call us free of charge at 1-888-216-1363.
E-mail Send us an e-mail at [email protected]. Include the control number from your Paper Mailing as the subject line, and indicate whether you wish to receive a paper or e-mail copy of the proxy materials and whether your request is for this meeting only or for all future meetings.

Frequently Asked Questions Regarding Meeting Attendance and Voting

Q: Why am I receiving these proxy materials?

A: You have received these proxy materials because you are a Caterpillar stockholder, and Caterpillar's Board is soliciting your authority or proxy to vote your shares at the Annual Meeting. This proxy statement includes information that we are required to provide to you under SEC rules and is designed to assist you in voting your shares.

Q: What is e-proxy and why did Caterpillar choose to use it this year?

A: SEC rules allow companies to choose the method for delivery of proxy materials to stockholders. For most stockholders, we have elected to send an Internet Notice, rather than mailing a full set of proxy materials. We believe that this method of delivery will expedite your receipt of proxy materials and lower the costs and reduce the environmental impact of our Annual Meeting.

Q: Why didn't I receive an "annual report" or "sustainability report" with my proxy materials?

A: Our 2009 "Year in Review" and 2009 "Sustainability Report" are available exclusively online at www.CAT.com/investor. The online, interactive format of the reports furthers our efforts to lower costs and reduce the environmental impact of our communications. As required by SEC rules, complete financial statements, financial statement notes and management's discussion and analysis for 2009 are included with the proxy statement distributed to stockholders.

Q: How do I obtain an admission ticket to attend the Annual Meeting?

A: Anyone wishing to attend the Annual Meeting must have an admission ticket issued in his or her name. Admission is limited to:

Stockholders of record on April 12, 2010 and one immediate family member;
An authorized proxy holder of a stockholder of record on April 12, 2010; or
An authorized representative of a stockholder of record who has been designated to present a stockholder proposal.

You must provide evidence of your ownership of shares with your ticket request and follow the requirements for obtaining an admission ticket specified in the "Admission and Ticket Request Procedure" on page 70. Accredited members of the media and analysts are also permitted to attend the Annual Meeting pursuant to the directions provided in the "Admission and Ticket Request Procedure" on page 70.

Q: What is a stockholder of record?

A: A stockholder of record or registered stockholder is a stockholder whose ownership of Caterpillar stock is reflected directly on the books and records of our transfer agent, BNY Mellon Shareowner Services (Transfer Agent). If you hold stock through a bank, broker or other intermediary, you hold your shares in "street name" and are not a stockholder of record. For shares held in street name, the stockholder of record is your bank, broker or other intermediary. Caterpillar only has access to ownership records for the stockholders of record. So, if you are not a stockholder of record, the Company needs additional documentation to evidence your stock ownership as of the record date — such as a copy of your brokerage account statement, a letter from your broker, bank or other nominee or a copy of your voting instruction card.

Q: When is the record date and who is entitled to vote?

A: The Board set April 12, 2010 as the record date for the Annual Meeting. Holders of Caterpillar common stock on that date are entitled to one vote per share. As of April 12, 2010, there were 628,185,024 shares of Caterpillar common stock outstanding.

A list of all registered stockholders will be available for examination by stockholders during normal business hours at 100 NE Adams Street, Peoria, Illinois 61629, at least ten days prior to the Annual Meeting and will also be available for examination at the Annual Meeting.

Q: How do I vote?

A: You may vote by any of the following methods:

In person Stockholders of record and stockholders with shares held in street name that obtain an admission ticket and attend the Annual Meeting will receive a ballot for voting. If you hold shares in street name, you must also obtain a legal proxy from your broker to vote in person and submit the proxy along with your ballot at the meeting.
By mail Signing and returning the proxy and/or voting instruction card provided.
By phone or via the Internet Following the instructions on your Internet Notice, proxy and/or voting instruction card or e-mail notice.

If you vote by phone or the Internet, please have your Internet Notice, proxy and/or voting instruction card or e-mail notice available. The control number appearing on your Internet Notice, proxy and/or voting instruction card or e-mail notice is necessary to process your vote. A phone or Internet vote authorizes the named proxies in the same manner as if you marked, signed and returned the card by mail.

Q: Why is it so important that I vote my shares?

A: We value your input on questions facing the Company. Please note that if you hold your shares through a broker in street name, beginning this year, New York Stock Exchange (NYSE) rules will not permit your broker to vote your shares in the election of directors without your instruction. Your failure to vote this year may require us to incur additional solicitation costs. In addition, your voice can be heard on important Company matters when you vote. Whether or not you plan to attend the Annual Meeting, we encourage you to vote your shares promptly so that we can avoid additional costs.

Q: What are "broker non-votes" and why is it so important that I submit my voting instructions for shares I hold in street name?

A: Under the rules of the NYSE, if a broker or other financial institution holds your shares in its name and you do not provide your voting instructions to them, that firm has discretion to vote your shares for certain routine matters. For example, Company Proposal 2, the ratification of the appointment of our independent registered public accounting firm, is a routine matter.

On the other hand, the broker or other financial institution that holds your shares in its name does not have discretion to vote your shares for non-routine matters, including stockholder proposals. When a broker votes a client's shares on some but not all of the proposals at the Annual Meeting, the missing votes are referred to as "broker non-votes."

Q: How can I authorize someone else to attend the meeting or vote for me?

A: Stockholders of record can authorize someone other than the individual(s) named on the proxy and/or voting instruction card to vote on their behalf by crossing out the individual(s) named on the card and inserting the name of the individual being authorized or by providing a written authorization to the individual being authorized to attend or vote.

Street name holders can contact their broker to obtain documentation with authorization to attend or vote at the meeting.

To obtain an admission ticket for an authorized proxy representative, see the requirements specified in the "Admission and Ticket Request Procedure" on page 70.

Q: How can I change or revoke my vote?

A: For stockholders of record: You may change or revoke your vote by submitting a written notice of revocation to Caterpillar Inc. c/o Corporate Secretary at 100 NE Adams Street, Peoria, Illinois 61629 or by validly submitting another vote on or before June 9, 2010 (including a vote via the Internet or by telephone). For all methods of voting, the last vote cast will supersede all previous votes.

For holders in street name: You may change or revoke your voting instructions by following the specific directions provided to you by your bank or broker.

Q: Is my vote confidential?

A: Yes. Proxy cards, ballots, Internet and telephone votes that identify stockholders are kept confidential. There are exceptions for contested proxy solicitations or when necessary to meet legal requirements. Innisfree M&A Incorporated (Innisfree), the independent proxy tabulator used by Caterpillar, counts the votes and acts as the inspector of election for the Annual Meeting.

Q: What is the quorum for the meeting?

A: A quorum of stockholders is necessary to hold a valid meeting. For Caterpillar, at least one-third of all stockholders must be present in person or by proxy at the Annual Meeting to constitute a quorum. Abstentions and broker non-votes are counted as present for establishing a quorum.

Q: What vote is necessary for action to be taken on proposals?

A: Directors are elected by a plurality vote of the shares present at the meeting, meaning that director nominees with the most affirmative votes are elected to fill the available seats. Company proposals to amend the Restated Certificate of Incorporation and Bylaws require the affirmative vote of no less than 75 percent of the outstanding shares. All other actions presented for a vote of the stockholders at the Annual Meeting require an affirmative vote of the majority of shares present or represented at the meeting and entitled to vote. Abstentions will have the effect of a vote against matters other than director elections. Broker non-votes will not have an effect on any proposals presented for your vote.

Votes submitted by mail, telephone or Internet will be voted by the individuals named on the card (or the individual properly authorized) in the manner indicated. If you do not specify how you want your shares voted, they will be voted in accordance with the Board's recommendations. If you hold shares in more than one account, you must vote each proxy and/or voting instruction card you receive to ensure that all shares you own are voted.

Q: When are stockholder proposals due for the 2011 annual meeting?

A: To be considered for inclusion in the Company's 2011 proxy statement, stockholder proposals must be received in writing no later than January 1, 2011. Stockholder proposals should be sent to Caterpillar Inc. by mail c/o Corporate Secretary at 100 NE Adams Street, Peoria, Illinois 61629. Additionally, we request that you also forward all stockholder proposals via facsimile to the following facsimile number: 309-494-1467.

Q: What does it mean if I receive more than one proxy card?

A: Whenever possible, registered shares and plan shares for multiple accounts with the same registration will be combined into the same card. Shares with different registrations cannot be combined and as a result, you may receive more than one proxy card. For example, registered shares held individually by John Smith will not be combined on the same proxy card as registered shares held jointly by John Smith and his wife.

Street shares are not combined with registered or plan shares and may result in the stockholder receiving more than one proxy card. For example, street shares held by a broker for John Smith will not be combined with registered shares for John Smith.

If you hold shares in more than one account, you must vote for each notice, proxy and/or voting instruction card or e-mail notification you receive that has a unique control number to ensure that all shares you own are voted.

If you receive more than one card for accounts that you believe could be combined because the registration is the same, contact our Transfer Agent (for registered shares) or your broker (for street shares) to request that the accounts be combined for future mailings.

Q: Who pays for the solicitation of proxies?

A: Caterpillar pays the cost of soliciting proxies on behalf of the Board. This solicitation is being made by mail, but also may be made by telephone or in person. We have hired Innisfree to assist in the solicitation. We will pay Innisfree a fee of \$15,000 for these services, and will reimburse their out-of-pocket expenses. We will reimburse brokerage firms and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for sending proxy materials to stockholders and obtaining their votes.

Q: Are there any matters to be voted on at the Annual Meeting that are not included in this proxy statement?

A: We do not know of any matters to be voted on by stockholders at the meeting other than those discussed in this proxy statement. If any other matter is properly presented at the Annual Meeting, proxy holders will vote on the matter in their discretion.

Under Caterpillar's Bylaws, a stockholder may bring a matter to vote at the Annual Meeting by giving adequate notice to Caterpillar Inc. by mail c/o Corporate Secretary at 100 NE Adams Street, Peoria, Illinois 61629. To qualify as adequate, the notice must contain the information specified in our Bylaws and be received by us not less than 45 days nor more than 90 days prior to the Annual Meeting. However, if less than 60 days' notice of the Annual Meeting date is given to stockholders, notice of a matter to be brought before the Annual Meeting may be provided to us up to the 15th day following the date the notice of the Annual Meeting was provided.

Q: Can I submit a question in advance of the Annual Meeting?

A: Stockholders wishing to submit a question for consideration in advance of the Annual Meeting may do so by sending an e-mail to the Corporate Secretary at [email protected] or by mail to Caterpillar Inc. c/o Corporate Secretary at 100 NE Adams Street, Peoria, Illinois 61629. At the Annual Meeting, the Chairman will alternate taking live questions with questions submitted in advance, if any.

PART TWO — Corporate Governance Information

Corporate Governance Guidelines

Our Board has adopted Guidelines on Corporate Governance Issues (Corporate Governance Guidelines), which are available on our Internet site at www.CAT.com/governance. The Corporate Governance Guidelines reflect the Board's commitment to oversee the effectiveness of policy and decision-making both at the Board and management level, with a view to enhancing stockholder value over the long term.

Composition of the Board

Structure

As of the date of this proxy statement, our Board consists of 15 directors and is divided into three classes for election purposes. One class is elected at each annual meeting to serve for a three-year term.

In response to prior stockholder proposals, the Board has decided to recommend Company Proposal 4 to declassify the Board. If at least 75 percent of the outstanding shares of the Company are voted in favor of Company Proposal 4 to amend our Restated Certificate of Incorporation and Bylaws to declassify the Board, each director elected at the Annual Meeting will hold office until the 2011 annual meeting. At the 2011 annual meeting, all of our currently serving directors' terms would automatically expire, and all directors would stand for election at the 2011 annual meeting and on an annual basis thereafter.

If fewer than 75 percent of the outstanding shares of the Company are voted in favor of Company Proposal 4, there will be no change to our directors' terms of office or to the class structure of the Board and directors elected at the Annual Meeting will hold office for a three-year term expiring at the 2013 annual meeting. Directors in the other two classes will continue in office for the remainder of their terms.

If a nominee is unavailable for election, proxy holders will vote for another nominee proposed by the Board or, as an alternative, the Board may reduce the number of directors to be elected at the Annual Meeting.

At its June 9, 2010 meeting, the Board is expected to elect Douglas R. Oberhelman as a director of the Company, effective on July 1, 2010. Mr. Oberhelman's election to the Board is expected to occur in connection with his appointment as Chief Executive Officer (CEO) of the Company. Mr. Oberhelman is not expected to serve on any Board committees and will be a Class II director. His business experience and recent directorships are provided with his description as a Class II director below. When Mr. Oberhelman is elected as a director, the Board will have 16 directors.

The Board has determined that, with the exception of Mr. Owens, all directors are independent as determined under NYSE listing standards and the standards described under "Director Independence Determinations" on page 10.

The Company's Corporate Governance Guidelines require a director to tender his or her resignation upon a significant change in business or personal circumstances. Accordingly, on November 10, 2009, Gail D. Fosler submitted a letter of resignation from her position as a director following her resignation as president of The Conference Board. On November 19, 2009, John R. Brazil also submitted a letter of resignation from his position as a director following his retirement as president of Trinity University. On February 10, 2010, the Board accepted Ms. Fosler's and Mr. Brazil's resignations, effective upon the expiration of their current terms as Class I directors on the date of the Company's annual meeting of stockholders in 2011.

The current composition of the Board classes is as follows:

Director Biographies and Qualifications

Class I — Directors with terms expiring in 2011

● W. FRANK BLOUNT, 71, Chairman and CEO of JI Ventures, Inc. (venture capital) and former Chairman and CEO of TTS, Inc. (private equity firm). Other current directorships: Alcatel-Lucent S.A.; Entergy Corporation; and KBR, Inc. Other directorships within the last five years: Adtran Inc. and Hanson PLC. Mr. Blount has been a director of the Company since 1995.

The Board believes that Mr. Blount's international business experience allows him to provide important insights for the Company's management and execution of its strategic plans. His experience as former Group President of AT&T, Inc. and former CEO of Telstra, Inc. of Australia and as a director for other large, publicly-traded multinational corporations enables him to provide meaningful input and guidance to the Board and the Company.

Mr. Blount will turn 72 this year and is expected to retire from the Board on or before December 31, 2010, pursuant to the mandatory director retirement age set forth in our Corporate Governance Guidelines.

● JOHN R. BRAZIL, 64, former President of Trinity University (San Antonio, Texas). Other current directorships: none. Other directorships within the last five years: none. Dr. Brazil has been a director of the Company since 1998.

The Board believes that Dr. Brazil's role as a thought leader in education and academia brings important insights and diverse viewpoints to the Board. His experience as a university president and prior service as a director of a large utility corporation and several banks also enables him to provide meaningful input and guidance to the Board and the Company.

● EUGENE V. FIFE, 69, Managing Principal of Vawter Capital LLC (private investment). Mr. Fife served as the interim CEO and President of Eclipsys Corporation (healthcare information services) from April to November of 2005 and currently serves as the non-executive Chairman. Other current directorships: Eclipsys Corporation. Other directorships within the last five years: none. Mr. Fife has been a director of the Company since 2002.

The Board believes that Mr. Fife's investment banking experience bolsters the expertise of the Board and adds important insights for the Company's growth strategy. His financial expertise and experience are important considerations for the Board. Additionally, his experiences as a chief executive officer and director of large, publicly-traded multinational corporations enables him to provide meaningful input and guidance to the Board and the Company.

● GAIL D. FOSLER, 62, Senior Advisor of The Conference Board (research and business membership). Prior to her current position, Ms. Fosler has served as President, Trustee, Executive Vice President, Senior Vice President and Chief Economist of The Conference Board. Other current directorships: Baxter International Inc. Other directorships within the last five years: DBS Group Holdings Ltd. and Unisys Corporation. Ms. Fosler has been a director of the Company since 2003.

The Board believes that Ms. Fosler's knowledge of corporate best practices and global view of economic trends, especially her knowledge of emerging markets, is important to the Company's management and strategic plans. Her insight and expertise as a leading economic forecaster and advisor provides the Board with additional insight into long-term macro-economic planning. Her financial expertise and experience as a director at other large, publicly-traded multinational corporations enables her to provide meaningful input and guidance to the Board and the Company.

● PETER A. MAGOWAN, 68, former President and Managing General Partner of the San Francisco Giants (major league baseball team). Other current directorships: none. Directorships within the last five years: DaimlerChrysler AG, Safeway Inc. and Spring Group plc. Mr. Magowan has been a director of the Company since 1993.

The Board believes that Mr. Magowan's business experience as a long-term chief executive officer of Safeway Inc., a large, publicly-traded multinational corporation, is particularly valuable to the Board. His experience in owning and managing a professional baseball organization also provides a diverse viewpoint on business matters. In addition, his experience as a director of other large, publicly-traded multinational corporations enables him to provide meaningful input and guidance to the Board and the Company.

Class II — Directors with terms expiring in 2012

● DANIEL M. DICKINSON, 48, Managing Partner of Thayer | Hidden Creek (private equity investment). Other current directorships: IESI-BFC Ltd. and Mistras Group, Inc. Other directorships within the last five years: none. Mr. Dickinson has been a director of the Company since 2006.

The Board believes that Mr. Dickinson's experience in mergers and acquisitions, private equity business and role as an investment banker provides important insight for the Company's growth strategy. His significant financial expertise and experience, both in the U.S. and internationally, contributes to the Board's understanding and ability to analyze complex issues. His experience as a director of large, publicly-traded multinational corporations enables him to provide meaningful input and guidance to the Board and the Company.

● DAVID R. GOODE, 69, former Chairman, President and CEO of Norfolk Southern Corporation (holding company engaged principally in surface transportation). Other current directorships: Delta Air Lines, Inc. and Texas Instruments Incorporated. Other directorships within the last five years: Norfolk Southern Corporation and Georgia-Pacific Corporation. Mr. Goode has been a director of the Company since 1993.

The Board believes that Mr. Goode's experience in the transportation and railroad industry provides valuable expertise to the Board. His extensive experience in a capital-intensive industry enables him to make important contributions to the Company's growth strategy. In addition, his experience as a chief executive officer and director of large, publicly-traded multinational corporations enables him to provide meaningful input and guidance to the Board and the Company.

● DOUGLAS R. OBERHELMAN (effective July 1, 2010), 57, Vice Chairman and Chief Executive Officer-Elect and Group President of Caterpillar Inc. (machinery, engines and financial products). Mr. Oberhelman has been a Group President since January 1, 2001. Prior to becoming Group President, Mr. Oberhelman served as vice president with responsibility for the Engine Products Division. Other current directorships: Ameren Corporation and Eli Lilly and Company. As previously announced, Mr. Oberhelman will not stand for re-election to the Ameren board and will step down as a director effective April 27, 2010. Other directorships within the last five years: none.

The Board believes that Mr. Oberhelman's extensive experience and knowledge of the Company is valuable to the Board. He has worked at the Company for over 30 years and is familiar with its business and strategy. His knowledge of the business and background in finance enables him to provide meaningful input and guidance to the Board and the Company.

As previously announced, Mr. Oberhelman will become CEO and a member of the Board effective July 1, 2010.

● JAMES W. OWENS, 64, Chairman and CEO of Caterpillar Inc. (machinery, engines and financial products). Prior to his current position, Mr. Owens served as Vice Chairman of Caterpillar. Other current directorships: Alcoa Inc. and International Business Machines Corporation. Other directorships within the last five years: none. Mr. Owens has been a director of the Company since 2004.

The Board believes that Mr. Owens' extensive experience and knowledge of the Company is valuable to the Board. He has worked at the Company for over 35 years and is familiar with its business and strategy. His knowledge of the business and background in economics, coupled with his experience as a director of large, publicly-traded multinational corporations enables him to provide meaningful input and guidance to the Board and the Company.

Mr. Owens previously announced that he expects to retire as Chairman of the Board effective October 31, 2010.

● CHARLES D. POWELL, 68, Chairman of Capital Generation Partners (asset and investment management), LVMH Services Limited (luxury goods) and Magna Holdings (real estate investment). Prior to his current positions, Lord Powell was Chairman of Sagitta Asset Management Limited (asset management). Other current directorships: LVMH Moët-Hennessy Louis Vuitton and Textron Corporation. Other directorships within the last five years: none. Lord Powell has been a director of the Company since 2001.

The Board believes that Lord Powell's substantial knowledge of international affairs and business expertise are important to the Board. His trade, public and governmental affairs and international experience is also valued by the Board. In addition, his role as a director of large, publicly-traded multinational corporations enables him to provide meaningful input and guidance to the Board and the Company.

● JOSHUA I. SMITH, 69, Chairman and Managing Partner of the Coaching Group, LLC (management consulting). Other current directorships: Comprehensive Care Corporation, FedEx Corporation and The Allstate Corporation. Other directorships within the last five years: CardioComm Solutions Inc. Mr. Smith has been a director of the Company since 1993.

The Board believes that Mr. Smith's experience in management consulting and business leadership provides important guidance to the Board. His experience as the Chairman of the U.S. Commission on Minority Business Development, Maryland Small Business Development Finance Authority and as a member of the board of directors of the U.S. Chamber of Commerce provides valued insights on diversity issues. In addition, his experience as the founder and chief executive officer of his own business and role as a director of other large, publicly-traded multinational corporations enables him to provide meaningful input and guidance to the Board and the Company.

Class III — Directors nominated for election at the Annual Meeting

● JOHN T. DILLON, 71, Senior Managing Director and former Vice Chairman of Evercore Partners (advisory and investment firm). Other current directorships: E. I. du Pont de Nemours and Company and Kellogg Co. Other directorships within the last five years: Vertis Inc. Mr. Dillon has been a director of the Company since 1997.

The Board believes that Mr. Dillon's prior experience as a chief executive officer of a large, publicly-traded multinational corporation, knowledge of the forest products industry and experience with trade-related issues is particularly valuable to the Board. In addition, his financial expertise and experience as a director of large, publicly-traded multinational corporations enables him to provide meaningful input and guidance to the Board and the Company.

Mr. Dillon will turn 72 this year and is expected to retire from the Board on or before December 31, 2010, pursuant to the mandatory director retirement age set forth in our Corporate Governance Guidelines.

● JUAN GALLARDO, 62, Chairman and former CEO of Grupo Embotelladoras Unidas S.A. de C.V. (bottling). Former Vice Chairman of Home Mart de Mexico, S.A. de C.V. (retail trade), former Chairman of Grupo Azucarero Mexico, S.A. de C.V. (sugar mills) and former Chairman of Mexico Fund Inc. (mutual fund). Other current directorships: Grupo Mexico, S.A. de C.V. and Lafarge SA. Other directorships within the last five years: none. Mr. Gallardo has been a director of the Company since 1998.

The Board believes that Mr. Gallardo's international business experience, particularly in Latin America and South America, are important for the Company's growth strategy. His extensive background in trade-related issues also contributes to the Board's expertise. In addition, his experience as a chief executive officer and director of large, publicly-traded multinational corporations enables him to provide meaningful input and guidance to the Board and the Company.

● WILLIAM A. OSBORN, 62, retired Chairman and CEO of Northern Trust Corporation (multibank holding company) and The Northern Trust Company (bank). Other current directorships: Abbott Laboratories and General Dynamics. Other directorships within the last five years: Nicor Inc., Tribune Company and Northern Trust Corporation. Mr. Osborn has been a director of the Company since 2000.

The Board believes that Mr. Osborn's financial expertise and experience is valuable to the Board. His experience as a chairman and chief executive officer of a large, publicly-traded multinational corporation is particularly important to the Board. In addition, his experience as a director of other large, publicly-traded corporations enables him to provide meaningful input and guidance to the Board and the Company.

● EDWARD B. RUST, JR., 59, Chairman, CEO and President of State Farm Mutual Automobile Insurance Company (insurance). He is also President and CEO of State Farm Fire and Casualty Company, State Farm Life Insurance Company and other principal State Farm affiliates as well as Trustee and President of State Farm Mutual Fund Trust and State Farm Variable Product Trust. Other current directorships: Helmerich & Payne, Inc. and The McGraw-Hill Companies, Inc. Other directorships within the last five years: none. Mr. Rust has been a director of the Company since 2003.

The Board believes that Mr. Rust's financial and business experience is valuable to the Board. His role as a chief executive officer of a major national corporation and experience as a director of large, publicly-traded multinational corporations enables him to provide meaningful input and guidance to the Board and the Company. In addition, his extensive involvement in education improvement compliments the Company's culture of social responsibility.

● SUSAN C. SCHWAB, 55, Professor, University of Maryland School of Public Policy. Prior to her current position, Ambassador Schwab held various positions including United States Trade Representative (member of the President's cabinet), Deputy United States Trade Representative and President and CEO of the University System of Maryland Foundation. Other current directorships: FedEx Corporation and The Boeing Company. Other directorships within the last five years: Adams Express Company, Calpine Corporation and Petroleum & Resources Corporation. Ambassador Schwab has been a director of the Company since 2009.

The Board believes that Ambassador Schwab brings extensive knowledge, insight and experience on international trade issues to the Board. Her educational experience and role as the U.S. Trade Representative provide important insights for the Company's global business model and long-standing support of open trade. In addition, her experience as a director of large, publicly-traded multinational corporations enables her to provide meaningful input and guidance to the Board and the Company.

Related Party Transaction Approval Process

Caterpillar's Board adopted a written process governing the approval of related party transactions for directors and certain officers in April 2007. Under the process, all related party transactions are to be approved in advance by the Governance Committee. Related parties include directors and executive officers and their immediate family members. Caterpillar's related party transaction policy includes transactions which may not require disclosure under applicable SEC rules.

Prior to entering into such a transaction, the applicable director or officer must submit the details of the proposed transaction to the Company's general counsel, including whether: (i) the aggregate amount involved will or may be expected to exceed \$120,000 in any calendar year; (ii) the Company is a party; and (iii) the related person or his or her immediate family member has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of an entity involved in the transaction). The general counsel will then evaluate, based on the facts and circumstances of the transaction, whether the related person has a direct or indirect material interest in the transaction. If so, the general counsel will submit the matter to the Governance Committee for it to consider the following:

The nature of the related person's interest in the transaction.
The material terms of the transaction, including, without limitation, the amount and type of transaction.
The importance of the transaction to the related person.
The importance of the transaction to the Company.
Whether the transaction would impair the judgment of the director or executive officer to act in the best interest of the Company.
The alternatives to entering into the transaction.
Whether the transaction is on terms comparable to those available to third parties or, in the case of employment relationships, to employees generally.
The potential for the transaction to lead to an actual or apparent conflict of interest and any safeguards imposed to prevent such actual or apparent conflicts.
The overall fairness of the transaction to the Company.

In February 2010, Susan C. Schwab requested consideration of an arrangement whereby Ms. Schwab would provide consulting services to Mayer Brown LLP (Mayer Brown) on international trade issues. The Governance Committee discussed the request, including the compensation she expected to receive from Mayer Brown, the fact that Mayer Brown provides legal services to the Company and that Ms. Schwab would not provide any services to Mayer Brown in connection with any of the Company's legal matters. After careful consideration, the Governance Committee unanimously approved the transaction under the Company's related party transaction policy.

The Governance Committee also considered a matter reported by John T. Dillon under the Company's related party transaction approval process in February 2010. Mr. Dillon is Senior Managing Director of Evercore Partners, a subsidiary of which has been appointed Independent Fiduciary and Independent Monitor in connection with a litigation settlement involving Caterpillar. After careful consideration, the Governance Committee determined that Mr. Dillon did not have a direct or indirect material interest in this transaction.

In addition, the Governance Committee considered long-term transactions and relationships between the Company and The Conference Board, for which Ms. Fosler is currently a senior advisor and was previously the president and trustee, and with LSV Asset Management, for which Mr. Owens' son is a partner. The Governance Committee concluded that Ms. Fosler and Mr. Owens' son do not have a direct or indirect material interest in the applicable relationship or transaction.

The Governance Committee also considered the following matter:

In August 2007, Caterpillar entered into an exclusive marketing agreement with Claycrete, Ltd., a Hong Kong chartered manufacturer of products designed to harden dirt roads. Under this agreement, the Company agreed to market Claycrete's products to Caterpillar's dealers in exchange for a marketing fee paid to Caterpillar based on the revenues generated by the agreement. In February 2008, Caterpillar also loaned \$1 million to Claycrete for working capital and other uses. Caterpillar expected the loan to be repaid from sales generated under the marketing agreement.

Claycrete had been initially introduced to Caterpillar by Mr. Joshua I. Smith, a member of our Board. Mr. Smith had provided a variety of consulting services to Mr. Jens Bogh, the Chief Executive Officer of Claycrete, including with respect to matters such as agreements with large companies like Caterpillar. Mr. Smith had an arrangement with Mr. Bogh whereby Mr. Smith would be paid for the business coaching provided to Mr. Bogh based upon among other things, sales by Claycrete of its products. Ultimately, no Claycrete products were sold under the marketing agreement, and no marketing fees have been paid to Caterpillar. For his services to Mr. Bogh and Claycrete, Mr. Smith was paid approximately \$37,000. Mr. Bogh is no longer the Chief Executive Officer of Claycrete, and Mr. Smith's interest in any transactions between Caterpillar and Claycrete has concluded.

The Governance Committee has reviewed the transactions involving Claycrete, Mr. Smith and Caterpillar. The Governance Committee determined that Caterpillar's related party transaction approval process was not correctly followed in this instance, but the Governance Committee did not find that Mr. Smith intentionally or willfully violated the policy. At the Board's request, Mr. Smith certified to the Board his commitment to comply with Caterpillar's policies and procedures and has undergone additional training focused on Caterpillar's corporate governance practices.

Director Independence Determinations

The Company's Corporate Governance Guidelines establish that no more than two non-independent directors shall serve on the Board at any point in time. A director is "independent" if he or she has no direct or indirect material relationship with the Company or with senior management of the Company and their respective affiliates. Annually, the Board makes an affirmative determination regarding the independence of each director based upon the recommendation of the Governance Committee. The Board makes its independence determinations on a case-by-case basis, after consideration of all relevant facts and circumstances. To assist in making its independence determinations, the Board has adopted the following standards, which conform to the applicable NYSE rules. Under these standards, a director is considered independent if he or she:

(1) Has no material relationship with the Company, either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company, and does not have any relationship that precludes independence under the NYSE director independence standards;
(2) Is not currently, or within the past three years, employed by the Company, or an immediate family member is not currently, or for the past three years, employed as an executive officer of the Company;
(3) Is not a current employee, nor is an immediate family member a current executive officer of, a company that has made payments to, or received payments from, the Company for property or services in an amount which, in any of the past three years, exceeds the greater of \$1 million or 2 percent of the consolidated gross revenues of that company;
(4) Has not received, nor has an immediate family member received, during any twelve month period within the last three years, direct remuneration in excess of \$120,000 from the Company other than director and committee fees and pension or other forms of deferred compensation for prior services;
(5) (i) is not a current partner or employee of a firm that is the Company's internal or external auditor; (ii) does not have an immediate family member who is a current partner of such a firm; (iii) does not have an immediate family member who is a current employee of such a firm and personally works on the Company's audit; or (iv) has not, nor has an immediate family member, been a partner or employee of such a firm and personally worked on the Company's audit within the last three years;
(6) Is not part of an "interlocking directorate," whereby an executive officer of the Company simultaneously served on the compensation committee of another company that employed the director as an executive officer during the last three years;
(7) Is free of any relationships with the Company that may impair, or appear to impair, his or her ability to make independent judgments; and
(8) Is not employed by a non-profit organization where a substantial portion of funding for the past three years (exceeding the greater of \$1 million or 2 percent of the organization's annual consolidated gross revenues) comes from the Company or the Caterpillar Foundation.

Applying these standards, on April 7, 2010 the Board determined that each of the following directors met the independence standards: W. Frank Blount, John R. Brazil, Daniel M. Dickinson, John T. Dillon, Eugene V. Fife, Gail D. Fosler, Juan Gallardo, David R. Goode, Peter A. Magowan, William A. Osborn, Charles D. Powell, Edward B. Rust, Jr., Susan C. Schwab and Joshua I. Smith. In making its determination, the Board considered certain Company transactions, relationships or arrangements, including the following, which the Board determined did not affect the applicable director's independence:

The Conference Board, for which Ms. Fosler was the president and a trustee in 2009 and is currently serving as a senior advisor, received payments from the Company for research, subscriptions, conferences, webcasts, etc. The Board determined that the amount of the payments made by the Company was below the greater of \$1 million or 2 percent of The Conference Board's consolidated gross revenues and that Ms. Fosler's independence was not affected by these payments.
Christopher Powell, brother of Charles D. Powell, is a member of the advisory board of PricewaterhouseCoopers in the United Kingdom; however, he is not a partner or employee of PricewaterhouseCoopers. PricewaterhouseCoopers is employed by us as our independent registered public accounting firm. The Board determined that Christopher Powell's limited role in providing advice to partners, business unit leaders and members of the PricewaterhouseCoopers United Kingdom executive board on the development of business for the firm does not affect Charles D. Powell's independence.
Various matching contributions made by the Caterpillar Foundation to non-profit organizations where directors or immediate family members are employed were also considered; however, none of the contributions were determined to have affected the independence of any of the directors.

In addition, the Board determined that, as a current employee of the Company, Mr. Owens is not independent based on the above standards.

Process for Identifying and Evaluating Potential Directors

The Governance Committee solicits and receives recommendations and reviews the qualifications of potential director candidates. After review, the Governance Committee recommends to the full Board candidates for election at the annual meeting of the Company's stockholders and candidates to fill vacancies on the Board. Potential director candidates may also be nominated by our stockholders and are similarly reviewed by the Governance Committee, which makes recommendations to the full Board. Additional information about the process for nominating directors and stockholder nominations is described in the "Governance Committee" section on page 18.

Our Chairman and CEO and Governance Committee periodically review with the Board the particular characteristics or attributes that would be most beneficial to the Company in future Board members. These characteristics, which are set forth in the Company's Corporate Governance Guidelines, include, but are not limited to: (i) integrity, honesty and accountability, with a willingness to express independent thought; (ii) successful leadership experience and stature in an individual's primary field, with a background that demonstrates an understanding of business affairs as well as the complexities of a large, publicly-held company (with particular consideration being given to candidates with experience as chief executive officers of successful capital-intensive businesses with international operations); (iii) demonstrated ability to think strategically and make decisions with a forward-looking focus, with the ability to assimilate relevant information on a broad range of complex topics; (iv) be a team player with a demonstrated willingness to ask tough questions in a constructive manner that adds to the decision-making process of the Board; (v) independence and absence of conflicts of interest; (vi) ability to devote necessary time to meet director responsibilities; and (vii) ability to commit to the Company's stock ownership guidelines.

Consistent with these criteria for potential director candidates and Caterpillar's Worldwide Code of Conduct, the Board values diversity of talents, skills, abilities and experiences and believes that the diversity that exists on the Board provides significant benefits to the Company. Although there is no specific diversity policy, the Governance Committee may also consider the diversity of its members and potential candidates in selecting new directors.

Board Leadership Structure

As set forth in the Company's Bylaws, the Chairman of our Board is also the CEO of the Company. In addition, in 2007 the independent directors of the Board unanimously elected a Presiding Director who is independent under the NYSE standards. As part of the Board's structure, all directors, other than the Chairman, are independent under the NYSE standards, and all committees of the Board are made up entirely of independent directors.

The Presiding Director's duties and responsibilities include: (i) presiding at all meetings of the Board at which the Chairman is not present; (ii) serving as a liaison between the Chairman and the independent directors; (iii) approving information sent to the Board; (iv) approving meeting agendas for the Board; (v) approving meeting schedules to assure that there is sufficient time for discussion of all agenda items; (vi) authority to call meetings of the independent directors; and (vii) if requested by major shareholders, ensuring that he is available for consultation and direct communication.

The Board has determined that the combined role of Chairman and CEO is appropriate for the Company as it promotes unified leadership and direction for the Company, allowing for a single, clear focus for management to execute the Company's strategy and business plans. This structure also avoids the added costs and inefficiencies that would result by mandating an independent Chairman. The Board believes that the governance structure and role of the Presiding Director allow the Board to effectively work with the combined role of the Chairman and CEO.

In anticipation of Mr. Owens' upcoming retirement and the leadership transition to Mr. Oberhelman, the Board has decided to allow Mr. Owens, the current Chairman and CEO, to continue to serve as Chairman of the Board until he retires on October 31, 2010. Mr. Oberhelman is expected to become the new CEO on July 1, 2010 and is expected to assume the role of Chairman of the Board on November 1, 2010. The Board considers that this approach to succession will provide stability and continuity to the Company during this period.

Board's Role in Risk Oversight

The full Board oversees enterprise risk as part of its role in reviewing and overseeing the implementation of the Company's strategic plans and objectives. The risk oversight function is administered both in full Board discussions and in individual committees that are tasked by the Board with oversight of specific risks as more fully described in the summary of each committee below.

On a regular basis, the Board and its committees receive information and reports from management on the status of the Company and the risks associated with the Company's strategy and business plans. In addition, the Audit Committee reviews the Company's risk assessment and risk management policies and procedures at least annually, including its major financial risk exposures and steps taken to monitor and control such exposures. The Chairman of the Audit Committee presents this information to the full Board for review.

The Board believes the combined role of Chairman and CEO is an effective structure for the Board to understand the risks associated with the Company's strategic plans and objectives. Additionally, maintaining an independent Board with a Presiding Director permits open discussion and assessment of the Company's ability to manage these risks.

Board Meetings and Committees

In 2009, our full Board met six times and regularly scheduled executive sessions, led by the Presiding Director, were held without management present. In addition to those meetings, directors attended meetings of individual Board committees. Overall attendance for our directors at full Board and committee meetings held in 2009 was 98.37 percent. For Board meetings only, attendance was 98.78 percent in 2009. No director attended fewer than 75 percent of the total meetings held in 2009. Company policy, posted on our Internet site, states that absent unavoidable conflict, all directors are expected to attend the Annual Meeting. All of our directors attended the Annual Meeting in June 2009.

Our Board has four standing committees — Audit, Compensation, Governance and Public Policy. Each committee's charter is available on our Internet site at www.CAT.com/governance. Following is a description of each committee of the Board. Current committee memberships are listed in the "Committee Membership" table on page 14.

The Audit Committee assists the Board in fulfilling its oversight responsibilities with respect to the integrity of Caterpillar's financial statements, Caterpillar's compliance with legal and regulatory requirements, the qualifications and independence of Caterpillar's Independent Registered Public Accounting Firm (auditors), the performance of Caterpillar's internal audit function and the auditors, the effectiveness of Caterpillar's internal controls and the implementation and effectiveness of Caterpillar's ethics and compliance program. The Audit Committee performs this function by monitoring Caterpillar's financial reporting process and internal controls and by assessing the audit efforts of the auditors and the internal auditing department. The Audit Committee has ultimate authority and responsibility to appoint, retain, compensate, evaluate and, where appropriate, replace the auditors. The Audit Committee also reviews updates on emerging accounting and auditing issues provided by the auditors and by management to assess their potential impact on Caterpillar. During 2009, the Audit Committee met 12 times and overall attendance was 95.83 percent. Daniel M. Dickinson, John T. Dillon, Gail D. Fosler and William A. Osborn, members of the Audit Committee, each meet the standards for independence set forth in the NYSE listing standards and the financial literacy standards adopted by the Board. Additionally, the Board has determined that Mr. Dickinson, Mr. Dillon and Mr. Osborn each qualify as an "audit committee financial expert" as defined under SEC rules.

The Compensation Committee assists the Board in fulfilling its responsibilities in connection with the compensation of the Company's directors, officers and employees. It performs this function by establishing and overseeing the Company's compensation programs, recommending to the Board the compensation of directors who are not officers of the Company, administering the Company's equity compensation plans, furnishing an annual Compensation Committee Report on executive compensation and approving the Compensation Discussion and Analysis section in the Company's proxy statement, in accordance with applicable SEC rules and regulations. All members of the Compensation Committee meet the standards for independence set forth in the NYSE listing standards. During 2009, the Compensation Committee met four times and overall attendance was 100 percent.

The Governance Committee assists the Board by making recommendations regarding the size and composition of the Board and the criteria to be used for the selection of candidates to serve on the Board. The Governance Committee discusses and evaluates the qualifications of directors up for re-election and recommends the slate of director candidates to be nominated for election at the Annual Meeting. Stockholders who are interested in nominating a director candidate can do so in accordance with the policy discussed in the "Governance Committee" section on page 18. In addition, the Governance Committee recommends candidates to the Board for election as officers of the Company. The Governance Committee also oversees the Corporate Governance Guidelines and leads the Board in its annual self-evaluation process and shares the results thereof with the Board for discussion and deliberation. All members of the Governance Committee meet the standards for independence set forth in the NYSE listing standards. During 2009, the Governance Committee met six times and overall attendance was 100 percent.

The Public Policy Committee assists the Board in its oversight of matters of national and international public policy affecting the Company's business, trade policy and international trade negotiations impacting the Company, major global legislative and regulatory developments both in the U.S. and internationally affecting the Company, investor, consumer and community relations issues, employee relations, implementation of policies promoting diversity within the Company, sustainable development initiatives and charitable and political contributions by the Company or by any committee or foundation affiliated with the Company. All members of the Public Policy Committee meet the standards for independence set forth in the NYSE listing standards. During 2009, the Public Policy Committee met five times and overall attendance was 100 percent.

Committee Membership
	Audit	Compensation	Governance	Public Policy
W. Frank Blount			✔
John R. Brazil		✔
Daniel M. Dickinson	✔
John T. Dillon	✔
Eugene V. Fife			✔
Gail D. Fosler	✔
Juan Gallardo				✔
David R. Goode		✔
Peter A. Magowan			✔
William A. Osborn	*✔
James W. Owens
Charles D. Powell				✔
Edward B. Rust, Jr.		✔
Susan C. Schwab				✔
Joshua I. Smith		✔
*Chairman of committee

Communication with the Board

You may communicate with any of our directors, our Board as a group, our non-management directors as a group or any Board committee as a group by sending an e-mail to a particular director, the Board or a committee at [email protected] or by mail to Caterpillar Inc. c/o Corporate Secretary at 100 NE Adams Street, Peoria, Illinois 61629. The Board has delegated to the Corporate Secretary, or his designee, responsibility for determining, in his discretion, whether the communication is appropriate for consideration by the Presiding Director, an individual director, a committee, a group or the full Board. According to the policy adopted by the Board, the Corporate Secretary is required to direct all communications regarding personal grievances, administrative matters, the conduct of the Company's ordinary business operations, billing issues, product or service related inquiries, order requests and similar issues to the appropriate individual within the Company. All other communications are to be submitted to the Board as a group, to the particular director to whom it is directed or, if appropriate, to the Presiding Director or committee the Corporate Secretary believes to be the most appropriate recipient. If a legitimate business concern is sent by e-mail or letter to the Presiding Director, a specific director, the Board or a Board committee, you will receive a written acknowledgement from the Corporate Secretary's office confirming receipt of your communication.

Code of Ethics

Caterpillar's code of ethics is called Our Values in Action (Code of Conduct). Integrity, Excellence, Teamwork and Commitment are the core values identified in the Code of Conduct and are the foundation for Caterpillar's corporate strategy. The Code of Conduct applies to all members of the Board and to management and employees worldwide. It documents the high ethical standards that Caterpillar has upheld since its formation in 1925. The Code of Conduct is available on our Internet site at www.CAT.com/code.

The Audit Committee has established a means for employees, suppliers, customers, stockholders and other interested parties to submit confidential and anonymous reports (where permitted by law) of suspected or actual violations of the Code of Conduct, our enterprise policies or applicable laws, including those related to accounting practices, internal controls or auditing matters and procedures; theft or fraud of any amount; insider trading; performance and execution of contracts; conflicts of interest; violation of securities and antitrust laws; and violations of the Foreign Corrupt Practices Act.

Any employee, stockholder or other interested party can submit a report via the following methods:

● Direct Telephone: 309-494-4393 (English only)

● Call Collect Helpline: 770-582-5275 (language translation available)

● Confidential Fax: 309-494-4818

● E-mail: [email protected]

● Internet: www.CAT.com/obp

Audit Committee Report

The Audit Committee is comprised entirely of independent directors (as defined for members of an audit committee in the NYSE listing standards) and operates under a written charter adopted by the Board, a copy of which is available on our Internet site at www.CAT.com/governance. Management is responsible for the Company's internal controls and the financial reporting process. The auditors are responsible for performing an independent audit of the Company's consolidated financial statements and internal controls over financial reporting in accordance with standards established by the Public Company Accounting Oversight Board in the United States (PCAOB) and issuing a report thereon. The Audit Committee is responsible for monitoring these processes. In this regard, the Audit Committee meets periodically with management, the internal auditors and auditors. The Audit Committee has the authority to conduct or authorize investigations into any matters within the scope of its responsibilities and the authority to retain outside counsel, experts and other advisors as it determines appropriate to assist it in conducting any investigations. The Audit Committee is responsible for selecting and, if appropriate, replacing the current auditors, PricewaterhouseCoopers LLP (PricewaterhouseCoopers).

The Audit Committee has discussed with the Company's auditors the overall scope and execution of the independent audit and has reviewed and discussed the audited financial statements with management. Management represented to the Audit Committee that the Company's consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States. Discussions about the Company's audited financial statements included the auditors' judgments about the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements. The Audit Committee also discussed with the auditors other matters required by Statement on Auditing Standards No. 61 Communication with Audit Committees, as amended by SAS No. 90 Audit Committee Communications (as adopted by the PCAOB in Rule 3200T). Management, the internal auditors and the auditors also made presentations to the Audit Committee throughout the year on specific topics of interest, including: (i) management's philosophy, asset allocation levels, risk management and oversight of the Company's benefit and pension funds; (ii) accounting for the Company's pension funding obligations; (iii) the Company's derivatives policy and usage review; (iv) the 2009 joint audit plan; (v) updates on the implementation of the internal audit plan for 2009; (vi) the Company's information technology systems and the controls in place within those systems for compliance with the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act); (vii) the applicability of new accounting releases; (viii) the Company's critical accounting policies; (ix) risk management initiatives and controls for various business units within the Company; (x) updates on the management of financial markets and liquidity risk; and (xi) the Company's compliance with the internal controls requirements under Section 404 of the Sarbanes-Oxley Act.

The auditors provided to the Audit Committee the written communications required by applicable requirements of the PCAOB regarding the independent accountant's communications with the Audit Committee concerning independence, and the Audit Committee discussed the auditors' independence with management and the auditors. The Audit Committee concluded that the auditors' independence had not been impaired.

Based on: (i) the Audit Committee's discussions with management and the auditors; (ii) the Audit Committee's review of the representations of management; and (iii) the report of the auditors to the Audit Committee, the Audit Committee recommended to the Board that the audited consolidated financial statements be included in the Company's Annual Report on Form 10-K for the year ended December 31, 2009, filed with the SEC on February 19, 2010.

By the current members of the Audit Committee consisting of:

John T. Dillon (Chairman)

Daniel M. Dickinson Gail D. Fosler William A. Osborn

Audit Fees and Approval Process

Pre-Approval Process

The Audit Committee pre-approves all audit and non-audit services to be performed by the auditors. It has policies and procedures in place to ensure that the Company and its subsidiaries are in full compliance with the requirements for pre-approval set forth in the Sarbanes-Oxley Act and the SEC rules regarding auditor independence. These policies and procedures provide a mechanism whereby management can request and secure pre-approval of audit and non-audit services in an orderly manner with minimal disruption to normal business operations. The policies and procedures are detailed as to the particular service and do not delegate the Audit Committee's responsibility to management. These policies and procedures address any service provided by the auditors and any audit or audit-related services to be provided by any other audit service provider. The pre-approval process includes an annual and interim component.

Annual Pre-Approval Process

Annually, not later than the Audit Committee meeting held in April of each year, management and the auditors jointly submit a service matrix of the types of audit and non-audit services that management may wish to have the auditors perform for the year. The service matrix categorizes the types of services by audit, audit-related, tax and all other services. Approval of a service is merely an authorization that this type of service is permitted by the Audit Committee, subject to pre-approval of specific services. Management and the auditors jointly submit an annual pre-approval limits request. The request lists individual project and aggregate pre-approval limits by service category. The request also lists known or anticipated services and associated fees. The Audit Committee approves or rejects the pre-approval limits and each of the listed services. For 2009, the pre-approval limits were as follows:

	Pre-Approval Limits (in thousands)
Type of Service	Per Project	Aggregate Limit
Audit Services	\$ 500	\$ 25,000
Audit-Related Services	\$ 500	\$ 10,000
Tax Services	\$ 500	\$ 15,000
All Other Services	\$ 500	\$ 1,000

Interim Pre-Approval Process

During the course of the year, the Audit Committee chairman has the authority to pre-approve requests for services that were not approved in the annual pre-approval process. Committee approval is not required for individual projects below the pre-approval project limits. However, all services, regardless of fee amounts, are subject to restrictions on the services allowable under the Sarbanes-Oxley Act and SEC rules regarding auditor independence. In addition, all fees are subject to on-going monitoring by the Audit Committee.

On-Going Monitoring

At each Audit Committee meeting subsequent to the Board meeting at which the service matrix and annual pre-approval limits request are approved, the chairman reports any interim pre-approvals since the last meeting. Also, at each of these meetings, management and the auditor provide the Audit Committee with an update of fees expected to be incurred for the year compared to amounts initially pre-approved.

Independent Registered Public Accounting Firm Fee Information

Fees for professional services provided by our auditors included the following (in millions):

	2009 Actual	2008 Actual
Audit Fees ¹	\$ 21.8	\$ 22.2
Audit-Related Fees ²	2.1	5.5
Tax Compliance Fees³	1.9	2.8
Tax Planning and Consulting Fees⁴	1.9	2.3
All Other Fees ⁵	0.1	0.3
TOTAL	\$ 27.8	\$ 33.1

^1"Audit Fees" principally include audit and review of financial statements (including internal control over financial reporting), statutory and subsidiary audits, SEC registration statements, comfort letters and consents.

^2"Audit-Related Fees" principally includes agreed upon procedures for securitizations, attestation services requested by management, accounting consultations, pre- or post- implementation reviews of processes or systems, financial due diligence and audits of employee benefit plan financial statements. Total fees paid directly by the benefit plans, and not by the Company, were \$0.6 in 2008 and 2009 and are not included in the amounts shown above

^3"Tax Compliance Fees" includes, among other things, statutory tax return preparation and review and advising on the impact of changes in local tax laws

^4"Tax Planning and Consulting Fees" includes, among other things, tax planning and advice and assistance with respect to transfer pricing issues.

^5 "All Other Fees" principally includes subscriptions to knowledge tools and attendance at training classes/seminars.

Governance Committee

The Governance Committee is comprised of three directors, all of whom meet the independence requirements for nominating committee members as defined in the NYSE listing standards and as determined by the Board in its business judgment. The Governance Committee operates under a written charter adopted by the Board, a copy of which is available on our Internet site at www.CAT.com/governance. As part of its mandate, the Governance Committee evaluates and makes recommendations regarding proposed candidates to serve on the Board, including recommending the slate of nominees for election at the Annual Meeting.

Director Resignation Policy

The Board has adopted a director resignation policy (Resignation Policy), which can be found in the Corporate Governance Guidelines. The Resignation Policy establishes that any director who receives more "withheld" votes than "for" votes in an uncontested election shall promptly tender his or her resignation. The independent directors of the Board will then evaluate the relevant facts and circumstances and make a decision, within 90 days after the election, on whether to accept the tendered resignation. The Board will promptly publicly disclose its decision and, if applicable, the reasons for rejecting the tendered resignation.

Process for Nominating Directors

The Governance Committee solicits and receives recommendations for potential director candidates from directors, the Chairman and Caterpillar management and may also utilize the services of a third party consultant to identify and evaluate potential nominees. The Governance Committee also considers unsolicited inquiries and nominees recommended by stockholders in accordance with the following procedures and in compliance with the Company's Bylaws.

When considering a candidate, the Governance Committee believes that certain characteristics are essential. For example, candidates must be individuals of high integrity, honesty and accountability, with a willingness to express independent thought. Candidates must also have successful leadership experience and stature in their primary fields, with a background that demonstrates an understanding of business affairs as well as the complexities of a large, publicly held company. Particular consideration will be given to candidates with experience as a chief executive officer of successful, capital-intensive businesses with international operations. In addition, candidates must have a demonstrated ability to think strategically and make decisions with a forward-looking focus and the ability to assimilate relevant information on a broad range of complex topics.

The Governance Committee also believes that certain characteristics are desirable, such as being a team player with a demonstrated willingness to ask tough questions in a constructive manner that adds to the decision-making process of the Board. At the same time, candidates should be independent, with an absence of conflicts of interests. Moreover, candidates should have the ability to devote the time necessary to meet director responsibilities and serve on no more than five public company boards in addition to the Board. Candidates must also have the ability to commit to stock ownership requirements according to the Company's Corporate Governance Guidelines.

Stockholder Nominations

In accordance with the Company's Bylaws, stockholders may nominate a director candidate to serve on the Board by providing advance written notice to Caterpillar Inc. c/o Corporate Secretary at 100 NE Adams Street, Peoria, Illinois 61629. Written notice of an intent to nominate a director candidate at an Annual Meeting must be given either by personal delivery or by United States mail, postage prepaid, to Caterpillar Inc. at the address previously provided no later than ninety (90) days in advance of such meeting. The notice must state: (i) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (ii) a representation that the nominating stockholder is a stockholder of record of the Company's stock entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iii) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (iv) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the SEC, had the nominee been nominated, or intended to be nominated, by the Board; and (v) the consent of each nominee to serve as a director of the Company if so elected. The presiding officer of the Annual Meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. You may request a copy of the Company's Bylaws by writing to the Corporate Secretary at 100 NE Adams Street, Peoria, Illinois 61629.

PART THREE — Proposals to be Voted on at the 2010 Annual Meeting

Company Proposals

PROPOSAL 1 — Election of Directors

The Board has nominated the following directors to stand for election for a three-year term expiring at the Annual Meeting in 2012. The nominees were evaluated and recommended by the Governance Committee in accordance with the process for nominating directors described on page 18.

Directors are elected by a plurality vote of the shares present or represented at the meeting and entitled to vote, meaning that director nominees with the most affirmative votes are elected to fill the available seats.

If at least 75 percent of the outstanding shares of the Company are voted in favor of Company Proposal 4 to amend our Restated Certificate of Incorporation and Bylaws to declassify the Board, each director elected at the 2010 annual meeting will hold office until the 2011 annual meeting. At the 2011 annual meeting, all of our directors' terms would automatically expire, and all directors would stand for election on an annual basis thereafter.

If at least 75 percent of the outstanding shares of the Company are not voted in favor of Company Proposal 4, there will be no change to our directors' terms of office, or to the class structure of the Board and directors elected at the Annual Meeting will hold office for a three-year term expiring at the 2013 annual meeting. Directors in the other two classes will continue in office for the remainder of their terms.

Class III — Directors nominated for election at the Annual Meeting

Mr. Dillon will turn 72 this year and is expected to retire from the Board on or before December 31, 2010, pursuant to our mandatory director retirement age set forth in our Corporate Governance Guidelines.

YOUR BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE NOMINEES PRESENTED IN PROPOSAL 1.

PROPOSAL 2 — Ratification of our Independent Registered Public Accounting Firm

The Board seeks an indication from stockholders of their approval or disapproval of the Audit Committee's appointment of PricewaterhouseCoopers as auditors for 2010.

PricewaterhouseCoopers has been our auditors since 1925. For additional information regarding the Company's relationship with PricewaterhouseCoopers, please refer to the "Audit Committee Report" on page 15 and the "Audit Fees and Approval Process" disclosure on page 16.

If the appointment of PricewaterhouseCoopers as auditors for 2010 is not approved by the stockholders, the adverse vote will be considered a direction to the Audit Committee to consider other auditors for next year. However, because of the difficulty in making any substitution of auditors so long after the beginning of the current year, the appointment for the year 2010 will stand, unless the Audit Committee finds other good reason for making a change.

Representatives of PricewaterhouseCoopers will be present at the Annual Meeting and will have the opportunity to make a statement if they desire to do so. The representatives will also be available to respond to questions at the meeting.

YOUR BOARD OF DIRECTORS AND AUDIT COMMITTEE RECOMMEND VOTING "FOR" PROPOSAL 2.

PROPOSAL 3 — Amend 2006 Long-Term Incentive Plan

The Board has adopted and recommends that you approve amendments to the Caterpillar Inc. 2006 Long-Term Incentive Plan (Plan) that would: (i) increase the number of shares authorized for issuance under the Plan; (ii) increase the limitation on the number of authorized shares that may be issued regarding restricted stock, restricted stock units and performance shares; (iii) expressly prohibit the exchange of underwater options and/or stock appreciation rights (SARs) for cash; (iv) further restrict the Plan's definition of change of control; (v) clarify that shares withheld for the payment of taxes will not be made available for additional grants; and (vi) make certain other clarifications to the provisions of the Plan document. Under the current terms of the Plan, the Company is authorized to issue a total of 37,600,000 shares, of which, approximately 7,000,000 shares remain available for future grants. We are asking that you approve an additional 20,000,000 shares for issuance under the Plan. This proposed amendment would increase the shares available for future grants under the Plan to approximately 27,000,000.

By increasing the number of shares authorized under the Plan and increasing the limitation on the number of authorized shares that may be issued regarding restricted stock, restricted stock units and performance shares, the Company believes it will have the flexibility to continue to provide equity incentives in amounts and forms determined appropriate by the Compensation Committee (Committee) over the next three to four years. The Company's average annual burn rate for 2007 through 2009, which is the total number of net shares subject to equity awards granted in a given year divided by the total number of shares of Caterpillar stock outstanding, was 1.16 percent. If stockholders approve these amendments, the total number of shares available for grants under the Plan, plus the number of shares subject to outstanding awards under all the Company's current and prior equity plans as of March 31, 2010, would be approximately 101,320,000 shares. As of the record date, the total number of shares of Caterpillar stock outstanding was approximately 628 million.

The purpose of the Plan is to further the Company's compensation philosophy, as outlined in the Compensation Discussion and Analysis. Specifically, the Plan allows the Board to provide key present and future employees and members of the Board with cash-based incentives, stock-based incentives and other equity interests in the Company, thereby giving them a stake in the growth and prosperity of the Company, aligning their interests with those of stockholders and encouraging the continuance of their services with the Company and its subsidiaries.

The Board desires to ensure the Company's continued ability to offer cash and equity based compensation to its key employees. The Board believes this type of compensation is critical to its ability to attract and retain highly qualified individuals and otherwise attain the goals described above. Recognizing the importance of the Company's broad-based equity compensation program and its effectiveness in meeting the Board's goals, the Committee and the Board approved these amendments to the Plan and hereby submit them to the Company's stockholders for approval.

Stockholder approval of these amendments is required by NYSE rules. The affirmative vote of holders of a majority of the Company's common stock present or represented at the Annual Meeting and entitled to vote is required to approve the Plan amendments. If stockholders do not approve these amendments, the Plan will remain in full force and effect through June 13, 2016, without giving effect to the proposed amendments.

The following is a summary of the principal features of the Plan, including the proposed amendments. This summary is qualified in its entirety by reference to the complete text of the amendments and restatement of the Plan with the proposed changes highlighted (attached as Appendix A). Stockholders are encouraged to read the text of the Plan in its entirety.

The amendments to the Plan will become effective upon stockholder approval.

Approval of the amendments to the Plan will also constitute re-approval, for purposes of Section 162(m) of the Internal Revenue Code (Code), of the performance goals included in the Plan (described below) that are to be used in connection with awards under the Plan that are intended to qualify as "performance-based" compensation for purposes of Section 162(m).

Administration

The Plan is administered by the Committee, or by another committee appointed by the Board. The Committee consists of at least two persons and Committee members must be "non-employee directors," as defined under Rule 16b-3 of the Securities Exchange Act of 1934, as amended, and "outside directors" within the meaning of Section 162(m) of the Code. The full Board performs the functions of the Committee for purposes of granting awards to non-employee directors.

The Committee also has full authority to interpret the Plan and to establish rules for its administration. Further, the Committee makes all other determinations that may be necessary or advisable for the administration of the Plan. The Committee has the authority to select the employees, prospective employees and directors who may participate in the Plan and to determine the size and types of awards, the number of shares subject to awards and the terms and conditions of these awards in accordance with the terms of the Plan. Subject to certain limitations, the Committee may delegate its authority under the Plan to one or more members of the Committee or one or more officers or other designees of Caterpillar.

Shares Subject to the Plan and Maximum Awards

As amended, the Plan provides that the number of shares of Caterpillar stock that may be issued will not exceed 40 million shares, subject to certain adjustments. In addition, 17.6 million shares of Caterpillar stock that were authorized for the Caterpillar Inc. 1996 Stock Option and Long-Term Incentive Plan (1996 Plan) but that have not been issued and that were not subject to outstanding grants pursuant to the 1996 Plan as of the date of adoption of the Plan were reserved and available for grant under the Plan. Thus, if the amendment is approved, the total number of shares that may be issued under the Plan will not exceed 57,600,000.

The per share closing price of Caterpillar stock on the NYSE on March 31, 2010 was \$62.85. Caterpillar will register the additional shares issuable under the Plan under the Securities Act of 1933, as amended, after it receives stockholder approval.

Of the shares authorized for issuance under the Plan, the maximum aggregate number of shares (including stock options, stock appreciation rights, restricted stock and restricted stock units and performance shares to be paid out in shares) that may be granted in any one fiscal year to a single participant is 800,000 shares. The maximum aggregate cash payout (including performance units and performance shares paid out in cash but excluding cash-settled SARs) with respect to awards granted in any one fiscal year that may be made to a single participant is \$5 million. As amended, the Plan also provides that only 35 percent of the shares authorized under the Plan may be issued in connection with awards of restricted stock, restricted stock units and performance shares. Prior to the amendment, this limitation was 20 percent of the shares authorized under the Plan.

To the extent that shares of Company stock subject to an outstanding award under the Plan are not issued by reason of expiration, forfeiture or cancellation of such award, by reason of the tendering or withholding of shares to pay all or a portion of the exercise price or by reason of being settled in cash in lieu of shares, then such shares will immediately again be available for issuance under the Plan. Shares underlying awards granted in substitution for awards previously granted by an entity acquired by Caterpillar will not be counted against the Plan limit.

Shares of Company stock issued with respect to awards may be authorized but unissued shares or treasury shares. In the event there is a change in the capital structure of the Company as a result of any stock dividend or split, recapitalization, merger, consolidation or spin-off or other corporate change affecting the shares, the number of shares of Company stock authorized for issuance, available for issuance or covered by any outstanding award and the price per share of any such award, and the various limitations described above, will be proportionately adjusted. Fractional shares will not be issued under the Plan.

The Plan limit is reduced on a one-for-one basis based upon the number of shares of Company stock for which an award is granted or denominated. An award of SARs reduces the Plan limit on a one-for-one basis based upon the number of shares of Company stock actually delivered pursuant to the SAR and any shares withheld for the payment of taxes.

Eligibility and Participation

Any director, or current or future employee (including officer) of Caterpillar or any of its subsidiaries is eligible to receive an award under the Plan, except that incentive stock options may only be granted to persons who are employed by the Company or its subsidiaries and only if the recipient does not own more than 10 percent of Caterpillar's stock. Caterpillar currently has approximately 94,000 employees and 15 directors. The selection of participants and the nature and size of the awards granted to participants is subject to the discretion of the Committee.

Awards

The Plan provides for awards of stock options to purchase shares of Company stock, stock appreciation rights, restricted stock, restricted stock units, performance shares and performance units, the general terms and conditions of which are described in more detail below.

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Stock Options. Stock options may be nonqualified stock options or incentive stock options that comply with Section 422 of the Code. Each stock option grant will be evidenced by an award document. If the award document does not specify the time the stock option will first become exercisable, the stock option will become fully vested and exercisable by the participant on the third anniversary of the grant date. Each stock option may be exercised in whole or in part, from time to time, after the grant becomes exercisable. The Plan limits the term of any stock option to ten years and prohibits repricing of stock options without stockholder approval. As amended, the Plan would also prohibit the exchange of underwater options for cash.

The exercise price per share for all shares of Caterpillar stock issued pursuant to stock options under the Plan will be determined by the Committee but may not be less than 100 percent of the fair market value of a share of Caterpillar stock on the grant date. The exercise price of a stock option may be paid in cash, by tendering previously acquired shares or through a cashless exercise procedure.

Stock Appreciation Rights (SARs). SARs entitle a participant to receive an amount equal to the excess of the fair market value of a share of Caterpillar stock on the date the SAR is exercised over the fair market value of a share of Company stock on the date the SAR is granted, multiplied by the number of shares to which the SAR is exercised. The payment may be made in shares of Caterpillar stock having a fair market value on the date of exercise equal to the amount due upon the exercise of the SAR, may be paid in cash or a combination thereof.

The Committee may grant SARs under the Plan alone or in tandem with stock options. SARs that are granted alone must be granted with a per share exercise price not less than 100 percent of the fair market value of a share of Company stock on the date of grant. The grant price of tandem SARs will equal the option price of the related stock option. The Plan limits the term of SARs to 10 years from the grant date and prohibits repricing of SARs without stockholder approval. The Plan also prohibits the exchange of underwater SARs for cash.

SARs granted alone may be exercised upon the terms and conditions the Committee, in its sole discretion, imposes upon them in the award document. SARs granted in tandem with stock options may be exercised for all or part of the shares subject to the related stock option upon the surrender of the right to exercise the equivalent portion of the related stock option. A tandem SAR may be exercised only with respect to the shares for which its related stock option is then exercisable. With respect to a tandem SAR granted in connection with an incentive stock option: (i) the tandem SAR will expire no later than the expiration of the underlying incentive stock option; (ii) the value of the payout with respect to the tandem SAR may be for no more than 100 percent of the difference between the option price of the underlying incentive stock option and the fair market value of the shares subject to the underlying incentive stock option at the time the tandem SAR is exercised; and (iii) the tandem SAR may be exercised only when the fair market value of the shares subject to the incentive stock option exceeds the option price of the incentive stock option.

Restricted Stock and Restricted Stock Units. An award of restricted stock is a share of Company stock granted to the participant that may not be sold or otherwise disposed of during a restricted period as determined by the Committee in the award document. The Committee may impose such conditions and/or restrictions on any shares of restricted stock granted pursuant to the Plan as it may deem advisable including without limitation, a requirement that shares will not be issued until the end of the applicable period of restriction (i.e., a restricted stock unit), restrictions based upon the achievement of specific performance goals (company-wide, subsidiary-wide, divisional and/or individual), time-based restrictions on vesting, which may or may not be following the attainment of the performance goals, sales restrictions under applicable stockholder agreements or similar agreements, a requirement that participants pay a stipulated purchase price for each share of restricted stock and/or restrictions under applicable federal or state securities laws.

Restriction periods must be at least three years for time-based restrictions. However, a maximum of 5 percent of the aggregate shares authorized for issuance of restricted stock, restricted stock units or performance shares may be issued as restricted stock or restricted stock units with no minimum vesting periods. If the period of restriction is not set forth in the award document, the transfer and any other restrictions will lapse (i) to the extent of one-third of the shares (rounded to the nearest whole) covered by the restricted stock award on the third anniversary of the grant date, (ii) to the extent of two-thirds of the shares (rounded to the nearest whole) covered by the restricted stock award on the fourth anniversary of the grant date, and (iii) to the extent of 100 percent of the shares covered by the restricted stock award on the fifth anniversary of the grant date.

For awards of restricted stock (but not for restricted stock units), the participant may have all rights as a holder of shares of Caterpillar stock except that the restricted shares cannot be sold, transferred, assigned, pledged or otherwise encumbered or disposed of until the end of the restriction period established by the Committee and specified in the award document, or upon earlier satisfaction of any other conditions, as specified by the Committee in its sole discretion and set forth in the award document.

Performance Shares and Performance Units. Performance shares and performance units are awards of a fixed or variable number of shares or of dollar-denominated units that are earned by achievement of performance goals established by the Committee. Amounts earned under performance shares and performance units may be paid in shares of Caterpillar stock, cash or a combination thereof.

The terms and conditions of the performance awards are determined by the Committee, and the granting, vesting and/or exercisability of performance awards are conditioned on the achievement in whole or in part of performance goals (as described below) during a performance period as selected by the Committee. At the sole discretion of the Committee, participants may be entitled to receive any dividends declared with respect to shares that have been earned in connection with grants of performance units and/or performance shares that have been earned, but not yet distributed to participants.

Performance units and/or performance shares may not be sold or transferred, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in the award document, a participant's rights under the Plan will be exercisable during the participant's lifetime only by the participant or the participant's legal representative.

Performance Goals

Section 162(m) of the Code limits publicly-held companies such as the Company to an annual deduction for federal income tax purposes of \$1 million for compensation paid to each of their "covered employees." Generally, "covered employees" are the CEO and the three other most highly compensated officers, other than the CFO, who are named in the summary compensation table of the Company's proxy statement each year. However, performance-based compensation is excluded from this limitation. The Plan is designed to permit the Committee to grant awards that qualify, to the extent possible, as performance-based for purposes of satisfying the conditions of Section 162(m).

Under the Plan, the Committee may condition the grant, vesting and/or exercisability of any award, including, but not limited to, performance shares and performance units, upon the attainment of performance targets related to one or more performance goals over a performance period selected by the Committee. The Committee may reduce any award below the maximum amount that could be paid based upon the degree to which the performance targets related to such award were attained. However, the Committee may not increase any award that is intended to satisfy the exception for "qualified performancebased compensation" set forth in Section 162(m) of the Code above the maximum amount that could be paid based on the attainment of performance targets.

For any awards that are intended to satisfy the Section 162(m) exception for "qualified performance-based compensation," the awards will be subject to one or more, or any combination, of the following performance goals which will be established by the Committee in writing and stated in terms of the attainment of specified levels of or percentage changes in any one or more of the following measurements: (i) revenue; (ii) primary or fully-diluted earnings per share; (iii) earnings before interest, taxes, depreciation, and/or amortization; (iv) pretax income; (v) cash flow from operations; (vi) total cash flow; (vii) return on equity; (viii) return on invested capital; (ix) return on assets; (x) net operating profits after taxes; (xi) economic value added; (xii) total stockholder return; (xiii) return on sales; or (xiv) any individual performance objective which is measured solely in terms of quantifiable targets related to the Company or the businesses of the Company; or any combination thereof. In addition, such performance goals may be based in whole or in part upon the performance of the Company, a subsidiary, division and/or other operational unit under one or more of such measures. Further, for any awards that are not intended to satisfy the Section 162(m) exception, the Committee may establish performance targets based on other performance goals, as it deems appropriate.

Award Forfeitures

Unless otherwise determined by the Committee, in the case of a forfeiture event, the following forfeitures will result:

The unexercised portion of any stock option, whether or not vested, and any other award not then settled (except for an award that has not been settled solely due to an elective deferral by the participant and otherwise is not forfeitable in the event of any termination of service of the participant) will be immediately forfeited and canceled upon the occurrence of the forfeiture event; and
The participant will be obligated to repay to Caterpillar, in cash, within five business days after demand is made by Caterpillar, the total amount of award gain (as defined in the Plan) realized by the participant upon each exercise of a stock option or settlement of an award (regardless of any elective deferral) that occurred on or after (i) the date that is six months before the occurrence of the forfeiture event, if the forfeiture event occurred while the participant was employed by Caterpillar or a subsidiary, or (ii) the date that is six months before the date the participant's employment by, or service as a director with Caterpillar or a subsidiary terminated, if the forfeiture event occurred after the participant ceased to be employed.

Forfeiture Events. The forfeiture of an award will be triggered upon either (i) the violation by a participant of certain nonsolicitation provisions or (ii) the participant's disclosure to any person or entity, or the participant's unauthorized use of any "confidential or proprietary information" (as defined in the Plan) at any time during the participant's employment or service as a director with Caterpillar or a subsidiary or during the one-year period following termination of such employment or service.

Waivers. The Committee may, in its sole discretion, waive in whole or in part the Company's right to forfeiture. In addition, the Committee may impose additional conditions on awards, by inclusion of appropriate provisions in the award document.

Clawback

Any Plan participant who is an officer of the Company and whose negligent, intentional or gross misconduct contributes to the Company having to restate all or a portion of its financial statements, will be required to forfeit awards granted under the Plan and repay the Company the total amounts realized by the participant upon the exercise of an option or settlement of an award.

Change of Control

If any participant's (i.e., an officer employee's, a non-officer employee's or director's) employment or service with the Company and/or any subsidiary terminates either without cause or for good reason within the 12 month period following a change of control (as defined in the Plan), unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governmental agencies or national securities exchanges:

All stock options and SARs granted will become immediately exercisable, and shall remain exercisable throughout their entire term;
Any period of restriction and other restrictions imposed on restricted stock will lapse;
All restricted stock units will become fully vested; and
Unless otherwise specified in an award document, the maximum payout opportunities attainable under all outstanding awards of performance units and performance shares will be deemed to have been fully earned for the entire performance period(s) as of the effective date of the change of control. The vesting of all such awards will be accelerated as of the effective date of the change of control, and in full settlement of such awards, there shall be paid out in cash to participants within 30 days following the effective date of the change of control the maximum of payout opportunities associated with such outstanding awards.

Other Provisions

The Committee may provide that the receipt of payment of cash or the delivery of shares that would otherwise be due to a participant under an award may be deferred at the election of the participant pursuant to an applicable deferral plan established by the Company or a subsidiary.

The Committee may make awards on terms and conditions other than those described above or in the Plan to comply with the laws and regulations of any foreign jurisdiction or to make the award effective under such laws or regulations.

The Committee may, at its discretion, accelerate the vesting of options, SARs, restricted stock and restricted stock units, performance units and performance shares at any time. The Committee may also, at its discretion, extend the period during which an option or SAR is exercisable following a participant's termination of employment or services.

No award will be construed as giving any participant a right to receive future awards or to continued employment or service with the Company.

U.S. Federal Income Tax Consequences

Incentive Stock Options. The grant of an incentive stock option will not be a taxable event for the participant or for the Company. A participant will not recognize taxable income upon exercise of an incentive stock option (except that the alternative minimum tax may apply), and any gain realized upon a disposition of Caterpillar stock received pursuant to the exercise of an incentive stock option will be taxed as long-term capital gain if the participant holds the shares of Company stock for at least two years after the date of grant and for one year after the date of exercise (holding period requirement). The Company will not be entitled to any income tax deduction with respect to the exercise of an incentive stock option, except as discussed below.

For the exercise of an incentive stock option to qualify for the foregoing tax treatment, the participant generally must be an employee of the Company or an employee of a Company subsidiary from the date the option is granted through a date within three months before the date of exercise of the option. If all of the foregoing requirements are met except the holding period requirement mentioned above, the participant will recognize ordinary income upon the disposition of the Company stock in an amount generally equal to the excess of the fair market value of the Company stock at the time the option was exercised over the option exercise price (but not in excess of the gain realized on the sale). The balance of the realized gain, if any, will be capital gain. The Company will be allowed an income tax deduction to the extent the participant recognizes ordinary income, subject to the Company's compliance with Section 162(m) of the Code and to certain reporting requirements.

Nonqualified Stock Options. The grant of a nonqualified stock option will not be a taxable event for the participant or the Company. Upon exercising a nonqualified stock option, a participant will recognize ordinary income in an amount equal to the difference between the exercise price and the fair market value of the Company stock on the date of exercise. Upon a subsequent sale or exchange of shares acquired pursuant to the exercise of a nonqualified stock option, the participant will have taxable capital gain or loss, measured by the difference between the amount realized on the disposition and the tax basis of the shares of Company stock (generally, the amount paid for the shares plus the amount treated as ordinary income at the time the option was exercised). If the Company complies with applicable reporting requirements and with the restrictions of Section 162(m) of the Code, the Company generally will be entitled to an income tax deduction in the same amount and generally at the same time as the participant recognizes ordinary income.

Restricted Stock and Restricted Stock Units. A participant who is awarded restricted stock will not recognize any taxable income for federal income tax purposes in the year of the award, provided that the shares of Company stock are subject to restrictions (that is, the restricted stock is nontransferable and subject to a substantial risk of forfeiture). However, if shares are issued at the time of grant, the participant may elect under Section 83(b) of the Code to recognize compensation income in the year of the award in an amount equal to the fair market value of the Company stock on the date of the award (less the purchase price, if any), determined without regard to the restrictions. If the participant does not make such a Section 83(b) election, the fair market value of the Company stock on the date the restrictions lapse (less the purchase price, if any) will be treated as compensation income to the participant and will be taxable in the year the restrictions lapse and dividends paid while the Caterpillar stock is subject to restrictions will be treated as compensation income and may be subject to withholding taxes. If, on the other hand, shares are not issued until after the restriction period ends (i.e., restricted stock units), the participant is not eligible to make an election under Section 83(b) of the Code. If the Company complies with applicable reporting requirements and with the restrictions of Section 162(m) of the Code, the Company generally will be entitled to an income tax deduction in the same amount and generally at the same time as the participant recognizes ordinary income.

Generally, there are no immediate tax consequences of receiving an award of restricted stock units under the Plan, provided the restricted stock units are subject to a substantial risk of forfeiture. Upon vesting of the restricted stock units, a participant will recognize ordinary income in an amount equal to the value of the fair market value of Company stock on the date shares are issued. If the Company complies with applicable reporting requirements and, if applicable, with the restrictions of Section 162(m) of the Code, the Company generally will be entitled to an income tax deduction in the same amount and generally at the same time as the participant recognizes ordinary income.

Stock-Settled Stock Appreciation Rights. There are no immediate tax consequences of receiving an award of stock-settled SARs under the Plan. Upon exercising a stock appreciation right, a participant will recognize ordinary income in an amount equal to the difference between the exercise price and the fair market value of the Company stock on the date of exercise. If the Company complies with applicable reporting requirements and, if applicable, with the restrictions of Section 162(m) of the Code, the Company generally will be entitled to an income tax deduction in the same amount and generally at the same time as the participant recognizes ordinary income.

Performance Awards. The award of a performance award will have no federal income tax consequences for the Company or for the participant. The payment of the award is taxable to a participant as ordinary income. If the Company complies with applicable reporting requirements and, if applicable, with the restrictions of Section 162(m) of the Code, the Company generally will be entitled to an income tax deduction in the same amount and generally at the same time as the participant recognizes ordinary income.

YOUR BOARD OF DIRECTORS AND COMPENSATION COMMITTEE RECOMMEND VOTING "FOR" PROPOSAL 3.

Required information relating to securities authorized for issuance under equity compensation plans is included in the following table:

Equity Compensation Plan Information (as of December 31, 2009)
	(a)	(b)	(c)
Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights1	Weighted average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders	68,021,668	\$44.2440	16,229,601
Equity compensation plans not approved by security holders	N/A	N/A	N/A
Total	68,021,668	\$44.2440	16,229,601
1 Excludes any cash payments in-lieu-of stock.

PROPOSAL 4 — Amend Restated Certificate of Incorporation and Bylaws to Provide for Annual Election of Directors

The Board proposes the annual election of directors.

The Company's Restated Certificate of Incorporation (Certificate of Incorporation) and Bylaws currently provide that the Board is to be divided into three classes of directors, with each class elected every three years. On the recommendation of the Governance Committee, your Board has approved amendments to the Company's Certificate of Incorporation and Bylaws to provide for the annual election of directors. Stockholder proposals seeking to implement the annual election of directors were brought before stockholders in 2008 and 2009, and received the vote of more than 69 percent and 65 percent, respectively, of the votes cast at each annual meeting of stockholders.

Each director will stand for re-election annually beginning at the 2011 annual meeting.

If approved, this proposal would become effective upon the filing of an amended and restated Certificate of Incorporation containing the proposed amendments with the Secretary of State of Delaware, which the Company intends to do promptly after the required stockholder approval is obtained. Upon filing, each director elected at the 2010 Annual Meeting would hold office until the 2011 annual meeting. At the 2011 annual meeting, all of our current directors' terms would expire, and all directors would stand for election at the 2011 annual meeting and on an annual basis thereafter. For example, directors elected in 2009 would serve until 2011 and stand for election annually thereafter rather than for their originally elected three-year term expiring in 2012. At all times, directors will serve until their successors have been elected and qualified. This proposal would not change the present number of directors, and it would not change the Board's authority to change that number and to fill any vacancies or newly created directorships.

Subsections (b), (c), (d) and (f) of the SIXTH provision of the Certificate of Incorporation and subsections (b), (c) and (f) of Section 1, Election of Directors, of Article III of the Bylaws contain the provisions that will be affected if this proposal is adopted.

Vote Required

The affirmative vote of no less than 75 percent of the outstanding shares is needed to adopt these amendments.

Background of Proposal

This proposal is a result of the Board's ongoing review of corporate governance matters. The Board, assisted by the Governance Committee, considered the benefits and disadvantages of maintaining the classified board structure. The Board considered the view of some stockholders who believe that classified boards (i) encourage management entrenchment and self-dealing, (ii) have the effect of reducing the accountability of directors to stockholders because stockholders are unable to elect all directors on an annual basis and (iii) discourage possible bids to purchase the Company because classified boards prevent a hostile bidder from removing all directors at a single meeting.

The Board also considered the benefits of retaining the classified board structure, which has a long history in corporate law. Proponents of a classified structure believe it (i) provides continuity and stability in the management of the business and affairs of a company, (ii) enhances long-term planning and (iii) helps attract and retain director candidates. Proponents also assert that classified boards may enhance stockholder value by forcing an entity seeking control of a target company to initiate arms-length discussions with the board of that company. While the Board recognizes those potential benefits, it also recognizes that even without a classified board, the Company has other means that may allow it to compel a takeover bidder to negotiate with the Board, including certain provisions in its Certificate of Incorporation and Bylaws.

On the recommendation of the Governance Committee and after due deliberation based on the facts and data presented, your Board, subject to the approval of no less than 75 percent of the outstanding shares of the Company, approved the proposed amendments to the Certificate of Incorporation and Bylaws, and now recommends that you approve them.

The proposed amendments to the Certificate of Incorporation and Bylaws to declassify the Board are described in more detail below. Appendix B to this proxy statement sets out the Certificate of Incorporation and Appendix C to this proxy statement sets out the Bylaws, each including these proposed amendments.

Certificate of Incorporation

● SIXTH:

(b) The Board of Directors shall be and is divided into three classes: Class I, Class II and Class III, which shall be as nearly equal in number as possible. Each director shall serve At each annual meeting of stockholders, directors shall be elected for a term of office to expire at the next annual meeting of stockholders, with each director to ending on the date of the third annual meeting of stockholders following the annual meeting at which the director was elected, provided, however, that each initial director in Class I shall hold office until the annual meeting of stockholders in 1987; each initial director in Class II shall hold office until the annual meeting of stockholders in 1988; and each initial director in Class III shall hold office until the annual meeting of stockholders in 1989. Notwithstanding the foregoing provisions of this Article, each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal.
(c) In the event of any increase or decrease in the authorized number of directors, the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the Board of Directors among the three classes of directors so as to maintain such classes as nearly equal as possible. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
(d) Newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office (and not by stockholders), even though less than a quorum of the Board of Directors. Any director elected in accordance with the pre ceding sentence shall hold office until the next annual meeting of stockholders for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified.
(f) Notwithstanding the foregoing, whenever the holders of any one or more classes or series of stock issued by this corporation having a preference over the common stock as to dividends or upon liquidation, shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies, terms of removal and other features of such directorships shall be governed by the terms of Article FOURTH and the resolution or resolutions establishing such class or series adopted pursuant thereto and such directors so elected shall not be divided into classes pursuant to this Article SIXTH unless expressly provided by such terms.
Article III Section 1. Election of Directors:
(b) Election and Terms of Directors. Each director shall serve for a term of office to expire at the next annual meeting of stockholders, with each director to Classes of Directors. The board of directors shall be and is divided into three classes: Class I, Class II and Class III, which shall be as nearly equal in number as possible. Each director shall serve for a term ending on the date of the third annual meeting of stockholders following the annual meeting at which the director was elected; provided, however, that each initial director in Class I shall hold office until the annual meeting of stockholders in 1987; each initial director in Class II shall hold office until the annual meeting of stockholders in 1988; and each initial director in Class III shall hold office until the annual meeting of stockholders in 1989. Notwithstanding the foregoing provisions of this subsection (b), each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal.
(c) Newly Created Directorships and Vacancies. In the event of any increase or decrease in the authorized number of directors, the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the board of directors among the three classes of directors so as to maintain such classes as nearly equal in number as possible. No decrease in the number of directors constituting the board of directors shall shorten the term of any incumbent director. Newly created directorships resulting from any increase in the number of directors and any vacancies on the board of directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office (and not by stockholders), even though less than a quorum of the board of directors. Any director elected in accordance with the preceding sentence shall hold office until the next annual meeting of stockholders for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified.
(f) Preferred Stock Provisions. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of stock issued by this corporation having a preference over the common stock as to dividends or upon liquidation, shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies, nominations, terms of removal and other features of such directorships shall be governed by the terms of Article FOURTH of the certificate of incorporation and the resolution or resolutions establishing such class or series adopted pursuant thereto and such directors so elected shall not be divided into classes pursuant to Article SIXTH of the certificate of incorporation unless expressly provided by such terms.

FOR THESE REASONS, YOUR BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" PROPOSAL 4.

PROPOSAL 5 — Amend Restated Certificate of Incorporation and Bylaws to Eliminate Supermajority Voting Requirements

The Board proposes replacing supermajority voting requirements with a simple majority of outstanding shares requirement.

We are proposing amendments to our Certificate of Incorporation and Bylaws that would remove any requirements for a supermajority vote of at least 75 percent of the outstanding stock of the Company.

The Company's Certificate of Incorporation and Bylaws currently require a supermajority vote of at least 75 percent of the outstanding shares of the Company to alter, amend or repeal provisions relating to (i) procedures and processes for the election and removal of directors, (ii) special meetings and shareholder actions by written consent and (iii) policies and procedures relating to the annual meeting. This proposed amendment would reduce the required stockholder approval for these actions to a simple majority of outstanding shares.

Vote Required

The affirmative vote of no less than 75 percent of the outstanding shares is needed to adopt these amendments.

Background of Proposal

Supermajority voting provisions are intended to provide protection against self-interested action by large stockholders and to encourage a person seeking control of a company to negotiate with its board to reach terms that are fair and provide the best results for all stockholders. However, as corporate governance standards have evolved, many investors and commentators now view these provisions as limiting a board's accountability to stockholders and the ability of stockholders to effectively participate in corporate governance.

The proposed amendments to the Certificate of Incorporation and Bylaws to eliminate these supermajority provisions are described in more detail below. Appendix B to this proxy statement sets out the Certificate of Incorporation and Appendix C to this proxy statement sets out the Bylaws, each including these proposed amendments.

Certificate of Incorporation

Article Fifth Currently requires a supermajority vote to amend certain provisions in the Bylaws relating to policies and procedures relating to the annual meeting (Article II, Section 1(b)(ii)), special meetings (Article II, Section 1(c)), stockholder action by consent (Article II, Section 3(e)) and election of directors (Article III, Section 1):
"FIFTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors shall have power to make, alter, amend and repeal the bylaws (except so far as the bylaws adopted by the stockholders shall otherwise provide). Any bylaws made by the Board of Directors under the powers conferred hereby may be altered, amended or repealed by the Board of Directors or by the stockholders. Notwithstanding the foregoing and anything contained in this Certificate of Incorporation to the contrary, Sections 1(b)(ii), 1(c) and 3(e)(f)¹ of Article II, and Section 1 of Article III of the bylaws shall not be altered, amended or repealed, and no provisions inconsistent therewith shall be adopted, without the affirmative vote of the holders of not less than a majority seventy-five percent (75%) of the outstanding stock of the corporation entitled to vote generally in the election of directors, voting together as a single class (it being understood that for the purposes of this Article FIFTH, each share shall have one vote except as otherwise provided in accordance with Article FOURTH)."
Article Sixth, subsection (e) Currently requires a supermajority vote to remove a director without cause:
"(e) Any director may be removed from office without cause but only by the affirmative vote of the holders of not less than a majority seventy-five percent (75%) of the outstanding stock of the corporation entitled to vote generally in the election of directors, voting together as a single class (it being understood that for the purpose of this Article SIXTH, each share shall have one vote except as otherwise provided in accordance with Article FOURTH)."
Article Eighth Currently requires a supermajority vote to amend Articles Fifth, Sixth, Seventh and Eighth:
"EIGHTH: The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute and this Certificate of Incorporation, and all rights conferred on stockholders herein are granted subject to this reservation. Notwithstanding the foregoing, the affirmative vote of not less than a majority seventy-five percent (75%) of the total voting power of all outstanding shares of stock in this corporation entitled to vote generally in the election of directors voting together as a single class (it being understood that for the purposes of this Article EIGHTH, each share shall have one vote except as otherwise provided in accordance with Article FOURTH) shall be required to alter, amend or repeal, or adopt any provisions inconsistent with the provisions set forth in Articles FIFTH, SIXTH, SEVENTH, and this Article EIGHTH."

Bylaws

Article III, Section 1(e): Requires a supermajority vote to remove a director without cause.
"(e) Removal. Any director may be removed from office without cause but only by the affirmative vote of the holders of not less than a majority seventy-five percent (75%) of the outstanding stock of the corporation entitled to vote generally in the election of directors, voting together as a single class."

FOR THESE REASONS, YOUR BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" PROPOSAL 5.

See footnote 1 in Appendix B.

Stockholder Proposals

PROPOSAL 6 — Independent Chairman of the Board

Pursuant to Rule 14a-8(l)(1) of the Securities Exchange Act of 1934, the Company will provide the name, address and number of Company securities held by the proponent of this stockholder proposal promptly upon receipt of a written or oral request.

This proposal requires an affirmative vote of the majority of shares present or represented at the Annual Meeting and entitled to vote to pass.

Supporting Statement of Proponent

I believe:

The role of the CEO and management is to run the company.
The role of the Board of Directors is to provide independent oversight of the CEO and management.

I believe that the Chair of the Board of Directors should not be the CEO but should be a director independent of management.

As Intel co-founder and former chairman Andrew Grove put it, "The separation of the two jobs goes to the heart of the conception of a corporation. Is a company a sandbox for the CEO, or is the CEO an employee? If he's an employee, he needs a boss, and that boss is the board. The chairman runs the board. How can the CEO be his own boss?"

In 2009, Yale University's Millstein Center for Corporate Governance and Performance published a Policy Briefing paper "Chairing the Board," arguing the case for a separate, independent Board Chair. The report states that chairing and overseeing the Board is a time intensive responsibility and that a separate Chair leaves the CEO free to manage the company and build effective business strategies.

A nonexecutive Chair is the prevailing practice in the United Kingdom and many other countries. More and more U.S. companies are separating the Chair and the CEO as a matter of good corporate governance. Nearly 40% of the S&P 500 companies have boards not chaired by their CEO.

I believe many U.S. companies hold back in making this transition to an independent Chair out of concern that such a move might be viewed as the demotion of the incumbent Chair/CEO, suggesting perhaps a loss of confidence in him or her. In apparent reflection of this, shareholder resolutions have been proposed in a number of companies requesting that the Board adopt a policy of an independent Chair and implementing that policy when the next CEO is chosen.

In October 2009, Caterpillar announced that Douglas Oberhelman would succeed James Owens as CEO. I am delighted that Caterpillar has been able to achieve CEO succession of promoting from within someone whom the board knows well and who has a 35-year successful career at Caterpillar. I have every confidence in Mr. Oberhelman's ability to run the company.

However, I feel now is the time that Caterpillar should transition to an independent Chair. I believe that, as a matter of good corporate governance, Mr. Oberhelman should not chair the Board, but the Board should elect a director independent of management as chair to lead it in its role of providing independent oversight of the new CEO and his management team.

Resolution Proposed by Stockholder

Resolved: The shareholders request the Board of Directors to adopt as policy that, whenever possible, the Chair of the Board of Directors not be the Chief Executive Officer or anyone reporting, directly or indirectly, to the chief executive officer.

Caterpillar Response to PROPOSAL 6 — Independent Chairman of the Board

Statement in Opposition to Proposal

After careful consideration, the Board recommends voting AGAINST this proposal for the reasons provided below.

The combined role of Chairman and CEO promotes unified leadership and a clear focus for management as it executes our strategy and business plans.

The Board believes the combined role of Chairman and CEO promotes unified leadership and direction for the Company, which allows for a single, clear focus for management to execute our strategy and business plans. The Board has adopted Guidelines on Corporate Governance Issues (available at www.CAT.com/governance), consistent with our Bylaws, which state that the role of the Chairman of the Board is to be filled by the Company's CEO. This leadership structure has fostered the continued success of the Company, which has paid a cash dividend every year since its formation in 1925. Over the past five years, our annual total cumulative stockholder return has consistently outperformed the S&P 500 Index. Even in 2009, in the most challenging economic environment since the Great Depression, we remained profitable, improved our balance sheet and maintained our dividend rate and our "mid-A" credit ratings. The Board believes that these results are, in part, the product of the unified and focused leadership of our Chairman and CEO. The combined structure also avoids the added costs and inefficiencies that would result by mandating an independent Chairman.

You have repeatedly rejected similar proposals in the past.

Our stockholders rejected similar stockholder proposals in 2006, 2007 and 2009. The proposal suggests that the Board cannot provide effective independent oversight of the Company and its management team because an independent director does not hold the office of Chairman. The Board believes that this assertion is without merit and the majority of our stock holders have indicated that they agree. Indeed, the majority of S&P 500 companies currently combine the positions of Chairman of the Board and CEO.

The proposal suggests that the succession of a new Chairman in 2010 is an opportunity to transition to an independent Chairman of the Board. Rather than introduce uncertainty and doubt regarding roles and responsibilities during the succession, as suggested by the proposal, the Board has determined to amend the Company's Bylaws to allow the current Chairman and CEO to continue to serve as Chairman of the Board during a transition period of no more than six months, following which time the new CEO will assume the role of Chairman. The Board considers that this approach to succession will provide stability and continuity as we execute on our strategy and business plans.

The Board has already adopted measures, including establishing the role of an independent Presiding Director, to assure its ability to provide independent oversight of management.

The Board agrees with the proponent that its role, among others, is to provide independent oversight of the CEO and management and has adopted various policies to ensure its independence. Each of the directors, with the exception of the Chairman, has been determined to be independent as defined under NYSE regulations, and all committees of the Board are made up entirely of independent directors. The Board and Governance Committee have consistently selected strong, accomplished individuals as directors, many of whom are currently or recently have been leaders of major companies or institutions, and all of whom are independent thinkers and have a wide range of relevant expertise and skills.

In addition, in 2007 the independent directors unanimously elected, from the ranks of the independent directors, the Chairman of the Governance Committee as the Board's Presiding Director. The Presiding Director's duties and responsibilities include: (i) presiding at all meetings of the Board at which the Chairman is not present; (ii) serving as a liaison between the Chairman and the independent directors; (iii) approving information sent to the Board; (iv) approving meeting agendas for the Board; (v) approving meeting schedules to assure that there is sufficient time for discussion of all agenda items; (vi) authority to call meetings of the independent directors; and (vii) if requested by major shareholders, ensuring that he is available for consultation and direct communication. Based on these duties and responsibilities, the Board believes that the Presiding Director provides an effective "counter-balance" to the combined role of CEO and Chairman.

The Board regularly meets in executive session without management. The Presiding Director chairs these meetings and provides the Board's guidance and feedback to the Chairman and the Company's management team. The Board has complete access to the Company's management team. On a regular basis, the Board and its committees receive information and reports from management on the status of the Company and the risks associated with the Company's strategy and business plans.

Given the strong leadership of the Company's Chairman and CEO, the counter-balancing role of the Presiding Director and a Board comprised of strong and independent directors, the Board continues to believe it is in the best long-term interests of the Company and its stockholders to maintain the combined role of Chairman and CEO.

FOR THESE REASONS, YOUR BOARD OF DIRECTORS RECOMMENDS VOTING "AGAINST" PROPOSAL 6.

PROPOSAL 7 — Review of Global Corporate Standards

Pursuant to Rule 14a-8(l)(1) of the Securities Exchange Act of 1934, the Company will provide the name, address and number of Company securities held by the proponents of this stockholder proposal promptly upon receipt of a written or oral request.

This proposal requires an affirmative vote of the majority of shares present or represented at the Annual Meeting and entitled to vote to pass.

Supporting Statement of Proponents

Caterpillar's current policy, the Worldwide Code of Conduct, contains no references to existing international human rights codes except for a corporate policy of non-discrimination, and aspirational goals to maintain employee health and safety. It also does not apply to company dealers whose activities can carry extensive reputational risks for Caterpillar. We believe company policies should reflect more robust, comprehensive understanding of human rights.

We recommend the review include policies designed to protect human rights-civil, political, social, environmental, cultural and economic-based on internationally recognized human rights standards: i.e.; the Universal Declaration of Human Rights, the Fourth Geneva Convention, the International Covenant on Civil and Political Rights, core labor standards of the International Labor Organization, the International Covenant on Economic, Cultural and Social Rights, and United Nations resolutions and reports of UN special rapporteurs on countries where Caterpillar does business.

This review and report will assure shareholders that Caterpillar policies and practices reflect or conform to human rights conventions and guidelines and international law. While we are not recommending specific provisions of the above-named international conventions, we believe significant commercial advantages may accrue to our company by adopting a comprehensive human rights policy based on the UN Human Rights Norms serving to enhance corporate reputation, improve employee recruitment and retention, improve community and stakeholder relations and reduce risk of adverse publicity, consumer boycotts, divestment campaigns and lawsuits.

Resolution Proposed by Stockholders

Whereas, Caterpillar, a global corporation, faces increasingly complex problems as the international social and cultural context within which Caterpillar operates changes.

Companies are faced with ethical and legal challenges arising from diverse cultures and political and economic contexts. Today, management must address issues that include human rights, workers' right to organize, non-discrimination in the workplace, protection of environment and sustainable community development. Caterpillar itself does business in countries with human rights challenges including China, Colombia, Myanmar/Burma, Syria and Israel and the occupied Palestinian territories.

We believe global companies must implement comprehensive codes of conduct, such as those found in "Principles for Global Corporate Responsibility: Bench Marks for Measuring Business Performance," developed by an international group of religious investors. (April, 2003, www.ben-marks.org) Companies must formulate policies to reduce risk to reputation in the global marketplace. To address this situation, some companies, such as Hewlett-Packard and Coca-Cola, are even extending policies to include franchisees, licensees and agents that market, distribute or sell their products.

In August 2003, the United Nations Sub-Commission on the Promotion and Protection of Human Rights took historic action by adopting "Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights."(www1.umn.edu/humanrts/links/NormsApril2003.html)

RESOLVED, the shareholders request the Board of Directors to review and amend, where applicable, Caterpillar's policies related to human rights that guide international and U.S. operations, extending policies to include franchisees, licensees and agents that market, distribute or sell its products, to conform more fully with international human rights and humanitarian standards, and that a summary of this review be posted on Caterpillar's website by October 2010.

Caterpillar Response to PROPOSAL 7 — Review of Global Corporate Standards

Statement in Opposition to Proposal

After careful consideration, the Board recommends voting AGAINST this proposal for the reasons provided below.

Our Worldwide Code of Conduct (Code of Conduct) defines what we stand for and believe in, documenting the uncompromisingly high ethical standards our Company has upheld since its founding in 1925.

Our Code of Conduct, first published in 1974, is readily available on the Company's website at www.CAT.com/code and, as illustrated in the following excerpts, already embodies many of the principles contained in the proponents' proposal.

We Treat People Fairly and Prohibit Discrimination

We build and maintain a productive, motivated work force by treating all employees fairly and equitably. We respect and recognize the contributions of employees.
We will select and place employees on the basis of their qualifications for the work to be performed, considering accommodations as appropriate and needed — without regard to their race, religion, national origin, color, gender, sexual orientation, age, and/or physical or mental disability.
We support and obey laws that prohibit discrimination everywhere we do business.

We Select, Place and Evaluate Employees Based on their Qualifications and Performance

● Caterpillar selects employees, and places them in positions, based on their personal qualifications and skills for the job. We evaluate and reward employees based on the quality of the work they do and the contributions they make to Caterpillar.

We Foster an Inclusive Environment

● We understand and accept the uniqueness, and are non-judgmental regarding differences, of individuals. We value the diversity of unique talents, skills, abilities, and experiences that enable Caterpillar people to achieve superior business and personal results.

We Conduct Business Worldwide With Consistent Global Standards

● As a global company, we understand that there are many differing economic and political philosophies and forms of government throughout the world. We acknowledge the wide diversity that exists among the social customs and cultural traditions in the countries in which we operate. We respect such differences, and to the extent that we can do so in keeping with the principles of our Code of Conduct, we will maintain the flexibility to adapt our business practices to them.

We Protect the Health and Safety of Others and Ourselves

● As a company, we strive to contribute toward a global environment in which all people can work safely and live healthy, productive lives, now and in the future. We actively promote the health and safety of employees with policies and practical programs that help individuals safeguard themselves and their co-workers.

We Support Environmental Responsibility Through Sustainable Development

● Our products and services are intended to support sustainable development of global resources and they will meet or exceed applicable regulations and standards wherever they are initially sold. We establish and adhere to environmentally sound policies and practices in product design, engineering, and manufacturing. We educate and encourage our customers to use the products they purchase from us in environmentally responsible ways. We take effective steps to continually increase the natural resources efficiency and cleanliness of our facilities. We offer leadership and financial support to industry and community initiatives that share our commitment to the environment.

We Refuse to Make Improper Payments

● In dealing with public officials, other corporations, and private citizens, we firmly adhere to ethical business practices. We will not seek to influence others, either directly or indirectly, by paying bribes or kickbacks, or by any other measure that is unethical or that will tarnish our reputation for honesty and integrity. Even the appearance of such conduct must be avoided.

Living By the Code

● While we conduct our business within the framework of applicable laws and regulations, for us, mere compliance with the law is not enough. We strive for more than that. Through our Code of Conduct, we envision a work environment all can take pride in, a company others respect and admire, and a world made better by our actions.

We View Our Suppliers As Our Business Allies

● We look for suppliers and business allies who demonstrate strong values and ethical principles and who support our commitment to quality. We avoid those who violate the law or fail to comply with the sound business practices we promote.

At Caterpillar, we are dedicated to promoting a healthy, productive and rewarding work environment for our employees worldwide.

Our Code of Conduct reflects our dedication to these issues. Your Board believes that the Code of Conduct effectively articulates our long-standing support for, and continued commitment to, human rights and does not believe that implementation of this proposal is necessary or desirable as the concerns raised by the proponent are already being addressed in a meaningful way. As these issues are already provided for in our Code of Conduct, the Board further believes that this proposal would add unnecessary cost to the Company and divert management's attention from the current processes in place to address these issues.

FOR THESE REASONS, YOUR BOARD OF DIRECTORS RECOMMENDS VOTING "AGAINST" PROPOSAL 7.

PROPOSAL 8 — Special Stockholder Meetings

This proposal requires an affirmative vote of the majority of shares present or represented at the Annual Meeting and entitled to vote to pass.

Supporting Statement of Proponent

A special meeting allows shareowners to vote on important matters, such as electing new directors, that can arise between annual meetings. If shareowners cannot call a special meeting investor returns may suffer. Shareowners should have the ability to call a special meeting when a matter merits prompt attention. This proposal does not impact our board's current power to call a special meeting.

This proposal topic also won more than 60% support at these companies in 2009: CVS Caremark (CVS), Sprint Nextel (S), Safeway (SWY), Motorola (MOT) and R.R. Donnelley (RRD).

We gave more than 57%-support each to 2008 and 2009 shareholder proposals calling for one-year terms for directors (declassification of the board). The Council of Institutional Investors www.cii.org recommends that management adopt shareholder proposals upon receiving their 50%-plus vote.

I believe that shareholders like us, who repeatedly give more than 57%-support to one-year terms for directors, will support a shareholder right to call a special meeting by a majority vote.

Please encourage our board to respond positively to this proposal regarding Special Shareowner Meetings.

Resolution Proposed by Stockholder

RESOLVED, Shareowners ask our board to take the steps necessary to amend our bylaws and each appropriate governing document to give holders of 10% of our outstanding common stock (or the lowest percentage allowed by law above 10%) the power to call a special shareowner meeting. This includes that a large number of small shareowners can combine their holdings to equal the above 10% of holders. This includes that such bylaw and/or charter text will not have any exception or exclusion conditions (to the fullest extent permitted by state law) that apply only to shareowners but not to management and/or the board.

Caterpillar Response to PROPOSAL 8 — Special Stockholder Meetings

Statement in Opposition to Proposal

After careful consideration, the Board recommends voting AGAINST this proposal for the reasons provided below.

Our Certificate of Incorporation already provides a process for calling special meetings, effectively safeguarding the broader interests of all stockholders.

The Board has a longstanding goal of providing effective governance of our business for the long-term benefit of our stockholders. The Board is composed of independent, active and effective directors. 14 of our 15 directors meet the independence requirements of the NYSE, the SEC and the Board's standards for determining director independence. The primary responsibility of the Board is to promote the best interests of Caterpillar and its stockholders by overseeing the management of the Company's business and affairs.

Our Certificate of Incorporation provides that a special meeting of stockholders may be called at any time by a majority of the Board members. This provision is appropriate for a public company the size of Caterpillar because it allows the Board members, in accordance with their fiduciary duties, to exercise their business judgment to determine when it is in the best interests of the Company and its stockholders to convene a special meeting. These provisions effectively safeguard the broader interests of the Company and all stockholders by entrusting such decisions to a qualified and experienced group of directors elected by all stockholders who have a fiduciary duty to act in the best interests of the Company and all stockholders.

This proposal would enable holders of only 10 percent of our outstanding shares to call special stockholders' meetings without any limitation on the number or frequency of such meetings. Adoption of this proposal would mean that a small minority of stockholders acting together would be able to call such a special meeting. Thus, a very small group of stockholders could call special meetings on topics that do not concern, or may be of little or no interest or value to, the majority of stockholders.

A special stockholders' meeting would be an expensive and time-consuming event. Proxy materials would have to be prepared, printed and distributed, requiring the Company to incur significant costs. The Board and management of the Company would be required to spend a significant amount of time preparing for the meeting, diverting their attention from overseeing and managing the Company's business. As a result, the Board believes that a special stockholders' meeting should be convened when the Board members, exercising their fiduciary obligations, determine that there is an extraordinary matter or significant strategic concern that requires consideration by the Company's stockholders before the next annual meeting.

Our corporate governance policies ensure that the Board is held accountable and provide stockholders with access to the Board and ample opportunity to submit items for approval at annual meetings.

The Board believes that the Company's existing corporate governance policies provide an appropriate balance between ensuring that the Board is accountable to the stockholders and enabling the Board to effectively oversee the Company's business for the long-term benefit of the stockholders. In particular, stockholders may communicate directly with any director, any Board committee or the full Board; propose director nominees to the Governance Committee; and submit proposals for presentation at an annual meeting of the stockholders of the Company and for inclusion in the Company's proxy statement for that annual meeting.

In fact, the Board's governance practices and policies demonstrate its commitment to being accountable to the Company's stockholders, including the following:

In June 2005, the Company terminated its shareholder rights plan, or "poison pill," early in response to stockholder concerns.
Based on shareholder votes in 2008 and 2009, the Board has approved a plan to declassify the Board so that all of the Directors are elected annually. We are seeking your approval for this plan set forth in Company Proposal 4.
In response to current trends in corporate governance, we are also seeking your approval to eliminate certain supermajority voting requirements in our Certificate of Incorporation and Bylaws. See Company Proposal 5.

These policies provide stockholders with reasonable access to Board members and adequate opportunities to bring matters before the stockholders on an annual basis.

Our stockholders already have the right to vote on certain significant corporate transactions.

The suggestion that stockholders need the right to call special meetings to protect their interests in the case of extraordinary events involving the Company is simply misleading. We are subject to rules governing Delaware corporations and companies listed on the NYSE that already require us to submit certain significant matters to a stockholder vote for approval. For example, amendments to the Company's Certificate of Incorporation, mergers, a sale of all or substantially all of the Company's assets, increases in the number of authorized shares and the adoption of equity-based compensation plans all require a stockholder vote.

Our stockholders expect us to make decisions based on facts — not speculation.

Currently, over half of the S&P 500 companies do not permit stockholders to call special meetings. However, without providing any factual basis, the proponent speculates that investor returns may suffer if stockholders are unable to call a special meeting. The Board believes that speculation is an insufficient justification to disrupt the Company's operations and to incur the additional costs that would certainly be required if a small minority of activist stockholders were able to call special meetings.

FOR THESE REASONS, YOUR BOARD OF DIRECTORS RECOMMENDS VOTING "AGAINST" PROPOSAL 8.

PART FOUR — Other Important Information

Persons Owning More than Five Percent of Caterpillar Common Stock

Based on a review of any Schedule 13G and any amendments to Schedule 13G filed with the SEC through April 16, 2010, the following persons beneficially own more than five percent of Caterpillar common stock.

Persons Owning More than Five Percent of Caterpillar Common Stock1 (as of December 31, 2009)

	Voting Authority		Dispositive Authority		Total Amount of Beneficial	Percent of
Name and Address	Sole	Shared	Sole	Shared	Ownership	Class
BlackRock, Inc. 40 East 52nd Street New York, NY 10022	32,738,861	0	32,738,861	0	32,738,861	5.24
State Street Corporation and various direct and indirect subsidiaries2 State Street Financial Center One Lincoln Street Boston, MA 02111	0	27,518,971	0	86,887,071	86,887,071	13.9

¹ This information is based upon Schedule 13Gs filed with the SEC for year-end December 31, 2009, except for Percent of Class adjusted from percent reported in the Schedule 13Gs filed by BlackRock and State Street to percentages calculated using Caterpillar's actual outstanding share amount of 624,722,719 at December 31, 2009.

Security Ownership of Certain Beneficial Owners and Management

Security ownership of management is included in the following table.

² State Street Bank and Trust Company serves as investment manager for certain Caterpillar defined benefit plans (17,711,047 shares) and defined contribution plans (41,657,053 shares).

Caterpillar Common Stock Owned by Executive Officers and Directors (as of December 31, 2009)

Blount 73,0331	Magowan327,98012
Brazil 39,8032	Oberhelman826,40113
Burritt 168,7973	Osborn57,69914
Dickinson 3,8204	Owens 1,935,33615
Dillon 78,4295	Powell53,38716
Fife 53,0006	Rapp285,87417
Fosler 31,5157	Rust35,93318
Gallardo 267,7568	Schwab1,518
Goode 98,8009	Smith43,35219
Lavin 256,28210	Vittecoq611,98720
Levenick 487,96411	Wunning536,42321
	All directors and executive officers as a group 6,687,58322

¹ Blount — Includes 55,000 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to the Directors' Deferred Compensation Plan (DDCP) representing an equivalent value as if such compensation had been invested on December 31, 2009, in 1,659 shares of common stock.

4 Dickinson In addition to the shares listed above, a portion of compensation has been deferred pursuant to DDCP representing an equivalent value as if such compensation had been invested on December 31, 2009, in 7,537 shares of common stock.
5 Dillon Includes 55,000 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to DDCP representing an equivalent value as if such compensation had been invested on December 31, 2009, in 5,880 shares of common stock.
6 Fife Includes 31,000 shares subject to stock options exercisable within 60 days.
7 Fosler Includes 23,000 shares subject to stock options exercisable within 60 days.
8 Gallardo Includes 55,000 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to DDCP representing an equivalent value as if such compensation had been invested on December 31, 2009, in 9,363 shares of common stock.
9 Goode Includes 47,000 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to DDCP representing an equivalent value as if such compensation had been invested on December 31, 2009, in 45,868 shares of common stock.
10 Lavin Includes 208,000 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to SDCP, SEIP and/or DEIP representing an equivalent value as if such compensation had been invested on December 31, 2009, in 16,776 shares of common stock.
11 Levenick Includes 415,000 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to SDCP, SEIP and/or DEIP representing an equivalent value as if such compensation had been invested on December 31, 2009, in 14,947 shares of common stock.
12 Magowan Includes 23,000 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to DDCP representing an equivalent value as if such compensation had been invested on December 31, 2009, in 21,412 shares of common stock.
13 Oberhelman Includes 745,399 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to SDCP, SEIP and/or DEIP representing an equivalent value as if such compensation had been invested on December 31, 2009, in 41,747 shares of common stock.
14 Osborn Includes 31,000 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to DDCP representing an equivalent value as if such compensation had been invested on December 31, 2009, in 176 shares of common stock.
15 Owens Includes 1,590,000 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to SDCP, SEIP and/or DEIP representing an equivalent value as if such compensation had been invested on December 31, 2009, in 8,137 shares of common stock.
16 Powell Includes 47,000 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to DDCP representing an equivalent value as if such compensation had been invested on December 31, 2009, in 176 shares of common stock.
17 Rapp Includes 246,000 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to SDCP, SEIP and/or DEIP representing an equivalent value as if such compensation had been invested on December 31, 2009, in 20,036 shares of common stock.
18 Rust Includes 31,000 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to DDCP representing an equivalent value as if such compensation had been invested on December 31, 2009, in 13,339 shares of common stock.
19 Smith Includes 27,000 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to DDCP representing an equivalent value as if such compensation had been invested on December 31, 2009, in 1,811 shares of common stock.
20 Vittecoq Includes 507,000 shares subject to stock options exercisable within 60 days.
21 Wunning Includes 465,000 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to SDCP, SEIP and/or DEIP representing an equivalent value as if such compensation had been invested on December 31, 2009, in 21,729 shares of common stock.
22 This group includes directors, named executive officers and five additional executive officers subject to Section 16 filing requirements (group). Amount includes 5,133,239 shares subject to stock options exercisable within 60 days and 478,653 shares for which voting and investment power is shared. The group beneficially owns 1.07 percent of the Company's outstanding common stock. None of the shares held by the group have been pledged.

² Brazil — Includes 31,000 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to DDCP representing an equivalent value as if such compensation had been invested on December 31, 2009, in 612 shares of common stock.

³ Burritt — Includes 148,200 shares subject to stock options exercisable within 60 days. In addition to the shares listed above, a portion of compensation has been deferred pursuant to the Supplemental Deferred Compensation Plan (SDCP), Supplemental Employees' Investment Plan (SEIP) and/or the Deferred Employees' Investment Plan (DEIP) representing an equivalent value as if such compensation had been invested on December 31, 2009, in 278 shares of common stock.

Compensation

Compensation Discussion and Analysis

At Caterpillar, integrity is one of our core values. We believe in the power of honesty and know the only way to build and strengthen our reputation is through trust. We hold ourselves to the highest standard of integrity and ethical behavior and strive for transparency. We welcome the opportunity to share this Compensation Discussion and Analysis (CD&A) with our stockholders.

We understand investors have a vested interest in executive compensation. After reading this CD&A, we hope you will recognize a few vital points:

We have a thorough compensation review process
We have a competitive compensation plan that aligns executive performance and long-term stockholder interests
We believe the best way to compensate our executives is to base their rewards on performance
We have no severance packages that apply solely to executives. Change in Control provisions are found within existing compensation plans and apply equally to all participants in those plans.
We do not backdate or re-price equity grants

During fiscal year 2009, Caterpillar was organized into six groups, each led by a group president. Because the six group presidents have comparable responsibilities and are similarly compensated, we are including all six of the group presidents as named executive officers (NEOs), in addition to the Chief Executive Officer and Chief Financial Officer.

On October 22, 2009, we announced that James W. Owens, Chairman and CEO, would retire on October 31, 2010. As Owens' successor, Douglas R. Oberhelman became Vice Chairman and CEO-Elect on January 1, 2010, and is expected to become CEO on July 1, 2010 and Chairman on November 1, 2010.

This CD&A describes the overall compensation practices at Caterpillar and specifically describes the 2009 total compensation for the following NEOs:

James W. Owens, Chairman and CEO
Douglas R. Oberhelman, Vice Chairman, CEO-Elect and Group President
Richard P. Lavin, Group President
Stuart L. Levenick, Group President
Edward J. Rapp, Group President
Gerard R. Vittecoq, Group President
Steven H. Wunning, Group President
David B. Burritt, Vice President and Chief Financial Officer

We are fortunate to have executives who are "career employees" with a strong commitment to the long-term success of Caterpillar. In fact, the average tenure of our NEOs is 33 years. Our reputation is a reflection of our employees' ethical performance, and the values that guide Caterpillar have in turn rewarded our employees and stockholders with a successful and profitable Company.

Compensation Philosophy and Objectives

Two primary components define Caterpillar's compensation philosophy: Pay for Performance and Pay at Risk.

As an employee's responsibility increases, so does the proportional amount of "at risk" pay. This is especially true for our executives who have direct responsibility for overall Company performance. A significant portion of executive pay depends on meeting certain performance goals, which is fundamental to aligning executive pay with long-term stockholder interests.

The Compensation Committee established three principles to drive this philosophy through the Company's compensation design.

1. Base salary, as a percentage of total direct compensation, should decrease as salary grade levels increase. As employees move to higher levels of responsibility with more direct influence over the Company's performance, they have a higher percentage of pay at risk.
1. The ratio of long-term incentive compensation to short-term incentive compensation should increase as salary grade levels increase. Caterpillar expects executives to focus on the Company's long-term success. The compensation program is designed to motivate executives to take actions that are best for the Company's long-term viability.
1. Equity compensation should increase as salary grade levels increase. Employees in positions that most directly affect the Company's performance should have profitable growth for the Company as their main priority. Receiving part of their compensation in the form of equity reinforces the link between their actions and stockholders' investment. Equity ownership encourages executives to behave like owners and provides a clear link with stockholders' interests.

In following these principles and by tying employee compensation to both individual performance and the long-term performance of the Company, Caterpillar links the interests of management and long-term stockholders. In addition, the compensation program is designed to attract and retain high-caliber, talented employees who will guide the Company in continuing to meet and exceed its performance goals.

Overview of Compensation Practices

The Compensation Committee is responsible for the compensation program design and decision-making process for NEOs. The Compensation Committee regularly reviews Caterpillar's compensation practices, including the methodologies for setting NEO total compensation, the goals of the compensation program and the underlying compensation philosophies. The Compensation Committee believes that by utilizing long-term cash and equity as the predominant components of NEO total compensation, along with significant stock ownership requirements, the NEO objectives are aligned with those of our longterm stockholders.

The Compensation Committee also uses benchmarking data, provided by its compensation consultant, to track Caterpillar's practices and compensation levels against comparable companies within its industry and across multiple industries. However, the Compensation Committee exercises its independent judgment when establishing compensation policies, especially when rewarding individual performance. The responsibilities of the Compensation Committee are described more fully in its charter, which is available at www.CAT.com/governance.

How Caterpillar Determines Total Compensation for Executives

Performance Evaluation: CEO

The Board, excluding the CEO, performs the CEO's evaluation. The Board's evaluation includes both objective and subjective criteria of the CEO's performance, including:

Caterpillar's financial performance
The accomplishment of Caterpillar's long-term strategic objectives
The achievement of individual goals set at the beginning of each year
The development of Caterpillar's top management team

Prior to the Board's determination, the Compensation Committee evaluates CEO compensation using benchmarking information (discussed on page 43) to set total compensation. The Compensation Committee also performs its own performance review and provides its recommendations to the Board.

Performance Evaluations: NEOs other than CEO

The Compensation Committee, in conjunction with the CEO, performs the other NEOs' evaluations, excluding Mr. Burritt whose evaluation is performed by Mr. Rapp. Each February, the CEO submits a performance assessment and compensation recommendation to the Compensation Committee for each of the other NEOs. The performance evaluation is based on factors such as:

Achievement of individual and Company objectives
Contribution to the Company's performance
Leadership accomplishments

The Compensation Committee also reviews total compensation benchmark information, with respect to the other NEOs, in determining whether to increase or decrease the CEO's compensation recommendation. The Compensation Committee makes the final decision regarding the total compensation for the other NEOs.

Compensation Consultant

For 2009, the Compensation Committee retained John L. Anderson of Hewitt Associates LLC (Hewitt) to provide ongoing advice and information regarding design and implementation of Caterpillar's executive compensation programs. Mr. Anderson also provided information and updates to the Compensation Committee about regulatory and other technical developments that may affect the Company's executive compensation programs. In addition, Mr. Anderson and a team at Hewitt provided the Compensation Committee with competitive market information, analyses and trends on executive base salary, short-term incentives, long-term incentives, benefits and perquisites.

With the full knowledge of the Compensation Committee, Caterpillar has retained a separate and distinct unit of Hewitt to be the third-party administrator for Caterpillar's U.S. retirement plans, as well as Caterpillar's U.S. Health & Welfare plans, in 2009.

In 2010, Hewitt's executive compensation group separated from Hewitt and formed Meridian Compensation Partners, LLC (Meridian). Mr. Anderson joined Meridian and is no longer employed by Hewitt. For 2010, the Compensation Committee hired Meridian solely as its consultant.

The Compensation Committee believes that Mr. Anderson and, for 2009, a team working with him from Hewitt, provided candid, direct and objective advice to the Compensation Committee, which was not influenced by any other services provided by Hewitt. To ensure independence:

The Compensation Committee directly hired and has the authority to terminate Mr. Anderson
Mr. Anderson is engaged by and reports directly to the Compensation Committee and its chairman
Mr. Anderson meets regularly and as needed with the Compensation Committee in executive sessions that are not attended by any personnel of the Company
Mr. Anderson has direct access to all members of the Compensation Committee during and between meetings
Mr. Anderson was not the Hewitt client relationship manager for Caterpillar
Neither Mr. Anderson nor any member of the team from Hewitt participated in any activities related to the administration services provided to Caterpillar by other Hewitt business units
Interactions between Mr. Anderson and management generally are limited to discussions on behalf of the Compensation Committee and information presented to the Compensation Committee for approval

Annual Review of Consultant Independence

The Compensation Committee is responsible, without the influence or input of management, for retaining and terminating compensation consultants and determining their terms and conditions, including fees. Hewitt provided the Compensation Committee an annual update on its services and related fees. The Compensation Committee determined whether the compensation consultant's services were performed objectively and free from the influence of management. The Compensation Committee also closely examined the safeguards and steps Hewitt took to ensure that its executive compensation consulting services were objective, for example:

Hewitt separated its executive compensation consulting services into a single, segregated business unit within Hewitt
Hewitt paid its executive compensation consultants solely on their individual results and the results of its executive compensation consulting practice. In 2009, Mr. Anderson received no incentives based on other services Hewitt provided to Caterpillar.
Mr. Anderson does own shares in Hewitt; however, he did not receive stock options or other equity-related awards from Hewitt
The total amount of fees for executive compensation consulting services to the Compensation Committee in 2009 was \$255,822
The total amount of fees paid by Caterpillar to Hewitt in 2009 for all other services, excluding Compensation Committee services, was \$14,928,178. This is compared to total Hewitt fiscal 2009 revenues of \$3,073,560,000.
Other services were provided under a separate contractual arrangement and by a separate business unit at Hewitt

For these reasons, the Compensation Committee does not believe the services provided by Hewitt in conjunction with administering Caterpillar's benefit plans compromised Mr. Anderson's ability to provide the Compensation Committee with perspective and advice that was objective.

Peer Group Benchmarking

For 2009 peer group benchmarking, Caterpillar continued to use the Caterpillar Compensation Comparator Group (CCCG) for NEO compensation benchmarking, which consisted of the 28 large public companies listed below. Because we compete for executive talent from a variety of industries, the 28 companies represent a cross section of industries, not just heavy manufacturing companies. The peer group study methodology is consistent each year, which makes it easier to isolate how Caterpillar's executive compensation program is changing in relation to the market. The Compensation Committee monitors the CCCG to ensure that it continues to provide a reasonable comparison basis for executive compensation. There were no changes from 2008 to 2009 with respect to the companies included in the CCCG.

The CCCG's median annual revenue is less than Caterpillar's. To account for differences in the size of the companies in that group, the compensation consultant conducts a regression analysis with each comparison and presents the analysis to the Compensation Committee. Regression analysis adjusts the compensation data for differences in the companies' revenue, allowing Caterpillar to compare its compensation levels to similarly sized companies. The following companies compose the CCCG:

Caterpillar Compensation Comparator Group for 2008

American Express Company Johnson Controls, Inc.
Archer-Daniels-Midland Company Lockheed Martin Corporation
The Boeing Company PACCAR Inc
Deere & Company Pfizer Inc.
The Dow Chemical Company Siemens Aktiengesellschaft
General Dynamics Corporation Valero Energy Corporation
3M Company Honeywell International Inc.
Alcoa Inc. International Business Machines Corporation
Altria Group, Inc. Johnson & Johnson
Cummins Inc. PepsiCo, Inc.
Dell Inc. The Procter & Gamble Company
FedEx Corporation United Parcel Service, Inc.
Ford Motor Company United Technologies Corporation
General Electric Company Weyerhaeuser Company

Caterpillar uses a comparator group to benchmark (compare) all components of compensation to other companies within the group. Caterpillar targets the executive total cash compensation package, as well as the long-term incentive compensation components, at the size-adjusted median level of the comparator group. The Compensation Committee believes that targeting at the sizeadjusted median level of the comparator group is necessary to attract and retain high-caliber employees. This ensures that Caterpillar remains competitive while maximizing its resources for stockholders.

Components of Caterpillar's Compensation Program

Total compensation for all NEOs is a mix of annual total cash and long-term incentives.

Annual base salary represents a relatively small portion of our NEOs' compensation. In fact, on average, 73 percent of annual compensation for our NEOs varies each year based on Caterpillar's performance. The following chart shows the 2009 total compensation mix (based on targeted compensation).

Total compensation is a mix of total cash and longterm incentives.

Executive Short-Term Incentive Plan (ESTIP) and Short-Term Incentive Plan (STIP) are annual incentive plans that deliver a targeted percentage of base salary (excluding any variable base pay) based on performance against predetermined enterprise goals. The plans are designed to focus the NEOs on the shorter-term critical issues that are indicative of improved year-over-year performance.

The Long-Term Incentive Plan (LTIP) includes both equity and cash under the Long-Term Cash Performance Plan (LTCPP). LTIP is designed to reward the Company's key employees for achieving and/or exceeding the Company's long-term goals, to drive stockholder return and to foster stock ownership.

Total Annual Cash Compensation

The Compensation Committee's review of 2009 market data showed total annual cash compensation structures for all NEOs were in line with the size-adjusted median level of the CCCG. The Compensation Committee made no adjustments to the base salary compensation structures, or to the short-term incentive target opportunities shown below.

ESTIP or STIP Target Opportunity as a Percent of Base Salary
	2009
CEO (ESTIP)	135%
Group Presidents (ESTIP)	100%
Vice Presidents (STIP)	90%

Total cash includes base salary and the Executive Short-Term Incentive Plan or Short-Term Incentive Plan.

Base Salary

Base salary increases are performance-driven. The Compensation Committee uses the criteria described in the "Performance Evaluation" section to assess performance, which are assigned no particular weighting. Base salary increases, however, are dependent upon assessment of these factors. Base salary structures for Caterpillar executives are designed with a midpoint set at the size-adjusted median level of the CCCG. For all employees, the minimum of the base salary structure is 80 percent of the midpoint of the salary structure and the maximum is 120 percent of the midpoint of the salary structure. Base salaries for the NEOs are not increased above the midpoint of their respective structures without meeting certain performance requirements. If NEOs reach the midpoint of their salary structure, any amount awarded above the midpoint must be re-earned annually and approved by the Compensation Committee. This amount is called variable base pay and is paid in the form of an annual lump sum cash award (disclosed in the "Bonus" column of the Summary Compensation table on page 57). This reinforces the Pay for Performance component of Caterpillar's compensation program. Additionally, due to current economic conditions, NEO base salary structures have been frozen and merit increases have been eliminated for 2009 and 2010.

Executive Short-Term Incentive Plan

The NEOs, excluding Mr. Burritt, participated in the 2009 ESTIP. The CEO was eligible for a target opportunity of 135 percent of base salary and the group presidents were eligible for a target opportunity of 100 percent of base salary.

In February 2009, the Compensation Committee reviewed and approved two enterprisefocused measures for the 2009 ESTIP. As further described below, these two measures link the compensation of the CEO and group presidents directly to the overall performance of Caterpillar. The measures and their relative weights in determining ESTIP payouts are as follows:

75% Corporate Return on Assets
25% Enterprise Quality

Prior to any ESTIP payout a "trigger" must be achieved, which is based on the Company's PPS. If the trigger is not achieved, there is no ESTIP payout. The Compensation Committee approved a PPS trigger of \$2.50 for ESTIP because Caterpillar has a strategic goal of achieving a PPS of at least \$2.50 annually. Due to a PPS of \$1.43 in 2009, no payments were made under ESTIP.

Corporate Return on Assets (ROA) is

Machinery and Engines profit after tax plus short-term incentive compensation expense (after tax) divided by average monthly Machinery and Engines assets.

Enterprise Quality is an average of the business unit quality performance factors.

Profit Per Share (PPS)

is the portion of a company's profit allocated to each outstanding share of common stock, diluted by the assumed exercise of stock-based compensation awards. PPS serves as an indicator of a company's profitability. This is also known as Earnings Per Share.

As with all components of Caterpillar's compensation program, ESTIP rewards performance. For both measures listed above, the Compensation Committee established the threshold, target and maximum performance levels. If the threshold level is not achieved for a given measure, there is no ESTIP payout on that measure. Increasingly larger payouts are awarded for achievement of target and maximum performance levels. The following table outlines the payout factor range that applied to each performance level. The payout factor for each measure does not exceed 200 percent.

Performance Level	Payout Factor
Greater than Threshold but Less than Target	30% – 99.99%
Target to Maximum	100% – 199.99%
Maximum and Greater	200%

Return On Assets

The Compensation Committee approved ROA as the largest portion of 2009 ESTIP. The Compensation Committee selected ROA because it is a good indicator of how efficiently the Company is using its assets to generate earnings and driving value for our stockholders. The Compensation Committee reviewed forecasted versus actual ROA results to determine the appropriate target for the 2009 measure. The corporate ROA slope ranged from a threshold of 4.40 percent to the maximum of 12.40 percent, with a target of 7.10 percent. The following table illustrates ROA performance levels:

Corporate ROA Slope
ROA Threshold = 4.40%
ROA Target = 7.10%
ROA Maximum = 12.40%

Enterprise Quality

The Compensation Committee approved enterprise quality as the other 2009 ESTIP factor. The Compensation Committee selected enterprise quality because Caterpillar must continue to place an increased emphasis on quality across the entire organization to meet our long-term goals. Enterprise quality was measured by the average of the various business unit quality performance factors, which are Mean Dealer Repair Frequency, Very Early Hour Reliability, Significant Part Numbers and Cat Production System Assessment. Each business unit's quality performance factor or factors were weighted based on its applicable 2009 net sales and transfers (inter-company sales). The results were averaged to determine the enterprise quality result.

The 2009 ESTIP results were as follows:

2009 ESTIP	Payout Factor	Measurement
Corporate ROA	NA	Enterprise after-tax Return on Assets
Enterprise Quality	NA	Based on a weighted average of several quality measures

Due to a PPS of \$1.43 in 2009, no payments were made under 2009 ESTIP and the individual payout factors were not applicable.

Mean Dealer Repair Frequency measures the dealer repair frequency for a collection of products over a period of time approximately equal to their first year of operation.

Very Early Hour Reliability captures the number of dealerperformed repairs to a product that occur from the pre-delivery inspection through the initial hours of machine operation.

Significant Part Numbers

are part numbers that have had failures in the last three years on products built in the last five years (unless the part is a remanufactured part).

Cat Production System (CPS) Assessment

is the common Order-To-Delivery process used to achieve our long-term safety, quality, velocity, earnings and growth goals.

Short-Term Incentive Plan

As a vice president, our CFO, Mr. Burritt, participated in Caterpillar's 2009 STIP. Mr. Burritt was eligible for a target opportunity of 90 percent of base salary. The measures and their relative weights in determining the 2009 STIP are as follows:

87.5% Corporate Return on Assets
12.5% Enterprise Quality

PPS of \$2.50 was also used as the "trigger" for payout under the 2009 STIP. The same trigger methodology applies for STIP as described previously for ESTIP.

2009 STIP	Payout Factor	Measurement
Corporate Return on Assets	NA	Enterprise after-tax Return on Assets
Enterprise Quality	NA	Based on a weighted average of several quality measures

Due to a PPS of \$1.43 in 2009, no payments were made under 2009 STIP and the individual payout factors were not applicable.

Long-Term Incentive Plan

The Compensation Committee annually analyzes market data on portfolio approaches for long-term incentive plans. Based on advice from the compensation consultant, portfolio approaches, where two or more long-term incentive compensation awards are used in some combination, are common practice. For example, SARs reward share appreciation; time-vested restricted units strengthen and enhance retention; and cash performance awards reinforce a long-term pay-for-results culture (see page 48 for definition of SARs and restricted stock units).

Caterpillar uses all three awards in its executive compensation package. Instead of awarding all long-term compensation in the form of equity, the Compensation Committee has decided to award a portion in cash. The Compensation Committee sets the cash percent for NEOs each year. The cash award is tied to long-term stockholder performance due to the measures within the plan. This amount is then removed from the total CCCG longterm market award value. Providing a portion of long-term incentive in the form of cash also allows Caterpillar the ability to manage its share run rate, and preserve the available pool of shares authorized for issuance under LTIP. The 2009 LTIP award mix is illustrated in the following table:

2009 Long-Term Incentive Plan Award Mix
	LTCPP Target %	% of Total Equity Value
	of Base Salary	SAR	RSU
CEO	170%	85%	15%
Group Presidents	110%	85%	15%
Vice Presidents	90%	80%	20%

Run rate measures the rate at which companies grant equity. It is the number of shares granted under LTIP in any one year divided by the number of common shares outstanding.

An equity award is a stock award representing ownership in the Company. Equity for Caterpillar currently consists of stocksettled Stock Appreciation Rights, Restricted Stock Units and restricted stock.

The standard equity award is the equity value determined each year by the Compensation Committee. Each year, we benchmark against the CCCG to determine our standard award level, which is set at the sizeadjusted median level of the comparator group.

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Equity

Each year, the Compensation Committee benchmarks against the CCCG to determine a competitive equity award for each salary grade, including NEOs. Our process benchmarks total equity value for all salary grades. Consistent with the Company's compensation philosophy, individuals at higher levels receive a greater proportion of total pay in the form of equity.

In February 2009, the Compensation Committee approved the 2009 equity design, which consisted of a mix of SARs and RSUs. This equity design supports our Pay for Performance and Pay at Risk philosophy. RSUs represent actual shares of stock and therefore carry less risk than SARs.

The Compensation Committee has the discretion to make positive or negative adjustments to equity awards based on a subjective assessment of an individual's performance, provided these adjustments do not increase the total number of awards issued to employees.

At the February 2009 Compensation Committee meeting, Mr. Owens discussed his recommendations with respect to standard equity award adjustments for all NEOs, other than himself. Equity award adjustments were made and were based upon individual performance (discussed in the "Other NEOs Compensation Decisions" section of this CD&A). NEO equity grants, other than Mr. Owens', ranged from 71,176 to 166,252 SARs and 4,449 to 7,335 RSUs. At the February 2009 Board meeting, the Chairman of the Compensation Committee, Mr. Goode, in consultation with the Board and in accordance with the following "Annual Equity Grant Timing" section, established the equity award for Mr. Owens based on exceptional performance (discussed in "Compensation Decisions — Chairman and CEO Compensation Decisions — Equity Grant for 2010" section of this CD&A). Accordingly, for the 2009 equity grant, Mr. Owens received 504,180 SARs and 20,152 RSUs.

The final 2009 SAR and RSU awards for the NEOs are disclosed in the Grants of Plan-Based Awards in 2009 table on page 59.

Annual Equity Grant Timing

At the October 2008 Compensation Committee meeting, the Committee approved a formal policy for setting the timing of the annual equity grant date. As a result, beginning in 2009, the grant date for the annual equity grant will be the first Monday in March.

Caterpillar does not backdate, re-price or grant equity awards retroactively. The Compensation Committee approved the valuation of the 2009 equity awards at the February 10, 2009 meeting and delegated its authority to finalize the individual grants on the grant date to the Compensation Committee chair. The grant price (\$22.17) was the closing price for Caterpillar stock as reported on the NYSE on March 2, 2009 (grant date). All 2009 equity grants for the NEOs are disclosed in the Grants of Plan-Based Awards in 2009 table on page 59.

Chairman's Restricted Stock Award Program

The CEO may submit restricted stock grant recommendations to the Compensation Committee at any Compensation Committee meeting. The Compensation Committee reviews the amount of the proposed grants as well as the CEO's reasoning and approves or rejects the requested restricted stock grants. The Compensation Committee delegated the authority to execute the Chairman's Restricted Stock Award Program, in its entirety, to the CEO. At the end of each year, the CEO will report an annual summary of the program to the Compensation Committee.

A Stock Appreciation Rights (SAR) is a right to receive Caterpillar common shares based on the appreciation in value of a set number of shares of Company stock between the grant date and the exercise date. SARs were introduced in 2006 because they extend the life of the Caterpillar stock option pool and minimize stockholder dilution.

A Restricted Stock Unit (RSU) is a grant valued in terms of Company stock. At the time of the grant, no Company stock is issued. The grant entitles the recipient to receive Caterpillar common shares at the time of vesting. RSUs were introduced in 2007 because they reduce the share run rate and may be more tax efficient for equity-eligible employees outside the United States.

Stock Award Program is a tool that makes equity a part of the compensation program to help attract and retain outstanding performers. Key elements of the program are i) selected performance and retention-based grants

The Chairman's Restricted

can be made to officers and other key employees, as well as prospective employees; ii) restricted shares have three to five year vesting schedules; and iii) restricted shares are forfeited if the grantee leaves Caterpillar prior to vesting.

Stock Ownership Requirements

Equity compensation encourages our executives to have an owner's perspective in managing the Company. Accordingly, the Compensation Committee approved stock ownership requirements for all participants receiving equity compensation.

Specifically, NEOs are required to own shares equal to a minimum of 50 percent of the average (based on number of shares) of the last five grants received. Failure to meet these guidelines results in automatic grant reductions, unless compelling personal circumstances prevent an employee from meeting his or her targeted ownership requirement.

Even though Caterpillar targets all officers' total compensation at the size-adjusted median level of the CCCG, its stock ownership requirements are much higher than the median level, reaching well into the upper quartile of practices of the companies examined. At present, all NEOs exceed stock ownership requirements.

Long-Term Cash Performance Plan

The LTCPP is a Pay at Risk plan that delivers a targeted percentage of base salary to each participant based on performance against the goals of the entire Company. The LTCPP is offered to NEOs and other key employees. A three-year performance cycle is established each year for determining compensation under the LTCPP. The Compensation Committee generally sets threshold, target and maximum levels that make the relative difficulty of achieving the target level consistent from year to year. The payout amount can vary greatly from one year to the next. The objective is to have payouts under the LTCPP be at target, on average, over a period of years.

Each year the Compensation Committee specifies two measures and their payout factors, such as relative PPS growth and ROA, both weighted 50 percent for the LTCPP. The threshold performance levels must be met under both measures before a payout is made under that particular measure; however, there is no overall trigger as there is under ESTIP and STIP. In other words, each measure triggers independently of the other. Increasingly larger payments are awarded when the target and maximum performance levels are achieved. The following table outlines the payout factor range that applies to each performance level.

Performance Level	Payout Factor
Greater than Threshold but Less than Target	50% – 99.99%
Target to Maximum	100% – 149.99%
Maximum and Greater	150%

The Compensation Committee selected the following Standard & Poor's 500 companies (S&P Group) to compare Caterpillar's performance against the performance of our specific industry. This S&P Group is used because market cycle fluctuations are minimized when compared to similar companies. The S&P Group is used only for the relative PPS growth measure, not for setting levels of compensation under the LTCPP. There were no changes in the S&P Group from 2008 to 2009.

Relative PPS growth

is one of two measures in the LTCPP. It measures Caterpillar's PPS growth against those companies in the Standard & Poor's peer group.

Return On Assets

(ROA) is a profitability measure that reveals how much profit a company generates with the assets of the company. This is one of two measures in the 2007-2009 LTCPP.

The companies in this S&P Group are:

	Standard & Poor's Group
● 3M Company	● General Electric Company	● Navistar International Corporation
● Cummins Inc.	● Honeywell International Inc.	● PACCAR Inc
● Danaher Corporation	● Illinois Tool Works Inc.	● Pall Corporation
● Deere & Company	● Ingersoll-Rand Company Limited	● Parker-Hannifin Corporation
● Dover Corporation	● ITT Corporation	● Textron Inc.
● Eaton Corporation	● Johnson Controls, Inc.	● United Technologies Corporation

The 2009 LTCPP payout was based on a three-year performance cycle, which began in 2007 and ended in 2009. The 2007-2009 cycle evaluated two components: relative PPS growth, measured against the S&P Group, and ROA, again each weighted 50 percent. At the February 2007 meeting, the Compensation Committee determined that the targets (shown in the following table) were very challenging and that achieving the targets during this performance cycle would put the Company far ahead of historical benchmark levels at other companies, including the CCCG, the S&P Group and the S&P 500 overall.

2007-2009 LTCPP Measures
Relative PPS Growth ROA
Threshold	25th percentile	6%
Target	50th percentile	14%
Maximum	75th percentile	20%

The final 2009 LTCPP ROA was 8.6 percent, resulting in a payout factor of 66.41 percent. The relative PPS growth percentile rank was 19, resulting in no payout for this performance measure. The resulting weighted payout factors were added together to calculate the total cash payout factor of 33.21 percent, which resulted in a collective payout of \$2.5 million for all of the NEOs.

2007-2009 LTCPP Payout Factor		Measurement
Return on Assets 66.41		Enterprise Return on Assets
Relative PPS Growth NA		Relative PPS Growth measured against S&P Peer Group

The Compensation Committee has the discretion to reduce individual LTCPP awards based on performance, but individual increases are not permitted. No adjustments were made to the 2009 LTCPP payouts to the NEOs. Individual payouts were capped at \$5 million and are disclosed in the "Non-Equity Incentive Plan Compensation" column of the Summary Compensation table on page 57.

Similar to the 2007-2009 LTCPP cycle, the 2008-2010 and 2009-2011 LTCPP cycles include a relative PPS Growth and ROA measure.

Compensation Decisions

The Executive Office (CEO and six group presidents) works as a team to drive our corporate strategy and deliver the annual business plan. Our ESTIP is based on corporate ROA and enterprise quality metrics and is the same for each executive officer. Our LTIP is the same for each executive officer and is based on corporate PPS growth relative to our peer group and ROA. Annual merit pay adjustment and equity grants are based on the NEOs' achievement of their goals set at the beginning of the year. Both elements of compensation are benchmarked with peer companies and therefore keep the total compensation package competitive.

Chairman and CEO Compensation Decisions

The CEO is evaluated by the Board on Company and individual performance metrics. In February of 2010, the Board reviewed the Compensation Committee's assessment of Mr. Owens' individual goals (which were created at the beginning of 2009) and his performance against those goals. The most critical results for Mr. Owens for 2009 were as follows:

Despite the most significant recessionary industry conditions since the 1930s, Caterpillar delivered profitability for the year at \$1.43 per share, or \$2.18 per share excluding redundancy costs
Further, in the face of a \$19 billion drop in top line sales and revenues, the Company strengthened its balance sheet and maintained its credit rating and dividend
Caterpillar maintained positive employee communications throughout the financial crisis the employee survey, with 94 percent participation, achieved a record 82 percent favorable response
Using the Cat Production System, the Company maintained enterprise focus on process discipline and execution through disruptive schedule fluctuations — safety, product quality, and delivery performance all improved

Equity Grant for 2010

On March 1, 2010, the Compensation Committee, with approval from the Board, granted Mr. Owens an equity award of 300,000 RSUs under the Company's LTIP. This award represents Mr. Owens' total equity compensation for 2010. The RSUs will vest on November 1, 2010; however, the Compensation Committee placed transfer restrictions on the shares of common stock that will be issued upon the vesting of the award. Pursuant to the restrictions, the shares may not be assigned, transferred or pledged until three years after the March 1, 2010 grant date.

In making this award, the Compensation Committee considered, among other things, Mr. Owens' significant contributions in leading Caterpillar through the present economic downturn and positioning it for future success.

The Compensation Committee determined that instead of the usual mixture of SARs and RSUs, which would vest soon after his retirement, a grant of RSUs, with a three-year transfer restricted period, would better tie Mr. Owens' final year compensation more directly to the longer-term success or failure of the actions taken in his final year as Chairman and CEO.

Other NEOs Compensation Decisions

The CEO presents each NEO's performance evaluation to the Compensation Committee (excluding Mr. Burritt's performance evaluation). The focus of the evaluation for other NEOs is based upon product and business unit metrics in their respective areas of responsibility. The CEO presented the Compensation Committee the following key points for Group Presidents in making compensation decisions for 2009. Mr. Rapp conducted the performance evaluation for Mr. Burritt.

Douglas R. Oberhelman, Group President

Formed Strategic Planning Committee and launched update of the Company's Vision 2020 after Board selection as Vice Chairman in October 2009
Helped deliver a significant increase in 2009 cash flow, through an intense focus on cost and inventory reduction
Provided executive leadership for our Diversity and Sustainability initiatives, maintaining important positive momentum through the financial crisis
Improved product quality for commercial reciprocating engines and safety for his direct report divisions

Richard P. Lavin, Group President

Traveled extensively in Asia-Pacific region effectively overseeing dealer development and capacity expansion in this dynamic growth region
Established a new country manager for China in 2009 and leveraged this position to gain more traction with governmental/public affairs in China
Cash flow for his divisions improved markedly from 2008 levels due to inventory reduction, lower capital expenditures and strong cost management
Significantly improved operational performance on time shipment dates and safety improved over 2008 levels

Stuart L. Levenick, Group President

Provided executive leadership for the Enterprise Alignment transition that was launched to reduce organizational complexity, improve accountability, increase customer focus and streamline costs
Successfully aligned manufacturing operations in the Americas tri-sphere into one business unit maintained Caterpillar Production System deployment momentum
Met aggressive inventory reduction goals and managed CAPEX down in large construction equipment business
Worked closely on growth initiatives tied to investments, acquisitions and/or joint ventures to expand mining and tunnel boring product lines and capacity

Edward J. Rapp, Group President

Provided executive leadership for the enterprise initiative to focus on cash flow and liquidity in order to maintain our credit rating and dividends
Strongly supported restructure and cost reductions in small machine business division
Provided leadership to our captive finance company successfully navigating through very disruptive financial markets in 2009
Markedly improved quality on new product introductions and reduced inventory

Gerard R. Vittecoq, Group President

Provided executive leadership to drive manufacturing execution and supply chain efficiencies across the corporation with the Cat Production System
Markedly increased accountable cash flow from his business units in 2009
Championed enterprise machine product quality journey allowing us to achieve continuous improvement in 2009
Drove significant improvement in safety, compared to 2008, in our European manufacturing groups

Steven H. Wunning, Group President

Effectively deployed a robust process to monitor the financial viability of over 900 suppliers
Provided executive leadership for the corporate Tier 4 emissions compliance initiative
Markedly increased cash flow from his business units in 2009 by reducing inventory and managing capital expenditures
Drove enterprise simplification and logistics initiatives which significantly reduced costs

David B. Burritt, Vice President and Chief Financial Officer

Supported corporate efforts to maintain profitability with strong cash flow, hold mid-A credit rating and maintain the dividend
Strengthened the balance sheet and reduced debt to capital ratio
Demonstrated strong cost management for Global Finance and Strategic Services, while also strengthening internal controls
Provided clear and consistent communication during a period of economic turbulence

Retirement and Other Benefits

The defined contribution and defined benefit plans available to the NEOs (excluding Mr. Vittecoq for the reasons described below) are also available to many U.S. Caterpillar salaried and management employees. All of the NEOs (excluding Mr. Vittecog) participate in all of the following U.S. retirement plans.

Mr. Vittecog is not eligible for the U.S. benefit plans because he is on the Swiss payroll and eligible for the Swiss benefit programs. He participates in Caprevi, Prevoyance Caterpillar and the Swiss Employees' Investment Plan. Both are Swiss retirement plans that are available to all other Swiss management employees. Mr. Vittecog is eligible under Caprevi, Prevoyance Caterpillar for an early retirement benefit with no reduction.

A defined contribution

savings plan is a retirement plan that provides for an individual account for each participant and for benefits based solely upon the amount contributed to the participant's account, and any income, expenses. gains and losses.

A defined benefit

pension plan is a retirement plan in which benefits must be definitely determinable. Plan formulas are geared to retirement benefits, not contributions. The plan is funded by contributions to a trust account that are separate from the general assets of the Company. The Pension Benefit Guaranty Corporation insures certain benefits.

A qualified retirement

plan is afforded special tax treatment for meeting a host of requirements of the Internal Revenue Code.

A nonqualified plan

is designed primarily to provide retirement income for essential employees. There are no limits on benefits or contributions, and there are no reporting requirements so long as it is not funded.

Pension Plans

Caterpillar Inc. Retirement Income Plan (RIP)

Many U.S. salaried and management employees are eligible to participate in RIP. Benefit amounts are not offset for any Social Security benefits. Plan participants may choose among several payment options, such as a single life annuity, termcertain or various joint and survivor annuity benefits. Of the NEOs, Mr. Lavin, Mr. Levenick, Mr. Oberhelman, Mr. Rapp, Mr. Wunning and Mr. Burritt are currently eligible for early retirement, with a four percent benefit reduction, per year, from age 62. Mr. Owens is currently eligible to retire with no reduction in benefits.

Supplemental Retirement Plan (SERP)

If an employee's annual compensation or retirement income benefit under RIP exceeds the Internal Revenue Service tax code limitations, the excess benefits are paid from the SERP. The formula used to calculate the benefit payable in SERP is similar to the one used under RIP. The formula is described in detail in the 2009 Pension Benefits table on page 62.

Savings Plans

Caterpillar 401(k) Plan

Most U.S. salaried and management employees, including the U.S.-based NEOs, are eligible to participate in the 401(k) plan.

Contributions are made on a pre-tax basis
Participants can contribute up to 70 percent of their base salary and STIP awards
Contributions are limited by the tax code
Company matches 100 percent of the first six percent of pay contributed to the savings plan
All contributions vest immediately

Supplemental Deferred Compensation Plan (SDCP)

In addition to the 401(k) plan, all U.S.-based NEOs are allowed to participate in SDCP, which provides the opportunity to increase deferrals of base salary and to elect deferrals of STIP and LTCPP awards.

The plan was created in March 2007 with a retroactive effective date of January 1, 2005. It effectively replaces SEIP and DEIP (both defined below). The change allows the Company to comply with Internal Revenue Code Section 409A.
Contributions are made on a pre-tax basis and are comprised of four possible contribution types:
Supplemental Base Pay Deferrals (maximum 70 percent deferral election)
Supplemental STIP Deferrals (maximum 70 percent deferral election)
Supplemental LTCPP Deferrals (maximum 70 percent deferral election)
Excess Base Pay Deferrals (flat six percent deferral election)
Supplemental Base Pay Deferrals earn matching contributions at a rate of six percent of the deferred amount
Up to six percent of Supplemental STIP Deferrals are matched dollar-for-dollar
Supplemental LTCPP Deferrals are not eligible for an employer matching contribution
Excess Base Pay Deferrals are matched 100 percent by the Company. This is provided to restore the matching opportunity that is not available under the qualified plan due to Internal Revenue Service tax code limitations.
All contributions vest immediately

Supplemental Employees' Investment Plan (SEIP) and Deferred Employees' Investment Plan (DEIP)

In addition to the 401(k) plan, all U.S.-based NEOs were previously allowed to participate in SEIP and DEIP. These plans were frozen to new participants and new salary deferrals in March of 2007. Pay deferred into SEIP and DEIP prior to January 1, 2005 remains in SEIP and DEIP. Pay deferred on and after January 1, 2005 was transferred to SDCP.

Perquisites

The Company provides NEOs a very limited number of perquisites that it and the Compensation Committee believe are reasonable and consistent with its overall compensation program, and necessary to remain competitive. The Compensation Committee annually reviews the levels of perquisites provided to the NEOs. Costs associated with perquisites provided by the Company are included in the 2009 All Other Compensation table on page 58. Descriptions of these perquisites are provided below:

Home security systems are provided to ensure the safety of our NEOs
Mr. Owens participates in the Director's Charitable Award program, which is provided to all directors of the Company, and is funded by life insurance arrangements for which the Company pays the premiums. Mr. Owens derives no direct financial benefit from the program.
The Director's Charitable Award program was discontinued for new directors after April 1, 2008. Directors as of that date were grandfathered under the program.
Limited personal use of the Company aircraft is permitted for security purposes and to allow the NEOs to devote additional time to Caterpillar business

Change in Control

Except as required by applicable law, Caterpillar has no special executive severance packages or contracts. Mr. Vittecoq has an employment contract, which is required under Swiss law. The change in control provisions are provided under our long-term and short-term plans and are standard provisions for these types of plans, which apply to all participants in those plans. Our change in control provisions have no direct correlation with other compensation decisions.

The change in control provisions generally provide accelerated vesting and maximum payout under the incentive plans. The change in control provisions impose a "double-trigger," whereby a change in control and termination of employment without cause within 12 months of the change in control are needed to trigger the change in control provisions. These provisions are intended to allow executives to evaluate business opportunities with the best interests of stockholders in mind, as opposed to maximizing their own personal interests. The terms of the change in control provisions are applicable to all employees covered by these plans and are not specific to the NEOs. Additionally, no payments are made for voluntary separation, resignation and termination for cause.

In the event of a change in control, maximum payout factors are assumed for amounts payable under the 1996 and 2006 Stock Option and LTIP.

LTIP allows for the maximum performance level, 150 percent payout factor, to be paid under each open plan cycle of the LTCPP. This is prorated based on the time of active employment during the performance cycle.
All unvested stock options, SARs, restricted stock and restricted stock units vest immediately
Stock options and SARs remain exercisable over the normal life of the grant
The ESTIP is assumed to achieve the maximum payout factor, 200 percent, under a change in control

Change in control information is disclosed in the "Potential Payments Upon Termination or Change in Control" section on page 64 of this proxy statement.

Tax and Accounting Implications

Deductibility of Compensation

The goal of the Compensation Committee is to comply with the requirements of Internal Revenue Code Section 162(m), to the extent possible, with respect to long-term and short-term incentive programs to avoid losing the deduction for compensation in excess of \$1 million paid to the chief executive officer and the three other most highly compensated officers (other than the chief financial officer). Caterpillar has generally structured performance-based compensation plans with the objective that amounts paid under those plans will be tax deductible and the plans must be approved by the Company's stockholders. However, the Compensation Committee may elect to provide compensation outside those requirements when necessary to achieve its compensation objectives.

Compensation Recoupment Policy

If the Board learns of any misconduct by an officer who contributed to the Company restating all or a portion of its financial statements, it will do what is required to correct the misconduct and prevent it from occurring again and, if appropriate, take necessary remedial action.

To determine the corrective action, the Board will review the situation to identify whether the restatement was the result of negligence, or intentional misconduct. The Board will require reimbursement of any bonus or incentive compensation awarded to an officer or cancel unvested restricted or deferred stock awards previously granted to the executive officer if all of the following apply:

The amount of the bonus or incentive compensation was calculated based on the achievement of certain financial results that were subsequently the subject of a restatement
The officer engaged in intentional misconduct that caused or partially caused the need for the restatement
The amount of the bonus or incentive compensation that would have been awarded to the executive had the financial results been properly reported would have been lower than the amount actually awarded

Additionally, at the Board's discretion, it may dismiss the officer, authorize legal action for breach of fiduciary duty or take other action to enforce the officer's obligations to the Company. In determining appropriate remedial action, the Board may take into account penalties or punishments imposed by third parties, such as law enforcement agencies, regulators or other authorities. The Board's power to determine the appropriate punishment for the wrongdoer is in addition to, and not in replacement of, third party actions.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the CD&A included in this proxy statement with management. The Compensation Committee is satisfied that the CD&A fairly and completely represents the philosophy, intent and actions of the Compensation Committee with regard to executive compensation. We recommend to the Board that the CD&A be included in this proxy statement and the Company's Annual Report on Form 10-K for filing with the SEC.

By the current members of the Compensation Committee consisting of:

David R. Goode (Chairman)

John R. Brazil Edward B. Rust, Jr. Joshua I. Smith

Executive Compensation Tables

						2009 Summary Compensation Table
Name and Principal Position	Year	Salary	Bonus2	Stock Awards3	Option Awards4	Non-Equity Incentive Plan Compensation5	Change in Pension Value and Nonqualified Deferred Compensation Earnings6	All Other Compensation7	Total
J.W. Owens	2009	\$1,550,004	\$ —	\$ 407,413	\$3,578,115	\$ 868,001	\$1,985,254	\$360,998	\$ 8,749,785
Chairman & CEO	2008	\$1,550,004	\$ —	\$ 981,794	\$7,461,609	\$4,353,227	\$2,932,489	\$377,413	\$17,656,536
	2007	\$1,512,504	\$300,000	\$1,186,354	\$7,136,911	\$4,442,998	\$2,575,395	\$324,147	\$17,478,309
D.R. Oberhelman	2009	\$ 729,996	\$ —	\$ 148,292	\$1,179,874	\$ 266,635	\$ 505,259	\$164,719	\$ 2,994,775
Group President	2008	\$ 729,996	\$ 60,000	\$ 284,238	\$2,577,707	\$1,495,186	\$ 619,845	\$124,812	\$ 5,891,784
	2007	\$ 729,996	\$198,000	\$ 289,631	\$2,610,192	\$1,666,505	\$ 568,400	\$121,431	\$ 6,184,155
R.P. Lavin1	2009	\$ 584,004	\$ —	\$ 132,644	\$1,055,465	\$ 196,257	\$ 366,197	\$148,887	\$ 2,483,454
Group President	2008	\$ 584,004	\$ 10,000	\$ 363,633	\$2,484,182	\$1,071,222	\$ 381,424	\$619,217	\$ 5,513,682
S.L. Levenick	2009	\$ 729,996	\$ —	\$ 132,644	\$1,055,465	\$ 264,505	\$ 621,419	\$144,239	\$ 2,948,268
Group President	2008	\$ 729,996	\$ 10,000	\$ 284,238	\$2,577,707	\$1,457,336	\$ 699,119	\$212,908	\$ 5,971,304
	2007	\$ 712,248	\$110,000	\$ 289,631	\$2,579,339	\$1,560,817	\$ 531,446	\$180,868	\$ 5,964,349
E.J. Rapp1	2009	\$ 584,004	\$ —	\$ 132,644	\$1,055,465	\$ 196,190	\$ 362,994	\$100,886	\$ 2,432,183
Group President	2008	\$ 584,004	\$ 10,000	\$ 323,936	\$2,453,022	\$1,071,010	\$ 312,921	\$ 49,348	\$ 4,804,241
G.R. Vittecoq8	2009	\$ 895,957	\$ —	\$ 140,003	\$1,113,944	\$ 327,253	\$ 882,754	\$ 35,838	\$ 3,395,749
Group President	2008	\$ 880,993	\$ 20,000	\$ 284,238	\$2,484,182	\$1,735,385	\$ 843,600	\$ 45,240	\$ 6,293,638
	2007	\$ 826,177	\$ 82,618	\$ 422,801	\$2,270,803	\$1,896,463	\$1,228,584	\$ 43,047	\$ 6,770,493
S.H. Wunning	2009	\$ 729,996	\$ —	\$ 132,644	\$1,055,465	\$ 264,925	\$ 481,115	\$168,011	\$ 2,832,156
Group President	2008	\$ 729,996	\$ 10,000	\$ 284,238	\$2,484,182	\$1,465,075	\$ 777,695	\$190,418	\$ 5,941,604
	2007	\$ 715,746	\$ 24,000	\$ 289,631	\$2,585,518	\$1,581,445	\$ 708,727	\$160,698	\$ 6,065,765
D.B. Burritt	2009	\$ 504,000	\$ —	\$ 89,945	\$ 505,129	\$ 144,791	\$ 438,896	\$ 59,212	\$ 1,741,973
Vice President & CFO	2008	\$ 494,751	\$ 25,000	\$ 169,478	\$1,024,730	\$ 858,879	\$ 436,890	\$ 88,269	\$ 3,097,997
	2007	\$ 454,503	\$ —	\$ 155,485	\$ 981,632	\$ 930,660	\$ 352,648	\$102,032	\$ 2,976,960

Mr. Lavin and Mr. Rapp were not NEOs in 2007.

² There was no Lump Sum Discretionary Cash Bonus awarded to NEOs for 2009 performance.

³ The following Restricted Stock Units (RSUs) were granted to NEOs on March 2, 2009: Mr. Owens — 20,152; Mr. Oberhelman — 7,335; Mr. Lavin — 6,561; Mr. Levenick — 6,561; Mr. Rapp — 6,561; Mr. Vittecoq — 6,925; Mr. Wunning — 6,561; and Mr. Burritt — 4,449. The amounts included in this column represent the aggregate grant date fair market value for RSUs and restricted stock granted in the years shown calculated in accordance with Financial Accounting Standards Board Standards Codification Topic 718, Compensation — Stock Compensation (FASB ASC Topic 718). In general, the aggregate grant date fair market value is the amount of the total expense the Company expects to report in its financial reporting over the equity award's vesting schedule. The amounts reported reflect the total accounting expense and do not reflect the actual value that will be realized by the NEO. Assumptions made in the calculation of these amounts are included in Note 2 "Stock based compensation" to the Company's consolidated financial statements for the fiscal year ended December 31, 2009, included in the Company's Annual Report on Form 10-K (Form 10-K) filed with the SEC on February 19, 2010.

⁴ The following SARs were granted to NEOs on March 2, 2009: Mr. Owens — 504,180; Mr. Oberhelman — 166,252; Mr. Lavin — 148,722; Mr. Levenick — 148,722; Mr. Rapp — 148,722; Mr. Vittecoq — 156,962; Mr. Wunning — 148,722; and Mr. Burritt — 71,176. The amounts included in this column represent the aggregate grant date fair market value for SARs granted in the years shown in accordance with FASB ASC Topic 718. In general, the aggregate grant date fair market value is the amount of the total expense the Company expects to report in its financial reporting over the equity award's vesting schedule. The amounts reported reflect the total accounting expense and do not reflect the actual value that will be realized by the NEO. Assumptions made in the calculation of these amounts are included in Note 2 "Stock based compensation" to the Company's consolidated financial statements for the fiscal year ended December 31, 2009, included in the Company's Form 10-K filed with the SEC on February 19, 2010.

⁵ The amounts in this column reflect the cash payments made to NEOs under the LTCPP with respect to performance over a three-year plan cycle from 2007 through 2009. The 2009 ESTIP or STIP did not trigger a payout, as the performance metrics of the plan(s) were not achieved.

⁶ Because NEOs do not receive "preferred" or "above market" earning on compensation deferred into SDCP, SEIP and/or DEIP, the amount shown represents only the change between the actuarial present value of each officer's total accumulated pension benefit between December 31, 2008 and December 31, 2009. The amount assumes the pension benefit is payable at each NEO's earliest unreduced retirement age based upon the officer's current compensation.

⁷ All Other Compensation for 2009 consists of the following items detailed in a separate table appearing on page 58: Matching contributions to the Company's 401(k) plan; matching contributions to SDCP/EIP; corporate aircraft usage: home security; life insurance premiums for Mr. Owens under the Directors' Charitable Award Program; and ISE allowances.

⁸ All amounts reported for Mr. Vittecoq were paid in Swiss Francs and have been converted to U.S. dollars using the exchange rate in effect on December 31, 2009 (1 Swiss Franc = .96340 US Dollar). Mr. Vittecoq's 2009 Swiss Franc base salary has remained constant from 2008's level at CHF 929,994. The conversion of Swiss Franc to the U.S. dollar amount inflates Mr. Vittecoq's reported base salary, as the U.S. dollar has depreciated against the Swiss Franc.

				2009 All Other Compensation Table
Name	Year	Matching Contributions 401(k)	Matching Contributions SDCP/EIP	Financial Counseling2	Corporate Aircraft3	Tax Gross-Up on Corporate Aircraft3	Home Security4	Director's Charitable Award Insurance Premiums5	Other6	Total All Other Compensation
J.W. Owens	2009	\$14,700	\$189,494	\$ —	\$116,523	\$ —	\$ 5,201	\$32,560	\$ 2,520	\$360,998
	2008	\$13,800	\$213,780	\$13,530	\$ 89,044	\$9,936	\$ 1,952	\$32,851	\$ 2,520	\$377,413
	2007	\$13,500	\$168,672	\$ 4,545	\$102,840	\$3,660	\$ 919	\$30,011	\$ —	\$324,147
D.R. Oberhelman	2009	\$14,700	\$ 71,491	\$ —	\$ 21,190	\$ —	\$55,718	\$ N/A	\$ 1,620	\$164,719
	2008	\$13,800	\$ 83,544	\$ 5,325	\$ 13,585	\$3,273	\$ 4,385	\$ N/A	\$ 900	\$124,812
	2007	\$13,500	\$ 72,726	\$ 4,975	\$ 21,000	\$4,795	\$ 4,435	\$ N/A	\$ —	\$121,431
R.P. Lavin	2009	\$14,700	\$ 51,974	\$ —	\$ 520	\$ —	\$ 950	\$ N/A	\$ 80,743	\$148,887
	2008	\$13,800	\$ 50,972	\$ 8,000	\$ —	\$ 98	\$ 1,520	\$ N/A	\$544,827	\$619,217
S.L. Levenick	2009	\$14,700	\$ 68,491	\$ —	\$ 58,500	\$ —	\$ 928	\$ N/A	\$ 1,620	\$144,239
	2008	\$13,800	\$ 35,280	\$ 8,000	\$ 51,376	\$2,572	\$ 1,094	\$ N/A	\$100,786	\$212,908
	2007	\$13,500	\$ 62,265	\$ 8,000	\$ 95,720	\$ 464	\$ 919	\$ N/A	\$ —	\$180,868
E.J. Rapp	2009	\$14,700	\$ 51,974	\$ —	\$ 32,587	\$ —	\$ 725	\$ N/A	\$ 900	\$100,886
	2008	\$13,800	\$ 21,240	\$ 8,000	\$ 3,458	\$1,047	\$ 903	\$ N/A	\$ 900	\$ 49,348
G.R. Vittecoq	2009	\$ N/A1	\$ 35,838	\$ —	\$ —	\$ —	\$ —	\$ N/A	\$ —	\$ 35,838
	2008	\$ N/A1	\$ 35,240	\$10,000	\$ —	\$ —	\$ —	\$ N/A	\$ —	\$ 45,240
	2007	\$ N/A1	\$ 33,047	\$10,000	\$ —	\$ —	\$ —	\$ N/A	\$ —	\$ 43,047
S.H. Wunning	2009	\$14,700	\$ 68,491	\$ —	\$ 83,200	\$ —	\$ —	\$ N/A	\$ 1,620	\$168,011
	2008	\$13,800	\$ 75,242	\$18,575	\$ 81,181	\$ —	\$ —	\$ N/A	\$ 1,620	\$190,418
	2007	\$13,500	\$ 65,178	\$ 8,000	\$ 74,020	\$ —	\$ —	\$ N/A	\$ —	\$160,698
D.B. Burritt	2009	\$14,700	\$ 42,684	\$ —	\$ —	\$ —	\$ 928	\$ N/A	\$ 900	\$ 59,212
	2008	\$13,800	\$ 44,390	\$ 6,600	\$ 20,254	\$1,423	\$ 902	\$ N/A	\$ 900	\$ 88,269
	2007	\$13,500	\$ 39,647	\$ 7,500	\$ 38,880	\$1,586	\$ 919	\$ N/A	\$ —	\$102,032

¹ Mr. Vittecoq participates in a non-U.S. Employee Investment Plan.

The amount shown also includes the premium cost of Company provided basic life insurance under a Group Variable Universal Life policy. The coverage amount is two times base salary, capped at \$500,000. The premium cost is as follows: Mr. Owens — \$2,520; Mr. Oberhelman — \$1,620; Mr. Lavin — \$1,620; Mr. Levenick — \$1,620; Mr. Rapp — \$900; Mr. Wunning — \$1,620; and Mr. Burritt — \$900. Mr. Vittecoq is not covered under a Company sponsored life insurance product.

² The Officers Financial Counseling Program was eliminated effective January 1, 2009.

³ Several of our NEOs serve as board members for other corporations at the request of the Company, and the personal usage noted above primarily consists of NEO flights to attend these outside board meetings. Under the rules of the SEC, use of aircraft for this purpose is deemed to be personal, even though Caterpillar considers these flights beneficial to the Company and for a business purpose. Other personal usage is limited to the NEOs, their spouses or other guests, and CEO approval is required for all personal use. The value of personal aircraft usage reported above is based on Caterpillar's incremental cost per flight hour, including the weighted average variable operating cost of fuel, oil, aircraft maintenance, landing and parking fees, catering and other smaller variable costs. Occasionally, a spouse or other guest may accompany the NEO, and if the Company aircraft is already scheduled for business purposes and can accommodate additional passengers, no additional variable operating cost is incurred. Effective January 1, 2009, the tax gross-up on spousal accompanied travel was eliminated. Company aircraft is provided for security purposes and allows the NEOs to devote additional time to Caterpillar business.

⁴ Amounts reported for Home Security represent the cost provided by an outside security provider for hardware and monitoring service. The incremental cost associated with the home security services is determined based upon the amounts paid to the outside service provider.

Mr. Owens received no direct compensation for serving on the Board, but is entitled to participate in the Directors' Charitable Award Program. The amount reported includes Company paid life insurance premiums and administrative fees for Mr. Owens' participation in the program.

⁶ Mr. Lavin was an International Service Employee (ISE) based in China until his return to the U.S. in December of 2007. The amount shown includes foreign service allowances typically paid by the Company on behalf of ISEs, including allowances for Mr. Lavin's foreign and U.S. taxes attributable to his international service assignment. These allowances are intended to ensure that our ISEs are in the same approximate financial position as they would have been if they lived in the U.S. during the time of their international service.

					Grants of Plan-Based Awards in 2009
			Estimated Future Payouts Under Non-Equity Incentive Plan Awards1
Name	Grant Date	Threshold	Target	Maximum	All Other Stock Awards: Number of Shares of Stock or Units2	All Other Option Awards: Number of Securities Underlying Options3	Exercise or Base Price of Option Awards (\$/share)	Grant Date Fair Value of Stock and Option Awards (\$)4
J.W. Owens	LTCPP	\$1,317,503	\$2,635,007	\$3,952,510	—	—	\$ —	\$ —
	ESTIP	\$ 627,752	\$2,092,505	\$4,000,000	—	—	\$ —	\$ —
	03/02/2009	\$ —	\$ —	\$ —	20,152	—	\$ —	\$ 407,413
	03/02/2009	\$ —	\$ —	\$ —	—	504,180	\$22.17	\$3,578,115
D.R. Oberhelman	LTCPP	\$ 626,117	\$1,252,234	\$1,878,351	—	—	\$ —	\$ —
	ESTIP	\$ 218,999	\$ 729,996	\$1,459,992	—	—	\$ —	\$ —
	03/02/2009	\$ —	\$ —	\$ —	7,335	—	\$ —	\$ 148,292
	03/02/2009	\$ —	\$ —	\$ —	—	166,252	\$22.17	\$1,179,874
R.P. Lavin	LTCPP	\$ 321,202	\$ 642,404	\$ 963,607	—	—	\$ —	\$ —
	ESTIP	\$ 175,201	\$ 584,004	\$1,168,008	—	—	\$ —	\$ —
	03/02/2009	\$ —	\$ —	\$ —	6,561	—	\$ —	\$ 132,644
	03/02/2009	\$ —	\$ —	\$ —	—	148,722	\$22.17	\$1,055,465
S.L. Levenick	LTCPP	\$ 401,498	\$ 802,996	\$1,204,493	—	—	\$ —	\$ —
	ESTIP	\$ 218,999	\$ 729,996	\$1,459,992	—	—	\$ —	\$ —
	03/02/2009	\$ —	\$ —	\$ —	6,561	—	\$ —	\$ 132,644
	03/02/2009	\$ —	\$ —	\$ —	—	148,722	\$22.17	\$1,055,465
E.J. Rapp	LTCPP	\$ 321,202	\$ 642,404	\$ 963,607	—	—	\$ —	\$ —
	ESTIP	\$ 175,201	\$ 584,004	\$1,168,008	—	—	\$ —	\$ —
	03/02/2009	\$ —	\$ —	\$ —	6,561	—	\$ —	\$ 132,644
	03/02/2009	\$ —	\$ —	\$ —	—	148,722	\$22.17	\$1,055,465
G.R. Vittecoq	LTCPP	\$ 492,776	\$ 985,552	\$1,478,328	—	—	\$ —	\$ —
	ESTIP	\$ 268,787	\$ 895,956	\$1,791,912	—	—	\$ —	\$ —
	03/02/2009	\$ —	\$ —	\$ —	6,925	—	\$ —	\$ 140,003
	03/02/2009	\$ —	\$ —	\$ —	—	156,962	\$22.17	\$1,113,944
S.H. Wunning	LTCPP	\$ 401,498	\$ 802,996	\$1,204,493	—	—	\$ —	\$ —
	ESTIP	\$ 218,999	\$ 729,996	\$1,459,992	—	—	\$ —	\$ —
	03/02/2009	\$ —	\$ —	\$ —	6,561	—	\$ —	\$ 132,644
	03/02/2009	\$ —	\$ —	\$ —	—	148,722	\$22.17	\$1,055,465
D.B. Burritt	LTCPP	\$ 226,800	\$ 453,600	\$ 680,400	—	—	\$ —	\$ —
	STIP	\$ 133,583	\$ 445,276	\$ 890,552	—	—	\$ —	\$ —
	03/02/2009	\$ —	\$ —	\$ —	4,449	—	\$ —	\$ 89,945
	03/02/2009	\$ —	\$ —	\$ —	—	71,176	\$22.17	\$ 505,129

¹ The amounts reported in this column are estimated awards under the LTCPP, ESTIP and STIP. The LTCPP estimates are based upon a predetermined percentage of an executive's base salary throughout the three-year cycle, and Caterpillar's achievement of specified performance levels (relative PPS growth and return on assets) over the three-year period. The threshold amount is earned if at least 50 percent of the targeted performance level is achieved. The target amount is earned if at least 100 percent of the targeted performance level is achieved. The maximum award is earned at 150 percent or greater of the targeted performance level. Base salary levels for 2009 were used to calculate the estimated dollar value of future payments for the 2009 to 2011 performance cycle. The ESTIP estimates are based upon the executive's base salary for 2009, and the achievement of specific performance metrics (75 percent Corporate Return on Assets and 25 percent Enterprise Quality). Prior to any ESTIP payout, a profit per share of \$2.50 must be achieved for a payout to occur. The STIP estimate for Mr. Burritt was based upon his base salary for 2009, and the achievement of specific performance metrics (87.5 percent Corporate Return on Assets and 12.5 percent Enterprise Quality). Prior to any STIP payout, a profit per share of \$2.50 must be achieved for a payout to occur. For the 2009 ESTIP and STIP, the threshold amount was earned if at least 30 percent of the targeted performance level was achieved. The target amount was earned if at least 70 percent of the targeted performance level was achieved. The maximum award was earned at 200 percent or greater of the targeted performance level, with a plan cap set at \$4,000,000. The 2009 ESTIP and STIP performance metrics were not achieved, and there was no cash payout for the 2009 plan year to report in the column "Non-Equity Incentive Plan Compensation" of the Summary Compensation table.

² All RSUs are granted to the NEOs under the LTIP and will vest three years from the grant date. Plan provisions exist for accelerated vesting in the event of termination due to long-service separation (age 55 with 10 or more years of Company service), death, total disability or change in control. The actual realizable value of the RSU will depend on the fair market value of Caterpillar stock at the time of vesting.

³ Amounts reported represent SARs granted under the LTIP. The base price for all SARs granted to the NEOs is the closing price of Caterpillar stock on the grant date. The grant price was based upon the closing price (\$22.17) for Caterpillar stock on the grant date of March 2, 2009. All SARs granted to the NEOs will vest three years from the grant date. Plan provisions exist for accelerated vesting in the event of termination due to long-service separation (age 55 with 10 or more years of Company service), death, total disability or change in control. The actual realizable value of the SAR will depend on the fair market value of Caterpillar stock at the time of exercise.

⁴ The amounts shown do not reflect realized compensation by the NEO. The amounts shown represent the value of the SAR and RSU awards granted to the NEOs based upon the grant date value of the award as determined in accordance with FASB ASC Topic 718.

				Option	Awards		Stock A	Awards
Name	Grant Date	Vesting Date	Underlying	f Securities Unexercised Options Unexercisable	SAR/Option Exercise Price	SAR/Option Expiration Date ¹	Number of Shares or Units of Stock That Have Not Vested ²	Market Value of Shares or Units of Stock That Have Not Vested ³
J.W. Owens	06/12/2001	06/12/2004	108,000	_	\$26.7650	06/12/2011	_	\$ —
o.w. owono	06/11/2002	06/11/2005	122,000		\$25.3575	06/11/2012	_	\$ —
		06/10/2006		_			_	\$ — \$ —
	06/10/2003		140,000	_	\$27.1425	06/10/2013	_
	06/08/2004	12/31/2004	460,000	_	\$38.6275	06/08/2014	_	\$ —
	02/18/2005	02/18/2005	460,000	_	\$45.6425	02/18/2015	_	\$ —
	02/17/2006	02/17/2009	300,000	_	\$72.0500	02/17/2016	_	\$ —
	03/02/2007	03/02/2010	_	344,198	\$63.0400	03/02/2017	_	\$ —
	03/03/2008	03/03/2011	_	334,288	\$73.2000	03/03/2018	_	\$ —
	03/02/2009	03/02/2012	_	504,180	\$22.1700	03/02/2019	_	\$ —
	_	_	_	_	\$ —	_	48,5834	\$2,768,745
	_	_	_	_	\$ —	_	11,6645	\$ 664,731
D.R. Oberhelman	06/12/2001	06/12/2004	48,000	_	\$26.7650	06/12/2011	_	\$ —
	06/11/2002	06/11/2005	122,000	_	\$25.3575	06/11/2012	_	\$ —
	06/10/2003	06/10/2006	140,000	_	\$27.1425	06/10/2013	_	\$ —
	06/08/2004	12/31/2004	140,000	_	\$38.6275	06/08/2014	_	\$ —
	02/18/2005	02/18/2005	140,000		\$45.6425	02/18/2015		\$ —
				_			_
	02/17/2006	02/17/2009	110,000	-	\$72.0500	02/17/2016	_	\$ —
	03/02/2007	03/02/2010	_	125,884	\$63.0400	03/02/2017	_	\$ —
	03/03/2008	03/03/2011	_	115,484	\$73.2000	03/03/2018	_	\$ —
	03/02/2009	03/02/2012	_	166,252	\$22.1700	03/02/2019	_	\$ —
	_	_	_	_	\$ —	_	16,276 ⁶	\$ 927,570
	_	_	_	_	\$ —	_	1,330 ⁷	\$ 75,797
R.P. Lavin	06/10/2003	06/10/2006	20,000	_	\$27.1425	06/10/2013	_	\$ —
	06/08/2004	12/31/2004	70,000	_	\$38.6275	06/08/2014	_	\$ —
	02/18/2005	02/18/2005	70,000	_	\$45.6425	02/18/2015	_	\$ —
	02/17/2006	02/17/2009	48,000	_	\$72.0500	02/17/2016	_	\$ —
	03/02/2007	03/02/2010	_	47,580	\$63.0400	03/02/2017	_	\$ —
	03/03/2008	03/03/2011	_	111,294	\$73.2000	03/03/2018	_	\$ —
	03/02/2009	03/02/2012	_	148,722	\$22.1700	03/02/2019	_	\$ —
	00/02/2003	00/02/2012		140,722	\$ —	00/02/2013	13,2648	\$ 755,915
	_	_	_	_		_
0.1.1	-	-	-	_	\$ —		2,332 ⁹	\$ 132,901
S.L. Levenick	06/10/2003	06/10/2006	54,000	_	\$27.1425	06/10/2013	_	\$ —
	06/08/2004	12/31/2004	126,000	_	\$38.6275	06/08/2014	_	\$ —
	02/18/2005	02/18/2005	130,000	_	\$45.6425	02/18/2015	_	\$ —
	02/17/2006	02/17/2009	105,000	_	\$72.0500	02/17/2016	_	\$ —
	03/02/2007	03/02/2010	_	124,396	\$63.0400	03/02/2017	_	\$ —
	03/03/2008	03/03/2011	_	115,484	\$73.2000	03/03/2018	_	\$ —
	03/02/2009	03/02/2012	_	148,722	\$22.1700	03/02/2019	_	\$ —
	_	_	_	_	\$ —	_	15,50210	\$ 883,459
	_	_	_	_	\$ —	_	66611	\$ 37,955
E.J. Rapp	06/12/2001	06/12/2004	24,000	_	\$26.7650	06/12/2011		\$ —
	06/10/2003	06/10/2006	54,000	_	\$27.1425	06/10/2013	_	\$ —
	06/08/2004	12/31/2004	60,000		\$38.6275	06/08/2014		\$ —
	02/18/2005	02/18/2005			\$45.6425
			60,000			02/18/2015	_	\$ —
	02/17/2006	02/17/2009	48,000	47.044	\$72.0500	02/17/2016	_	\$ —
	03/02/2007	03/02/2010		47,044	\$63.0400	03/02/2017	_	\$ —
	03/03/2008	03/03/2011	_	109,898	\$73.2000	03/03/2018	_	\$ —
	03/02/2009	03/02/2012	_	148,722	\$22.1700	03/02/2019	_	\$ —
	_	_	_	_	\$ —	_	13,26412	\$ 755,915
	_	_	_	_	\$ —	_	1,50013	\$ 85,485

(table continued on next page)

	Oı	utstanding Ed	quity Awards	at 2009 Fisc	al Year-End	(continued)
				Option	Awards		Stock /	Awards
			Underlying	Securities Unexercised Options	SAR/Option	SAR/Option Expiration	Number of Shares or Units of Stock That Have Not	Market Value of Shares or Units of Stock That Have Not
Name	Grant Date	Vesting Date	Exercisable	Unexercisable	Exercise Price	Date ¹	Vested ²	Vested ³
G.R. Vittecoq	06/12/2001	06/12/2004	48,000	_	\$26.7650	06/12/2011	_	\$ —
	06/11/2002	06/11/2005	54,000	_	\$25.3575	06/11/2012	_	\$ —
	06/10/2003	06/10/2006	54,000	_	\$27.1425	06/10/2013	_	\$ —
	06/08/2004	12/31/2004	126,000	_	\$38.6275	06/08/2014	_	\$ —
	02/18/2005	02/18/2005	130,000	_	\$45.6425	02/18/2015	_	\$ —
	02/17/2006	02/17/2009	95,000	_	\$72.0500	02/17/2016	_	\$ —
	03/02/2007	03/02/2010	_	109,516	\$63.0400	03/02/2017	_	\$ —
	03/03/2008	03/03/2011	_	111,294	\$73.2000	03/03/2018	_	\$ —
	03/02/2009	03/02/2012	_	156,962	\$22.1700	03/02/2019	_	\$ —
	_	_	_	_	\$ —	_	15,86614	\$ 904,204
	_	_	_	_	\$ —	_	2,17715	\$ 124,067
S.H. Wunning	06/11/2002	06/11/2005	60,000	_	\$25.3575	06/11/2012	_	\$ —
_	06/10/2003	06/10/2006	54,000	_	\$27.1425	06/10/2013	_	\$ —
	06/08/2004	12/31/2004	126,000	_	\$38.6275	06/08/2014	_	\$ —
	02/18/2005	02/18/2005	130,000	_	\$45.6425	02/18/2015	_	\$ —
	02/17/2006	02/17/2009	95,000	_	\$72.0500	02/17/2016	_	\$ —
	03/02/2007	03/02/2010	_	124,694	\$63.0400	03/02/2017	_	\$ —
	03/03/2008	03/03/2011	_	111,294	\$73.2000	03/03/2018	_	\$ —
	03/02/2009	03/02/2012	_	148,722	\$22.1700	03/02/2019	_	\$ —
	_	_	_	_	\$ —	_	15,502 ¹⁶	\$ 883,459
D.B. Burritt	06/10/2003	06/10/2006	23,100	_	\$27.1425	06/10/2013	_	\$ —
	06/08/2004	12/31/2004	23,100	_	\$38.6275	06/08/2014	_	\$ —
	02/18/2005	02/18/2005	54,000	_	\$45.6425	02/18/2015	_	\$ —
	02/17/2006	02/17/2009	48,000		\$72.0500	02/17/2016	_	\$ —
	03/02/2007	03/02/2010	_	47,342	\$63.0400	03/02/2017	_	\$ —
	03/03/2008	03/03/2011	_	45,909	\$73.2000	03/03/2018	_	\$ —
	03/02/2009	03/02/2012	_	71,176	\$22.1700	03/02/2019	_	\$ —
	_	_	_	_	\$ —	_	9,49317	\$ 541,007

^1 SARs granted in 2009 are exercisable three years after the grant date. The SARs were granted with a 10-year term, subject to earlier termination in the event of separation from service.

^2 In addition to the RSUs and restricted stock granted in 2009 to the NEOs (reported in the 2009 Summary Compensation Table), the amounts shown also include the portion of any prior grants that were not vested as of December 31, 2009. Plan provisions exist for accelerated vesting in the event of termination due to long-service separation (age 55 with 10 or more years of company service), death, total disability or change in control.

^3 The market value of the non-vested RSUs and restricted shares (or equivalent shares in the case of Mr. Vittecoq) is calculated using the closing price of Caterpillar common stock on December 31, 2009 (\$56.99 per share).

^4 This amount includes 14,238 RSUs that are scheduled to vest on March 2, 2010; 14,193 RSUs scheduled to vest on March 3, 2011; and 20,152 RSUs scheduled to vest on March 2, 2012.

^5 This amount includes 6,664 shares of restricted stock scheduled to vest on March 1, 2010; 1,667 shares scheduled to vest on April 2, 2010; 1,667 shares scheduled to vest on April 2, 2011; and 1,666 shares scheduled to vest on April 2, 2012.

^6 This amount includes 4,832 RSUs that are scheduled to vest on March 2, 2010; 4,109 RSUs scheduled to vest on March 3, 2011; and 7,335 RSUs scheduled to vest on March 2, 2012.

^7 This amount includes 998 shares of restricted stock scheduled to vest on March 1, 2010, and 332 shares scheduled to vest on March 1, 2011.

^8 This amount includes 2,594 RSUs that are scheduled to vest on March 2, 2010; 4,109 RSUs scheduled to vest on March 3, 2011; and 6,561 RSUs scheduled to vest on March 2, 2012.

^9 This amount includes 332 shares of restricted stock scheduled to vest on March 1, 2010; 334 shares scheduled to vest on April 2, 2010; 334 shares scheduled to vest on April 1, 2011; 333 shares scheduled to vest on April 2, 2012; and 333 shares scheduled to vest on April 1, 2013.

^10 This amount includes 4,832 RSUs that are scheduled to vest on March 2, 2010; 4,109 RSUs scheduled to vest on March 3, 2011; 6,561 RSUs scheduled to vest on March 2, 2012

¹¹ This amount includes 334 shares of restricted stock scheduled to vest on March 1, 2010, and 332 shares scheduled to vest on March 1, 2011.

^12 This amount includes 2,594 RSUs that are scheduled to vest on March 2, 2010; 4,109 RSUs scheduled to vest on March 3, 2011; and 6,561 RSUs scheduled to vest on March 2, 2012.

^13 This amount includes 334 shares of restricted stock scheduled to vest on April 2, 2010; 167 shares scheduled to vest on April 1, 2011; 333 shares scheduled to vest on April 2, 2011; 167 shares scheduled to vest on April 1, 2012; 333 shares scheduled to vest on April 2, 2012; and 166 shares scheduled to vest on April 1, 2013.

^14 This amount includes 4,832 RSUs that are scheduled to vest on March 2, 2010; 4,109 RSUs scheduled to vest on March 3, 2011; and 6,925 RSUs scheduled to vest on March 2, 2012.

^15 This amount includes 726 shares of restricted stock (in phantom form) scheduled to vest on April 2, 2010; 726 shares (in phantom form) scheduled to vest on April 2, 2011; and 725 shares (in phantom form) scheduled to vest on April 2, 2012.

^16 This amount includes 4,832 RSUs that are scheduled to vest on March 2, 2010; 4,109 RSUs scheduled to vest on March 3, 2011; and 6,561 RSUs scheduled to vest on March 2, 2012.

^17 This amount includes 2,594 RSUs that are scheduled to vest on March 2, 2010; 2,450 RSUs scheduled to vest on March 3, 2011; and 4,449 RSUs scheduled to vest on March 2, 2012.

	2009 Option Exercises and Stock Vested
		Option Awards1		Stock Awards2
Name	Number of Shares Acquired on Exercise	Value Realized on Exercise	Number of Shares Acquired on Vesting	Value Realized on Vesting
J.W. Owens	108,000	\$3,090,074	6,668	\$153,964
D.R. Oberhelman	2,601	\$ 71,467	3,002	\$ 80,136
R.P. Lavin	42,132	\$ 845,651	998	\$ 26,636
S.L. Levenick	54,000	\$1,351,485	334	\$ 7,712
E.J. Rapp	83,202	\$2,751,209	664	\$ 18,924
G.R. Vittecoq	23,968	\$ 802,947	—	\$ —
S.H. Wunning	48,000	\$1,025,520	—	\$ —
D.B. Burritt	—	\$ —	—	\$ —

¹ Upon exercise, option holders may surrender shares to pay the option exercise price and satisfy income tax-withholding requirements. The amounts shown are gross amounts absent netting for shares surrendered.

² Upon release of the restricted stock, shares are surrendered to satisfy income tax-withholding requirements. The amounts shown are gross amounts absent netting for shares surrendered. Mr. Vittecoq received a cash payment for the value of his equivalent restricted shares. Equivalent restricted shares are issued to Mr. Vittecoq as they provide a tax efficient award under Swiss tax law.

		2009 Pension Benefits
Name	Plan Name1	Number of Years of Credited Service2	Present Value of Accumulated Benefit3	Payments During Last Fiscal Year
J.W. Owens	RIP	35.00	\$ 2,093,089	\$ —
	SERP	35.00	\$16,124,598	\$ —
D.R. Oberhelman	RIP	34.50	\$ 1,571,646	\$ —
	SERP	34.50	\$ 4,717,927	\$ —
R.P. Lavin	RIP	25.25	\$ 1,221,891	\$ —
	SERP	25.25	\$ 2,178,279	\$ —
S.L. Levenick	RIP	32.50	\$ 1,480,536	\$ —
	SERP	32.50	\$ 3,746,719	\$ —
E.J. Rapp	RIP	30.50	\$ 1,090,700	\$ —
	SERP	30.50	\$ 1,740,514	\$ —
G.R. Vittecoq	Caprevi, Prevoyance	34.17	\$11,843,800	\$ —
S.H. Wunning	RIP	35.00	\$ 1,782,196	\$ —
	SERP	35.00	\$ 4,716,839	\$ —
D.B. Burritt	RIP	31.92	\$ 1,265,440	\$ —
	SERP	31.92	\$ 1,621,002	\$ —

¹ Caterpillar Inc. Retirement Income Plan (RIP) is a noncontributory U.S. qualified defined benefit pension plan and the Supplemental Retirement Plan (SERP) is a U.S. non-qualified pension plan. The benefit formula is 1.5 percent for each year of service (capped at 35 years) multiplied by the final average earnings during the highest five of the final ten years of employment. Final average earnings include base salary, short-term incentive compensation and deferred compensation. If an employee's annual retirement income benefit under the qualified plan exceeds the Internal Revenue Code limitations, the excess benefits are paid from SERP. SERP is not funded. The same formula is used to calculate the benefits payable in both the SERP and RIP. Mr. Vittecoq participates in Caprevi, Prevoyance Caterpillar, a Swiss pension benefit plan. The Swiss plan requires participants to contribute approximately seven percent of pensionable income to the plan. The benefit formula is 1.75 percent for each year of service multiplied by the final average earnings for the highest three years of a participant's career. Final average earnings consist of base salary and short-term incentive pay, reduced by a prescribed percentage to arrive at "salary considered for contribution." The benefit can be received in a 100 percent lump sum payment or annuity.

² Mr. Owens and Mr. Wunning have more than 35 years of service with the Company. Amounts payable under both RIP and SERP are based upon a maximum of 35 years of service. All RIP and SERP participants may receive their benefit immediately following termination of employment, or may defer benefit payments until any time between early retirement age and normal retirement age. Normal retirement age is defined as age 65 with five years of service. Early retirement is defined as: any age with 30 years of service; age 55 with 15 years of service; age plus service = 85 points; or age 60 with 10 years of service. If a participant elects early retirement, benefits are reduced by four percent per year, before age 62. Currently, all NEOs are eligible to retire. Mr. Lavin, Mr. Levenick, Mr. Oberhelman, Mr. Rapp, Mr. Wunning and Mr. Burritt are eligible for early retirement, with a four percent reduction per year under age 62. Mr. Vittecoq is eligible under the Swiss pension plan for a retirement benefit with no reduction.

³ The amount in this column represents the actuarial present value for each NEO's accumulated pension benefit on December 31, 2009, assuming benefits are payable at each NEO's earliest unreduced retirement age based upon current level of pensionable income. The interest rate of 5.80 percent and the RP2000 mortality table used in the calculations are based upon the FASB ASC 715 disclosure on December 31, 2009. Mr. Vittecoq's pension measurement date changed from a fiscal (September to September) date to a calendar date in 2009. Mr. Vittecoq's lump sum present value accumulated benefit is based upon the 12 month pension measurement date ending on December 31, 2009. The EVK 2000 mortality table and the Swiss disclosure interest rate of 3.25 percent were used to calculate Mr. Vittecoq's benefit.

			2009 Nonqualified Deferred Compensation1
Name	Plan Name	Executive Contributions in 20091	Registrant Contributions in 20092	Aggregate Earnings in 20093	Aggregate Balance at 12/31/094
J.W. Owens	SDCP	\$189,494	\$189,494	\$491,230	\$1,833,156
	SEIP	\$ —	\$ —	\$168,362	\$ 709,933
	DEIP	\$ —	\$ —	\$257,481	\$1,105,316
D.R. Oberhelman	SDCP	\$ 71,491	\$ 71,491	\$370,307	\$1,219,547
	SEIP	\$ —	\$ —	\$122,680	\$ 500,324
	DEIP	\$ —	\$ —	\$161,667	\$ 659,323
R.P. Lavin	SDCP	\$161,400	\$ 51,974	\$303,969	\$ 760,181
	SEIP	\$ —	\$ —	\$ 45,051	\$ 183,732
	DEIP	\$ —	\$ —	\$ 3,012	\$ 12,285
S.L. Levenick	SDCP	\$240,040	\$ 68,491	\$379,830	\$2,125,909
	SEIP	\$ —	\$ —	\$ 7,337	\$ 30,444
	DEIP	\$ —	\$ —	\$531,671	\$3,317,614
E.J. Rapp	SDCP	\$ 51,974	\$ 51,974	\$340,888	\$1,222,127
	SEIP	\$ —	\$ —	\$ 11,419	\$ 47,596
	DEIP	\$ —	\$ —	\$ 79,997	\$ 611,986
G.R. Vittecoq	EIP	\$ 53,757	\$ 35,838	\$542,394	\$2,197,860
S.H. Wunning	SDCP	\$390,255	\$ 68,491	\$297,176	\$2,362,309
	SEIP	\$ —	\$ —	\$ 80,492	\$ 328,566
	DEIP	\$ —	\$ —	\$222,581	\$ 909,210
D.B. Burritt	SDCP	\$151,304	\$ 42,684	\$ 72,914	\$ 606,364
	SEIP	\$ —	\$ —	\$ 399	\$ 17,231
	DEIP	\$ —	\$ —	\$ 12,920	\$ 96,227

¹ The Supplemental Deferred Compensation Plan (SDCP) is a non-qualified deferred compensation plan created in March of 2007 with a retroactive effective date of January 1, 2005, which effectively replaced the existing plans, Supplemental Employees' Investment Plan (SEIP) and Deferred Employees' Investment Plan (DEIP). All future contributions will be made under SDCP.

² SDCP allows eligible U.S. employees, including all NEOs (except Mr. Vittecoq), to voluntarily defer a portion of their base salary and short-term incentive pay into the plan and receive a Company matching contribution. LTCPP pay may also be deferred, but does not qualify for any Company matching contributions. Mr. Vittecoq is a participant in a non-U.S. Employee Investment Plan that allows him to contribute a portion of his base salary to the plan and receive a Company matching contribution. Amounts deferred by executives in 2009 for base salary, short-term incentive pay and/or long-term cash performance payouts are included in the 2009 Summary Compensation Table. Matching contributions in non-qualified deferred compensation plans made by Caterpillar in 2009 are also included in the 2009 All Other Compensation Table under the Matching Contributions SDCP column. SDCP participants may elect a lump sum payment, or an installment distribution payable for up to 15 years after separation.

³ Aggregate earnings comprise interest, dividends, capital gains and appreciation/depreciation of investment results.

⁴ This column includes any amounts deferred under SEIP and/or DEIP prior to the creation of SDCP. The investment choices available to the participant mirror those of our 401(k) plan. Amounts in this column were previously reported in the Summary Compensation table for the years 2007-2009 as follows: Mr. Owens \$1,143,892; Mr. Oberhelman \$595,261; Mr. Lavin \$315,318; Mr. Levenick \$829,753; Mr. Rapp \$146,428; Mr. Vittecoq \$260,313; Mr. Wunning \$1,396,360; and Mr. Burritt \$362,062.

Potential Payments Upon Termination or Change in Control

General

Caterpillar does not have any special severance agreements or packages (such as golden parachutes) under which payments are to be made to any NEO. Potential payments to NEOs may, however, be available under the terms of existing compensation and benefit programs in the case of 1) termination (including voluntary separation, termination for cause or long-service separation) or 2) a change in control of the Company. The terms applicable to these potential payments in various termination scenarios are discussed below.

The following payments are not quantified in the following tabular information: Payments that would be provided to an NEO under plans generally available to management employees who are similarly situated to the NEOs in age, years of service, date of hire, etc. and that do not discriminate in favor of the NEOs (such as death and disability benefits, retiree medical and life insurance benefits). The discussion below assumes that each NEO is eligible for benefits unless otherwise noted.

The following narrative and tabular information describes and quantifies certain payments and benefits that would become payable under existing plans and arrangements if the named executive's employment had terminated on December 31, 2009. The information is provided relative to the NEO's compensation and service levels as of the date specified. If applicable, they are based on the Company's closing stock price on December 31, 2009.

Terms of Potential Payments — Termination

The terms of potential payments to NEOs in each of the following termination scenarios under existing compensation and benefit programs follows:

Voluntary Separation (resignation or termination without cause)
Termination for Cause (termination)
Long-Service Separation (retirement)

Equity awards

Unvested equity awards granted to NEOs in accordance with the long-term plan become fully vested and exercisable upon retirement. In the event of resignation, NEOs keep vested equity awards but forfeit any that are not yet vested. If terminated, equity awards that are outstanding (whether vested or unvested) will expire. Potential amounts and assumptions regarding equity awards are included in the Potential Payments upon Termination or Change in Control table (Potential Payments table) on page 66. These terms are applicable to all employees covered by the LTIP.

Short-term incentive pay

In the event of retirement at December 31, 2009, NEOs would be eligible to receive the amount otherwise payable to them for the 2009 plan year under their applicable STIP. In the case of termination or resignation at December 31, 2009, the NEO would forfeit all short-term incentive pay. Potential amounts and assumptions regarding the short-term incentive pay are included in the Potential Payments table on page 66.

Long-term performance awards

In the event of retirement at December 31, 2009, NEOs would be eligible to receive amounts otherwise payable to them under the LTCPP feature of the Caterpillar Inc. 2006 Long-Term Incentive Plan and the 1996 Stock Option and Long-Term Incentive Plan. The NEOs' eligibility and award amount would be determined at the conclusion of the performance period, depending on the achievement of the established performance criteria. Potential amounts and assumptions regarding the short-term incentive pay are included in the Potential Payments table on page 66. These terms are applicable to all employees covered by these long-term plans.

Deferred compensation

The 2009 Nonqualified Deferred Compensation table on page 63 describes unfunded, non-qualified deferred compensation plans that permit the deferral of salary, bonus and short-term cash performance awards by NEOs. These plans also provide for matching contributions by the Company. LTCPP pay may also be deferred, but is not eligible for a Company matching contribution.

NEOs are eligible to receive the amount in their deferred compensation accounts following termination under any termination scenario unless the named executive elects to further defer payment as permitted by the plans. The Non-Qualified Deferred Compensation column of the Potential Payments table assumes the NEO terminated employment at December 31, 2009 with no further deferral of payments.

Severance pay

Other than in accordance with the terms of existing compensation and benefit programs, the Company is not obligated to provide any special severance payments to any NEOs.

Perquisites

In the event of retirement, perquisites such as security may be provided to the NEO, at the discretion of the Compensation Committee.

Pension benefits

The footnotes to the 2009 Pension Benefits table on page 62 include a description of the defined benefit pension plans (qualified and non-qualified) in which the NEOs participate, including the years of credited service and the present value of each NEO's accumulated pension benefit. These pension benefits are available to management employees generally and are not quantified in the tabular information in the Potential Payments table.

Terms & Potential Payments — Change in Control

Change in control provisions within our long and short-term plans generally provide for accelerated vesting. Potential payment amounts and assumptions are included in the following Potential Payments table. These change in control provisions are designed so that employees are not harmed in the event of termination of employment without cause or for good reason within 12 months following a change in control. The provisions are intended to ensure that executives evaluate business opportunities in the best interests of stockholders. The terms are applicable to all employees covered by these plans and there are no payments made for voluntary separation, resignation or termination for cause.

			Equity Awards		Incentive
Name	Termination Scenario	Stock Options/ SARs1	Restricted Stock/RSUs2	Short-term Incentive3	Long-term Incentive4	Non-Qualified Deferred Compensation5	Total
J.W. Owens	Voluntary Separation/Resignation	\$ —	\$ —	\$ —	\$ —	\$3,648,405	\$ 3,648,405
	Long-Service Separation/Retirement	\$17,555,548	\$3,433,477	\$ —	\$2,635,007	\$3,648,405	\$27,272,437
	Termination for Cause	\$ —	\$ —	\$ —	\$ —	\$3,648,405	\$ 3,648,405
	Change in Control	\$17,555,548	\$3,433,477	\$4,000,000	\$3,952,510	\$3,648,405	\$32,589,940
D.R. Oberhelman	Voluntary Separation/Resignation	\$ —	\$ —	\$ —	\$ —	\$2,379,195	\$ 2,379,195
	Long-Service Separation/Retirement	\$ 5,788,895	\$1,003,366	\$ —	\$1,074,557	\$2,379,195	\$10,246,013
	Termination for Cause	\$ —	\$ —	\$ —	\$ —	\$2,379,195	\$ 2,379,195
	Change in Control	\$ 5,788,895	\$1,003,366	\$1,459,992	\$1,611,835	\$2,379,195	\$12,243,283
R.P. Lavin	Voluntary Separation/Resignation	\$ —	\$ —	\$ —	\$ —	\$ 956,198	\$ 956,198
	Long-Service Separation/Retirement	\$ 5,178,500	\$ 888,816	\$ —	\$ 642,404	\$ 956,198	\$ 7,665,918
	Termination for Cause	\$ —	\$ —	\$ —	\$ —	\$ 956,198	\$ 956,198
	Change in Control	\$ 5,178,500	\$ 888,816	\$1,168,008	\$ 963,607	\$ 956,198	\$ 9,155,129
S.L. Levenick	Voluntary Separation/Resignation	\$ —	\$ —	\$ —	\$ —	\$5,473,967	\$ 5,473,967
	Long-Service Separation/Retirement	\$ 5,178,500	\$ 921,414	\$ —	\$ 802,996	\$5,473,967	\$12,376,877
	Termination for Cause	\$ —	\$ —	\$ —	\$ —	\$5,473,967	\$ 5,473,967
	Change in Control	\$ 5,178,500	\$ 921,414	\$1,459,992	\$1,204,493	\$5,473,967	\$14,238,366
E.J. Rapp	Voluntary Separation/Resignation	\$ —	\$ —	\$ —	\$ —	\$1,881,709	\$ 1,881,709
	Long-Service Separation/Retirement	\$ 5,178,500	\$ 841,400	\$ —	\$ 642,404	\$1,881,709	\$ 8,544,013
	Termination for Cause	\$ —	\$ —	\$ —	\$ —	\$1,881,709	\$ 1,881,709
	Change in Control	\$ 5,178,500	\$ 841,400	\$1,168,008	\$ 963,607	\$1,881,709	\$10,033,224
G.R. Vittecoq	Voluntary Separation/Resignation	\$ —	\$ —	\$ —	\$ —	\$2,197,860	\$ 2,197,860
	Long-Service Separation/Retirement	\$ 5,465,417	\$1,028,271	\$ —	\$ 955,687	\$2,197,860	\$ 9,647,235
	Termination for Cause	\$ —	\$ —	\$ —	\$ —	\$2,197,860	\$ 2,197,860
	Change in Control	\$ 5,465,417	\$1,028,271	\$1,791,912	\$1,433,530	\$2,197,860	\$11,916,990
S.H. Wunning	Voluntary Separation/Resignation	\$ —	\$ —	\$ —	\$ —	\$3,600,085	\$ 3,600,085
	Long-Service Separation/Retirement	\$ 5,178,500	\$ 883,459	\$ —	\$ 802,996	\$3,600,085	\$10,465,040
	Termination for Cause	\$ —	\$ —	\$ —	\$ —	\$3,600,085	\$ 3,600,085
	Change in Control	\$ 5,178,500	\$ 883,459	\$1,459,992	\$1,204,493	\$3,600,085	\$12,326,529
D.B. Burritt	Voluntary Separation/Resignation	\$ —	\$ —	\$ —	\$ —	\$ 719,822	\$ 719,822
	Long-Service Separation/Retirement	\$ 2,478,348	\$ 541,006	\$ —	\$ 451,750	\$ 719,822	\$ 4,190,926
	Termination for Cause	\$ —	\$ —	\$ —	\$ —	\$ 719,822	\$ 719,822
	Change in Control	\$ 2,478,348	\$ 541,006	\$ —	\$ 677,625	\$ 719,822	\$ 4,416,801

¹ In the event of termination of employment due to a change in control, maximum payout factors are assumed for amounts payable under the Caterpillar Inc. 2006 Long-Term Incentive Plan (LTIP) and the prior plan, the Caterpillar Inc. 1996 Stock Option and Long-Term Incentive Plan and ESTIP. Additionally, all unvested stock options, SARs, restricted stock and RSUs vest immediately. Stock options and SARs remain exercisable over the normal life of the grant. For valuation purposes as of December 31, 2009, when the closing price of Caterpillar common stock was \$56.99, grants for 2007 and 2008 were "under water," with grant prices of \$63.04 and \$73.20, respectively; the 2009 grant, with a \$22.17 grant price, was in the money by \$34.82. The 2007, 2008 and 2009 grants were not fully vested as of December 31, 2009. For separations due to long-service separation/retirement, death and disability, the life of the equity grant is reduced to a maximum of 60 months from the date of separation or 10 years from the original granting date, whichever occurs first. For voluntary separations, the equity grant life is reduced to 60 days from the date of separation.

² The LTIP allows immediate vesting to occur on outstanding restricted stock and RSUs in the event of a change in control. The valuation shown is based upon the number of shares vesting multiplied by the closing price of Caterpillar common stock on December 31, 2009, which was \$56.99 per share.

³ ESTIP provisions provide for the maximum payout allowed under the plan in the event of a change in control. The plan provisions limit the payout to a maximum of \$4 million in any single year. Mr. Owens' payout for a change in control is capped at \$4 million. This amount is less than his plan payout at maximum. Therefore, amounts shown for change in control represent the maximum payout available under ESTIP for all NEOs, with the exception of Mr. Burritt. Mr. Burritt is a participant in STIP, which has no plan provisions for a change in control. Thus, Mr. Burritt's amount shown for change in control is his actual payout available under the plan. In the event of a voluntary separation or termination for cause before the completion of the performance period, both the ESTIP and STIP plan participant forfeit any benefit. Participants in both the ESTIP and STIP who separate due to long-service separation/ retirement receive a prorated benefit based on the time of active employment during the performance period.

⁴ The LTCPP provisions provide for maximum payout allowed for each open plan cycle in the event of a change in control. Participants who separate via a change in control receive a prorated benefit based on the time of active employment during the performance period. Change in control amounts shown for all NEOs represent a prorated benefit at maximum payout for plan cycles 2008-2010 and 2009-2011, both of which are open cycles as of December 31, 2009. Plan provisions in effect for the 2008-2010 and 2009-2011 performance cycle restrict Mr. Owens' payout to \$5 million per plan cycle. The 2007-2009 plan cycle amounts are not shown as this cycle was fully vested as of December 31, 2009. Participants who separate via a long-service separation/retirement receive a prorated benefit based on the time of active employment during the performance period. The amount shown for long-service separation/retirement is the NEO's prorated benefit based on a target payout for plan cycles 2008-2010 and 2009-2011, both of which were open cycles as of December 31, 2009. Participants forfeit any benefit upon a voluntary separation or a termination for cause that occurs prior to the completion of the performance period.

⁵ Amounts assume Termination or Change in Control separation occurring on December 31, 2009, with no further deferral of available funds.

Director Compensation

Of our current Board members, only Mr. Owens is a salaried employee of Caterpillar. Non-employee directors are compensated for Board service. For 2009, compensation for non-employee directors was comprised of the following components:

Retainer:	\$208,000 annually (effective April, 2009)
Committee Chairman Stipend:	Audit \$15,000 annually
	Compensation \$10,000 annually
	Governance \$10,000 annually
	Public Policy \$10,000 annually
Audit Committee Members Stipend:	\$10,000 annually

In April of 2009, the cash retainer fee was increased from \$90,000 to \$208,000. This increase in the retainer was to compensate for the elimination of the annual equity grant to directors. In conjunction with this increase, new target ownership guidelines were implemented that require directors to own Caterpillar common stock in the amount of two and one half times their annual retainer fee. Directors have a five-year period to meet the new target ownership guidelines.

In addition to the above, the Company reimburses non-employee directors' expenses related to meeting attendance.

Under Caterpillar's Directors' Deferred Compensation Plan (DDCP), directors may defer 50 percent or more of their annual retainer and stipend in an interest-bearing account or an account representing equivalent shares of Caterpillar stock.

Eligible directors may also participate in a Charitable Award Program. Under the program, a donation of up to \$1 million will be made by the Company, in the director's name, in 10 equal annual installments, with the first installment to be made as soon as practicable after the director's death. Of the total donation, half will be donated to the eligible tax-exempt organization(s) selected by the director, and the remainder will be directed to the Caterpillar Foundation. The maximum amount payable is \$1 million on behalf of each eligible director. The sum is based on the director's length of service. The program is financed through the purchase of life insurance policies. Directors derive no financial benefit from the program. Premiums paid by the Company for this program are included in the following 2009 All Other Director Compensation Table for non-employee directors and in the 2009 All Other Compensation Table on page 58 for Mr. Owens.

Director Compensation for 2009
Director	Fees Earned or Paid in Cash	Stock Awards1	Option Awards1	All Other Compensation2	Total
W. Frank Blount	\$188,505	\$ N/A	\$ N/A	\$ 5,500	\$194,005
John R. Brazil	\$181,008	\$ N/A	\$ N/A	\$ 1,500	\$182,508
Daniel M. Dickinson	\$186,003	\$ N/A	\$ N/A	\$ 3,000	\$189,003
John T. Dillon	\$200,592	\$ N/A	\$ N/A	\$ 3,500	\$204,092
Eugene V. Fife	\$188,923	\$ N/A	\$ N/A	\$34,879	\$223,802
Gail D. Fosler	\$181,838	\$ N/A	\$ N/A	\$ —	\$181,838
Juan Gallardo	\$178,506	\$ N/A	\$ N/A	\$25,024	\$203,530
David R. Goode	\$188,505	\$ N/A	\$ N/A	\$35,700	\$224,205
Peter A. Magowan	\$178,506	\$ N/A	\$ N/A	\$ 1,500	\$180,006
William A. Osborn	\$188,505	\$ N/A	\$ N/A	\$25,024	\$213,529
Charles D. Powell	\$188,505	\$ N/A	\$ N/A	\$34,879	\$223,384
Edward B. Rust, Jr.	\$178,506	\$ N/A	\$ N/A	\$36,560	\$215,066
Susan C. Schwab	\$121,338	\$ N/A	\$ N/A	\$ 4,000	\$125,338
Joshua I. Smith	\$178,506	\$ N/A	\$ N/A	\$ 1,500	\$180,006

1 In April of 2009, the cash retainer fee was increased from \$90,000 to \$208,000. This increase in the retainer was to compensate for the elimination of the annual equity grant to directors. In conjunction with this increase, new target ownership guidelines were implemented that require directors to own Caterpillar common stock in the amount of two and one half times their annual retainer fee. Directors have a five-year period to meet the new target ownership guidelines. As of December 31, 2009, the number of shares of stock/vested and non-vested options held by each non-employee director was: Mr. Blount: 18,033/62,439 (which consists of 48,000 non-qualified stock options (NQs), 12,833 SARs and 1,606 RSUs); Mr. Brazil: 8,803/38,439 (which consists of 24,000 NQs, 12,833 SARs and 1,606 RSUs); Mr. Dickinson: 3,820/7,439 (which consists of 5,833 SARs and 1,606 RSUs); Mr. Dillon: 23,429/62,439 (which consists of 48,000 NQs, 12,833 SARs and 1,606 RSUs); Mr. Fife: 22,000/38,439 (which consists of 24,000 NQs, 12,833 SARs and 1,606 RSUs); Ms. Fosler: 8,515/30,439 (which consists of 16,000 NQs, 12,833 SARs and 1,606 RSUs); Mr. Gallardo: 212,756/62,439 (which consists of 48,000 NQs, 12,833 SARs and 1,606 RSUs); Mr. Goode: 51,800/54,439 (which consists of 40,000 NQs, 12,833 SARs and 1,606 RSUs); Mr. Magowan: 304,980/30,439 (which consists of 16,000 NQs, 12,833 SARs and 1,606 RSUs); Mr. Osborn: 26,699/38,439 (which consists of 24,000 NQs, 12,833 SARs and 1,606 RSUs); Mr. Powell: 6,387/54,439 (which consists of 40,000 NQs, 12,833 SARs and 1,606 RSUs); Mr. Rust: 4,933/38,439 (which consists of 24,000 NQs, 12,833 SARs and 1,606 RSUs); Ms. Schwab: 1,518/0 and Mr. Smith: 16,352/34,439 (which consists of 20,000 NQs, 12,833 SARs and 1,606 RSUs). In addition, Mr. Owens, the only employee director serving on the Board, held the following number of shares of stock/vested and non-vested options on December 31, 2009: 345,336/2,821,249 (which consists of 1,290,000 NQs, 1,482,666 SARs and 48,583 RSUs).

2 All Other Compensation represents Company matching gift contributions and premium cost, plus administrative fees associated with the Directors' Charitable Award Program.

2009 All Other Director Compensation Table
Director	Company Matching Gift Contributions1	Director's Charitable Award Program — Insurance Premiums and Administrative Costs 2	Total
W. Frank Blount	\$ 4,000	\$ 1,500	\$ 5,500
John R. Brazil	\$ —	\$ 1,500	\$ 1,500
Daniel M. Dickinson	\$ 2,000	\$ 1,000	\$ 3,000
John T. Dillon	\$ 2,000	\$ 1,500	\$ 3,500
Eugene V. Fife	\$ —	\$34,879	\$34,879
Gail D. Fosler	\$ —	\$ —	\$ —
Juan Gallardo	\$ —	\$25,024	\$25,024
David R. Goode	\$34,200	\$ 1,500	\$35,700
Peter A. Magowan	\$ —	\$ 1,500	\$ 1,500
William A. Osborn	\$ —	\$25,024	\$25,024
Charles D. Powell	\$ —	\$34,879	\$34,879
Edward B. Rust, Jr.	\$ 4,000	\$32,560	\$36,560
Susan C. Schwab	\$ 4,000	\$ —	\$ 4,000
Joshua I. Smith	\$ —	\$ 1,500	\$ 1,500

¹ Outside directors are eligible to participate in the Caterpillar Foundation Matching Gift Program. The Foundation will match contributions to eligible two-year or four-year colleges or universities, arts and cultural institutions, public policy and environmental organizations, up to a maximum of \$2,000 per eligible organization per calendar year.

² The amounts listed represent the named directors' year 2009 insurance premium and administrative fee. For directors whose policy premiums are fully paid up, the amount shown represents only the administrative fee of \$1,500.

Compensation Risk

The Compensation Committee regularly reviews the Company's compensation policies and practices, including the risks created by the Company's compensation plans. In addition, the Company also conducted a review of its compensation plans and related risks to the Company. The Company reviewed its analysis with the Compensation Committee, and the Compensation Committee concluded that the compensation plans reflected the appropriate compensation goals and philosophies. Based on this review and analysis, the Company has concluded that any risks arising from its employee compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.

Other Matters

Section 16(a) Beneficial Ownership Reporting Compliance

Based upon a review of our records, all reports required to be filed pursuant to Section 16(a) of the Securities Exchange Act of 1934 were filed on a timely basis, except one Form 4 filed with the SEC on April 14, 2009 reporting that 196 shares were surrendered to satisfy tax withholding requirements upon the vesting of restricted stock held by James B. Buda on April 1, 2009.

Director Legal Proceedings

On May 11, 2000, the First Circuit Court in Mexico City granted Grupo Azucarero México, S.A. de C.V., a public company of which Juan Gallardo is the controlling stockholder, suspension of payments protection, which was at that time a legal protection under Mexican law similar to Chapter 11 of the U.S. Bankruptcy Code. This protection enabled the company to continue its operations pending a debt restructuring. In August 2006, the company and its subsidiaries reached an agreement with its creditors and such agreement was approved by the Mexican Court. As a result of the foregoing Grupo Azucarero México, S.A. de C.V. is no longer under the suspension of payments protection. Pursuant to the agreed debt restructuring, the company paid 80 percent of its debt on August 30, 2008.

Matters Raised at the Meeting not Included in this Statement

We do not know of any matters to be acted upon at the Annual Meeting other than those discussed in this statement. If any other matter is properly presented, proxy holders will vote on the matter in their discretion.

Under Caterpillar Bylaws, a stockholder may bring a matter to vote at the Annual Meeting by giving adequate notice to Caterpillar Inc. by mail c/o Corporate Secretary at 100 NE Adams Street, Peoria, Illinois 61629. To qualify as adequate, the notice must contain information specified in our Bylaws and be received by us not less than 45 days nor more than 90 days prior to the Annual Meeting. However, if less than 60 days notice of the Annual Meeting date is given to stockholders, notice of a matter to be brought before the Annual Meeting may be provided to us up to the 15th day following the date notice of the Annual Meeting was provided.

Admission and Ticket Request Procedure

Admission

Admission is limited to stockholders of record on April 12, 2010 and one immediate family member, or one individual designated as a stockholder's authorized proxy holder or one representative designated in writing to present a stockholder proposal. In each case, the individual must have an admission ticket and valid government issued photo identification to be admitted to the Annual Meeting. In addition, share ownership will be verified.

Ticket Request Deadline

Ticket requests must include all information specified in the applicable table below and be submitted in writing and received by Caterpillar on or before May 28, 2010. No requests will be processed after that date.

To Submit Request

Submit ticket requests by mail to James B. Buda, Corporate Secretary, 100 NE Adams Street, Peoria, Illinois 61629 or by facsimile to 309-494-1467. Ticket requests by telephone will not be accepted.

Authorized Proxy Representative

A stockholder may appoint a representative to attend the Annual Meeting and/or vote on his/her behalf. The admission ticket must be requested by the stockholder but will be issued in the name of the authorized representative. Individuals holding admission tickets that are not issued in their name will not be admitted to the Annual Meeting. Stockholder information specified below and a written proxy authorization must accompany the ticket request.

Proponent of Stockholder Proposal

For each stockholder proposal included in this proxy statement, the stockholder sponsor should notify the Company in writing of the individual authorized to present the proposal on behalf of the stockholder at the Annual Meeting. One admission ticket will be issued for the designated representative.

Media

Accredited members of the media must register with the Company prior to the Annual Meeting. To register, please contact Jim Dugan by phone 309-494-4100 or e-mail ([email protected]).

Analysts

Analysts must register with the Company prior to the Annual Meeting. To register, please contact Mike DeWalt by phone 309-675-4549 or e-mail ([email protected]).

Registered Stockholders

For ownership verification provide:

Name(s) of stockholder
Address
Phone number
Social security number and/or stockholder account key; or
A copy of your proxy card or notice showing stockholder name and address

Also include:

Name of immediate family member guest, if not a stockholder
Name of authorized proxy representative, if applicable
Address where tickets should be mailed and phone number

Beneficial Holders

For ownership verification provide:

A copy of your April brokerage account statement showing Caterpillar stock ownership as of the record date (4/12/10);
A letter from your broker, bank or other nominee verifying your record date (4/12/10) ownership; or
A copy of your brokerage account voting instruction card showing stockholder name and address

Also include:

Name of immediate family member guest, if not a stockholder
Name of authorized proxy representative, if applicable
Address where tickets should be mailed and phone number

Appendix A — Proposed Amendments to 2006 Long-Term Incentive Plan

If Proposal 3 is approved by stockholders at the 2010 Annual Meeting, the following amendments to the 2006 Long-Term Incentive Plan will be adopted.

CATERPILLAR INC. 2006 LONG-TERM INCENTIVE PLAN

(AS AMENDED AND RESTATED)

Section 1.

Establishment, Objectives and Duration

1.1. Establishment. Subject toWith the approval of the stockholders of Caterpillar Inc., a Delaware corporation (the "Company"), the Company has established the Caterpillar Inc. 2006 Long-Term Incentive Plan (the "Plan"), as set forth herein. effective June 14, 2006. The Plan supersedes and replaces all prior equity and non-equity long-term incentive compensation plans or programs maintained by the Company; provided that, any prior plans of the Company shall remain in effect until all awards granted under such prior plans have been exercised, forfeited, canceled, expired or otherwise terminated in accordance with the terms of such grants.
1.2. Purpose. The Plan is intended to provide certain present and future employees and Directors cash-based incentives, stock-based incentives and other equity interests in the Company thereby giving them a stake in the growth and prosperity of the Company and encouraging the continuance of their services with the Company or its Subsidiaries.
1.3. Effective Date. The Plan iswas originally effective on June 14, 2006. This amendment and restatement of the Plan shall be effective as of the later of (a) the date the amendment and restatement of the Plan is adopted by the Board or (b) the date the Company's stockholders approve the amendment and restatement of the Plan (the "Effective Date"). The amendment and restatement of the Plan will be deemed to be approved by the stockholders if it receives the affirmative vote of the holders of a majority of the shares of stock of the Company present or represented and entitled to vote at a meeting duly held in accordance with the applicable provisions of the Certificate of Incorporation or Bylaws of the Company.
1.4. Duration. The Plan shall remain in effect, subject to the right of the Company's Board of Directors to amend or terminate the Plan at any time pursuant to Section 16, until all Shares subject to the Plan shall have been purchased or granted according to the Plan's provisions. However, in no event may an Award be granted under the Plan on or after the tenth anniversary of the Effective Date.original effective date of the Plan, June 14, 2006. Upon termination of the Plan, no Awards may be granted but Awards previously granted shall remain outstanding in accordance with the terms of the Plan and the applicable Award Document.

Section 2.

Definitions and Construction

When a word or phrase appears in the Plan with the initial letter capitalized, and the word or phrase does not commence a sentence, the word or phrase shall generally be given the meaning ascribed to it in this Section unless a clearly different meaning is required by the context. The following words and phrases shall have the following meanings:

2.1. "Award" means, individually or collectively, a grant under the Plan of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Performance Shares or Performance Units.
2.2. "Award Document" means any agreement, contract, or other written instrument that evidences an Award granted to the Participant under the Plan and sets forth the terms and provisions applicable to such Award.
2.3. "Award Gain" means (a) with respect to a given Option exercise, the product of (X) the excess of the Fair Market Value of a Share on the date of exercise over the Option Price times (Y) the number of shares as to which the Option was exercised at that date, and (b) with respect to any other settlement of an Award granted to the Participant, the Fair Market Value of the cash or Shares paid or payable to the Participant (regardless of any elective deferral pursuant to Section 13) less any cash or the Fair Market Value of any Shares or property (other than an Award that would have itself then been forfeitable hereunder and excluding any payment of tax withholding) paid by the Participant to the Company as a condition of or in connection such settlement.
2.4. "Board" means the Board of Directors of the Company.
2.5. "Cause" means, except as otherwise provided in an Award Document, a willful engaging in gross misconduct materially and demonstrably injurious to the Company. For this purpose, "willful" means an act or omission in bad faith and without reasonable belief that such act or omission was in or not opposed to the best interests of the Company.
2.6. "Change of Control" means the occurrence of any of the following events: (a) any person becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 15twenty percent (20%) or more of the combined voting power of the Company's then outstanding common stock, unless the Board by resolution negates the effect of this provision in a particular circumstance, deeming that resolution to be in the best interests of Company stockholders; (b) during any period of two consecutive years, there shall cease to be a majority of the Board comprised of individuals who at the beginning of such period constituted the Board; (c) upon the stockholdersconsummation of thea Company approve astockholder-approved merger or consolidation which would resultthat results in the voting securities of the Company outstanding immediately prior thereto representing (either by remaining outstanding or by being converted into voting securities of the surviving entity) less than fifty percent of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (d) Company stockholders approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of its assets.
2.7. "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor legislation thereto.
2.8. "Committee" means the Compensation Committee of the Board, appointed to administer the Plan, as provided in Section 3.
2.9. "Company" means Caterpillar Inc., a Delaware corporation, and any successor to such entity as provided in Section 18.
2.10. "Director" means any individual who is a member of the Board.
2.11. "Disability" means, unless otherwise provided for in an employment, change of control or similar agreement in effect between the Participant and the Company or a Subsidiary or in an Award Document, (a) in the case of an Employee, the Employee qualifying for long-term disability benefits under any long-term disability program sponsored by the Company or Subsidiary in which the Employee participates, and (b) in the case of a Director, the inability of the Director to engage in any substantial gainful business activity by reason of any medically determinable physical or mental impairment that can be expected to result in death, or which has lasted or can be expected to last for a continuous period of not less than 12 months, as determined by the Committee, based upon medical evidence.
2.12. "Effective Date" means the date specified in Section 1.3.
2.13. "Employee" means any employee of the Company or any Subsidiary.
2.14. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.
2.15. "Fair Market Value" means, as of any given date, the fair market value of a Share on a particular date determined by such methods or procedures as may be established from time to time by the Committee. Unless otherwise determined by the Committee, the Fair Market Value of a Share as of any date shall be the mean between the high and low prices at which the Share is traded on the New York Stock Exchange for that date or, if no prices are reported for that date, the prices on the next preceding date for which prices were reported. Notwithstanding the foregoing, unless otherwise determined by the Committee, for purposes of Section 6.5(d) of the Plan, Fair Market Value means the actual price at which the Shares used to acquire Shares are sold.
2.16. "Family Member" means any (a) child; (b) stepchild; (c) grandchild; (d) parent; (e) stepparent; (f) grandparent; (g) spouse; (h) former spouse; (i) sibling; (j) niece; (k) nephew; (l) mother-in-law; (m) father-in-law; (n) son-in-law; (o) daughterin-law; (p) brother-in-law; or (q) sister-in-law of the Participant (including adoptive relationships). Family Member also shall mean any person sharing in the Participant's household (other than a tenant or an employee).
2.17. "Good Reason" means, except as otherwise provided in an Award Document, the occurrence of any of the following circumstances (unless such circumstances are fully corrected by the Company before a Participant's termination of employment):
(a) the Company's assignment of any duties materially inconsistent with the Participant's position within the Company, or which have a significant adverse alteration in the nature or status of the responsibilities of the Participant's employment; or
(b) a material reduction by the Company in the Participant's annual base salary, unless such reduction is part of a compensation reduction program affecting all similarly situated management employees.

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2.18. "Incentive Stock Option" or "ISO" means the right to purchase Shares pursuant terms and conditions that provide that such right will be treated as an incentive stock option within the meaning of Code Section 422, as described in Section 6.
2.19. "Long Service Separation" means, except as otherwise provided in an Award Document, a termination of employment with the Company or a Subsidiary after the attainment of age 55 and the completion of ten or more years of service with the Company and/or its Subsidiaries. Notwithstanding the foregoing and notwithstanding anything in an Award Document to the contrary, for purposes of determining whether a Participant has incurred a Long Service Separation, the last period of continuous service with Progress Rail Services, Inc. and/or its subsidiaries and affiliates ("Progress Rail") prior to May 16, 2006 shall be considered service with the Company and/or its Subsidiaries, subject to such administrative rules that the Committee (or its delegate) determines are appropriate and provided such participant was employed by Progress Rail on May 16, 2006.
2.20. "Named Executive Officer" means a Participant who is one of the group of covered employees as defined in the regulations promulgated under Code Section 162(m), or any successor provision or statute.
2.21. "Nonqualified Stock Option" or "NQSO" means the right to purchase Shares pursuant to terms and conditions that provide that such right will not be treated as an Incentive Stock Option, as described in Section 6.
2.22. "Option" means an Incentive Stock Option or a Nonqualified Stock Option, as described in Section 6.
2.23. "Option Price" means the per share price of a Share available for purchase pursuant to an Option.
2.24. "Participant" means an Employee, prospective Employee, Director, beneficiary or any other person who has outstanding an Award granted under the Plan, and includes those former Employees and Directors who have certain posttermination rights under the terms of an Award granted under the Plan.
2.25. "Performance-Based Exception" means the exception for performance-based compensation from the tax deductibility limitations of Code Section 162(m).
2.26. "Performance Period" means the time period during which performance goals must be achieved with respect to an Award, as determined by the Committee.
2.27. "Performance Share" means an Award granted to a Participant, as described in Section 9.
2.28. "Performance Unit" means an Award granted to a Participant, as described in Section 9.
2.29. "Period of Restriction" means the period during which the transfer of Shares of Restricted Stock is limited in some way, and the Shares are subject to a substantial risk of forfeiture, as provided in Section 8.
2.30. "Permitted Transferee" means any one or more of the following: (a) Family Members; (b) a trust in which the Participant and/or Family Members have more than fifty percent of the beneficial interest; (c) a foundation in which the Participant and/or Family Members control the management of the assets; or (d) any other entity in which the Participant and/or Family Members own more than fifty percent of the voting interests.
2.31. "Plan" means the Caterpillar Inc. 2006 Long-Term Incentive Plan, as set forth herein.
2.32. "Restricted Stock" means an Award of restricted stock or restricted stock units granted to a Participant pursuant to Section 8.
2.33. "Section 16 Officer" means any Employee who is considered an officer of the Company for purposes of Section 16 of the Exchange Act.
2.34. "Share" or "Shares" means shares of common stock of the Company.
2.35. "Stock Appreciation Right" or "SAR" means an Award, granted alone or in connection with a related Option, designated as an SAR, pursuant to the terms of Section 7.
2.36. "Subsidiary" means any partnership, limited liability company, corporation, trust or other entity or association, directly or indirectly, through one or more intermediaries, controlled by the Company. The term "control," as used in the immediately preceding sentence, means, with respect to a corporation or limited liability company, the right to exercise, directly or indirectly, more than fifty percent (50%) of the voting rights attributable to the controlled corporation or limited liability company, and, with respect to any partnership, trust, other entity or association, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the controlled entity.
2.37. "Tandem SAR" means a SAR that is granted in connection with a related Option pursuant to Section 7, the exercise of which shall require forfeiture of the right to purchase a Share under the related Option (and when a Share is purchased under the Option, the Tandem SAR shall similarly be forfeited).
2.38. "Non-Tandem SAR" means a SAR that is granted independently of any Options, as described in Section 7.

Section 3. Administration

3.1. Plan Administration. The Committee, or any other committee appointed by the Board, shall administer the Plan. The Committee or other committee appointed to administer the Plan shall consist of not less than two non-Employee Directors of the Company, within the meaning of Rule 16b-3 of the Exchange Act and not less than two outside directors, within the meaning of Code Section 162(m). The Board may, from time to time, remove members from, or add members to, the Committee. Members of the Board shall fill any vacancies on the Committee. Acts of a majority of the Committee at a meeting at which a quorum is present, or acts reduced to or approved in writing by unanimous consent of the members of the Committee, shall be valid acts of the Committee.
3.2. Authority of the Committee. Except as limited by law or by the Certificate of Incorporation or Bylaws of the Company, and subject to the provisions herein, the Committee shall have full power to select Employees, prospective Employees and Directors who shall participate in the Plan; determine the sizes and types of Awards; determine the terms and conditions of Awards in a manner consistent with the Plan; construe and interpret the Plan and any agreement or instrument entered into under the Plan; establish, amend, or waive rules and regulations for the Plan's administration; and amend the terms and conditions of any outstanding Award to the extent such terms and conditions are within the sole discretion of the Committee as provided in the Plan and subject to Section 16. Further, the Committee shall make all other determinations, which may be necessary or advisable for the administration of the Plan. As permitted by law, the Committee may delegate the authority granted to it herein.
3.3. Electronic Administration. The Committee may, in its discretion, utilize a system for complete or partial electronic administration of the Plan and may replace any written documents described in the Plan with electronic counterparts, as appropriate.
3.4. Decisions Binding. All determinations and decisions made by the Committee pursuant to the provisions of the Plan and all related orders and resolutions of the Board shall be final, conclusive and binding on all persons, including the Company, its stockholders, Employees, Participants, and their estates and beneficiaries.

Section 4.

Shares Subject to the Plan and Maximum Awards

4.1. Shares Available for Awards.

(a) The Shares available for Awards may be either authorized and unissued Shares or Shares held in or acquired for the treasury of the Company. The aggregate number of Shares that may be issued or used for reference purposes under the Plan or with respect to which Awards may be granted shall not exceed twentyforty million (20,000,000)40,000,000) Shares, subject to adjustment as provided in Section 4.3. In addition, seventeen million six hundred thousand (17,600,000) Shares authorized but unissued pursuant to the Caterpillar Inc. 1996 Stock Option and Long-Term Incentive Plan shall be reserved and available for grant under the Plan. Accordingly, the total Shares authorized and available for Awards under the Plan are fifty-seven million six hundred thousand (57,600,000) Shares. Notwithstanding the foregoing, the aggregate number of Shares with respect to which ISOs may be granted shall not exceed the number specified above, and provided further, that up tono more than an aggregate of twenty percent (20thirty-five percent (35%) of the authorized Shares under the Plan may be issued with respect to Awards of Restricted Stock and up to an aggregate of twenty percent (20%) of the authorized Shares under the Plan may be issued with respect to Awards of Performance Shares.
(b) Upon:
(i) a payout of a Non-Tandem SAR or Tandem SAR in the form of cash;
(ii) a cancellation, termination, expiration, forfeiture, or lapse for any reason (with the exception of the termination of a Tandem SAR upon exercise of the related Options, or the termination of a related Option upon exercise of the corresponding Tandem SAR) of any Award; or
(iii) payment of an Option Price or payout of any Award with previously acquired Shares or by withholding Shares which otherwise would be acquired on exercise or issued upon such payout (excluding shares withheld for the payment of taxes),

the number of Shares underlying any such Award that were not issued as a result of any of the foregoing actions shall again be available for the all purposes of Awards under the Plan (including, without limitation, for purposes of applying the limitations set forth in the last sentence of Section 4.1(a)). In addition, in the case of any Award granted in substitution for an award of a company or business acquired by the Company or a Subsidiary, Shares issued or issuable in connection with such substitute Award shall not be counted against the number of Shares reserved under the Plan, but shall be available under the Plan by virtue of the Company's assumption of the plan or arrangement of the acquired company or business.

4.2. Individual Participant Limitations. Unless and until the Committee determines that an Award to a Named Executive Officer shall not be designed to comply with the Performance-Based Exception, the following rules shall apply to grants of such Awards under the Plan:
(a) Subject to adjustment as provided in Section 4.3, the maximum aggregate number of Shares (including Options, SARs, Restricted Stock and Performance Shares to be paid out in Shares) that may be granted in any one fiscal year to a Participant shall be eight hundred thousand (800,000) Shares.
(b) Except as otherwise provided in Section 7.5(b) regarding SAR exercise, the maximum aggregate cash payout (including Performance Units and Performance Shares paid out in cash) with respect to Awards granted in any one fiscal year that may be made to any Participant shall be \$5five million dollars (\$5,000,000).
4.3. Adjustments in Authorized Shares. In the event of any change in corporate capitalization, such as a stock split, or a corporate transaction, such as any merger, consolidation, separation, including a spin-off, or other distribution of stock or property of the Company, any reorganization (whether or not such reorganization comes within the definition of such term in Code Section 368) or any partial or complete liquidation of the Company, an adjustment shall be made in the number and class of Shares available for Awards, the number and class of and/or price of Shares subject to outstanding Awards granted under the Plan and the number of Shares set forth in Sections 4.1 and 4.2, to prevent dilution or enlargement of rights. Such adjustment shall be made in a manner determined by the Committee, in its sole discretion, to be appropriate and equitable; provided, however, that (a) no such adjustment shall cause an increase in the fair value of an Award for purposes of Statement of Financial Accounting Standards No. 123 (revised 2004) or any successor thereto; and (b) the number of Shares subject to any Award shall always be a whole number by rounding any fractional Share (up or down) to the nearest whole Share.

Section 5. Eligibility and Participation

5.1. Eligibility. Persons eligible to participate in the Plan include all current and future Employees (including officers), persons who have been offered employment by the Company or a Subsidiary (provided that such prospective Employee may not receive any payment or exercise any right relating to an Award until such person begins employment with the Company or Subsidiary), and Directors, as determined by the Committee.
5.2. Participation. Subject to the provisions of the Plan, the Committee shall determine and designate, from time to time, the Employees, prospective Employees, and Directors to whom Awards shall be granted, the terms of such Awards, and the number of Shares subject to such Award.
5.3. Foreign Participants. In order to assure the viability of Awards granted to Participants employed in foreign countries, the Committee may provide for such special terms as it may consider necessary or appropriate to accommodate differences in local law, tax policy, or custom. Moreover, the Committee may approve such supplements to, or amendments, restatements, or alternative versions of the Plan as it may consider necessary or appropriate for such purposes without thereby affecting the terms of the Plan as in effect for any other purpose; provided, however, that no such supplements, amendments, restatements, or alternative versions shall increase the share limitations contained in Section 4 of the Plan.

Section 6. Stock Options

6.1. Grant of Options.

(a) Option Grant. Subject to the terms and provisions of the Plan, Options may be granted to one or more Participants in such number, upon such terms and provisions, and at any time and from time to time, as determined by the Committee, in its sole discretion. The Committee may grant either Nonqualified Stock Options or (in the case of Options granted to Employees) Incentive Stock Options, and shall have complete discretion in determining the number of Options of each granted to each Participant, subject to the limitations of Section 4. Each Option grant shall be evidenced by a resolution of the Committee approving the Option grant.
(b) Award Document. All Options shall be evidenced by an Award Document. The Award Document shall specify the Option Price, the term of the Option, the number of Shares subject to the Option, and such other provisions as the Committee shall determine, and which are not inconsistent with the terms and provisions of the Plan. The Award Document shall also specify whether the Option is to be treated as an ISO within the meaning of Code Section 422. If such Option is not designated as an ISO, such Option shall be a NQSO.
6.2. Option Price. The Committee shall designate the Option Price for each Share subject to an Option under the Plan, provided that such Option Price shall not be less than 100% of the Fair Market Value of Shares subject to an Option on the date the Option is granted, and which Option Price may not be subsequently changed by the Committee except pursuant to Section 4.3.. With respect to a Participant who owns, directly or indirectly, more than 10% of the total combined voting

power of all classes of the stock of the Company or any Subsidiary, the Option Price of Shares subject to an ISO shall be at least 110% of the Fair Market Value of such Shares on the ISO's grant date.

6.3. Term of Options. Each Option granted to a Participant shall expire at such time as the Committee shall determine at the time of grant, but in no event shall be exercisable later than the 10th anniversary of the grant date. Notwithstanding the foregoing, with respect to ISOs, in the case of a Participant who owns, directly or indirectly, more than 10% of the total combined voting power of all classes of the stock of the Company or any Subsidiary, no such ISO shall be exercisable later than the fifth anniversary of the grant date.
6.4. Exercise of Options. Options granted under this Section 6 shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant, and shall be set forth in the applicable Award Document. Notwithstanding the preceding sentence, the Fair Market Value of Shares to which ISOs are exercisable for the first time by any Participant during any calendar year (under all plans of the Company and its Subsidiaries) may not exceed \$100,000. Any ISOs that become exercisable in excess of such amount shall be deemed NQSOs to the extent of such excess. If the Award Document does not specify the time or times at which the Option shall first become exercisable, such an Option shall become fully vested and exercisable by the Participant on the third anniversary of the grant date.
6.5. Payment. Options granted under this Section 6 shall be exercised by the delivery of a notice of exercise to the Company (or its designated agent(s)), setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares. The Option Price upon exercise of any Option shall be payable to the Company in full either:
(a) in cash or its equivalent, or
(b) by tendering previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the total Option Price, or
(c) by cashless exercise through delivery of irrevocable instructions to a broker to promptly deliver to the Company the amount of proceeds from a sale of shares having a Fair Market Value equal to the purchase price.
6.6. Termination of Employment or Service as a Director. The Committee, in its sole discretion, shall set forth in the applicable Award Document the extent to which a Participant shall have the right to exercise the Option or Options following termination of his or her employment with the Company or any Subsidiary or following termination of his or her service as a Director. Such provisions need not be uniform among all Options issued pursuant to the Plan, and may reflect distinctions based on the reasons for such termination, including, but not limited to, termination for Cause or for Good Reason, or reasons relating to the breach or threatened breach of restrictive covenants. Subject to Section 15, in the event that a Participant's Award Document does not set forth such provisions, the following provisions shall apply:
(a) Long Service Separation, Death or Disability. If a Participant's employment with the Company and/or any Subsidiary or service as a Director terminates by reason of Long Service Separation, death or Disability, to the extent that the Option is not exercisable, all Shares covered by his or her Options shall immediately become fully vested and shall remain exercisable until the earlier of (i) the remainder of the term of the Option, or (ii) 60 months from the date of such termination. In the case of the Participant's death, the Participant's beneficiary or estate may exercise the Option.
(b) Termination for Cause. If a Participant's employment with the Company and/or any Subsidiary or service as a Director terminates for Cause, all Options granted to such Participant shall expire immediately and all rights to purchase Shares (vested or nonvested) under the Options shall cease upon such termination.
(c) Other Termination. If a Participant's employment with the Company and/or any Subsidiary or service as a Director terminates for any reason other than Long Service Separation, death, Disability, or for Cause, all Options shall remain exercisable until the earlier of (i) the remainder of the term of the Option, or (ii) 60 days from the date of such termination. In such circumstance, the Option shall only be exercisable to the extent that it was exercisable as of such termination date and shall not be exercisable with respect to any additional Shares. Notwithstanding the foregoing or anything herein or in an Award Document to the contrary, the Committee, in its sole discretion, shall have the authority to extend the period during which an Option is exercisable pursuant to this Section 6.6(c) to a period that is no longer than the earlier of (A) the remainder of the term of the Option, or (B) 60 months from the date of the Participant's termination of employment.
6.7. Restrictions on Shares. The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an Option granted under this Section 6 as it may deem advisable, including, without limitation, restrictions under applicable Federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state or foreign securities laws applicable to such Shares.

6.8. Transferability of Options.

(a) Incentive Stock Options. No ISO granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all ISOs granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant.
(b) Nonqualified Stock Options. NQSOs may only be transferred in accordance with this Section 6.8(b).
(i) Except as otherwise provided in paragraph (ii) below or in an Award Document, no NQSO shall be assignable or transferable by a Participant other than by will, by the laws of descent and distribution or pursuant to a Domestic Relations Order (as such term is defined in Section 414(p)(1)(B) of the Code).
(ii) NQSOs (whether vested or unvested) held by (A) Participants who are Section 16 Officers; (B) Participants who are Directors; or (C) any Participants who previously held the positions in clauses (A) and (B) may be transferred by gift or by domestic relations order to one or more Permitted Transferees. NQSOs (whether vested or unvested) held by all other Participants and by Permitted Transferees may be transferred by gift or by domestic relations order only to Permitted Transferees upon the prior written approval of the Company's Director of Compensation + Benefits.
6.9. Prohibition on Repricing. Except (a) as provided in Section 4.3 or (b) to the extent approved by the stockholders of the Company, the Option Price of an Option may not be changed following the date such Option is granted. Similarly, the exchange of an Option (an "Original Option") for cash, Shares, or other Awards at a time when the Option Price of such Original Option is equal to or greater than the Fair Market Value of a Share is prohibited. Notwithstanding the preceding sentence, the exchange of an Original Option for a SAR or another Option (a "New Option") shall be permitted only if: (a) the exchange is approved by the stockholders of the Company and (b) either (i) the grant price of the SAR is greater than the Option Price of the Original Option or (ii) the Option Price of the New Option is greater than the Option Price of the Original Option.
6.10. 6.9. Acceleration of Vesting. Notwithstanding anything in this Section 6 to the contrary, the Committee, in its sole discretion, shall have the authority to accelerate the vesting of Options at any time.

Section 7.

Stock Appreciation Rights

7.1. Grant of SARs.

(a) SAR Grant. Subject to the terms and provisions of the Plan, SARs may be granted to Participants in such number, upon such terms and provisions, and at any time and from time to time, as determined by the Committee in its sole discretion. The Committee may grant Non-Tandem SARs, Tandem SARs, or any combination of these forms of SARs. The Committee shall have complete discretion in determining the number of SARs granted to each Participant (subject to Section 4) and, consistent with the provisions of the Plan, in determining the terms and conditions pertaining to such SARs. The Committee shall designate, at the time of grant, the grant price of a Non-Tandem SAR, which grant price shall not be less than 100% of the Fair Market Value of a Share on the grant date of the SAR. The grant price of Tandem SARs shall equal the Option Price of the related Option. Grant prices of SARs shall not subsequently be changed by the Committee, except pursuant to Section 4.3.
(b) Award Document. All SARs shall be evidenced by an Award Document. The Award Document shall specify the grant price, the term of the SAR, and such other provisions as the Committee shall determine, and which are not inconsistent with the terms and provisions of the Plan.
7.2. Term of SARs. The term of a SAR granted under the Plan shall be determined by the Committee, in its sole discretion; provided, however, that unless otherwise designated by the Committee, such term shall not exceed ten years from the grant date.
7.3. Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then exercisable. Notwithstanding any other provision of the Plan to the contrary, with respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem SAR will expire no later than the expiration of the underlying ISO; (ii) the value of the payout with respect to the Tandem SAR may be for no more than 100% of the difference between the Option Price of the underlying ISO and the Fair Market Value of the Shares subject to the underlying ISO at the time the Tandem SAR is exercised; and (iii) the Tandem SAR may be exercised only when the Fair Market Value of the Shares subject to the ISO exceeds the Option Price of the ISO.
7.4. Exercise of Non-Tandem SARs. Non-Tandem SARs may be exercised upon whatever terms and conditions the Committee, in its sole discretion, imposes upon them.

7.5. Payment of SAR Amount.

(a) Upon exercise of a SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying:
(i) The excess of the Fair Market Value of a Share on the date of exercise over the grant price; by
(ii) The number of Shares with respect to which the SAR is exercised.
(b) Unless otherwise provided in the Award Document, the payment upon SAR exercise may be in cash, in Shares of equivalent value, or in some combination thereof. If, and to the extent that the payment upon SAR exercise is made in cash, such cash payment shall not be subject to the limitation of Section 4.2(b).
7.6. Termination of Employment or Service as a Director. The Committee, in its sole discretion, shall set forth in the applicable Award Document the extent to which a Participant shall have the right to exercise the SAR or SARs following termination of his or her employment with the Company or any Subsidiary or following termination of his or her service as a Director. Such provisions need not be uniform among all SARs issued pursuant to the Plan, and may reflect distinctions based on the reasons for such termination, including, but not limited to, termination for Cause or for Good Reason, or reasons relating to the breach or threatened breach of restrictive covenants. Subject to Section 15, in the event that a Participant's Award Document does not set forth such provisions, the following provisions shall apply:
(a) Long Service Separation, Death or Disability. If a Participant's employment with the Company and/or any Subsidiary or service as a Director terminates by reason of Long Service Separation, death or Disability, to the extent that the SARs are not exercisable, all of his or her SARs shall immediately become fully vested and shall remain exercisable until the earlier of (i) the remainder of the term of the SAR, or (ii) 60 months from the date of such termination. In the case of the Participant's death, the Participant's beneficiary or estate may exercise the SAR.
(b) Termination for Cause. If a Participant's employment with the Company and/or any Subsidiary or service as a Director terminates for Cause, all SARs shall expire immediately and all rights thereunder shall cease upon such termination.
(c) Other Termination. If a Participant's employment with the Company and/or any Subsidiary or service as a Director terminates for any reason other than Long Service Separation, death, Disability, or for Cause, all SARs shall remain exerciseable until the earlier of (i) the remainder of the term of the SAR, or (ii) 60 days from the date of such termination. In such circumstance, the SAR shall only be exercisable to the extent it was exercisable as of such termination date and shall not be exercisable with respect to any additional SARs. Notwithstanding the foregoing or anything herein or in an Award Document to the contrary, the Committee, in its sole discretion, shall have the authority to extend the period during which a SAR is exercisable pursuant to this Section 76.6(c) to a period that is no longer than the earlier of (A) the remainder of the term of the SAR, or (B) 60 months from the date of the Participant's termination of employment.
7.7. Transferability of SARs. SARs may only be transferred in accordance with this Section 7.7.
(a) Except as otherwise provided in paragraph (b) below or in an Award Document, no SAR shall be assignable or transferable by a Participant other than by will, by the laws of descent and distribution or pursuant to a Domestic Relations Order (as such term is defined in Section 414(p)(1)(B) of the Code).
(b) SARs held by (i) Participants who are Section 16 Officers; (ii) Participants who are Directors; or (iii) any Participants who previously held the positions in clauses (i) and (ii) may be transferred by gift or by domestic relations order to one or more Permitted Transferees. SARs held by all other Participants and by Permitted Transferees may be transferred by gift or by domestic relations order to Permitted Transferees only upon the prior written approval of the Company's Director of Compensation and Benefits.
(c) Notwithstanding the foregoing, with respect to a Tandem SAR granted in connection with an ISO, no such Tandem SAR may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution.
7.8. Prohibition on Repricing. Except (a) as provided in Section 4.3 or (b) to the extent approved by the stockholders of the Company, the grant price of a SAR may not be changed following the date the SAR is granted. Similarly, the exchange of a SAR (an "Original SAR") for cash, Shares, or other Awards at a time when the grant price of such Original SAR is equal to or greater than the Fair Market Value of a Share is prohibited. Notwithstanding the preceding sentence, the exchange of an Original SAR for an Option or another SAR (a "New SAR") shall be permitted only if: (a) the exchange is approved by the stockholders of the Company and (b) either (i) the Option Price amount is greater than the grant price of the Original SAR or (ii) the grant price of the New SAR is greater than the grant price of the Original SAR.
7.9. 7.8. Acceleration of Vesting. Notwithstanding anything in this Section 7 to the contrary, the Committee, in its sole discretion, shall have the authority to accelerate the vesting of SARs at any time.

Section 8. Restricted Stock

8.1. Grant of Restricted Stock.

(a) Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Shares of Restricted Stock to Participants in such amounts as the Committee shall determine.
(b) Award Document. All sharesgrants of Restricted Stock shall be evidenced by an Award Document. The Award Document shall specify the Period or Periods of Restriction (consistent with the next sentence), the number of Sharesshares of Restricted Stock granted, and such other provisions as the Committee shall determine pursuant to Section 8.38.2 or otherwise, and which shall not be inconsistent with the terms and provisions of the Plan. Shares of Restricted Stock not in excess of five percent of the number of shares that may be issued with respect to Awards of Restricted Stock, as provided in Section 4.1, may have a Period or Periods of Restriction as determined by the Committee in its sole discretion, and any other shares of Restricted Stock shall have a Period of Restriction, as determined by the Committee, that shall not lapse in any respect until on or after the third anniversary of the grant date. If no Period of Restriction is set forth in the Award Document, the transfer and any other restrictions shall lapse (i) to the extent of one-third of the Sharesshares (rounded to the nearest whole) covered by the Restricted Stock Award on the third anniversary of the grant date, (ii) to the extent of two-thirds of the Sharesshares (rounded to the nearest whole) covered by the Restricted Stock Award on the fourth anniversary of the grant date, and (iii) to the extent of 100% of the Sharesshares covered by the Restricted Stock Award on the fifth anniversary of the grant date.
(c) Limitation on the Committee. Notwithstanding the preceding provisions of Section 8.1(b) and subject to the provisions of the Plan, no more than five percent (5%) of the shares that may be issued as Restricted Stock pursuant to Section 4.1 may have a Period of Restriction as determined by the Committee at the time of grant that will lapse prior to the third anniversary of the grant date. All remaining shares that may be issued with respect to Awards of Restricted Stock pursuant to Section 4.1 shall have a Period of Restriction determined by the Committee at the time of grant that will not lapse until on or after the third anniversary of the grant date. For the avoidance of doubt, this Section 8.1(c) shall not impair the Committee's ability to accelerate the vesting of Restricted Stock pursuant to Section 8.6 or to make grants that provide that vesting is accelerated upon Long Service Separation, death or Disability pursuant to Section 8.5 and the shares of Restricted Stock for which such acceleration of vesting occurs shall not be considered in applying the limitations set forth in this Section 8.1(c).
8.2. Other Restrictions. Subject to Section 10 herein, the Committee may impose such other conditions and/or restrictions on any Sharesshares of Restricted Stock granted pursuant to the Plan as it may deem advisable including without limitation, a requirement that Shares will not be issued until the end of the applicable Period of Restriction (i.e., a restricted stock unit), a requirement that Participants pay a stipulated purchase price for each Shareshare of Restricted Stock, restrictions based upon the achievement of specific performance goals (Company-wide, Subsidiary-wide, divisional, and/or individual), timebased restrictions on vesting, which may or may not be following the attainment of the performance goals, sales restrictions under applicable shareholder agreements or similar agreements, and/or restrictions under applicable Federal or state securities laws. The Company shall retain the certificates representing Shares of Restricted Stock in the Company's possession until such time as all conditions and/or restrictions applicable to such Shares have been satisfied. Except as otherwise provided in this Section 8 or in any Award Document, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan shall become freely transferable by the Participant after the last day of the applicable Period of Restriction.
8.3. Voting Rights. Unless otherwise designated by the Committee at the time of grant, Participants to whom Shares of Restricted Stock (but not restricted stock units) have been granted hereunder may exercise full voting rights with respect to those Shares during the Period of Restriction.
8.4. Dividends and Other Distributions. Unless otherwise designated by the Committee at the time of grant, Participants holding Shares of Restricted Stock (but not restricted stock units) granted hereunder shall be credited with regular cash dividends paid with respect to the underlying Shares while they are so held during the Period of Restriction. The Committee may apply any restrictions to the dividends that the Committee deems appropriate. Without limiting the generality of the preceding sentence, if the grant or vesting of Shares of Restricted Stock granted to a Named Executive Officer is designed to comply with the requirements of the Performance-Based Exception, the Committee may apply any restrictions it deems appropriate to the payment of dividends declared with respect to such Shares of Restricted Stock, such that the dividends and/or the Shares of Restricted Stock maintain eligibility for the Performance-Based Exception. In the event that any dividend constitutes a derivative security or an equity security pursuant to the rules under Section 16 of the Exchange Act, such dividend shall be subject to a vesting period equal to the remaining vesting period of the Shares of Restricted Stock with respect to which the dividend is paid.
8.5. Termination of Employment or Service as a Director. The Committee, in its sole discretion, shall set forth in the applicable Award Document the extent to which the Participant shall have the right to receive unvested Shares of Restricted Stock following termination of the Participant's employment with the Company and/or its Subsidiaries or termination of service as a Director. Such provisions need not be uniform among all Sharesshares of Restricted Stock issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination of employment including; but not limited to, termination of employment for Cause or for Good Reason, or reasons relating to the breach or threatened breach of restrictive covenants; provided, however that, except in the cases of terminations connected with a Change of Control and terminations by reason of death or Disability, the vesting of Shares of Restricted Stock that qualify for the Performance-Based Exception and that are held by Named Executive Officers shall not occur before the time they otherwise would have, but for the employment termination. Subject to Section 15, in the event that a Participant's Award Document does not set forth such termination provisions, the following termination provisions shall apply:
(a) Long-Service Separation, Death and Disability. Unless the Award qualifies for the Performance-Based Exception, if a Participant's employment with the Company and/or any Subsidiary or service as a Director is terminated due to Long Service Separation, death or Disability, all Sharesshares of Restricted Stock of such Participant shall immediately become fully vested on the date of such termination and any restrictions shall lapse.
(b) Other Termination. If a Participant's employment with the Company and/or any Subsidiary or service as a Director is terminated for any reason other than Long Service Separation, death or Disability, all Sharesshares of Restricted Stock that are unvested at the date of termination shall be forfeited to the Company.
8.6. Acceleration of Vesting. Notwithstanding anything in this Section 8 to the contrary, the Committee, in its sole discretion, shall have the authority to accelerate the vesting of Sharesshares of Restricted Stock at any time.
8.7. Transferability. Except as provided in this Section 8, the Sharesshares of Restricted Stock granted herein may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, voluntarily or involuntarily, until the end of the applicable Period of Restriction established by the Committee and specified in the Award Document, or upon earlier satisfaction of any other conditions, as specified by the Committee in its sole discretion and set forth in the Award Document. All rights with respect to the Restricted Stock granted to a Participant under the Plan shall be available during his or her lifetime only to such Participant.

Section 9.

Performance Units and Performance Shares

9.1. Grant of Performance Units/Shares.

(a) Grant of Performance Unit/Shares. Subject to the terms of the Plan, Performance Units and/or Performance Shares may be granted to Participants in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the Committee, which shall not be inconsistent with the terms and provisions of the Plan and shall be set forth in an Award Document.
(b) Award Document. All Performance Units and Performance Shares shall be evidenced by an Award Document. The Award Document shall specify the initial value of the Award, the performance goals and the Performance Period, as the Committee shall determine, and which are not inconsistent with the terms and provisions of the Plan.
9.2. Value of Performance Units/Shares. Each Performance Unit shall have an initial value (which may be \$0) that is established by the Committee at the time of grant. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the grant date. The Committee shall set performance goals in its sole discretion which, depending on the extent to which they are met will determine the number and/or value of Performance Units and/or Performance Shares that will be paid out to the Participant. For purposes of this Section 9, the time period during which the performance goals must be met shall be called a Performance Period. Performance Shares not in excess of five percent of the number of shares that may be issued with respect to Awards of Performance Shares, as provided in Section 4.1, may have a Performance Period as determined by the Committee in its sole discretion, and any other Performance Shares shall have a Performance Period, as determined by the Committee, of not less than one year.
9.3. Earning of Performance Units/Shares. Subject to the terms of the Plan, after the applicable Performance Period has ended, the holder of Performance Units and/or Performance Shares shall be entitled to receive payout on the number and value of Performance Units and/or Performance Shares earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance goals have been achieved, as established by the Committee.
9.4. Form and Timing of Payment of Performance Units/Shares. Except as provided below, payment of earned Performance Units and/or Performance Shares shall be made in a single lump sum as soon as reasonably practicable following the close of the applicable Performance Period. Subject to the terms of the Plan, the Committee, in its sole discretion, may pay earned Performance Units and/or Performance Shares in the form of cash or in Shares (or in a combination thereof) which have an aggregate Fair Market Value equal to the value of the earned Performance Units and/or Performance Shares at the close of the applicable Performance Period. Such Shares may be granted subject to any restrictions deemed appropriate by the Committee. At the sole discretion of the Committee, Participants may be entitled to receive any dividends declared with respect to Shares which have been earned in connection with grants of Performance Units and/or Performance Shares which have been earned, but not yet distributed to Participants.
9.5. Termination of Employment or Service as a Director. The Committee, in its sole discretion, shall set forth in the applicable Award Document the extent to which the Participant shall have the right to receive payment for Performance Units and/or Performance Shares following termination of the Participant's employment with the Company and/or its Subsidiaries or termination of service as a Director. Such provisions need not be uniform among all Performance Units and/or Performance Shares granted pursuant to the Plan, and may reflect distinctions based on the reasons for such termination including; but not limited to, termination for Cause or for Good Reason, or reasons relating to the breach or threatened breach of restrictive covenants. Subject to Section 15, in the event that a Participant's Award Document does not set forth such termination provisions, the following termination provisions shall apply:
(a) Long Service Separation, Death or Disability. Subject to Section 15, if a Participant's employment with the Company and/or any Subsidiary or service as a Director is terminated during a Performance Period due to Long Service Termination, death or Disability, the Participant shall receive a prorated payout of the Performance Units and/or Performance Shares, unless the Committee determines otherwise. The prorated payout shall be determined by the Committee, shall be based upon the length of time that the Participant held the Performance Units and/or Performance Shares during the Performance Period, and shall further be adjusted based on the achievement of the pre-established performance goals. Unless the Committee determines otherwise in the event of a termination due to death, Disability or Long Service Separation, payment of earned Performance Units and/or Performance Shares shall be made at the same time as payments are made to Participants who did not terminate employment during the applicable Performance Period.
(b) Other Termination. If a Participant's employment with the Company and/or any Subsidiary or service as a Director is terminated during a Performance Period for any reason other than Long Service Termination, death or Disability all Performance Units and/or Performance Shares shall be forfeited by the Participant to the Company.
9.6. Nontransferability. Except as otherwise provided in a Participant's Award Document, Performance Units and/or Performance Shares may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant's Award Document, a Participant's rights under the Plan shall be exercisable during the Participant's lifetime only by the Participant or the Participant's legal representative.
9.7. Acceleration of Vesting. Notwithstanding anything in this Section 9 to the contrary, the Committee, in its sole discretion, shall have the authority to accelerate the vesting of Performance Units and/or Performance Shares at any time.

Section 10.

Performance Measures

10.1. Performance Measures. Unless and until the Committee proposes for stockholder vote and stockholders approve a change in the general performance measures set forth in this Section 10, the attainment of which may determine the degree of payout and/or vesting with respect to Awards to Named Executive Officers that are designed to qualify for the Performance-Based Exception, the performance goals to be used for purposes of such grants shall be established by the Committee in writing and stated in terms of the attainment of specified levels of or percentage changes in any one or more of the following measurements: (a) revenue; (b) primary or fully-diluted earnings per Share; (c) earnings before interest, taxes, depreciation, and/or amortization; (d) pretax income; (e) cash flow from operations; (f) total cash flow; (g) return on equity; (h) return on invested capital; (i) return on assets; (j) net operating profits after taxes; (k) economic value added; (l) total stockholder return; (m) return on sales; or (n) any individual performance objective which is measured solely in terms of quantifiable targets related to the Company or the Company's business; or any combination thereof. In addition, such performance goals may be based in whole or in part upon the performance of the Company, a Subsidiary, division and/or other operational unit under one or more of such measures.
10.2. Performance Procedures. The degree of payout and/or vesting of such Awards designed to qualify for the Performance-Based Exception shall be determined based upon the written certification of the Committee as to the extent to which the performance goals and any other material terms and conditions precedent to such payment and/or vesting have been satisfied. The Committee shall have the sole discretion to adjust the determinations of the degree of attainment of the

pre-established performance goals; provided, however, that the performance goals applicable to Awards which are designed to qualify for the Performance-Based Exception, and which are held by Named Executive Officers, may not be adjusted so as to increase the payment under the Award (the Committee shall retain the sole discretion to adjust such performance goals upward, or to otherwise reduce the amount of the payment and/or vesting of the Award relative to the pre-established performance goals). In the event that applicable tax and/or securities laws change to permit Committee sole discretion to alter the governing performance measures without obtaining stockholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining stockholder approval. In addition, in the event that the Committee determines that it is advisable to grant Awards which shall not qualify for the Performance-Based Exception, the Committee may make such grants without satisfying the requirements of Code Section 162(m) and, thus, which use performance measures other than those specified above.

Section 11. Award Forfeitures

11.1. Forfeiture of Options and Other Awards. Each Award granted hereunder shall be subject to the following additional forfeiture conditions, to which the Participant, by accepting an Award hereunder, agrees. If any of the events specified in Section 11.2 occurs (a "Forfeiture Event"), all of the following forfeitures will result:
(a) The unexercised portion of any Option, whether or not vested, and any other Award not then settled (except for an Award that has not been settled solely due to an elective deferral pursuant to Section 13 by the Participant and otherwise is not forfeitable in the event of any termination of service of the Participant) will be immediately forfeited and canceled upon the occurrence of the Forfeiture Event; and
(b) The Participant will be obligated to repay to the Company, in cash, within five business days after demand is made therefor by the Company, the total amount of Award Gain (as defined herein) realized by the Participant upon each exercise of an Option or settlement of an Award (regardless of any elective deferral pursuant to Section 13) that occurred on or after (i) the date that is six months before the occurrence of the Forfeiture Event, if the Forfeiture Event occurred while the Participant was employed by the Company or a Subsidiary, or (ii) the date that is six months before the date the Participant's employment by, or service as a Director with the Company or a Subsidiary terminated, if the Forfeiture Event occurred after the Participant ceased to be so employed.
11.2. Events Triggering Forfeiture. The forfeitures specified in Section 11.1 will be triggered upon the occurrence of any one of the following Forfeiture Events at any time during the Participant's employment by or service as a Director with the Company or a Subsidiary or during the one-year period following termination of such employment or service:
(a) Non-Solicitation. The Participant, for his or her own benefit or for the benefit of any other person, company or entity, directly or indirectly, (i) induces or attempts to induce or hires or otherwise counsels, induces or attempts to induce or hire or otherwise counsel, advise, encourage or solicit any person to leave the employment of or the service for the Company or any Subsidiary, (ii) hires or in any manner employs or retains the services of any individual employed by or providing services to the Company or any Subsidiary as of the date of his or her termination of employment, or employed by or providing services to the Company or any Subsidiary subsequent to such termination, (iii) solicits, pursues, calls upon or takes away, any of the customers of the Company or any Subsidiary, (iv) solicits, pursues, calls upon or takes away, any potential customer of the Company or any Subsidiary that has been the subject of a bid, offer or proposal by the Company or any Subsidiary, or of substantial preparation with a view to making such a bid, proposal or offer, within six months before such Participant's termination of employment with the Company or any Subsidiary, or (v) otherwise interferes with the business or accounts of the Company or any Subsidiary.
(b) Confidential Information. The Participant discloses to any person or entity or makes use of any "confidential or proprietary information" (as defined below in this subparagraph (b)) for his or her own purpose or for the benefit of any person or entity, except as may be necessary in the ordinary course of employment with or other service to the Company or any Subsidiary. Such "confidential or proprietary information" of the Company or any Subsidiary, includes, but is not limited to, the design, development, operation, building or manufacturing of products manufactured and supplied by the Company and its Subsidiaries, the identity of the Company's or any Subsidiary's customers, the identity of representatives of customers with whom the Company or any Subsidiary has dealt, the kinds of services provided by the Company or any Subsidiary to customers and offered to be performed for potential customers, the manner in which such services are performed or offered to be performed, the service needs of actual or prospective customers, pricing information, information concerning the creation, acquisition or disposition of products and services, customer maintenance listings, computer software and hardware applications and other programs, personnel information, information identifying, relating to or concerning investors in the Company or any Subsidiary, joint venture partners of the Company or any Subsidiary, business partners of the Company or any Subsidiary or other entities providing financing to the Company or any Subsidiary, real estate and leasing opportunities, communications and telecommunications operations and processes, zoning and licensing matters, relationships with, or matters involving, landlords and/or property owners, and other trade secrets.
11.3. Agreement Does Not Prohibit Competition or Other Participant Activities. Although the conditions set forth in this Section 11 shall be deemed to be incorporated into an Award, the Plan does not thereby prohibit the Participant from engaging in any activity, including but not limited to competition with the Company and its Subsidiaries. Rather, the non-occurrence of the Forfeiture Events set forth in Section 11.2 is a condition to the Participant's right to realize and retain value from his or her compensatory Awards, and the consequence under the Plan if the Participant engages in an activity giving rise to any such Forfeiture Event are the forfeitures specified herein. This provision shall not preclude the Company and the Participant from entering into other written agreements concerning the subject matter of Sections 11.1 and 11.2 and, to the extent any terms of this Section 11 are inconsistent with any express terms of such agreement, this Section 11 shall not be deemed to modify or amend such terms.
11.4. Committee Discretion. The Committee may, in its sole discretion, waive in whole or in part the Company's right to forfeiture under this Section 11, but no such waiver shall be effective unless evidenced by a writing signed by a duly authorized officer of the Company. In addition, the Committee may impose additional conditions on Awards, by inclusion of appropriate provisions in the Award Document. Nothing contained herein shall require the Committee to enforce the forfeiture provisions of this Section 11. Failure to enforce these forfeiture provisions against any individual shall not be construed as a waiver of the Company's right to forfeiture under this Section 11.
11.5. Clawback Provision. Notwithstanding any other provision of the Plan to the contrary, including Section 16.1 which prohibits material and adverse changes to any outstanding Award, any Participant who is an officer of the Company whose negligent, intentional or gross misconduct contributes to the Company's having to restate all or a portion of its financial statements, will be required to forfeit Awards granted under this Plan and repay the Company the total amount of Award Gain realized by the Participant upon the exercise of an Option or settlement of an Award, as determined by the Board of Directors, an authorized committee, or its designee, pursuant to the Caterpillar Inc. Guidelines on Corporate Governance Issues, as adopted on February 14, 2007 and any subsequent amendments. Any Awards granted under this Plan prior to February 14, 2007 are subject to the provisions of this Section 11.5 only with the written consent of the Participant.

Section 12. Beneficiary Designation

12.1. Beneficiary Designations. Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Company during the Participant's lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate.

Section 13. Deferrals

13.1. Deferrals. The Committee may permit a Participant to defer such Participant's receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant upon the exercise of any Option or by virtue of the lapse or waiver of restrictions with respect to Restricted Stock, or the satisfaction of any requirements or goals with respect to Performance Units/Shares. If any such deferral election is required or permitted, the Committee shall, in its sole discretion, establish rules and procedures for such payment deferrals. All such deferrals (and rules and procedures) shall be consistent with Code Section 409A and any other applicable law.

Section 14. Rights and Obligations of Parties

14.1. No Guarantee of Employment or Service Rights. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company or any Subsidiary.
14.2. Temporary Absence. For purposes of the Plan, temporary absence from employment because of illness, vacation, approved leaves of absence, and transfers of employment among the Company and its Subsidiaries, shall not be considered to terminate employment or to interrupt continuous employment.
14.3. Participation. No Employee or Director shall have the right to be selected to receive an Award under the Plan, or, having been so selected, to be selected to receive a future Award.
14.4. Right of Setoff. The Company or any Subsidiary may, to the extent permitted by applicable law, deduct from and set off against any amounts the Company or Subsidiary may owe to the Participant from time to time, including amounts

payable in connection with any Award, owed as wages, fringe benefits, or other compensation owed to the Participant, such amounts as may be owed by the Participant to the Company, although the Participant shall remain liable for any part of the Participant's payment obligation not satisfied through such deduction and setoff. By accepting any Award granted hereunder, the Participant agrees to any deduction or setoff under this Section 14.

14.5. Section 83(b) Election. No election under Section 83(b) of the Code (to include in gross income in the year of transfer the amounts specified in Code Section 83(b)) or under a similar provision of the laws of a jurisdiction outside the United States may be made, unless expressly permitted by the terms of the Award Document or by action of the Committee in writing before the making of such election. In any case in which a Participant is permitted to make such an election in connection with an Award, the Participant shall notify the Company of such election within ten days of filing notice of the election with the Internal Revenue Service or other governmental authority, in addition to any filing and notification required pursuant to regulations issued under Code Section 83(b) or other applicable provision.
14.6. Disqualifying Disposition Notification. If any Participant shall make any disposition of Shares delivered pursuant to the exercise of an Incentive Stock Option under the circumstances described in Code Section 421(b) (relating to certain disqualifying dispositions), such Participant shall notify the Company of such disposition within ten days thereof.

Section 15.

Change of Control

15.1. Change of Control. If a Participant's employment or service with the Company and/or any Subsidiary terminates either without Cause or for Good Reason within the 12 month period following a Change of Control, unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges:
(a) Any and all Options and SARs granted hereunder shall become immediately exercisable, and shall remain exercisable throughout their entire term;
(b) Any Period of Restriction and other restrictions imposed on Restricted Stock shall lapse; and
(c) Unless otherwise specified in an Award Document, the maximum payout opportunities attainable under all outstanding Awards of Performance Units and Performance Shares shall be deemed to have been fully earned for the entire Performance Period(s) as of the effective date of the Change of Control. The vesting of all such Awards shall be accelerated as of the effective date of the Change of Control, and in full settlement of such Awards, there shall be paid out in cash to Participants within 30 days following the effective date of the Change of Control the maximum of payout opportunities associated with such outstanding Awards.

Section 16.

Amendment, Modification, and Termination

16.1. Amendment, Modification, and Termination. The Board may amend, suspend or terminate the Plan or the Committee's authority to grant Awards under the Plan without the consent of stockholders or Participants; provided, however, that any amendment to the Plan shall be submitted to the Company's stockholders for approval not later than the earliest annual meeting for which the record date is after the date of such Board action if such stockholder approval is required by any federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the Shares may then be listed or quoted and the Board may otherwise, in its sole discretion, determine to submit other amendments to the Plan to stockholders for approval; and provided further, that, without the written consent of an affected Participant, no such Board action may materially and adversely affect the rights of such Participant under any outstanding Award. The Committee shall have no authority to waive or modify any other Award term after the Award has been granted to the extent that the waived or modified term was mandatory under the Plan.

Section 17. Withholding

17.1. Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy Federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of the Plan.
17.2. Share Withholding. With respect to withholding required upon the exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock, or upon any other taxable event arising as a result of Awards granted hereunder, the withholding requirement shall be satisfied by the Company withholding Shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax which would be imposed on the transaction.

Section 18. Miscellaneous

18.1. Unfunded Plan. The Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant or obligation to deliver Shares pursuant to an Award, nothing contained in the Plan or any Award shall give any such Participant any rights that are greater than those of a general creditor of the Company; provided that the Committee may authorize the creation of trusts and deposit therein cash, Shares, other Awards or other property, or make other arrangements to meet the Company's obligations under the Plan. Such trusts or other arrangements shall be consistent with the "unfunded" status of the Plan unless the Committee otherwise determines with the consent of each affected Participant. No such funding shall be established that would cause an amount to be taxable under Code Section 409A before it is received by a Participant or cause an amount to be subject to additional tax under such Section.
18.2. Forfeitures; Fractional Shares. Unless otherwise determined by the Committee, in the event of a forfeiture of an Award with respect to which a Participant paid cash consideration, the Participant shall be repaid the amount of such cash consideration. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award. The Committee shall determine whether cash, other Awards or other property shall be issued or paid in lieu of such fractional Shares or whether such fractional Shares or any rights thereto shall be forfeited or otherwise eliminated.
18.3. Compliance with Code Section 162(m). The Company intends that Options and SARs granted to Named Executive Officers and other Awards designated as Awards to Named Executive Officers shall constitute qualified "performance-based compensation" within the meaning of Code Section 162(m) and regulations thereunder, unless otherwise determined by the Committee at the time of allocation of an Award. Accordingly, the terms of Sections 4.2, 6, 7, 8.5, 8.6, 9 and 10, including the definitions of Named Executive Officer and other terms used therein, shall be interpreted in a manner consistent with Code Section 162(m) and regulations thereunder. The foregoing notwithstanding, because the Committee cannot determine with certainty whether a given Participant will be a Named Executive Officer with respect to a fiscal year that has not yet been completed, the Committee may, in its discretion, extend the terms of such Sections to any Participant that the Committee deems appropriate. If any provision of the Plan or any Award Document relating to a Performance Award that is designated as intended to comply with Code Section 162(m) does not comply or is inconsistent with the requirements of Code Section 162(m) or regulations thereunder, such provision shall be construed or deemed amended to the extent necessary to conform to such requirements, and no provision shall be deemed to confer upon the Committee or any other person sole discretion to increase the amount of compensation otherwise payable in connection with any such Award upon attainment of the applicable performance objectives.
18.4. Gender and Number; Headings. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural. Headings are included for the convenience of reference only and shall not be used in the interpretation or construction of any such provision contained in the Plan.
18.5. Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
18.6. Successors. All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect merger, consolidation, purchase of all or substantially all of the business and/or assets of the Company or otherwise.
18.7. Requirements of Law. The granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
18.8. Securities Law Compliance. With respect to "insiders," transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. An "insider" includes any individual who is, on the relevant date, an officer, Director or more than 10% beneficial owner of any class of the Company's equity securities that is registered pursuant to Section 12 of the Exchange Act, all as defined under Section 16 of the Exchange Act.
18.9. Governing Law. To the extent not preempted by Federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Illinois without regard to the conflict of law provisions thereof.

Appendix B — Proposed Amendments to Restated Certificate of Incorporation

If Proposal 4 is approved by stockholders at the 2010 Annual Meeting, amendments to Article Sixth, subsections (b), (c), (d) and (f) will be approved. If Proposal 5 is approved by stockholders at the 2010 Annual Meeting, amendments to Article Fifth and Article Sixth, subsection (e) and Article Eighth will be approved.

RESTATED CERTIFICATE OF INCORPORATION OF CATERPILLAR INC.

Caterpillar Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:

1. The name of the corporation is Caterpillar Inc. The date of filing its original Certificate of Incorporation with the Secretary of State was March 12, 1986.
1. This Restated Certificate of Incorporation restates and integrates and further amends the provisions of the Certificate of Incorporation of this corporation and has been duly adopted by the stockholders of the corporation in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of Delaware. by amending paragraph (a) of Article FOURTH to increase the total authorized shares and the authorized common stock.
1. The text of the Certificate of Incorporation as is amended or supplemented and restated heretofore is hereby further amended to read as herein set forth in full:

FIRST: The name of this corporation is Caterpillar Inc.

SECOND: The address of the registered office of the corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, and the name of its registered agent at that address is The Corporation Trust Company.

THIRD: The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.

FOURTH: (a) The corporation is authorized to issue two classes of shares to be designated, respectively, "common stock" and "preferred stock." The total number of such shares shall be nine hundred and five million (905,000,000), all of which shares shall have a par value of \$1.00 per share. The total number of shares of common stock authorized to be issued shall be nine hundred million (900,000,000) and the total number of shares of preferred stock authorized to be issued shall be five million (5,000,000).

(b) The shares of preferred stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized to establish from time to time by resolution or resolutions the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof, including but not limited to the fixing or alteration of the dividend rights, dividend rate or rates, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices, and the liquidation preferences of any wholly unissued series of shares of preferred stock, and the number of shares constituting any such series and the designation thereof, or any or all of them; and to increase or decrease the number of shares of any series subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.

FIFTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors shall have power to make, alter, amend and repeal the bylaws (except so far as the bylaws adopted by the stockholders shall otherwise provide). Any bylaws made by the Board of Directors under the powers conferred hereby may be altered, amended or repealed by the Board of Directors or by the stockholders. Notwithstanding the foregoing and anything contained in this Certificate of Incorporation to the contrary, Sections 1(b)(ii), 1(c) and 3(e)(f)¹ of Article II, and Section 1 of Article III of the bylaws shall not be altered, amended or repealed, and no provisions inconsistent therewith shall be adopted,

A December 2009 amendment to the Bylaws inserted an additional item into Section 3 of Article II. This conforming change is necessary to ensure the Restated Certificate of Incorporation references the appropriate section of the Bylaws.

without the affirmative vote of the holders of not less than a majority seventy-five percent (75%) of the outstanding stock of the corporation entitled to vote generally in the election of directors, voting together as a single class (it being understood that for the purposes of this Article FIFTH, each share shall have one vote except as otherwise provided in accordance with Article FOURTH).

SIXTH: (a) The number of directors which shall constitute the whole Board of Directors of this corporation shall be as specified in the bylaws of the corporation, subject to the provisions of Article FIFTH herein and this Article SIXTH.

(b) The Board of Directors shall be and is divided into three classes: Class I, Class II and Class III, which shall be as nearly equal in number as possible. Each director shall serve At each annual meeting of stockholders, directors shall be elected for a term of office to expire at the next annual meeting of stockholders, with each director to ending on the date of the third annual meeting of stockholders following the annual meeting at which the director was elected, provided, however, that each initial director in Class I shall hold office until the annual meeting of stockholders in 1987; each initial director in Class II shall hold office until the annual meeting of stockholders in 1988; and each initial director in Class III shall hold office until the annual meeting of stockholders in 1989. Notwithstanding the foregoing provisions of this Article, each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal.
(c) In the event of any increase or decrease in the authorized number of directors, the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the Board of Directors among the three classes of directors so as to maintain such classes as nearly equal as possible. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
(d) Newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office (and not by stockholders), even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office until the next annual meeting of stockholders for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified.
(e) Any director may be removed from office without cause but only by the affirmative vote of the holders of not less than a majority seventy-five percent (75%) of the outstanding stock of the corporation entitled to vote generally in the election of directors, voting together as a single class (it being understood that for the purpose of this Article SIXTH, each share shall have one vote except as otherwise provided in accordance with Article FOURTH).
(f) Notwithstanding the foregoing, whenever the holders of any one or more classes or series of stock issued by this corporation having a preference over the common stock as to dividends or upon liquidation, shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies, terms of removal and other features of such directorships shall be governed by the terms of Article FOURTH and the resolution or resolutions establishing such class or series adopted pursuant thereto and such directors so elected shall not be divided into classes pursuant to this Article SIXTH unless expressly provided by such terms.

SEVENTH: (a) Any action required or permitted to be taken by the stockholders of the corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders.

(b) Special meetings of the stockholders of this corporation for any purpose or purposes may be called at any time by the Chairman of the Board or the President, or by the Board of Directors pursuant to a resolution approved by a majority of the entire Board of Directors, but such special meetings may not be called by any other person or persons.
(c) Advance notice of stockholder nominations for the election of directors shall be given in the manner provided in the bylaws of this corporation.
(d) Election of directors need not be by written ballot unless the bylaws of this corporation shall so provide.

EIGHTH: The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute and this Certificate of Incorporation, and all rights conferred on stockholders herein are granted subject to this reservation. Notwithstanding the foregoing, the affirmative vote of not less than a majority seventy-five percent (75%) of the total voting power of all outstanding shares of stock in this corporation entitled to vote generally in the election of directors voting together as a single class (it being understood that for the purposes of this Article EIGHTH, each share shall have one vote except as otherwise provided in accordance with Article FOURTH) shall be required to alter, amend or repeal, or adopt any provisions inconsistent with the provisions set forth in Articles FIFTH, SIXTH, SEVENTH, and this Article EIGHTH.

NINTH: No director shall be personally liable to the corporation or any stockholders for monetary damages for breach of fiduciary duty as a director, except for any matter in respect of which such director shall be liable under Section 174 of Title 8 of the Delaware Code (relating to the Delaware General Corporation Law) or any amendment thereto or any successor provision thereto or shall be liable by reason that, in addition to any and all other requirements for such liability, such director (i) shall have breached the duty of loyalty to the corporation of its stockholders, (ii) shall not have acted in good faith, or, in failing to act, shall not have acted in good faith, (iii) shall have acted in a manner involving intentional misconduct or a knowing violation of law or, in failing to act, shall have acted in a manner involving intentional misconduct or a knowing violation of law, or (iv) shall have derived an improper personal benefit. Neither the amendment nor repeal of this Article NINTH, nor the adoption of any provision of the Certificate of Incorporation inconsistent with this Article NINTH, shall eliminate or reduce the effect of this Article NINTH in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article NINTH would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.

4. This Restated Certificate of Incorporation was duly adopted by vote of the stockholders in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware.

Appendix C — Proposed Amendments to Bylaws

If Proposal 4 is approved by stockholders at the 2010 Annual Meeting, amendments to Article III, Section 1, Subsections (b), (c) and (f) will be approved. If Proposal 5 is approved by stockholders at the 2010 Annual Meeting, the amendment to Article III, Section 1, Subsection (e) will be approved.

CATERPILLAR INC. BYLAWS

Article I Offices

Section 1. Registered Office.

The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle, State of Delaware.

Section 2. Other Offices.

The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require.

Article II Stockholders

Section 1. Stockholder Meetings.

(a) Place of Meetings. Meetings of stockholders shall be held at such places, within or without the State of Delaware, as may from time to time be designated by the board of directors.
(b) Annual Meeting.
(i) The annual meeting of stockholders shall be held on the second Wednesday in April in each year at a time designated by the board of directors, or at such a time and date as may be designated by the board.
(ii) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) other wise properly brought before the meeting by or at the direction of the board of directors, or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation, not less than 45 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 60 days' notice of the date of the meeting is given

or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the fifteenth (15th) day following the date on which such notice of the date of the annual meeting was mailed. A stockholder's notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting, (b) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the corporation which are beneficially owned by the stockholder and (d) any material interest of the stockholder in such business. Notwithstanding anything in the bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 1(b)(ii). The presiding officer of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 1, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.

(c) Special Meetings. Special meetings of the stockholders of this corporation for any purpose or purposes may be called at any time by the chairman of the board or the vice chairman, or by the board of directors pursuant to a resolution approved by a majority of the entire board of directors, but such special meetings may not be called by any other person or persons.
(d) Notice of Meetings. Notice of every meeting of the stockholders shall be given in any manner permitted by law, and such notice shall include the record date for determining the stockholders entitled to vote at the meeting, if such date is different from the record date for determining stockholders entitled to notice of the meeting.
(e) Quorum. Except as otherwise required by law, the certificate of incorporation and these bylaws, the holders of not less than one-third of the shares entitled to vote at any meeting of the stockholders, present in person or by proxy, shall constitute a quorum at all meetings of the stockholders. If a quorum shall fail to attend any meeting, the chairman of the meeting may adjourn the meeting to another place, date or time. If a notice of any adjourned special meeting of stockholders is sent to all stockholders entitled to vote thereat, stating that it will be held with those present constituting a quorum, then, except as otherwise required by law, those present at such adjourned meeting shall constitute a quorum.

Section 2. Determination of Stockholders Entitled to Vote.

To determine the stockholders entitled to notice of any meeting or to vote, the board of directors may fix in advance a record date for each as provided in Article VI, Section 1 hereof.

Section 3. Voting.

(a) Subject to the provisions of applicable law, and except as otherwise provided in the certificate of incorporation, each stockholder present in person or by proxy shall be entitled to one vote for each full share of stock registered in the name of such stockholder at the time fixed by the board of directors or by law as the record date of the determination of stockholders entitled to vote at a meeting.
(b) Every stockholder entitled to vote may do so in person or by one or more agents authorized by proxy. Such authorization may be in writing or by transmission of an electronic communication, as permitted by law and in accordance with procedures established for the meeting.
(c) Voting may be by voice or by ballot as the chairman of the meeting shall determine.
(d) In all matters other than the election of directors, the affirmative vote of the majority of shares present in person or by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Directors shall be elected by a plurality of the votes of the shares present in person or by proxy at the meeting and entitled to vote on the election of directors.
(e) In advance of any meeting of stockholders the board of directors may appoint one or more persons (who shall not be candidates for office) as inspectors of election to act at the meeting. If inspectors are not so appointed, or if an appointed inspector fails to appear or fails or refuses to act at a meeting, the chairman of any meeting of stockholders may, and on the request of any stockholder or his proxy shall, appoint inspectors of election at the meeting.
(f) Any action required or permitted to be taken by the stockholders of the corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders.

Article III Board of Directors

Section 1. Election of Directors.

(a) Number. The authorized number of directors of the corporation shall be fixed from time to time by the board of directors but shall not be less than three (3). The exact number of directors shall be determined from time to time either by a resolution or bylaw duly adopted by the board of directors.
(b) Election and Terms of Directors. Each director shall serve for a term of office to expire at the next annual meeting of stockholders, with each director to Classes of Directors. The board of directors shall be and is divided into three classes: Class I, Class II and Class III, which shall be as nearly equal in number as possible. Each director shall serve for a term ending on the date of the third annual meeting of stockholders following the annual meeting at which the director was elected; provided, however, that each initial director in Class I shall hold office until the annual meeting of stockholders in 1987; each initial director in Class II shall hold office until the annual meeting of stockholders in 1988; and each initial director in Class III shall hold office until the annual meeting of stockholders in 1989. Notwithstanding the foregoing provisions of this subsection (b), each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal.
(c) Newly Created Directorships and Vacancies. In the event of any increase or decrease in the authorized number of directors, the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the board of directors among the three classes of directors so as to maintain such classes as nearly equal in number as possible. No decrease in the number of directors constituting the board of directors shall shorten the term of any incumbent director. Newly created directorships resulting from any increase in the number of directors and any vacancies on the board of directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office (and not by stockholders), even though less than a quorum of the board of directors. Any director elected in accordance with the preceding sentence shall hold office until the next annual meeting of stockholders for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified.
(d) Nomination of Directors. Candidates for director shall be nominated either
(i) by the board of directors or a committee appointed by the board of directors or
(ii) by nomination at any such stockholders' meeting by or on behalf of any stockholder entitled to vote at such meeting provided that written notice of such stockholder's intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the secretary of the corporation not later than (1) with respect to an election to be held at an annual meeting of stockholders, ninety (90) days in advance of such meeting, and (2) with respect to an election to be held at a special meeting of stockholders for the election of directors, the close of business on the tenth (10th) day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been nominated, or intended to be nominated, by the board of directors; and (e) the consent of each nominee to serve as a director of the corporation if so elected. The presiding officer of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure.
(e) Removal. Any director may be removed from office without cause but only by the affirmative vote of the holders of not less than a majority seventy-five percent (75%) of the outstanding stock of the corporation entitled to vote generally in the election of directors, voting together as a single class.

(f) Preferred Stock Provisions. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of stock issued by this corporation having a preference over the common stock as to dividends or upon liquidation, shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies, nominations, terms of removal and other features of such directorships shall be governed by the terms of Article FOURTH of the certificate of incorporation and the resolution or resolutions establishing such class or series adopted pursuant thereto and such directors so elected shall not be divided into classes pursuant to Article SIXTH of the certificate of incorporation unless expressly provided by such terms.

Section 2. Meetings of the Board of Directors.

(a) Regular Meetings. Regular meetings of the board of directors shall be held without call at the following times:
(i) 8:30 a.m. on the second Wednesday in February, April, June, August, October and December;
(ii) one-half hour prior to any special meeting of the stockholders, and immediately following the adjournment of any annual or special meeting of the stockholders.

Notice of all such regular meetings is hereby dispensed with.

(b) Special Meetings. Special meetings of the board of directors may be called by the chairman of the board, any two (2) directors or by any officer authorized by the board. Notice of the time and place of special meetings shall be given by the secretary or an assistant secretary, or by any other officer authorized by the board. Such notice shall be given to each director personally or by mail, messenger, telephone or telegraph at his business or residence address. Notice by mail shall be deposited in the United States mail, postage prepaid, not later than the third (3rd) day prior to the date fixed for the meeting. Notice by telephone or telegraph shall be sent, and notice given personally or by messenger shall be delivered, at least twenty-four (24) hours prior to the time set for the meeting. Notice of a special meeting need not contain a statement of the purpose of the meeting.
(c) Adjourned Meetings. A majority of directors present at any regular or special meeting of the board of directors, whether or not constituting a quorum, may adjourn from time to time until the time fixed for the next regular meeting. Notice of the time and place of holding an adjourned meeting shall not be required if the time and place are fixed at the meeting adjourned.
(d) Place of Meetings. Unless a resolution of the board of directors, or the written consent of all directors given either before or after the meeting and filed with the secretary, designates a different place within or without the State of Delaware, meetings of the board of directors, both regular and special, shall be held at the corporation's offices at 100 N.E. Adams Street, Peoria, Illinois.
(e) Participation by Telephone. Members of the board may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another, and such participation shall constitute presence in person at such meeting.
(f) Quorum. At all meetings of the board one-third of the total number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action is approved by at least a majority of the required quorum for such meeting. Less than a quorum may adjourn any meeting of the board from time to time without notice.

Section 3. Action Without Meeting.

Any action required or permitted to be taken by the board of directors may be taken without a meeting if all members of the board consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the board.

Section 4. Compensation of Directors.

The directors may be paid such compensation for their services as the board shall from time to time determine. Directors who receive salaries as officers or employees of the corporation shall not receive additional compensation for their services as directors.

Section 5. Committees of the Board.

There shall be such committees of the board of directors each consisting of two or more directors with such authority, subject to applicable law, as a majority of the board shall by resolution determine. Committees of the board shall meet subject to the call of the chairman of each committee and shall prepare and file with the secretary minutes of their meetings. Unless a committee shall by resolution establish a different procedure, notice of the time and place of committee meetings shall be given by the chairman of the committee, or at his request by the chairman of the board or by the secretary or an assistant secretary. Such notice shall be given to each committee member personally or by mail, messenger, telephone or telegraph at his business or residence address at the times provided in subsection (b) of Section 2 of this Article for notice of special meetings of the board of directors. One-third of a committee but not less than two members shall constitute a quorum for the transaction of business. Except as a committee by resolution may determine otherwise, the provisions of Section 3 and of subsections (c), (d) and (e) of Section 2 of this Article shall apply, mutatis mutandis, to meetings of board committees.

Article IV Officers

Section 1. Officers.

The officers of the corporation shall be a chairman of the board, who shall be the chief executive officer, one or more group presidents, one or more vice presidents (one of whom shall be designated the chief financial officer), a secretary and a treasurer, together with such other officers as the board of directors shall determine. Any two or more offices may be held by the same person.

Section 2. Election and Tenure of Officers.

Officers shall be elected by the board of directors, shall hold office at the pleasure of the board, and shall be subject to removal at any time by the board. Vacancies in office may be filled by the board.

Section 3. Powers and Duties of Officers.

Each officer shall have such powers and duties as may be prescribed by the board of directors or by an officer authorized so to do by the board.

Section 4. Compensation of Officers.

The compensation of officers shall be determined by the board of directors; provided that the board may delegate authority to determine the compensation of any assistant secretary or assistant treasurer, with power to redelegate.

Article V Indemnification

The corporation shall indemnify to the full extent permitted by, and in the manner permissible under, the laws of the State of Delaware any person made, or threatened to be made, a party to an action or proceeding, whether criminal, civil, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he, his testator or intestate is or was a director or officer of the corporation or any predecessor of the corporation, or served any other enterprise as a director or officer at the request of the corporation or any predecessor of the corporation. The corporation shall pay or reimburse the actual and reasonable expenses (including attorneys fees) of such person incurred in defending any threatened or pending proceeding in advance of its final disposition if the corporation has received an undertaking by the person receiving such payment or reimbursement to repay all amounts advanced if it should be ultimately determined that he or she is not entitled to be indemnified under this Article V or otherwise.

The foregoing provisions of this Article V shall be deemed to be a contract between the corporation and each director and officer who serves in such capacity at any time while this bylaw is in effect, and any repeal or modification thereof shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought based in whole or in part upon any such state of facts.

The foregoing rights of indemnification and advancement of expenses shall not be deemed exclusive of any other rights to which any director or officer may be entitled apart from the provisions of this Article.

The board of directors in its discretion shall have power on behalf of the corporation to indemnify and advance expenses to any person, other than a director or officer, made a party to any action, suit or proceeding by reason of the fact that he, his testator or intestate, is or was an employee of the corporation.

Article VI Miscellaneous

Section 1. Record Date.

(a) In order that the corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the board of directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors and which record date shall not be more than sixty (60) nor less than ten (10) days prior to the date of such meeting. If the board of directors so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the board of directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the board of directors, the record date for determining stockholders entitled to notice of and to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance with the foregoing provisions at the adjourned meeting.
(b) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board may fix, in advance, a record date, which shall not be more than sixty (60) days prior to any such corporate action. If not fixed by the board, the record date shall be at the close of business on the day on which the board of directors adopts resolution relating thereto.
(c) Stockholders on a record date are entitled to notice, to vote or to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided by agreement or by applicable law.

Section 2. Stock Certificates.

(a) Shares of the corporation may be certificated or uncertificated, as provided under the laws of the State of Delaware. Every holder of certificated shares in the corporation shall be entitled to have a certificate signed in the name of the corporation by the chairman of the board or the vice chairman, or by the president or vice president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary, certifying the number of shares and the class or series of shares owned by the stockholder. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue.
(b) The corporation may issue a new share certificate or a new certificate for any other security in the place of any certifi cate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate or the owner's legal representative to give the corporation a bond (or other adequate security) sufficient to indemnify it against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.

Section 3. Corporate Seal.

The corporation shall have a corporate seal in such form as shall be prescribed and adopted by the board of directors.

Section 4. Construction and Definitions.

Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the General Corporation Law of Delaware shall govern the construction of these bylaws.

Section 5. Amendments.

Subject to the provisions of the certificate of incorporation, these bylaws may be altered, amended or repealed at any regular meeting of the stockholders (or at any special meeting thereof duly called for that purpose) by a majority vote of the shares represented and entitled to vote at the meeting; provided that in the notice of such special meeting notice of such purpose shall be given. Subject to the laws of the State of Delaware, the certificate of incorporation and these bylaws, the board of directors may by majority vote of those present at any meeting at which a quorum is present amend these bylaws, or enact such other bylaws as in their judgment may be advisable for the regulation of the conduct of the affairs of the corporation.

Appendix D

CATERPILLAR INC.

GENERAL AND FINANCIAL INFORMATION

2009

	Page
Management's Report on Internal Control Over Financial Reporting	A-3
Report of Independent Registered Public Accounting Firm	A-4
Consolidated Financial Statements and Notes	A-5
Five-year Financial Summary	A-52
Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
Overview	A-53
2009 Compared with 2008	A-54
Fourth Quarter 2009 Compared with Fourth Quarter 2008	A-59
2008 Compared with 2007	A-63
Glossary of Terms	A-69
Liquidity and Capital Resources	A-70
Critical Accounting Policies	A-74
Employment	A-76
Other Matters	A-77
Non-GAAP Financial Measures	A-80
Supplemental Consolidating Data	A-81
Outlook	A-84
Supplemental Stockholder Information	A-86
Directors and Officers	A-88

MANAGEMENT'S REPORT ON Caterpillar Inc. INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Caterpillar Inc. (company) is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the company's internal control over financial reporting as of December 31, 2009. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on our assessment we concluded that, as of December 31, 2009, the company's internal control over financial reporting was effective based on those criteria.

The effectiveness of the company's internal control over financial reporting as of December 31, 2009 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm. Their report appears on page A-4.

James W. Owens Chairman of the Board and Chief Executive Officer

David B. Burritt Vice President and Chief Financial Officer

February 19, 2010

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Caterpillar Inc.:

In our opinion, the accompanying consolidated financial position and the related consolidated statements of results of operations, changes in stockholders' equity, and cash flow, including pages A-5 through A-51, present fairly, in all material respects, the financial position of Caterpillar Inc. and its subsidiaries at December 31, 2009, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Over Financial Reporting appearing on page A-3. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 1K to the consolidated financial statements, the Company changed the manner in which it measures certain assets and liabilities at fair value in 2008 and the manner in which it accounts for uncertainty in income taxes in 2007.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Peoria, Illinois

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(Dollars in millions except per share data)

	2009	2008	2007
Sales and revenues:
Sales of Machinery and Engines Revenues of Financial Products	\$ 29,540 2,856	\$ 48,044 3,280	\$ 41,962 2,996
Total sales and revenues	32,396	51,324	44,958
Operating costs:
Cost of goods sold	23,886	38,415	32,626
Selling, general and administrative expenses	3,645	4,399	3,821
Research and development expenses	1,421	1,728	1,404
Interest expense of Financial Products	1,045	1,153	1,132
Other operating (income) expenses	1,822	1,181	1,054
Total operating costs	31,819	46,876	40,037
Operating profit	577	4,448	4,921
Interest expense excluding Financial Products	389	274	288
Other income (expense)	381	327	357
Consolidated profit before taxes	569	4,501	4,990
Provision (benefit) for income taxes	(270)	953	1,485
Profit of consolidated companies	839	3,548	3,505
Equity in profit (loss) of unconsolidated affiliated companies	(12)	37	73
Profit of consolidated and affiliated companies	827	3,585	3,578
Less: Profit (loss) attributable to noncontrolling interests	(68)	28	37
Profit1	\$ 895	\$ 3,557	\$ 3,541
Profit per common share	\$ 1.45	\$ 5.83	\$ 5.55
Profit per common share — diluted2	\$ 1.43	\$ 5.66	\$ 5.37
Weighted-average common shares outstanding (millions)
— Basic	615.2	610.5	638.2
— Diluted2	626.0	627.9	659.5
Cash dividends declared per common share	\$ 1.68	\$ 1.62	\$ 1.38

¹ Profit attributable to common stockholders.

² Diluted by assumed exercise of stock-based compensation awards, using the treasury stock method.

STATEMENT 2

Consolidated Financial Position at December 31

(Dollars in millions)

	2009	2008	2007
Assets
Current assets:
Cash and short-term investments	\$ 4,867	\$ 2,736	\$ 1,122
Receivables — trade and other	5,611	9,397	8,249
Receivables — finance	8,301	8,731	7,503
Deferred and refundable income taxes	1,216	1,223	816
Prepaid expenses and other current assets	434	765	583
Inventories	6,360	8,781	7,204
Total current assets	26,789	31,633	25,477
Property, plant and equipment — net	12,386	12,524	9,997
Long-term receivables — trade and other	971	1,479	685
Long-term receivables — finance	12,279	14,264	13,462
Investments in unconsolidated affiliated companies	105	94	598
Noncurrent deferred and refundable income taxes	2,714	3,311	1,553
Intangible assets	465	511	475
Goodwill	2,269	2,261	1,963
Other assets	2,060	1,705	1,922
Total assets	\$ 60,038	\$ 67,782	\$ 56,132
Liabilities
Current liabilities:
Short-term borrowings:
Machinery and Engines	\$ 433	\$ 1,632	\$ 187
Financial Products	3,650	5,577	5,281
Accounts payable	2,993	4,827	4,723
Accrued expenses	3,351	4,121	3,178
Accrued wages, salaries and employee benefits	797	1,242	1,126
Customer advances	1,217	1,898	1,442
Dividends payable	262	253	225
Other current liabilities	888	1,027	951
Long-term debt due within one year:
Machinery and Engines	302	456	180
Financial Products	5,399	5,036	4,952
Total current liabilities	19,292	26,069	22,245
Long-term debt due after one year:
Machinery and Engines	5,652	5,736	3,639
Financial Products	16,195	17,098	14,190
Liability for postemployment benefits	7,420	9,975	5,059
Other liabilities	2,179	2,190	2,003
Total liabilities	50,738	61,068	47,136
Commitments and contingencies (Notes 22 and 23)
Redeemable noncontrolling interest (Note 26)	477	524	—
Stockholders' equity
Common stock of \$1.00 par:
Authorized shares: 900,000,000
Issued shares: (2009, 2008 and 2007 — 814,894,624) at paid-in amount	3,439	3,057	2,744
Treasury stock: (2009 — 190,171,905 shares; 2008 — 213,367,983 shares and 2007 — 190,908,490 shares) at cost	(10,646 )	(11,217)	(9,451)
Profit employed in the business	19,711	19,826	17,398
Accumulated other comprehensive income (loss)	(3,764)	(5,579)	(1,808)
Noncontrolling interests	83	103	113
Total stockholders' equity	8,823	6,190	8,996
Total liabilities, redeemable noncontrolling interest and stockholders' equity	\$ 60,038	\$ 67,782	\$ 56,132

STATEMENT 3 Caterpillar Inc.

Changes in Consolidated Stockholders' Equity for the Years Ended December 31

(Dollars in millions)

Balance at December 31, 2006	Common stock \$ 2,465	Treasury stock \$ (7,352)	Profit employed in the business \$ 14,593	Accumu lated other comprehen sive income (loss)1 \$ (2,847)	Noncon trolling interests \$ 78	Total \$ 6,937	Compre hensive income (loss) \$ 3,990
Adjustment to adopt accounting for uncertainty in income taxes	—	—	141	—	—	141
Balance at January 1, 2007	\$ 2,465	\$ (7,352)	\$ 14,734	\$ (2,847)	\$ 78	\$ 7,078
Profit of consolidated and affiliated companies Foreign currency translation	— —	— —	3,541 —	— 278	37 1	3,578 279	3,578 \$ 279
Pension and other postretirement benefits
Current year actuarial gain (loss), net of tax of \$271	—	—	—	537	—	537	537
Amortization of actuarial (gain) loss, net of tax of \$123	—	—	—	228	—	228	228
Current year prior service cost, net of tax of \$1 Amortization of prior service cost, net of tax of \$10	— —	— —	— —	(2) 17	— —	(2) 17	(2) 17
Amortization of transition (asset) obligation, net of tax of \$1	—	—	—	2	—	2	2
Derivative financial instruments
Gains (losses) deferred, net of tax of \$25	—	—	—	48	—	48	48
(Gains) losses reclassified to earnings, net of tax of \$41	—	—	—	(74)	—	(74)	(74)
Retained interests Gains (losses) deferred, net of tax of \$2	—	—	—	3	—	3	3
(Gains) losses reclassified to earnings, net of tax of \$4	—	—	—	(6)	—	(6)	(6)
Available-for-sale securities
Gains (losses) deferred, net of tax of \$8	—	—	—	14	—	14	14
(Gains) losses reclassified to earnings, net of tax of \$3	— —	— —	— (877)	(6) —	— —	(6) (877)	(6)
Dividends declared Distributions to noncontrolling interests	—	—	—	—	(20)	(20)	— —
Change in ownership for noncontrolling interests	—	—	—	—	17	17	—
Common shares issued from treasury stock	22	306	—	—	—	328	—
for stock-based compensation: 11,710,958
Stock-based compensation expense Excess tax benefits from stock-based compensation	146 167	— —	— —	— —	— —	146 167	— —
Shares repurchased: 33,533,000	—	(2,405)	—	—	—	(2,405)	—
Shares repurchase derivative contracts	(56)	—	—	—	—	(56)	—
Balance at December 31, 2007	\$ 2,744	\$ (9,451)	\$ 17,398	\$ (1,808)	\$ 113	\$ 8,996	\$ 4,618
Adjustment to adopt postretirement benefit measurement
date provisions, net of tax2 Balance at January 1, 2008	— \$ 2,744	— \$ (9,451)	(33) \$ 17,365	17 \$ (1,791)	— \$ 113	(16)
Profit of consolidated and affiliated companies	—
						\$ 8,980
		—	3,557	—	28	3,585	3,585 \$
Foreign currency translation, net of tax of \$133 Pension and other postretirement benefits	—	—	—	(488)	23	(465)	(465)
Current year actuarial gain (loss), net of tax of \$1,854	—	—	—	(3,415)	(30)	(3,445)	(3,445)
Amortization of actuarial (gain) loss, net of tax of \$84	—	—	—	150	1	151	151
Current year prior service cost, net of tax of \$5	—	—	—	(9)	—	(9)	(9)
Amortization of transition (asset) obligation, net of tax of \$1 Derivative financial instruments	—	—	—	2	—	2	2
Gains (losses) deferred, net of tax of \$67	—	—	—	100	—	100	100
(Gains) losses reclassified to earnings, net of tax of \$14	—	—	—	(22)	2	(20)	(20)
Retained interests
Gains (losses) deferred, net of tax of \$13 (Gains) losses reclassified to earnings, net of tax of \$8	— —	— —	— —	(22) 13	— —	(22) 13	(22) 13
Available-for-sale securities
Gains (losses) deferred, net of tax of \$67	—	—	—	(125)	—	(125)	(125)
(Gains) losses reclassified to earnings, net of tax of \$15	—	—	—	28	—	28	28
Dividends declared Distributions to noncontrolling interests	— —	— —	(981) —	— —	— (10)	(981) (10)	— —
Change in ownership for noncontrolling interests	—	—	—	—	(26)	(26)	—
Common shares issued from treasury stock
for stock-based compensation: 4,807,533	7	128	—	—	—	135	—
Stock-based compensation expense	194	—	—	—	—	194	—
Excess tax benefits from stock-based compensation Shares repurchased: 27,267,0263	56 —	— (1,894)	— —	— —	— —	56 (1,894)	— —
Stock repurchase derivative contracts	56	—	—	—	—	56	—
Cat Japan share redemption4 Balance at December 31, 2008	— \$ 3,057	— \$(11,217)	(115) \$ 19,826	— \$ (5,579)	2 \$ 103	(113) \$ 6,190	— \$ (207)

STATEMENT 3 Changes in Consolidated Stockholders' Equity for the Years Ended December 31 (Continued) (Dollars in millions)

Balance at December 31, 2008 \$	Common stock 3,057	Treasury stock \$(11,217)	Profit employed in the business \$ 19,826	Accumu lated other comprehen sive income (loss)1 \$ (5,579)	Noncon trolling interests \$ 103	Total \$ 6,190	Compre hensive income (loss) \$ (207)
Profit of consolidated and affiliated companies	—	—	895	—	(68)	827	\$ 827
Foreign currency translation, net of tax of \$37	—	—	—	342	21	363	363
Pension and other postretirement benefits
Current year actuarial gain (loss), net of tax of \$401	—	—	—	924	1	925	925
Amortization of actuarial (gain) loss, net of tax of \$113	—	—	—	187	—	187	187
Current year prior service cost, net of tax of \$249	—	—	—	300	—	300	300
Amortization of prior service cost, net of tax of \$8	—	—	—	(2)	—	(2)	(2)
Amortization of transition (asset) obligation, net of tax of \$1	—	—	—	1	—	1	1
Derivative financial instruments
Gains (losses) deferred, net of tax of \$16	—	—	—	19	—	19	19
(Gains) losses reclassified to earnings, net of tax of \$36	—	—	—	(54)	(2)	(56)	(56)
Retained interests
Gains (losses) deferred, net of tax of \$95	—	—	—	(16)	—	(16)	(16)
(Gains) losses reclassified to earnings, net of tax of \$11	—	—	—	20	—	20	20
Available-for-sale securities
Gains (losses) deferred, net of tax of \$47	—	—	—	86	—	86	86
(Gains) losses reclassified to earnings, net of tax of \$5	—	—	—	8	—	8	8
Dividends declared	—	—	(1,038)	—	—	(1,038)	—
Distributions to noncontrolling interests	—	—	—	—	(10)	(10)	—
Change in ownership for noncontrolling interests	(3)	—	—	—	(15)	(18)	—
Common shares issued from treasury stock for stock-based compensation: 3,571,268	(14)	103	—	—	—	89	—
Common shares issued from treasury stock for benefit plans: 19,624,8106	250	468	—	—	—	718	—
Stock-based compensation expense	132	—	—	—	—	132	—
Excess tax benefits from stock-based compensation	17	—	—	—	—	17	—
Cat Japan share redemption4	—	—	28	—	53	81	—
Balance at December 31, 2009 \$	3,439	\$(10,646)	\$ 19,711	\$ (3,764)

¹ Pension and other postretirement benefits include net adjustments for Cat Japan Ltd, while they were an unconsolidated affiliate, of \$(9) million in 2007. The ending balance is \$(52) million as of December 31, 2007. See Notes 25 and 26 regarding the Cat Japan share redemption.

² Adjustments were made to adopt the measurement date provision of the accounting standard on employers' accounting for defined benefits pension and other postretirement plans. Adjustments to Profit employed in the business and pension and other postemployment benefits were net of tax of \$(17) million and \$9 million, respectively. See Note 1K for additional information.

³ Amount consists of \$1,800 million of cash-settled purchases and \$94 million of derivative contracts.

⁴ See Notes 25 and 26 regarding the Cat Japan share redemption.

⁵ Includes noncredit component of other-than-temporary impairment losses on retained interests of \$(8) million, net of tax of \$4 million, for the twelve months ended December 31, 2009. See Note 8 and 19 for additional information.

⁶ See Note 14 regarding shares issued for benefit plans.

STATEMENT 4 Caterpillar Inc. Consolidated Statement of Cash Flow for the Years Ended December 31

(Millions of dollars)

	2009	2008	2007
Cash flow from operating activities:
Profit of consolidated and affiliated companies	\$ 827	\$ 3,585	\$ 3,578
Adjustments for non-cash items:
Depreciation and amortization	2,336	1,980	1,797
Other	137	355	162
Changes in assets and liabilities:
Receivables — trade and other	4,014	(545)	899
Inventories	2,501	(833)	(745)
Accounts payable	(2,034)	(4)	387
Accrued expenses	(505)	660	231
Customer advances	(646)	286	576
Other assets — net	235	(470)	66
Other liabilities — net	(522)	(217)	1,004
Net cash provided by (used for) operating activities	6,343	4,797	7,955

Cash flow from investing activities:
Capital expenditures — excluding equipment leased to others	(1,348)	(2,445)	(1,700)
Expenditures for equipment leased to others	(968)	(1,566)	(1,340)
Proceeds from disposals of property, plant and equipment	1,242	982	408
Additions to finance receivables	(7,107)	(14,031)	(13,946)
Collections of finance receivables	9,288	9,717	10,985
Proceeds from sale of finance receivables	100	949	866
Investments and acquisitions (net of cash acquired)	(19)	(117)	(229)
Proceeds from release of security deposit	—	—	290
Proceeds from sale of available-for-sale securities	291	357	282
Investments in available-for-sale securities	(349)	(339)	(485)
Other — net	(128)	197	461
Net cash provided by (used for) investing activities	1,002	(6,296)	(4,408)
Cash flow from financing activities:
Dividends paid	(1,029)	(953)	(845)

Distribution to noncontrolling interests	(10)	(10)	(20)
Common stock issued, including treasury shares reissued	89	135	328
Payment for stock repurchase derivative contracts	—	(38)	(56)
Treasury shares purchased	—	(1,800)	(2,405)
Excess tax benefit from stock-based compensation	21	56	155
Acquisitions of noncontrolling interests	(6)	—	—
Proceeds from debt issued (original maturities greater than three months):
— Machinery and Engines	458	1,673	224
— Financial Products	11,833	16,257	10,815
Payments on debt (original maturities greater than three months):
— Machinery and Engines	(918)	(296)	(598)
— Financial Products	(11,769)	(14,143)	(10,290)
Short-term borrowings (original maturities three months or less) — net	(3,884)	2,074	(297)
Net cash provided by (used for) financing activities	(5,215)	2,955	(2,989)
Effect of exchange rate changes on cash	1	158	34
Increase (decrease) in cash and short-term investments	2,131	1,614	592
Cash and short-term investments at beginning of period	2,736	1,122	530

All short-term investments, which consist primarily of highly liquid investments with original maturities of three months or less, are considered to be cash equivalents. Non-cash activities:

During 2009, we contributed 19.6 million shares of company stock with a fair value of \$718 million to our U.S. benefit plans. See Note 14 for further discussion.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Operations and summary of significant accounting policies

A. Nature of operations

We operate in three principal lines of business:

(1) Machinery A principal line of business which includes the design, manufacture, marketing and sales of construction, mining and forestry machinery — track and wheel tractors, track and wheel loaders, pipelayers, motor graders, wheel tractorscrapers, track and wheel excavators, backhoe loaders, log skidders, log loaders, off-highway trucks, articulated trucks, paving products, skid steer loaders, underground mining equipment, tunnel boring equipment and related parts. Also includes logistics services for other companies and the design, manufacture, remanufacture, maintenance and services of rail-related products.
(2) Engines A principal line of business including the design, manufacture, marketing and sales of engines for Caterpillar machinery, electric power generation systems, locomotives, marine, petroleum, construction, industrial, agricultural and other applica tions, and related parts. Also includes remanufacturing of Caterpillar engines and a variety of Caterpillar machine and engine components and remanufacturing services for other companies. Reciprocating engines meet power needs ranging from 10 to 21,800 horsepower (8 to over 16 000 kilowatts). Turbines range from 1,600 to 30,000 horsepower (1 200 to 22 000 kilowatts).
(3) Financial Products A principal line of business consisting primarily of Caterpillar Financial Services Corporation (Cat Financial), Caterpillar Insurance Holdings, Inc. (Cat Insurance) and their respective subsidiaries. Cat Financial provides a wide range of financing alternatives to customers and dealers for Caterpillar machinery and engines, Solar gas turbines as well as other equipment and marine vessels. Cat Financial also extends loans to customers and dealers. Cat Insurance provides various forms of insurance to customers and dealers to help support the purchase and lease of our equipment.

Our Machinery and Engines operations are highly integrated. Throughout the Notes, Machinery and Engines represents the aggregate total of these principal lines of business.

Our products are sold primarily under the brands "Caterpillar," "CAT," design versions of "CAT" and "Caterpillar," "Solar Turbines," "MaK," "Perkins," "FG Wilson," "Olympian" and "Progress Rail."

We conduct operations in our Machinery and Engines lines of business under highly competitive conditions, including intense price competition. We place great emphasis on the high quality and performance of our products and our dealers' service support. Although no one competitor is believed to produce all of the same types of machines and engines that we do, there are numerous companies, large and small, which compete with us in the sale of each of our products.

Machines are distributed principally through a worldwide organization of dealers (dealer network), 51 located in the United States and 127 located outside the United States. Worldwide, these dealers serve 182 countries and operate 3,518 places of business, including 1,407 dealer rental outlets. Reciprocating engines are sold principally through the dealer network and to other manufacturers for use in products manufactured by them. Some of the reciprocating engines manufactured by Perkins are also sold through a worldwide network of 129 distributors located in 165 countries. The FG Wilson branded electric power generation systems are sold through a worldwide network of 157 dealers located in 180 countries. Some of the large, medium speed reciprocating engines are also sold under the MaK brand through a worldwide network of 19 dealers located in 130 countries. Our dealers do not deal exclusively with our products; however, in most cases sales and servicing of our products are the dealers' principal business. Turbines are sold through sales forces employed by the company. At times, these employees are assisted by independent sales representatives.

Manufacturing activities of the Machinery and Engines lines of business are conducted in 96 plants in the United States; 16 in the United Kingdom; nine in Italy; eight each in China and Mexico; five each in Canada and France; four in Brazil; three each in Australia, India, and Poland; two each in Germany, Indonesia, Japan and the Netherlands; and one each in Belgium, Hungary, Malaysia, Nigeria, Russia, Switzerland and Tunisia. Twelve parts distribution centers are located in the United States and 17 are located outside the United States.

The Financial Products line of business also conducts operations under highly competitive conditions. Financing for users of Caterpillar products is available through a variety of competitive sources, principally commercial banks and finance and leasing companies. We emphasize prompt and responsive service to meet customer requirements and offer various financing plans designed to increase the opportunity for sales of our products and generate financing income for our company. Financial Products activity is conducted primarily in the United States, with additional offices in Asia, Australia, Canada, Europe and Latin America.

B. Basis of consolidation

The financial statements include the accounts of Caterpillar Inc. and its subsidiaries. Investments in companies that are owned 20% to 50% or are less than 20% owned and for which we have significant influence are accounted for by the equity method. See Note 11 for further discussion.

We consolidate all variable interest entities (VIEs) where Caterpillar Inc. is the primary beneficiary. For VIEs, we assess whether we are the primary beneficiary as prescribed by the accounting guidance on the consolidation of VIEs. The primary beneficiary of a VIE is the party that absorbs a majority of the entity's expected losses, receives a majority of its expected residual returns, or both.

Certain amounts for prior years have been reclassified to conform with the current-year financial statement presentation.

Shipping and handling costs are included in Cost of goods sold in Statement 1. Other operating (income) expenses primarily include Cat Financial's depreciation of equipment leased to others, Cat Insurance's underwriting expenses, gains (losses) on disposal of long-lived assets, long-lived asset impairment charges, employee separation charges and benefit plan curtailment, settlement and special termination benefits.

Prepaid expenses and other current assets in Statement 2 include prepaid rent, prepaid insurance and other prepaid items. In addition, at December 31, 2008, this line included a security deposit of \$232 million related to a deposit obligation due in 2009. See Note 16 for further discussion.

We have performed a review of subsequent events through February 19, 2010, the date the financial statements were issued, and concluded there were no events or transactions occurring during this period that required recognition or disclosure in our financial statements.

C. Sales and revenue recognition

Sales of Machinery and Engines are generally recognized when title transfers and the risks and rewards of ownership have passed to customers or independently owned and operated dealers. Typically, where product is produced and sold in the same country, title and risk of ownership transfer when the product is shipped. Products that are exported from a country for sale typically pass title and risk of ownership at the border of the destination country.

Sales of certain turbine machinery units are recognized under accounting for construction-type contracts, primarily using the percentage-of-completion method. Revenue is recognized based upon progress towards completion, which is estimated and continually updated over the course of construction. We provide for any loss that we expect to incur on these contracts when that loss is probable.

No right of return exists on sales of equipment. Replacement part returns are estimable and accrued at the time a sale is recognized.

We provide discounts to dealers through merchandising programs. We have numerous programs that are designed to promote the sale of our products. The most common dealer programs provide a discount when the dealer sells a product to a targeted end user. The cost of these discounts is estimated based on historical experience and known changes in merchandising programs and is reported as a reduction to sales when the product sale is recognized.

Our standard invoice terms are established by marketing region. When a sale is made to a dealer, the dealer is responsible for payment even if the product is not sold to an end customer and must make payment within the standard terms to avoid interest costs. Interest at or above prevailing market rates is charged on any past due balance. Our policy is to not forgive this interest. In 2009 and 2008, terms were extended to not more than one year for \$312 million and \$544 million of receivables, respectively, which represent approximately 1% of consolidated sales. In 2007, terms were extended to not more than one year for \$219 million of receivables, which represent less than 1% of consolidated sales.

Sales with payment terms of two months or more were as follows:

			(Dollars in millions)
	2009		2008		2007
Payment Terms		Percent		Percent		Percent
(months)	Sales	of Sales	Sales	of Sales	Sales	of Sales
2	\$	3,087 10.5% \$	4,130	8.6% \$	2,830	6.8%
3	978	3.3%	2,786	5.8%	2,067	4.9%
4	674	2.3%	866	1.8%	526	1.3%
5	53	0.2%	1,062	2.2%	965	2.3%
6	73	0.2%	561	1.2%	4,549	10.8%
7-12	478	1.6%	4,469	9.3%	293	0.7%
	\$	5,343 18.1% \$ 13,874			28.9% \$ 11,230	26.8%

We establish a bad debt allowance for Machinery and Engines receivables when it becomes probable that the receivable will not be collected. Our allowance for bad debts is not significant.

Revenues of Financial Products primarily represent the following Cat Financial revenues:

Retail (end-customer) finance revenue on finance leases and installment sale contracts is recognized over the term of the contract at a constant rate of return on the scheduled outstanding principal balance. Revenue on retail notes is recognized based on the daily balance of retail receivables outstanding and the applicable effective interest rate.
Operating lease revenue is recorded on a straight-line basis in the period earned over the life of the contract.
Wholesale (dealer) finance revenue on installment contracts and finance leases is recognized over the term of the contract at a constant rate of return on the scheduled outstanding principal balance. Revenue on wholesale notes is recognized based on the daily balance of wholesale receivables outstanding and the applicable effective interest rate.
Loan origination and commitment fees are deferred and then amortized to revenue using the interest method over the life of the finance receivables.

Recognition of income is suspended when collection of future income is not probable. Accrual is resumed, and previously suspended income is recognized, when the receivable becomes contractually current and/or collection doubts are removed. Cat Financial provides wholesale inventory financing to dealers. See Notes 7 and 8 for more information.

Sales and revenues are presented net of sales and other related taxes.

D. Inventories

Inventories are stated at the lower of cost or market. Cost is principally determined using the last-in, first-out (LIFO) method. The value of inventories on the LIFO basis represented about 70% of total inventories at December 31, 2009 and 2008, and about 75% of total inventories at December 31, 2007.

If the FIFO (first-in, first-out) method had been in use, inventories would have been \$3,003 million, \$3,183 million and \$2,617 million higher than reported at December 31, 2009, 2008 and 2007, respectively.

E. Securitized receivables

Cat Financial periodically sells finance receivables in securitization transactions. When finance receivables are securitized, Cat Financial retains interests in the receivables in the form of subordinated certificates, an interest in future cash flows (excess), reserve accounts and servicing rights. The retained interests are recorded in Other assets at fair value. Cat Financial estimates fair value and cash flows using a valuation model and key assumptions for credit losses, prepayment rates and discount rates. See Note 8 and Note 19 for more information.

F. Depreciation and amortization

Depreciation of plant and equipment is computed principally using accelerated methods. Depreciation on equipment leased to others, primarily for Financial Products, is computed using the straight-line method over the term of the lease. The depreciable basis is the original cost of the equipment less the estimated residual value of the equipment at the end of the lease term. In 2009, 2008 and 2007, Cat Financial depreciation on equipment leased to others was \$713 million, \$724 million and \$671 million, respectively, and was included in Other operating (income) expenses in Statement 1. In 2009, 2008 and 2007, consolidated depreciation expense was \$2,254 million, \$1,907 million and \$1,725 million, respectively. Amortization of purchased intangibles is computed principally using the straight-line method, generally not to exceed a period of 20 years.

G. Foreign currency translation

The functional currency for most of our Machinery and Engines consolidated companies is the U.S. dollar. The functional currency for most of our Financial Products and affiliates accounted for under the equity method is the respective local currency. Gains and losses resulting from the translation of foreign currency amounts to the functional currency are included in Other income (expense) in Statement 1. Gains and losses resulting from translating assets and liabilities from the functional currency to U.S. dollars are included in Accumulated other comprehensive income (loss) in Statement 2.

H. Derivative financial instruments

Our earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates, interest rates and commodity prices. Our Risk Management Policy (policy) allows for the use of derivative financial instruments to prudently manage foreign currency exchange rate, interest rate, commodity price and Caterpillar stock price exposures and not for the purpose of creating speculative positions. Derivatives that we use are primarily foreign currency forward and option contracts, interest rate swaps, commodity forward and option contracts and stock repurchase contracts. All derivatives are recorded at fair value. See Note 3 for more information.

I. Income taxes

The provision for income taxes is determined using the asset and liability approach. Tax laws require items to be included in tax filings at different times than the items are reflected in the financial statements. A current liability is recognized for the estimated taxes payable for the current year. Deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. Deferred taxes are adjusted for enacted changes in tax rates and tax laws. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

J. Estimates in financial statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts. The more significant estimates include: residual values for leased assets, fair values for goodwill impairment tests, impairment of available-for-sale securities, warranty liability, stock-based compensation and reserves for product liability and insurance losses, postemployment benefits, postsale discounts, credit losses and income taxes.

K. New accounting guidance

Accounting for uncertainty in income taxes — In June 2006, the Financial Accounting Standards Board (FASB) issued accounting guidance to create a single model to address accounting for uncertainty in tax positions. This guidance clarifies that a tax position must be more likely than not of being sustained before being recognized in the financial statements. As required, we adopted the provisions of this guidance as of January 1, 2007. The following table summarizes the effect of the initial adoption of this guidance. See Note 5 for additional information.

Initial adoption of accounting for uncertainty in income taxes

(Millions of dollars)	January 1, 2007 Prior to adoption	Adjustment	January 1, 2007 Post adoption
Deferred and refundable income taxes	\$ 733	\$ 82	\$ 815
Noncurrent deferred and refundable income taxes	1,949	211	2,160
Other current liabilities	1,145	(530)	615
Other liabilities	1,131	682	1,813
Profit employed in the business	14,593	141	14,734

Fair value measurements — In September 2006, the FASB issued accounting guidance on fair value measurements, which provides a common definition of fair value and a framework for measuring assets and liabilities at fair values when a particular standard prescribes it. In addition, this guidance expands disclosures about fair value measurements. In February 2008, the FASB issued additional guidance that (1) deferred the effective date of the original guidance for one year for certain nonfinancial assets and nonfinancial liabilities and (2) removed certain leasing transactions from the scope of the original guidance. We applied this new guidance to financial assets and liabilities effective January 1, 2008 and nonfinancial assets and liabilities effective January 1, 2009. The adoption of this guidance did not have a material impact on our financial statements. See Note 19 for additional information.

Employers' accounting for defined benefit pension and other postretirement plans — In September 2006, the FASB issued accounting guidance on employers' accounting for defined benefit pension and other postretirement plans. This guidance requires recognition of the overfunded or underfunded status of pension and other postretirement benefit plans on the balance sheet. Under this guidance, gains and losses, prior service costs and credits and any remaining transition amounts under previous guidance that have not yet been recognized through net periodic benefit cost are recognized in Accumulated other comprehensive income (loss), net of tax effects, until they are amortized as a component of net periodic benefit cost. Also, the measurement date — the date at which the benefit obligation and plan assets are measured — is required to be the company's fiscal year-end.

We adopted the balance sheet recognition provisions at December 31, 2006. We adopted the year-end measurement date effective January 1, 2008 using the "one measurement" approach. Under the one measurement approach, net periodic benefit cost for the period between any early measurement date and the end of the fiscal year that the measurement provisions are applied is allocated proportionately between amounts to be recognized as an adjustment of Profit employed in the business and net periodic benefit cost for the fiscal year. Previously, we used a November 30th measurement date for our U.S. pension and other postretirement benefit plans and September 30th for our non-U.S. plans. The following summarizes the effect of adopting the year-end measurement date provisions as of January 1, 2008. See Note 14 for additional information.

Adoption of postretirement benefit year-end measurement date

	January 1,		January 1,
	2008		2008
	Prior to		Post
(Millions of dollars)	adoption	Adjustment	adoption
Noncurrent deferred and refundable
income taxes	\$ 1,553	\$	8 \$ 1,561
Liability for postemployment benefits	5,059	24	5,083
Accumulated other comprehensive
income (loss)	(1,808)	17	(1,791)
Profit employed in the business	17,398	(33)	17,365

Business combinations and noncontrolling interests in con solidated financial statements — In December 2007, the FASB issued accounting guidance on business combinations and noncontrolling interests in consolidated financial statements. The guidance on business combinations requires the acquiring entity in a business combination to recognize the assets acquired and liabilities assumed. Further, it changes the accounting for acquired in-process research and development assets, contingent consideration, partial acquisitions and transaction costs. Under the guidance on noncontrolling interests, all entities are required to report noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial statements. In addition, trans actions between an entity and noncontrolling interests are treated as equity transactions. We adopted this new guidance on January 1, 2009. As required, the guidance on noncontrolling interests was adopted through retrospective application, and all prior period information has been adjusted accordingly. The adoption of this guidance did not have a material impact on our financial statements. See Note 25 for further details.

Disclosures about derivative instruments and hedging activities — In March 2008, the FASB issued accounting guidance on disclosures about derivative instruments and hedging activities. This guidance expands disclosures for derivative instruments by requiring entities to disclose the fair value of derivative instruments and their gains or losses in tabular format. It also requires disclosure of information about credit risk-related contingent features in derivative agreements, counterparty credit risk, and strategies and objectives for using derivative instruments. We adopted this new guidance on January 1, 2009. The adoption of this guidance did not have a material impact on our financial statements. See Note 3 for additional information.

Employers' disclosures about postretirement benefit plan assets — In December 2008, the FASB issued accounting guidance on employers' disclosures about postretirement benefit plan assets. This guidance expands the disclosure set forth in previous guidance by adding required disclosures about (1) how investment allocation decisions are made by management, (2) major categories of plan assets, and (3) significant concentration of risk. Additionally, this guidance requires an employer to disclose information about the valuation of plan assets similar to that required under the accounting guidance on fair value measurements. We adopted this guidance for our financial statements for the annual period ending December 31, 2009. The adoption of this guidance did not have a material impact on our financial statements. See Note 14 for additional information.

Recognition and presentation of other-than-temporary impairments — In April 2009, the FASB issued accounting guidance on the recognition and presentation of other-thantemporary impairments. This new guidance amends the existing impairment guidance relating to certain debt securities and requires a company to assess the likelihood of selling the security prior to recovering its cost basis. When a security meets the criteria for impairment, the impairment charges related to credit losses would be recognized in earnings, while noncredit losses would be reflected in other comprehensive income. Additionally, it requires a more detailed, risk-oriented breakdown of major security types and related information. We adopted this guidance on April 1, 2009. The adoption of this guidance did not have a material impact on our financial statements. See Notes 8 and 13 for additional information.

Subsequent events — In May 2009, the FASB issued accounting guidance on subsequent events that establishes standards of accounting for and disclosure of subsequent events. In addition, it requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. This new guidance was adopted for our financial statements for the quarterly period ending June 30, 2009. The adoption of this guidance did not have a material impact on our financial statements. See Note 1B for additional information.

Accounting for transfers of financial assets — In June 2009, the FASB issued accounting guidance on accounting for transfers of financial assets. This guidance amends previous guidance by including: the elimination of the qualifying special-purpose entity (QSPE) concept; a new participating interest definition that must be met for transfers of portions of financial assets to be eligible for sale accounting; clarifications and changes to the derecognition criteria for a transfer to be accounted for as a sale; and a change to the amount of recognized gain or loss on a transfer of financial assets accounted for as a sale when beneficial interests are received by the transferor. Additionally, the guidance requires extensive new disclosures regarding an entity's involvement in a transfer of financial assets. Finally, existing QSPEs (prior to the effective date of this guidance) must be evaluated for consolidation by reporting entities in accordance with the applicable consolidation guidance upon the elimination of this concept. We will adopt this new guidance effective January 1, 2010. We do not expect the adoption of this guidance will have a material impact on our financial statements.

Consolidation of variable interest entities — In June 2009, the FASB issued accounting guidance on the consolidation of VIEs. This new guidance revises previous guidance by eliminating the exemption for qualifying special purpose entities, by establishing a new approach for determining who should consolidate a VIE and by changing when it is necessary to reassess who should consolidate a VIE. We will adopt this new guidance effective January 1, 2010. The adoption of this guidance will result in the consolidation of certain QSPEs related to Cat Financial's asset-backed securitization program that are currently not recorded on our consolidated financial statements. See Note 8 for additional information. We do not expect the adoption of this guidance will have a material impact on our financial statements.

L. Goodwill

Goodwill represents the excess of the cost of a business combination over the fair value of the net assets acquired. We are required to test goodwill for impairment, at the reporting unit level, annually and when events or circumstances indicate the fair value of a reporting unit may be below its carrying value. A reporting unit is an operating segment or sub-segment to which goodwill is assigned when initially recorded. We assign goodwill to reporting units based on our integration plans and the expected synergies resulting from the business combination. Because Caterpillar is a highly integrated company, the businesses we acquire are sometimes combined with or integrated into existing reporting units. When changes occur in the composition of our operating segments or reporting units, goodwill is reassigned to the affected reporting units based on their relative fair values.

We perform our annual goodwill impairment test as of October 1 and monitor for interim triggering events on an ongoing basis. Goodwill is reviewed for impairment utilizing a two-step process. The first step requires us to compare the fair value of each reporting unit, which we primarily determine using an income approach based on the present value of discounted cash flows, to the respective carrying value, which includes goodwill. If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired. If the carrying value is higher than the fair value, there is an indication that an impairment may exist and the second step is required. In step two, the implied fair value of goodwill is calculated as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities. If the implied fair value of goodwill is less than the carrying value of the reporting unit's goodwill, the difference is recognized as an impairment loss. See Note 12 for further details.

M. Accumulated other comprehensive income (loss)

Comprehensive income (loss) and its components are presented in Statement 3. Accumulated other comprehensive income (loss), net of tax, consisted of the following at December 31:

		December 31,
(Millions of dollars)	2009	2008	2007
Foreign currency translation \$	603	\$ 261	\$ 749
Pension and other postretirement benefits	(4,439)	(5,849)	(2,594)
Derivative financial instruments	60	95	17
Retained interests	(3)	(7)	2
Available-for-sale securities	15	(79)	18
Total accumulated other comprehensive income (loss) \$(3,764)		\$ (5,579)	\$ (1,808)

2. Stock-based compensation

On January 1, 2006, we adopted accounting guidance for sharebased payments using the modified prospective transition method. Under the modified prospective transition method, we were required to record stock-based compensation expense for all awards granted after the date of adoption. Our stock-based compensation plans primarily provide for the granting of stock options, stock-settled stock appreciation rights (SARs) and restricted stock units (RSUs) to Officers and other key employees, as well as non-employee Directors. Stock options permit a holder to buy Caterpillar stock at the stock's price when the option was granted. SARs permit a holder the right to receive the value in shares of the appreciation in Caterpillar stock that occurred from the date the right was granted up to the date of exercise. A restricted stock unit (RSU) is an agreement to issue shares of Caterpillar stock at the time of vesting.

Our long-standing practices and policies specify all stockbased compensation awards are approved by the Compensation Committee (the Committee) of the Board of Directors on the date of grant. The stock-based award approval process specifies the number of awards granted, the terms of the award and the grant date. The same terms and conditions are consistently applied to all employee grants, including Officers. The Committee approves all individual Officer grants. The number of stockbased compensation awards included in an individual's award is determined based on the methodology approved by the Committee. In 2007, under the terms of the Caterpillar Inc. 2006 Long-Term Incentive Plan (approved by stockholders in June of 2006), the Compensation Committee approved the exercise price methodology to be the closing price of the Company stock on the date of the grant.

Common stock issued from Treasury stock under the plans totaled 3,571,268 for 2009, 4,807,533 for 2008 and 11,710,958 for 2007.

In 2007, in order to align our stock award program with the overall market, we adjusted our 2007 grant by reducing the overall number of employee awards and utilizing RSUs in addition to the SARs and option awards. The 2009, 2008 and 2007 awards generally vest three years after the date of grant. At grant, SARs and option awards have a term life of ten years. Upon separation from service, if the participant is 55 years of age or older with more than ten years of service, the participant meets the criteria for a "Long Service Separation." If the "Long Service Separation" criteria are met, the vested options/SARs will have a life that is the lesser of 10 years from the original grant date or five years from the separation date.

Our stock-based compensation plans allow for the immediate vesting upon separation for employees who meet the criteria for a "Long Service Separation" and who have fulfilled the requisite service period of six months. With the adoption of guidance on share-based payments, compensation expense is recognized over the period from the grant date to the end date of the requisite service period for employees who meet the immediate vesting upon retirement requirements. For those employees who become eligible for immediate vesting upon retirement subsequent to the requisite service period and prior to the completion of the vesting period, compensation expense is recognized over the period from grant date to the date eligibility is achieved.

Accounting guidance on share-based payments requires companies to estimate the fair value of options/SARs on the date of grant using an option-pricing model. The fair value of the option/SAR grant was estimated using a lattice-based option-pricing model. The lattice-based option-pricing model considers a range of assumptions related to volatility, risk-free interest rate and historical employee behavior. Expected volatility was based on historical and current implied volatilities from traded options on our stock. The risk-free rate was based on U.S. Treasury security yields at the time of grant. The weightedaverage dividend yield was based on historical information. The expected life was determined from the lattice-based model. The lattice-based model incorporated exercise and post vesting forfeiture assumptions based on analysis of historical data. The following table provides the assumptions used in determining the fair value of the stock-based awards for the years ended December 31, 2009, 2008 and 2007, respectively.

		Grant Year
	2009	2008	2007
Weighted-average dividend yield	3.07%	1.89%	1.68%
Weighted-average volatility	36.02%	27.14%	26.04%
Range of volatilities	35.75-61.02%	27.13-28.99%	26.03-26.62%
Range of risk-free interest rates	0.17-2.99%	1.60-3.64%	4.40-5.16%
Weighted-average expected lives	8 years	8 years	8 years

The fair value of the RSU grant was determined by reducing the stock price on the day of grant by the present value of the estimated dividends to be paid during the vesting period. The estimated dividends are based on Caterpillar's weighted-average dividend yield.

The amount of stock-based compensation expense capitalized for the years ended December 31, 2009, 2008 and 2007 did not have a significant impact on our financial statements.

At December 31, 2009, there was \$94 million of total unrecognized compensation cost from stock-based compensation arrangements granted under the plans, which is related to nonvested stock-based awards. The compensation expense is expected to be recognized over a weighted-average period of approximately 1.6 years.

Please refer to Tables I and II below for additional information on our stock-based awards.

	2009			2008		2007
	Shares	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price	Shares	Weighted Average Exercise Price
Stock options/SARs activity:
Outstanding at beginning of year	60,398,074	\$ 45.68		60,855,854	\$ 42.18	68,880,667	\$ 38.60
Granted to officers and key employees1	6,823,227	\$ 22.17		4,886,601	\$ 73.20	4,350,974	\$ 63.04
Granted to outside directors1	—	\$	—	—	\$ —	75,829	\$ 63.04
Exercised	(3,906,785)	\$ 28.13		(5,006,435)	\$ 30.04	(12,062,847)	\$ 29.41
Forfeited/expired	(231,729)	\$ 38.05		(337,946)	\$ 46.45	(388,769)	\$ 41.64
Outstanding at end of year	63,082,787	\$ 44.24		60,398,074	\$ 45.68	60,855,854	\$ 42.18
Exercisable at year-end	48,256,847	\$ 43.14		43,083,319	\$ 35.81	47,533,561	\$ 34.65
RSUs activity:
Outstanding at beginning of year	2,673,474			1,253,326		N/A2
Granted to officers and key employees	2,185,674			1,490,645		1,282,020
Granted to outside directors	—			20,878		—
Vested	(286,413)			(61,158)		(9,715)
Forfeited	(41,190)			(30,217)		(18,979)
Outstanding at end of year	4,531,545			2,673,474		1,253,326

		Stock options/SARs outstanding and exercisable:
--	--	-------------------------------------------------	--

		Outstanding				Exercisable
Exercise Prices	# Outstanding at 12/31/09	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price	Aggregate Intrinsic Value3	# Outstanding at 12/31/09	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price	Aggregate Intrinsic Value3
\$ 19.20-22.76	7,726,819	8.09	\$ 21.83	\$ 275	1,110,335	1.63	\$ 19.78	\$ 42
\$ 25.36-26.77	6,630,928	2.09	\$ 25.89	209	6,630,928	2.09	\$ 25.89	209
\$ 27.14-29.43	7,854,606	3.43	\$ 27.15	238	7,854,606	3.43	\$ 27.15	238
\$ 38.63-45.64	22,292,881	4.76	\$ 41.85	348	22,292,881	4.76	\$ 41.85	348
\$ 63.04-73.20	18,577,553	6.91	\$ 70.21	—	10,368,097	6.27	\$ 71.53	—
	63,082,787		\$ 44.24	\$ 1,070	48,256,847		\$ 43.14	\$ 837

¹ Of the 6,823,227 awards granted during the year ended December 31, 2009, 6,260,647 were SARs. Of the 4,886,601 awards granted during the year ended December 31, 2008, 4,476,095 were SARs. Of the 4,426,803 awards granted during the year ended December 31, 2007, 4,195,188 were SARs.

The computations of weighted-average exercise prices and aggregate intrinsic values are not applicable to RSUs since an RSU represents an agreement to issue shares of stock at the time of vesting. At December 31, 2009, there were 4,531,545 outstanding RSUs with a weighted average remaining contractual life of 1.4 years.

TABLE II — Additional Stock-based Award Information
(Dollars in millions except per share data)	2009	2008	2007
Stock Options/SARs activity:
Weighted-average fair value per share of stock awards granted	\$	\$	\$
	7.10	22.32	20.73
Intrinsic value of stock awards exercised	\$	\$	\$
	77	232	547
Fair value of stock awards vested	\$	\$	\$
	241	30	14
Cash received from stock awards exercised	\$	\$	\$
	89	130	322
RSUs activity:
Weighted-average fair value per share of stock awards granted	\$ 20.22	\$ 69.17	\$ 59.94
Fair value of stock awards vested	\$	\$	\$
	10	4	1

^{2 2007} was the first year stock-based compensation awards included RSUs.

³ The difference between a stock award's exercise price and the underlying stock's market price at December 31, 2009, for awards with market price greater than the exercise price. Amounts are in millions of dollars.

Before tax stock-based compensation expense for 2009, 2008 and 2007 was \$132 million, \$194 million and \$146 million, respectively, with a corresponding income tax benefit of \$42 million, \$62 million and \$48 million, respectively.

In accordance with guidance on share-based payments, we classify stock-based compensation within cost of goods sold, selling, general and administrative expenses and research and development expenses corresponding to the same line item as the cash compensation paid to respective employees, officers and non-employee directors.

We currently use shares that have been repurchased through our stock repurchase program to satisfy share award exercises.

The cash tax benefits realized from stock awards exercised for December 31, 2009, 2008 and 2007 were \$26 million, \$60 million and \$167 million, respectively. We use the direct only method and tax law ordering approach to calculate the tax effects of stock-based compensation. In certain jurisdictions, tax deductions for exercises of stock-based awards did not generate a cash benefit. A tax benefit of approximately \$25 million will be recorded in APIC when these deductions reduce our future income taxes payable.

3. Derivative financial instruments and risk management

Our earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates, interest rates and commodity prices. In addition, the amount of Caterpillar stock that can be repurchased under our stock repurchase program is impacted by movements in the price of the stock. Our Risk Management Policy (policy) allows for the use of derivative financial instruments to prudently manage foreign currency exchange rate, interest rate, commodity price and Caterpillar stock price exposures. Our policy specifies that derivatives are not to be used for speculative purposes. Derivatives that we use are primarily foreign currency forward and option contracts, interest rate swaps, commodity forward and option contracts, and stock repurchase contracts. Our derivative activities are subject to the management, direction and control of our senior financial officers. Risk management practices, including the use of financial derivative instruments, are presented to the Audit Committee of the Board of Directors at least annually.

All derivatives are recognized in Statement 2 at their fair value. On the date the derivative contract is entered, we designate the derivative as (1) a hedge of the fair value of a recognized asset or liability (fair value hedge), (2) a hedge of a forecasted transaction or the variability of cash flow to be paid (cash flow hedge), or (3) an undesignated instrument. Changes in the fair value of a derivative that is qualified, designated and highly effective as a fair value hedge, along with the gain or loss on the hedged asset or liability that is attributable to the hedged risk, are recorded in current earnings. Changes in the fair value of a derivative that is qualified, designated and highly effective as a cash flow hedge are recorded in Accumulated other comprehensive income (AOCI) in Statement 2 until they are reclassified to earnings in the same period or periods during which the hedged transaction affects earnings. Changes in the fair value of undesignated derivative instruments and the ineffective portion of designated derivative instruments are reported in current earnings. Cash flow from designated derivative financial instruments are classified within the same category as the item being hedged on Statement 4. Cash flow from undesignated derivative financial instruments are included in the investing category on Statement 4.

We formally document all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair value hedges to specific assets and liabilities in Statement 2 and linking cash flow hedges to specific forecasted transactions or variability of cash flow.

We also formally assess, both at the hedge's inception and on an ongoing basis, whether the designated derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flow of hedged items. When a derivative is determined not to be highly effective as a hedge or the underlying hedged transaction is no longer probable, we discontinue hedge accounting prospectively, in accordance with the derecognition criteria for hedge accounting.

A. Foreign currency exchange rate risk

Foreign currency exchange rate movements create a degree of risk by affecting the U.S. dollar value of sales made and costs incurred in foreign currencies. Movements in foreign currency rates also affect our competitive position as these changes may affect business practices and/or pricing strategies of non-U.S. based competitors. Additionally, we have balance sheet positions denominated in foreign currencies, thereby creating exposure to movements in exchange rates.

Our Machinery and Engines operations purchase, manufacture and sell products in many locations around the world. As we have a diversified revenue and cost base, we manage our future foreign currency cash flow exposure on a net basis. We use foreign currency forward and option contracts to manage unmatched foreign currency cash inflow and outflow. Our objective is to minimize the risk of exchange rate movements that would reduce the U.S. dollar value of our foreign currency cash flow. Our policy allows for managing anticipated foreign currency cash flow for up to five years.

We generally designate as cash flow hedges at inception of the contract any Australian dollar, Brazilian real, British pound, Canadian dollar, Chinese yuan, euro, Japanese yen, Mexican peso, Singapore dollar, New Zealand dollar or Swiss franc forward or option contracts that meet the requirements for hedge accounting and the maturity extends beyond the current quarterend. Designation is performed on a specific exposure basis to support hedge accounting. The remainder of Machinery and Engines foreign currency contracts are undesignated. We also designate as fair value hedges specific euro forward contracts used to hedge firm commitments.

As of December 31, 2009, \$5 million of deferred net gains, net of tax, included in equity (Accumulated other comprehensive income (loss) in Statement 2), are expected to be reclassified to current earnings (Other income (expense) in Statement 1) over the next twelve months when earnings are affected by the hedged transactions. The actual amount recorded in Other income (expense) will vary based on exchange rates at the time the hedged transactions impact earnings.

In managing foreign currency risk for our Financial Products operations, our objective is to minimize earnings volatility resulting from conversion and the remeasurement of net foreign currency balance sheet positions. Our policy allows the use of foreign currency forward and option contracts to offset the risk of currency mismatch between our receivables and debt. All such foreign currency forward and option contracts are undesignated.

B. Interest rate risk

Interest rate movements create a degree of risk by affecting the amount of our interest payments and the value of our fixed-rate debt. Our practice is to use interest rate derivatives to manage our exposure to interest rate changes and, in some cases, lower the cost of borrowed funds.

Machinery and Engines operations generally use fixed rate debt as a source of funding. Our objective is to minimize the cost of borrowed funds. Our policy allows us to enter into fixedto-floating interest rate swaps and forward rate agreements to meet that objective with the intent to designate as fair value hedges at inception of the contract all fixed-to-floating interest rate swaps. Designation as a hedge of the fair value of our fixed rate debt is performed to support hedge accounting.

Financial Products operations have a match-funding policy that addresses interest rate risk by aligning the interest rate profile (fixed or floating rate) of Cat Financial's debt portfolio with the interest rate profile of their receivables portfolio within predetermined ranges on an ongoing basis. In connection with that policy, we use interest rate derivative instruments to modify the debt structure to match assets within the receivables portfolio. This matchfunding reduces the volatility of margins between interest-bearing assets and interest-bearing liabilities, regardless of which direction interest rates move.

Our policy allows us to use fixed-to-floating, floating-to-fixed, and floating-to-floating interest rate swaps to meet the matchfunding objective. We designate fixed-to-floating interest rate swaps as fair value hedges to protect debt against changes in fair value due to changes in the benchmark interest rate. We designate most floating-to-fixed interest rate swaps as cash flow hedges to protect against the variability of cash flows due to changes in the benchmark interest rate.

As of December 31, 2009, \$32 million of deferred net losses, net of tax, included in equity (Accumulated other comprehensive income (loss) in Statement 2), related to Financial Products floating-to-fixed interest rate swaps, are expected to be reclassified to current earnings (Interest expense of Financial Products in Statement 1) over the next twelve months. The actual amount recorded in Interest expense of Financial Products will vary based on interest rates at the time the hedged transactions impact earnings.

We have, at certain times, liquidated fixed-to-floating and floating-to-fixed swaps at both Machinery and Engines and Financial Products. The gains or losses associated with these swaps at the time of liquidation are amortized into earnings over the original term of the underlying hedged item.

C. Commodity price risk

Commodity price movements create a degree of risk by affecting the price we must pay for certain raw material. Our policy is to use commodity forward and option contracts to manage the commodity risk and reduce the cost of purchased materials.

Our Machinery and Engines operations purchase aluminum, copper, lead and nickel embedded in the components we purchase from suppliers. Our suppliers pass on to us price changes in the commodity portion of the component cost. In addition, we are also subject to price changes on natural gas and diesel fuel purchased for operational use.

Our objective is to minimize volatility in the price of these commodities. Our policy allows us to enter into commodity forward and option contracts to lock in the purchase price of a portion of these commodities within a five-year horizon. All such commodity forward and option contracts are undesignated.

The location and fair value of derivative instruments reported in Statement 2 are as follows:

	December 31, 2009
(Millions of dollars)	Consolidated Statement of Financial Position Location	Asset (Liability) Fair Value
Designated derivatives Foreign exchange contracts Machinery and Engines Machinery and Engines Machinery and Engines Machinery and Engines Interest rate contracts Machinery and Engines Machinery and Engines Financial Products Financial Products Financial Products Undesignated derivatives	Receivables — trade and other Long-term receivables — trade and other Accrued expenses Other liabilities Receivables — trade and other Accrued expenses Receivables — trade and other Long-term receivables — trade and other Accrued expenses	\$ 27 125 (22) (3) 1 (1) 18 127 (100) \$ 172
Foreign exchange contracts Machinery and Engines Machinery and Engines Financial Products Financial Products Interest rate contracts Machinery and Engines Financial Products Financial Products Financial Products Commodity contracts	Long-term receivables — trade and other Other liabilities Receivables — trade and other Accrued expenses Accrued expenses Receivables — trade and other Long-term receivables — trade and other Accrued expenses	\$ 66 (3) 20 (18) (7) 1 1 (6)
Machinery and Engines	Receivables — trade and other	10 \$ 64

The effect of derivatives designated as hedging instruments on Statement 1 is as follows:

Fair Value Hedges		Year ended December 31, 2009
(Millions of dollars)	Classification	Gains (Losses) on Derivatives	Gains (Losses) on Borrowings
Interest rate contracts Machinery and Engines Financial Products	Other income (expense) Other income (expense)	\$ 1 (205) \$ (204)	\$ (1) 220 \$ 219

Cash Flow Hedges
		Year ended December 31, 2009
		Recognized in Earnings
(Millions of dollars)	Recognized in AOCI — Effective Portion	Classification of Gains (Losses)	Reclassified from AOCI — Effective Portion	Recognized in Earnings — Ineffective Portion
Foreign exchange contracts Machinery and Engines Interest rate contracts	\$ 102	Other income (expense)	\$ 176	\$ 2
Machinery and Engines Financial Products	(30) (37) \$ 35	Other income (expense) Interest expense of Financial Products	(3) (83) \$ 90	— 91 \$ 11

¹ The ineffective portion recognized in earnings is included in Other income (expense).

The effect of derivatives not designated as hedging instruments on Statement 1 is as follows:

(Millions of dollars)	Classification of Gains or (Losses)	Year ended December 31, 2009
Foreign exchange contracts Machinery and Engines Financial Products	Other income (expense) Other income (expense)	\$ 35 (134)
Interest rate contracts Machinery and Engines Financial Products	Other income (expense) Other income (expense)	(3) 3
Commodity contracts Machinery and Engines	Other income (expense)	10 \$ (89)

D. Stock repurchase risk

Payments for stock repurchase derivatives are accounted for as a reduction in stockholders' equity. In February 2007, the Board of Directors authorized a \$7.5 billion stock repurchase program, expiring on December 31, 2011. The amount of Caterpillar stock that can be repurchased under the authorization is impacted by movements in the price of the stock. In August 2007, the Board of Directors authorized the use of derivative contracts to reduce stock repurchase price volatility.

In connection with our stock repurchase program, we entered into capped call transactions ("call") with a major bank for an aggregate of 6.0 million shares. A call permits us to reduce share repurchase price volatility by providing a floor and cap on the price at which the shares can be repurchased. During 2007, we paid the bank premiums of \$56 million for the establishment of calls for 3.5 million shares, which was accounted for as a reduction to stockholders' equity. During 2008, we paid the bank premiums of \$38 million for the establishment of calls for 2.5 million shares. The floor, cap and strike prices for the calls were based upon the average purchase price paid by the bank to purchase our common stock to hedge these transactions. Each call matured and was exercised within one year after the call was established. If we exercised a call, we could elect to settle the transaction with the bank by physical settlement (paying cash and receiving shares), cash settlement (receiving a net amount of cash) or net share settlement (receiving a net amount of shares).

For the year ended December 31, 2008, \$268 million of cash was used to repurchase 5.0 million shares pursuant to calls exercised under this program. Premiums previously paid associated with these exercised calls were \$78 million. In December 2008, a call for 1.0 million shares matured, but was not exercised. Premiums previously paid associated with this unexercised call were \$16 million. All outstanding calls under this program expired in 2008.

4. Other income (expense)

	Years ended December 31,
(Millions of dollars)	2009 2008					2007
Investment and interest income \$		98	\$	101	\$	99
Foreign exchange gains (losses)1		184		100		21
License fee income		49		73		66
Gains (losses) on sale of securities and affiliated companies		(2)		55		70
Impairment of available-for-sale securities		(12)		(37)		—
Miscellaneous income (loss)	64 35				101
	\$ 381 \$ 327 \$ 357

Includes gains (losses) from foreign exchange derivative contracts. See Note 3 for further details.

5. Income taxes

The components of profit (loss) before taxes were:

Years ended December 31,
2009	2007
		\$ 2,155
1,217	2,355	2,835
\$ 569	\$ 4,501	\$ 4,990
	U.S \$ (648)	2008 \$ 2,146

Profit (loss) before taxes, as shown above, is based on the location of the entity to which such earnings are attributable. Where an entity's earnings are subject to taxation, however, may not correlate solely to where an entity is located. Thus, the income tax provision shown below as U.S. or non-U.S. may not correspond to the earnings shown above.

The components of the provision (benefit) for income taxes were:

Years ended December 31,
				2007

					515
					464
					92
					1,071

					403
					21
					(10)
					414

	(270)	\$	953	\$	1,485
Non-U.S State (U.S.) U.S Non-U.S State (U.S.)	U.S \$ for income taxes \$	2009 (443) 350 (13) (106) 1 (149) (16) (164)	\$	2008 673 446 41 1,160 (335) 99 29 (207)	\$

We received net income tax and related interest refunds of \$136 million in 2009 compared to income taxes paid of \$1,318 million and \$821 million in 2008 and 2007, respectively.

Reconciliation of the U.S. federal statutory rate to effective rate:

Years ended December 31,
						2007
								35.0%

	(261)	(46.0)%						(4.9)%
	(19)	(3.3)%						1.0%
	20	3.5%						0.5%
	(47)	(8.2)%		(40)	(0.8)%		(37)	(0.7)%
	(29)	(5.1)%		(59)	(1.3)%		(54)	(1.1)%
	(137)	(24.1)%		1,409	31.3%		1,485	29.8%
								—
	—	—						—
\$	(270)	(47.5)%	\$	953	21.2%	\$	1,485	29.8%
	\$	199 (133)	2009 35.0% (23.4)%	\$	1,575 (124) 46 11 — (456)	2008 35.0% (2.8)% 1.0% 0.2% — (10.1)%	\$	1,747 (248) 53 24 — —

The prior year tax benefits recorded in 2009 of \$133 million primarily resulted from the U.S. settlement of tax years 1995 to 1999 and the true-up of estimated amounts used in the 2008 tax provision to the U.S. tax return as filed. The settlement with the U.S. Internal Revenue Service (IRS) for tax years 1995 through 1999 resulted in a \$46 million tax benefit related primarily to the true-up of estimated credits, a \$14 million tax benefit to remeasure previously unrecognized tax benefits related to foreign sales corporation (FSC) commissions, and a \$25 million benefit to adjust related interest, net of tax.

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

We have recorded income tax expense at U.S. tax rates on all profits, except for undistributed profits of non-U.S. subsidiaries of approximately \$9 billion which are considered indefinitely reinvested. Determination of the amount of unrecognized deferred tax liability related to indefinitely reinvested profits is not feasible. If management intentions or U.S. tax law changes in the future, there may be a significant negative impact on the provision for income taxes in the period the change occurs.

The provision for income taxes would also be negatively impacted in the future if U.S. healthcare legislation was enacted and made government subsidies received for Medicare-equivalent prescription drug (Medicare Part D) coverage taxable.

Accounting for income taxes under U.S. GAAP guidance requires that individual tax-paying entities of the company offset all current deferred tax liabilities and assets within each particular tax jurisdiction and present them as a single amount in the Consolidated Financial Position. A similar procedure is followed for all noncurrent deferred tax liabilities and assets. Amounts in different tax jurisdictions cannot be offset against each other. The amount of deferred income taxes at December 31, included on the following lines in Statement 2, are as follows:

		December 31,
(Millions of dollars)	2009	2008	2007
Assets:
Deferred and refundable income taxes	\$ 802	\$ 785	\$ 612
Noncurrent deferred and refundable income taxes	2,704	3,298	1,539
	3,506	4,083	2,151
Liabilities:
Other current liabilities	11	9	8
Other liabilities	138	130	107
Deferred income taxes — net	\$3,357	\$ 3,944	\$ 2,036

Deferred income tax assets and liabilities:

	December 31,
(Millions of dollars)	2009	2008	2007
Deferred income tax assets:
Pension \$ 1,207		\$ 1,888	\$ 270
Postemployment benefits
other than pensions	1,362	1,530	1,490
Tax carryforwards	1,185	712	366
Warranty reserves	243	312	266
Unrealized profit excluded
from inventories	229	275	210
Stock based compensation	182	148	93
Post sale discounts	112	140	116
Allowance for credit losses	102	134	102
Deferred compensation	95	78	104
Other — net	300	294	327
	5,017	5,511	3,344
Deferred income tax liabilities:
Capital and intangible assets	(1,185)	(1,233)	(938)
Undistributed profits of non-U.S. subs	—	—	(113)
	(1,185)	(1,233)	(1,051)
Valuation allowance for deferred tax assets	(475)	(334)	(257)
Deferred income taxes — net \$ 3,357		\$ 3,944	\$ 2,036

At December 31, 2009, approximately \$632 million of U.S. state tax net operating losses (NOLs) and \$160 million of U.S. state tax credit carryforwards were available. Of the NOLs, over three-fourths expire after 2019. The state tax credit carryforwards expire over the next ten years. We established a valuation allowance of \$179 million for those NOLs and credit carryforwards likely to expire prior to utilization.

At December 31, 2009, amounts and expiration dates of net operating loss carryforwards in various non-U.S. taxing jurisdictions were:

(Millions of dollars)
2010	2011	2012	2013	2014-2024	Unlimited	Total
\$ 4	\$ 3	\$ 6	\$ 16	\$ 775	\$ 817	\$ 1,621

A valuation allowance of \$296 million has been recorded at certain non-U.S. entities that have not yet demonstrated consistent and/or sustainable profitability to support the recognition of net deferred tax assets. If global recessionary conditions continue, it is reasonably possible that increases in valuation allowances against deferred tax assets of certain non-U.S. entities may be required in the next twelve months.

At December 31, 2009, we had U.S. research and development credits of approximately \$25 million to carry forward for up to twenty years.

At December 31, 2009, amounts and expiration dates of U.S. foreign tax credits available to carry forward were:

(Millions of dollars)
2010-2016	2017	2018	2019	2020	Total
\$ —	\$ —	\$ —	\$ 354	\$ 69	\$ 423

We adopted the guidance on accounting for uncertainty in income taxes as of January 1, 2007. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for uncertain tax positions, including positions impacting only the timing of tax benefits, follows.

Reconciliation of unrecognized tax benefits:1


(Millions of dollars)	2009	2008			2007
Balance at January 1, \$	803	\$	703	\$	742
Additions for tax positions related to current year	37		126		62
Additions for tax positions related to prior years	43		38		24
Reductions for tax positions related to prior years	(45)		(48)		(109)
Reductions for settlements2	(61)		(4)		(7)
Reductions for expiration of statute of limitations	(16)		(12)		(9)
Balance at December 31, \$	761	\$	803	\$	703
Amount that, if recognized, would impact the effective tax rate \$	593	\$	646	\$	537

Foreign currency translation amounts are included within each line as applicable.
Includes cash payment or other reduction of assets to settle liability.

At adoption, the amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was \$486 million.

We classify interest and penalties on income taxes as a component of the provision for income taxes. We recognized interest and penalties of (\$13) million, \$18 million and \$36 million during the years ended December 31, 2009, 2008 and 2007, respectively. The 2009 amount includes a benefit from adjustments for the 1995 through 1999 settlement as discussed above. The total amount of interest and penalties accrued was \$170 million, \$116 million and \$98 million as of December 31, 2009, 2008 and 2007, respectively.

It is reasonably possible that the amount of unrecognized tax benefits will change in the next 12 months. However, we do not expect the change to have a significant impact on our results of operations or financial position.

The Internal Revenue Service (IRS) is currently examining U.S. tax returns for 2005 and 2006 and has completed its field examination of our tax returns for 1992 to 2004. For tax years 1992 to 1994, we expect to litigate the unagreed adjustments related to transfer pricing. In 2009, we reached a settlement with the IRS for tax years 1995 to 1999. For tax years 2000 to 2004, we are in the appeals process for unagreed adjustments primarily related to export tax benefits. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial position, liquidity or results of operations.

In our major non-U.S. jurisdictions, tax years are typically subject to examination for three to six years.

6. Sales and servicing of trade receivables

Our Machinery and Engines operations generate trade receivables from the sale of inventory to dealers and customers. Certain of these receivables are sold to Cat Financial.

Cat Financial has sold interests in a certain pool of trade receivables through a revolving structure to third-party commercial paper conduits, which are asset-backed commercial paper issuers that are special purpose entities (SPEs) of the sponsor bank and are not consolidated by Cat Financial. Cat Financial services the sold trade receivables and receives an annual serv icing fee of approximately 0.5% of the average outstanding principal balance. Consolidated expenses of \$4 million, \$10 million and \$15 million related to the sale of trade receivables were recognized during 2009, 2008 and 2007, respectively, and are included in Other income (expense) in Statement 1.

As of December 31, 2009, there were no trade receivables sold to the third-party commercial paper conduits. As of December 31, 2008 and 2007, the outstanding principal balance of the sold trade receivables was \$240 million. Cat Financial's remaining interest in the pool of trade receivables as of December 31, 2008 and 2007 of \$1,432 million and \$1,233 million, respectively, is included in Receivables-trade and other in Statement 2.

The cash collections from this pool of trade receivables are first applied to satisfy any obligations of Cat Financial to the third-party commercial paper conduits. The third-party commercial paper conduits have no recourse to Cat Financial's assets, other than the remaining interest, for failure of debtors to pay when due.

Cash flows from sale of trade receivables:


(Millions of dollars)	2009		2008		2007
Cash proceeds from sales of receivables to the conduits \$	887	\$	1,510		\$ 1,512
Servicing fees received \$	1	\$	1	\$	1
Cash flows received on the interests that continue to be held \$ 7,548			\$ 11,270		\$ 13,680

7. Wholesale inventory receivables

Wholesale inventory receivables are receivables of Cat Financial that arise when Cat Financial provides financing for a dealer's purchase of inventory. These receivables are included in Receivables — trade and other and Long-term receivables — trade and other in Statement 2 and were \$937 million, \$1,555 million, and \$1,496 million at December 31, 2009, 2008 and 2007, respectively. Please refer to Note 19 and Table IV for fair value information.

Contractual maturities of outstanding wholesale inventory receivables:

	December 31, 2009
(Millions of dollars) Amounts Due In	Wholesale Wholesale Installment Finance Contracts Leases						Wholesale Notes		Total
2010	\$	170	\$	87	\$	236	\$	493
2011		15		52		159		226
2012		10		28		65		103
2013		8		9		5		22
2014		—		7		2		9
Thereafter		—		1		1		2
		203		184		468		855
Guaranteed residual value		—		119		—		119
Less: Unearned income		(7)		(26)		(4)		(37)
Total	\$	196	\$	277	\$	464	\$	937

8. Finance receivables

Finance receivables are receivables of Cat Financial, which generally can be repaid or refinanced without penalty prior to contractual maturity. Total finance receivables reported in Statement 2 are net of an allowance for credit losses.

We consider an account past due if any portion of an installment is due and unpaid for more than 30 days. Recognition of income is suspended when management determines that collection of future income is not probable (generally after 120 days past due). Accrual is resumed, and previously suspended income is recognized, when the receivable becomes contractually current and/or collection doubts are removed. Cash receipts on impaired loans or finance leases are recorded against the receiv able and then to any unrecognized income. Investment in loans/finance leases on nonaccrual status were \$678 million, \$422 million and \$232 million and past due over 90 days and still accruing were \$134 million, \$119 million and \$47 million as of December 31, 2009, 2008 and 2007, respectively.

Cat Financial provides financing only when acceptable criteria are met. Credit decisions are based on, among other things, the customer's credit history, financial strength and intended use of equipment. Cat Financial typically maintains a security interest in retail financed equipment and requires physical damage insurance coverage on financed equipment.

Please refer to Table III for additional finance receivables information and Note 19 and Table IV for fair value information.

Securitized Retail Installment Sale Contracts and Finance Leases

Cat Financial periodically sells certain finance receivables relating to retail installment sale contracts and finance leases to SPEs as part of their asset-backed securitization program. The SPEs have limited purposes and generally are only permitted to purchase the finance receivables, issue asset-backed securities and make payments on the securities. The SPEs only issue a single series of securities and generally are dissolved when those securities have been paid in full. The SPEs, typically trusts, are considered to be qualifying special-purpose entities (QSPEs) and are not consolidated. The QSPEs issue debt to pay for the finance receivables they acquire from Cat Financial. The primary source for repayment of the debt is the cash flows generated from the finance receivables owned by the QSPEs. The assets of the QSPEs are legally isolated and are not available to pay the creditors of Cat Financial. For bankruptcy analysis purposes, Cat Financial has sold the finance receivables to the QSPEs in a true sale and the QSPEs are separate legal entities. The investors and the securitization trusts have no recourse to any of Cat Financial's other assets for failure of debtors to pay when due.

Cat Financial retains interests in the retail finance receivables that are sold through their asset-backed securitization program. Retained interests include subordinated certificates, an interest in future cash flows (excess) and reserve accounts. Retained interests in securitized assets are classified as available-forsale securities and are included in Other assets in Statement 2 at fair value. Cat Financial estimates fair value and cash flows using a valuation model and key assumptions for credit losses, prepayment rates and discount rates. These assumptions are based on historical experience, market trends and anticipated performance relative to the particular assets securitized. Cat Financial periodically evaluates for impairment and recognizes the credit component of an other-than-temporary impairment in Profit and the noncredit component in Accumulated other comprehensive income (loss) for those retained interests in which Cat Financial does not intend to sell and it is not likely that they will be required to sell prior to recovery.

During 2008 and 2007, Cat Financial sold certain finance receivables relating to retail installment sale contracts and finance leases to SPEs as part of their asset-backed securitization program. Net gains of \$12 million and \$4 million were recorded in Revenues of Financial Products in Statement 1 in 2008 and 2007, respectively and were based on the estimated fair value of the assets sold and retained and liabilities incurred, net of transaction costs. For 2008, subordinated retained interests included certificates with an initial fair value of \$27 million, an interest in certain future cash flow (excess) with an initial fair value of \$8 million and a reserve account with an initial fair value of \$9 million. For 2007, subordinated retained interests included certificates with an initial fair value of zero, an interest in certain future cash flow (excess) with an initial fair value of \$2 million and a reserve account with an initial fair value of \$9 million.

Significant assumptions used to estimate the fair value of the retained interests at the time of the transaction were:

	2008	2007
Discount rate	7.2%	8.4%
Weighted-average prepayment rate	14.5%	14.0%
Expected credit losses	1.6%	1.5%

To maintain competitiveness in the capital markets and to have effective and efficient use of alternative funding sources, Cat Financial may from time to time provide additional reserve sup port to previously issued asset-backed securitizations. During the second quarter of 2009 and third quarter of 2008, Cat Financial deposited \$80 million and \$19 million, respectively, into supplemental reserve accounts for the securitization transactions to main tain the credit ratings assigned to the transactions, as loss experiences have been higher than anticipated primarily due to the adverse economic conditions in the U.S. Due to the sig nif i cant value of the deposit in second quarter of 2009, written consent was obtained from the third-party beneficial interest holders of the securitization transactions. The QSPE conditions were reviewed and the trusts continue to maintain QSPE status. These deposits resulted in an increase in Cat Financial's retained interests.

As of December 31, 2009, 2008 and 2007, the fair value of the retained interests in all securitizations of retail finance receivables outstanding totaled \$102 million (cost basis of \$107 million), \$52 million (cost basis of \$62 million) and \$49 million (cost basis of \$46 million), respectively. The fair value of the retained interests as of December 31, 2009 that have been in a continuous unrealized loss position for twelve months or longer totaled \$102 million (cost basis of \$107 million). As of December 31, 2008 and 2007, there were no retained interests in a continuous unrealized loss position for twelve months or longer. Key assumptions used to determine the fair value of the retained interests as of such dates were:

	December 31,
	2009	2008
Cash flow weighted average discount rates
on retained interests	7.7 to 12.4%	16.7 to 23.3%	8.3 to 11.5%
Weighted-average maturity	22 months	28 months	30 months
Expected prepayment rate	18.0%	19.0%	14.0%
Expected credit losses	4.7 to 4.8%	1.7 to 3.1%	0.6 to 1.3%

To estimate the impact on income due to changes to the key economic assumptions used to estimate the fair value of residual cash flows in retained interests from retail finance receivable securitizations, Cat Financial performs a sensitivity analysis of the fair value of the retained interests by applying a 10 percent and 20 percent adverse change to the individual assumptions. This estimate does not adjust for other variations that may occur should one of the assumptions actually change. Accordingly, no assurance can be given that actual results would be consistent with the results of the estimate. The effect of a variation in a particular assumption on the fair value of residual interest in securitization transactions was calculated without changing any other assumptions and changes in one factor may result in changes in another. Cat Financial's sensitivity analysis indicated that the impact of a 20 percent adverse change in individual assumptions used to calculate the fair value of all retained interests as of December 31, 2009, 2008 and 2007 would be \$11 million or less, \$8 million or less and \$2 million or less, respectively.

During 2009 and 2008, the assumptions used to determine the expected cash flows for Cat Financial's securitization transactions were revised, which resulted in other-than-temporary impairments. The impairments recognized in earnings were primarily driven by an increase in the credit loss assumption due to the continuing adverse economic conditions in the U.S. The noncredit related component recorded in Accumulated other comprehensive income (loss) was primarily driven by changes in discount rates.

	Years ended December 31,
(Millions of dollars)	2009		2008
Total other-than-temporary impairment losses \$		46	\$	27
Portion of losses recognized in Accumulated other comprehensive income (loss) before taxes1		(12)		—
Net impairment losses recognized in earnings2 \$		34	\$	27

Balance excludes \$7 million of gross gains recorded in OCI related to the securitization retained interest for the year ended December 31, 2009.
Recorded in Revenues of Financial Products in Statement 1.

The following table presents a roll-forward of the balance of the credit-related impairment losses on Cat Financial's securitized retained interests for which a portion of the other-thantemporary impairment was recognized in Accumulated other comprehensive income (loss):

(Millions of dollars)	2009
Cumulative credit loss as of January 1, 2009 \$		—
Credit losses for which an other-than-temporary impairment was previously recognized		11
Cumulative credit loss as of December 31, 2009 \$		11

Cat Financial also retained servicing responsibilities and received a servicing fee of approximately one percent of the remaining value of the finance receivables.

See Table III for additional securitization information.

_______________________________________________________________________________________________________________ TABLE III — Finance Receivables Information (Millions of dollars)

Contractual maturities of outstanding finance receivables:

	December 31, 2009
	Retail Installment	Retail Finance	Retail
Amounts Due In	Contracts	Leases	Notes	Total
2010 \$	2,366	\$ 3,189	\$ 3,180	\$ 8,735
2011	1,532	2,146	1,695	5,373
2012	917	1,124	1,084	3,125
2013	412	458	967	1,837
2014	177	193	797	1,167
Thereafter	46	154	776	976
	5,450	7,264	8,499	21,213
Residual value	—	1,181	—	1,181
Less: Unearned income	(498)	(817)	(123)	(1,438)
Total \$	4,952	\$ 7,628	\$ 8,376	\$ 20,956

Impaired loans and leases:

	2009	2008	2007
Average recorded investment	\$ 425	\$ 306	\$ 200
At December 31:
Recorded investment \$ 513		\$ 479	\$ 219
Impaired loans/finance leases for which there is a related allowance for credit losses	4481	2581	166
Related allowance for credit losses on impaired loans/finance leases	117	59	35
Impaired loans/finance leases for which there is no related allowance for credit losses	65	221	53

Allowance for credit loss activity:

	2009	2008	2007
Balance at beginning of year \$	391	\$ 351	\$ 315
Provision for credit losses	225	192	97
Receivables written off	(281)	(144)	(91)
Recoveries on receivables previously written off	28	23	23
Other — net	13	(31)	7
Balance at end of year \$	376	\$ 391	\$ 351

In estimating the allowance for credit losses, we review accounts that are past due, non-performing or in bankruptcy.

Cat Financial's net retail finance leases:

	December 31,
	2009	2008	2007
Total minimum lease payments receivable \$ 7,264		\$ 8,325	\$ 7,756
Estimated residual value of leased assets:
Guaranteed	560	658	638
Unguaranteed	621	729	746
	8,445	9,712	9,140
Less: Unearned income	(817)	(953)	(938)
Net retail finance leases \$ 7,628		\$ 8,759	\$ 8,202

Cash flows from retail securitizations:

	Years ended December 31,
	2009	2008	2007
Cash proceeds from initial sales of receivables	\$ —	\$ 600	\$ 650
Purchases of contracts through clean-up calls	95	81	64
Servicing fees received	6	12	11
Other cash flows received on retained interests	10	25	35

Characteristics of securitized receivables:

	Years ended December 31,
	2009	2008	2007
Total securitized principal balance at December 31,	\$ 346	\$ 909	\$ 1,159
Average securitized principal balance for the year ended December 31,	583	1,147	1,064
Loans > 30 days past due at year ended December 31,	62	98	65
Net credit losses during the year	36	23	9

¹ Includes impaired loans of \$208 million and \$108 million as of December 31, 2009 and 2008, respectively, primarily reflecting the fair value of the loan's associated collateral. See Note 19 for more information.

9. Inventories

Inventories (principally using the LIFO method) are comprised of the following:

	December 31,
(Millions of dollars)	2009	2008 2007
Raw materials \$ 1,979		\$ 2,678	\$ 2,240
Work-in-process	656	1,508	1,206
Finished goods	3,465	4,316	3,512
Supplies	260	279	246
Total inventories \$ 6,360		\$ 8,781	\$ 7,204

We had long-term material purchase obligations of approximately \$299 million at December 31, 2009.

During 2009 inventory quantities were reduced. This reduction resulted in a liquidation of LIFO inventory layers carried at lower costs prevailing in prior years as compared with current costs. In 2009, the effect of this reduction of inventory decreased Cost of goods sold in Statement 1 by approximately \$300 million and increased Profit by approximately \$240 million or \$0.39 per share.

10. Property, plant and equipment

December 31,
Useful Lives			2007
			\$ 189
	4,914		3,625
3-10	12,917	12,173	9,756
1-10	4,717	4,561	4,556
	1,034	1,531	1,082
	24,221	23,487	19,208
	(11,835)	(10,963)	(9,211)
	\$ 12,386	\$12,524	\$ 9,997
	(Years) 20-45	2009 — \$ 639 —	2008 \$ 575 4,647

We had commitments for the purchase or construction of capital assets of approximately \$459 million at December 31, 2009.

Assets recorded under capital leases1 :

	December 31,
(Millions of dollars)	2009			2008		2007
Gross capital leases2, 3	\$	493	\$	565	\$	96
Less: Accumulated depreciation3		(258)		(221)		(75)
Net capital leases	\$	235	\$	344	\$	21

Included in Property, plant and equipment table above.
Consists primarily of machinery and equipment.
Increase in 2008 due to consolidation of Cat Japan. See Note 25 for additional details.

At December 31, 2009, scheduled minimum rental payments on assets recorded under capital leases were:

			(Millions of dollars)
2010	2011	2012	2013	2014	Thereafter
\$ 128	\$ 94	\$ 32	\$ 37	\$ 8	\$ 40

Equipment leased to others (primarily by Cat Financial):

		December 31,
(Millions of dollars)	2009	2008	2007
Equipment leased to others — at original cost	\$ 4,717	\$ 4,561	\$ 4,556
Less: Accumulated depreciation	(1,616)	(1,416)	(1,487)
Equipment leased to others — net	\$ 3,101	\$ 3,145	\$ 3,069

At December 31, 2009, scheduled minimum rental payments to be received for equipment leased to others were:

			(Millions of dollars)
2010	2011	2012	2013	2014	Thereafter
\$ 801	\$ 498	\$ 319	\$ 172	\$ 59	\$ 30

11. Investments in unconsolidated affiliated companies

Our investments in affiliated companies accounted for by the equity method have historically consisted primarily of a 50 percent interest in Shin Caterpillar Mitsubishi Ltd. (SCM) located in Japan. On August 1, 2008, SCM redeemed half of Mitsubishi Heavy Industries Ltd.'s (MHI's) shares in SCM. As a result, Caterpillar now owns 67 percent of the renamed entity, Caterpillar Japan Ltd. (Cat Japan) and consolidates its financial statements. See Note 25 for additional information. In February 2008, we sold our 23 percent equity investment in A.S.V. Inc. (ASV) resulting in a \$60 million pretax gain, recognized in Other income (expense) in Statement 1. Accordingly, the December 31, 2009 and December 31, 2008 financial position and equity investment amounts noted below do not include ASV or Cat Japan.

Combined financial information of the unconsolidated affiliated companies accounted for by the equity method (generally on a lag of 3 months or less) was as follows:

Results of Operations of unconsolidated affiliated companies:

	Years ended December 31,
(Millions of dollars)	2009		2008		2007
Results of Operations:
Sales \$	569	\$	3,727	\$	4,007
Cost of sales	434		3,082		3,210
Gross profit \$	135	\$	645	\$	797
Profit (loss) \$	(39)	\$	55	\$	157

Sales from SCM, while an unconsolidated affiliate, to Caterpillar of approximately \$1.67 billion in both 2008 and 2007, are included in the affiliated company sales. In addition, SCM purchases of Caterpillar product, while an unconsolidated affiliate, were \$353 million and \$268 million in 2008 and 2007, respectively.

Financial Position of unconsolidated affiliated companies:

		December 31,
(Millions of dollars)	2009	2008	2007
Financial Position: Assets:
Current assets \$ Property, plant and equipment — net	223 219	\$ 209 227	\$ 2,062 1,286
Other assets	5	26	173
Liabilities:	447	462	3,521
Current liabilities	250	173	1,546
Long-term debt due after one year Other liabilities	41 17	110 35	269 393
	308	318	2,208
Equity \$	139	\$ 144	\$ 1,313

Caterpillar's investments in unconsolidated affiliated companies:

		December 31,
(Millions of dollars)	2009	2008	2007
Investments in equity method companies \$	70	\$ 66	\$ 582
Plus: Investments in cost method companies	35	28	16
Total investments in unconsolidated affiliated companies \$ 105		\$ 94	\$ 598

At December 31, 2009, consolidated Profit employed in the business in Statement 2 included \$6 million representing undistributed profits of the unconsolidated affiliated companies.

12. Intangible assets and goodwill

A. Intangible assets

Intangible assets are comprised of the following:

			December 31, 2009
(Millions of dollars)	Weighted Amortizable Life (Years)	Gross Carrying Amount	Accumulated Amortization	Net
Customer relationships	18	\$ 396	\$ (75)	\$ 321
Intellectual property	10	211	(143)	68
Other	11	130	(54)	76
Total intangible assets	15	\$ 737	\$ (272)	\$ 465

			December 31, 2008
(Millions of dollars)	Weighted Amortizable Life (Years)	Gross Carrying Amount	Accumulated Amortization	Net
Customer relationships	18	\$ 388	\$ (50)	\$ 338
Intellectual property	10	210	(122)	88
Other	11	122	(37)	85
Total intangible assets	15	\$ 720	\$ (209)	\$ 511

			December 31, 2007
(Millions of dollars)	Weighted Amortizable Life (Years)	Gross Carrying Amount	Accumulated Amortization	Net
Customer relationships	19	\$ 356	\$ (27)	\$ 329
Intellectual property	10	195	(120)	75
Other	12	92	(21)	71
Total intangible assets	16	\$ 643	\$ (168)	\$ 475

During 2008, the Cat Japan share redemption resulted in additional finite-lived intangible assets of \$54 million. In 2008, we acquired finite-lived intangible assets of \$17 million due to the purchase of Lovat Inc. See Note 25 for details on these busi ness combinations. Also in 2008, we acquired finite-lived intangible assets of \$32 million from other acquisitions.

During 2007, we acquired finite-lived intangible assets of \$89 million as part of the purchase of Franklin Power Products. In 2007, we also acquired finite-lived intangible assets of \$24 million due to the purchase of the Forestry Division of Blount International, Inc. See Note 25 for details on the acquisition of these assets.

Amortization expense related to intangible assets was \$61 million, \$61 million and \$52 million for 2009, 2008 and 2007, respectively.

Amortization expense related to intangible assets is expected to be:

			(Millions of dollars)
2010	2011	2012	2013	2014	Thereafter
\$ 60	\$ 52	\$ 46	\$ 40	\$ 37	\$ 230

B. Goodwill

During 2008, the Cat Japan share redemption resulted in \$206 million of goodwill. In 2008, we acquired net assets with related goodwill of \$41 million as part of the purchase of Gremada Industries, Inc. In 2008, we also acquired net assets with related goodwill of \$22 million as part of the purchase of Lovat Inc. See Note 25 for details on these business combinations. Also during 2008, we acquired net assets with related goodwill of \$8 million from other acquisitions.

During 2007, we acquired net assets with related goodwill of \$37 million as part of the purchase of Franklin Power Products. In 2007, we also acquired net assets with related goodwill of \$22 million as part of the purchase of the Forestry Division of Blount International, Inc. See Note 25 for details on the acquisition of these assets.

We test goodwill for impairment annually and whenever events or circumstances make it more likely than not that an impairment may have occurred. We perform our annual goodwill impairment test as of October 1 and monitor for interim triggering events on an ongoing basis. Goodwill is reviewed for impairment utilizing a two-step process. The first step requires us to compare the fair value of each reporting unit, which we primarily determine using an income approach based on the present value of discounted cash flows, to the respective carrying value, which includes goodwill. If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired. If the carrying value is greater than the fair value, there is an indication that an impairment may exist and the second step is required. In step two, the implied fair value of goodwill is calculated as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities. If the implied fair value of goodwill is less than the carrying value of the reporting unit's goodwill, the difference is recognized as an impairment loss.

The 2009 annual impairment test, completed in the fourth quarter, indicated the fair value of each of our reporting units was well above its respective carrying value with the exception of our Forest Products reporting unit, a component of the Building Construction Products reportable segment. Because the carrying value of Forest Products exceeded its fair value, step two in the impairment test process was required. We allocated the fair value to the unit's assets and liabilities and determined the implied fair value of the goodwill was insignificant. Accordingly, a goodwill impairment charge of \$22 million for Forest Products was recognized in Other operating (income) expense in Statement 1. The primary factor contributing to the impairment was the historic decline in demand for purpose built forest product machines caused by the significant reduction in U.S. housing construction, lower prices for pulp, paper, and wood product commodities, and reduced capital availability in the forest products industry. No goodwill was impaired or disposed of during the years ended December 31, 2008 or 2007.

The changes in carrying amount of goodwill by reportable segment for the years ended December 31, 2009, 2008 and 2007 were as follows:

(Millions of dollars)	Building Construction Products	Cat Japan	Earth- moving	Electric Power	Excavation	Large Power Systems	Marine & Petroleum Power	Mining	All Other ¹	Consolidated Total
Balance at January 1, 2007	\$ 4	\$ —	\$ 43	\$ 203	\$ 39	\$ 569	\$ 60	\$ 8	\$ 978	\$ 1,904
Business combinations	22								37	59
Balance at December 31, 2007	26	_	43	203	39	569	60	8	1,015	1,963
Business combinations	_	206	_	_	_	_	_	22	49	277
Other adjustments ²		27						(3)	(3)	21
Balance at December 31, 2008	26	233	43	203	39	569	60	27	1,061	2,261
Impairments	(22)	_	_	_	_	_	_	_	_	(22)
Other adjustments ²		23						3	4	30
Balance at December 31, 2009	\$ 4	\$ 256	\$ 43	\$ 203	\$ 39	\$ 569	\$ 60	\$ 30	\$1,065	\$ 2,269

^1 Includes all other operating segments (See Note 24).

As discussed in Note 24, our reportable segments were changed in the first quarter of 2009. As a result of these changes, the newly formed Earthmoving, Excavation and Mining reportable segments have been allocated goodwill of \$43 million, \$39 million and \$30 million, respectively. The goodwill was reallocated primarily from the former reportable segments of EAME Operations, Heavy Construction & Mining and Infrastructure Development. Additionally, goodwill of \$22 million was reallocated to Building Construction Products from the All Other category, while goodwill of \$478 million was reallocated to the All Other category from the former Industrial Power Systems reportable segment. Goodwill associated with the newly formed Cat Japan reportable segment was previously included in the All Other category.

13. Available-for-sale securities

We have investments in certain debt and equity securities, primarily at Cat Insurance, that have been classified as available-for-sale and recorded at fair value based upon quoted market prices. These fair values are primarily included in Other assets in Statement 2. Unrealized gains and losses arising from the revaluation of available-for-sale securities are included, net of applicable deferred income taxes, in equity (Accumulated other comprehensive income (loss) in Statement 2). Realized gains and losses on sales of investments are generally determined using the FIFO (first-in, first-out) method for debt instruments and the specific identification method for equity securities. Realized gains and losses are included in Other income (expense) in Statement 1.

Effective April 1, 2009, we adopted the new accounting and disclosure requirements regarding recognition and presentation of other-than-temporary impairments. See Note 1K for additional information.

	December 31, 2009 December 31, 2008					December 31, 2007
		Unrealized Unrealized Pretax Net Pretax Net					Unrealized Pretax Net
((Millions of dollars)	Cost Basis	Gains (Losses)	Fair Value	Cost Basis	Gains (Losses)	Fair Value	Cost Basis	Gains (Losses)	Fair Value
Government debt		(L03303)	Value	. Dasis	(L03303)	Value	- Dasis	(L0303)	vaiuo
U.S. treasury bonds		\$ —	\$ 14	\$ 14	\$ 1	\$ 15	\$ 10	\$ —	\$ 10
Other U.S. and non-U.S. government bonds	65	_	65	15	(1)	14	37	_	37
Corporate bonds
Corporate bonds	455	20	475	343	(22)	321	356		356
Asset-backed securities	141	(7)	134	165	(27)	138	177	(2)	175
Mortgage-backed debt securities
U.S. governmental agency mortgage-backed securities	295	13	308	319	5	324	272	1	273
Residential mortgage-backed securities	61	(10)	51	79	(19)	60	92	(2)	90
Commercial mortgage-backed securities	175	(13)	162	176	(47)	129	150	_	150
Equity securities
Large capitalization value	76	13	89	126	(13)	113	150	24	174
Smaller company growth	19	5	24	20	(2)	18	18	4	22
Total	\$1,301	\$ 21	\$1,322	\$ 1,257	\$ (125)	\$ 1,132	\$ 1,262	\$ 25	\$ 1,287

^2 Other adjustments are comprised primarily of foreign currency translation.

During 2009 and 2008, we recognized pretax charges for otherthan-temporary declines in the market values of equity securities in the Cat Insurance investment portfolios of \$12 million and \$37 million, respectively. These charges were accounted for as a realized loss and were included in Other income (expense) in Statement 1. The cost basis of the impacted securities was adjusted to reflect these charges. During 2007, there were no charges for other-than-temporary declines in the market value of securities.

Investments in an unrealized loss position that are not other-than-temporarily impaired:


		Less than 12 months1		Total
(Millions of dollars)	Fair Value	Unre alized Losses	Fair Value	Unre alized Losses	Fair Value	Unre alized Losses
Government debt U.S. treasury bonds \$ Other U.S. and non-U.S.		4 \$ — \$ — \$ — \$				4 \$ —
government bonds	14	—	2	—	16	—
Corporate bonds Corporate bonds Asset-backed securities	25 4	— 1	10 44	1 10	35 48	1 11
Mortgage-backed debt securities
U.S. governmental agency mortgage-backed securities Residential mortgage-	—	—	3	—	3	—
backed securities Commercial mortgage-	—	—	49	10	49	10
backed securities	24	—	73	14	97	14
Equity securities Large capitalization value	2	—	23	3	25	3
Smaller company growth Total \$ 74 \$	1	— 1	2	— \$206 \$ 38	3	— \$280 \$ 39

Indicates length of time that individual securities have been in a continuous unrealized loss position.

Investments in an unrealized loss position that are not other-than-temporarily impaired:

				December 31, 2008
		Less than 12 months1		Total
(Millions of dollars)	Fair Value	Unre alized Losses	Fair Value	Unre alized Losses	Fair Value	Unre alized Losses
Government debt Other U.S. and non-U.S. government bonds \$ — \$ —			\$ 8	\$ 1	\$ 8	\$ 1
Corporate bonds Corporate bonds Asset-backed securities	176 101	18 16	33 30	5 11	209 131	23 27
Mortgage-backed debt securities U.S. governmental agency mortgage-backed securities	7	—	19	1	26	1
Residential mortgage- backed securities Commercial mortgage- backed securities	32 71	6 15	27 59	14 32	59 130	20 47
Equity securities
Large capitalization value Smaller company growth	60 7	13 2	5 —	2 —	65 7	15 2
Total \$ 454		\$ 70	\$ 181	\$ 66	\$ 635	\$136

Indicates length of time that individual securities have been in a continuous unrealized loss position.

Investments in an unrealized loss position that are not other-than-temporarily impaired:

	December 31, 2007
		Less than 12 months1		12 months or more1	Total
(Millions of dollars)	Fair Value	Unre alized Losses	Fair Value	Unre alized Losses	Fair Value	Unre alized Losses
Government debt Other U.S. and non-U.S. government bonds \$ — \$ —			\$ 13	\$ —	\$ 13	\$ —
Corporate bonds Corporate bonds Asset-backed securities	85 86	1 1	79 42	1 1	164 128	2 2
Mortgage-backed debt securities U.S. governmental agency mortgage-backed securities Residential mortgage-	22	—	83	1	105	1
backed securities Commercial mortgage-	43	1	33	2	76	3
backed securities	55	1	9	—	64	1
Equity securities Large capitalization value Smaller company growth	50 5	5 —	1 —	— —	51 5	5 —
Total \$ 346		\$ 9	\$ 260	\$ 5	\$ 606	\$ 14

Indicates length of time that individual securities have been in a continuous unrealized loss position.

Government Debt. The unrealized losses on our investments in other U.S. and non-U.S. government bonds are the result of changes in interest rates since time of purchase. We do not intend to sell the investments and it is not likely that we will be required to sell these investments before recovery of their amortized cost basis. We do not consider these investments to be other-than-temporarily impaired as of December 31, 2009.

Corporate Bonds. The unrealized losses on our investments in corporate bonds and asset-backed securities relate primarily to an increase in credit-related yield spreads, risk aversion and heightened volatility in the financial markets since initial purchase. We do not intend to sell the investments and it is not likely that we will be required to sell the investments before recovery of their amortized cost basis. We do not consider these investments to be other-than-temporarily impaired as of December 31, 2009.

Mortgage-Backed Debt Securities. The unrealized losses on our investments in mortgage-backed securities relate primarily to an increase in housing delinquencies and default rates, credit-related yield spreads, risk aversion and heightened volatility in the financial markets. Continued weakness and lack of liquidity in the commercial sector continues to impact valuations. We do not intend to sell the investments and it is not likely that we will be required to sell these investments before recovery of their amortized cost basis. We do not consider these investments to be other-than-temporarily impaired as of December 31, 2009.

Equity Securities. Cat Insurance maintains a well-diversified equity portfolio consisting of two specific mandates: large capitalization value stocks and smaller company growth stocks. Despite continued strengthening in equity returns during the second half of 2009, the remaining unrealized losses in both the large and smaller company portfolios can be attributed to the weak economic conditions over the last 12 to 18 months. In each case where unrealized losses exist, the respective company's management is taking corrective action to increase shareholder value. We do not consider these investments to be other-thantemporarily impaired as of December 31, 2009.

The fair value of the available-for-sale debt securities at December 31, 2009, by contractual maturity, is shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay and creditors may have the right to call obligations.

(Millions of dollars)	Fair Value
Due in one year or less	\$ 43
Due after one year through five years	\$ 415
Due after five years through ten years	\$ 222
Due after ten years	\$ 529

Proceeds from sale of available-for-sale securities during 2009, 2008 and 2007 were \$291 million, \$357 million and \$282 million, respectively. Gross gains of \$9 million, \$17 million and \$16 million and gross losses of \$10 million, \$23 million and \$7 million have been included in current earnings as a result of these sales for 2009, 2008 and 2007, respectively.

14. Postemployment benefit plans

We have both U.S. and non-U.S. pension plans covering substantially all of our U.S. employees and a portion of our non-U.S. employees, primarily in our European and Japanese facilities. Our defined benefit plans provide a benefit based on years of service and/or the employee's average earnings near retirement. Our defined contribution plans allow employees to contribute a portion of their salary to help save for retirement, and in certain cases, we provide a matching contribution. We also have definedbenefit retirement health care and life insurance plans covering substantially all of our U.S. employees.

As discussed in Note 1K, we adopted the balance sheet recognition provisions of the guidance on employers' accounting for defined benefit pension and other postretirement plans at December 31, 2006, and adopted the year-end measurement date effective January 1, 2008 using the "one measurement" approach. Under the one measurement approach, net periodic benefit cost for the period between any early measurement date and the end of the fiscal year that the measurement provisions are applied is allocated proportionately between amounts to be recognized as an adjustment of Profit employed in the business and net periodic benefit cost for the fiscal year. Previously, we used a November 30th measurement date for our U.S. pension and other postretirement benefit plans and September 30th for our non-U.S. plans. Year-end asset and obligation amounts are disclosed as of the plan measurement dates.

As discussed in Note 27, during 2009 voluntary and involuntary separation programs impacted employees participating in certain U.S. and non-U.S. pension and other postretirement benefit plans. Due to the significance of these events, certain plans were re-measured as follows:

U.S. Voluntary Separation Program — Plan re-measurements as of January 31, 2009 resulted in curtailment losses to the U.S. support and management pension and other postretirement benefit plans of \$80 million and \$45 million, respectively. Other U.S. Separation Programs — Certain plans were remeasured as of March 31, 2009 and December 31, 2009, resulting in net curtailment losses of \$47 million to pension and \$10 million to other postretirement benefit plans. Early retirement pension benefit costs of \$6 million were also recognized. Non-U.S. Separation Programs — Certain plans were remeasured as of March 31, 2009 and December 31, 2009, resulting in pension settlement losses of \$34 million, special termination benefits of \$2 million to pension and curtailment losses of \$1 million to other postretirement benefit plans.

In March 2009, we amended our U.S. support and management other postretirement benefit plan. Beginning in 2010, certain retirees age 65 and older will enroll in individual health plans that work with Medicare and will no longer participate in a Caterpillar-sponsored group health plan. In addition, Caterpillar will fund a tax-advantaged Health Reimbursement Arrangement (HRA) to assist the retirees with medical expenses. The plan amendment required a plan re-measurement as of March 31, 2009, which resulted in a decrease in our Liability for postretirement benefits of \$432 million and an increase in Accumulated other comprehensive income (loss) of \$272 million after-tax. The plan was further amended in December 2009 to define the HRA benefit that active employees will receive once they are retired and reach age 65. The plan was re-measured at yearend and the December amendment resulted in a decrease in our Liability for postretirement benefits of \$101 million and an increase in Accumulated other comprehensive income (loss) of \$64 million after-tax. These decreases will be amortized into earnings on a straight-line basis over approximately 7 years, the average remaining service period of active employees in the plan. The March 2009 amendment reduced other postretirement benefits expense by approximately \$60 million for 2009.

A. Benefit Obligations

	U.S. Pension Benefits			Non-U.S. Pension Benefits			Other Postretirement Benefits
(Millions of dollars)	2009	2008	2007	2009	2008	2007	2009	2008	2007
Change in benefit obligation:
Benefit obligation, beginning of year \$ 11,493		\$11,132	\$11,174	\$3,219	\$ 3,012	\$ 2,719	\$5,017	\$ 5,455	\$ 5,661
Effect of eliminating early measurement date1	N/A	11	N/A	N/A	26	N/A	N/A	—	N/A
Service cost	176	199	187	86	92	80	70	87	101
Interest cost	688	629	595	146	156	139	280	307	295
Plan amendments	—	13	—	—	—	1	(549)	—	2
Actuarial losses (gains)	380	222	(146)	45	(18)	(118)	(58)	(522)	(294)
Foreign currency exchange rates	—	—	—	322	(534)	246	29	(19)	4
Participant contributions	—	—	—	10	14	14	51	41	35
Benefits paid — gross	(796)	(713)	(722)	(212)	(155)	(126)	(390)	(351)	(369)
Less: federal subsidy on benefits paid	—	—	—	—	—	—	21	19	15
Curtailments, settlements and special termination benefits	123	—	—	(74)	—	—	66	—	—
Acquisitions/other2	—	—	—	—	626	57	—	—	5
Adjustment for subsidiary pension plan3	—	—	44	—	—	—	—	—	—
Benefit obligation, end of year \$ 12,064		\$11,493	\$11,132	\$3,542	\$ 3,219	\$ 3,012	\$4,537	\$ 5,017	\$ 5,455
Accumulated benefit obligation, end of year \$ 11,357		\$10,681	\$10,460	\$3,082	\$ 2,938	\$ 2,629
Weighted-average assumptions used to determine benefit obligation:
Discount rate4	5.7%	6.1%	5.8%	4.8%	4.5%	5.3%	5.6%	6.0%	5.8%
Rate of compensation increase4	4.5%	4.5%	4.5%	4.2%	3.8%	4.1%	4.4%	4.4%	4.4%

¹ Change in benefit obligation during the period from the early measurement date to December 31, 2007.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentagepoint change in assumed health care cost trend rates would have the following effects:

(Millions of dollars)	One-percentage point increase	One-percentage point decrease
Effect on 2009 service and interest cost components of other postretirement benefit cost	\$ 23	\$ (20)
Effect on accumulated postretirement benefit obligation	\$ 220	\$(186)

B. Plan Assets

	U.S. Pension Benefits			Non-U.S. Pension Benefits			Other Postretirement Benefits
(Millions of dollars)	2009	2008	2007	2009	2008	2007	2009	2008	2007
Change in plan assets:
Fair value of plan assets, beginning of year \$	6,745	\$10,441	\$10,087	\$ 2,175	\$ 2,773	\$ 2,304	\$ 1,042	\$ 1,584	\$ 1,509
Effect of eliminating early measurement date1	N/A	17	N/A	N/A	23	N/A	N/A	15	N/A
Actual return on plan assets	2,194	(3,288)	1,064	390	(751)	290	266	(587)	158
Foreign currency exchange rates	—	—	—	243	(407)	208	—	—	—
Company contributions2	886	288	12	263	134	46	94	340	251
Participant contributions	—	—	—	10	14	14	51	41	35
Benefits paid	(796)	(713)	(722)	(212)	(155)	(126)	(390)	(351)	(369)
Settlements and special termination benefits	—	—	—	(72)	—	—	—	—	—
Acquisitions/other3	—	—	—	—	544	37	—	—	—
Fair value of plan assets, end of year \$	9,029	\$ 6,745	\$10,441	\$ 2,797	\$ 2,175	\$ 2,773	\$ 1,063	\$ 1,042	\$ 1,584

Change in plan assets during the period from the early measurement date to December 31, 2007.

² See Note 25 regarding the 2008 Cat Japan share redemption.

^{3 2007} charge to recognize previously unrecorded liabilities related to a subsidiary pension plan.

⁴ End of year rates are used to determine net periodic cost for the subsequent year. See Note 14E.

Includes \$650 million of Caterpillar stock contributed to U.S. pension plans in 2009.

See Note 25 regarding the 2008 Cat Japan share redemption.

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As discussed in Note 1K, we adopted the accounting guidance on employers' disclosures about postretirement benefit plan assets for the annual period ending December 31, 2009. The guidance expands the disclosure set forth in the previous guidance by adding required disclosures about (1) how investment allocation decisions are made by management, (2) major categories of plan assets, and (3) significant concentrations of risk. Additionally, this guidance requires an employer to disclose information about the valuation of plan assets similar to that required under the accounting guidance on fair value measurements.

Our U.S. pension target asset allocations reflect our investment strategy of maximizing the long-term rate of return on plan assets and the resulting funded status, within an appropriate level of risk. Our target allocations for the U.S. pension plans are 70% equities, 25% debt securities and 5% real estate. Within equity securities, approximately two-thirds include investments in U.S. large and small-cap companies. The remaining portion is invested in international companies, including emerging markets, and private equity. Fixed income securities primarily include corporate bonds, mortgage backed securities and U.S. Treasuries.

In general, our non-U.S. pension target asset allocations reflect our investment strategy of maximizing the long-term rate of return on plan assets and the resulting funded status, within an appropriate level of risk. The weighted-average target allocations for the non-U.S. pension plans are 55% equities, 35% debt securities, 6% real estate and 4% other. The target allocations for each plan varies based upon local statutory requirements, demographics of plan participants and funded status. Plan assets are primarily invested in non-U.S. securities.

Our target allocations for the other postretirement benefit plans are 80% equities and 20% debt securities. Within equity securities, approximately two-thirds include investments in U.S. large and small-cap companies. The remaining portion is invested in international companies, including emerging markets. Fixed income securities primarily include corporate bonds, mortgage backed securities and U.S. Treasuries.

The U.S. plans are rebalanced to plus or minus five percentage points of the target asset allocation ranges on a monthly basis. The frequency of rebalancing for the non-U.S. plans varies depending on the plan. As a result of our diversification strategies, there are no significant concentrations of risk within the portfolio of investments except for the holdings in Caterpillar stock as discussed below.

The use of certain derivative instruments is permitted where appropriate and necessary for achieving overall investment policy objectives. The U.S. plans utilize futures contracts to offset current equity positions in order to rebalance the total portfolio to the target asset allocation. During 2008 and 2007, approximately 5% and 10%, respectively, of the U.S. pension plans' assets were rebalanced from equity to fixed income positions through the use of futures contracts. The plans do not engage in futures contracts for speculative purposes.

The accounting guidance on fair value measurements specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques (Level 1, 2 and 3). See Note 19 for a discussion of the fair value hierarchy.

Fair values are determined as follows:

Equity securities are primarily based on valuations for identical instruments in active markets.
Fixed income securities are primarily based upon models that take into consideration such market-based factors as recent sales, risk-free yield curves and prices of similarly rated bonds.
Real estate is stated at the fund's net asset value or at appraised value.
Cash, short-term instruments and other are based on the carrying amount, which approximated fair value, or at the fund's net asset value.

The fair value of the pension and other postretirement benefit plan assets by category is summarized below:

	December 31, 2009
(Millions of dollars) U.S. Pension	Level 1	Level 2	Level 3	Total Assets, at Fair Value
Equity securities: U.S. equities Non-U.S. equities	\$ 4,634 1,803	\$ 2 —	\$ 17 34	\$ 4,653 1,837
Fixed income securities: U.S. corporate bonds Non-U.S. corporate bonds	— —	1,179 70	56 1	1,235 71
U.S. government bonds	—	323	—	323
U.S. governmental agency mortgage-backed securities Non-U.S. government bonds	— —	562 9	— —	562 9
Real estate	—	—	10	10
Cash, short-term instruments and other Total U.S. pension assets	113 \$ 6,550	216 \$ 2,361	— \$ 118	329 \$ 9,029

	December 31, 2009
(Millions of dollars) Non-U.S. Pension	Level 1	Level 2	Level 3	Total Assets, at Fair Value
Equity securities: U.S. equities Non-U.S. equities Global equities1	\$ 330 863 144	\$ — 84 14	\$ — 5 —	\$ 330 952 158
Fixed income securities: U.S. corporate bonds Non-U.S. corporate bonds U.S. government bonds Non-U.S. government bonds Global fixed income1	— — — — —	22 355 1 156 361	1 11 — 2 —	23 366 1 158 361
Real estate Other:	—	80	71	151
Cash and short-term instruments Other2 Total non-U.S. pension assets 1 Includes funds that invest in both U.S. and non-U.S. securities.	104 3 \$ 1,444	4 135 \$ 1,212	— 51 \$ 141	108 189 \$ 2,797

Includes funds that invest in both U.S. and non-U.S. securities.

Includes funds that invest in multiple asset classes, hedge funds and other.

	December 31, 2009
(Millions of dollars) Other postretirement benefits	Level 1	Level 2	Level 3	Total Assets, at Fair Value
Equity securities: U.S. equities Non-U.S. equities	\$ 531 273	\$ — 6	\$ — —	\$ 531 279
Fixed income securities: U.S. corporate bonds Non-U.S. corporate bonds U.S. government bonds	— — —	95 8 24	— — —	95 8 24
U.S. governmental agency mortgage-backed securities Non-U.S. government bonds	— —	54 1	— —	54 1
Cash, short-term instruments and other Total other postretirement benefit assets	19 \$ 823	52 \$ 240	— \$ —	71 \$ 1,063

Below are roll-forwards of assets measured at fair value using Level 3 inputs for the year ended December 31, 2009. These instruments were valued using pricing models that, in management's judgment, reflect the assumptions a marketplace participant would use.

(Millions of dollars)	Equities	Fixed Income	Real Estate	Other
U.S. Pension
Balance at December 31, 2008	\$ 16	\$ 73	\$ 9	\$ —
Unrealized gains (losses)	3	34	1	—
Realized gains (losses)	—	(2)	—	—
Purchases, issuances and settlements	31	(12)	—	—
Transfers in and/or out of Level 3	1	(36)	—	—
Balance at December 31, 2009	\$ 51	\$ 57	\$ 10	\$ —
Non-U.S. Pension
Balance at December 31, 2008	\$ —	\$ 5	\$ 61	\$ 67
Unrealized gains (losses)	2	1	10	63
Realized gains (losses)	—	—	—	(41)
Purchases, issuances and settlements	3	6	—	(38)
Transfers in and/or out of Level 3	—	2	—	—
Balance at December 31, 2009	\$ 5	\$ 14	\$ 71	\$ 51

Equity securities within plan assets include Caterpillar Inc. common stock in the amounts of:

		U.S. Pension Benefits1				Non-U.S. Pension Benefits								Other Postretirement Benefits
(Millions of dollars)	20092	2008	2007	2009		2008		2007		2009		2008		2007
Caterpillar Inc. common stock	\$ 1,016	\$ 11	\$ 24	\$	1	\$	1	\$	2	\$	1	\$	2	\$	3

Amounts represent 11% of total plan assets for 2009, and less than 1% of total plan assets for 2008 and 2007.

C. Funded status

The funded status of the plans, reconciled to the amount reported on Statement 2, is as follows:

		U.S. Pension Benefits			Non-U.S. Pension Benefits		Other Postretirement Benefits
(Millions of dollars)	2009	2008	2007	2009	2008	2007	2009	2008	2007
End of Year
Fair value of plan assets	\$ 9,029	\$ 6,745	\$ 10,441	\$ 2,797	\$ 2,175	\$ 2,773	\$ 1,063	\$ 1,042	\$ 1,584
Benefit obligations	12,064	11,493	11,132	3,542	3,219	3,012	4,537	5,017	5,455
Over (under) funded status	(3,035)	(4,748)	(691)	(745)	(1,044)	(239)	(3,474)	(3,975)	(3,871)
Amounts not yet recognized:
Contributions made after measurement date	N/A	N/A	1	N/A	N/A	3	N/A	N/A	37
Net amount recognized in financial position	\$(3,035)	\$ (4,748)	\$ (690)	\$ (745)	\$ (1,044)	\$ (236)	\$(3,474)	\$ (3,975)	\$ (3,834)
Components of net amount recognized
in financial position:
Other assets (non-current asset)	\$ —	\$ —	\$ —	\$ 22	\$ —	\$ —	\$ —	\$ —	\$ —
Accrued wages, salaries and employee
benefits (current liability)	(17)	(14)	(2)	(18)	(2)	—	(113)	(29)	(14)
Liability for postemployment benefits (non-current liability)	(3,018)	(4,734)	(688)	(749)	(1,042)	(236)	(3,361)	(3,946)	(3,820)
Net liability recognized	\$(3,035)	\$ (4,748)	\$ (690)	\$ (745)	\$ (1,044)	\$ (236)	\$(3,474)	\$ (3,975)	\$ (3,834)

Amounts recognized in Accumulated other
comprehensive income (pre-tax) consist of:
Net actuarial loss (gain)	\$ 5,132	\$ 6,419	\$ 2,172	\$ 1,200	\$ 1,319	\$ 544	\$ 659	\$ 881	\$ 759
Prior service cost (credit)	132	170	191	8	13	22	(177)	320	282
Transition obligation (asset)	—	—	—	—	—	1	9	10	12
Total	\$ 5,264	\$ 6,589	\$ 2,363	\$ 1,208	\$ 1,332	\$ 567	\$ 491	\$ 1,211	\$ 1,053

N/A (Not Applicable): The adoption of the year-end measurement date provisions of the guidance on employers' accounting for defined benefit pension and other postretirement plans (see Note 1K) eliminated contributions between the measurement date and the end of the fiscal year.

The estimated amounts that will be amortized from Accumulated other comprehensive income (loss) at December 31, 2009 into net periodic benefit cost (pre-tax) in 2010 are as follows:

(Millions of dollars)	U.S. Pension	Non-U.S. Pension	Other Postretirement Benefits
Actuarial loss (gain)	\$ 350	\$ 68	\$ 33
Prior service cost (credit)	28	1	(55)
Transition obligation (asset)	—	—	2
Total	\$ 378	\$ 69	\$ (20)

The following amounts relate to our pension plans with projected benefit obligations in excess of plan assets:

		U.S. Pension Benefits at Year-end			Non-U.S. Pension Benefits at Year-end
(Millions of dollars)	2009	2008	2007	2009	2008	2007
Projected benefit obligation	\$ (12,064)	\$ (11,493)	\$ (10,862)	\$ (3,350)	\$ (3,194)	\$ (2,792)
Accumulated benefit obligation	\$ (11,357)	\$ (10,681)	\$ (10,197)	\$ (2,933)	\$ (2,917)	\$ (2,442)
Fair value of plan assets	\$ 9,029	\$ 6,745	\$ 10,159	\$ 2,584	\$ 2,151	\$ 2,548

The following amounts relate to our pension plans with accumulated benefit obligations in excess of plan assets:

		U.S. Pension Benefits at Year-end			Non-U.S. Pension Benefits at Year-end
(Millions of dollars)	2009	2008	2007	2009	2008	2007
Projected benefit obligation	\$ (12,064)	\$ (11,493)	\$ (3,982)	\$ (1,594)	\$ (3,040)	\$ (146)
Accumulated benefit obligation	\$ (11,357)	\$ (10,681)	\$ (3,967)	\$ (1,503)	\$ (2,796)	\$ (128)
Fair value of plan assets	\$ 9,029	\$ 6,745	\$ 3,580	\$ 1,145	\$ 2,022	\$ 28

The accumulated postretirement benefit obligation exceeds plan assets for all of our other postretirement benefit plans.

Includes \$650 million of Caterpillar stock contributed to U.S. pension plans in 2009.

D. Expected cash flow

Information about the expected cash flow for the pension and other postretirement benefit plans is as follows:

(Millions of dollars)	U.S. Pension Benefits	Non-U.S. Pension Benefits	Other Postretirement Benefits
Employer contributions:
2010 (expected)	\$ 920	\$ 80	\$ 120
Expected benefit payments:
2010	\$ 810	\$ 190	\$ 370
2011	830	200	380
2012	860	200	380
2013	880	190	390
2014	900	200	390
2015-2019	4,730	980	2,000
Total	\$ 9,010	\$ 1,960	\$ 3,910

The above table reflects the total employer contributions and benefits expected to be paid from the plan or from company assets and does not include the participants' share of the cost. The expected benefit payments for our other postretirement benefits include payments for prescription drug benefits. Medicare Part D subsidy amounts expected to be received by the company which will offset other postretirement benefit payments are as follows:

(Millions of dollars)	2010	2011	2012	2013	2014	2015-2019	Total
Other postretirement benefits	\$ 20	\$ 20	\$ 20	\$ 20	\$ 20	\$ 140	\$ 240

E. Net periodic cost

		U.S. Pension Benefits			Non-U.S. Pension Benefits		Other Postretirement Benefits
(Millions of dollars)	2009	2008	2007	2009	2008	2007	2009	2008	2007
Components of net periodic benefit cost:
Service cost \$	176	\$ 199	\$ 187	\$ 86	\$ 92	\$ 80	\$ 70	\$ 87	\$ 101
Interest cost	688	629	595	146	156	139	280	307	295
Expected return on plan assets	(777)	(882)	(841)	(181)	(201)	(178)	(111)	(138)	(130)
Curtailments, settlements and
special termination benefits1	133	—	—	36	1	1	56	—	—
Amortization of:
Transition obligation (asset)	—	—	—	—	1	1	2	2	2
Prior service cost (credit)2	29	32	58	1	3	5	(40)	(35)	(36)
Net actuarial loss (gain)	248	134	214	35	36	56	20	64	79
Adjustment for subsidiary pension plan3	—	—	44	—	—	—	—	—	—
Total cost included in operating profit \$	497	\$ 112	\$ 257	\$ 123	\$ 88	\$ 104	\$ 277	\$ 287	\$ 311
benefit obligations recognized in other comprehensive income (pre-tax): Effect of eliminating early measurement date4 \$ Current year actuarial loss (gain) Amortization of actuarial (loss) gain	N/A (1,037) (248)	(14) 4,401 (134)	N/A (368) (214)	\$ N/A (88) (32)	(9) 696 (36)	N/A (131) (56)	\$ N/A (200) (20)	(3) 172 (64)	N/A (320) (79)
Current year prior service cost (credit)	(10)	16	—	(2)	1	1	(537)	(3)	2
Amortization of prior service (cost) credit	(29)	(32)	(58)	(1)	(3)	(5)	40	35	36
Amortization of transition (obligation) asset	—	—	—	—	(1)	(1)	(2)	(2)	(2)
Total recognized in other comprehensive income	(1,324)	4,237	(640)	(123)	648	(192)	(719)	135	(363)
Total recognized in net periodic cost and other comprehensive income \$	(827)	\$ 4,349	\$ (383)	\$ —	\$ 736	\$ (88)	\$ (442)	\$ 422	\$ (52)
Weighted-average assumptions used to determine net cost:
Discount rate	6.3%	5.8%	5.5%	4.7%	5.3%	4.7%	6.3%	5.8%	5.5%
Expected return on plan assets5
	8.5%	9.0%	9.0%	6.6%	7.6%	7.7%	8.5%	9.0%	9.0%

²⁰⁰⁹ curtailments, settlements and special termination benefits were recognized in Other operating (income) expenses in Statement 1.

Prior service costs for both pension and other postretirement benefits are generally amortized using the straight-line method over the average remaining service period to the full retirement eligibility date of employees expected to receive benefits from the plan amendment. For other postretirement benefit plans in which all or almost all of the plan's participants are fully eligible for benefits under the plan, prior service costs are amortized using the straight-line method over the remaining life expectancy of those participants.

²⁰⁰⁷ charge to recognize previously unrecorded liabilities related to a subsidiary pension plan.

⁴ Amortization during the period from the early measurement date to December 31, 2007.

The weighted-average rates for 2010 are 8.5% and 7.0% for U.S. and non-U.S. plans, respectively.

The assumed discount rate is used to discount future benefit obligations back to today's dollars. For 2009 and 2008, the U.S. discount rate was based on a benefit cash flow-matching approach and represents the rate at which our benefit obligations could effectively be settled as of our measurement date, December 31. The benefit cash flow-matching approach involves analyzing Caterpillar's projected cash flows against a high quality bond yield curve, calculated using a wide population of corporate Aa bonds available on the measurement date. The very highest and lowest yielding bonds (top and bottom 10%) are excluded from the analysis. For 2007, we used the Moody's Aa bond yield as of our measurement date, November 30, and validated the discount rate using the benefit cash flow-matching approach. A similar change was made in determining the assumed discount rate for our most significant non-U.S. plans. This rate is sensitive to changes in interest rates. A decrease in the discount rate would increase our obligation and future expense.

Our U.S. expected long-term rate of return on plan assets is based on our estimate of long-term passive returns for equities and fixed income securities weighted by the allocation of our pension assets. Based on historical performance, we increase the passive returns due to our active management of the plan assets. To arrive at our expected long-term return, the amount added for active management was 1% for 2009, 2008 and 2007. A similar process is used to determine this rate for our non-U.S. plans.

The assumed health care trend rate represents the rate at which health care costs are assumed to increase. To calculate the 2009 benefit expense, we assumed an increase of 7.4% for 2009. We expect an increase of 7.0% during 2010. The 2009 and 2010 rates are assumed to decrease gradually to the ultimate health care trend rate of 5.0% in 2016. This rate represents 3.0% general inflation plus 2.0% additional health care inflation.

We determined that most of our U.S. retiree health care plans are at least actuarially equivalent to Medicare Part D and will qualify for the federal subsidy.

F. Other postemployment benefit plans

We offer long-term disability benefits, continued health care for disabled employees, survivor income benefit insurance and supplemental unemployment benefits to substantially all eligible U.S. employees.

G. Defined contribution plans

We have both U.S. and non-U.S. employee defined contribution plans to help employees save for retirement. Our U.S. 401(k) plan allows eligible employees to contribute a portion of their salary to the plan on a tax-deferred basis, and we provide a matching contribution equal to 100% of employee contributions to the plan up to 6% of their compensation. Various other U.S. and non-U.S. defined contribution plans allow eligible employees to contribute a portion of their salary to the plans, and in some cases, we provide a matching contribution to the funds.

Beginning in June 2009, we began funding our employer matching contribution for certain U.S. defined contribution plans in Caterpillar stock, held as treasury stock. In 2009, we made \$68 million (1.4 million shares) of matching contributions in Caterpillar stock.

Total company costs related to U.S. and non-U.S. defined contribution plans were as follows:

(Millions of dollars)	2009	2008	2007
U.S. plans \$	206	\$ 107	\$ 172
Non-U.S. plans	29	34	30
	\$ 235	\$ 141	\$ 202

H. Summary of long-term liability: December 31,

(Millions of dollars)	2009	2008	2007
Pensions:
U.S. pensions \$ 3,018		\$ 4,734	\$ 688
Non-U.S. pensions	749	1,042	236
Total pensions	3,767	5,776	924
Postretirement benefits other than pensions	3,361	3,946	3,820
Other postemployment benefits	63	73	72
Defined contribution	229	180	243
	\$ 7,420	\$ 9,975	\$ 5,059

15. Short-term borrowings

		December 31,
(Millions of dollars)	2009	2008	2007
Machinery and Engines: Notes payable to banks1 \$ Commercial paper	260 173 433	\$ 668 964 1,632	\$ 187 — 187
Financial Products: Notes payable to banks Commercial paper Demand notes	793 2,162 695	817 4,217 543	550 4,032 699
Total short-term borrowings \$ 4,083	3,650	5,577 \$ 7,209	5,281 \$ 5,468

Increase due to the consolidation of Cat Japan. See Note 25 for additional details.

The weighted-average interest rates on short-term borrowings outstanding were: December 31,

	2008	2007
Notes payable to banks 4.6%	5.5%	7.0%
Commercial paper 1.2%	2.0%	4.3%
Demand notes 2.0%	3.6%	5.1%

Please refer to Note 19 and Table IV for fair value information on short-term borrowings.

16. Long-term debt

		December 31,
(Millions of dollars)	2009	2008	2007
Machinery and Engines:
Notes — 6.550% due 2011 \$	251	\$ 250	\$ 250
Notes — 5.700% due 2016	515	517	510
Debentures — 7.250% due 2009	—	—	305
Debentures — 9.375% due 2011	123	123	123
Debentures — 7.000% due 2013	350	350	—
Debentures — 7.900% due 2018	899	898	—
Debentures — 9.375% due 2021	120	120	120
Debentures — 8.000% due 2023	82	82	82
Debentures — 6.625% due 2028	299	299	299
Debentures — 7.300% due 2031	349	349	348
Debentures — 5.300% due 20352	204	203	202
Debentures — 6.050% due 2036	748	748	748
Debentures — 8.250% due 2038	248	248	—
Debentures — 6.950% due 2042	249	249	249
Debentures — 7.375% due 2097	297	297	297
Capital lease obligations	211	293	68
Other1	707	710	38
Total Machinery and Engines	5,652	5,736	3,639
Financial Products:
Commercial paper	71	1,500	903
Medium-term notes 15,363		15,073	12,678
Deposit obligations	—	—	232
Other	761	525	377
Total Financial Products	16,195	17,098	14,190
Total long-term debt due after one year \$21,847		\$ 22,834	\$ 17,829

Increase due to the consolidation of Cat Japan. See Note 25 for additional details.

Debentures due in 2035 have an effective yield to maturity of 8.55%.

All outstanding notes and debentures are unsecured. The deposit obligations have a corresponding security deposit that relates to a finance arrangement, which provides us a return. This finance arrangement requires that we commit to certain longterm obligations and provide a security deposit, which will fulfill these obligations when they become due. In 2007, the security deposit associated with the outstanding deposit obligations for Financial Products was included in Other assets in Statement 2. In 2008, this security deposit was included in Prepaid expenses and other current assets and the deposit obligations were included in long-term debt due within one year. During 2009, the deposit obligation was fulfilled by the related security deposit.

On December 3, 2008, Caterpillar issued \$350 million of 7.00% debentures due in 2013, \$900 million of 7.90% debentures due in 2018 and \$250 million of 8.25% debentures due in 2038.

We may redeem the 6.55% and 5.70% notes and the 7.25%, 6.625%, 7.30%, 5.30%, 6.05%, 6.95% and 7.375% debentures in whole or in part at our option at any time at a redemption price equal to the greater of 100% of the principal amount of the debentures to be redeemed or the sum of the present value of the remaining scheduled payments. The terms of other notes and debentures do not specify a redemption option prior to maturity.

Based on Cat Financial's medium-term note issuances subsequent to year-end, \$71 million, \$1,500 million and \$903 million of Financial Products' commercial paper outstanding at December 31, 2009, 2008 and 2007, respectively, was classified as long-term debt due after one year. Medium-term notes are offered by prospectus and are issued through agents at fixed and floating rates. These notes have a weighted average interest rate of 4.6% with remaining maturities up to 19 years at December 31, 2009.

The aggregate amounts of maturities of long-term debt during each of the years 2010 through 2014, including amounts due within one year and classified as current, are:


(Millions of dollars)	2010		2011		2012		2013		2014
Machinery and Engines \$	302	\$	701	\$	252	\$	571	\$	47
Financial Products	5,399		3,084		3,456		2,364		1,942
	\$ 5,701		\$ 3,785		\$ 3,708		\$ 2,935		\$ 1,989

The above table includes \$1,612 million of medium-term notes that can be called at par.

Interest paid on short-term and long-term borrowings for 2009, 2008 and 2007 was \$1,411 million, \$1,451 million and \$1,418 million, respectively.

Please refer to Note 19 and Table IV for fair value information on long-term debt.

17. Credit commitments

	December 31, 2009
(Millions of dollars)	Consolidated			Machinery and Engines		Financial Products
Credit lines available:
Global credit facilities	\$	8,363	\$	2,8751	\$	5,488
Other external		4,726		1,187		3,539
Total credit lines available		13,089		4,062		9,027
Less: Global credit facilities supporting commercial paper		(2,233)		—		(2,233)
Less: Utilized credit		(2,414)		(367)		(2,047)
Available credit	\$	8,442	\$	3,695	\$	4,747

Includes \$1.37 billion from Credit Facility 2.

We have three global credit facilities with a syndicate of banks totaling \$6.99 billion (Credit Facility 1) available in the aggregate to both Caterpillar and Cat Financial to support their commercial paper programs in the event those programs become unavailable and for general liquidity purposes. Based on management's allocation decision, which can be revised from time to time, the portion of the Credit Facility 1 available to Cat Financial as of December 31, 2009 was \$5.49 billion.

The five-year facility of \$1.62 billion expires in September 2012.
The five-year facility of \$2.98 billion expires in September 2011.
In September 2009, we renewed the 364-day facility. The amount was increased from \$2.25 billion to \$2.39 billion and expires in September 2010.

We also have a 364-day revolving credit facility (Credit Facility 2) with a syndicate of banks totaling \$1.37 billion, which expires in March 2010 and is jointly available to both Caterpillar and Cat Financial.

Consolidated credit lines with banks as of December 31, 2009 total \$4.73 billion. These credit lines, which are eligible for renewal at various future dates or have no specified expiration date, are used primarily by our subsidiaries for local funding requirements. Caterpillar or Cat Financial generally guarantees subsidiary borrowings under these lines.

During 2009, certain of the covenants applicable to Caterpillar or Cat Financial under Credit Facility 1 and Credit Facility 2 (the Credit Facilities) were revised. The revisions, among other things, modified the consolidated net worth definition for Caterpillar's covenant to exclude pension and other post-retirement benefits as a part of Accumulated other comprehensive income (loss). In addition, Cat Financial's interest coverage ratio covenant was modified to exclude the impact of interest rate derivatives and to calculate the ratio over a rolling four-quarter period.

At December 31, 2009, Caterpillar's consolidated net worth was \$13.26 billion, which was above the \$9.00 billion required under the Credit Facilities. The consolidated net worth is defined as the consolidated stockholder's equity including preferred stock but excluding the pension and other post-retirement benefits balance within Accumulated other comprehensive income (loss).

At December 31, 2009, Cat Financial's interest coverage ratio was 1.26 to 1. This is above the 1.15 to 1 minimum ratio of (1) profit excluding income taxes, interest expense and net gain/ (loss) from interest rate derivatives to (2) interest expense calculated at the end of each calendar quarter for the rolling four quarter period then most recently ended.

In addition, at December 31, 2009, Cat Financial's leverage ratio was 6.79 to 1. This is below the maximum ratio of debt to net worth of 10 to 1, calculated (1) on a monthly basis as the average of the leverage ratios determined on the last day of each of the six preceding calendar months and (2) at each December 31 required by the Credit Facilities.

In the event Caterpillar or Cat Financial does not meet one or more of their respective financial covenants under the Credit Facilities in the future (and are unable to obtain a consent or waiver), the bank group may terminate the commitments allocated to the parties. Additionally, in such event, certain of Cat Financial's other lenders under other loan agreements where such financial covenants are applicable, may, at their election, choose to pursue remedies under such loan agreements, including accelerating outstanding borrowings. At December 31, 2009, there were no borrowings under the Credit Facilities.

18. Profit per share

Computations of profit per share:
(Dollars in millions except per share data)	2009	2008		2007
Profit for the period (A)1 \$	895	\$	3,557	\$ 3,541
Determination of shares (in millions):
Weighted average number of common shares outstanding (B)	615.2		610.5	638.2
Shares issuable on exercise of stock awards, net of shares assumed to be purchased out of proceeds at average market price	10.8		17.4	21.3
Average common shares outstanding for fully diluted computation (C)	626.0		627.9	659.5
Profit per share of common stock:
Assuming no dilution (A/B) \$	1.45	\$	5.83	\$ 5.55
Assuming full dilution (A/C) \$	1.43	\$	5.66	\$ 5.37
Shares outstanding as of December 31 (in millions)	624.7		601.5	624.0

Profit attributable to common stockholders.

SARs and stock options to purchase 18,577,553, 5,468,512 and 543,971 and common shares were outstanding in 2009, 2008 and 2007, respectively, but were not included in the computation of diluted earnings per share because the effect would have been antidilutive.

19. Fair value disclosures

A. Fair value measurements

As discussed in Note 1K, we adopted the accounting guidance on fair value measurements as of January 1, 2008. This guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. This guidance also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. In accordance with this guidance, fair value measurements are classified under the following hierarchy:

Level 1 Quoted prices for identical instruments in active markets.
Level 2 Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets.
Level 3 Model-derived valuations in which one or more significant inputs or significant value-drivers are unobservable.

When available, we use quoted market prices to determine fair value, and we classify such measurements within Level 1. In some cases where market prices are not available, we make use of observable market based inputs to calculate fair value, in which case the measurements are classified within Level 2. If quoted or observable market prices are not available, fair value is based upon internally developed models that use, where possible, current market-based parameters such as interest rates, yield curves and currency rates. These measurements are classified within Level 3.

Fair value measurements are classified according to the lowest level input or value-driver that is significant to the valuation. A measurement may therefore be classified within Level 3 even though there may be significant inputs that are readily observable.

The guidance on fair value measurements expanded the definition of fair value to include the consideration of nonperformance risk. Nonperformance risk refers to the risk that an obligation (either by a counterparty or Caterpillar) will not be fulfilled. For our financial assets traded in an active market (Level 1 and certain Level 2), the nonperformance risk is included in the market price. For certain other financial assets and liabilities (Level 2 and 3), our fair value calculations have been adjusted accordingly.

Available-for-sale securities

Our available-for-sale securities, primarily at Cat Insurance, include a mix of equity and debt instruments (see Note 13 for additional information). Fair values for our U.S. treasury bonds and equity securities are based upon valuations for identical instruments in active markets. Fair values for other government bonds, corporate bonds and mortgage-backed debt securities are based upon models that take into consideration such market-based factors as recent sales, risk-free yield curves and prices of similarly rated bonds.

Derivative financial instruments

The fair value of interest rate swap derivatives is primarily based on models that utilize the appropriate market-based forward swap curves and zero-coupon interest rates to determine discounted cash flows. The fair value of foreign currency and commodity forward and option contracts is based on a valuation model that discounts cash flows resulting from the differential between the contract price and the market-based forward rate.

Securitized retained interests

The fair value of securitized retained interests is based upon a valuation model that calculates the present value of future expected cash flows using key assumptions for credit losses, prepayment rates and discount rates. These assumptions are based on our historical experience, market trends and anticipated performance relative to the particular assets securitized.

Guarantees

The fair value of guarantees is based upon the premium we would require to issue the same guarantee in a stand-alone arms-length transaction with an unrelated party. If quoted or observable market prices are not available, fair value is based upon internally developed models that utilize current marketbased assumptions.

Assets and liabilities measured at fair value, primarily related to Financial Products, included in Statement 2 as of December 31, 2009 and 2008 are summarized below:

(Millions of dollars)	December 31, 2009
	Level 1	Level 2	Level 3	Total Assets/ Liabilities, at Fair Value
Assets
Available-for-sale securities Government debt U.S. treasury bonds Other U.S. and non-U.S. government bonds	\$ 14 —	\$ — 65	\$ — —	\$ 14 65
Corporate bonds Corporate bonds Asset-backed securities	— —	475 134	— —	475 134
Mortgage-backed debt securities U.S. governmental agency mortgage-backed securities Residential mortgage-backed	—	308	—	308
securities	—	51	—	51
Commercial mortgage-backed securities	—	162	—	162
Equity securities Large capitalization value Smaller company growth Total available-for-sale securities	89 24 127	— — 1,195	— — —	89 24 1,322
Derivative financial instruments, net Securitized retained interests Total Assets	— — \$ 127	236 — \$1,431	— 102 \$ 102	236 102 \$ 1,660
Liabilities
Guaranteess Total Liabilities	\$ — \$ —	\$ — \$ —	\$ 17 \$ 17	\$ 17 \$ 17
(Millions of dollars)			December 31, 2008
	Level 1	Level 2	Level 3	Total Assets/ Liabilities, at Fair Value
Assets Available-for-sale securities	\$ 140	\$ 992	\$ —	\$ 1,132
Derivative financial instruments, net Securitized retained interests Total Assets Liabilities	— — \$ 140	625 — \$1,617	— 52 \$ 52	625 52 \$ 1,809
Guaranteess Total Liabilities	\$ — \$ —	\$ — \$ —	\$ 14 \$ 14	\$ 14 \$ 14

Below are roll-forwards of assets and liabilities measured at fair value using Level 3 inputs for the years ended December 31, 2009 and 2008. These instruments, primarily related to Cat Financial, were valued using pricing models that, in management's judgment, reflect the assumptions a marketplace participant would use.

(Millions of dollars)	Securitized Retained Interests	Guarantees
Balance at December 31, 2007	\$ 49	\$ 12
Gains or losses included in earnings (realized and unrealized)	(21)	7
Changes in Accumulated other comprehensive income (loss)	(13)	—
Purchases, issuances and settlements	37	(5)
Balance at December 31, 2008	\$ 52	\$ 14
Gains or losses included in earnings (realized and unrealized)	(31)	—
Changes in Accumulated other comprehensive income (loss)	6	—
Purchases, issuances and settlements	75	3
Balance at December 31, 2009	\$ 102	\$ 17

The amount of unrealized losses on securitized retained interests recognized in earnings for the years ended December 31, 2009 and 2008 related to assets still held at December 31, 2009 and 2008 were \$28 million and \$23 million, respectively. These losses were reported in Revenues of Financial Products in Statement 1. There were no unrealized losses on guarantees recognized in earnings for the years ended December 31, 2009 related to liabilities still held at December 31, 2009. The amount of unrealized losses on guarantees recognized in earnings for the year ended December 31, 2008 related to liabilities still held at December 31, 2008 were \$8 million. These losses were reported in Selling, general and administrative expenses in Statement 1.

In addition to the amounts above, we had impaired loans of \$208 million and \$108 million for the years ended December 31, 2009 and 2008, respectively. A loan is considered impaired when management determines that collection of contractual amounts due is not probable. In these cases, an allowance for loan losses is established based primarily on the fair value of associated collateral. As the collateral's fair value is based on observable market prices and/or current appraised values, the impaired loans are classified as Level 2 measurements.

B. Fair values of financial instruments

In addition to the methods and assumptions we use to record the fair value of financial instruments as discussed in the Fair value measurements section above, we used the following methods and assumptions to estimate the fair value of our financial instruments.

Cash and short-term investments

Carrying amount approximated fair value.

Finance receivables

Fair value was estimated by discounting the future cash flows using current rates, representative of receivables with similar remaining maturities.

Wholesale inventory receivables

Fair value was estimated by discounting the future cash flows using current rates, representative of receivables with similar remaining maturities.

Short-term borrowings

Carrying amount approximated fair value.

Long-term debt

Fair value for Machinery and Engines and Financial Products fixed rate debt was estimated based on quoted market prices. For Financial Products, floating rate notes and commercial paper carrying amounts approximated fair value. For deposit obligations, carrying value approximated fair value.

Please refer to the table below for the fair values of our financial instruments.

	TABLE IV — Fair Values of Financial Instruments 2009 2008					2007
(Millions of dollars)	Carrying Amount	Fair Value	Carrying Amount	Fair Value	Carrying Amount	Fair Value	Reference
Asset (liability) at December 31 Cash and short-term investments \$	4,867	\$ 4,867	\$ 2,736	\$ 2,736	\$ 1,122	\$ 1,122	Statement 2
Available-for-sale securities Finance receivables — net (excluding finance leases1 )	1,322 13,077	1,322 12,604	1,132 14,367	1,132 13,483	1,519 12,883	1,519 12,814	Notes 13 and 20 Note 8
Wholesale inventory receivables — net (excluding finance leases1 )	660	628	1,232	1,154	1,066	1,036	Note 7
Short-term borrowings Long-term debt (including amounts due within one year)	(4,083)	(4,083)	(7,209)	(7,209)	(5,468)	(5,468)	Note 15
Machinery and Engines Financial Products	(5,954) (21,594)	(6,674) (22,367)	(6,192) (22,134)	(6,290) (21,259)	(3,819) (19,142)	(4,118) (19,287)	Note 16 Note 16
Foreign currency contracts — net Interest rate swaps — net Commodity contracts — net	192 34 10	192 34 10	254 371 —	254 371 —	35 57 —	35 57 —	Notes 3 and 20 Note 3 Note 3
Securitized retained interests Guarantees	102 (17)	102 (17)	52 (14)	52 (14)	49 (12)	49 (12)	Notes 8 and 19 Notes 19 and 22

Total excluded items have a net carrying value at December 31, 2009, 2008 and 2007 of \$7,780 million, \$8,951 million and \$8,511 million, respectively.

20. Concentration of credit risk

Financial instruments with potential credit risk consist primarily of trade and finance receivables and short-term and long-term investments. Additionally, to a lesser extent, we have a potential credit risk associated with counterparties to derivative contracts.

Trade receivables are primarily short-term receivables from independently owned and operated dealers and customers which arise in the normal course of business. We perform regular credit evaluations of our dealers and customers. Collateral generally is not required, and the majority of our trade receivables are unsecured. We do, however, when deemed necessary, make use of various devices such as security agreements and letters of credit to protect our interests. No single dealer or customer represents a significant concentration of credit risk.

Finance receivables and wholesale inventory receivables primarily represent receivables under installment sales contracts, receivables arising from leasing transactions and notes receivable. We generally maintain a secured interest in the equipment financed. No single customer or dealer represents a significant concentration of credit risk.

Short-term and long-term investments are held with high quality institutions and, by policy, the amount of credit exposure to any one institution is limited. Long-term investments, primarily included in Other assets in Statement 2, are comprised primarily of available for sale securities at Cat Insurance.

For derivative contracts, collateral is generally not required of the counterparties or of our company. The company generally enters into International Swaps and Derivatives Association (ISDA) master netting agreements which permit the net settlement of amounts owed. Our exposure to credit loss in the event of nonperformance by the counterparties is limited to only those gains that we have recorded, but for which we have not yet received cash payment. The master netting agreements reduce the amount of loss the company would incur should the counterparties fail to meet their obligations. At December 31, 2009, 2008 and 2007, the maximum exposure to credit loss was \$514 million, \$1,051 million and \$204 million, respectively, before the application of any master netting agreements. Please refer to Note 19 and Table IV above for fair value information.

21. Operating leases

We lease certain computer and communications equipment, transportation equipment and other property through operating leases. Total rental expense for operating leases was \$381 million, \$402 million, and \$362 million for 2009, 2008 and 2007, respectively.

Minimum payments for operating leases having initial or remaining non-cancelable terms in excess of one year are:

Years ended December 31, (Millions of dollars) 2010 2011 2012 2013 2014 Thereafter Total \$ 247 \$ 193 \$ 152 \$ 120 \$ 106 \$ 438 \$ 1,256

22. Guarantees and product warranty

We have provided an indemnity to a third-party insurance company for potential losses related to performance bonds issued on behalf of Caterpillar dealers. The bonds are issued to insure governmental agencies against nonperformance by certain dealers. We also provided guarantees to a third party related to the performance of contractual obligations by certain Caterpillar dealers. The guarantees cover potential financial losses incurred by the third party resulting from the dealers' nonperformance.

We provide loan guarantees to third-party lenders for financing associated with machinery purchased by customers. These guarantees have varying terms and are secured by the machinery. In addition, Cat Financial participates in standby letters of credit issued to third parties on behalf of their customers. These standby letters of credit have varying terms and beneficiaries and are secured by customer assets.

Cat Financial has provided a limited indemnity to a third-party bank resulting from the assignment of certain leases to that bank. The indemnity is for the possibility that the insurers of these leases would become insolvent. The indemnity expires December 15, 2012 and is unsecured.

No loss has been experienced or is anticipated under any of these guarantees. At December 31, 2009, 2008 and 2007, the related liability was \$17 million, \$14 million and \$12 million, respectively. The maximum potential amount of future payments (undiscounted and without reduction for any amounts that may possibly be recovered under recourse or collateralized provisions) we could be required to make under the guarantees at December 31 are as follows:

(Millions of dollars)	2009	2008	2007
Caterpillar dealer guarantees	\$ 313	\$ 375	\$ 638
Customer guarantees	226	136	53
Limited indemnity	20	25	30
Other guarantees	64	43	39
Total guarantees	\$ 623	\$ 579	\$ 760

We provide guarantees to repurchase certain loans of Caterpillar dealers from a financial trust (Trust) that qualifies as a variable interest entity. The purpose of the Trust is to provide short-term working capital loans to Caterpillar dealers. This Trust issues commercial paper and uses the proceeds to fund its loan program. We have a loan purchase agreement with the Trust that obligates us to purchase certain loans that are not paid at maturity. We receive a fee for providing this guarantee, which provides a source of liquidity for the Trust. At December 31, 2008, we determined that we were the primary beneficiary of the Trust as our guarantees would require us to absorb a majority of the entity's expected losses, and therefore consolidated the financial position of the Trust in the Consolidated Statement of Financial Position. As of December 31, 2009 and 2008, the Trust's assets of \$231 million and \$477 million, respectively, are primarily comprised of loans to dealers and the Trust's liabilities of \$231 million and \$477 million, respectively are primarily comprised of commercial paper. No loss has been experienced or is anticipated under this loan purchase agreement. Our assets are not available to pay creditors of the Trust, except to the extent we may be obligated to perform under the guarantee, and assets of the Trust are not available to pay our creditors.

Cat Financial is party to agreements in the normal course of business with selected customers and Caterpillar dealers in which we commit to provide a set dollar amount of financing on a pre-approved basis. We also provide lines of credit to selected customers and Caterpillar dealers, of which a portion remains unused as of the end of the period. Commitments and lines of credit generally have fixed expiration dates or other termination clauses. It has been our experience that not all commitments and lines of credit will be used. Management applies the same credit policies when making commitments and granting lines of credit as it does for any other financing.

We do not require collateral for these commitments/lines, but if credit is extended, collateral may be required upon funding. The amount of the unused commitments and lines of credit for dealers as of December 31, 2009, 2008 and 2007 was \$7,312 million, \$8,918 million and \$8,249 million, respectively. The amount of the unused commitments and lines of credit for customers as of December 31, 2009, 2008 and 2007 was \$2,089 million, \$3,085 million and \$3,001 million, respectively.

Our product warranty liability is determined by applying historical claim rate experience to the current field population and dealer inventory. Generally, historical claim rates are based on actual warranty experience for each product by machine model/ engine size. Specific rates are developed for each product build month and are updated monthly based on actual warranty claim experience.

(Millions of dollars)	2009	2008	2007
Warranty liability, January 1 \$ 1,201		\$ 1,045	\$ 953
Payments	(1,032)	(1,074)	(906)
Provisions	880	1,230	998
Warranty liability, December 31 \$ 1,049		\$ 1,201	\$ 1,045

The 2009 provision includes approximately \$181 million for changes in estimates for pre-existing warranties due to higher than expected actual warranty claim experience. These amounts for 2008 and 2007 were not significant.

23. Environmental and legal matters

The company is regulated by federal, state and international environmental laws governing our use, transport and disposal of substances and control of emissions. In addition to governing our manufacturing and other operations, these laws often impact the development of our products, including, but not limited to, required compliance with air emissions standards applicable to internal combustion engines. Compliance with these existing laws has not had a material impact on our capital expenditures, earnings or global competitive position.

We are engaged in remedial activities at a number of locations, often with other companies, pursuant to federal and state laws. When it is probable we will pay remedial costs at a site and those costs can be reasonably estimated, the costs are charged against our earnings. In formulating that estimate, we do not consider amounts expected to be recovered from insurance companies or others. The amount recorded for environmental remediation is not material and is included in Accrued expenses in Statement 2.

We cannot reasonably estimate costs at sites in the very early stages of remediation. Currently, we have a few sites in the very early stages of remediation, and there is no more than a remote chance that a material amount for remedial activities at any individual site, or at all sites in the aggregate, will be required.

We have disclosed certain individual legal proceedings in this filing. Additionally, we are involved in other unresolved legal actions that arise in the normal course of business. The most prevalent of these unresolved actions involve disputes related to product design, manufacture and performance liability (including claimed asbestos and welding fumes exposure), contracts, employment issues or intellectual property rights. Although it is not possible to predict with certainty the outcome of these unresolved legal actions, we believe that these actions will not individually or in the aggregate have a material adverse effect on our consolidated results of operations, financial position or liquidity.

On May 14, 2007, the U.S. Environmental Protection Agency (EPA) issued a Notice of Violation to Caterpillar Inc., alleging various violations of Clean Air Act Sections 203, 206 and 207. EPA claims that Caterpillar violated such sections by shipping engines and catalytic converter after-treatment devices separately, introducing into commerce a number of uncertified and/ or misbuilt engines, and failing to timely report emissionsrelated defects. Caterpillar is currently engaging in negotiations with EPA to resolve these issues, but it is too early in the process to place precise estimates on the potential exposure to penalties. However, Caterpillar is cooperating with EPA and, based upon initial discussions, and although penalties could potentially exceed \$100,000, management does not believe that this issue will have a material adverse impact on our consolidated results of operations, financial position or liquidity.

On February 8, 2009, an incident at Caterpillar's Joliet, Illinois facility resulted in the release of approximately 3,000 gallons of wastewater into the Des Plaines River. In coordination with state and federal authorities, appropriate remediation measures have been taken. On February 23, 2009 the Illinois Attorney General filed a Complaint in Will County Circuit Court containing seven counts of violations of state environmental laws and regulations. Each count seeks injunctive relief, as well as statutory penalties of \$50,000 per violation and \$10,000 per day of violation. In addition, on March 5, 2009 the EPA served Caterpillar with a Notice of Intent to file a Civil Administrative Action (notice), indicating the EPA's intent to seek civil penalties for violations of the Clean Water Act and Oil Pollution Act. On January 25, 2010, the EPA issued a revised notice seeking civil penalties in the amount of \$167,800, and Caterpillar is preparing a response to the revised notice. At this time, we do not believe these proceedings will have a material adverse impact on our consolidated results of operations, financial position or liquidity.

24. Segment information

A. Basis for segment information

Caterpillar is organized based on a decentralized structure that has established responsibilities to continually improve business focus and increase our ability to react quickly to changes in the global business cycle, customer needs and competitors' actions. Our current structure uses a matrix organization comprised of multiple profit and cost center divisions.

In the first quarter of 2009, our organizational responsibilities were changed significantly to align the machine product, manufacturing and marketing organizations. The new divisional structure and revised set of responsibilities are as follows:

Machine business divisions are profit centers primarily responsible for product management, development, mar keting, sales and product support. Machine business divisions also have select manufacturing responsibilities. These activities were previously included within product and component divisions, manufacturing divisions and machinery marketing divisions. Inter-segment sales of components may also be a source of revenue for these divisions.
Engine business divisions are profit centers primarily responsible for product management, development, manufacturing, marketing, sales and product support. Intersegment sales of engines and/or components may also be a source of revenue for these divisions.
Component business divisions are profit centers primarily responsible for product management, development, manufacturing, marketing and product support for internal and external customers. Some of these activities were previously included within product and manufacturing divisions. Inter-segment sales of components are a source of revenue for these divisions.
Service business divisions are profit centers primarily responsible for various services and service-related products to customers including financial, logistics, remanufacturing and rail services. Inter-segment sales of services and service-related products are a source of revenue for some of these divisions.
Manufacturing services divisions are cost centers primarily responsible for the manufacture of products and/ or components within the geographic regions of the Americas and EAME. Previously manufacturing divisions were profit centers with inter-segment sales of components, machines and/or engines to product divisions as the primary sources of revenue.
Corporate services divisions are cost centers primarily responsible for the performance of certain support functions globally (e.g., Finance, Human Resources, Information Technology, Legal and Purchasing) and to provide centralized services.
Regional distribution services divisions are cost centers primarily responsible for the total portfolio of business with each dealer, the dealer relationship, dealer development and ensuring the most efficient and effective distribution of machines, engines and parts. Previously these functions were primarily performed by machinery marketing divisions.
Centers of excellence divisions are cost centers primarily responsible for Caterpillar's most critical/differentiating processes in the areas of Marketing and Product Support, Production and Product Development. Previously these organizations were considered service divisions.

The segment information for 2008 and 2007 has been retrospectively adjusted to conform to the 2009 presentation.

Our measurement system is complex and is designed to evaluate performance and to drive continuous improvement. We have chosen to disclose financial results by our three principal lines of business (Machinery, Engines and Financial Products) in our Management's Discussion and Analysis rather than by reportable segment based on the following:

Our Machinery and Engines businesses are vertically integrated and there are a significant amount of intersegment transactions that make information for individual segments less meaningful.
A significant amount of corporate and other costs (\$1,460 million, \$1,333 million and \$1,192 million for the years ended December 31, 2009, 2008 and 2007, respectively) are allocated to Machinery and Engines business divisions based on budgeted external and inter-segment sales. It would be difficult to provide meaningful information by reportable segment for these costs as the allocation method does not directly reflect the benefited segment and the allocation is done in total, not by financial statement line item. In addition, the budgeted amount is allocated to segments; any differences from budget are treated as a reconciling item between reportable segment and consolidated results.
As discussed below, there are various methodology differences between our segment reporting and U.S. GAAP. This results in numerous reconciling items between reportable segment and consolidated results.
We have twenty-two operating segments, of which eleven are reportable segments. Reporting financial information for this number of businesses, especially considering our

level of vertical integration, would not be meaningful to our financial statement users.

In summary, due to Caterpillar's high level of integration and our concern that segment disclosures have limited value for our external readers, we are continuing to disclose financial results for our three principal lines of business (Machinery, Engines and Financial Products) in our Management's Discussion and Analysis beginning on page A-53.

B. Description of segments

Profit center divisions meet the definition of "operating segments" specified in the accounting guidance on segment reporting; however, the cost center divisions do not. Following is a brief description of our eleven reportable segments and the business activities included in all other operating segments:

Building Construction Products: A machine business division primarily responsible for product management, development, manufacture, marketing, sales and product support of light construction machines, forestry machines and select work tools.

Cat Japan: A business division primarily responsible for the development of small, medium and large hydraulic excavators, manufacturing of select machinery and components, marketing, sales and product support of machinery, engines and components in Japan.

Earthmoving: A machine business division primarily responsible for product management, development, marketing, sales and product support of medium wheel loaders, medium tracktype tractors, track-type loaders, motor graders and pipelayers. Also responsible for manufacturing of select machines in Asia.

Electric Power: An engine business division primarily responsible for product management, development, manufacture, marketing, sales and product support of reciprocating engine powered generator sets as well as integrated systems used in the electric power generation industry.

Excavation: A machine business division primarily responsible for product management, development, marketing, sales and product support of small, medium and large excavators, wheeled excavators and articulated trucks. Also responsible for manufacturing of select machines in Asia and articulated trucks.

Large Power Systems: An engine business division primarily responsible for product management, development, manufacture and product support of reciprocating engines supplied to Caterpillar machinery and the electric power, petroleum, marine and industrial industries. Also responsible for engine component manufacturing.

Logistics: A service business division primarily responsible for logistics services for Caterpillar and other companies.

Marine & Petroleum Power: An engine business division primarily responsible for product management, development, marketing, sales and product support of reciprocating engines supplied to the marine and petroleum industries. Also responsible for manufacturing of certain reciprocating engines for marine, petroleum and electric power applications.

Mining: A machine business division primarily responsible for product management, development, marketing, sales and product support of large track-type tractors, large mining trucks, underground mining equipment and tunnel boring equipment. Also responsible for manufacturing of underground mining equipment and tunnel boring equipment.

Turbines: An engine business division primarily responsible for product management, development, manufacture, marketing, sales and product support of turbines and turbine-related services.

Financing & Insurance Services: Provides financing to customers and dealers for the purchase and lease of Caterpillar and other equipment, as well as some financing for Caterpillar sales to dealers. Financing plans include operating and finance leases, installment sale contracts, working capital loans and wholesale financing plans. The division also provides various forms of insurance to customers and dealers to help support the purchase and lease of our equipment.

All Other: Primarily includes activities such as: the product management, development, marketing, sales and product support of large wheel loaders, quarry and construction trucks, wheel tractor scrapers, wheel dozers, compactors and select work tools. Also responsible for manufacturing of select machines in Asia; the product management, development, manufacture, marketing, sales and product support of reciprocating engines used in industrial applications; the product management, development, manufacture, marketing, sales and product support of machinery and engine components, electronics and control sys tems; the product management, development, manufacture, remanufacture, maintenance and service of rail-related products and services; remanufacturing of Caterpillar engines and components and remanufacturing services for other companies; the product management, development, manufacture, marketing, sales and product support of paving products. Results for All Other operating segments are included as reconciling items between reportable segments and consolidated external reporting.

C. Segment measurement and reconciliations

Effective the first quarter of 2009, we made the following changes to our segment reporting methodology:

Machine business divisions include actual manufacturing costs and assets from manufacturing service divisions. Previously these costs were valued on a manufacturing fee or transfer price basis and manufacturing assets were included in manufacturing divisions.
Business divisions receive actual costs and assets from corporate services divisions, regional distribution services divisions and centers of excellence. Previously these costs were either charged to or excluded from profit center accountable profit while assets were included in service divisions. Costs for regional distribution services divisions and Marketing and Product Support Center of Excellence are allocated to business divisions based on budgeted external and inter-segment sales.
The majority of other income and expense items are excluded from segment results. Previously they had been included.
Certain corporate costs are allocated and included in the business division's accountable profit at budgeted levels. Any differences from budget are treated as reconciling items. Previously all these costs were excluded from accountable profit. The allocation is based on budgeted external and inter-segment sales and costs are not assigned to individual financial statement line items.
Interest expense is not included in Machinery and Engines segment results. Previously interest expense was imputed (i.e., charged) to profit centers based on their level of accountable assets.
Certain corporate assets are allocated and included in the business division's assets. Previously they were reconciling items between segment and consolidated reporting.

There are several methodology differences between our segment reporting and our external reporting. The following is a list of the more significant methodology differences:

Generally, liabilities are managed at the corporate level and are not included in segment operations. Segment accountable assets generally include inventories, receivables and property, plant and equipment.
Segment inventories and cost of sales are valued using a current cost methodology.
Currency exposures are generally managed at the corporate level and the effects of changes in exchange rates on results of operations within the year are not included in segment results. The net difference created in the translation of revenues and costs between exchange rates used for U.S. GAAP reporting and exchange rates used for segment reporting are recorded as a methodology difference.
Postretirement benefits are split; service and prior service costs are included in segment results based on plan participation. The remaining elements of net periodic bene fit costs (at budget levels) are allocated to business divisions based on budgeted external and inter-segment sales (as part of the corporate cost allocation). Any differences from budget for the remaining elements are treated as reconciling items.
Interest expense is not included in Machinery and Engines segment results.
Accountable profit is determined on a pretax basis.

Reconciling items are created based on accounting differences between segment reporting and our consolidated external

reporting. Please refer to pages A-42 to A-47 for financial information regarding significant reconciling items. Most of our reconciling items are self-explanatory given the above explanations. For the reconciliation of profit (loss), we have grouped the reconciling items as follows:
Corporate costs: Certain corporate costs are allocated and included in the business division's accountable profit at budgeted levels. Any differences are treated as reconciling items. Previously all these costs were excluded from accountable profit. These costs are related to corporate requirements and strategies that are considered to be for the benefit of the entire organization.
Redundancy costs: Redundancy costs include pension and other postretirement benefit plan curtailments, settlements and special termination benefits as well as employee separation charges. Most of these costs are recon ciling items between accountable profit and consolidated profit before tax. Table Reconciliation of Redundancy Costs on page A-45 has been included to illustrate how segment accountable profit would have been impacted by the redundancy costs. See Notes 14 and 27 for more information.
Methodology differences: See previous discussion of significant accounting differences between segment reporting and consolidated external reporting.
Timing: Timing differences in the recognition of costs between segment reporting and consolidated external reporting.

			Table V — Segment Information (Millions of dollars)
Reportable Segments:
2009	External sales and revenues	Inter-segment sales and revenues	Total sales and revenues	Depreciation and amortization	Accountable profit (loss)	Accountable assets at December 31	Capital expenditures
Building Construction Products Cat Japan	\$ 1,226 1,219	\$ 23 873	\$ 1,249 2,092	\$ 36 272	\$ (275) (303)	\$ 747 2,440	\$ 27 109
Earthmoving	3,154	74	3,228	96	(397)	2,197	130
Electric Power	2,268	18	2,286	26	129	702	23
Excavation	2,265	54	2,319	63	(400)	1,325	69
Large Power Systems	2,227	3,073	5,300	193	49	2,703	207
Logistics	695	1,256	1,951	107	400	828	51
Marine & Petroleum Power	2,664	64	2,728	19	212	747	56
Mining	2,905	119	3,024	73	329	1,141	40
Turbines	3,490	9	3,499	60	792	734	78
Total Machinery & Engines	\$ 22,113	\$ 5,563	\$ 27,676	\$ 945	\$ 536	\$ 13,564	\$ 790
Financing & Insurance Services	3,139	—	3,139	742	399	28,022	976
Total	\$ 25,252	\$ 5,563	\$ 30,815	\$ 1,687	\$ 935	\$ 41,586	\$ 1,766

				Table V Continued — Segment Information (Millions of dollars)
Reportable Segments: (Continued)
	External sales and	Inter-segment sales and	Total sales and	Depreciation and	Accountable	Accountable assets at	Capital
2008	revenues	revenues	revenues	amortization	profit (loss)	December 31	expenditures

Building Construction Products Cat Japan	\$ 3,229 345	\$ 57 774	\$ 3,286 1,119	\$ 35 55	\$ (99) (28)	\$ 878 3,165	\$ 63 99
Earthmoving	7,467	144	7,611	85	435	2,477	315
Electric Power	3,634	24	3,658	24	253	1,068	75
Excavation	5,918	115	6,033	54	19	1,646	132
Large Power Systems	3,220	5,469	8,689	194	582	3,055	375
Logistics	850	1,570	2,420	111	388	971	125
Marine & Petroleum Power	4,066	85	4,151	15	421	758	80
Mining	4,270	226	4,496	63	590	1,339	71
Turbines	3,413	17	3,430	55	625	943	94
Total Machinery & Engines	\$ 36,412	\$ 8,481	\$ 44,893	\$ 691	\$ 3,186	\$ 16,300	\$ 1,429
Financing & Insurance Services	3,561	—	3,561	755	548	32,900	1,608
Total	\$ 39,973	\$ 8,481	\$ 48,454	\$ 1,446	\$ 3,734	\$ 49,200	\$ 3,037

2007
Building Construction Products	\$ 2,973	\$ 53	\$ 3,026	\$ 37	\$ (128)	\$ 946	\$ 49
Earthmoving	6,474	124	6,598	73	694	2,034	182
Electric Power	3,129	21	3,150	23	272	1,018	34
Excavation	5,364	104	5,468	46	266	1,323	100
Large Power Systems	2,973	4,586	7,559	181	431	2,590	236
Logistics	899	1,270	2,169	96	377	912	110
Marine & Petroleum Power	2,939	62	3,001	14	132	579	36
Mining	3,294	174	3,468	29	514	1,026	57
Turbines	2,880	14	2,894	57	424	862	77
Total Machinery & Engines	\$ 30,925	\$ 6,408	\$ 37,333	\$ 556	\$ 2,982	\$ 11,290	\$ 881
Financing & Insurance Services	3,372	—	3,372	673	778	30,401	1,367
Total	\$ 34,297	\$ 6,408	\$ 40,705	\$ 1,229	\$ 3,760	\$ 41,691	\$ 2,248
Reconciliation of Sales and Revenues:
			Machinery	Financing &		Consolidating	Consolidated
2009			and Engines	Insurance Services		Adjustments	Total
Total external sales and revenues from reportable segments			\$ 22,113	\$ 3,139	\$	—	\$ 25,252
All other operating segments			7,423	—		—	7,423
Other			4	29		(312)1	(279)
Total sales and revenues			\$ 29,540	\$ 3,168	\$	(312)	\$ 32,396

2008
Total external sales and revenues from reportable segments			\$ 36,412	\$ 3,561	\$	—	\$ 39,973
All other operating segments			11,682	—		—	11,682
Other			(50)	27		(308)1	(331)
Total sales and revenues			\$ 48,044	\$ 3,588	\$	(308)	\$ 51,324
2007
Total external sales and revenues from reportable segments			\$ 30,925	\$ 3,372	\$	—	\$ 34,297
All other operating segments			10,915	—		—	10,915
Other			122	24		(400)1	(254)
Total sales and revenues			\$ 41,962	\$ 3,396	\$	(400)	\$ 44,958

1 Elimination of Financial Products revenues from Machinery and Engines.
							Continued on Page A-44

Table V Continued — Segment Information (Million	ons of dollars)
Reconciliation of Profit Before Taxes:	Machinary	Financing 0	Canaalidatad
2009	Machinery and Engines	Financing & Insurance Services	Consolidated Total
Total accountable profit from reportable segments All other operating segments Corporate costs Timing Redundancy costs	\$ 536 (44) 136 188 (654)	\$ 399 — — — — (10)	\$ 935 (44) 136 188 (664)
Methodology differences: Inventory/cost of sales Postretirement benefit expense Financing costs Equity in profit of unconsolidated affiliated companies Currency. Other methodology differences	102 38 (389) 12 256 (7)	_ 6	102 38 (389) 12 256 (1)
Total profit before taxes	\$ 174	\$ 395	\$ 569
Total accountable profit from reportable segments	\$ 3,186 1,250 65 (195) (30) (30) 53 (268) (38) (48) 32 \$ 3,947	\$ 548 1 5 \$ 554	\$ 3,734 1,250 65 (195) (30) (30) 53 (268) (37) (48) 37 \$ 4,501
2007 Total accountable profit from reportable segments	\$ 2,982 1,798 (4) (225) (25)	\$ 778 — — — —	\$ 3,760 1,798 (4) (225) (25)
Inventory/cost of sales Postretirement benefit expense Financing costs Equity in profit of unconsolidated affiliated companies Currency Other methodology differences Total profit before taxes	(44) 62 (292) (69) 50 (18) \$ 4,215	(4) 1 \$ 775	(44) 62 (292) (73) 50 (17) \$ 4,990

Accountable profit (loss) with redundancy costs

Table V Continued — Segment Information (Millions of dollars)

Reconciliation of Redundancy Costs:

2009

As noted above, redundancy costs are a reconciling item between Accountable profit (loss) and Consolidated profit (loss) before tax. For the year ended December 31, 2009, redundancy costs of \$42 million were charged to operating segments. Had we included the remaining amounts in the segments' results, the Accountable profit (loss) would have been as shown below:

Building Construction Products ............................................................................ \$ (275) \$ (42) \$ (317) Cat Japan .................................................................................................... (303) (26) (329)

Accountable profit (loss)

Redundancy costs

Earthmoving Electric Power Excavation Large Power Systems Logistics Marine & Petroleum Power Mining Turbines Financing & Insurance Services All other operating segments Consolidated Total		(397) 129 (400) 49 400 212 329 792 399 (44) \$ 891	(85) (22) (61) (90) (29) (13) (54) — (10) (232) \$ (664)	(482) 107 (461) (41) 371 199 275 792 389 (276) \$ 227
Reconciliation of Assets:	Machinery and Engines	Financing & Insurance Services	Consolidating Adjustments	Consolidated Total
2009 Total accountable assets from reportable segments All other operating segments	\$ 13,564 8,179	\$ 28,022 —	\$ — —	\$ 41,586 8,179
Items not included in segment assets: Cash and short-term investments Intercompany receivables Investment in Financial Products Deferred income taxes and prepaids Goodwill, intangibles and other assets	2,239 106 4,514 4,131 1,364	2,628 1,053 — 150 237	— (1,159) (4,514) (460) —	4,867 — — 3,821 1,601
Liabilities included in segment assets Inventory methodology differences Other Total assets	2,270 (2,735) 564 \$ 34,196	(6) — (109) \$ 31,975	— — — \$ (6,133)	2,264 (2,735) 455 \$ 60,038
2008 Total accountable assets from reportable segments All other operating segments	\$ 16,300 9,245	\$ 32,900 —	\$ — —	\$ 49,200 9,245
Items not included in segment assets: Cash and short-term investments Intercompany receivables Investment in Financial Products Deferred income taxes and prepaids Goodwill, intangibles and other assets Liabilities included in segment assets	1,517 540 3,788 4,759 1,224 2,967	1,219 76 — 244 29 —	— (616) (3,788) (474) — —	2,736 — — 4,529 1,253 2,967
Inventory methodology differences Other Total assets	(2,747) 686 \$ 38,279	— (87) \$ 34,381	— — \$ (4,878)	(2,747) 599 \$ 67,782

Table V Continued — Segment Information (Millions of dollars)
Reconciliation of Assets: (Continued)
2007	Machinery and Engines	Financing & Insurance Services	Consolidating Adjustments	Consolidated Total
Total accountable assets from reportable segments	\$ 11,290	\$ 30,401	\$ —	\$ 41,691
All other operating segments	8,612	—	—	8,612
Items not included in segment assets:
Cash and short-term investments	862	260	—	1,122
Intercompany receivables	366	113	(479)	—
Investment in Affiliates	461	—	—	461
Investment in Financial Products Deferred income taxes and prepaids	3,996 2,701	— 138	(3,996) (339)	— 2,500
Goodwill, intangibles and other assets	1,195	63	—	1,258
Liabilities included in segment assets	2,664	—	—	2,664
Inventory methodology differences	(2,483)	—	—	(2,483)
Other	412	(105)	—	307
Total assets	\$ 30,076	\$ 30,870	\$ (4,814)	\$ 56,132
Reconciliation of Depreciation and Amortization:
2009	Machinery and Engines	Financing & Insurance Services	Consolidating Adjustments	Consolidated Total
Total accountable depreciation and amortization from reportable segments Items not included in segment depreciation and amortization:	\$ 945	\$ 742	\$ —	\$ 1,687
All other operating segments	486	—	—	486
Cost centers	173	—	—	173
Other	(10)	—	—	(10)
Total depreciation and amortization	\$ 1,594	\$ 742	\$ —	\$ 2,336
2008
Total accountable depreciation and amortization from reportable segments Items not included in segment depreciation and amortization:	\$ 691	\$ 755	\$ —	\$ 1,446
All other operating segments	425	—	—	425
Cost centers	168	—	—	168
Other	(59)	—	—	(59)
Total depreciation and amortization	\$ 1,225	\$ 755	\$ —	\$ 1,980
2007
Total accountable depreciation and amortization from reportable segments Items not included in segment depreciation and amortization:	\$ 556	\$ 673	\$ —	\$ 1,229
All other operating segments	383	—	—	383
Cost centers	169	—	—	169
Other	(15)	31	—	16
Total depreciation and amortization	\$ 1,093	\$ 704	\$ —	\$ 1,797

Table V Continued — Segment Information (Millions of dollars)
Reconciliation of Capital Expenditures:
2009		Machinery and Engines	Financing & Insurance Services		Consolidating Adjustments	Consolidated Total
Total accountable capital expenditures from reportable segments	\$	790	\$ 976	\$	—	\$	1,766
Items not included in segment capital expenditures:
All other operating segments		420	—		—		420
Cost centers		119	—		—		119
Other		15	—		(4)		11
Total capital expenditures	\$	1,344	\$ 976	\$	(4)	\$	2,316
2008
Total accountable capital expenditures from reportable segments	\$	1,429	\$ 1,608	\$	—	\$	3,037
Items not included in segment capital expenditures:
All other operating segments		749	—		—		749
Cost centers		242	—		—		242
Other		1	4		(22)		(17)
Total capital expenditures	\$	2,421	\$ 1,612	\$	(22)	\$	4,011
2007
Total accountable capital expenditures from reportable segments	\$	881	\$ 1,367	\$	—	\$	2,248
Items not included in segment capital expenditures:
All other operating segments		576	—		—		576
Cost centers		221	—		—		221
Other		5	(1)		(9)		(5)
Total capital expenditures	\$	1,683	\$ 1,366	\$	(9)	\$	3,040
Enterprise-wide Disclosures:
External sales and revenues from products and services:			2009		2008		2007
Machinery			\$ 18,148		\$ 31,804		\$ 28,359
Engines			11,392		16,240		13,603
Financial Products			2,856		3,280		2,996
Total consolidated			\$ 32,396		\$ 51,324		\$ 44,958
Information about Geographic Areas:
		External Sales & Revenues1			Net property, plant and equipment
					December 31,
	2009	2008	2007	2009	2008		2007
Inside United States \$ 10,560		\$ 17,291	\$ 17,091	\$ 6,260	\$ 6,473		\$ 5,782
Outside United States	21,836	34,033 \$ 51,324	27,867 \$ 44,958	6,1262 \$ 12,386	6,0512 \$ 12,524		4,2152 \$ 9,997
Total \$ 32,396

Sales of machinery and engines are based on dealer or customer location. Revenues from services provided are based on where service is rendered.

Amount includes \$1,432 million, \$1,533 million and \$61 million of net property, plant and equipment located in Japan as of December 31, 2009, 2008 and 2007, respectively. Additionally, amount includes \$731 million, \$725 million and \$709 million of net property, plant and equipment located in the United Kingdom as of December 31, 2009, 2008 and 2007, respectively.

25. Business combinations and alliances

NC2 Joint Venture

In September 2009, we entered into a joint venture with Navistar International Corporation (Navistar), resulting in a new company, NC2 Global LLC (NC2 ). NC2 will develop, manufacture, market, distribute and provide product support for heavy and medium duty trucks outside of North America, the Indian subcontinent, Myanmar (Burma) and Malaysia. Initially, NC2 will focus its activities in Australia, Brazil, China, Russia, South Africa, and Turkey. NC2 's product line will feature both conventional and cab-over truck designs and will be sold under both the Caterpillar and International brands.

Under the joint venture operating agreement, Caterpillar and Navistar have each contributed \$19 million during 2009. In addition, each is committed to provide the joint venture with up to an additional \$113 million of required funding over the following three years. Our investment in NC2 , accounted for by the equity method, is included in Investments in unconsolidated affiliated companies in Statement 2.

Lovat Inc.

In April 2008, we acquired 100 percent of the equity in privately held Lovat Inc. (Lovat) for approximately \$49 million. Based in Toronto, Canada, Lovat is a leading manufacturer of tunnel boring machines used globally in the construction of subway, railway, road, sewer, water main, mine access and high voltage cable and telecommunications tunnels. Expansion into the tunnel boring business is a strong fit with our strategic direction and the customers we serve around the world.

The transaction was financed with available cash and commercial paper borrowings. Net tangible assets acquired and liabilities assumed of \$10 million were recorded at their fair values. Finite-lived intangible assets acquired of \$17 million related to customer relationships, intellectual property and trade names are being amortized on a straight-line basis over a weightedaverage amortization period of approximately 6 years. Goodwill of \$22 million, non-deductible for income tax purposes, represents the excess of cost over the fair value of net tangible and finite-lived intangible assets acquired. The results of the acquired business for the period from the acquisition date are included in the accompanying consolidated financial statements and reported in the "Mining" segment in Note 24. Assuming this transaction had been made at the beginning of any period presented, the consolidated pro forma results would not be materially different from reported results.

Gremada Industries Inc.

In July 2008, we acquired certain assets and assumed certain liabilities of Gremada Industries, Inc. (Gremada), a supplier to our remanufacturing business. The cost of the acquisition was \$62 million, consisting of \$60 million paid at closing and an additional \$2 million post-closing adjustment paid in August 2008. Gremada is a remanufacturer of transmissions, torque converters, final drives and related components. This acquisition increases our product and service offerings for our existing customers, while providing a platform for further growth opportunities.

This transaction was financed with available cash and commercial paper borrowings. Net tangible assets acquired and liabilities assumed of \$21 million were recorded at their fair values. Goodwill of \$41 million, deductible for income tax purposes, represents the excess cost over the fair value of net tangible and finitelived intangible assets acquired. The results of the acquired business for the period from the acquisition date are included in the accompanying consolidated financial statements and are reported in the "All Other" category in Note 24. Assuming this transaction had been made at the beginning of any period presented, the consolidated pro forma results would not be materially different from reported results.

Shin Caterpillar Mitsubishi Ltd. (SCM)

On August 1, 2008, SCM completed the first phase of a share redemption plan whereby SCM redeemed half of MHI's shares in SCM for \$464 million. This resulted in Caterpillar owning 67 percent of the outstanding shares of SCM and MHI owning the remaining 33 percent. As part of the share redemption, SCM was renamed Caterpillar Japan Ltd. (Cat Japan). Both Cat Japan and MHI have options, exercisable after five years, to require the redemption of the remaining shares owned by MHI, which if exercised, would make Caterpillar the sole owner of Cat Japan. The share redemption plan is part of our comprehensive business strategy for expansion in the emerging markets of Asia and the Commonwealth of Independent States and will allow Cat Japan's manufacturing, design and process expertise to be fully leveraged across the global Caterpillar enterprise.

The change in Caterpillar's ownership interest from 50 percent to 67 percent was accounted for as a business combination. The \$464 million redemption price was assigned to 17 percent of Cat Japan's assets and liabilities based upon their respective fair values as of the transaction date. The revaluation resulted in an increase in property, plant and equipment of \$78 million and an increase in inventory of \$8 million over the book value of these assets. Finite-lived intangible assets of \$54 million were recognized and related primarily to customer relationships, intellectual property and trade names. These intangibles are being amortized on a straight-line basis over a weighted-average amortization period of approximately 9 years. Deferred tax liabilities of \$57 million were also recognized as part of the business combination. Goodwill of \$206 million, non-deductible for income tax purposes, represents the excess of the redemption price over the 17 percent of Cat Japan's net tangible and finite-lived intangible assets that were reported at their fair values.

Because Cat Japan is accounted for on a lag, we consolidated Cat Japan's August 1, 2008 financial position on September 30, 2008. We began consolidating Cat Japan's results of operations in the fourth quarter of 2008. Including the amounts assigned as part of the business combination, the initial consolidation of Cat Japan's financial position resulted in a net increase in assets of \$2,396 million (primarily property, plant and equipment of \$1,279 million, inventory of \$640 million, receivables of \$612 million, and goodwill and intangibles of \$260 million partially offset by a \$528 million reduction in investment in unconsolidated affiliates) and a net increase in liabilities of \$2,045 million (including \$1,388 million in debt). Cat Japan's functional currency is the Japanese yen.

The remaining 33 percent of Cat Japan owned by MHI has been reported as redeemable noncontrolling interest and classified as mezzanine equity (temporary equity) in Statement 2. On September 30, 2008, the redeemable noncontrolling interest was reported at its estimated future redemption value of \$464 million with the difference between the \$351 million book value of the 33 percent interest and the redemption value reported as a \$113 million reduction of Profit employed in the business. See Note 26 for information on the subsequent reporting of the redeemable noncontrolling interest.

Cat Japan is included in the "Cat Japan" segment in Note 24. Assuming this transaction had been made at the beginning of any period presented, the consolidated pro forma results would not be materially different from reported results.

Forestry Division of Blount International, Inc.

In November 2007, we acquired substantially all of the assets and assumed certain liabilities of Blount International's Forestry Division. The cost of the acquisition was \$82 million, consisting of \$79 million in cash and a net employee benefit liability incurred of \$3 million. Blount's Forestry Division manufactures, markets and supports timber harvesting and processing equipment, loaders and attachments. The acquisition supports our corporate objective to be the forestry market leader and enables us to offer the broadest product line in the industry with a full range of products and services for logging, millyard, road-building and land management.

This transaction was financed with available cash and commercial paper borrowings. Net tangible assets acquired and liabilities assumed of \$36 million were recorded at their fair values. Finite-lived intangible assets acquired of \$24 million related to customer relationships, intellectual property and trade names are being amortized on a straight-line basis over a weightedaverage amortization period of approximately 9 years. Goodwill of \$22 million, deductible for income tax purposes, represents the excess of cost over the fair value of net tangible and finitelived intangible assets acquired. The results of the acquired business for the period from the acquisition date are included in the accompanying consolidated financial statements and reported in the "Building Construction Products" segment in Note 24. Assuming this transaction had been made at the beginning of any period presented, the consolidated pro forma results would not be materially different from reported results.

In the fourth quarter of 2009, our annual goodwill impairment test indicated the \$22 million of goodwill assigned to our Forest Products reporting unit was impaired. The implied fair value of the goodwill was determined to be zero, resulting in a goodwill impairment charge of \$22 million. See Note 12 for additional information.

Franklin Power Products

In February 2007, we acquired certain assets and assumed certain liabilities of Franklin Power Products, Inc. (FPP) and International Fuel Systems, Inc. (IFS), subsidiaries of Remy International. In June 2007, pursuant to the acquisition agreement, additional assets were purchased from Remy International for \$7 million which increased the total purchase price to approximately \$165 million, consisting of \$160 million paid at the closings and an additional \$5 million post closing adjustment paid in July 2007. FPP is a remanufacturer of on-highway light and medium duty truck diesel engines and engine components. IFS provides remanufactured diesel components such as high-pressure fuel pumps, fuel injectors and turbochargers. This acquisition represents a strategic expansion of our engine and engine component remanufacturing operations.

This transaction was financed with available cash and commercial paper borrowings. Net tangible assets acquired and liabilities assumed of \$39 million were recorded at their fair values. Finite-lived intangible assets acquired of \$89 million related to customer relationships are primarily being amortized on a straight-line basis over 20 years. Goodwill of \$37 million, deductible for income tax purposes, represents the excess of cost over the fair value of net tangible and finite-lived intangible assets acquired. The results of the acquired business for the period from the acquisition date are included in the accompanying consolidated financial statements and reported in the "All Other" category in Note 24. Assuming this transaction had been made at the beginning of any period presented, the consolidated pro forma results would not be materially different from reported results.

26. Redeemable Noncontrolling Interest — Caterpillar Japan Ltd.

On August 1, 2008, SCM completed the first phase of a share redemption plan whereby SCM redeemed half of MHI's shares in SCM. This resulted in Caterpillar owning 67 percent of the outstanding shares of SCM and MHI owning the remaining 33 percent. As part of the share redemption, SCM was renamed Cat Japan. Both Cat Japan and MHI have options, exercisable after five years, to require the redemption of the remaining shares owned by MHI, which if exercised, would make Caterpillar the sole owner of Cat Japan. See Note 25 for additional information.

The remaining 33 percent of Cat Japan owned by MHI has been reported as redeemable noncontrolling interest and classified as mezzanine equity (temporary equity) in Statement 2. The redeemable noncontrolling interest is reported at its estimated redemption value. Any adjustment to the redemption value impacts Profit employed in the business, but does not impact Profit. If the fair value of the redeemable noncontrolling interest falls below the redemption value, profit available to common stockholders would be reduced by the difference between the redemption value and the fair value. This would result in lower profit in the profit per common share computation in that period. Reductions impacting the profit per common share computation may be partially or fully reversed in subsequent periods if the fair value of the redeemable noncontrolling interest increases relative to the redemption value. Such increases in profit per common share would be limited to cumulative prior reductions. During 2009, the estimated redemption value decreased, resulting in adjustments to the carrying value of the redeemable noncontrolling interest. Profit employed in the business increased by \$81 million due to these adjustments. There was no change to the estimated redemption value in 2008. As of December 31, 2009 and 2008, the fair value of the redeemable noncontrolling interest remained greater than the estimated redemption value.

We estimate the fair value of the redeemable noncontrolling interest using a discounted five year forecasted cash flow with a year-five residual value. If worldwide economic conditions deteriorate and Cat Japan's business forecast is negatively impacted, it is reasonably possible that the fair value of the redeemable noncontrolling interest may fall below the estimated redemption value in the near term. Should this occur, profit would be reduced in the profit per common share computation by the difference between the redemption value and the fair value. Lower longterm growth rates, reduced long-term profitability as well as changes in interest rates, costs, pricing, capital expenditures and general market conditions may reduce the fair value of the redeemable noncontrolling interest.

With the consolidation of Cat Japan's results of operations, 33 percent of Cat Japan's comprehensive income or loss is attributed to the redeemable noncontrolling interest, impacting its carrying value. Because the redeemable noncontrolling interest must be reported at its estimated future redemption value, the impact from attributing the comprehensive income or loss is offset by adjusting the carrying value to the redemption value. This adjustment impacts Profit employed in the business, but not Profit. In 2009 and 2008, the carrying value had decreased by \$53 million and \$2 million, respectively, due to Cat Japan's comprehensive loss. This resulted in an offsetting adjustment of \$53 million in 2009 and \$2 million in 2008 to increase the carrying value to the redemption value and a corresponding reduction to Profit employed in the business. As Cat Japan's functional currency is the Japanese yen, changes in exchange rates affect the reported amount of the redeemable noncontrolling interest. At December 31, 2009 and 2008, the redeemable noncontrolling interest was \$477 million and \$524 million, respectively.

27. Employee separation charges

In 2008, we recognized employee separation charges of \$30 million in Other operating (income) expenses in Statement 1 related to various voluntary and involuntary separation programs. These programs, impacting 3,085 employees worldwide, were in response to a sharp decline in sales volume due to the global recession.

In 2009, continued cost reduction efforts worldwide resulted in additional separation charges of \$481 million, recognized in Other operating (income) expenses in Statement 1. These efforts related to the following separation programs:

U.S. Voluntary Separation Program — During December 2008, we announced a voluntary separation program for certain support and management employees based in the United States. Eligible employees had until January 12, 2009 to sign up for the program, and generally until January 31, 2009 to make a final decision. Participating employees received severance pay based on current salary level and years of service. During 2009, 2,182 employees accepted

the program, all of which were separated from Caterpillar by the end of 2009.

Other U.S. Separation Programs — During 2009, we initiated plans to reduce U.S. based positions through a variety of programs. These programs represent both voluntary and involuntary separation plans. During 2009, 6,611 employees accepted or were subject to these programs.

Non-U.S. Separation Programs — During 2009, we initiated several other separation programs outside the U.S. These programs, designed specific to the laws and regulations of the individual countries, represent voluntary and involuntary plans. During 2009, 7,075 employees accepted or were subject to the various programs.

Our accounting for separations is dependent upon how the particular program is designed. For voluntary programs, eligible separation costs are recognized at the time of employee acceptance. For involuntary programs, eligible costs are recognized when management has approved the program, the affected employees have been properly identified and the costs are estimable.

The following table summarizes the 2008 and 2009 separation charges by geographic region:

		Machinery a
(Millions of dollars)	North America	EAME	Latin America	Asia/ Pacific	Financial Products ¹	Total
2008 Separation charges	\$ 4 - \$ 4	\$ 17 (12) \$ 5	\$ 9 (7) \$ 2	\$ — \$ —	\$ — \$ —	\$ 30 (19) \$ 11
2009 Separation charges	\$ 323 (313) \$ 14	\$ 102 (78) \$ 29	\$ 15 (17) \$ —	\$ 31 (25) \$ 6	\$ 10 (10) \$ —	\$ 481 (443) \$ 49

The remaining balances as of December 31, 2009 represent costs for employees that have either not yet separated from the Company or their full severance has not yet been paid. The majority of these remaining costs will be paid in the first half of 2010.

The following table summarizes the number of employees that accepted or were subject to the programs:

	2009	2008
Impacted employees at beginning of period	1,505	_
Impacted employees during the period	15,868	3,085
Employee separations during the period	(16,970)	(1,580)
Impacted employees remaining at the end of period	403	1,505

The majority of the employees that accepted or were subject to the programs but were still employed as of December 31, 2009 will be separated by the end of the first quarter 2010.

In addition to the 2009 separation charges noted above, we recognized \$225 million of costs associated with certain pension and other postretirement benefit plans, which were also recognized in Other operating (income) expenses in Statement 1. See Note 14 for additional information.

The majority of the separation charges, made up primarily of cash severance payments, and pension and other postretirement benefit costs noted above were not assigned to operating segments. They are included in the reconciliation of total accountable profit from reportable segments to total profit before taxes. See Note 24 for additional details surrounding this reconciliation.

28. Selected quarterly financial results (unaudited)

(Dollars in millions			2009 Quarter		2008 Quarter
except per share data)	1st	2nd	3rd	4th		1st 2nd	3rd	4th
Sales and revenues \$	9,225	\$ 7,975	\$ 7,298	\$ 7,898	Sales and revenues \$ 11,796	\$ 13,624	\$ 12,981	\$ 12,923
Less: Revenues	(715)	(721)	(715)	(705)	Less: Revenues	(817) (827)	(833)	(803)
Sales	8,510	7,254	6,583	7,193	Sales	10,979 12,797	12,148	12,120
Cost of goods sold	7,027	5,752	5,255	5,852	Cost of goods sold	8,609 10,036	9,704	10,066
Gross margin	1,483	1,502	1,328	1,341	Gross margin	2,370 2,761	2,444	2,054
Profit (loss)1 \$	(112)	\$ 371	\$ 404	\$ 232	Profit (loss)1 \$	922 \$ 1,106	\$ 868	\$ 661
Profit (loss) per common share \$	(0.19)	\$ 0.61	\$ 0.65	\$ 0.37	Profit (loss) per common share \$	1.49 \$ 1.80	\$ 1.43	\$ 1.10
Profit (loss) per common share — diluted2, 3 \$	(0.19)	\$ 0.60	\$ 0.64	\$ 0.36	Profit (loss) per common share — diluted2 \$	1.45 \$ 1.74	\$ 1.39	\$ 1.08

Profit (loss) attributable to common stockholders.

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

In the first quarter 2009, the assumed exercise of stock-based compensation awards was not considered because the impact would be anti-dilutive.

	2009	2008		2007		2006		2005
Years ended December 31,
Sales and revenues	\$ 32,396	\$	51,324		\$ 44,958		\$ 41,517		\$ 36,339
Sales	\$ 29,540	\$	48,044		\$ 41,962		\$ 38,869		\$ 34,006
Percent inside the United States	31%		33%		37%		46%		47%
Percent outside the United States	69%		67%		63%		54%		53%
Revenues	\$ 2,856	\$	3,280	\$	2,996	\$	2,648	\$	2,333
Profit5, 6, 7	\$ 895	\$	3,557	\$	3,541	\$	3,537	\$	2,854
Profit per common share1, 5, 6	\$ 1.45	\$	5.83	\$	5.55	\$	5.37	\$	4.21
Profit per common share — diluted2, 5, 6	\$ 1.43	\$	5.66	\$	5.37	\$	5.17	\$	4.04
Dividends declared per share of common stock	\$ 1.680	\$	1.620	\$	1.380	\$	1.150	\$	0.955
Return on average common stockholders' equity3, 4, 6, 8	11.9%		46.8%		44.4%		45.9%		35.7%
Capital expenditures:
Property, plant and equipment	\$ 1,348	\$	2,445	\$	1,700	\$	1,593	\$	1,201
Equipment leased to others	\$ 968	\$	1,566	\$	1,340	\$	1,082	\$	1,214
Depreciation and amortization	\$ 2,336	\$	1,980	\$	1,797	\$	1,602	\$	1,477
Research and development expenses	\$ 1,421	\$	1,728	\$	1,404	\$	1,347	\$	1,084
As a percent of sales and revenues	4.4%		3.4%		3.1%		3.2%		3.0%
Wages, salaries and employee benefits	\$ 7,416	\$	9,076	\$	8,331	\$	7,512	\$	6,928
Average number of employees	99,359		106,518		97,444		90,160		81,673
December 31,
Total assets4, 6	\$ 60,038	\$	67,782		\$ 56,132		\$ 51,449		\$ 47,553
Long-term debt due after one year:
Consolidated	\$ 21,847	\$	22,834		\$ 17,829		\$ 17,680		\$ 15,677
Machinery and Engines	\$ 5,652	\$	5,736	\$	3,639	\$	3,694	\$	2,717
Financial Products	\$ 16,195	\$	17,098		\$ 14,190		\$ 13,986		\$ 12,960
Total debt:
Consolidated	\$ 31,631	\$	35,535		\$ 28,429		\$ 27,296		\$ 25,745
Machinery and Engines	\$ 6,387	\$	7,824	\$	4,006	\$	4,277	\$	3,928
Financial Products	\$ 25,244	\$	27,711		\$ 24,423		\$ 23,019		\$ 21,817

Computed on weighted-average number of shares outstanding.

Computed on weighted-average number of shares outstanding diluted by assumed exercise of stock-based compensation awards, using the treasury stock method.

Represents profit divided by average stockholders' equity (beginning of year stockholders' equity plus end of year stockholders' equity divided by two).

As discussed in Note 1K, effective December 31, 2006 we changed the manner in which we accounted for postemployment benefits.

As discussed in Note 2, in 2006 we changed the manner in which we accounted for stock-based compensation.

⁶ As discussed in Note 1K, in 2007 we changed the manner in which we accounted for uncertain tax positions.

Profit attributable to common stockholders.

As discussed in Note 29, effective January 1, 2009, we changed the manner in which we accounted for noncontrolling interests.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

We reported sales and revenues of \$32.396 billion for 2009, a decrease of 37 percent from \$51.324 billion in 2008. Profit per share for 2009 was \$1.43, down 75 percent from 2008. Excluding redundancy costs of \$0.75, 2009 profit was \$2.18 per share.

Fourth-quarter 2009 sales and revenues were \$7.898 billion, down 39 percent from the fourth quarter of 2008. Profit per share for the quarter was \$0.36, down 67 percent from the fourth quarter of 2008. Excluding redundancy costs, profit for the fourth quarter 2009 was \$0.41 per share.

While the economy in 2009 was the worst our company has experienced since the Great Depression, we are proud to report that Team Caterpillar responded in an extraordinary way. We delivered solid profitability and cash flow and dramatically improved our balance sheet. In addition, we had continued access to debt markets, improved our liquidity position, expanded credit facilities and made a conscious decision to hold more cash. As a result, we maintained our dividend rate, made significant pension contributions and continued to invest in new products and selective new capacity. Our employees, dealers and suppliers in every region of the world pulled together to achieve these results, and we thank them for their hard work and sacrifice. As a result, we are exceptionally well positioned for continued industry leadership and growth as the global economy recovers.

Sales and revenues for 2009 decreased \$18.928 billion from 2008, and profit of \$895 million was down 75 percent from \$3.557 billion in 2008. The decline in profit was primarily due to significantly lower sales volume. The impact of lower volume was partially offset by lower costs, favorable income taxes and improved price realization.

Highlights for 2009 include:

Caterpillar's 37-percent decrease in sales and revenues in 2009 was the largest single-year percentage decline in sales and revenues since the 1940s.
Caterpillar delivered profitability for the year at \$1.43 per share, or \$2.18 per share excluding redundancy costs.
Manufacturing costs, selling, general and administrative (SG&A) and research and development (R&D) expenses declined nearly \$2 billion from 2008, and income taxes were favorable.
Price realization improved by about 3 percent from 2008.
Inventory declined \$2.4 billion during 2009.
In 2009, dealers reduced new machine inventories \$3.3 billion and new engine inventories \$600 million, helping them weather a very difficult year and positioning them for growth as economic conditions improve.
Caterpillar improved its debt-to-capital ratio from 57.5 percent at year-end 2008 to 47.2 percent at year-end 2009. In addition, our consolidated cash balance increased \$2.1 billion and was \$4.9 billion at year-end 2009.
Solid cash flow and profit enabled Caterpillar to maintain its dividend rate in 2009.
Despite the impact of global economic conditions on capital markets in 2008 and 2009, Caterpillar and Cat Financial, our

captive finance company, maintained access to capital both short-term commercial paper and long-term debt. While Cat Financial's 2009 profit declined from 2008, it was profitable in every quarter of 2009.

Caterpillar and Cat Financial maintained "mid-A" credit ratings throughout 2009.
During 2009, Caterpillar made approximately \$1.1 billion in contributions to pension plans through a combination of cash and Caterpillar stock. The funded status of plans was 61 percent at year-end 2008 and improved to 76 percent by year-end 2009. Contributions of approximately \$1 billion are expected in 2010.
Implementation of Caterpillar's "economic trough" actions, beginning in the fourth quarter of 2008 and throughout 2009, was a significant factor in delivering positive results.

2010 OUTLOOK

We expect 2010 sales and revenues to be up 10 to 25 percent from 2009, and profit is expected to be about \$2.50 per share at the midpoint of the sales and revenues range.

We continue to see signs of economic improvement, particularly in China and most developing countries. We are also seeing signs of improvement in North America, Europe and Japan, but these economies remain weak and have not rebounded as quickly as developing countries.

We have seen a marked increase in demand for mining equipment — a result of continued strong commodity prices and grow ing confidence in economic recovery. We have also seen improvement in sales of aftermarket service parts, which is usually an early indicator of growing demand for machines and engines.

In addition to increased end-user demand, our sales are expected to improve as a result of changes in dealer inventories in 2009. Dealers reduced new machine inventories by more than \$3.3 billion and new engine inventories by more than \$600 million during 2009. This means our sales in 2009 were below end-user demand by nearly \$4 billion. We expect relatively little change in dealer inventories in 2010 and as a result, our sales should be more in line with end-user demand.

We do not expect significant redundancy costs in 2010. Excluding redundancy, the most significant positive factors driving the profit outlook are higher sales volume, lower material costs and improved factory efficiency utilizing the Caterpillar Production System (CPS) with 6 Sigma. The most significant unfavorable factors are higher taxes and an unfavorable mix of sales.

We are encouraged by signs of improving demand. Dealer sales to end users are up, order rates are up, dealer inventories came down in 2009, and we are seeing stronger service parts sales. As a result, we are focused on increasing production levels in our plants and with our suppliers. Although we expect efficiency improvements in 2010, higher production will require selective increases in employment, and we have already recalled more than 500 previously laid-off production employees.

We expect 2010 will be a better year than 2009, and we are in an excellent position to benefit from growth in the world economy.

^*Glossary of terms included on pages A-69 to A-70; first occurrence of terms shown in bold italics.

2009 COMPARED WITH 2008

SALES AND REVENUES

Consolidated Sales and Revenues Comparison

The chart above graphically illustrates reasons for the change in Consolidated Sales and Revenues between 2008 (at left) and 2009 (at right). Items favorably impacting sales and revenues appear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting sales and revenues appear as downward stair steps with dollar amounts reflected in parentheses above each bar. The bar entitled Machinery Volume includes the impact of consolidation of Caterpillar Japan Ltd. (Cat Japan) sales. Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees.

Sales and revenues for 2009 were \$32.396 billion, down \$18.928 billion, or 37 percent, from 2008. Machinery sales volume was down \$13.894 billion, and Engines volume declined \$5.095 billion. Price realization improved \$910 million, and currency had a negative impact on sales of \$425 million, primarily due to a weaker euro and British pound. In addition, Financial Products revenues decreased \$424 million.

Our integrated service businesses tend to be more stable through the business cycle than new machines and engines. Although sales and revenues for these businesses declined by about 15 percent during 2009, this was much less than the decline in sales and revenues for the company in total. Integrated service businesses represented about 46 percent of total company sales and revenues in 2009, up from about 34 percent in 2008.

(Millions of dollars)	Total	% Change	North America	% Change	EAME	% Change	Asia/ Pacific	% Change	Latin America	% Change
2009
Machinery	\$18,148	(43)%	\$ 6,993	(45)%	\$ 4,112	(55)%	\$ 4,488	(21)%	\$ 2,555	(38)%
Engines ¹	11,392	(30)%	3,652	(33)%	4,295	(32)%	2,365	(19)%	1,080	(31)%
Financial Products ²	2,856	(13)%	1,714	(14)%	495	(16)%	379	5%	268	(18)%
	\$32,396	(37)%	\$12,359	(39)%	\$ 8,902	(45)%	\$ 7,232	(19)%	\$ 3,903	(35)%
2008
Machinery	\$31,804		\$ 12,769		\$ 9,220		\$ 5,709		\$ 4,106
Engines ¹	16,240		5,445		6,311		2,910		1,574
Financial Products ²	3,280		2,001		590		361		328
	\$51,324		\$20,215		\$ 16,121		\$ 8,980		\$ 6,008

Does not include internal engine transfers of \$1.56 billion and \$2.822 billion in 2009 and 2008, respectively. Internal engine transfers are valued at prices comparable to those for unrelated parties.

^2 Does not include revenues earned from Machinery and Engines of \$312 million and \$308 million in 2009 and 2008, respectively.

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Machinery Sales

Sales were \$18.148 billion, a decrease of \$13.656 billion, or 43 percent, from 2008.

Excluding the consolidation of Cat Japan, sales volume decreased \$14.769 billion.
Price realization increased \$388 million.
Currency decreased sales by \$150 million.
Geographic mix between regions (included in price realization) was \$25 million unfavorable.
The consolidation of Cat Japan added \$875 million to sales.
The severe worldwide recession caused construction spending to decline in many countries, and mining companies reduced output. As a result, end users significantly reduced purchases of equipment.
Year-over-year declines in dealer-reported deliveries to end users were most severe in the second and third quarters of 2009. By year end, month-to-month trends in dealer deliveries were improving in all regions.
Dealers reacted to the decline in end-user demand by reducing reported inventories more than \$3.3 billion, contributing further to lower sales volume. Dealer inventories were well below last year in both dollars and months of supply. Months of supply were near the historical average.
Declines in sales volume were most severe in the developed economies of North America, Europe and Japan. Most of these economies were in recession throughout 2008, and credit market pressures in late 2008 caused output to drop sharply in early 2009.
When the financial crisis worsened in late 2008, economic conditions in many developing countries were better than previous recessions. Most reacted quickly by cutting interest rates and increasing infrastructure spending.

North America — Sales decreased \$5.776 billion, or 45 percent.

Sales volume decreased \$5.941 billion.
Price realization increased \$166 million.
Currency decreased sales by \$1 million.
Severe recessions in both Canada and the United States caused the decline in sales volume. Machinery sales volume was the lowest since 1982.
Economic activity in nearly all key industries dropped sharply in 2009. Deliveries of machines, as reported by dealers, were the lowest since 1992.
Dealers responded to lower demand by reducing reported inventories to a 14-year low. Inventories were also well below a year earlier in months of supply.
The U.S. housing industry had its worst year in decades. Starts of 554,000 units were down 39 percent from 2008 and were the lowest since 1945. Home prices declined 14 percent in 2009, resulting in an even larger peak-to-trough decline than occurred in the early 1930s. Canadian housing starts declined 31 percent, and new home prices declined 2 percent.
U.S. nonresidential building construction orders dropped 38 percent. Office vacancy rates increased to more than 16 percent, and selling prices for office properties declined 24 percent. Retail property prices fell 17 percent. In Canada, nonresidential construction permits dropped 11 percent.
U.S. highway construction orders increased 5 percent, with the gain occurring in the last half of the year. The American Recovery and Reinvestment Act provided additional funding for highways, which benefited resurfacing projects.
The decline in construction activity caused U.S. quarry production to drop 16 percent, the third consecutive annual decline. Record-low operating rates prompted producers to reduce capacity 6 percent. Canadian producers cut production by 27 percent.
Metals prices dropped sharply in late 2008, prompting mines to reduce production and curtail new investments. Subsequent price recoveries led to some improvements later in the year, but not enough to offset a poor first half. U.S. metal mining output declined 10 percent, and Canadian production was down 20 percent.
Coal prices declined significantly, particularly in the first half of 2009. As a result, U.S. coal production dropped 7 percent, and Canadian production was off 17 percent. Contributing factors included reduced utility burn, higher utility stocks and a 29-percent decline in U.S. coal exports.

EAME — Sales decreased \$5.108 billion, or 55 percent.

Sales volume decreased \$4.984 billion.
Price realization increased \$50 million.
Currency decreased sales by \$174 million.
Dealers reduced reported inventories sharply, which reversed inventory increases that occurred in 2008. Inventories in months of supply fell to about half the year-earlier level.
The worldwide credit crisis and recession impacted all regions, causing construction spending to weaken and commodity producers to reduce output. As a result, dealers in all regions reported lower deliveries to end users. Commonwealth of Independent States (CIS) dealers reported the largest decline; Africa/Middle East dealers reported the smallest decline.
Europe experienced its worst postwar recession, with the economy declining an estimated 4 percent in 2009. Industrial production declined 15 percent in the euro-zone and 11 percent in the United Kingdom.
Housing construction declined in response to tight credit standards and lower home prices in many countries. Construction permits fell 25 percent in the euro-zone and orders in the United Kingdom fell 23 percent.
Lower sales volume in Africa/Middle East resulted mostly from dealer inventory reductions, recessions in Turkey and South Africa and the financial crisis in Dubai. Industrial production dropped 10 percent in Turkey and 12 percent in South Africa.
The recession caused building permits in Turkey to fall 17 percent. South African housing permits were down 39 percent, and nonresidential permits were off 12 percent; mining production dropped 7 percent.
The Organization of Petroleum Exporting Countries (OPEC) crude oil price dropped to \$60 per barrel, prompting producers to cut oil production by 8 percent.
Sales volume declined significantly in the CIS region due to severe recessions and financial turmoil. Russia was one of the few countries to maintain higher average interest rates than in 2008, contributing to a 10-percent decline in its economy.

Asia/Pacific — Sales decreased \$1.221 billion, or 21 percent.

Excluding the consolidation of Cat Japan, sales volume declined \$2.270 billion.
Price realization increased \$118 million.
Currency increased sales by \$56 million.
The consolidation of Cat Japan added \$875 million to 2009 sales.
Dealers reported large inventory reductions, more than offsetting additions made in 2008. Inventories in months of supply

were less than half the year-earlier level and were below the historical average.

Asian governments and central banks reacted aggressively to the worldwide economic downturn. Most economies started recovering in the second quarter, which helped limit declines in end-user demand, as reported by dealers. Dealers in China reported a slight increase in deliveries.
China's recovery program included a 31-percent increase in lending and massive infrastructure spending. The economy responded quickly and industrial production increased more than 10 percent. Housing construction increased 16 percent, and nonresidential construction was up 30 percent.
India cut interest rates sharply and, as a result, industrial production increased 6 percent. Construction increased 7 percent.
A sluggish economy reduced sales volume in Australia. Permits for housing construction declined 7 percent, but those for non residential construction were up 4 percent. Mining profits declined, and expenditures for exploration dropped 26 percent.
A return to deflation and a significant decline in exports further weakened the Japanese economy. Orders for private construction fell 33 percent, and those for public construction declined 11 percent. Machine sales volume was the lowest in at least 30 years.

Latin America — Sales decreased \$1.551 billion, or 38 percent.

Sales volume decreased \$1.599 billion.
Price realization increased \$79 million.
Currency decreased sales by \$31 million.
Dealers reduced reported inventories, more than offsetting amounts added in 2008. Inventories in months of supply were half the year-earlier level and were lower than the historical average.
The worldwide recession caused exports to decline in most countries. That, along with interest rate increases in 2008, caused lower industrial production in most countries. Construction and mining also declined, causing dealers to report lower deliveries to end users.
The sales volume decline was most severe in Mexico. Close ties to the U.S. economy and relatively slow interest rate reductions caused industrial production to decline 8 percent and construction 7 percent.
High interest rates in late 2008 caused Brazil's industrial production to drop 7 percent in 2009, with losses concentrated in the first half. Reduced worldwide steel production caused a 22-percent decline in iron ore mining. The decline in sales volume ended in the fourth quarter as interest rate reductions helped improve the economy.
A large decline in sales volume occurred in Chile. Interest rate increases taken in 2008 impacted the economy in 2009, causing industrial production to decline 9 percent. Construction permits decreased 15 percent. Higher metals prices encouraged mines to increase production late in the year so that full-year production was about the same as 2008.

Engines Sales

Sales were \$11.392 billion, a decrease of \$4.848 billion, or 30 percent, from 2008.

Sales volume decreased \$5.095 billion.
Price realization increased \$522 million.
Currency decreased sales by \$275 million.
Geographic mix between regions (included in price realization) was \$13 million unfavorable.

• Dealer-reported inventories were down, but months of supply increased, as dealer deliveries declined.

North America — Sales decreased \$1.793 billion, or 33 percent.

Sales volume decreased \$1.987 billion.
Price realization increased \$196 million.
Currency decreased sales by \$2 million.
Sales for petroleum applications decreased 20 percent primarily due to a decrease in demand for petroleum engines used for gas compression and drilling along with lower turbine sales.
Sales for electric power applications decreased 25 percent due to weak economic conditions and reduced availability of credit along with lower turbine sales.
Sales for industrial applications decreased 48 percent in response to substantially lower demand in construction and agricultural applications due to economic uncertainty and tight credit conditions.

EAME — Sales decreased \$2.016 billion, or 32 percent.

Sales volume decreased \$1.959 billion.
Price realization increased \$197 million.
Currency decreased sales by \$254 million.
Sales for industrial applications decreased 47 percent based on significantly lower demand in construction and agricultural applications due to weak economic conditions and reduced availability of credit.
Sales for electric power applications decreased 29 percent, as the impact of weak economic conditions and reduced availability of credit was partially offset by increased turbine sales as a result of timing of large power plant projects.
Sales for marine applications decreased 36 percent due to weak economic conditions.
Sales for petroleum applications decreased 15 percent primarily due to a slowdown in demand for engines used in production and drilling applications along with lower sales of turbines.

Asia/Pacific — Sales decreased \$545 million, or 19 percent.

Sales volume decreased \$632 million.
Price realization increased \$110 million.
Currency decreased sales by \$23 million.
Sales for petroleum applications decreased 23 percent, as a slowdown in Chinese land-based drill activity was partially offset by an increase in sales of turbines.
Sales for electric power applications decreased 15 percent, as the impact of weak economic conditions and reduced availability of credit was partially offset by increased turbine sales as a result of timing of large power plant projects.
Sales for industrial applications decreased 34 percent due to significantly lower demand in construction and mining support applications.
Sales for marine applications decreased 2 percent due to weak economic conditions, partially offset by a strong order backlog for workboat and general cargo vessels.

Latin America — Sales decreased \$494 million, or 31 percent.

Sales volume decreased \$530 million.
Price realization increased \$32 million.
Currency increased sales by \$4 million.
Sales for electric power applications decreased 49 percent due to worsening economic conditions and reduced availability of credit.

• Sales for petroleum applications decreased 17 percent due to a slowdown in demand for production power applications and lower turbine sales.

Financial Products Revenues

Revenues were \$2.856 billion, a decrease of \$424 million, or 13 percent, from 2008.

Revenues decreased \$123 million due to the impact of lower interest rates on new and existing finance receivables and \$105 million due to a decrease in average earning assets.
Other revenues at Cat Financial decreased \$120 million. The decrease was primarily due to a \$77 million unfavorable impact from returned or repossessed equipment and the absence of a \$12 million gain related to the sale of receivables in 2008.

OPERATING PROFIT

Consolidated Operating Profit Comparison

2009 vs. 2008

The chart above graphically illustrates reasons for the change in Consolidated Operating Profit between 2008 (at left) and 2009 (at right). Items favorably impacting operating profit appear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting operating profit appear as downward stair steps with dollar amounts reflected in parentheses above each bar. Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees. The bar entitled Other/M&E Redundancy includes the operating profit impact of consolidating adjustments, consolidation of Cat Japan and Machinery and Engines other operating (income) expenses, which include Machinery and Engines redundancy costs.

Operating profit in 2009 was \$577 million compared to an operating profit of \$4.448 billion in 2008. Lower sales volume was the primary reason for the decline. Sales volume includes the impact of a favorable mix of products for both Machinery and Engines. Price realization improved \$910 million.

Manufacturing costs improved \$646 million. Significant inventory reduction resulted in \$300 million (\$0.39 per share) of LIFO inventory decrement benefits. Excluding decrement benefits, manufacturing costs decreased \$346 million. Selling, general and administrative (SG&A) and research and development (R&D) expenses declined \$1.314 billion as a result of significant costcutting measures.

Currency had a \$376 million favorable impact on operating profit as the benefit to costs more than offset the negative impact on sales.

Redundancy costs were \$706 million. Cat Japan unfavorably impacted operating profit by \$348 million.

Operating Profit (Loss) by Principal Line of Business

(Millions of dollars)	2009	2008	\$ Change	% Change
Machinery1	\$(1,007)	\$ 1,803	\$(2,810)	(156)%
Engines1	1,464	2,319	(855)	(37)%
Financial Products	381	579	(198)	(34)%
Consolidating Adjustments	(261)	(253)	(8)
Consolidated Operating Profit	\$ 577	\$ 4,448	\$(3,871)	(87)%

Caterpillar operations are highly integrated; therefore, the company uses a number of allocations to determine lines of business operating profit for Machinery and Engines.

Machinery operating loss was \$1.007 billion compared to an operating profit of \$1.803 billion for 2008. Sharply lower sales volume, redundancy costs and losses at Cat Japan were partially offset by lower SG&A and R&D expenses, a decline in manufacturing costs including LIFO inventory decrement benefits, improved price realization and favorable currency.
Engines operating profit of \$1.464 billion was down \$855 million, or 37 percent, from 2008. Lower sales volume and redundancy costs were partially offset by improved price realization, lower SG&A and R&D expenses and favorable currency. Although total Engines operating profit declined during 2009, operating profit for turbines increased and represented about half of total Engines operating profit in 2009 compared with about one-quarter in 2008.
Financial Products operating profit of \$381 million was down \$198 million, or 34 percent, from 2008. The decrease was pri marily attributable to a \$77 million unfavorable impact from returned or repossessed equipment, a \$51 million impact from decreased net yield on average earning assets, a \$47 million unfavorable impact from lower average earning assets, a \$33 million increase in the provision for credit losses at Cat Financial, a \$20 million increase in other operating expenses and the absence of a \$12 million gain related to the sale of receivables in 2008, partially offset by a \$70 million decrease in SG&A expenses (excluding the provision for credit losses).

OTHER PROFIT/LOSS ITEMS

Interest expense excluding Financial Products increased \$115 million due to higher average debt. As a result of the weak economic environment and uncertain capital markets, we have held more cash than usual.
Other income/expense was income of \$381 million compared with income of \$327 million in 2008. The increase was primarily due to the favorable impact from net foreign exchange gains and losses.
The provision for income taxes reflects a significantly more favorable effective tax rate than in 2008. The improvement was driven primarily by a more favorable geographic mix of profits and losses from a tax perspective, along with tax benefits related to prior-year tax returns of \$133 million and a larger percentage benefit from U.S. permanent differences and credits including the research and development tax credit. The prior-year tax benefits primarily resulted from the
U.S. settlement of tax years 1995 to 1999 and the true-up of estimated amounts used in the 2008 tax provision to the U.S. tax return as filed. The 2008 provision for income taxes included \$456 million of benefits primarily related to the repatriation of non-U.S. earnings with available foreign tax credits in excess of the U.S. tax liability on the dividend.
Equity in profit/(loss) of unconsolidated affiliated companies was a loss of \$12 million compared with income of \$37 million in 2008. The decrease was primarily related to the absence of equity profit in 2008 after the consolidation of Cat Japan.
Profit/loss attributable to noncontrolling interests (formerly minority interest) favorably impacted profit by \$96 million from 2008, primarily due to adding back 33 percent of Cat Japan's losses attributable to Mitsubishi Heavy Industries.

Supplemental Information (Millions of dollars)	2009	2008	2007
Assets:
Machinery \$ 22,037		\$ 24,607	\$ 18,291
Engines	12,159	13,672	11,785
Financial Products	31,975	34,381	30,870
Consolidating Adjustments	(6,133)	(4,878)	(4,814)
Total \$ 60,038		\$ 67,782	\$ 56,132
Capital Expenditures:
Machinery \$	810	\$ 1,639	\$ 1,099
Engines	534	782	584
Financial Products	976	1,612	1,366
Consolidating Adjustments	(4)	(22)	(9)
Total \$	2,316	\$ 4,011	\$ 3,040
Depreciation and
Amortization:
Machinery \$	1,120	\$ 839	\$ 655
Engines	474	386	438
Financial Products	742	755	704
Total \$	2,336	\$ 1,980	\$ 1,797

Caterpillar operations are highly integrated; therefore, the company uses a number of allocations to determine lines of business financial data.

FOURTH QUARTER 2009 COMPARED WITH FOURTH QUARTER 2008

SALES AND REVENUES

Consolidated Sales and Revenues Comparison

Fourth Quarter 2009 vs. Fourth Quarter 2008

The chart above graphically illustrates reasons for the change in Consolidated Sales and Revenues between fourth quarter 2008 (at left) and fourth quarter 2009 (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 Cat Japan sales. Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees.

Sales and revenues for the fourth quarter of 2009 were \$7.898 billion, down \$5.025 billion, or 39 percent, from the fourth quarter 2008. Machinery sales volume was down \$3.357 billion, and Engines volume declined \$1.988 billion. Price realization improved \$199 million, and currency had a positive impact on sales of \$219 million, primarily due to a stronger Australian dollar and euro. In addition, Financial Products revenues decreased \$98 million.

Our integrated service businesses tend to be more stable through the business cycle than new machines and engines. Although volume declined for these businesses from the fourth quarter of 2008, it was much less than the decline in sales and revenues for the company in total. Integrated service businesses represented about 48 percent of total company sales and revenues in the fourth quarter of 2009, up from about 32 percent in the fourth quarter of 2008.

Sales and Revenues by Geographic Region

(Millions of dollars)	Total	% Change	North America	% Change	EAME	% Change	Asia/ Pacific	% Change	Latin America	% Change
Fourth Quarter 2009
Machinery \$	4,564	(41)%	\$ 1,557	(45)%	\$ 962	(52)%	\$ 1,244	(25)%	\$ 801	(32)%
Engines1	2,629	(41)%	751	(46)%	1,013	(39)%	609	(28)%	256	(53)%
Financial Products2	705	(12)%	416	(15)%	121	(16)%	95	7%	73	(9)%
\$	7,898	(39)%	\$ 2,724	(42)%	\$ 2,096	(45)%	\$ 1,948	(25)%	\$ 1,130	(37)%
Fourth Quarter 2008
Machinery \$	7,675		\$ 2,833		\$ 2,013		\$ 1,652		\$ 1,177
Engines1	4,445		1,379		1,670		849		547
Financial Products2	803		490		144		89		80
	\$ 12,923		\$ 4,702		\$ 3,827		\$ 2,590		\$ 1,804

Does not include internal engine transfers of \$434 million and \$646 million in fourth quarter 2009 and 2008, respectively. Internal engine transfers are valued at prices comparable to those for unrelated parties.

Does not include revenues earned from Machinery and Engines of \$65 million and \$66 million in fourth quarter 2009 and 2008, respectively.

Machinery Sales

Sales were \$4.564 billion, a decrease of \$3.111 billion, or 41 percent, from fourth quarter 2008.

Sales volume decreased \$3.357 billion.
Price realization increased \$83 million.
Currency increased sales by \$163 million.
Geographic mix between regions (included in price realization) was \$3 million unfavorable.
Sales declined significantly from the fourth quarter of 2008 as a result of severe economic decline. While lower than 2008, sales on a seasonally adjusted basis improved as we progressed through the quarter.
Most dealers continued to reduce reported inventories in the fourth quarter of 2009. Dealer inventories were well below last year in both dollars and months of supply. Months of supply ended the year in line with the historical average.
Developing countries responded quickly to the economic crisis with effective infrastructure spending programs and recordlow interest rates. Monthly trends in end-user demand, based on dealer reporting, showed robust improvements over the quarter, particularly in Asia and Latin America.
Recoveries in the larger developing economies of Brazil, China and India progressed, and dealer deliveries were higher than a year earlier.
In contrast, the developed economies of North America, Europe and Japan had longer, deeper recessions than the developing economies. These recoveries, which started in the second or third quarter of 2009, have been more subdued. As a result, declines in dealer deliveries from the fourth quarter of 2008 were much larger on a percentage basis than in developing economies.

North America — Sales decreased \$1.276 billion, or 45 percent.

Sales volume decreased \$1.288 billion.
Price realization increased \$10 million.
Currency increased sales by \$2 million.
Both the U.S. and Canadian economies started to recover in the third quarter of 2009, and activity in key industries stabilized or began to improve in the fourth quarter.
Dealer-reported deliveries to end users improved throughout the quarter.
Dealers reduced reported inventories further, taking them to the lowest level since 1995. Inventories in months of supply were well below last year.
U.S. housing starts, despite a modest recovery starting in the second quarter of 2009, were 16 percent below a year earlier. Canadian permits for home construction increased 24 percent, but starts were off 1 percent.
U.S. orders for nonresidential building construction dropped 31 percent, the smallest quarterly year-over-year decline in 2009. This sector, which normally lags the overall economy, struggled with high vacancy rates and declining commercial property prices. Nonresidential construction permits in Canada increased almost 11 percent.
U.S. contracts for highway and street construction increased 10 percent. The U.S. government's recovery program has already committed more than \$20 billion in highway funding, mostly for pavement improvements.
With total construction spending still declining, U.S. nonmetals mining and quarry production fell 15 percent. Canadian miners also reduced output.
Metals prices, benefiting from a recovery throughout the year, were 40 percent higher in the fourth quarter than a year earlier. U.S. metals production improved during the quarter but was still down 7 percent compared to a year earlier. Canadian production dropped 29 percent.
U.S. coal production declined 11 percent due to lower exports, reduced utility usage and high utility stocks. In contrast, Canadian production increased 2 percent.

EAME — Sales decreased \$1.051 billion, or 52 percent.

Sales volume decreased \$1.127 billion.
Price realization increased \$9 million.
Currency increased sales by \$67 million.
The European economy has started to recover from its worst postwar recession, and higher commodity prices have begun to benefit Africa/Middle East and CIS. As a result, year-overyear volume declines were less severe in the fourth quarter than in the prior two quarters.
Dealers reduced reported inventories considerably during the quarter, taking inventories well below last year in both dollars and months of supply.
Africa/Middle East accounted for more than half the sales volume decline, with inventory reductions a major contributor. End-user demand, as reported by dealers, declined significantly in South Africa where both mining and construction were weak. Demand also dropped sharply in the United Arab Emirates due to the Dubai financial crisis.
The CIS was the next largest contributor to the volume decline as a result of severe recessions in both Russia and Ukraine. Construction declined 11 percent in Russia.
The European economy recovered slowly, with both industrial production and retail sales lower than a year earlier. Dealer reports of their deliveries indicated some improvement during the quarter; however, delivery rates remained well below a year earlier.
Housing permits in the euro-zone declined, but U.K. housing orders surged 27 percent. Nonresidential construction indicators dropped in both the euro-zone and the U.K.

Asia/Pacific — Sales decreased \$408 million, or 25 percent.

Sales volume decreased \$505 million.
Price realization increased \$39 million.
Currency increased sales by \$58 million.
Cat Japan's sales, included in both the fourth quarter of 2008 and the fourth quarter of 2009, were about flat.
Dealer inventories ended 2009 well below 2008 in both dollars and months of supply. Months of supply were less than half the year-earlier level and were below the historical average.
Governments responded to the economic crisis by increasing infrastructure spending, and most central banks took interest rates to record lows. Economies responded quickly and recoveries are underway. Dealers in developing countries reported deliveries to end users slightly higher than in fourth quarter 2008.
Dealer deliveries increased in China. Infrastructure spending and a 33-percent increase in bank lending benefited construction and our dealer deliveries.
India's interest rate reductions led to an 11-percent increase in industrial production, and economic recovery in Indonesia increased both construction spending and mining.
In Australia, approvals for new construction increased but low approvals in prior months continued to depress deliveries in the fourth quarter of 2009.

• The Japanese economy remained weak in the fourth quarter 2009. Private construction orders fell 22 percent; public orders fell 20 percent.

Latin America — Sales decreased \$376 million, or 32 percent.

Sales volume decreased \$440 million.
Price realization increased \$28 million.
Currency increased sales by \$36 million.
Dealer inventories were lower than a year earlier in both dollars and months of supply. Months of supply were about half the year-earlier level and below the historical average.
The region is recovering from recession, with declines in both construction and mining moderating the last two quarters. Trends in dealer-reported deliveries improved during the quarter, and the year-over-year decline in the fourth quarter was much lower than for the two prior quarters.
In Brazil, record-low interest rates led to slightly higher industrial production.
In Mexico, construction spending declined 7 percent. Close ties to the U.S. economy and relatively slow interest rate reductions caused a severe recession.

Engines Sales

Sales were \$2.629 billion, a decrease of \$1.816 billion, or 41 percent, from fourth quarter 2008.

Sales volume decreased \$1.988 billion.
Price realization increased \$116 million.
Currency increased sales by \$56 million.
Geographic mix between regions (included in price realization) was \$5 million favorable.
Dealer-reported inventories were down, and months of supply increased, as dealer deliveries declined.

North America — Sales decreased \$628 million, or 46 percent.

Sales volume decreased \$646 million.
Price realization increased \$17 million.
Currency increased sales by \$1 million.
Sales for petroleum applications decreased 60 percent primarily due to a decrease in sales for petroleum engines used for gas compression and drilling as well as lower turbine sales.
Sales for electric power applications decreased 44 percent due to weak economic conditions, reduced availability of credit and lower turbine sales.
Sales for industrial applications decreased 47 percent based on substantially lower demand in construction and agricultural applications due to economic uncertainty and tight credit conditions.

EAME — Sales decreased \$657 million, or 39 percent.

Sales volume decreased \$733 million.
Price realization increased \$52 million.
Currency increased sales by \$24 million.
Sales for electric power applications decreased 32 percent due to weak economic conditions and reduced availability of credit combined with dealer efforts to reduce inventory, partially offset by higher turbine sales.
Sales for marine applications decreased 61 percent due to weak economic conditions.
Sales for industrial applications decreased 46 percent based on significantly lower demand in construction and agricultural applications due to weak economic conditions and reduced availability of credit.
Sales for petroleum applications decreased 27 percent primarily due to a slowdown in demand for engines used in production applications and land-based drilling as well as lower turbine sales.

Asia/Pacific — Sales decreased \$240 million, or 28 percent.

Sales volume decreased \$299 million.
Price realization increased \$40 million.
Currency increased sales by \$19 million.
Sales for petroleum applications decreased 38 percent primarily due to a slowdown in Chinese land-based drill activity and lower turbine sales.
Sales of electric power applications decreased 26 percent due to cancelled and delayed projects in China and India, partially offset by higher turbine sales.
Sales for marine applications decreased 23 percent due to weak economic conditions, partially offset by a strong order backlog for workboat and general cargo vessels.

Latin America — Sales decreased \$291 million, or 53 percent.

Sales volume decreased \$305 million.
Price realization increased \$2 million.
Currency increased sales by \$12 million.
Sales of electric power applications decreased 76 percent due to weak economic conditions, reduced availability of credit and lower turbine sales.
Sales for petroleum applications decreased 46 percent due to a slowdown in demand for production power applications, especially in Argentina, and lower turbine sales.

Financial Products Revenues

Revenues were \$705 million, a decrease of \$98 million, or 12 percent, from fourth quarter 2008.

Lower average earning assets decreased revenues \$49 million.
Other revenues at Cat Financial decreased \$25 million, primarily due to the unfavorable impact from returned or repossessed equipment.

OPERATING PROFIT

Consolidated Operating Profit Comparison

Fourth Quarter 2009 vs. Fourth Quarter 2008

The chart above graphically illustrates reasons for the change in Consolidated Operating Profit between fourth quarter 2008 (at left) and fourth quarter 2009 (at right). Items favorably impacting operating profit appear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting operating profit appear as downward stair steps with dollar amounts reflected in parentheses above each bar. Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees. The bar entitled Other/M&E Redundancy includes the operating profit impact of consolidating adjustments, Cat Japan and Machinery and Engines other operating (income) expenses, which include Machinery and Engines redundancy costs.

Fourth-quarter 2009 operating profit was \$128 million compared to operating profit of \$457 million in the fourth quarter of 2008. The sharp decline in sales volume lowered operating profit \$1.575 billion. Price realization improved \$199 million.

Manufacturing costs improved \$607 million, of which \$70 million (\$0.09 per share) was related to LIFO inventory decrement benefits. Excluding decrement benefits, manufacturing costs improved \$537 million. Overhead, material and labor costs were favorable. Selling, general and administrative (SG&A) and research and development (R&D) expenses declined \$496 million as a result of significant cost-cutting measures.

Currency had a \$140 million favorable impact on operating profit as the benefit to sales more than offset the negative impact on costs. Cat Japan unfavorably impacted operating profit by \$87 million. Redundancy costs were \$65 million in the fourth quarter of 2009.

Operating Profit (Loss) by Principal Line of Business

(Millions of dollars)	Fourth Quarter 2009	Fourth Quarter 2008	\$ Change	% Change
Machinery1	\$ (123)	\$ (6)	\$ (117)	—
Engines1	242	438	(196)	(45)%
Financial Products	63	74	(11)	(15)%
Consolidating Adjustments	(54)	(49)	(5)
Consolidated Operating Profit	\$ 128	\$ 457	\$ (329)	(72)%

Caterpillar operations are highly integrated; therefore, the company uses a number of allocations to determine lines of business operating profit for Machinery and Engines.

Machinery operating loss was \$123 million compared to an operating loss of \$6 million in the fourth quarter of 2008. Sharply lower sales volume and losses at Cat Japan were partially offset by a decrease in manufacturing costs, lower SG&A and R&D expenses, improved price realization and LIFO inventory decrement benefits.
Engines operating profit of \$242 million was down \$196 million, or 45 percent, from the fourth quarter of 2008. Sharply lower sales volume was partially offset by lower SG&A and R&D expenses, improved price realization and the favorable impact of currency. Operating profit for turbines decreased primarily due to lower sales volume, but represented about 70 percent of total Engines operating profit in the fourth quarter of 2009 compared with about half in the fourth quarter 2008.
Financial Products operating profit of \$63 million was down \$11 million, or 15 percent, from the fourth quarter of 2008. The decrease was primarily attributable to a \$23 million unfavorable impact from returned or repossessed equipment and a \$21 million unfavorable impact from lower average earning assets, partially offset by a \$31 million impact from increased net yield on average earning assets.

OTHER PROFIT/LOSS ITEMS

Interest expense excluding Financial Products increased \$17 million due to higher average debt. As a result of the weak economic environment and uncertain capital markets, we have held more cash than usual.
Other income/expense was income of \$88 million compared with expense of \$24 million in the fourth quarter of 2008. The
increase was primarily related to the absence of unfavorable mark-to-market adjustments on interest rate derivative contracts at Cat Financial and the impairment of investments in Cat Insurance's portfolio during the fourth quarter of 2008. In addition, currency exchange gains and losses were favorable.
The provision/benefit for income taxes for the fourth quarter of 2009 reflects a more favorable geographic mix of profits and losses from a tax perspective and a larger percentage benefit from U.S. permanent differences and credits including the research and development tax credit than the fourth quarter of 2008. An actual (discrete period) calculation was used to report the quarterly tax provision during 2009 as the estimated range of profit before tax produced significant variability and made it difficult to reasonably estimate the annual effective tax rate. This approach results in more volatility in the quarterly effective tax rate, particularly with the reduced overall profit levels. The fourth quarter of 2008 included a \$409 million benefit due to the repatriation of non-U.S. earnings with available foreign tax credits in excess of the U.S. tax liability on the dividend.
Equity in profit/loss of unconsolidated affiliated companies was expense of \$13 million compared with profit of \$5 million in the fourth quarter of 2008. The decrease is primarily related to start-up expenses from NC2 Global LLC, our joint venture with Navistar.
Profit/loss attributable to noncontrolling interests (formerly minority interest) favorably impacted profit by \$28 million from the fourth quarter of 2008, primarily due to losses at Cat Japan in 2009. One-third of Cat Japan's losses are attributable to Mitsubishi Heavy Industries.

2008 COMPARED WITH 2007

SALES AND REVENUES

Consolidated Sales and Revenues Comparison

The chart above graphically illustrates reasons for the change in Consolidated Sales and Revenues between 2007 (at left) and 2008 (at right). Items favorably impacting sales and revenues appear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting sales and revenues appear as downward stair steps with dollar amounts reflected in parentheses above each bar. The bar entitled Machinery Volume includes the impact of consolidation of Cat Japan sales. Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees.

Sales and revenues for 2008 were \$51.324 billion, up \$6.366 billion, or 14 percent, from 2007. Machinery sales volume was up \$2.399 billion, driven by strength in developing economies. Engines sales volume increased \$1.678 billion due to growth in all major industries, with particular strength in petroleum.

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

Sales and Revenues by Geographic Region

(Millions of dollars)	Total	% Change	North America	% Change	EAME	% Change	Asia/ Pacifi c	% Change	Latin America	% Change
2008
Machinery \$ 31,804		12%	\$ 12,769	1%	\$ 9,220	7%	\$ 5,709	42%	\$ 4,106	30%
Engines1	16,240	19%	5,445	7%	6,311	20%	2,910	36%	1,574	39%
Financial Products2	3,280	9%	2,001	—	590	23%	361	50%	328	21%
	\$ 51,324	14%	\$ 20,215	3%	\$ 16,121	13%	\$ 8,980	40%	\$ 6,008	32%
2007
Machinery \$ 28,359			\$ 12,596		\$ 8,588		\$ 4,026		\$ 3,149
Engines1	13,603		5,092		5,245		2,136		1,130
Financial Products2	2,996		2,007		479		240		270
	\$ 44,958		\$ 19,695		\$ 14,312		\$ 6,402		\$ 4,549

Does not include internal engine transfers of \$2.822 billion and \$2.549 billion in 2008 and 2007, respectively. Internal engine transfers are valued at prices comparable to those for unrelated parties.

Machinery Sales

Sales of \$31.804 billion increased \$3.445 billion, or 12 percent, from 2007.

Excluding the consolidation of Cat Japan, sales volume increased \$2.138 billion, with the gain occurring in the developing economies of Africa/Middle East, Commonwealth of Independent States (CIS), Asia/Pacific and Latin America.
Price realization increased \$541 million.
Currency benefited sales by \$505 million.
Geographic mix between regions (included in price realization) was \$2 million favorable.
The consolidation of Cat Japan added \$261 million to 2008 sales.
Dealers in all regions reported higher inventories than yearend 2007 in both dollars and months of supply.
The U.S. economy was in recession throughout 2008, which contributed to weaknesses in both construction and quarrying. Coal mining and oil sands development were about the only positives for North America.
The euro-zone entered recession in the second quarter and the United Kingdom in the third quarter. As a result of these recessions, housing construction declined sharply, nonresidential construction weakened and sales volume declined.
Sales improved in the developing regions of Africa/Middle East, CIS, Asia/Pacific and Latin America through the first three quarters of 2008. However, growth slowed sharply in the fourth quarter in response to weakening economies.

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

Sales volume decreased \$143 million.
Price realization increased \$316 million.
Dealers added slightly to reported inventories this year, a contrast to more than a billion-dollar reduction in 2007. Dealers reported higher inventories than a year earlier in both dollars and months of supply.
Dealers reported significantly lower deliveries to end users, a result of the recession in the United States that persisted throughout the year. That recession led to lower sales in most key industries other than coal mining and the Canadian oil sands.
U.S. housing starts declined to 904 thousand units, the lowest since 1945. Negatives for housing included a severe tightening in mortgage lending standards, sharp declines in home prices and more than an 11-month supply of unsold new homes. Canadian housing starts declined 6 percent.
Spending for U.S. nonresidential construction increased in response to the surge in new orders over the past few years. However, new orders for commercial construction declined 18 percent in 2008. Problems for building construction included increased vacancy rates, declines in property prices and tighter credit conditions for businesses.
New orders for highway construction declined almost 7 percent. Unfavorable factors included limited growth in Federal highway funding, state and local government budget difficulties and a sharp increase in material input prices.
Nonmetals mining and quarry production dropped almost 14 percent in response to lower construction activity.
The Central Appalachian coal price rose 90 percent, driven by a 43-percent increase in U.S. coal exports. U.S. coal production increased 2.2 percent, and Canadian production rose 1.2 percent. As a result, sales of the large tractors used in coal mining surged.
Investment in Canadian oil sands increased 23 percent, benefiting from a 38-percent increase in crude oil prices.

EAME — Sales increased \$632 million, or 7 percent.

Sales volume increased \$196 million.
Price realization increased \$66 million.
Currency benefited sales by \$370 million.

Does not include revenues earned from Machinery and Engines of \$308 million and \$400 million in 2008 and 2007, respectively.

Dealers reported year-end 2008 inventories that were significantly higher than a year earlier in both dollars and months of supply.
Sales volume dropped in both the euro-zone and the United Kingdom, due to recessions and a slowing in construction.
Housing permits in the euro-zone dropped 22 percent, and U.K. housing orders fell 35 percent. High interest rates and home price declines in several European countries contributed to weakness in housing.
Mining and energy development, as well as increased construction, caused sales volume to increase in Africa/Middle East. Oil prices increased 37 percent, and production rose more than 4 percent from a year earlier, which led to an increase in drilling.
Sales volume increased significantly in the CIS region, despite economic problems that developed in the fourth quarter. Posi tive factors included low interest rates, increased government spending, increased energy prices and higher produc tion of most energy commodities.

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

Sales volume excluding the consolidation of Cat Japan increased \$1,254 million.
Price realization increased \$91 million.
Currency benefited sales by \$77 million.
The consolidation of Cat Japan added \$261 million to 2008 sales.
Dealers reported year-end 2008 inventories that were significantly higher than a year earlier in both dollars and months of supply.
The largest gain in sales volume occurred in China, the result of higher sales of locally produced wheel loaders and increased construction activity.
Another large gain in sales volume occurred in Indonesia, largely due to much higher coal prices. Indonesia is the world's largest exporter of thermal coal, and coal supplies in Asia were very tight for most of the year.
Sales volume increased in Australia, primarily due to high metals and energy prices. Capital expenditures for mineral development increased 37 percent, and expenditures for coal increased 46 percent. Rapid growth in the mining industry stretched infrastructure capacity so investment in infrastructure increased 13 percent.
In India, 11-percent growth in construction and 4 percent higher mining output contributed to an increase in sales volume.

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

Sales volume increased \$833 million.
Price realization increased \$66 million.
Currency benefited sales by \$58 million.
Dealers reported year-end 2008 inventories that were significantly higher than a year earlier in both dollars and months of supply.
Brazil had the largest increase in sales volume. Economic growth continued to benefit from interest rate reductions taken in 2007, resulting in a 10-percent increase in construction. Iron ore exports increased 62 percent, due to increased production and much higher prices.
Sales volume increased sharply in Mexico. Positives included much higher oil prices, increased natural gas production and 3-percent growth in construction.
Sales volume growth in Colombia occurred in response to much higher coal prices. In Chile, high copper prices led to an increase in sales volume.

Engines Sales

Sales of \$16.240 billion increased \$2.637 billion, or 19 percent, from 2007.

Sales volume increased \$1.678 billion.
Price realization increased \$811 million.
Currency benefited sales \$148 million.
Geographic mix between regions (included in price realization) was \$36 million favorable.
Dealer-reported inventories were up, and months of supply were up slightly, supporting strong delivery rates.

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

Sales volume increased \$62 million.
Price realization increased \$291 million.
Sales for on-highway truck applications increased 10 percent compared to a very weak 2007. Demand remained below historic norms due to the slowing U.S. economy that resulted in a reduction in freight tonnage. Also, the impact of the decision to exit the on-highway truck business was starting to be felt as Original Equipment Manufacturer (OEM) customers reduced their reliance on Caterpillar products.
Sales for petroleum engine applications increased 5 percent, driven by a slight increase in natural gas and drilling applications.
Sales for marine applications increased 37 percent, with strong demand early in the year for supply vessels that support offshore drilling. This more than offset a decline in engine sales for pleasure craft.
Sales for industrial applications increased 11 percent.
Sales for electric power applications decreased 2 percent due to economic uncertainty and tightening credit conditions.

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

Sales volume increased \$639 million.
Price realization increased \$293 million.
Currency benefited sales by \$134 million.
Sales for petroleum applications increased 46 percent based on strong demand for engines used in drilling and production. Turbines and turbine-related services increased in support of gas transmission and oil and gas production applications in Africa, Europe and the Middle East.
Sales for electric power applications increased 18 percent, with strong demand for large- and mid-sized generator sets into Africa and the Middle East. Mid-sized generator sets also benefited from successful rental development.
Sales for marine applications increased 30 percent in workboats and commercial vessels.
Sales for industrial applications increased 6 percent, with strong demand for small engines used in the telecom sector. In addition, demand for agricultural applications also improved as a result of high agricultural commodity prices.

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

Sales volume increased \$603 million.
Price realization increased \$157 million.
Currency benefited sales by \$14 million.
Sales for petroleum applications increased 54 percent to support record Chinese drill rig activity and increased demand for Asian shipyards in support of offshore drilling.
Sales for marine applications increased 30 percent, with strong demand for workboats and offshore shipbuilding. Large diesel demand grew in the offshore and general cargo industries.

MANAGEMENT'S DISCUSSION AND ANALYSIS continued

Sales of electric power engines increased 18 percent, with increased demand from Bangladesh industrial customers, and continued success with Chinese coal mine methane customers, for large gas generator sets. Diesel demand resulted from data and telecommunication center demand in China, and utility, mining and paper mill demand from Indonesia.
Sales for industrial applications increased 62 percent driven by sales in Australia into mining and irrigation sectors and by sales in New Zealand.

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

Sales volume increased \$410 million.
Price realization increased \$34 million.
Sales for petroleum applications increased 61 percent driven by the heightened demand for power to support drilling and production in Argentina, Venezuela, Mexico and Peru. Turbines and turbine-related services increased for oil and gas production and gas transmission applications in South America.
Sales of electric power engines increased 37 percent driven by high commodity prices and infrastructure investment.
Sales for industrial applications increased 29 percent. This demand was driven by good economic conditions and higher agricultural commodity prices.
Sales for on-highway truck applications decreased 7 percent as a result of a loss of OEM business in this region.

Financial Products Revenues

Revenues of \$3.280 billion increased \$284 million, or 9 percent, from 2007.

Growth in average earning assets increased revenues \$368 million, which was partially offset by a decrease of \$175 million due to lower interest rates on new and existing finance receivables.
Revenues from earned premiums at Cat Insurance increased \$84 million.

OPERATING PROFIT

Consolidated Operating Profit Comparison

The chart above graphically illustrates reasons for the change in Consolidated Operating Profit between 2007 (at left) and 2008 (at right). Items favorably impacting operating profit appear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting operating profit appear as downward stair steps with dollar amounts reflected in parentheses above each bar. Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees. The bar entitled Other includes the operating profit impact of consolidating adjustments, consolidation of Cat Japan and Machinery and Engines other operating expenses.

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

Manufacturing costs increased \$1.694 billion compared with 2007. The majority of the manufacturing cost increase was driven by higher material and freight costs. Material costs increased due to higher steel and commodity prices, and freight costs increased primarily due to higher fuel prices, and expediting costs related to higher production volume. In addition, manufacturing labor and overhead costs increased to support capacity expansion and velocity initiatives.

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

Currency had a \$154 million unfavorable impact on operating profit as the benefit to sales was more than offset by the negative impact on costs.

Operating Profit (Loss) by Principal Line of Business

(Millions of dollars)	2008	2007	\$ Change	% Change
Machinery1	\$ 1,803	\$ 2,758	\$ (955)	(35)%
Engines1	2,319	1,826	493	27%
Financial Products	579	690	(111)	(16)%
Consolidating Adjustments	(253)	(353)	100
Consolidated Operating Profit	\$ 4,448	\$ 4,921	\$ (473)	(10)%

Caterpillar operations are highly integrated; therefore, the company uses a number of allocations to determine lines of business operating profit for Machinery and Engines.

Machinery operating profit of \$1.803 billion was down \$955 million, or 35 percent, from 2007. Improved price realization and higher sales volume were more than offset by higher costs and the unfavorable impact of currency. Although machinery operating profit has declined in 2008, operating profit for the Mining segment improved primarily due to higher sales volumes and was a higher proportion of total machinery operating profit.
Engines operating profit of \$2.319 billion was up \$493 million, or 27 percent, from 2007. The favorable impacts of improved price realization and higher sales volume were partially offset by higher costs.
Financial Products operating profit of \$579 million was down \$111 million, or 16 percent, from 2007. The decrease was attributable to a \$136 million increase in SG&A expenses due primarily to a \$95 million increase in the provision for credit losses at Cat Financial, a \$105 million impact from decreased net yield of average earning assets, partially offset by a \$130 million favorable impact from higher average earning assets.

OTHER PROFIT/LOSS ITEMS

Other income/expense was income of \$327 million compared with income of \$357 million in 2007. The favorable currency impacts of \$79 million were more than offset by a \$50 million unfavorable change in mark-to-market adjustments on interest rate derivative contracts at Cat Financial and a \$37 million impairment of investments in Cat Insurance's portfolio as a result of poor market performance. In addition, a 2008 gain of \$60 million on the sale of our equity investment in ASV was partially offset by the absence of a \$46 million gain on the sale of a cost-basis investment in 2007.
The provision for income taxes for 2008 reflects an annual tax rate of 31.3 percent, excluding the discrete items discussed below, compared to a 29.8-percent rate in 2007. The increase in the tax rate excluding discrete items over 2007 is attributable to changes in our geographic mix of profits from a tax perspective.
The provision for income taxes for 2008 also includes discrete benefits of \$456 million. Repatriation of non-U.S. earnings resulted in a tax benefit of \$409 million due to available foreign tax credits in excess of the U.S. tax liability on the dividend. A benefit of \$47 million was also recorded in 2008 due to a change in tax status of a non-U.S. subsidiary allowing indefinite reinvestment of undistributed profits and reversal of U.S. tax previously recorded.
Equity in profit/(loss) of unconsolidated affiliated companies was income of \$37 million compared with income of \$73 million in 2007. The decrease is primarily related to lower profit at

Shin Caterpillar Mitsubishi Ltd. (SCM) through the first nine months and the absence of profit after the consolidation of Cat Japan.

On August 1, 2008, SCM redeemed one-half of Mitsubishi Heavy Industries Ltd.'s (MHI's) shares in SCM for \$464 million. Caterpillar now owns 67 percent of the renamed entity, Caterpillar Japan Ltd. We consolidated Cat Japan's balance sheet on September 30, 2008. We began consolidating Cat Japan's results of operations in the fourth quarter.

Employee Separation Charges

In 2008, we recognized employee separation charges of \$30 million in Other operating (income) expenses related to various voluntary and involuntary separation programs. These programs, impacting 3,085 employees worldwide, were in response to a sharp decline in sales volume due to the global recession.

In 2009, continued cost reduction efforts worldwide resulted in additional separation charges of \$481 million, recognized in Other operating (income) expenses. These efforts related to the following separation programs:

The following table summarizes the 2008 and 2009 separation charges by geographic region:

		Machinery a	and Engines
(Millions of dollars)	North America	EAME	Latin America	Asia/ Pacific	Financial Products ¹	Total
2008 Separation charges		\$ 17 (12) \$ 5	\$ 9 (7) \$ 2	\$ —	\$ — \$ —	\$ 30 (19) \$ 11
2009 Separation charges	\$ 323 (313) \$ 14	\$ 102 (78) \$ 29	\$ 15 (17) \$ —	\$ 31 (25) \$ 6	\$ 10 (10) \$ —	\$ 481 (443) \$ 49

The following table summarizes the number of employees that accepted or were subject to the programs:

	2009	2008
Impacted employees at beginning of period	1,505	_
Impacted employees during the period	15,868	3,085
Employee separations during the period	(16,970)	(1,580)
Impacted employees remaining
at the end of period	403	1,505

The majority of the employees that accepted or were subject to the programs but were still employed as of December 31, 2009 will be separated by the end of the first quarter 2010.

Shin Caterpillar Mitsubishi Ltd. (SCM)

fair values as of the transaction date. The revaluation resulted in an increase in property, plant and equipment of \$78 million and an increase in inventory of \$8 million over the book value of these assets. Finite-lived intangible assets of \$54 million were recognized and related primarily to customer relationships, intellectual property and trade names. These intangibles are being amortized on a straight-line basis over a weighted-average amortization period of approximately 9 years. Deferred tax liabilities of \$57 million were also recognized as part of the business combination. Goodwill of \$206 million, non-deductible for income tax purposes, represents the excess of the redemption price over the 17 percent of Cat Japan's net tangible and finite-lived intangible assets that were reported at their fair values.

The remaining 33 percent of Cat Japan owned by MHI has been reported as redeemable noncontrolling interest and classified as mezzanine equity (temporary equity) in the Consolidated Statement of Financial Position. On September 30, 2008, the redeemable noncontrolling interest was reported at its estimated future redemption value of \$464 million with the difference between the \$351 million book value of the 33 percent interest and the redemption value reported as a \$113 million reduction of Profit employed in the business.

The redeemable noncontrolling interest will continue to be reported at its estimated redemption value. Any adjustment to the redemption value impacts Profit employed in the business, but does not impact Profit. If the fair value of the redeemable noncontrolling interest falls below the redemption value, profit available to common stockholders would be reduced by the difference between the redemption value and the fair value. This would result in lower profit in the profit per common share computation in that period. Reductions impacting the profit per common share computation may be partially or fully reversed in subsequent periods if the fair value of the redeemable noncontrolling interest increases relative to the redemption value. Such

increases in profit per common share would be limited to cumulative prior reductions. During 2009, the estimated redemption value decreased, resulting in adjustments to the carrying value of the redeemable noncontrolling interest. Profit employed in the business increased by \$81 million due to these adjustments. There was no change to the estimated redemption value in 2008. As of December 31, 2009 and 2008, the fair value of the redeemable noncontrolling interest remained greater than the estimated redemption value.

Cat Japan is included in the Cat Japan reportable segment. Assuming this transaction had been made at the beginning of any period presented, the consolidated pro forma results would not be materially different from reported results.

GLOSSARY OF TERMS

1. Caterpillar Japan Ltd. (Cat Japan) A Caterpillar subsidiary formerly known as Shin Caterpillar Mitsubishi Ltd. (SCM). SCM was a 50/50 joint venture between Caterpillar and Mitsubishi Heavy Industries Ltd. (MHI) until SCM redeemed one half of MHI's shares on August 1, 2008. Caterpillar now owns 67 percent of the renamed entity. We began consolidating Cat Japan in the fourth quarter of 2008. Cat Japan's redundancy costs are included in total redundancy costs.
1. Caterpillar Production System The Caterpillar Production System is the common Order-to-Delivery process being implemented enterprise-wide to achieve our safety, quality, velocity, earnings and growth goals for 2010 and beyond.
1. Consolidating Adjustments Eliminations of transactions between Machinery and Engines and Financial Products.
1. Currency With respect to sales and revenues, currency represents the translation impact on sales resulting from

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

1. Debt-to-Capital Ratio A key measure of financial strength used by both management and our credit rating agencies. The metric is a ratio of Machinery and Engines debt (shortterm borrowings plus long-term debt) and redeemable noncontrolling interest to the sum of Machinery and Engines debt, redeemable noncontrolling interest and stockholders' equity.
1. EAME Geographic region including Europe, Africa, the Middle East and the Commonwealth of Independent States (CIS).
1. Earning Assets Assets consisting primarily of total finance receivables net of unearned income, plus equipment on operating leases, less accumulated depreciation at Cat Financial.
1. Engines A principal line of business including the design, manufacture, marketing and sales of engines for Caterpillar machinery; electric power generation systems; locomotives; marine, petroleum, construction, industrial, agricultural and other applications and related parts. Also includes remanufacturing of Caterpillar engines and a variety of Caterpillar machinery and engine components and remanufacturing services for other companies. Reciprocating engines meet power needs ranging from 10 to 21,800 horsepower (8 to more than 16 000 kilowatts). Turbines range from 1,600 to 30,000 horsepower (1 200 to 22 000 kilowatts).
1. Financial Products A principal line of business consisting primarily of Caterpillar Financial Services Corporation (Cat Financial), Caterpillar Insurance Holdings, Inc. (Cat Insurance) and their respective subsidiaries. Cat Financial provides a wide range of financing alternatives to customers and dealers for Caterpillar machinery and engines, Solar gas turbines as well as other equipment and marine vessels. Cat Financial also extends loans to customers and dealers. Cat Insurance provides various forms of insurance to customers and dealers to help support the purchase and lease of our equipment.
1. Integrated Service Businesses A service business or a business containing an important service component. These businesses include, but are not limited to, aftermarket parts, Cat Financial, Cat Insurance, Cat Logistics, Cat Reman, Progress Rail, OEM Solutions and Solar Turbine Customer Services.
1. Latin America Geographic region including Central and South American countries and Mexico.
1. LIFO Inventory Decrement Benefits A significant portion of Caterpillar's inventory is valued using the last-in, first-out (LIFO) method. With this method, the cost of inventory is comprised of "layers" at cost levels for years when inventory increases occurred. A LIFO decrement occurs when

inventory decreases, depleting layers added in earlier, generally lower cost, years. A LIFO decrement benefit represents the impact on profit of charging cost of goods sold with prior-year cost levels rather than current period costs.

1. Machinery A principal line of business which includes the design, manufacture, marketing and sales of construction, mining and forestry machinery — track and wheel tractors, track and wheel loaders, pipelayers, motor graders, wheel tractor-scrapers, track and wheel excavators, backhoe loaders, log skidders, log loaders, off-highway trucks, articulated trucks, paving products, skid steer loaders, underground mining equipment, tunnel boring equipment and related parts. Also includes logistics services for other companies and the design, manufacture, remanufacture, maintenance and services of rail-related products.
1. Machinery and Engines (M&E) Due to the highly integrated nature of operations, it represents the aggregate total of the Machinery and Engines lines of business and includes primarily our manufacturing, marketing and parts distribution operations.
1. Machinery and Engines Other Operating (Income) Expenses — Comprised primarily of gains/losses on disposal of longlived assets, long-lived asset impairment charges and employee redundancy costs.
1. Manufacturing Costs Manufacturing costs exclude the impacts of currency and represent the volume-adjusted change for variable costs and the absolute dollar change for period manufacturing costs. Variable manufacturing costs are defined as having a direct relationship with the volume of production. This includes material costs, direct labor and other costs that vary directly with production volume such as freight, power to operate machines and supplies that are consumed in the manufacturing process. Period manufacturing costs support production but are defined as generally not having a direct relationship to short-term changes in volume. Examples include machinery and equipment repair, depreciation on manufacturing assets, facility support, procurement, factory scheduling, manufacturing planning and operations management.
1. Price Realization The impact of net price changes excluding currency and new product introductions. Consolidated price realization includes the impact of changes in the relative weighting of sales between geographic regions.
1. Redundancy Costs Costs related to employment reduction including employee severance charges, pension and other postretirement benefit plan curtailments and settlements and healthcare and supplemental unemployment benefits.
1. Sales Volume With respect to sales and revenues, sales volume represents the impact of changes in the quantities sold for machinery and engines as well as the incremental revenue impact of new product introductions. With respect to operating profit, sales volume represents the impact of changes in the quantities sold for machinery and engines combined with product mix — the net operating profit impact of changes in the relative weighting of machinery and engines sales with respect to total sales.
1. 6 Sigma On a technical level, 6 Sigma represents a measure of variation that achieves 3.4 defects per million opportunities. At Caterpillar, 6 Sigma represents a much broader cultural philosophy to drive continuous improvement throughout the value chain. It is a fact-based, data-driven methodology that we are using to improve processes, enhance

quality, cut costs, grow our business and deliver greater value to our customers through black belt-led project teams. At Caterpillar, 6 Sigma goes beyond mere process improvement — it has become the way we work as teams to process business information, solve problems and manage our business successfully.

LIQUIDITY AND CAPITAL RESOURCES

We generate significant capital resources from operating activities, which are the primary source of funding for our Machinery and Engines operations. Funding for these businesses is also provided by commercial paper and long-term debt issuances. Financial Products operations are funded primarily from commercial paper, term debt issuances and collections from their existing portfolio. Throughout 2009, we continued to have access to liquidity in both our Machinery and Engines and Financial Products operations. Despite adverse business conditions during most of 2009, we remained profitable and generated strong cash flow. Execution of our strategic trough plans, such as reducing costs, capital expenditures and inventory levels and suspending Caterpillar stock repurchases, lowered our cash needs during 2009. These factors allowed the company to continue to fund strategic growth initiatives, make pension contributions and maintain the dividend and our "mid-A" credit rating. On a consolidated basis, we ended the year with \$4.9 billion of cash, an increase of \$2.1 billion from year-end 2008. Our cash balances are held in numerous locations throughout the world. Most of the amounts held outside the U.S. could be repatriated to the U.S. but generally would be subject to incremental U.S. income taxes.

Consolidated operating cash flow for 2009 was \$6.34 billion, compared with \$4.80 billion in 2008. The global recession has resulted in significant changes in the components of operating cash flow from 2008 to 2009. Operating cash flow in 2009 benefited from significant declines in both receivables and inventory. The receivables decline was a result of lower sales in 2009 and the decrease in inventory was a result of aggressive trough actions by management and declining sales volume. Offsetting these items was a significant decrease in accounts payable reflecting significantly lower rates of material purchases, capital expenditures and costs in 2009 compared with 2008. In 2008, profit of consolidated and affiliated companies of \$3.59 billion had a positive impact on operating cash flow while the change in working capital was unfavorable primarily due to higher inventory and receivables. See further discussion of operating cash flow under Machinery and Engines and Financial Products.

Total debt as of December 31, 2009 was \$31.63 billion, a decrease of \$3.90 billion from year-end 2008. Debt related to Machinery and Engines decreased \$1.44 billion in 2009, primarily due to lower short-term borrowings. Debt related to Financial Products decreased \$2.47 billion reflecting declining portfolio balances at Cat Financial.

The five-year facility of \$1.62 billion expires in September 2012.
The five-year facility of \$2.98 billion expires in September 2011.

• In September 2009, we renewed the 364-day facility. The amount was increased from \$2.25 billion to \$2.39 billion and expires in September 2010.

At December 31, 2009, Cat Financial's interest coverage ratio was 1.26 to 1. This is above the 1.15 to 1 minimum ratio of (1) profit excluding income taxes, interest expense and net gain/(loss) from interest rate derivatives to (2) interest expense calculated at the end of each calendar quarter for the rolling four quarter period then most recently ended.

Our total credit commitments as of December 31, 2009 were:

(Millions of dollars)	Consolidated	Machinery and Engines	Financial Products
Credit lines available:
Global credit facilities	\$ 8,363	\$ 2,8751	\$ 5,488
Other external	4,726	1,187	3,539
Total credit lines available	13,089	4,062	9,027
Less: Global credit facilities supporting
commercial paper	(2,233)	—	(2,233)
Less: Utilized credit	(2,414)	(367)	(2,047)
Available credit	\$ 8,442	\$ 3,695	\$ 4,747
1 Includes \$1.37 billion from Credit Facility 2.

Other consolidated credit lines with banks as of December 31, 2009 total \$4.73 billion. These credit lines, which are eligible for renewal at various future dates or have no specified expiration date, are used primarily by our subsidiaries for local funding requirements. Caterpillar or Cat Financial generally guarantees subsidiary borrowings under these lines.

Uncertain economic conditions present the risk that one or more of the credit rating agencies may decrease their credit rating for Caterpillar, Cat Financial or their debt securities. In the event that Caterpillar or Cat Financial, or any of their debt securities, experiences a credit rating downgrade it would likely result in an increase in our borrowing costs and make access to certain credit markets more difficult.

While we expect global economic conditions to improve in 2010, in the event they deteriorate from current levels or access to debt markets becomes unavailable, our Machinery and Engines operations would rely on cash flow from operations, use of existing cash balances, borrowings from Cat Financial and access to our Credit Facilities. Our Financial Products operations would rely on cash flow from its existing portfolio, utilization of existing cash balances, access to our Credit Facilities and other credit line facilities held by Cat Financial and potential borrowings from Caterpillar. In addition, Caterpillar maintains a support agreement with Cat Financial, which requires Caterpillar to remain the sole owner of Cat Financial and may, under certain circumstances, require Caterpillar to make payments to Cat Financial should Cat Financial fail to maintain certain financial ratios.

Machinery and Engines

Net cash provided by operating activities was \$2.99 billion in 2009 compared to cash provided by operating activities of \$3.57 billion in 2008. The change was due to a significant decline in profit largely offset by favorable changes in working capital. Current year profit of consolidated and affiliated companies was \$811 million while profit of consolidated and affiliated companies was \$3.57 billion a year ago. In 2009, the significant decline in inventory and receivables more than offset a decrease in accounts payable and other working capital items resulting in a favorable impact on operating cash flow. In 2008, the benefit from profit of consolidated and affiliated companies was offset by an increase in working capital, primarily inventory. Net cash used for investing activities in 2009 was \$680 million compared to \$2.56 billion used for investing activities in 2008. The change was primarily due to a \$1.08 billion reduction in capital expenditures and higher proceeds from intercompany loans in 2009. Net cash used for financing activities in 2009 was \$1.58 billion compared with cash used for financing activities of \$529 million during the same period a year ago. During 2009, proceeds from loans with Cat Financial of \$963 million were offset by payments on short and long-term borrowings and dividend payments of \$1.03 billion. During 2008, there were \$1.8 billion of payments for Caterpillar stock repurchases and dividend payments of \$953 million, partially offset by short and long-term debt issuances. Given the current economic conditions, we have suspended our stock repurchase program.

Our priorities for the use of cash are a strong financial position that helps protect our credit rating, capital to support growth, appropriately funded employee benefit plans, paying dividends and common stock repurchases with excess cash.

Strong financial position — A key measure of Machinery and Engines financial strength used by both management and our credit rating agencies is Machinery and Engines' debt-to-capital ratio. Debt-to-capital is defined as short-term borrowings, long-term debt due within one year, redeemable noncontrolling interest and long-term debt due after one year (debt) divided by the sum of debt (including redeemable noncontrolling interest) and stockholders' equity. Debt also includes borrowings from Financial Products. The debt-to-capital ratio for Machinery and Engines was 47.2 percent at December 31, 2009 compared to 57.5 percent at December 31, 2008, above our target range of 35 to 45 percent. A \$1.0 billion after-tax benefit to Accumulated other comprehensive income (loss) to recognize the change in funded status of our pension and other postretirement benefit plans during the fourth quarter decreased the debt-to-capital ratio 3 percentage points. Profit, the company stock contribution to our pension plans (discussed below), and lower debt levels also contributed to the reduction. In addition to the debt-to-capital ratios, certain rating agencies have increased their focus on the extent to which Caterpillar and Cat Financial have cash and cash equivalents and unused credit lines available to meet short-term debt requirements. Caterpillar and Cat Financial have been taking this focus into account when planning for liquidity needs. This focus has resulted in higher cash balances and corresponding increases in the net cost of funds for Caterpillar and Cat Financial.

Capital to support growth — Capital expenditures during 2009 were \$1.34 billion, a decrease of \$1.08 billion compared to 2008. The expenditures were primarily used to complete in-flight projects and start only the highest priority new projects such as Tier 4 emissions, expanding our manufacturing presence in China and other strategically important investments. We expect capital expenditures to be about \$1.6 billion in 2010, an increase of nearly 20 percent from 2009.

Appropriately funded employee benefit plans — At the end of 2009, our defined benefit pension plans were 76-percent funded, up from 61 percent at the end of 2008. We made contributions of \$1.1 billion to those plans during 2009. To provide the company with greater financial flexibility, we funded a portion of the contribution with company stock. In May 2009, 18.2 million shares of company stock were contributed to U.S. pension plans. This equated to a contribution of approximately \$650 million. Strong asset returns, including the appreciation of Caterpillar stock, contributed to the increase in funded status. We expect to make approximately \$1 billion in contributions during 2010. In addition, beginning in June 2009, the company began funding the 401(k) match with company stock. This equated to a contribution of \$68 million (1.4 million shares) for the year.

Paying dividends — Dividends paid totaled \$1.03 billion in 2009, representing 42 cents per share in each quarter. 2009 marks the sixteenth consecutive year our annual dividend per share has increased. Each quarter, our Board of Directors reviews the company's dividend and determines whether to increase, maintain or decrease the dividend for the applicable quarter. The Board evaluates the financial condition of the company and considers the economic outlook, corporate cash flow, the company's liquidity needs, and the health and stability of global credit markets to determine whether to maintain or change the quarterly dividend.

Common stock repurchases — Pursuant to the February 2007 Board-authorized stock repurchase program, which expires on December 31, 2011, \$3.8 billion of the \$7.5 billion authorized has been spent through December 31, 2009. As a result of current economic conditions, we have suspended our stock repurchase program. Basic shares outstanding as of December 31, 2009 were 625 million.

Financial Products

Financial Products operating cash flow of \$1.10 billion was about the same as 2008. Net cash provided by investing activities in 2009 was \$3.37 billion, compared to a use of cash of \$3.75 billion in 2008. This change is the result of lower levels of new retail financing at Cat Financial, partially offset by lower collections. Net cash used for financing activities in 2009 was \$3.08 billion, compared to a source of cash of \$3.62 billion in 2008, primarily due to lower funding requirements.

During the fourth quarter of 2009, overall portfolio quality continued to reflect signs of stress related to general economic conditions. At year-end 2009, past dues were slightly lower at 5.54 percent compared with 5.79 percent at the end of the third quarter. At year-end 2008, past dues were 3.88 percent. We expect there will be continued pressure on past dues during the first half of 2010, with gradual improvement as the global economy improves in the second half of the year. In 2009, Cat Financial continued its prudent portfolio management practices which include conservative underwriting, heightened collection activities and contract modifications where appropriate. Such contract modifications may involve Cat Financial receiving credit enhancements and are done to help maximize Cat Financial results as well as help customers manage through difficult economic times.

Bad debt write-offs, net of recoveries, were \$86 million for the fourth quarter of 2009, up from \$65 million in the third quarter of 2009 and \$60 million in the fourth quarter of 2008. Total bad debt write-offs were \$253 million in 2009 compared to \$121 million in 2008. The \$132 million year-over-year increase was driven by adverse economic conditions, primarily in North America, and to a lesser extent in Europe.

Full-year 2009 losses were 1.03 percent of the average retail portfolio compared to 0.48 percent for 2008. This result was higher in comparison to the peak of 0.69 percent reached in the most recent periods of economic weakness in 2001 and 2002.

At the end of 2009, Cat Financial's allowance for credit losses was 1.64 percent of net finance receivables, increasing from 1.44 percent on December 31, 2008. The allowance for credit losses totaled \$377 million compared with \$395 million on December 31, 2008. The allowance for credit losses reflected a \$64 million decrease due to a reduction in the overall net finance receivable portfolio, partially offset by a \$46 million increase associated with the higher allowance rate.

Cat Financial has been able to access ample liquidity to cover all maturing debt obligations utilizing a broad and diverse global funding program. Cat Financial's global funding strategy helps reduce foreign currency exchange risk by matching locally denominated funding with portfolio receivables. For the full-year 2009, Cat Financial issued \$3.4 billion in U.S. medium-term notes, \$690 million in U.S. retail notes, €650 million in euro medium-term notes, C\$500 million in Canadian dollar medium-term notes, ¥14.4 billion in Japanese yen medium-term notes, A\$250 million in Australian dollar medium-term notes and ARS 61.8 million in Argentine peso medium-term notes. Year-end 2009 commercial paper outstanding totaled \$2.2 billion. Proceeds from Cat Financial's 2009 debt issuance, combined with year-to-date cash receipts, covered all 2009 debt maturities and generated a cash balance of \$2.5 billion at the end of the fourth quarter of 2009. Our resulting liquidity position remains strong. Cat Financial's 2010 longterm debt maturities are approximately \$5.4 billion, of which a portion will be funded by current cash balances and projected cash receipts. Cat Financial will remain selective and opportunistic in issuing new term debt in 2010.

To maintain an alternative funding source, Cat Financial periodically sells certain finance receivables relating to retail installment sale contracts and finance leases to special purpose entities (SPEs) as part of Cat Financial's securitization program. The SPEs have limited purposes and generally are only permitted to purchase the finance receivables, issue asset-backed securities and make payments on the securities. The SPEs only issue a single series of securities and generally are dissolved when those securities have been paid in full. The SPEs, typically trusts, are considered to be qualifying special-purpose entities (QSPEs) and are not consolidated. The QSPEs issue debt to pay for the finance receivables they acquire from Cat Financial. The primary source for repayment of the debt is the cash flows generated from the finance receivables owned by the QSPEs. The assets of the QSPEs are legally isolated and are not available to pay Cat Financial's creditors. Cat Financial uses QSPEs in a manner consistent with conventional practices in the securitization industry to isolate these finance receivables, which are secured by new and used equipment, for the benefit of securitization investors.

The use of the QSPEs enables Cat Financial to access the U.S. securitization market for the sale of these types of financial assets. The amounts of funding from securitizations reflect such factors as capital market accessibility, relative costs of funding sources and assets available for securitization. In 2008, Cat Financial had cash proceeds from initial sales of receivables of \$600 million and recognized a pre-tax gain of \$12 million. The fair value of the retained interests in all securitizations of retail finance receivables outstanding, totaling \$102 million and \$52 million as of December 31, 2009 and 2008, respectively, are included in Other assets. Cat Financial's sensitivity analysis indicated that the impact of a 20 percent adverse change in individual assumptions used to calculate the fair value of all retained interests as of December 31, 2009 would be \$11 million or less.

Dividends paid per common share
Quarter	2009	2008	2007
First	\$ .420	\$ .360	\$ .300
Second	.420	.360	.300
Third	.420	.420	.360
Fourth	.420	.420	.360
	\$ 1.680	\$ 1.560	\$ 1.320

Contractual obligations

The company has committed cash outflow related to long-term debt, operating lease agreements, postretirement obligations, purchase obligations, interest on long-term debt and other long-term contractual obligations. Minimum payments for these obligations are:

(Millions of dollars)	2010	2011	2012	2013	2014	After 2014	Total
Long-term debt:
Machinery and Engines (excluding capital leases)	\$ 174	\$ 607	\$ 220	\$ 534	\$ 39	\$ 4,041	\$ 5,615
Machinery and Engines-capital leases	128	94	32	37	8	40	339
Financial Products	5,399	3,084	3,456	2,364	1,942	5,349	21,594
Total long-term debt	5,701	3,785	3,708	2,935	1,989	9,430	27,548
Operating leases	247	193	152	120	106	438	1,256
Postretirement obligations1	1,100	1,270	1,480	1,410	1,390	4,330	10,980
Purchase obligations:
Accounts payable2	2,993	—	—	—	—	—	2,993
Purchase orders3	4,145	—	—	—	—	—	4,145
Other contractual obligations4	130	121	21	4	3	20	299
Total purchase obligations	7,268	121	21	4	3	20	7,437
Interest on long-term debt5	1,193	1,075	970	832	665	6,751	11,486
Other long-term obligations6	169	128	80	23	17	23	440
Total contractual obligations	\$ 15,678	\$ 6,572	\$ 6,411	\$ 5,324	\$ 4,170	\$ 20,992	\$ 59,147

Amounts represent expected contributions to our pension and other postretirement benefit plans through 2019, offset by expected Medicare Part D subsidy receipts.
Amount represents invoices received and recorded as liabilities in 2009, but scheduled for payment in 2010. These represent short-term obligations made in the ordinary course of business.
Amount represents contractual obligations for material and services on order at December 31, 2009 but not yet delivered. These represent short-term obligations made in the ordinary course of business.
Amounts represent long-term commitments entered into with key suppliers for minimum purchases quantities.
Amounts represent estimated contractual interest payments on long-term debt, including capital lease interest payments.
6 Amounts represent contractual obligations primarily related to software license contracts, IT consulting contracts and outsourcing contracts for benefit plan administration and software system support.

We adopted the accounting guidance on uncertainty in income taxes as of January 1, 2007. The total amount of gross unrecognized tax benefits for uncertain tax positions, including positions impacting only the timing of tax benefits, was \$761 million at December 31, 2009. Payment of these obligations would result from settlements with taxing authorities. Due to the difficulty in determining the timing of settlements, these obligations are not included in the table above. We do not expect a significant tax payment related to these obligations within the next year.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts. The more significant estimates include: residual values for leased assets, fair values for goodwill impairment tests, impairment of available-for-sale securities, warranty liability, stock-based compensation, reserves for product liability and insurance losses, postretirement benefits, post-sale discounts, credit losses and income taxes. We have incorporated many years of data into the determination of each of these estimates and we have not historically experienced significant adjustments. These assumptions are reviewed at least annually with the Audit Committee of the Board of Directors. Following are the methods and assumptions used in determining our estimates and an indication of the risks inherent in each.

Residual values for leased assets — The residual values for Cat Financial's leased assets, which are based upon the estimated wholesale market value of leased equipment at the time of the expiration of the lease, are based on a careful analysis of historical wholesale market sales prices, projected forward on a level trend line without consideration for inflation or possible future pricing action. At the inception of the lease, residual values are derived from consideration of the following critical factors: market size and demand, any known significant market/product trends, total expected hours of usage, machine configuration, application, location, model changes, quantities and past re-marketing experience, third-party residual guarantees and contractual customer purchase options. During the term of the leases, residual amounts are monitored. If estimated market values reflect a nontemporary impairment due to economic factors, obsolescence or other adverse circumstances, the residuals are adjusted to the lower estimated values by a charge to earnings. For equipment on operating leases, the charge is recognized through depreciation expense. For finance leases, it is recognized through a reduction of finance revenue.

Fair values for goodwill impairment tests — We test goodwill for impairment annually, at the reporting unit level, and whenever events or circumstances make it likely that an impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell all or a portion of a reporting unit. We perform our annual goodwill impairment test as of October 1 and monitor for interim triggering events on an ongoing basis.

Goodwill is reviewed for impairment utilizing a two-step process. The first step requires us to compare the fair value of each reporting unit to the respective carrying value, which includes goodwill. If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired. If the carrying value is greater than the fair value, there is an indication that an impairment may exist and the second step is required. In step two, the implied fair value of the goodwill is calculated as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities. If the implied fair value of goodwill is less than the carrying value of the reporting unit's goodwill, the difference is recognized as an impairment loss.

The impairment test process requires valuation of the respective reporting unit, which we primarily determine using an income approach based on a discounted five year forecasted cash flow with a year-five residual value. The residual value is computed using the constant growth method, which values the forecasted cash flows in perpetuity. The income approach is supported by a reconciliation of our calculated fair value for Caterpillar to the company's market capitalization. The assumptions about future cash flows and growth rates are based on each reporting unit's long-term forecast and are subject to review and approval by senior management. The discount rate is based on our weighted average cost of capital, which we believe approximates the rate from a market participant's perspective. The estimated fair value could be impacted by changes in market conditions, interest rates, growth rates, tax rates, costs, pricing and capital expenditures.

The 2009 annual impairment test, completed in the fourth quarter, indicated the fair value of each of our reporting units was above its respective carrying value, including goodwill, with the exception of our Forest Products reporting unit. Because the carrying value of Forest Products exceeded its fair value, step two in the impairment test process was required. We allocated the fair value to the unit's assets and liabilities and determined the implied fair value of the goodwill was insignificant. Accordingly, we recognized a \$22 million non-cash goodwill impairment charge for Forest Products' entire goodwill amount. The primary factor contributing to the impairment was the historic decline in demand for purpose built forest product machines caused by the significant reduction in U.S. housing construction, lower prices for pulp, paper and wood product commodities, and reduced capital availability in the forest products industry. The fair values for all other reporting units were well above their respective carrying values at the measurement date. Additionally, Caterpillar's market capitalization has remained significantly above the net book value of the company.

A prolonged economic downturn resulting in lower long-term growth rates and reduced long-term profitability may reduce the fair value of our reporting units. Industry specific events or circumstances that have a negative impact to the valuation assumptions may also reduce the fair value of our reporting units. Should such events occur and it becomes more likely than not that a reporting unit's fair value has fallen below its carrying value, we will perform an interim goodwill impairment test(s), in addition to the annual impairment test. Future impairment tests may result in a goodwill impairment, depending on the outcome of both step one and step two of the impairment review process. A goodwill impairment would be reported as a non-cash charge to earnings.

Impairment of available-for-sale securities — Available-forsale securities, primarily at Cat Insurance, are reviewed at least quarterly to identify fair values below cost which may indicate that a security is impaired and should be written down to fair value.

For debt securities, once a security's fair value is below cost we utilize data gathered by investment managers, external sources and internal research to monitor the performance of the security to determine whether an other-than-temporary impairment has occurred. These reviews, which include an analysis of whether it is more likely than not that we will be required to sell the security before its anticipated recovery, consist of both quantitative and qualitative analysis and require a degree of management judgment. Securities in a loss position are monitored and assessed at least quarterly based on severity of loss and may be deemed other-than-temporarily impaired at any time. Once a security's fair value has been twenty percent or more below its original cost for six consecutive months, the security will be other-thantemporarily impaired unless there are sufficient facts and circumstances supporting otherwise.

For equity securities in a loss position, determining whether the security is other-than-temporarily impaired requires an analysis of the securities' historical sector returns and volatility. This information is utilized to estimate the security's future fair value to assess whether the security has the ability to recover to its original cost over a reasonable period of time as follows:

Historical annualized sector returns over a two-year period are analyzed to estimate the security's fair value over the next two years.
The volatility factor for the security is applied to the sector historical returns to further estimate the fair value of the security over the next two years.

In the event the estimated future fair value is less than the original cost, qualitative factors are then considered in determining whether a security is other-than-temporarily impaired, which includes reviews of the following: significant changes in the regulatory, economic or technological environment of the investee, significant changes in the general market condition of either the geographic area or the industry in which the investee operates, and length of time and the extent to which the fair value has been less than cost. These qualitative factors are subjective and require a degree of management judgment.

Warranty liability — At the time a sale is recognized, we record estimated future warranty costs. The warranty liability is determined by applying historical claim rate experience to the current field population and dealer inventory. Generally, historical claim rates are based on actual warranty experience for each product by machine model/engine size. Specific rates are developed for each product build month and are updated monthly based on actual warranty claim experience. Warranty costs may differ from those estimated if actual claim rates are higher or lower than our historical rates.

Stock-based compensation — We use a lattice-based optionpricing model to calculate the fair value of our stock options and SARs. The calculation of the fair value of the awards using the lattice-based option-pricing model is affected by our stock price on the date of grant as well as assumptions regarding the following:

Volatility is a measure of the amount by which the stock price is expected to fluctuate each year during the expected term of the award and is based on historical and current implied volatilities from traded options on Caterpillar stock. The implied volatilities from traded options are impacted by changes in market conditions. An increase in the volatility would result in an increase in our expense.
The expected term represents the period of time that awards granted are expected to be outstanding and is an output of the lattice-based option-pricing model. In determining the expected term of the award, future exercise and forfeiture patterns are estimated from Caterpillar employee historical exercise behavior. These patterns are also affected by the vesting conditions of the award. Changes in the future exercise behavior of employees or in the vesting period of the award could result in a change in the expected term. An increase in the expected term would result in an increase to our expense.
The weighted-average dividend yield is based on Caterpillar's historical dividend yields. As holders of stockbased awards do not receive dividend payments, this could result in employees retaining the award for a longer period of time if dividend yields decrease or exercising the award sooner if dividend yields increase. A decrease in the dividend yield would result in an increase in our expense.
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at time of grant. As the risk-free interest rate increases, the expected term increases, resulting in an increase in our expense.

The fair value of our RSUs is determined by reducing the stock price on the date of grant by the present value of the estimated dividends to be paid during the vesting period. The estimated dividends are based on Caterpillar's weighted-average dividend yields. A decrease in the dividend yield would result in an increase in our expense.

Stock-based compensation expense recognized during the period is based on the value of the number of awards that are expected to vest. In determining the stock-based compensation expense to be recognized, a forfeiture rate is applied to the fair value of the award. This rate represents the number of awards that are expected to be forfeited prior to vesting and is based on Caterpillar employee historical behavior. Changes in the future behavior of employees could impact this rate. A decrease in this rate would result in an increase in our expense.

Product liability and insurance loss reserve — We determine these reserves based upon reported claims in process of settlement and actuarial estimates for losses incurred but not reported. Loss reserves, including incurred but not reported reserves, are based on estimates and ultimate settlements may vary significantly from such estimates due to increased claims frequency or severity over historical levels.

Postretirement benefits — Primary actuarial assumptions were determined as follows:

The U.S. expected long-term rate of return on plan assets is based on our estimate of long-term passive returns for equities and fixed income securities weighted by the allocation of our plan assets. Based on historical performance, we increase the passive returns due to our active management of the plan assets. A similar process is used to determine the rate for our non-U.S. pension plans. This rate is impacted by changes in general market conditions, but because it represents a long-term rate, it is not significantly impacted by short-term market swings. Changes in our allocation of plan assets would also impact this rate. For example, a shift to more fixed income securities would lower the rate. A decrease in the rate would increase our expense.
The assumed discount rate is used to discount future benefit obligations back to today's dollars. The U.S. discount rate is based on a benefit cash flow-matching approach and represents the rate at which our benefit obligations could effectively be settled as of our measurement date, December 31. The benefit cash flow-matching approach involves analyzing Caterpillar's projected cash flows against a high quality bond yield curve, calculated using a wide population of corporate Aa bonds available on the measurement date. The very highest and lowest yielding bonds (top and bottom 10%) are excluded from the analysis. Prior to 2008, we used the Moody's Aa bond yield as of our measurement date, November 30, and validated the discount rate using the benefit cash flow-matching approach. A similar change was made to determine the assumed discount rate for our most significant non-U.S. plans. This rate is sensitive to changes in interest rates. A decrease in the discount rate would increase our obligation and future expense.
The expected rate of compensation increase is used to develop benefit obligations using projected pay at retirement. It represents average long-term salary increases. This rate is influenced by our long-term compensation policies. An increase in the rate would increase our obligation and expense.
The assumed health care trend rate represents the rate at which health care costs are assumed to increase and is based on historical and expected experience. Changes

in our projections of future health care costs due to general economic conditions and those specific to health care (e.g., technology driven cost changes) will impact this trend rate. An increase in the trend rate would increase our obligation and expense.

Post-sale discount reserve — We provide discounts to dealers through merchandising programs. We have numerous programs that are designed to promote the sale of our products. The most common dealer programs provide a discount when the dealer sells a product to a targeted end user. The amount of accrued post-sale discounts was \$662 million, \$828 million and \$669 million as of December 31, 2009, 2008 and 2007, respectively. The reserve represents discounts that we expect to pay on previously sold units and is reviewed at least quarterly. The reserve is adjusted if discounts paid differ from those estimated. Historically, those adjustments have not been material.

Credit loss reserve — Management's ongoing evaluation of the adequacy of the allowance for credit losses considers both impaired and unimpaired finance receivables and takes into consideration past loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of underlying collateral and current economic conditions. In estimating probable losses we review accounts that are past due, non-performing, in bankruptcy or otherwise identified as at risk for potential credit loss. Accounts are identified as at risk for potential credit loss using information available about the customer, such as financial statements, news reports and published credit ratings as well as general information regarding industry trends and the general economic environment.

The allowance for credit losses attributable to specific accounts is based on the most probable source of repayment, which is normally the liquidation of collateral. In determining collateral value we estimate current fair value of collateral and factor in credit enhancements such as additional collateral and thirdparty guarantees. The allowance for credit losses attributable to the remaining accounts is a general allowance based upon the risk in the portfolio, primarily using probabilities of default and an estimate of associated losses. In addition, qualitative factors not able to be fully captured in previous analysis including industry trends, macroeconomic factors and model imprecision are considered in the evaluation of the adequacy of the allowance for credit losses. These qualitative factors are subjective and require a degree of management judgment.

While management believes it has exercised prudent judgment and applied reasonable assumptions, there can be no assurance that in the future, changes in economic conditions or other factors would not cause changes in the financial health of our customers. If the financial health of our customer deteriorates, the timing and level of payments received could be impacted and therefore, could result in a change to our estimated losses.

Income tax reserve — We are subject to the income tax laws of the many jurisdictions in which we operate. These tax laws are complex, and the manner in which they apply to our facts is sometimes open to interpretation. In establishing the provision for income taxes, we must make judgments about the application of these inherently complex tax laws.

Despite our belief that our tax return positions are consistent with applicable tax laws, we believe that taxing authorities could challenge certain positions. Settlement of any challenge can result in no change, a complete disallowance, or some partial adjustment reached through negotiations or litigation. We record tax benefits for uncertain tax positions based upon management's evaluation of the information available at the reporting date. To be recognized in the financial statements, a tax benefit must be at least more likely than not of being sustained based on technical merits. The benefit for positions meeting the recognition threshold is measured as the largest benefit more likely than not of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Significant judgment is required in making these determinations and adjustments to unrecognized tax benefits may be necessary to reflect actual taxes payable upon settlement. Adjustments related to positions impacting the effective tax rate affect the provision for income taxes. Adjustments related to positions impacting the timing of deductions impact deferred tax assets and liabilities.

Our income tax positions and analysis are based on currently enacted tax law. Future changes in tax law could significantly impact the provision for income taxes, the amount of taxes payable, and the deferred tax asset and liability balances. Deferred tax assets generally represent tax benefits for tax deductions or credits available in future tax returns. Certain estimates and assumptions are required to determine whether it is more likely than not that all or some portion of the benefit of a deferred tax asset will not be realized. In making this assessment, management analyzes and estimates the impact of future taxable income, reversing temporary differences and available prudent and feasible tax planning strategies. Should a change in facts or circum stances lead to a change in judgment about the ultimate realizability of a deferred tax asset, we record or adjust the related valuation allowance in the period that the change in facts and circumstances occurs, along with a corresponding increase or decrease in the provision for income taxes.

A provision for U.S. income taxes has not been recorded on undistributed profits of our non-U.S. subsidiaries that we have determined to be indefinitely reinvested outside the U.S. If management intentions or U.S. tax law changes in the future, there may be a significant negative impact on the provision for income taxes in the period the change occurs.

EMPLOYMENT

Caterpillar's worldwide employment was 93,813 at the end of 2009, down 19,074 from a year ago. Since late 2008, we have taken a variety of steps to bring our workforce in line with demand. This includes full-time Caterpillar employees who have been laid off or separated and those who have taken advantage of incentivebased voluntary plans offered by the company. In addition, we have long utilized a flexible workforce made up of part-time/temporary, contract and agency workers to better respond to shifts in demand. These workers are not included in our full-time employment. Since late 2008, we have reduced this flexible workforce by about 18,000. Looking forward, we will adjust our workforce as production levels and resource requirements change. We expect the recovery and demand for jobs to vary depending on specific regions of the world, industry and product.

Full-Time Employees at Year-End
	2009	2008	2007
Inside U.S	43,251	53,509	50,545
Outside U.S	50,562	59,378	50,788
Total	93,813	112,887	101,333
By Region:
North America	43,999	54,284	50,901
EAME	22,790	26,983	26,168
Latin America	10,776	14,403	13,930
Asia/Pacifi c	16,248	17,217	10,334
Total	93,813	112,887	101,333

OTHER MATTERS

ENVIRONMENTAL AND LEGAL MATTERS

On May 14, 2007, the U.S. Environmental Protection Agency (EPA) issued a Notice of Violation to Caterpillar Inc., alleging various violations of Clean Air Act Sections 203, 206 and 207. EPA claims that Caterpillar violated such sections by shipping engines and catalytic converter after-treatment devices separately, introducing into commerce a number of uncertified and/or misbuilt engines, and failing to timely report emissions-related defects. Caterpillar is currently engaging in negotiations with EPA to resolve these issues, but it is too early in the process to place precise estimates on the potential exposure to penalties. However, Caterpillar is cooperating with EPA and, based upon initial discussions, and although penalties could potentially exceed \$100,000, management does not believe that this issue will have a material adverse impact on our consolidated results of operations, financial position or liquidity.

RETIREMENT BENEFITS

In September 2006, the FASB issued guidance on employers' accounting for defined benefit pension and other postretirement plans, which requires the recognition of the overfunded or underfunded status of pension and other postretirement benefit plans on the balance sheet. Also, the measurement date — the date at which the benefit obligation and plan assets are measured — is required to be the company's fiscal year-end. We adopted the balance sheet recognition provisions at December 31, 2006, and adopted the year-end measurement date effective January 1, 2008 using the one measurement approach. Under the one measurement approach, net periodic benefit cost for the period between any early measurement date and the end of the fiscal year that the measurement provisions are applied is allocated proportionately between amounts to be recognized as an adjustment of Profit employed in the business and net periodic benefit cost for the fiscal year. Previously, we used a November 30th measurement date for our U.S. pension and other postretirement benefit plans and September 30th for our non-U.S. plans. The adoption of the year-end measurement date provisions of this guidance increased January 1, 2008 assets by \$8 million, increased liabilities by \$24 million and reduced stockholders' equity by \$16 million. The adoption of this guidance did not impact our results of operations.

We recognized pension expense of \$620 million in 2009 as compared to \$200 million in 2008. The increase in expense was primarily the result of increased amortization of net actuarial losses due to significant asset losses in 2008 and lower expected return on plan assets in 2009. In addition, 2009 pension expense included \$169 million of curtailment, settlement and special termination benefit costs due to voluntary and involuntary separation programs (discussed below). Accounting guidance on retirement benefits requires companies to discount future benefit obligations back to today's dollars using a discount rate that is based on highquality fixed-income investments. A decrease in the discount rate increases the pension benefit obligation, while an increase in the discount rate decreases the pension benefit obligation. This increase or decrease in the pension benefit obligation is recognized in Accumulated other comprehensive income (loss) and subsequently amortized into earnings as an actuarial gain or loss. The guidance also requires companies to use an expected long-term rate of return on plan assets for computing current year pension expense. Differences between the actual and expected asset returns are also recognized in Accumulated other comprehensive income (loss) and subsequently amortized into earnings as actuarial gains and losses. At the end of 2009, total actuarial losses recognized in Accumulated other comprehensive income (loss) were \$6.33 billion, as compared to \$7.74 billion in 2008. The majority of the actuarial losses are due to significant asset losses during 2008 in addition to losses from other demographic and economic assumptions over the past several years. The \$1.41 billion decrease from 2008 to 2009 was primarily the result of asset gains during 2009, partially offset by a decrease in the discount rate.

In 2009, we recognized other postretirement benefit expense of \$277 million compared to \$287 million in 2008. The decrease in expense was primarily the result of amendments to our U.S. support and management other postretirement benefit plan, partially offset by \$56 million of curtailment losses due to voluntary and involuntary separation programs (both discussed below). Actuarial losses recognized in Accumulated other comprehensive income (loss) for other postretirement benefit plans were \$659 million at the end of 2009. These losses mainly reflect several years of declining discount rates and significant asset losses during 2008, partially offset by gains from lower than expected health care costs. The losses were \$222 million lower at the end of 2009 as compared to 2008 due to asset gains and lower than expected health care costs during 2009, partially offset by a decrease in the discount rate.

Actuarial losses for both pensions and other postretirement benefits will be impacted in future periods by actual asset returns, actual health care inflation, discount rate changes, actual demographic experience and other factors that impact these expenses. These losses, reported in Accumulated other comprehensive income (loss), will be amortized as a component of net periodic benefit cost on a straight-line basis over the average remaining service period of active employees expected to receive benefits under the benefit plans. At the end of 2009, the average remaining service period of active employees was 11 years for our U.S. pension plans, 11 years for our non-U.S. pension plans and 7 years for other postretirement benefit plans. We expect our amortization of net actuarial losses to increase approximately \$150 million in 2010 as compared to 2009, primarily due to asset losses during 2008 and a decrease in the discount rate during 2009. We expect our total pension and other postretirement benefits expense to increase approximately \$150 million in 2010, excluding the impact of 2009 curtailment, settlement and special termination benefit costs.

During 2009, voluntary and involuntary separation programs impacted employees participating in certain U.S. and non-U.S. pension and other postretirement benefit plans. Due to the significance of these events, certain plans were re-measured as of January 31, 2009, March 31, 2009 and December 31, 2009. Re-measurements for U.S. separation programs resulted in curtailment losses of \$127 million to pension and \$55 million to other postretirement benefit plans. Special termination benefits of \$6 million were also recognized for a U.S. pension early retirement program. Re-measurements for non-U.S. separation programs resulted in pension settlement losses of \$34 million, special termination benefits of \$2 million to pension and curtailment losses of \$1 million to other postretirement benefit plans.

In March 2009, we amended our U.S. support and management other postretirement benefit plan. Beginning in 2010, certain retirees age 65 and older will enroll in individual health plans that work with Medicare and will no longer participate in a Caterpillarsponsored group health plan. Instead, the retirees will be in individual health plans that work with Medicare, such as Medicare Advantage and Medicare Supplement plans. In addition, Caterpillar will fund a tax-advantaged Health Reimbursement Arrangement (HRA) to assist the retirees with medical expenses. The plan amendment required a plan re-measurement as of March 31, 2009, which resulted in a decrease in our Liability for postretirement benefits of \$432 million and an increase in Accumulated other comprehensive income (loss) of \$272 million aftertax. The plan was further amended in December 2009 to define the HRA benefit that active employees will receive once they are retired and reach age 65. The plan was re-measured at yearend and the December amendment resulted in a decrease in our Liability for postretirement benefits of \$101 million and an increase in Accumulated other comprehensive income (loss) of \$64 million after-tax. These decreases will be amortized into earnings on a straight-line basis over approximately 7 years, the average remaining service period of active employees in the plan. The March 2009 amendment reduced other postretirement benefits expense by approximately \$60 million for 2009.

For our U.S. pension plans, our year-end 2009 asset allocation was 72 percent equity securities, 24 percent debt securities and 4 percent other. The target allocation for 2010 is 70 percent equity securities, 25 percent debt securities and 5 percent real estate. The year-end 2009 asset allocation for our non-U.S. pension plans was 51 percent equity securities, 33 percent debt securities, 5 percent real estate and 11 percent other. The 2010 target allocation for our non-U.S. pension plans is 55 percent equity securities, 35 percent debt securities, 6 percent real estate and 4 percent other. Our target asset allocations reflect our investment strategy of maximizing the rate of return on plan assets and the resulting funded status, within an appropriate level of risk. The U.S. plans are rebalanced to plus or minus five percentage points of the target asset allocation ranges on a monthly basis. The frequency of rebalancing for the non-U.S. plans varies depending on the plan.

The use of certain derivative instruments is permitted where appropriate and necessary for achieving overall investment policy objectives. The U.S. plans utilize futures contracts to offset current equity positions in order to rebalance the total portfolio to the target asset allocation. During 2008 and 2007, approximately 5% and 10% of the U.S. pension plans' assets were rebalanced from equity to fixed income positions through the use of futures contracts. The plans do not engage in futures contracts for speculative purposes.

During 2009, we made contributions of \$886 million to our U.S. defined benefit pension plans, including a voluntary contribution of 18.2 million shares (\$650 million) in Caterpillar stock, held as treasury stock. Cash contributions of \$263 million were made to our non-U.S. pension plans. We expect to make approximately \$1 billion of contributions during 2010, most of which are voluntary. We have adequate liquidity resources to fund both U.S. and non-U.S. pension plans.

Actuarial assumptions have a significant impact on both pension and other postretirement benefit expenses. The effects of a one percentage point change in our primary actuarial assumptions on 2009 benefit costs and year-end obligations are included in the table below.

Postretirement Benefit Plan Actuarial Assumptions Sensitivity

Following are the effects of a one percentage-point change in our primary pension and other postretirement benefit actuarial assumptions (included in the following table) on 2009 pension and other postretirement benefits costs and obligations:

		2009 Benefit Cost	Year-end Benefit Obligation
(Millions of dollars)	One percentage One percentage point increase point decrease		One percentage point increase	One percentage point decrease
Pension benefits:
Assumed discount rate	\$ (155)	\$ 163	\$ (1,712)	\$ 1,942
Expected rate of compensation increase	70	(67)	388	(368)
Expected long-term rate of return on plan assets	(118)	118	—	—
Other postretirement benefits:
Assumed discount rate	(25)	13	(432)	479
Expected rate of compensation increase	—	—	1	(1)
Expected long-term rate of return on plan assets	(13)	13	—	—
Assumed health care cost trend rate	34	(30)	220	(186)

Primary Actuarial Assumptions

		U.S. Pension Benefits			Non-U.S. Pension Benefits		Other Postretirement Benefits
	2009	2008	2007	2009	2008	2007	2009	2008	2007
Weighted-average assumptions used to determine benefit obligations, end of year:
Discount rate	5.7%	6.1%	5.8%	4.8%	4.5%	5.3%	5.6%	6.0%	5.8%
Rate of compensation increase	4.5%	4.5%	4.5%	4.2%	3.8%	4.1%	4.4%	4.4%	4.4%
Weighted-average assumptions used to determine net cost:
Discount rate	6.3%	5.8%	5.5%	4.7%	5.3%	4.7%	6.3%	5.8%	5.5%
Expected return on plan assets	8.5%	9.0%	9.0%	6.6%	7.6%	7.7%	8.5%	9.0%	9.0%
Rate of compensation increase	4.5%	4.5%	4.0%	3.8%	4.0%	4.0%	4.4%	4.4%	4.0%
Health care cost trend rates at year-end:
Health care trend rate assumed for next year Rate that the cost trend rate gradually declines to Year that the cost trend rate reaches ultimate rate							7.0% 5.0% 2016	7.4% 5.0% 2016	7.9% 5.0% 2016

SENSITIVITY

Foreign Exchange Rate Sensitivity

Machinery and Engines use foreign currency forward and option contracts to manage unmatched foreign currency cash inflow and outflow. Our objective is to minimize the risk of exchange rate movements that would reduce the U.S. dollar value of our foreign currency cash flow. Our policy allows for managing anticipated foreign currency cash flow for up to five years. Based on the anticipated and firmly committed cash inflow and outflow for our Machinery and Engines operations for the next 12 months and the foreign currency derivative instruments in place at year-end, a hypothetical 10 percent weakening of the U.S. dollar relative to all other currencies would adversely affect our expected 2010 cash flow for our Machinery and Engines operations by approximately \$240 million. Last year similar assumptions and calculations yielded a potential \$378 million adverse impact on 2009 cash flow. We determine our net exposures by calculating the difference in cash inflow and outflow by currency and adding or subtracting outstanding foreign currency derivative instruments. We multiply these net amounts by 10 percent to determine the sensitivity.

Since our policy for Financial Products operations is to hedge the foreign exchange risk when the currency of our debt portfolio does not match the currency of our receivable portfolio, a 10 percent change in the value of the U.S. dollar relative to all other currencies would not have a material effect on our consolidated financial position, results of operations or cash flow. Neither our policy nor the effect of a 10 percent change in the value of the U.S. dollar has changed from that reported at the end of last year.

The effect of the hypothetical change in exchange rates ignores the effect this movement may have on other variables, including competitive risk. If it were possible to quantify this competitive impact, the results would probably be different from the sensitivity effects shown above. In addition, it is unlikely that all currencies would uniformly strengthen or weaken relative to the U.S. dollar. In reality, some currencies may weaken while others may strengthen. Our primary exposure (excluding competitive risk) is to exchange rate movements in the Australian dollar, British pound, Japanese yen and euro.

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Interest Rate Sensitivity

For our Machinery and Engines operations, we have the option to use interest rate swaps to lower the cost of borrowed funds by attaching fixed-to-floating interest rate swaps to fixed-rate debt. A hypothetical 100 basis point adverse move (increase) in interest rates along the entire interest rate yield curve would adversely affect 2010 pretax earnings of Machinery and Engines by \$13 million. Last year, similar assumptions and calculations yielded a potential \$16 million adverse impact on 2009 pretax earnings. This effect is caused by the interest rate fluctuations on our short-term debt and fixed-to-floating interest rate swaps.

For our Financial Products operations, we use interest rate derivative instruments primarily to meet our match-funding objectives and strategies. We have a match-funding policy whereby the interest rate profile (fixed or floating rate) of our debt portfolio is matched to the interest rate profile of our earning asset portfolio (finance receivables and operating leases) within certain parameters. In connection with that policy, we use interest rate swap agreements to modify the debt structure. Match funding assists us in maintaining our interest rate spreads, regardless of the direction interest rates move.

In order to properly manage sensitivity to changes in interest rates, Financial Products measures the potential impact of different interest rate assumptions on pretax earnings. All on-balance sheet positions, including derivative financial instruments, are included in the analysis. The primary assumptions included in the analysis are that there are no new fixed rate assets or liabilities, the proportion of fixed rate debt to fixed rate assets remains unchanged and the level of floating rate assets and debt remain constant. Based on the December 31, 2009 balance sheet under these assumptions, the analysis estimates the impact of a 100 basis point immediate and sustained parallel rise in interest rates to be an \$8 million decrease to pretax earnings for 2009. Last year, similar assumptions and calculations yielded a potential \$28 million adverse impact on 2009 pretax earnings.

This analysis does not necessarily represent our current outlook of future market interest rate movement, nor does it consider any actions management could undertake in response to changes in interest rates. Accordingly, no assurance can be given that actual results would be consistent with the results of our estimate.

NON-GAAP FINANCIAL MEASURES

The following definitions are provided for "non-GAAP financial measures" in connection with Item 10(e) of Regulation S-K issued by the Securities and Exchange Commission. These non-GAAP financial measures have no standardized meaning prescribed by U.S. GAAP and therefore are unlikely to be comparable to the calculation of similar measures for other companies. Management does not intend these items to be considered in isolation or as a substitute for the related GAAP measures.

Profit Per Share Excluding Redundancy Costs

During the fourth quarter of 2009, redundancy costs related to employment reductions in response to the global recession were \$65 million or \$0.05 per share. 2009 redundancy costs were \$706 million or \$0.75 per share. We believe it is important to separately quantify the profit-per-share impact of redundancy costs in order for our 2009 results to be meaningful to our readers. Reconciliation of profit per share excluding redundancy costs to the most directly comparable GAAP measure, profit per share is as follows:

	Fourth Quarter 2009	2009
Profit per share	\$ 0.36	\$ 1.43
Per share redundancy costs Profit per share excluding	\$ 0.05	\$ 0.75
redundancy costs	\$ 0.41	\$ 2.18

SUPPLEMENTAL CONSOLIDATING DATA

We are providing supplemental consolidating data for the purpose of additional analysis. The data has been grouped as follows:

Consolidated — Caterpillar Inc. and its subsidiaries.

Machinery and Engines — The Machinery and Engines data contained in the schedules on pages A-81 to A-83 are "non-GAAP financial measures" as defined by the Securities and Exchange Commission in Regulation G. These non-GAAP financial measures have no standardized meaning prescribed by U.S. GAAP, and therefore, are unlikely to be comparable with the calculation of similar measures for other companies. Management does not intend these items to be considered in isolation or as a substitute for the related GAAP measures. Caterpillar defines Machinery and Engines as it is presented in the supplemental data as Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis. Machinery and Engines information relates to our design, manufacturing, marketing and parts distribution operations. Financial Products information relates to the financing to customers and dealers for the purchase and lease of Caterpillar and other equipment. The nature of these businesses is different, especially with regard to the financial position and cash flow items. Caterpillar management utilizes this presentation internally to high light these differences. We also believe this presentation will assist readers in understanding our business.

Financial Products — primarily our finance and insurance subsidiaries, Cat Financial and Cat Insurance.

Consolidating Adjustments — eliminations of transactions between Machinery and Engines and Financial Products.

Pages A-81 to A-83 reconcile Machinery and Engines with Financial Products on the equity basis to Caterpillar Inc. consolidated financial information.

Supplemental Data for Results of Operations For The Years Ended December 31

				Supplemental consolidating data
(Millions of dollars)		Consolidated			Machinery & Engines1			Financial Products		Consolidating Adjustments
	2009	2008	2007	2009	2008	2007	2009	2008	2007	2009	2008	2007
Sales and revenues:
Sales of Machinery and Engines \$29,540 \$48,044			\$41,962	\$29,540	\$48,044	\$41,962	\$ —	\$ —	\$ —	\$ —	\$ —	\$ —
Revenues of Financial Products 2,856		3,280	2,996	—	—	—	3,168	3,588	3,396	(312) 2	(308) 2	(400) 2
Total sales and revenues 32,396		51,324	44,958	29,540	48,044	41,962	3,168	3,588	3,396	(312)	(308)	(400)
Operating costs:
Cost of goods sold	23,886	38,415	32,626	23,886	38,415	32,626	—	—	—	—	—	—
Selling, general and administrative
expenses	3,645	4,399	3,821	3,085	3,812	3,356	579	616	480	(19) 3	(29) 3	(15) 3
Research and development expenses	1,421	1,728	1,404	1,421	1,728	1,404	—	—	—	—	—	—
Interest expense of Financial Products	1,045	1,153	1,132	—	—	—	1,048	1,162	1,137	(3) 4	(9) 4	(5) 4
Other operating (income) expenses	1,822	1,181	1,054	691	(33)	(8)	1,160	1,231	1,089	(29) 3	(17) 3	(27) 3
Total operating costs	31,819	46,876	40,037	29,083	43,922	37,378	2,787	3,009	2,706	(51)	(55)	(47)
Operating profi t	577	4,448	4,921	457	4,122	4,584	381	579	690	(261)	(253)	(353)
Interest expense excluding
Financial Products	389	274	288	475	270	294	—	—	—	(86) 4	4 4	(6) 4
Other income (expense)	381	327	357	192	95	(75)	14	(25)	85	175 5	257 5	347 5
Consolidated profi t before taxes	569	4,501	4,990	174	3,947	4,215	395	554	775	—	—	—
Provision (benefit) for income taxes	(270)	953	1,485	(342)	822	1,220	72	131	265	—	—	—
Profit of consolidated companies	839	3,548	3,505	516	3,125	2,995	323	423	510	—	—	—
Equity in profit (loss) of unconsolidated
affiliated companies	(12)	37	73	(12)	38	69	—	(1)	4	—	—	—
Equity in profit of Financial
Products' subsidiaries	—	—	—	307	409	506	—	—	—	(307) 6	(409) 6	(506) 6
Profit of consolidated
and affiliated companies	827	3,585	3,578	811	3,572	3,570	323	422	514	(307)	(409)	(506)
Less: Profit (loss) attributable
to noncontrolling interests	(68)	28	37	(84)	15	29	16	13	8	—	—	—
Profit7 \$	895	\$ 3,557	\$ 3,541	\$ 895	\$ 3,557	\$ 3,541	\$ 307	\$ 409	\$ 506	\$ (307) \$ (409) \$ (506)

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

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

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

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

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

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

Profit attributable to common stockholders.

Supplemental Data for Financial Position At December 31

			Supplemental consolidating data
				Machinery	Consolidating
(Millions of dollars)	Consolidated			& Engines1		Financial Products		Adjustments
	2009	2008	2009	2008	2009	2008	2009	2008
Assets
Current assets:
Cash and short-term investments	\$ 4,867 \$	2,736	\$ 2,239 \$	1,517	\$ 2,628 \$	1,219	\$ —	\$ —
Receivables — trade and other	5,611	9,397	3,705	6,032	1,464	545	442 2,3	2,820 2,3
Receivables — finance	8,301	8,731	—	—	9,872	12,137	(1,571)3	(3,406)3
Deferred and refundable income taxes	1,216	1,223	1,094	1,014	122	209	—	—
Prepaid expenses and other current assets	434	765	385	510	75	280	(26)4	(25)4
Inventories	6,360	8,781	6,360	8,781	—	—	—	—
Total current assets	26,789	31,633	13,783	17,854	14,161	14,390	(1,155)	(611)
Property, plant and equipment — net	12,386	12,524	9,308	9,380	3,078	3,144	—	—
Long-term receivables — trade and other	971	1,479	381	357	182	549	408 2,3	573 2,3
Long-term receivables — finance	12,279	14,264	—	—	12,717	14,867	(438)3	(603)3
Investments in unconsolidated
affiliated companies	105	94	97	94	8	—	—	—
Investments in Financial Products subsidiaries	—	—	4,514	3,788	—	—	(4,514)5	(3,788)5
Noncurrent deferred and refundable income taxes	2,714	3,311	3,083	3,725	65	35	(434)6	(449)6
Intangible assets	465	511	464	510	1	1	—	—
Goodwill	2,269	2,261	2,269	2,261	—	—	—	—
Other assets	2,060	1,705	297	310	1,763	1,395	—	—
Total assets	\$ 60,038	\$ 67,782	\$ 34,196	\$ 38,279	\$ 31,975	\$ 34,381	\$ (6,133)	\$ (4,878)

Liabilities
Current liabilities:
Short-term borrowings	\$ 4,083 \$	7,209	\$ 1,433 \$	1,632	\$ 3,676 \$	6,012	\$ (1,026)7	(435)7 \$
Accounts payable	2,993	4,827	2,862	4,654	229	323	(98)8	(150)8
Accrued expenses	3,351	4,121	2,055	2,621	1,323	1,526	(27)9	(26)9
Accrued wages, salaries and employee benefits	797	1,242	790	1,228	7	14	—	—
Customer advances	1,217	1,898	1,217	1,898	—	—	—	—
Dividends payable	262	253	262	253	—	—	—	—
Other current liabilities	888	1,027	808	1,002	101	29	(21)6	(4)6
Long-term debt due within one year	5,701	5,492	302	456	5,399	5,036	—	—
Total current liabilities	19,292	26,069	9,729	13,744	10,735	12,940	(1,172)	(615)
Long-term debt due after one year	21,847	22,834	5,687	5,766	16,195	17,098	(35)7	(30)7
Liability for postemployment benefits	7,420	9,975	7,420	9,975	—	—	—	—
Other liabilities	2,179	2,190	2,060	2,080	531	555	(412)6	(445)6
Total liabilities	50,738	61,068	24,896	31,565	27,461	30,593	(1,619)	(1,090)
Commitments and contingencies
Redeemable noncontrolling interest	477	524	477	524	—	—	—	—
Stockholders' equity
Common stock	3,439	3,057	3,439	3,057	883	860	(883)5	(860)5
Treasury stock	(10,646)	(11,217)	(10,646)	(11,217)	—	—	—	—
Profit employed in the business	19,711	19,826	19,711	19,826	3,282	2,975	(3,282)5	(2,975)5
Accumulated other comprehensive income (loss)	(3,764)	(5,579)	(3,764)	(5,579)	279	(108)	(279)5	108 5
Noncontrolling interests	83	103	83	103	70	61	(70)5	(61)5
Total stockholders' equity	8,823	6,190	8,823	6,190	4,514	3,788	(4,514)	(3,788)
Total liabilities, redeemable noncontrolling interest and stockholders' equity	\$ 60,038	\$ 67,782	\$ 34,196	\$ 38,279	\$ 31,975	\$ 34,381	\$ (6,133)	\$ (4,878)

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

² Elimination of receivables between Machinery and Engines and Financial Products.

³ Reclassification of Machinery and Engines' trade receivables purchased by Cat Financial and Cat Financial's wholesale inventory receivables.

⁴ Elimination of Machinery and Engines' insurance premiums that are prepaid to Financial Products.

⁵ Elimination of Financial Products' equity which is accounted for on Machinery and Engines on the equity basis.

⁶ Reclassification reflecting required netting of deferred tax assets/liabilities by taxing jurisdiction.

⁷ Elimination of debt between Machinery and Engines and Financial Products.

⁸ Elimination of payables between Machinery and Engines and Financial Products.

⁹ Elimination of prepaid insurance in Financial Products' accrued expenses.

Supplemental Data for Statement of Cash Flow For the Years Ended December 31

					Supplemental consolidating data
	Machinery							Consolidating
(Millions of dollars)	Consolidated			& Engines1			Financial Products			Adjustments
		2009		2008		2009		2008		2009		2008		2009		2008
Cash fl ow from operating activities:
Profit of consolidated and affiliated companies	\$	827 \$		3,585	\$	811 \$		3,572	\$	323 \$		422	\$	(307) 2	\$	(409)2
Adjustments for non-cash items:
Depreciation and amortization		2,336		1,980		1,594		1,225		742		755		—		—
Undistributed profit of Financial Products Other		— 137		— 355		(307) 4		(409) 179		— (87)		— 42		307 3 220 4		409 3 134 4

Changes in assets and liabilities:
Receivables — trade and other Inventories		4,014 2,501		(545) (833)		1,929 2,501		(471) (833)		67 —		(49) —		2,018 4,5 —		(25)4,5 —
Accounts payable		(2,034)		(4)		(1,904)		47		(140)		(63)		10 4		12 4
Accrued expenses		(505)		660		(447)		527		(57)		132		(1)4		1 4
Customer advances		(646)		286		(646)		286		—		—		—		—
Other assets — net		235		(470)		31		(503)		218		(102)		(14)4		135 4
Other liabilities — net		(522)		(217)		(575)		(50)		37		(33)		16 4		(134)4
Net cash provided by (used for) operating activities		6,343		4,797		2,991		3,570		1,103		1,104		2,249		123
Cash flow from investing activities:
Capital expenditures — excluding equipment
leased to others		(1,348)		(2,445)		(1,344)		(2,421)		(4)		(24)		—		—
Expenditures for equipment leased to others		(968)		(1,566)		—		—		(972)		(1,588)		4 4		22 4
Proceeds from disposals of property, plant
and equipment		1,242		982		150		30		1,092		952		—		—
Additions to finance receivables		(7,107)		(14,031)		—		—		(20,387)		(37,811)		13,280 5		23,780 5
Collections of finance receivables Proceeds from sale of finance receivables		9,288 100		9,717 949		— —		— —		23,934 987		32,135 2,459		(14,646)5 (887)5		(22,418)5 (1,510)5
Net intercompany borrowings		—		—		416		(168)		(963)		33		547 6		135 6
Investments and acquisitions (net of cash acquired)		(19)		(117)		(19)		(148)		—		28		—		3 7
Proceeds from release of security deposit		—		—		—		—		—		—		—		—
Proceeds from sale of available-for-sale securities		291		357		6		23		285		334		—		—
Investments in available-for-sale securities		(349)		(339)		(5)		(18)		(344)		(321)		—		—
Other — net		(128)		197		116		139		(258)		58		14 7,8		—
Net cash provided by (used for) investing activities		1,002		(6,296)		(680)		(2,563)		3,370		(3,745)		(1,688)		12
Cash flow from financing activities:
Dividends paid		(1,029)		(953)		(1,029)		(953)		—		—		—		—
Distribution to noncontrolling interests		(10)		(10)		(10)		(10)		—		—		—		—
Common stock issued, including treasury
shares reissued		89		135		89		135		20		—		(20)7		—
Payment for stock repurchases derivative contracts		—		(38)		—		(38)		—		—		—		—
Treasury shares purchased Excess tax benefit from stock-based compensation		— 21		(1,800) 56		— 21		(1,800) 56		— —		— —		— —		— —
Acquisitions of noncontrolling interests		(6)		—		(6)		—		(6)		—		6 8		—
Net intercompany borrowings		—		—		963		(33)		(416)		168		(547)6		(135)6
Proceeds from debt issued (original maturities
greater than three months)		12,291		17,930		458		1,673		11,833		16,257		—		—
Payments on debt (original maturities
greater than three months)		(12,687)		(14,439)		(918)		(296)		(11,769)		(14,143)		—		—
Short-term borrowings (original maturities
three months or less) — net		(3,884)		2,074		(1,147)		737		(2,737)		1,337		—		—
Net cash provided by (used for) financing activities Effect of exchange rate changes on cash		(5,215) 1		2,955 158		(1,579) (10)		(529) 177		(3,075) 11		3,619 (19)		(561) —		(135) —
Increase (decrease) in cash and short-term investments		2,131		1,614		722		655		1,409		959		—		—
Cash and short-term investments at beginning of period		2,736		1,122		1,517		862		1,219		260		—		—
Cash and short-term investments at end of period	\$	4,867	\$	2,736	\$	2,239	\$	1,517	\$	2,628	\$	1,219	\$	—	\$	—

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

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

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

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

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

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

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

⁸ Elimination of Financial Products' acquisition of Machinery and Engines' noncontrolling interest in a Financial Products subsidiary.

OUTLOOK

2010 ECONOMIC OUTLOOK

The recent economic data indicates that the world economy started growing again, ending the world's worst postwar recession. We expect this recovery to last throughout 2010, with the world economy growing more than 3 percent.

We expect interest rates will remain low since unemployment rates are high and inflation rates are low. Even though we do not expect inflation will become a problem, we expect some central banks will eventually implement precautionary interest rate increases.
We project the Federal Reserve will increase rates from about 0.15 to 1 percent by the end of 2010; the European Central Bank, from 1 to 2 percent. Australia has already increased rates to 3.75 percent and likely will increase rates a further 100 basis points in 2010. Several developing countries, including Brazil, China and India, likely will increase rates.
Most key credit spreads have returned to normal and large businesses have access to credit. We expect credit standards for consumers and small businesses will ease, improving credit availability.
Stimulus programs should have maximum impacts in the first half of 2010. Some governments may expand programs to provide additional support.
Commodity prices improved steadily throughout 2009, and most prices are well above levels needed to encourage increased production and investment. In addition, we expect that world demand for most commodities will increase this year, further tightening supplies. Our planning assumes oil prices will average \$83 per barrel, and copper prices will average \$3.20 per pound.
Developing economies are growing again, and we expect they will lead the economic recovery. Economic growth in the developing world should be about 6 percent in 2010, up from 1.5-percent growth in 2009.
Asia/Pacific was the first region to recover, and growth should reach almost 7.5 percent in 2010. We expect more than 10-percent growth in China and 8-percent growth in India. These high growth rates should continue to improve construction spending and encourage investment in mining capacity.
Latin American economies recovered rapidly in the last half of 2009, and we forecast regional growth of almost 4 percent in 2010. Ongoing recoveries in construction and mining should continue.
The economies of Africa/Middle East and CIS should grow about 3.5 percent in 2010. Higher energy and metals prices should encourage producers to increase investments and production.
Developed economies have performed poorly for several years, and recoveries have been slower to develop. We expect these economies will grow 2 percent in 2010, which will maintain significant excess capacity and keep inflation subdued.
We forecast 3.5-percent growth in the U.S. economy, which is slower than past recoveries from severe recessions. Housing and mining production should improve from very depressed levels in 2009. However, we expect continued decline in nonresidential building construction, and delays in passing a highway bill likely will cause highway contractors to remain cautious about purchasing equipment.
The European Central Bank appears to be reducing its liquidity support, and bank lending remains weak. We expect very modest recovery in 2010 — economic growth of about 1 percent. Construction surveys indicate spending should rebound somewhat, particularly for infrastructure.
The Bank of Japan has not been able to end deflation and the associated weak economic growth. We do not expect any policy improvements this year, and the Japanese economy should grow only 1.5 percent in 2010.
For 2010, one of our most significant economic concerns is that central banks in the developed economies will misjudge inflation risks and begin raising interest rates too quickly. Doing so could lead to a renewed downturn that would be worse than the one just ended. However, we do not expect that rate increases will occur early enough, or be large enough, to be a major problem in 2010.

2010 SALES AND REVENUES OUTLOOK

We are forecasting 2010 sales and revenues to be up 10 to 25 percent from 2009. Key elements of the outlook for 2010 include:

In 2009, dealers reduced inventories of new Caterpillar machines and engines by nearly \$4 billion. At the midpoint of the 2010 sales range, we expect little change in dealer inventories, resulting in higher production and sales for Caterpillar.
Growth in the world economy is driving improved demand for commodities. Higher demand coupled with favorable commodity prices should be positive for mining-related sales in 2010. Over the past few months, mining-related order activity has increased substantially, and we expect to increase production of mining-related equipment in 2010.
Improving economic conditions, particularly in developing economies, should also improve construction spending and increase end-user demand for Machinery.
We expect that price realization will be positive in 2010, but the improvement will likely be small, less than 1 percent.
While Machinery sales are expected to increase in 2010, at the midpoint of the outlook range Engines sales are expected to decline. Turbine sales were a record in 2009, and large reciprocating engine sales were relatively strong through the first half of 2009.

2010 PROFIT OUTLOOK

At the midpoint of the outlook range for 2010 sales and revenues we expect that profit will be about \$2.50 per share. Profit per share in 2009 was \$1.43, or \$2.18 excluding redundancy costs. Key positive elements of the profit outlook for 2010 include:

Sales volume is expected to be the most significant positive profit driver in 2010.
Absence of employee redundancy costs. In 2009, redundancy costs were \$706 million, or about \$0.75 per share. We do not anticipate significant redundancy costs in 2010.
Material costs are expected to be favorable in 2010.
Improved operating efficiency resulting from higher production volume and continuing improvement from the Cat Production System with 6 Sigma.
Price realization is expected to be slightly favorable.
Financial Products' profit before tax is expected to be about flat compared with 2009, as the impact of improving economic conditions is expected to be about offset by the impact of lower earning assets.

The key positive elements of the 2010 profit outlook are expected to be partially offset by the following:

In 2010, we are forecasting income taxes to be an expense of about 30 percent of profit before tax. The 2009 effective tax rate was significantly impacted by a favorable geographic mix of profits and losses from a tax perspective and benefits from prior-year tax returns. With higher profit, we expect the 2010 effective tax rate to be closer to historical levels. This is based on current tax law and therefore does not include the U.S. research and development tax credit and other benefits that have not been extended past 2009. In addition, the 2010 tax provision would be negatively impacted if U.S. healthcare legislation was enacted and made government subsidies received for Medicare-equivalent prescription drug (Medicare Part D) coverage taxable.
Product mix is expected to be unfavorable. The impact of dealer inventory declines in 2009 had a more significant negative impact on smaller, lower-margin machines. As a result, production and sales of smaller machines will likely be proportionally higher in 2010. In addition, while total sales and revenues are expected to be up 10 to 25 percent in 2010, sales of relatively higher-margin turbines and large reciprocating engines are expected to decline. The impact of improving demand for mining equipment is positive, but not enough to offset the significant negative factors.
We are not forecasting LIFO inventory decrement benefits for 2010. LIFO decrement benefits in 2009 were \$300 million.
R&D expense is expected to increase about 20 percent, primarily to support product development programs related to EPA Tier 4 emissions requirements.
We do not expect the favorable impact of currency that was in 2009's other income/expense to recur in 2010.
Depreciation expense is expected to increase. Machinery and Engines capital expenditures are expected to be about \$1.6 billion in 2010, up from \$1.3 billion in 2009.
Pension expense is expected to increase.
Diluted shares outstanding at the end of 2009 are about 2.5 percent higher than the full-year average. This is a result of stock contributed to the pension plan in the second quarter of 2009 and increased dilution related to the increase in the share price.

We expect sales and revenues to ramp up as we progress through 2010. As a result, we expect sales and revenues and profit for the first quarter of 2010 will likely be less than onefourth of the 2010's outlook for sales and revenues and profit.

The information included in the Outlook section is forward looking and involves risks and uncertainties that could significantly affect expected results. A discussion of these risks and uncertainties is contained in Item 1A of this Form 10-K.

SUPPLEMENTAL STOCKHOLDER INFORMATION

Stockholder Services

Registered stockholders should contact:

Stock Transfer Agent

BNY Mellon Shareowner Services

P.O. Box 358015

Pittsburgh, PA 15252-8015

Phone: (866) 203-6622 (U.S. and Canada)

(201) 680-6578 (Outside U.S. and Canada)

Hearing Impaired:

(800) 231-5469 (U.S. or Canada)

(201) 680-6610 (Outside U.S. or Canada)

Internet: www.bnymellon.com/shareowner/isd

Caterpillar Assistant Secretary

Laurie J. Huxtable

Assistant Secretary

Caterpillar Inc.

100 N.E. Adams Street Peoria, IL 61629-7310

Phone: (309) 675-4619 Fax: (309) 675-6620

E-mail: [email protected]

Shares held in Street Position

Stockholders that hold shares through a street position should contact their bank or broker with questions regarding those shares.

Stock Purchase Plan

Current stockholders and other interested investors may purchase Caterpillar Inc. common stock directly through the Investor Services Program sponsored and administered by our Transfer Agent. Current stockholders can get more information on the program from our Transfer Agent using the contact information provided above. Non-stockholders can request program materials by calling: (866) 353-7849. The Investor Services Program materials are available on-line from our Transfer Agent's website or by following a link from www.CAT.com/dspp.

Investor Relations

Institutional analysts, portfolio managers, and representatives of financial institutions seeking additional information about the Company should contact:

Director of Investor Relations

Mike DeWalt

Caterpillar Inc.

100 N.E. Adams Street Peoria, IL 61629-5310

Phone: (309) 675-4549 Fax: (309) 675-4457 E-mail: [email protected]

Internet: www.CAT.com/investor

Internet

Visit us on the Internet at www.CAT.com.

Information contained on our website is not incorporated by reference into this document.

Common Stock (NYSE: CAT)

Listing Information: Caterpillar common stock is listed on the New York and Chicago stock exchanges in the United States, and on stock exchanges in Belgium, France, Germany, Great Britain and Switzerland.

Price Ranges: Quarterly price ranges of Caterpillar common stock on the New York Stock Exchange, the principal market in which the stock is traded, were:

			2009		2008
Quarter	High			Low	High		Low
First	\$	47.12	\$	21.71	\$ 78.63	\$	59.60
Second	\$	40.96	\$	27.44	\$ 85.96	\$	72.56
Third	\$	54.71	\$	30.01	\$ 75.87	\$	58.11
Fourth	\$	61.28	\$	47.50	\$ 59.03	\$	31.95

Number of Stockholders: Stockholders of record at year-end totaled 40,738, compared with 39,578 at the end of 2008. Approximately 58.5 percent of our issued shares are held by institutions and banks, 31 percent by individuals, and 10.5 percent by employees through company stock plans.

Caterpillar tax qualified defined contribution retirement plans held 41,657,053 shares at year-end, including 10,354,432 shares acquired during 2009. Non-U.S. employee stock purchase plans held an additional 5,405,047 shares at year-end, including 1,327,745 shares acquired during 2009.

Performance Graph: Total Cumulative Stockholder Return for Five-Year Period Ending December 31, 2009

The graph below shows the cumulative stockholder return assuming an investment of \$100 on December 31, 2004, and reinvestment of dividends issued thereafter.

	2004	2005	2006	2007	2008	2009
Caterpillar Inc.	\$ 100.00	\$ 120.72	\$ 130.24	\$ 156.92	\$ 99.19	\$ 132.02
S&P 500	\$ 100.00	\$ 104.91	\$ 121.46	\$ 128.13	\$ 80.74	\$ 102.11
S&P 500 Machinery	\$ 100.00	\$ 100.97	\$ 119.58	\$ 160.09	\$ 86.64	\$ 121.32

DIRECTORS AND OFFICERS

Directors/Committee Membership (as of December 31, 2009)
	Audit	Compensation	Governance	Public Policy
W. Frank Blount			✔
John R. Brazil		✔
Daniel M. Dickinson	✔
John T. Dillon	✔
Eugene V. Fife			✔
Gail D. Fosler	✔
Juan Gallardo				✔
David R. Goode		✔
Peter A. Magowan			✔
William A. Osborn	✔
James W. Owens
Charles D. Powell				✔
Edward B. Rust, Jr.		✔
Susan C. Schwab				✔
Joshua I. Smith		✔
*Chairman of Committee

Officers James W. Owens1 Douglas R. Oberhelman	(as of December 31, 2009, except as noted) Chairman and Chief Executive Officer Vice Chairman and Chief	Gregory S. Folley Stephen A. Gosselin Hans A. Haefeli John S. Heller	Vice President Vice President Vice President Vice President and
Richard P. Lavin Stuart L. Levenick Edward J. Rapp Gérard R. Vittecoq Steven H. Wunning Kent M. Adams William P. Ainsworth Ali M. Bahaj Rodney C. Beeler Mary H. Bell Thomas J. Bluth David P. Bozeman James B. Buda David B. Burritt Richard J. Case Robert B. Charter Christopher C. Curfman Paolo Fellin	Executive Officer — Elect2 Group President Group President Group President Group President Group President Group President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President, General Counsel and Secretary Vice President and Chief Financial Officer Vice President Vice President Vice President Vice President	Gwenne A. Henricks Stephen P. Larson Daniel M. Murphy James J. Parker Mark R. Pflederer William J. Rohner Christiano V. Schena William F. Springer Gary A. Stampanato Gary A. Stroup Tana L. Utley James D. Waters, Jr. Robert T. Williams Jiming Zhu Bradley M. Halverson Kevin E. Colgan Edward J. Scott3 Christopher C. Spears3 Jananne A. Copeland Robin D. Beran Laurie J. Huxtable	Chief Information Officer Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Controller Treasurer Chief Audit Officer Chief Ethics and Compliance Officer Chief Accounting Officer Assistant Treasurer Assistant Secretary
Steven L. Fisher	Vice President

¹ Will retire as CEO effective July 1, 2010 and as Chairman effective October 31, 2010.

² Effective January 1, 2010. Will become CEO effective July 1, 2010 and Chairman effective October 31, 2010.

³ Effective January 1, 2010.

AI assistant

CATERPILLAR INC — Proxy Solicitation & Information Statement 2010

29780_rns_2010-04-30_83ba962a-35a9-4924-abac-6a3eb45c2124.pdf

Dear fellow stockholder:

Table of Contents

PART FOUR — Other Important Information

PART ONE — Information about E-proxy, Meeting Attendance and Voting Matters

Internet Availability of Proxy Materials

Frequently Asked Questions Regarding Meeting Attendance and Voting

Q: Why am I receiving these proxy materials?

Q: What is e-proxy and why did Caterpillar choose to use it this year?

Q: Why didn't I receive an "annual report" or "sustainability report" with my proxy materials?

Q: How do I obtain an admission ticket to attend the Annual Meeting?

Q: What is a stockholder of record?

Q: When is the record date and who is entitled to vote?

Q: How do I vote?

Q: Why is it so important that I vote my shares?

Q: What are "broker non-votes" and why is it so important that I submit my voting instructions for shares I hold in street name?

Q: How can I authorize someone else to attend the meeting or vote for me?

Q: How can I change or revoke my vote?

Q: Is my vote confidential?

Q: What is the quorum for the meeting?

Q: What vote is necessary for action to be taken on proposals?

Q: When are stockholder proposals due for the 2011 annual meeting?

Q: What does it mean if I receive more than one proxy card?

Q: Who pays for the solicitation of proxies?

Q: Are there any matters to be voted on at the Annual Meeting that are not included in this proxy statement?

Q: Can I submit a question in advance of the Annual Meeting?

PART TWO — Corporate Governance Information

Corporate Governance Guidelines

Composition of the Board

Structure

Director Biographies and Qualifications

Class I — Directors with terms expiring in 2011

Class II — Directors with terms expiring in 2012

Class III — Directors nominated for election at the Annual Meeting

Related Party Transaction Approval Process

Director Independence Determinations

Process for Identifying and Evaluating Potential Directors

Board Leadership Structure

Board's Role in Risk Oversight

Board Meetings and Committees

Communication with the Board

Code of Ethics

Audit Committee Report

Audit Fees and Approval Process

Pre-Approval Process

Annual Pre-Approval Process

Interim Pre-Approval Process

On-Going Monitoring

Independent Registered Public Accounting Firm Fee Information

Governance Committee

Director Resignation Policy

Process for Nominating Directors

Stockholder Nominations

PART THREE — Proposals to be Voted on at the 2010 Annual Meeting

Company Proposals

PROPOSAL 1 — Election of Directors

Class III — Directors nominated for election at the Annual Meeting

YOUR BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE NOMINEES PRESENTED IN PROPOSAL 1.

PROPOSAL 2 — Ratification of our Independent Registered Public Accounting Firm

YOUR BOARD OF DIRECTORS AND AUDIT COMMITTEE RECOMMEND VOTING "FOR" PROPOSAL 2.

PROPOSAL 3 — Amend 2006 Long-Term Incentive Plan

Administration

Shares Subject to the Plan and Maximum Awards

Eligibility and Participation

Awards

Performance Goals

Award Forfeitures

Clawback

Change of Control

Other Provisions

U.S. Federal Income Tax Consequences

PROPOSAL 4 — Amend Restated Certificate of Incorporation and Bylaws to Provide for Annual Election of Directors

The Board proposes the annual election of directors.

Each director will stand for re-election annually beginning at the 2011 annual meeting.

Vote Required

Background of Proposal

Certificate of Incorporation

● SIXTH:

CATERPILLAR INC Proxy Solicitation & Information Statement 2010