Ineffective Call Centers Need Performance Management

Source: tmcnet.com

By RICHARD SNOW
VP & Research Director at Ventana Research

Advances in technology, tools and an understanding of business processes all lead to a simple statement: You can make your contact center more effective and a more valuable contributor to the top and bottom line.

Ventana Research believes organizations can improve the operational performance of their contact centers by aligning the agents, the processes and systems being used to a common set of business-driven goals. To achieve this, organizations should follow a three-step process we call Understand, Optimize and Align.

To Understand, business managers acquire baseline information that can be used to measure their processes both currently and historically. To Optimize, they employ models and algorithms to create forecasts and plans that can change the way they view the contact center. To Align, they establish procedures for setting goals, scoring, notifying and automating the performance management process.

Managing operational performance in a contact center begins with determining what to measure, how to extract the data from which to derive the measures and how to apply the measures to improve performance.

What to Measure
As regards what to measure and how to find data, most contact centers are managed tactically, focusing on transactional throughput. This approach is typified by the wallboards that display supposed key performance indicators, such as number of calls in each queue, number of calls processed today and average length of call. However, these numbers, taken directly from the telephone switching equipment, really indicate only the efficiency of the center, not its effectiveness in resolving the customers’ issues.

Likewise, companies look at agent performance, but again the measures are mostly transactional – average time taken to handle a call, number of first-time call resolutions, quality of call handling and the like. These performance-related metrics are derived relying on a basic Business Intelligence tool that can extract data from the switching equipment and case management software.

In today’s contact centers, quality measures typically are generated by recording calls, listening to them and subjectively grading how well the agents handled them. These assessments then can be used to shape the training of agents.

Business-Driven Metrics
Developing business-driven metrics – in a sales environment, how many orders were completed, the average length of a call to complete an order or the comparative performance of agents against business-related goals – requires data from a combination of data sources, including the switching equipment and customer relationship management and enterprise resource planning systems. These metrics usually are available to the appropriate level of management and indicate the performance of the center, its team and individuals.

Today advances are being made in measuring and data analysis. Measures can be extended from one to another end of a process, across the enterprise. This capability assists in finding where a process is broken and therefore what action should be taken to improve its overall business performance.

For example, in a technical help desk environment such a measure might identify recurring calls about a common product fault, which could be passed back to manufacturing for correction; in a customer support environment, it might show that misleading marketing materials were generating calls. These uses of metrics represent a move toward analyzing why calls happen; isolating root causes can lead to corrective action that in turn can cut call numbers dramatically.

Analyzing Content
Advances are occurring in another aspect of call center management as well. Many call-recording vendors are enhancing their products to analyze the content of calls automatically, even to the extent of tracking the pitch of the caller’s voice to try to determine his or her mood. Most of these tools also include the ability to "screen scrape" what the agent is doing at the desktop, a feature that can help improve the underlying support processes. For example, an examination may reveal that a particular category of data often is needed at the CSR desk but requires a number of keystrokes to access. This could lead to a redesign to make it easier to extract that data from a business application, speeding agent resolution of a call.

These products eliminate the need for manual analysis and can identify agent training needs and even evaluate true customer satisfaction automatically. In a Voice over Internet Protocol environment, it is possible to do all of this in real time, even to the extent of automatically alerting a supervisor to listen to a call and take control if need be.

Contact centers are notorious for both the diversity of technologies they contain and the proprietary nature of the individual pieces of equipment. In the past, extracting data from them required a lot of custom-built software and high degrees of cooperation among the many vendors, all of which were expensive.

ETL Tools
Fortunately, this is changing. Tools to support extraction, transformation and loading (ETL) of data from one source to another, long a bottleneck, have become much more sophisticated. More importantly, new vendors that focus entirely on contact centers have brought to market software that makes it possible to extract data that previously was unattainable. Once the data is in a common repository, it is relatively easy to do cross-analysis, derive mature metrics and present them in ways meaningful to users.

With more mature metrics are available, the challenge is to use them to improve effectiveness as well as efficiency. Some observers suggest adopting the Six Sigma approach: set targets, measure and reduce variation at all stages until the measures fall within the targets, then repeat with more exacting targets.

The problem with doing that in a contact center is that degrees of variation at the outset are huge because they are people-related. So bringing about improvement is largely a people issue, which means three things are required: training related to individual performance, metrics related to the business objectives and an understanding of them internalized by the agents.

The contact center is one of the key interfaces with customers. As long as the metrics used to evaluate and manage it all relate to transactional efficiency rather than business effectiveness, no new technology will produce improvements in measures such as customer satisfaction and levels of up-selling. The tools are available today, but it is more important that executives set business- and customer-related goals for contact centers and that contact center managers change the processes and train agents to deliver against those goals.

Double R&D award for Watson-Marlow Bredel

PandCT.com
]
Falmouth-based Watson-Marlow Bredel, the market leader for peristaltic pump technology, has gained recognition for its efforts in research and development by winning two awards for Product Design and Development at the Best Factory Awards, 2005.

Watson-Marlow Bredel was delighted to walk away with two of the four product development accolades on offer. Richard Green, group product manager, Watson-Marlow, says: "We're absolutely thrilled to have won these awards; it is testimony to our design team's hard work in implementing both cultural and procedural changes to the design processes. This recognition for gains already made is a real boost to everyone involved from all parts of the business. But it is only a staging post on a continuing journey towards the goal of being the perfect pump company."

Dean Palmer, editor of Eureka and awards judge, commented: "Watson-Marlow Bredel has made great strides in reducing the time it takes to design and develop new products. Using Design for Six Sigma on the firm's new 620 drive, the team managed to reduce the design implementation time (from terms of reference to launch) from 18 months for the predecessor (520 drive), to nine months."

Scooping both the Product Design and Development Award and the Design Cycle Reduction Design Cycle Award, these achievements are the result of considerable effort and investment being placed on the design and development of the company's peristaltic pumps.

These awards have been run by Cranfield University and Eureka for 13 years, with the design aspect introduced for 2005.

"Design for Six Sigma requires us to work differently. It's a complete culture change," says chief engineer Andrew Green. "All design unknowns have been eliminated before implementation and you have to work more closely with partners and suppliers. It's about acting on facts rather than hunches, with actual data driving the decision-making process."

Watson-Marlow Bredel has also introduced Quality Function Deployment research to produce market requirement specifications for all new products, analysing customer perception at key project stages. Design for Six Sigma techniques drive all other aspects of the process, including design of experiments, design for manufacture and assembly as well as routine problem-solving and conflict resolution.

Watson-Marlow, Falmouth, produces peristaltic pumps used in pharmaceutical and biotechnology industries as well as the production of food and beverage, packaging and print and construction and industrial processes, as well as water and waste treatment. The plant employs over 160 people, 19 of whom are involved in R&D (Research and Development), with further offices and production sites around the world.

For more information contact Mike Sullivan or Heather Beale, Watson-Marlow Bredel Pumps on Tel: 01326 370370 or Fax: 01326 376009.

Paccar Profits Surge 24%; Best Quarter in Company's 100-Year History

TruckingInfo.com

In addition, completion of 4,600 Six Sigma projects has contributed to the company's record manufacturing efficiency."

10/26/2005 — "Paccar earned record net income for the third quarter and first nine months of 2005," said Mark C. Pigott, chairman and chief executive officer.

"This outstanding result is especially noteworthy as the company is celebrating its 100-year anniversary. All facets of the business reported strong results, highlighted by DAF growing share in Europe, Paccar Financial Services excellent performance and aftermarket parts and technology generating stellar results. Kenworth and Peterbilt Class 6, 7 and 8 sales and profits were records."

"Paccar's geographic diversification, disciplined business practices and innovative product breadth have been key success factors in the company's outstanding financial performance," added Pigott. "Over the past 10 years, Paccar has invested over $1.5 billion to fund capital projects which have enhanced the company's technology leadership, resulting in the highest product quality and customer satisfaction in the industry. In addition, completion of 4,600 Six Sigma projects has contributed to the company's record manufacturing efficiency."

For the third quarter of 2005, Paccar's net profit surged 24 percent to a record $304.8 million ($1.78 per diluted share) compared to the $246.7 million ($1.41 per diluted share) earned in the third quarter of 2004. Third quarter net sales and financial services revenues were $3.54 billion, 21 percent higher than the $2.92 billion reported for the comparable period in 2004. The company's third quarter 2005 results marked the 15th consecutive quarter in which the company achieved higher net income than the same period in the prior year.

For the first nine months of 2005, Paccar reported record net income of $820.3 million ($4.73 per diluted share), a 23 percent increase compared to $665.4 million ($3.78 per diluted share) in 2004. Net sales and financial services revenues for the first nine months increased 27 percent to a record $10.42 billion compared to $8.21 billion last year. For the nine months, the company earned an industry-leading after-tax return on beginning equity (ROE) of 29.6 percent. Included in Paccar's net income for the first nine months of 2005 is a one-time charge of $64 million ($.37 per diluted share) for income taxes associated with the repatriation of $1.5 billion of cash from its subsidiaries outside the United States.

Vision Creation Key Factor for Multinationals'Success

GE Korea chairman Lee Chae-wook addresses the launch of “ecomagination,” the group’s new initiative for future growth in Korea, on the company’s annual community day event held at Pyongchang, Kangwon Province, on Oct. 21.

By Seo Jee-yeon
Staff Reporter

It is common in Korea to divide corporations into domestic or foreign. This simplified classification, however, becomes meaningless in the era of globalization.
There are no genuine domestic players any more except a small number of companies which produce and sell products locally.

In terms of foreign shareholdings, a number of Korean INCs can be recognized as foreign companies, considering their share ownership. For instance, some people argue Samsung Electronics is not a Korean company any more as foreign shareholdings exceed 50 percent.

Others favor giving Samsung Electronics the nametag of a global company, because of its overseas sales. The world's largest memory chip maker generated more than 80 percent of its revenue abroad as of the end of September this year.

Despite their brand recognition throughout the world, people scratch their heads when asked if they think Korea's leading companies are multinational companies like U.S.-based General Electric (GE) or L'oreal, a French cosmetics giant.

What is a multinational company? When you look up the word in the dictionary, it is defined as a company that does business in more than one country, usually by setting up branch offices. What more is needed to become a globally recognized multinational?

``Creating corporate vision to do business globally with integrity is one of the most important features of multinational companies,'' GE Korea chairman Lee Chae-wook said.

He made the remark in a meeting with reporters at the ``GE Day'' event held in Pyongchang in Kangwon Province on Oct. 22 with about 700 executives and employees of GE's legal entities in Korea.

GE Day refers to an annual community day hosted by GE affiliates in different countries. It aims to share the corporate vision with GE family members all around the world. In some countries, the event includes clients and civic groups.

GE Korea has hosted a GE Day event since 2002 to share GE's vision with GE family members in Korea and seek unity in the vision.

On 2005 GE Day, GE Korea addressed the company's new future vision, ``ecomagination''.

``Ecomagination'' is a new initiative that GE chairman Jeff Immelt announced last May to give direction to the company.

GE, the world's largest company by market value, has had an impact on the world business community with concepts like ``workout'', a method for busting bureaucracy and attacking organizational problems and ``six sigma,'' a method for process innovation.

Ecomagination, which combines two words-eco and imagination, is a new GE initiative to aggressively bring to market new technologies that will help customers meet pressing environmental challenges.

``The initiative represents GE's firm will to seek growth based on environmentally-friendly technology products, while making the company further socially responsible,'' Lee said.

Under ecomagination, GE said it will double its investment in research and development in cleaner technologies to $1.5 billion per year by 2010, up from $700 million in 2004.

It will also introduce more ecomagination products each year, doubling its revenues from products and services that provide significant and measurable environmental performance advantages to customers to at least $20 billion in 2010 with more aggressive targets thereafter.

The company will reduce its greenhouse gas emissions and improve is energy efficiency. Finally, it will keep the public informed about its progress in meetings these goals.

The communications department keeps GE employees updated to understand and learn the development of the corporate vision.

GE Day is a good tool to help employees grasp the corporate vision. A group of GE Korea employees from each legal entity in Korea staged a performance with the theme of ecomagination this year.

``As the world's most respected company, GE acts locally but thinks globally. The company respects the different cultures of each country where the company has a presence, but seek unity under the same vision,'' Lee said.

The company favors the talents of sharing the GE vision and implementing it with passion, according to Joh Byung-ryul, director of communications of GE Korea.

``To grow as multinationals, Korean companies need to learn how to create visions and implement them globally,'' Lee stressed, adding that one secret is to constantly learn from others with open mind.

``. GE continuously attracts the best business practices in the world. One of key task of GE management is to visit globally competitive companies, whether small or big, in person and study what we can learn form them,'' Lee said.

jyseo@koreatimes.co.kr

10-25-2005 18:58

Material Science Breakthrough for Plastics Films to TV Picture Tubes

Source: Jobwerx.com

The vacuum metallization process deposits a thin layer of metal on a wide array of substrates from plastics film to TV picture tubes.

The vacuum metallization process, used to deposit a thin layer of metal on a wide array of substrates from polyethylene terephthalate (PET) plastic film to TV picture tubes, relies on evaporation boats that heat aluminum and other metals to the vaporization point. In this extremely demanding production environment, evaporation boats must withstand temperatures of 1500 C or more, resist corrosion from different metals, and provide even wet-out for consistency of deposition on the substrate. GE's Advanced Materials' Quartz business has developed a new grade, in its Metallist* line of intermetallic composite (IMC) evaporation boats, that is intended to meet all these challenges while providing up to 65 percent longer life than competitive boats. The superior properties of GE's VaporStar* IMC evaporation boats can give manufacturers critical advantages including higher-quality end products, higher productivity, faster cycle times, and greater value.

“VaporStar IMC boats represent a true breakthrough in material science,” said Greg Strosaker, GE product manager, Ceramic Powders and Shapes. “First, by providing both high corrosion resistance and high wettability, our new VaporStar grade resolves the traditional dilemma of choosing between these two properties. Second, longer boat life means fewer changeovers and more production time. Finally, the boats' ease-of-use and higher operating stability deliver the potential for improving metallizing quality and yields. We believe these performance advantages will help customers become more competitive.”


*VaporStar, Metallist, Classic, and StabilizerPlus are trademarks of General Electric Company. Click on photo for high resolution image.

Using its Design for Six Sigma process, GE worked with a number of key customers throughout its development of the VaporStar boats, and conducted extensive validation with customers to substantiate that the benefits delivered by the boats were significant and present in real-world operating conditions, not just in a controlled laboratory environment. The company built a laboratory chamber to replicate customers' process environments and developed special tests to quantify wetting and corrosion characteristics. Quantitative field testing was conducted at more than 10 customer sites.

Results of these tests indicate VaporStar IMC boats provide up to twice the wettability of existing two-part boats with the same high corrosion resistance. Higher wettability leads to more consistent aluminum deposition and higher-quality metallized products. Further, VaporStar boats stay wettable throughout their life, even after the grooving and slag build up that is typical after long periods of metallization. These improvements can translate to longer life. When benchmarked against current products, the GE boats achieved up to 65 percent longer life vs. two- and three-part boats. Improved thermal shock resistance compared to other two-part products provides greater resistance to cracking during initial heating.


For operators, the increased wettability of VaporStar IMC boats means improved ease of use and better control over the metallizing process. Operators who participated in GE testing consistently reported greater plate uniformity and aluminum puddle stability over the complete life cycle of the VaporStar boats. GE is committed to helping customers discover the benefits of VaporStar boat technology in their processes, offering training on the use of VaporStar boats, benchmarking studies to define baseline performance of existing boats, and tests to demonstrate the improvements possible through VaporStar boats.

The VaporStar grade joins two existing Metallist products: Classic* IMC grade and StabilizerPlus* IMC grade. The new product is available immediately from GE, in typical resistivity ranges required for vacuum metallizing processes.

The Advanced Materials' GE portfolio includes silicone-based products and technology platforms, silanes, fused quartz, ceramics, sealants and adhesives. These material solutions are used as a catalyst for innovation in hundreds of consumer and industrial applications ranging from car engines to biomedical devices. Markets served include aerospace, agriculture, appliances, automotive, construction, electronics, furniture and furnishings, healthcare, home care, industrial, lighting, packaging, personal care, plastics, semiconductor, telecommunications, tire, transportation, and water purification. As a Worldwide Partner of the Olympic Games, GE is the exclusive provider of a wide range of innovative products and services that are integral to a successful Games.

Caterpillar Inc. Announces Record Third-Quarter Sales and Profits Amid Continued Strong Demand in Key Markets and Industries; Revises 2005 Outlook; ..

Caterpillar Inc. Announces Record Third-Quarter Sales and Profits Amid Continued Strong Demand in Key Markets and Industries; Revises 2005 Outlook; Projects Another Year of Growth in 2006

--------------------------------------------

PEORIA, Ill., Oct. 21 /PRNewswire-FirstCall/ -- Continuing to meet strong
customer demand worldwide, Caterpillar Inc. (NYSE: CAT) today reported
third-quarter sales and revenues of $8.977 billion and profit of $667 million,
or $0.94 per share. Both sales and revenues and profit per share are the
highest in the company's history for a third quarter.

"Thanks to the hard work of our people around the world and the discipline
of 6 Sigma, Team Caterpillar has again effectively responded to our customers'
needs," said Caterpillar Chairman and Chief Executive Officer Jim Owens. "We
met the challenges stemming from recent hurricanes with minimum disruption to
our business and maximum responsiveness to the cleanup needs in the Gulf
region and delivered the best third-quarter financial results in company
history."

Sales and revenues of $8.977 billion were up $1.318 billion, or
17 percent, compared to $7.659 billion for the third quarter of 2004. The
higher sales and revenues were driven by continued strong global demand and
improved price realization.

Profit of $667 million, or $0.94 a share, was up 34 percent compared to
profit of $498 million in the third quarter of 2004. Machinery and Engines
operating profit as a percent of sales increased substantially -- 7.9 percent
in the third quarter of 2004 to 10.5 percent in the third quarter of 2005.
The increase was the result of improved price realization, higher sales volume
and effective management of our period cost structure, somewhat offset by
continued pressure on variable manufacturing costs.

"While we posted the best third quarter in our history, we still have
opportunity to improve our operations. In particular, we have to work through
capacity bottlenecks and need more focus on production processes to improve
order fulfillment and supply chain efficiencies. To help move us faster along
this path, we announced last week a new division to drive improvements in our
production processes and order fulfillment capability," said Owens.

Outlook - 2005

The outlook for 2005 has been revised from previously reported levels.
Sales and revenues are now expected to be up about 20 percent from 2004, and
the profit outlook has been adjusted to reflect an estimated profit range of
$3.85 to $4.00 per share.

The previous outlook reflected sales and revenues up 18 to 20 percent and
profit per share of $4.00 to $4.20.

The revised profit outlook includes potential charges of approximately
$100 million before tax that are likely to be incurred in the fourth quarter
and an increase in the estimated annual tax rate from 29 percent to
30 percent. Potential charges of $100 million are related to changes in our
dealer distribution software and a product realignment that are under
consideration.

Preliminary Outlook - 2006

Sales and revenues in 2006 are expected to be up about 10 percent from
2005. The profit outlook for 2006 is an increase of 15 to 25 percent from
2005 from the middle of the profit range in the 2005 outlook.

Owens stated, "The company is well-positioned for continued profitable
growth, with selected increases in capacity, a comprehensive rollout of new
products and strong growth in our service businesses. Further, we will
intensify our focus on order fulfillment and cost management. Caterpillar is
ready for the challenges ahead."

(Complete outlook begins on page 11.)

For 80 years, Caterpillar has been building the world's infrastructure
and, in partnership with our independent dealers, is driving positive and
sustainable change on every continent. Caterpillar is a technology leader and
the world's largest maker of construction and mining equipment, diesel and
natural gas engines and industrial gas turbines. More information is
available at http://www.cat.com/ .

Note: Glossary of terms included on pages 21-22; first occurrence of terms
shown in bold italics.

Key Points

Third-Quarter Comparison

-- Third-quarter sales and revenues were the highest in Caterpillar
history for any third quarter and the second highest quarter on
record -- $8.977 billion.

-- Sales and revenues were 17 percent higher than the third quarter of
2004. Machinery sales increased 20 percent, Engines sales increased
11 percent and Financial Products revenues rose 21 percent from a
year ago.

-- Third-quarter profit was the highest for any third quarter in company
history, and second highest on record -- $667 million, 34 percent
higher than the third quarter of 2004.

-- Machinery and Engines operating profit as a percent of sales
increased substantially -- 7.9 percent in the third quarter of 2004
to 10.5 percent in the third quarter of 2005. The increase was the
result of improved price realization, higher sales volume and
effective management of our period cost structure, somewhat offset by
continued pressure on variable manufacturing costs.

-- Compared with third quarter 2004, Machinery and Engines incremental
operating profit as a percent of incremental sales was 26 percent.

-- The provision for income taxes reflects an increase in the estimated
annual tax rate from 29 percent to 30 percent. The effect of
increasing the estimated annual tax rate to 30 percent lowered
third-quarter profit by $28 million.


Outlook

-- The 2005 sales and revenues outlook has been reaffirmed at the top
end of the previous outlook and reflects an increase of about
20 percent from 2004.

-- The 2005 profit outlook has been revised and now reflects a profit
range of $3.85 to $4.00 per share. The revised outlook includes
$100 million of potential charges that are likely for the fourth
quarter and a higher estimated annual tax rate.

-- Caterpillar expects 2006 sales and revenues to be up about 10 percent
and profit per share to be up 15 to 25 percent from 2005.


General

-- Share repurchases totaled 3.6 million during the third quarter,
bringing the year-to-date total to 22.1 million shares. With shares
issued to cover options exercised, the net reduction of shares
outstanding is 5.7 million shares year-to-date.

-- A question and answer section has been included in this release
starting on page 16.


DETAILED ANALYSIS
Third Quarter 2005 vs. Third Quarter 2004

[Link to see chart for Consolidated Sales and Revenues Comparison Third
Quarter 2005 vs. Third Quarter 2004: http://www.cat.com/chart11005.gif ]


The chart above graphically illustrates reasons for the change in
Consolidated Sales and Revenues between 3rd Quarter 2004 (at left) and
3rd Quarter 2005 (at right). Items favorably impacting sales and
revenues appear as upward stair steps with the corresponding dollar
amounts above each bar. Caterpillar management utilizes these charts
internally to visually communicate with its Board and employees.


Sales and Revenues
Sales and revenues for the third quarter of 2005 were $8.977 billion, up
$1.318 billion or 17 percent from third quarter 2004. Machinery volume was up
$572 million, Engines volume was up $118 million, price realization improved
$503 million and currency had a positive impact on sales of $24 million, due
primarily to a stronger Brazilian real compared with third quarter 2004. In
addition, Financial Products revenues increased $101 million.


Sales and Revenues by Geographic Region

(Millions % North % %
of dollars) Total Change America Change EAME Change
3rd Quarter 2004
Machinery $4,699 $2,597 $1,106
Engines(1) 2,476 1,100 747
Financial
Products(2) 484 343 83
$7,659 $4,040 $1,936

3rd Quarter 2005
Machinery $5,648 20% $3,198 23% $1,199 8%
Engines(1) 2,744 11% 1,299 18% 816 9%
Financial
Products(2) 585 21% 412 20% 85 2%
$8,977 17% $4,909 22% $2,100 8%


Latin % Asia/ %
America Change Pacific Change
3rd Quarter 2004
Machinery $422 $574
Engines(1) 214 415
Financial Products(2) 25 33
$661 $1,022

3rd Quarter 2005
Machinery $551 31% $700 22%
Engines(1) 287 34% 342 (18%)
Financial Products(2) 39 56% 49 48%
$877 33% $1,091 7%


(1) Does not include internal engines transfers of $451 million and
$387 million in 2005 and 2004, respectively. Internal engines
transfers are valued at prices comparable to those for unrelated
parties.
(2) Does not include revenues earned from Machinery and Engines of
$82 million and ($47) million in 2005 and 2004, respectively.


Machinery Sales
Machinery sales in third quarter 2005 were $5.648 billion, an increase of
$949 million or 20 percent from third quarter 2004. Sales were a record for
the third quarter and were only slightly below last quarter's record high.
Sales volume accounted for $572 million of the increase, price realization
added $353 million and the remaining $24 million was due to currency. Sales
gains benefited from a double-digit percentage increase in deliveries to end
users, with all regions and most industries contributing to growth.
Dealer machine inventories rose during the third quarter of 2005, but the
gain was less than in last year's third quarter. Worldwide machine
inventories, as measured in months of deliveries, were the same as a year
earlier.

-- North America sales were up $601 million or 23 percent from third
quarter 2004; sales volume increased $389 million and price
realization added $212 million. Low mortgage interest rates and
higher home prices pushed housing units under construction to the
highest level since the early 1970s, and nonresidential construction
benefited from record corporate profits. Higher output prices and
increased production boosted mining.

-- EAME sales increased 8 percent or $93 million when compared to third
quarter 2004. Improved price realization accounted for $65 million,
sales volume added $26 million and the remaining $2 million came from
the favorable impact of the stronger euro. Sales volume in Europe,
where the economy was weak, declined slightly. Economies in
Africa/Middle East (AME) and the Commonwealth of Independent States
(CIS) benefited from higher commodity prices, particularly energy, and
increased production of those commodities. Sales volume in both
regions increased significantly.

-- Latin America sales rose $129 million or 31 percent from the same
quarter last year -- $85 million from increased volume, $28 million
from improved price realization and the remaining $16 million from a
stronger Brazilian real. The region benefited from low domestic
interest rates, increased capital inflows and growth in both mining
and construction. Sales increased rapidly in Brazil, Mexico and
Venezuela, and in most applications throughout the region.

-- Asia/Pacific third-quarter sales were 22 percent or $126 million
higher than last year -- $72 million from higher volume, $48 million
from improved price realization and the remaining $6 million due to
currency. Fast economic growth in the region has boosted
construction, and mining benefited from higher metals and coal prices.
Sales in China continued to improve and were significantly above the
year earlier quarter. Sales in Australia, where mining has boomed,
also increased rapidly.


Engines Sales
Engine sales were $2.744 billion in third quarter 2005, up $268 million or
11 percent from the third quarter 2004. Price realization accounted for
$150 million, and sales volume added $118 million.
Dealer engine inventory declined during the third quarter of 2005,
compared to an increase in inventory during the third quarter of 2004. The
decline during the third quarter of 2005 reduced the company's third-quarter
sales growth compared to a year ago. Months of inventory relative to
deliveries declined in all regions compared to third quarter 2004, as
deliveries increased in response to market demand.

-- North America sales were up 18 percent. Engine sales to the petroleum
sector surged 57 percent, primarily from continued growth in demand
for reciprocating engines as a result of higher energy prices as well
as a strong increase in sales of turbines and turbine-related services
driven by higher demand for gas production and transmission. Engine
sales to the electric power sector were up 48 percent, with widespread
increases in demand for generator sets to support business investments
in standby power driven by healthy corporate profits. On-highway
truck engine sales increased 3 percent, fueled by high freight demand
and continued fleet replacements. Marine engine sales were up
56 percent with strong demand for workboat vessels to support
petroleum production.

-- EAME sales increased about 9 percent. Electric power engine sales
were up 16 percent with widespread strong demand for prime and standby
generator sets. Engine sales into the marine sector were up 8 percent
with ongoing demand for inland waterway and port support vessels.
Petroleum engine sales dropped 18 percent, as decreased sales for gas
transmission projects in Europe more than offset an increase in
projects for offshore oil production in the AME region. Engine sales
to the industrial sector decreased 2 percent, impacted by some
Original Equipment Manufacturers' (OEMs) vertical engine integration
and reduced demand for agricultural equipment.

-- Latin America sales were up 34 percent. Petroleum engine sales
increased 41 percent from increased sales of turbines and turbine-
related services, primarily for Mexico offshore oil production
projects. Electric power engine sales were up 27 percent, benefiting
from increased investment in generator sets for electric reliability,
communications applications and rental fleets.

-- Asia/Pacific sales were down 18 percent. Marine engine sales were up
38 percent due to continued shipbuilding growth supported by increased
freight tonnage. Petroleum engine sales were up 20 percent, primarily
due to growing demand for reciprocating engines to support production.
Engine sales to the electric power sector dropped 46 percent,
primarily due to reduced opportunity for load management generator
sets in China, as improved electricity availability and demand
management efforts reduced the demand for generator sets.


Financial Products Revenues
Financial Products revenues were $585 million, up $101 million or
21 percent from third quarter 2004. The increase was due primarily to a
$61 million favorable impact from continued growth of Earning Assets and a
$26 million impact of higher interest rates on new and existing finance
receivables at Cat Financial.


[Link to see chart for Consolidated Operating Profit Comparison Third
Quarter 2005 vs. Third Quarter 2004: http://www.cat.com/chart21005.gif ]

The chart above graphically illustrates reasons for the change in
Consolidated Operating Profit between 3rd Quarter 2004 (at left) and 3rd
Quarter 2005 (at right). Items favorably impacting operating profit
appear as upward stair steps with the corresponding dollar amounts above
each bar, while items negatively impacting operating profit appear as
downward stair steps with dollar amounts reflected in parentheses above
each bar. Caterpillar management utilizes these charts internally to
visually communicate with its Board and employees.


Operating Profit
Third-quarter operating profit improved $277 million, or 42 percent over a
year ago, driven by higher price realization and sales volume partially offset
by higher core operating costs and retirement benefits.
Core operating costs rose $303 million from the third quarter of 2004,
primarily due to a $236 million increase in manufacturing costs.
Approximately 60 percent of the manufacturing cost increase was attributable
to variable costs due to material, volume-related inefficiencies and increased
freight and expediting costs. The remainder of the manufacturing cost
increase was due to an increase in period manufacturing costs associated with
building our products. Non-manufacturing related core operating costs were up
$67 million -- a result of higher Research and Development (R&D) and Selling,
General and Administrative (SG&A) expenses to support product programs and the
growth in volume. As a percent of sales, the total of SG&A and R&D expenses
were lower than in the third quarter of 2004.


Operating Profit by Principal Line of Business

3rd Quarter 3rd Quarter Change Change
(Millions of dollars) 2004 2005 $ %

Machinery(1) $411 $615 $204 50%
Engines(1) 155 265 110 71%
Financial Products 132 123 (9) (7%)
Consolidating Adjustments (35) (63) (28)
Consolidated Operating
Profit $663 $940 $277 42%

(1) Caterpillar operations are highly integrated; therefore, the company
uses a number of allocations to determine lines of business
operating profit for Machinery and Engines.


Operating Profit by Principal Line of Business

-- Machinery operating profit of $615 million was up $204 million, or
50 percent, from third quarter 2004. The favorable impact of improved
price realization and higher sales volume was partially offset by
higher core operating costs and higher retirement benefits.

-- Engines operating profit of $265 million was up $110 million, or
71 percent, from third quarter 2004. The favorable impact of improved
price realization and higher sales volume was partially offset by
higher core operating costs and higher retirement benefits.

-- Financial Products operating profit of $123 million was down
$9 million, or 7 percent, from third quarter 2004. Cat Insurance
experienced a $15 million decrease primarily due to less favorable
reserve adjustments in 2005 than in 2004. In addition, there was a
$12 million increase in operating expenses primarily related to
growth, a $7 million write-down of a marine-related asset, and a
$7 million write-off of investment-related income, partially offset by
a $36 million favorable impact from the growth in earning assets at
Cat Financial.


Other Profit/Loss Items

-- Other income/expense was income of $80 million compared with income of
$60 million in third quarter 2004. The improvement was due to higher
interest income and the absence of a number of expense items incurred
during the third quarter of 2004 that were individually not
significant.

-- The provision for income taxes in the third quarter reflects an
estimated annual tax rate of 30 percent as compared to a 27 percent
rate in 2004. The increase is primarily due to a reduction in our
estimated Extraterritorial Income Exclusion (ETI) benefits, partially
attributable to the impact of American Jobs Creation Act (AJCA)
permitting only 80 percent of ETI benefits in 2005, and also to a
change in our geographic mix of profits. Our estimated annual tax
rate excludes the $11 million discrete charge recorded in the second
quarter for our repatriation plans including the impact of the AJCA.

The third quarter 2005 provision for income taxes includes an
unfavorable adjustment of $18 million related to the first six months
of 2005 resulting from an increase in the estimated annual tax rate
from 29 to 30 percent. The change in the estimated rate was primarily
from changes in our estimated tax benefits from ETI.


Employment
At the end of the third quarter, worldwide employment was 83,899 compared
with 75,530 one year ago. The increase was primarily due to about
4,300 hourly labor additions to support higher volume and the conversion of
about 2,000 supplemental employees to full-time employment.


Sales and Revenues Outlook

(Millions of dollars) 2004 2005 %
Actual Outlook Change
Machinery and Engines
North America $14,521 $17,700 22%
EAME 7,505 8,950 19%
Latin America 2,372 3,050 29%
Asia/Pacific 3,938 4,250 8%
Total Machinery and Engines 28,336 33,950 20%

Financial Products(1) 1,970 2,350 19%

Total $30,306 $36,300 20%

(1) Does not include revenues earned from Machinery and Engines of
$199 million and $307 million in 2004 and 2005 outlook,
respectively.


2005 Outlook - Sales and Revenues
We project company sales and revenues will increase about 20 percent in
2005, setting a new record. That forecast assumes about a 12 percent increase
in Machinery and Engines volume, a more than 5 percent gain from improved
price realization and the rest from Financial Products revenues.

-- Interest rates in most countries, except for the United States, have
been stable this year, and economic growth has slowed only slightly
from last year's robust pace. Good economic growth, along with low
interest rates, has provided an attractive investment environment.
Machinery and equipment investments have increased much faster than
overall economic growth in many countries, and those trends should
continue for the rest of the year.

-- World demand for energy and most base metals has continued to grow,
maintaining pressure on production capacities and inventories. As a
result, prices increased over the course of 2005 and are very
favorable for investment. Opportunities for mine development, oil and
natural gas drilling and well servicing should remain favorable this
year.

-- Consumers in many countries are upgrading housing, and home prices are
rising. Growing incomes and favorable financing should keep
residential construction strong in most regions this year.

-- The increase in world trade in this business cycle highlighted the
inadequate condition of many countries' infrastructure. Economic
recoveries and higher commodity prices improved many governments'
finances, particularly in developing countries. As a result, several
countries have boosted infrastructure spending.

-- Business profits are at record highs in many countries, financing is
attractive and stock prices are up. Consequently, companies have
started to boost spending on new structures and standby power. We
expect these recoveries will accelerate.


North America (United States and Canada) Machinery and Engines sales are
expected to increase about 22 percent in 2005.

-- We expect the U. S. Federal Reserve will continue increasing interest
rates this year, bringing the Federal funds rate to at least 4 percent
by the end of the year. Economic growth will continue around
3.5 percent, fast enough to support demand in key industries we serve
but not so fast as to cause inflation to accelerate.

-- Housing starts have averaged over a 2 million unit annual rate this
year, and permits for new construction have averaged even higher.
With 30-year mortgage rates near 6 percent, new home prices rising and
inventories relatively low, housing starts in 2005 should be the
highest in more than 30 years.

-- Investment in nonresidential structures has slowly improved over the
past two years, but we expect the recovery to accelerate. Investment
is well below the previous peak, businesses have record cash flows and
financing terms are favorable.

-- Prices for metals and energy commodities increased throughout the
third quarter and are attractive for producers to increase output.
Production of metals increased 9 percent year to date; however, coal
production was down slightly due to lower electricity generation and
some transportation problems. We expect recent increases in utility
output and the need to rebuild stocks will boost coal demand in coming
months.

-- The North American truck fleet is growing in response to higher
freight volume and improved profits. Demand for on-highway trucks is
expected to continue strong, particularly for larger units.

-- Canadian economic growth has been somewhat slower than in the United
States, but low interest rates and high commodity prices have
benefited construction, mining and energy. Those sectors should
continue doing well the rest of the year.


EAME Machinery and Engines sales are expected to increase about 19 percent
in 2005.

-- The Euro-zone economy continued to grow slowly, and we expect no
change in interest rates this year. In the United Kingdom, weaker
than expected growth prompted a recent cut in interest rates. Low
interest rates have encouraged somewhat faster growth in investment
and construction, particularly housing. We project overall European
growth will be about 2 percent this year.

-- Both AME and the CIS are benefiting from higher metals and energy
prices, and both regions should grow more than 5 percent this year.
Improved economic growth has prompted some countries to increase
spending on infrastructure.


Latin America Machinery and Engines sales are expected to increase about
29 percent in 2005.

-- Several countries recently cut interest rates, and we expect further
rate cuts this year. Direct investment into the region is increasing,
and overall economic growth should exceed 4 percent.

-- Higher metals prices have driven significant increases in production
and investment in many countries. Better economic growth and lower
interest rates have allowed construction to rebound from years of
underinvestment.


Asia/Pacific Machinery and Engines sales are expected to increase about
8 percent in 2005.

-- Interest rates edged up slightly in recent months, but economic growth
this year should exceed 6 percent. Rapid growth is requiring
businesses to invest in new structures.

-- Australia and India increased mine production, especially for coal and
iron ore. Prices for those commodities continue to be high, and we
project investments in new mine capacity and supporting infrastructure
will grow.


[Link to see chart for Consolidated Operating Profit Comparison 2005
Outlook vs. 2004: http://www.cat.com/chart31005.gif ]

(1) The PPS outlook is between $3.85 and $4.00. The above chart
illustrates operating profit at the midpoint of this profit range.
Each of the stair steps in the chart may individually vary within
the outlook range.

(2) Includes $100 million of potential charges.


2005 Outlook - Profit
The profit outlook for 2005 has been adjusted to reflect an estimated
profit range of $3.85 to $4.00 per share, up 34 to 39 percent. The previous
outlook reflected sales and revenues up 18 to 20 percent and profit per share
of $4.00 to $4.20.
The change in profit outlook includes potential charges of approximately
$100 million before tax that are likely to be incurred in the fourth quarter
and an increase in the estimated annual tax rate to 30 percent. Potential
charges of $100 million are related to changes in our dealer distribution
software and a product realignment that are under consideration.
The fourth-quarter outlook for 2005 reflects sales and revenues of
$9.6 billion and profit per share in a range between $1.01 and $1.16.

Preliminary 2006 Outlook
Interest rates, except in the United States, have been fairly stable, and
we expect only moderate rate increases in 2006. Inflation is low in most
countries, and economic growth is not exceeding potential capacity. The world
economy should grow about 3.5 percent, or the same as in 2005. Growth in the
United States will slow to a little over 3 percent; improvements in Europe and
Japan will offset this slowing.

-- Low interest rates, rising employment and better home prices should
allow some growth in housing construction, particularly outside the
United States. Hurricane damage repair in the U.S. Gulf region will
be a positive catalyst for building construction in 2006.

-- Another year of good economic growth will leave nonresidential
structures increasingly inadequate to efficiently support production.
We expect businesses will use record cash flows to increase spending
on construction and standby power.

-- Economic growth will put increasing stress on many countries'
infrastructure. Governments are expected to use improved finances to
increase infrastructure spending. We expect the U.S. highway bill
will increase federal funds available for highway construction.

-- We believe the investment in mining and energy development that has
occurred so far in this cycle has not been sufficient to restore
adequate production capacity worldwide. Next year should be another
good year for these industries, with prices down only slightly from
this year.

-- Our preliminary projection is for about 10 percent increase in company
sales and revenues over expected 2005 results.

-- The profit outlook for 2006 is expected to be up 15 to 25 percent from
the middle of the profit range in the 2005 outlook.


The outlook described above reflects our base case expectations. Economic
risks to this outlook include: (1) excessive increases in interest rates
driven by central bank inflationary concerns and (2) high energy costs that
could negatively impact consumption. These developments could become severe
enough to lower our outlook for 2006.

Supplemental Information
Information previously located in this section is now included in tabular
format at http://www.cat.com/investor under the Quarterly Supplemental
Information section.


QUESTION AND ANSWER

General

Q1: Will your 2007 on-highway engines be based on ACERT(R) Technology?

A: Yes. Caterpillar will utilize the ACERT Technology to meet the 2007
on-highway emissions requirements. We demonstrated Caterpillar
technological and environmental leadership at the Mid-America Truck
Show earlier this year when we presented our 2007 ACERT emissions
solution to the trade and business press. Our press event, which
highlighted the new On-highway Vocational Transmission and our Clean
Power Technology commitment, included a chance for editors to drive
an ACERT-equipped 2007 compliant truck. Cat was the only engine
manufacturer with an operable 2007 clean diesel engine on display at
the show. Moreover, engines have been provided to OEMs for
summer-cooling tests and additional field evaluation units are now
shipping to fleet customers.

ACERT Technology reduces emissions via a "building blocks" systems
approach to air management, electronics and fuel systems. For 2007
on-highway engines, Caterpillar will build on the ACERT Technology
foundation by utilizing a diesel particulate filter (DPF) to trap
particulates and by introducing Clean Gas Induction (CGI). A
differentiated approach, CGI will draw cool, clean filtered gas from
downstream of the DPF and then put it into the engine's intake air
system to achieve additional NOx reduction. Development of the
Caterpillar unique CGI and Caterpillar Regeneration System (CRS) is
showing added value versus competitive systems. Advantages in fuel
economy, engine durability and after-treatment life are expected.

Q2: You've mentioned your accelerated timetable of having 2007
ACERT-equipped test engines placed with customers during mid-year
2005. Can you comment on the progress?

A: Over 100 customer evaluation engines have been shipped to OEM truck
manufacturers, and they are in the process of being delivered to
customers for testing. We continue to take and fill orders for
customers who want to evaluate the 2007 engines.

Q3: How are plans going to leverage ACERT Technology into other off-road
applications?

A: The ACERT launch in the machine business is well underway. By the
end of 2005, 45 machine models powered by Tier 3/Stage IIIA
ACERT-equipped engines should be in production. Caterpillar was the
only manufacturer at CONEXPO exhibiting machines with Tier 3/Stage
IIIA certified engines.


Third Quarter 2005 vs. Third Quarter 2004

Q4: Are recent price increases holding in the marketplace?

A: We continue to monitor the marketplace for the impact of the recent
price actions. Indications are that these actions are finding their
way into commercial transactions. The degree and speed may vary for
different markets, but the trends at this time are indicating
improving price levels. We closely monitor price levels for our
products by region, and we are determined to maintain our market
position.

Q5: Are you seeing any evidence yet of improvement in supply chain
conditions?

A: Yes. For most components, our plants are seeing improved supplier
delivery performance and overall supply chain efficiency. However,
demand continues to increase, and our factories are working to raise
production schedules to meet the strong growth in demand. Tires
continue to have tight availability, and on a factory-by-factory
basis a number of component categories are in tight supply.

Q6: Is product availability improving?

A: Machines -- Overall, availability has not yet recovered to where it
was in the first half of 2004, and strong increases in demand
continue to pose a challenge to our production operations. As a
result, about 60 machine models are on managed distribution.

Engines -- Product availability is improving in most areas, with a
few supply constraints still being worked. Heavy-duty truck and
commercial engines have demonstrated substantial line rate increases.
Our larger high-speed engine production is running at substantially
higher line rates compared to 2004, but high demand has caused
extended delivery times.

Q7: Are you at capacity for large mining products? If so, what are you
doing about it?

A: Demand for mining products has increased at an unprecedented rate
over the past two years, and our factories have responded by
dramatically increasing production. Lead times on most large mining
products are significantly longer than usual. We are working with
our supply chain and our factories to respond to the increasing
demand and have numerous 6 Sigma teams working to further increase
our production.

Q8: Can you please provide more detail on your increases in core
operating costs?

A: The following table summarizes the increase in core operating costs
in third quarter 2005 versus third quarter 2004:


Core Operating Cost Change 3rd Quarter 2005
vs.
(Millions of dollars) 3rd Quarter 2004
Manufacturing Costs $236
SG&A 24
R&D 41
Other Operating Costs 2
Total $303


Approximately 60 percent of the manufacturing cost increase is
attributable to variable cost increases -- about half of which is
material and the remainder due to volume-related inefficiencies and
increased freight and expediting costs.

Manufacturing costs also include period manufacturing costs
associated with building our products. Period manufacturing costs
increased 10 percent or approximately $90 million to support the
17 percent increase in Machinery and Engines sales.

Machinery and Engines SG&A declined as a percentage of sales from
8.7 percent in third quarter 2004 to 8.2 percent in third quarter
2005 but was up $24 million versus 2004 excluding the impact of
currency and retirement benefits.

Machinery and Engines operating margins are improving compared with
the second half of 2004:


Q1 '04 Q2 '04 Q3 '04 Q4 '04 Q1 '05 Q2 '05 Q3 '05
8.0% 9.7% 7.9% 7.6% 8.7% 10.7% 10.5%


Q9: Why did the tax rate increase in the third quarter? Is it likely
that 2006 is going to be up further?

A: The effective tax rate increased from 29 percent to 30 percent
primarily because of a change in our estimate of ETI benefits. The
rate will likely go up further next year because of the continued
phase-out of ETI. The American Jobs Creation Act provides for the
phase-out of ETI with 80 percent of benefits in 2005, 60 percent of
benefits in 2006 and complete phase-out in 2007.


Outlook

Q10: Are the machine industries you serve approaching a peak after seeing
sales growth in 2003, 2004 and 2005?

A: We don't think so. This recovery follows a four-year period of
industry weakness, with flat sales from 1999 to 2002. Extended weak
periods in the early 1980s and 1990s were followed by lengthy
recoveries, with sales doubling over a five- to six-year period. In
addition, many industries we serve still have growth potential.

In the United States, non-residential construction and mining have
not yet regained prior peaks. The new highway bill should support
further growth in highway construction. In Euro-zone countries,
economic recovery has not really started, even after more than four
years of weak growth. However, low interest rates are boosting
housing construction and some investment in equipment.

AME, Latin America and the CIS are seeing gains from better commodity
prices. Their economies, along with construction, are recovering
from years of weak growth. Asian economies have demonstrated a
long-term ability to grow rapidly, which requires more construction.
We expect that to continue.

Finally, capacities in mining and energy are inadequate to meet
today's requirements. Rebuilding adequate capacity and meeting
future growth in demand for metals and energy will require
significant further investment.

Q11: Please elaborate on your expectations for material costs in the 2005
outlook.

A: We had expected that material costs, particularly steel, would begin
trending down over the second half of 2005. Costs for some types of
steel did start to decline as we began the quarter. However, the
outlook for the remainder of 2005 does reflect higher material costs
than we had expected in our previous outlook.

Q12: Is incentive compensation a factor in the increase in core operating
costs for 2005?

A: Based on our latest outlook, 2005 incentive compensation is expected
to be about 10 percent lower than in 2004.

Q13: Your 2006 outlook doesn't appear to be achieving your ROS (Return on
Sales) target of 9 percent plus -- is that still the target?

A: While our target is still 9 percent plus, the outlook for 2006 does
not reflect that level of profitability. As compared with 2005,
employee benefit costs, the expensing of stock options and the annual
tax rate are all expected to negatively impact profitability -- we're
looking for another record year, but the profitability projected is
below our target.

Q14: Can you comment on the possible effect of recent natural disasters on
your outlook?

A: The devastating earthquakes in Asia and the hurricanes along the U.S.
Gulf Coast were tragic events that still require significant
humanitarian effort in their aftermath, and we are proud of the
response of our employees and dealers. These disasters are not
likely to have a significant effect on 2005 profit.


GLOSSARY OF TERMS

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

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

3. Currency -- With respect to sales and revenues, currency represents
the translation impact on sales resulting from changes in foreign
currency exchange rates versus the U.S. dollar. With respect to
operating profit, currency represents the net translation impact on
sales and operating costs resulting from changes in foreign currency
exchange rates versus the U.S. dollar. Currency includes the impacts
on sales and operating profit for the Machinery and Engines lines of
business only; currency impacts on the Financial Products line of
business are included in the Financial Products portions of the
respective analyses. With respect to profit before tax, currency
represents the net translation impact on sales, operating costs and
other income/expense resulting from changes in foreign currency
exchange rates versus the U.S. dollar. Also included in the currency
impact on other income/expense are the effects of currency 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.

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

5. Earning Assets -- These assets consist primarily of total net finance
receivables plus retained interests in securitized trade receivables,
plus equipment on operating leases, less accumulated depreciation at
Cat Financial. Net finance receivables represent the gross
receivables amount less unearned income and the allowance for credit
losses.

6. Engines -- A principal line of business including the design,
manufacture, marketing and sales of engines for Caterpillar
machinery, electric power generation systems; on-highway vehicles and
locomotives; marine, petroleum, construction, industrial,
agricultural and other applications; and related parts.
Reciprocating engines meet power needs ranging from 5 to over
22,000 horsepower (4 to over 16 200 kilowatts). Turbines range from
1,200 to 20,500 horsepower (900 to 15 000 kilowatts).

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

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

9. 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, telescopic handlers,
skid steer loaders and related parts. Also includes logistics
services for other companies.

10. Machinery and Engines -- Due to the highly integrated nature of
operations, represents the aggregate total of the Machinery and
Engines lines of business and includes primarily our manufacturing,
marketing and parts distribution operations.

11. Manufacturing Costs -- Represents our cost of goods sold. Comprised
of variable costs adjusted for volume and period manufacturing costs.
Variable manufacturing costs are defined as having a direct
relationship with the volume of production. This includes material
costs, direct labor and other costs that vary directly with
production volume such as freight, power to operate machines, and
supplies that are consumed in the manufacturing process. Period
manufacturing costs support production but are defined as generally
not having a direct relationship to short-term changes in volume.
Examples include machine and equipment repair, depreciation on
manufacturing assets, facility support, procurement, factory
scheduling, manufacturing planning and operations management.
Excludes the impact of currency and retirement benefits.

12. Period Costs -- Comprised of Machinery and Engines period
manufacturing costs, SG&A expense, R&D expense and other operating
costs. Excludes the impact of currency and retirement benefits.

13. Price Realization -- The impact of net price changes excluding
currency.

14. Retirement Benefits -- Cost of defined benefit pension plans, defined
contribution plans and retirement healthcare and life insurance.

15. Sales Volume -- With respect to sales and revenues, sales volume
represents the impact of changes in the quantities sold for machines,
engines and parts. With respect to operating profit, sales volume
represents the impact of changes in the quantities sold for machines,
engines and parts combined with the net operating profit impact of
changes in the relative weighting of machines, engines and parts
sales with respect to total sales.

16. 6 Sigma -- On a technical level, 6 Sigma represents a measure of
variation that achieves 3.4 defects per million opportunities. At
Caterpillar, 6 Sigma represents a much broader cultural philosophy to
drive continuous improvement throughout the value chain. It is a
fact-based, data-driven methodology that we are using to improve
processes, enhance quality, cut costs, grow our business and deliver
greater value to our customers through Black Belt-led project teams.
At Caterpillar, 6 Sigma goes beyond mere process improvement -- it
has become the way we work as teams to process business information,
solve problems and manage our business successfully.


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

Machinery and Engines
Caterpillar defines Machinery and Engines as it is presented in the
supplemental data as Caterpillar Inc. and its subsidiaries with Financial
Products accounted for on the equity basis. Machinery and Engines information
relates to the design, manufacture and marketing of our products. Financial
Products information relates to the financing to customers and dealers for the
purchase and lease of Caterpillar and other equipment. The nature of these
businesses is different, especially with regard to the financial position and
cash flow items. Caterpillar management utilizes this presentation internally
to highlight these differences. We also believe this presentation will assist
readers in understanding our business. Pages 27-32 reconcile Machinery and
Engines with Financial Products on the equity basis to Caterpillar Inc.
Consolidated financial information.


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 Form
8-K filed with the Securities & Exchange Commission (SEC) on October 21, 2005.
This filing is available on our website at http://www.cat.com/sec_filings .
Caterpillar's latest financial results and current outlook are also
available via:

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

Internet:
http://www.cat.com/investor
http://www.cat.com/irwebcast (live broadcast/replays of quarterly
conference call)



Caterpillar Inc.
Condensed Consolidated Statement of Results of Operations
(Unaudited)
(Dollars in millions except per share data)

Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004

Sales and revenues:
Sales of Machinery
and Engines $8,392 $7,175 $24,965 $20,277
Revenues of
Financial Products 585 484 1,711 1,445
Total sales and
revenues 8,977 7,659 26,676 21,722

Operating costs:
Cost of goods sold 6,547 5,745 19,652 16,009
Selling, general and
administrative
expenses 775 701 2,308 2,118
Research and
development expenses 285 240 794 685
Interest expense of
Financial Products 197 130 551 370
Other operating
expenses 233 180 654 539
Total operating costs 8,037 6,996 23,959 19,721

Operating profit