(Unaudited)

(Millions of dollars)

See Notes to Consolidated Financial Statements (unaudited).

(Dollars in millions)

See Notes to Consolidated Financial Statements (unaudited).

(Millions of dollars)

Six months Ended

See Notes to Consolidated Financial Statements (unaudited).

See Notes to Consolidated Financial Statements (unaudited).

(Unaudited; dollars in millions)

We believe this information reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the consolidated statements of financial position, profit, changes in equity, and cash flows for the periods presented. 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 the reported amounts. The more significant estimates include the allowance for credit losses and residual values for leased assets. 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 2003 presentation.

Our segment data is based on disclosure requirements of Statement of Financial Accounting Standards No. 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 January 1, 2003, we reassigned the Marine services division in Europe from the Europe segment to the Diversified Services segment. Prior year information has been reclassified to conform to the new structure. We segregate information as follows:

• North America: We have offices in the United States and Canada that serve local dealers and customers.
• Europe: We have offices in Europe to serve European dealers and customers. This segment also includes our new office in Russia, which serves Russian dealers and customers.
• Austral-Asia: We have offices in Australia and Asia that serve local dealers and customers.
• Diversified Services: Included is our Global accounts division, which primarily provides cross-border financing to customers in countries in which we have no local presence; Marine services, which primarily finances marine vessels with Caterpillar engines for all countries; and our offices in Latin America that serve local dealers and customers. Also included is Cat Power Finance, which finances Cat electrical power generation, gas compression and co-generation systems, as well as non-Cat equipment powered by Cat engines.

Supplemental segment data for the six months ended June 30,

In managing foreign currency risk, 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 contracts to offset the risk of currency mismatch between our receivable and debt portfolio. All such foreign currency forward contracts are undesignated, and as such are not accounted for as hedges. Other revenue included losses of $23 and $78 on the undesignated contracts for the three months ended (losses of $53 and $63 for the six months ended) June 30, 2003 and 2002, respectively, substantially offset by balance sheet remeasurement and conversion gains and losses.

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 to our operations 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 a 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 economic hedge relationships are undesignated, and thus do not receive hedge accounting treatment.

For the quarter-to-date and year-to-date of 2003 and 2002, a gain of less than $1 was included in Other revenue 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, $24 of deferred net losses included in Accumulated other comprehensive loss at June 30, 2003 are expected to be reclassified to Interest expense over the next twelve months. The reclassifications are made as interest expense is accrued on our floating-to-fixed interest rate swaps. For the second quarter of 2002, $25 was the projected reclassification. No floating-to-fixed interest rate swaps were liquidated during the quarter ended June 30, 2003 or 2002.

We are contingently liable under loan guarantees in which we have agreed to repurchase loans of certain Caterpillar dealers in the event of default. These guarantees have terms generally ranging from one to four years and are secured primarily by dealer assets, including Caterpillar equipment. Most of our guarantees arose due to our relationship with our dealers. No loss has been experienced nor is any anticipated under these guarantees. Liabilities associated with obligations under any guarantees are immaterial. Guarantees issued after December 31, 2002 are immaterial. 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 are as follows:

6. New Accounting Standards

In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143 (SFAS 143), "Accounting for Asset Retirement Obligations." SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible, long-lived assets and the associated asset retirement costs. This Statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred by capitalizing it as part of the carrying amount of the long-lived assets. As required by SFAS 143, we adopted this new accounting standard on January 1, 2003. The adoption of SFAS 143 did not have any impact on our financial statements.

In November 2002, the Financial Accounting Standards Board issued FASB Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. As required by FIN 45, on January 1, 2003, we adopted the initial recognition and measurement provisions on a prospective basis for guarantees issued or modified after December 31, 2002. The adoption of the recognition/measurement provisions did not have any impact on our financial statements.

In January 2003, the FASB issued Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51." FIN 46 addresses consolidation by business enterprises of variable interest entities that have certain characteristics. Transferors to qualifying special-purpose entities and "grandfathered" qualifying special-purpose entities subject to the reporting requirements of SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," are excluded from the scope of FIN 46. FIN 46 is applicable immediately to variable interest entities created or obtained after January 31, 2003 (none created or obtained in the first half of 2003). For variable interest entities, which we acquired before February 1, 2003, FIN 46 is applicable to us as of July 1, 2003. All of our variable interest entities are qualified special purpose entities, which are excluded from the requirements of FIN 46. We do not believe that the adoption of FIN 46, effective July 1, 2003 for entities acquired before February 1, 2003, will have a material impact on our financial statements.

In April 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 149 (SFAS 149), "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS 149 amends SFAS 133 to provide clarification on the financial accounting and reporting for derivative instruments and hedging activities and requires similar accounting treatment for contracts with comparable characteristics. We do not believe the adoption of SFAS 149, effective primarily for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003, will have a material effect on our financial statements.

In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 150 (SFAS 150), "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS 150 addresses financial accounting and reporting for certain financial instruments with characteristics of both liabilities and equity. This statement requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. As required by SFAS 150, we adopted the new accounting standard effective July 1, 2003. The adoption of SFAS 150 did not have an impact on our 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 most significant estimates include those related to our residual values for leased assets and for our allowance for credit losses. Actual results may differ from these estimates.

The estimated future wholesale market value of leased equipment at the time of the expiration of the lease term (residual value) represents 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, the residual value is 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. Many impact factors are gathered in an application survey that is completed prior to quotation. The application survey also clearly defines applicable return conditions and remedies for non-compliance, thus ensuring the leased equipment will be in good operating condition upon return. Model changes and updates, as well as market strength and product acceptance, are contin ually monitored, and residual adjustments are made in accordance with the significance of any such changes. Remarketing sales staff works closely with customers and dealers to manage the sale of lease returns and the recovery of residual exposure. During the term of the leases, residual amounts are monitored. If estimated market values significantly decline due to economic factors, obsolescence, or other adverse circumstances, the residuals are adjusted to the lower estimated values by a charge to earnings.

As the vast majority of our finance receivables are retail financings, which consist of homogeneous contracts, the allowance for credit losses is evaluated on a regular basis and adjusted based upon management's best estimate of probable losses inherent in the finance receivables at the end of the period. In estimating probable losses, we review accounts that are past due, non-performing, or in bankruptcy. We also review accounts that may be at risk using information available about the customer, such as financial statements, news reports, and published credit ratings. We also use general information regarding industry trends and the general economic environment. Using an estimate of current fair market value of collateral and factoring in credit enhancements, such as additional collateral and third party guarantees, we arrive at an estimated loss for specific accounts and estimate an additional amount for the remainder of the portfolio based upon historical trends.

Operating lease revenue for the second quarter of 2003 was $160. The increase of $31 from the same period last year was due to the increase in equipment on operating leases that resulted from increased marketing efforts and higher customer demand.

Other revenue for the second quarter of 2003 was $45, an increase of $40 from the same period last year. The increase was primarily due to a $27 million increase in gain on securitized receivables. The majority ($22 million) of the increase in securitized receivables gain was related to the timing of our public securitization, which took place in the second quarter this year versus a similar gain of $18 million in the third quarter last year. Items for the three months ended included:

Depreciation expense on equipment leased to others was up $26 over the second quarter of 2002 due to the increase in equipment on operating leases discussed in the Revenues section above.

General, operating, and administrative expenses increased $8 during the second quarter of 2003 compared to the same period last year. This increase primarily resulted from staff-related expenses due to the increase in total assets and geographical expansion. There were 1,258 employees at June 30, 2003, an increase of 90 from June 30, 2002.

The provision for credit losses increased $1 compared to the second quarter of 2002. The allowance for credit losses was 1.51% of finance receivables, net of unearned income, at June 30, 2003, compared to 1.46% at June 30, 2002. The Notes receivable from Caterpillar are not included in this calculation.

Net profit for the second quarter of 2003 was $71, up $31 from the second quarter of 2002. The increase was primarily due to the increased gain on securitized receivables discussed in the Revenues section above and a larger portfolio of earning assets.

Total assets were $17,989 at June 30, 2003, an increase of $1,051 over June 30, 2002.

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:

Bad debt write-offs, net of recoveries, were $20 during the quarter compared with $12 for the second quarter of 2002. The increase in write-offs was primarily due to one customer in Latin America (part of the Diversified Services segment). 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.

Receivables that were past due over 30 days were 2.9% of the total receivables at June 30, 2003, compared to 4.5% at June 30, 2002. The decrease was principally due to a $216 reduction in past due receivables in our Diversified Services segment, resulting primarily from restructurings, collateral sales, and write-offs related to certain past due accounts.

Operating lease revenue for the first six months of 2003 was $315. The increase of $66 from the same period last year was due to the increase in equipment on operating leases that resulted from increased marketing efforts and higher customer demand.

Other revenue for the first six months of 2003 was $59, an increase of $30 from the same period last year. The increase was primarily due to an $18 million increase in securitized receivables gain ($22 million related to the timing of our public securitization, which took place in the second quarter this year versus a similar gain of $18 million in the third quarter last year). Items for the six months ended included:

Depreciation expense on equipment leased to others was up $56 over the first six months of 2002 due to an increase in operating leases discussed in the Revenues section above.

General, operating and administrative expenses increased $15 during the first six months of 2003 compared to the same period last year. This increase primarily resulted from staff-related expenses due to the increase in total assets and geographical expansion.

The provision for credit losses decreased $4 compared to the first six months of 2002, due to a higher provision taken in the first half of 2002 which resulted 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 2003 was $122, up $29 from the first six months of 2002. The increase was primarily due to a larger portfolio of earning assets and the increased gain on securitized receivables discussed in the Revenues section above.

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

Operations for the first six months of 2003 were funded with a combination of borrowings, proceeds from sales of receivables, and retained earnings. We do not generate material funding through structured finance transactions.

• $10,888 of medium-term notes
• $ 3,173 of commercial paper
• $ 767 of notes payable to Caterpillar
• $ 284 of money market funds
• $ 172 of short-term bank borrowings
• $ 44 of long-term bank borrowings
• $  7 of loans from a company-owned partnership

(b) Changes in internal controls over financial reporting. Subsequent to the date of this evaluation, there were no changes that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

(a) Exhibits

2. Reports on Form 8-K

April 16, 2003 - An 8-K was filed containing the Registrant's first-quarter 2003 earnings release.

July 1, 2003 - An 8-K was filed containing the Form of 2.700% Senior Note due 2008, the opinion of Orrick, Herrington & Sutcliffe LLP, as to certain tax matters, and the consent of Orrick, Herrington & Sutcliffe LLP in connection with the registrant's Registration Statement (Form S-3), Registration No. 333-97047.

July 16, 2003 - An 8K was filed containing the Registrant's second-quarter earnings release. A one word typographical error in this report was corrected in an 8K/A on July 24, 2003.

No financial statements were filed as part of those 8K reports.

(Unaudited)

(Millions of Dollars)

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