*Unaudited except for December 31, 2001.
See Notes to Consolidated Financial Statements (unaudited).

(Unaudited)

(Dollars in millions)

See Notes to Consolidated Financial Statements (unaudited).

(Dollars in millions)

Six Months Ended

See Notes to Consolidated Financial Statements (unaudited).

See Notes to Consolidated Financial Statements (unaudited).

(Dollars in millions)

We believe this information reflects all adjustments, including normal and recurring accruals, necessary for a fair statement of the consolidated statements of financial position, profit, changes in equity, and cash flows for the periods presented. Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts. Actual results may differ from these estimates and the results for interim periods do not necessarily indicate the results we expect for the year.

Certain amounts for prior periods have been reclassified to conform to the 2002 presentation.

Our segment data is based on disclosure requirements of Statement of Financial Accounting Standard No. 131 (SFAS 131), which requires that financial information be reported on the basis that is used internally for measuring segment performance. Internally, we report information for operating segments based on management responsibility.

On July 1, 2001, we reorganized our reporting units to the structure below. Prior year information has been reclassified to conform to the new structure. We segregate information as follows:

Supplemental segment data for the three months ended June 30,

In managing foreign currency, our objective is to minimize (offset) earnings volatility resulting from the remeasurement of net foreign currency balance sheet positions. Our policy allows the use of foreign currency forward contracts to offset the risk of currency mismatch between our receivable and debt portfolio. All such foreign currency forward contracts are undesignated. Other income included losses of $78 and $63 on the undesignated contracts substantially offset by balance sheet remeasurement gains for the three and six months ended June 30, 2002, respectively.

Due to the long-term nature of our net investments in foreign subsidiaries, we generally do not hedge the related currency exposure.

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 policy is to use interest rate swap agreements to manage our exposure to interest rate changes and lower the cost of borrowed funds.

We have a "match funding" policy, whereby the interest rate profile (fixed rate or floating rate) of our debt portfolio largely matches the interest rate profile of our receivable portfolio within established guidelines. In connection with that policy, we use interest rate derivative instruments to modify the debt structure to match the receivable portfolio. This "match funding" reduces the volatility of margins between interest-bearing assets and interest-bearing liabilities, regardless of which direction interest rates move. We also use these instruments to gain an economic and/or competitive advantage through lower cost of borrowed funds. This is accomplished by changing the characteristics of existing debt instruments or entering into new agreements in combination with the issuance of new debt.

We use floating-to-fixed, fixed-to-floating, and floating-to-floating interest rate swaps to meet our "match funding" policy. To support hedge accounting, we designate fixed-to-floating interest rate swaps as fair value hedges of the fair value of our fixed rate debt at the inception of the contract. Our hedge accounting is further supported by designating most floating-to-fixed interest rate swaps as cash flow hedges of the variability of future cash flows. A portion of our floating-to-fixed interest rate swaps used to establish hedge relationships are undesignated.

As fixed-to-floating interest rate swaps are 100% effective, gains during the quarter ended June 30, 2002 on designated interest rate derivatives of $14 were offset completely by losses on hedged debt of $14 in Other income. Total year-to-date gains of $48 on designated fixed-to-floating interest rate swaps were offset completely by year-to-date losses on hedged debt of $48 in Other income. During the second quarter of 2002, we liquidated four fixed-to-floating interest rate swaps. Deferred gains on these swaps, which were previously designated as fair value hedges, are being amortized to earnings ratably over the remaining life of the hedged debt. Gains of $.4 were amortized to Interest expense for the three and six months ended June 30, 2002, respectively. There were no circumstances where hedge treatment was discontinued during the three or six months ended June 30, 2002.

For the quarter-to-date and year-to-date, a gain of less than $1 was included in Other income for both the ineffectiveness on our floating-to-fixed interest rate swaps designated as cash flow hedges and our mark-to-market on undesignated floating-to-fixed and floating-to-floating interest rate swaps.

Based on current market conditions, $25 of deferred net losses included in Accumulated other comprehensive loss at June 30, 2002 is expected to be reclassified to interest expense over the next twelve months as interest expense is accrued on our floating-to-fixed interest rate swaps. No floating-to-fixed interest rate swaps were liquidated during the quarter ended June 30, 2002.

In April 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 145 (SFAS 145), "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS 145 requires that early extinguishments of debt that are normal and an important part of ongoing activities not be accounted for as extraordinary items. This Statement also requires that modifications of capital lease agreements by lessees giving rise to new operating lease agreements be accounted for as sale-leasebacks. As encouraged by SFAS 145, we early adopted this new accounting standard on April 1, 2002. The adoption of SFAS 145 did not have any impact on our financial statements.

The annualized interest rate on finance receivables was 7.22% for the second quarter of 2002 compared with 8.72% for the second quarter of 2001 (7.07% and 8.57% excluding the recognition of unamortized discounts on trade receivables purchased from Caterpillar that paid before maturity). The tax benefits of governmental lease purchase contracts and tax-oriented leases are not included in these annualized interest rates.

Other income for the second quarter of 2002 was $5, a decrease of $20 from the same period last year (a decrease of $9 excluding the effect of the recognition of unamortized discounts on trade receivables purchased from Caterpillar that paid before maturity, that is included in gain on sale of receivables below). Significant items included:

Depreciation expense on equipment leased to others was up $28 over the second quarter of 2001 due to an increase in operating leases.

General, operating and administrative expenses increased $7 during the second quarter of 2002 as compared to the same period last year, primarily due to increased staff-related expenses as a result of portfolio growth. Part of the portfolio growth was due to the February 1, 2002 acquisition of FCC Equipment Financing, Inc. (FCC), a commercial finance company specializing in direct financing and leasing of heavy equipment in the construction industry. There were 1,168 employees at June 30, 2002, an increase of 121 from last year's second quarter.

The provision for credit losses decreased $5 compared to the second quarter of 2001, resulting from the higher provision taken in 2001 (due to an assessment of the adequacy of the allowance for credit losses considering the larger portfolio, actual write-offs, and a weakened global economy). The allowance for credit losses was 1.46% of finance receivables, net of unearned income, at June 30, 2002, compared to 1.37% at June 30, 2001. The Notes receivable from Caterpillar Inc. are not included in this calculation.

Net profit for the second quarter of 2002 was $40, down $6 from the second quarter of 2001, a $1 increase excluding the effect of the recognition of unamortized discounts on trade receivables purchased from Caterpillar that paid before maturity. The reduction in profit was due to the $12 pre-tax decrease in gain on securitized wholesale receivables. The 2001 gain was greater due to higher discounts recognized on prepayments, whereas 2002 was lower due to a lesser amount of receivables sold. The reduction in profit was partially offset by the lower interest rate environment, with interest expense decreasing more rapidly than revenues.

The portfolio was $16,389 at June 30, 2002, an increase of $1,686 over the prior year.

Securitized receivables at June 30, were as follows:

These receivables are not available to pay our creditors.

The following table shows activity related to the Allowance for Credit Losses for the three months ending:

Receivables that were past due over 30 days were 4.5% of the total receivables at June 30, 2002, as compared to 3.4% at June 30, 2001. The increase was primarily related to generally weak economic conditions and certain past due receivables in Latin America and our Marine services division. Bad debt write-offs, net of recoveries, were $12 during the quarter compared with $13 for the second quarter of 2001. We will continue to monitor the allowance for credit losses to provide for an amount we believe is adequate, after considering the value of any collateral, to cover uncollectible receivables.

The annualized interest rate on finance receivables was 7.28% for the first six months of 2002 compared with 9.07% for the first six months of 2001 (7.11% and 8.80% excluding the recognition of unamortized discounts on trade receivables purchased from Caterpillar that paid before maturity). The tax benefits of governmental lease purchase contracts and tax-oriented leases are not included in these annualized interest rates.

Other income for the first six months of 2002 was $29, a decrease of $13 from the same period last year (a decrease of $3 excluding the effect - on gain on sale of receivables - of the recognition of unamortized discounts on trade receivables purchased from Caterpillar that paid before maturity). Significant items included:

Depreciation expense on equipment leased to others was up $50 over the first six months of 2001 due to an increase in operating leases.

General, operating and administrative expenses increased $12 during the first six months of 2002 compared to the same period last year. This increase was primarily due to staff-related expenses due to the larger portfolio, geographical expansion, and the acquisition of FCC.

The provision for credit losses increased $12 over the first six months of 2001, resulting from an assessment of the adequacy of the allowance for credit losses considering the larger portfolio, actual write-offs, and a weakened global economy.

Net profit for the first six months of 2002 was $93, down $4 from the first six months of 2001, an increase of $9 excluding the effect of the recognition of unamortized discounts on trade receivables purchased from Caterpillar that paid before maturity. The reduction in profit was due to a $9 pre-tax decrease in gain on securitized wholesale receivables. The 2001 gain was high due to discounts recognized on prepayments, whereas 2002 was lower due to a lesser amount of receivables sold. The reduction in profit was partially offset by the lower interest rate environment, with interest expense decreasing more rapidly than revenues.

During the first six months of 2002, we financed new retail transactions totaling $3,541, as compared to $3,197 during the first six months of 2001. The increase was primarily related to increased financing in North America.

The following table shows activity related to the Allowance for Credit Losses for the six months ended:

Operations for the first half of 2002 were funded with a combination of bank borrowings, commercial paper, medium-term notes, proceeds from sales of receivables, and retained earnings.

• $10,686 of medium-term notes
• $ 3,471 of commercial paper
• $ 222 of notes payable to Caterpillar
• $ 208 of bank borrowings
• $ 143 of money market funds
• $ 39 of loans from a company-owned partnership

(a) Exhibits

2. Reports on Form 8-K

None.

(Unaudited)

(Millions of Dollars)

*Those portions of rent expense that are representative of interest cost.