**UNITED      STATES **

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-Q**

**For      the quarterly period ended **
**June      30, 2006**

**Commission      File No.**
**      0-13295**

**CATERPILLAR      FINANCIAL SERVICES CORPORATION**

**(Exact      name of Registrant as specified in its charter**
**)**

|  **Delaware**                                                                 |  **37-1105865**                       |
|------------------------------------------------------------------------------------|--------------------------------------------|
| **(State                of incorporation)**                                        | **(IRS                Employer I.D. No.)** |
|                                                                               |                                       |
|  **2120                West End Ave.****Nashville,                Tennessee** | **37203-0001**                             |
| **(Address                of principal executive offices)**                        | **(Zip                Code)**              |

**Registrant's      telephone number, including area code:**
**      (615) 341-1000**

**The      Registrant is a wholly owned subsidiary of Caterpillar Inc. and meets the      conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q,      and      is therefore filing this form with the reduced disclosure      format.**

**Indicate      by a check mark whether the Registrant (1) has filed all reports required to      be      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during      the      preceding 12 months (or for such shorter period that the Registrant was required      to file such reports), and (2) has been subject to such filing requirements      for      the past 90 days. Yes [ X ] No [ ]**

**Indicate      by check mark whether the Registrant is a large accelerated filer, an      accelerated filer, or a non-accelerated filer. See definition of "accelerated      filer and large accelerated filer" in Rule 12b-2 of the Exchange Act). (Check      one):**

**Large      Accelerated Filer [ ]**
** **
**Accelerated      Filer**
**      [ ] Non-Accelerated Filer [ X ] **

**Indicate      by check mark whether the registrant is a shell company (as defined in Rule      12b-2 of the Exchange Act. Yes [ ] No [ X ]**

**As      of August 1, 2006, one share of common stock of the Registrant was outstanding,      which is owned by Caterpillar Inc.**

----

**Caterpillar      Financial Services Corporation**

**Form      10-Q for the Quarter Ended June 30, 2006**

**PART      I FINANCIAL INFORMATION**

Item      1. Consolidated Financial Statements      (Unaudited)

Consolidated      Statements of Profit

Consolidated      Statements of Financial      Position

Consolidated      Statements of Changes in Stockholder’s      Equity

Consolidated      Statements of Cash Flows

Notes      to Consolidated Financial Statements

Item      2. Management’s Discussion and Analysis of Financial      Condition and Results of Operations

Overview:      Second Quarter 2006 vs. Second Quarter      2005

Three      Months Ended June 30, 2006 vs. Three Months Ended June 30,      2005

Six      Months Ended June 30, 2006 vs. Six Months Ended June 30,      2005

Capital      Resources and Liquidity

Critical      Accounting Policies

Forward-Looking      Statements

Item      4. Controls and Procedures

**PART      II. OTHER INFORMATION**

Item      1. Legal Proceedings

Item      1A. Risk Factors

Item      5. Other Information

Item      6. Exhibits 

Signatures

----

**Part      I. FINANCIAL INFORMATION**

**Item      1. Consolidated Financial Statements      (Unaudited)**

----

**UNAUDITED**

**Caterpillar      Financial Services Corporation**

**CONSOLIDATED      STATEMENTS OF PROFIT**

**(Unaudited)**

**(Dollars      in Millions)**

|                                                   |   | **   T****hree                Months Ended**  |       **Six                Months Ended**       |
|--------------------------------------------------------|--------|-------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------|
|                                                   |   |                                                              | **June                30,**                                                                            |   |   | **June                30,** |   |   | **June                30,** |   |   | **June                30,** |   |
|                                                   |   |                                                              | **2006**                                                                                                    |   |   | **2005** |   |   | **2006** |   |   | **2005** |   |
| **Revenues:**                                          |   |                                                              |                                                                                                        |   |   |   |   |   |   |   |   |   |   |
| Wholesale                finance                       |   | $                                                                 | 121                                                                                                         |   | $ | 87 |   | $ | 224 |   | $ | 159 |   |
| Retail                finance                          |   |                                                              | 329                                                                                                         |   |   | 257 |   |   | 637 |   |   | 510 |   |
| Operating                lease                         |   |                                                              | 202                                                                                                         |   |   | 192 |   |   | 401 |   |   | 380 |   |
| Other                                                  |   |                                                              | 24                                                                                                          |   |   | 51 |   |   | 71 |   |   | 81 |   |
| Total                revenues                          |   |                                                              | 676                                                                                                         |   |   | 587 |   |   | 1,333 |   |   | 1,130 |   |
|                                                   |   |                                                              |                                                                                                        |   |   |   |   |   |   |   |   |   |   |
| **Expenses:**                                          |   |                                                              |                                                                                                        |   |   |   |   |   |   |   |   |   |   |
| Interest                                               |   |                                                              | 258                                                                                                         |   |   | 188 |   |   | 491 |   |   | 361 |   |
| Depreciation                on assets leased to others |   |                                                              | 159                                                                                                         |   |   | 154 |   |   | 317 |   |   | 306 |   |
| General,                operating, and administrative  |   |                                                              | 81                                                                                                          |   |   | 85 |   |   | 161 |   |   | 161 |   |
| Provision                for credit losses             |   |                                                              | 21                                                                                                          |   |   | 20 |   |   | 33 |   |   | 36 |   |
| Other                                                  |   |                                                              | 2                                                                                                           |   |   | 2 |   |   | 3 |   |   | 4 |   |
| Total                expenses                          |   |                                                              | 521                                                                                                         |   |   | 449 |   |   | 1,005 |   |   | 868 |   |
|                                                   |   |                                                              |                                                                                                        |   |   |   |   |   |   |   |   |   |   |
| **Profit                before income taxes**          |   |                                                              | 155                                                                                                         |   |   | 138 |   |   | 328 |   |   | 262 |   |
|                                                   |   |                                                              |                                                                                                        |   |   |   |   |   |   |   |   |   |   |
| Provision                for income taxes              |   |                                                              | 49                                                                                                          |   |   | 48 |   |   | 104 |   |   | 89 |   |
| **Profit**                                             |   | $                                                                 | 106                                                                                                         |   | $ | 90 |   | $ | 224 |   | $ | 173 |   |
|                                                   |   |                                                              |                                                                                                        |   |   |   |   |   |   |   |   |   |   |

*See      Notes to Consolidated Financial Statements (unaudited).*

----

**UNAUDITED****Caterpillar      Financial Services Corporation**

**CONSOLIDATED      STATEMENTS OF FINANCIAL POSITION**** **

**(Dollars      in Millions, except share data)**

|                                                                     |   |   | **June                30,**  |   |   | **December                31,** |   |
|--------------------------------------------------------------------------|--------|--------|-----------------------------------|--------|--------|---------------------------------|--------|
|                                                                     |   |   | **2006**                          |   |   | **2005**                        |   |
| **Assets:**                                                              |   |   |                              |   |   |                            |   |
| Cash                and cash equivalents                                 |   | $      | 118                               |   | $      | 87                              |   |
| Finance                receivables                                       |   |   |                              |   |   |                            |   |
| Retail                notes receivable                                   |   |   | 4,903                             |   |   | 4,916                           |   |
| Wholesale                notes receivable                                |   |   | 5,983                             |   |   | 5,328                           |   |
| Notes                receivable from Caterpillar                         |   |   | 442                               |   |   | 88                              |   |
| Finance                leases and installment sale contracts - Retail    |   |   | 13,837                            |   |   | 13,348                          |   |
| Finance                leases and installment sale contracts - Wholesale |   |   | 380                               |   |   | 353                             |   |
|                                                                     |   |   | 25,545                            |   |   | 24,033                          |   |
| Less:                Unearned income                                     |   |   | 1,679                             |   |   | 1,549                           |   |
| Allowance                for credit losses                               |   |   | 310                               |   |   | 302                             |   |
| Total                net finance receivables                             |   |   | 23,556                            |   |   | 22,182                          |   |
|                                                                     |   |   |                              |   |   |                            |   |
| Equipment                on operating leases,                            |   |   |                              |   |   |                            |   |
| less                accumulated depreciation                             |   |   | 2,637                             |   |   | 2,631                           |   |
| Deferred                income taxes                                     |   |   | 35                                |   |   | 33                              |   |
| Other                assets                                              |   |   | 924                               |   |   | 966                             |   |
| **Total                assets**                                          |   | $      | 27,270                            |   | $      | 25,899                          |   |
|                                                                     |   |   |                              |   |   |                            |   |
| **Liabilities                and stockholder's equity:**                 |   |   |                              |   |   |                            |   |
| Payable                to dealers and others                             |   | $      | 242                               |   | $      | 221                             |   |
| Payable                to Caterpillar - other                            |   |   | 33                                |   |   | 25                              |   |
| Accrued                expenses                                          |   |   | 362                               |   |   | 283                             |   |
| Income                taxes payable                                      |   |   | 67                                |   |   | 69                              |   |
| Payable                to Caterpillar - borrowings                       |   |   | 171                               |   |   | 199                             |   |
| Short-term                borrowings                                     |   |   | 5,236                             |   |   | 4,997                           |   |
| Current                maturities of long-term debt                      |   |   | 4,324                             |   |   | 4,153                           |   |
| Long-term                debt                                            |   |   | 13,124                            |   |   | 12,611                          |   |
| Deferred                income taxes and other liabilities               |   |   | 407                               |   |   | 375                             |   |
| **Total                liabilities**                                     |   |   | 23,966                            |   |   | 22,933                          |   |
|                                                                     |   |   |                              |   |   |                            |   |
| Common                stock - $1 par value                               |   |   |                              |   |   |                            |   |
| Authorized:                2,000 shares; Issued and                      |   |   |                              |   |   |                            |   |
| outstanding:                one share (at paid in amount)                |   |   | 745                               |   |   | 745                             |   |
| Retained                earnings                                         |   |   | 2,278                             |   |   | 2,054                           |   |
| Accumulated                other comprehensive income                    |   |   | 281                               |   |   | 167                             |   |
| **Total                stockholder's equity**                            |   |   | 3,304                             |   |   | 2,966                           |   |
|                                                                     |   |   |                              |   |   |                            |   |
| **Total                liabilities and stockholder's equity**            |   | $      | 27,270                            |   | $      | 25,899                          |   |

*See      Notes to Consolidated Financial Statements (unaudited).*

----

**UNAUDITED**

**Caterpillar      Financial Services Corporation**

**CONSOLIDATED      STATEMENTS OF CHANGES IN STOCKHOLDER'S      EQUITY**

**(Unaudited)**

**(Dollars      in Millions)**

|                                |   | **                                        Six Months Ended**                              |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **   ****    **                                                                                                                                   |   | **    June                30,  **                                                                                                                                                                                                                                                                                               | **June                30,    ****    **** ** |
|                                                                                                                                                                                 |   | **  ****  ****         2006            **                                                                                                                                                                                             | **     2005            ** |
|                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |
| **Common                stock - one share (at paid-in amount):**                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |
| Balance                at beginning of period                                                                                                                                        |   | $                                                                                                                                                                                                                                                                                                                                                                  | 745 |   |   |   |   | $ | 745 |   |   |   |   |
| Balance                at end of period                                                                                                                                              |   |                                                                                                                                                                                                                                                                                                                                                               | 745 |   |   |   |   |   | 745 |   |   |   |   |
|                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |
| **Retained                earnings:**                                                                                                                                                |   |                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |
| Balance                at beginning of period                                                                                                                                        |   |                                                                                                                                                                                                                                                                                                                                                               | 2,054 |   |   |   |   |   | 1,690 |   |   |   |   |
| Profit                                                                                                                                                                               |   |                                                                                                                                                                                                                                                                                                                                                               | 224 |   | $ | 224 |   |   | 173 |   | $ | 173 |   |
| Balance                at end of period                                                                                                                                              |   |                                                                                                                                                                                                                                                                                                                                                               | 2,278 |   |   |   |   |   | 1,863 |   |   |   |   |
|                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |
| **Accumulated                other comprehensive income/(loss):**                                                                                                                    |   |                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |
| Foreign                currency translation adjustment                                                                                                                               |   |                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |
| Balance                at beginning of period                                                                                                                                        |   |                                                                                                                                                                                                                                                                                                                                                               | 141 |   |   |   |   |   | 278 |   |   |   |   |
| Aggregate                adjustment for the period                                                                                                                                   |   |                                                                                                                                                                                                                                                                                                                                                               | 104 |   |   | 104 |   |   | (119 | ) |   | (119 | ) |
| Balance                at end of period                                                                                                                                              |   |                                                                                                                                                                                                                                                                                                                                                               | 245 |   |   |   |   |   | 159 |   |   |   |   |
| Interest                rate derivative instruments (net of tax)                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |
| Balance                at beginning of period net of tax of: 2006 - $13; 2005 -                $1                                                                                    |   |                                                                                                                                                                                                                                                                                                                                                               | 22 |   |   |   |   |   | - |   |   |   |   |
| Gains/(Losses)                deferred during the period net                of tax of: 2006 - $13; 2005 - $(2)                                                                       |   |                                                                                                                                                                                                                                                                                                                                                               | 23 |   |   | 23 |   |   | (7 | ) |   | (7 | ) |
| (Gains)/Losses                reclassed to earnings during the period net                of tax of: 2006 -$(6), 2005 - $4                                                            |   |                                                                                                                                                                                                                                                                                                                                                               | **(**11 | ) |   | (11 | ) |   | 11 |   |   | 11 |   |
| Balance                at end of period net of tax of: 2006 - $20, 2005 - $4                                                                                                         |   |                                                                                                                                                                                                                                                                                                                                                               | 34 |   |   |   |   |   | 4 |   |   |   |   |
| Other                instruments (net of tax)                                                                                                                                        |   |                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |
| Balance                at beginning of period                                                                                                                                        |   |                                                                                                                                                                                                                                                                                                                                                               | 4 |   |   |   |   |   | 7 |   |   |   |   |
| Aggregate                adjustment for the period                                                                                                                                   |   |                                                                                                                                                                                                                                                                                                                                                               | (2 | ) |   | (2 | ) |   | (1 | ) |   | (1 | ) |
| Balance                at end of period                                                                                                                                              |   |                                                                                                                                                                                                                                                                                                                                                               | 2 |   |   |   |   |   | 6 |   |   |   |   |
| **Total                accumulated other comprehensive income**                                                                                                                      |   |                                                                                                                                                                                                                                                                                                                                                               | 281 |   |   |   |   |   | 169 |   |   |   |   |
|                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |
| **Comprehensive                income**                                                                                                                                              |   |                                                                                                                                                                                                                                                                                                                                                               |   |   | $ | 338 |   |   |   |   | $ | 57 |   |
|                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |
| **Total                stockholder’s equity at end of period**                                                                                                                 |   | $                                                                                                                                                                                                                                                                                                                                                                  | 3,304 |   |   |   |   | $ | 2,777 |   |   |   |   |

*See      Notes to Consolidated Financial Statements (unaudited).*

----

**UNAUDITED**

**Caterpillar      Financial Services Corporation**

**CONSOLIDATED      STATEMENTS OF CASH      FLOW**

**(Dollars      in Millions)**

| **     **                                                                        |   | **  Six Months                Ended                                 **  |
|-----------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                            |   |                                                                                                                                                                        | **June                30,**** **    **2006**    |   |   | **June                30,****2005** |   |
| **Cash                flows from operating activities:**                                                  |   |                                                                                                                                                                        |   |   |   |   |   |
| Profit                                                                                                    |   | $                                                                                                                                                                           | 224 |   | $ | 173 |   |
| Adjustments                for non-cash items:                                                            |   |                                                                                                                                                                        |   |   |   |   |   |
| Depreciation                and amortization                                                              |   |                                                                                                                                                                        | 328 |   |   | 317 |   |
| Amortization                of purchase discount                                                          |   |                                                                                                                                                                        | (173 | ) |   | (103 | ) |
| Provision                for credit losses                                                                |   |                                                                                                                                                                        | 33 |   |   | 36 |   |
| Gain                on sales of receivables                                                               |   |                                                                                                                                                                        | (14 | ) |   | (16 | ) |
| Other,                net                                                                                 |   |                                                                                                                                                                        | 6 |   |   | (61 | ) |
| Changes                in assets and liabilities:                                                         |   |                                                                                                                                                                        |   |   |   |   |   |
| Receivables                from customers and others                                                      |   |                                                                                                                                                                        | 8 |   |   | (30 | ) |
| Other                receivables/payables with Caterpillar                                                |   |                                                                                                                                                                        | - |   |   | 1 |   |
| Payable                to dealers and others                                                              |   |                                                                                                                                                                        | 8 |   |   | 31 |   |
| Accrued                expenses and other liabilities, net                                                |   |                                                                                                                                                                        | (26 | ) |   | 104 |   |
| Income                taxes payable                                                                       |   |                                                                                                                                                                        | (4 | ) |   | 44 |   |
| Other                assets, net                                                                          |   |                                                                                                                                                                        | (1 | ) |   | - |   |
| Net                cash provided by operating activities                                                  |   |                                                                                                                                                                        | 389 |   |   | 496 |   |
|                                                                                                      |   |                                                                                                                                                                        |   |   |   |   |   |
| **Cash                flows from investing activities:**                                                  |   |                                                                                                                                                                        |   |   |   |   |   |
| Expenditures                for equipment on operating leases and for non-leased                equipment |   |                                                                                                                                                                        | (575 | ) |   | (624 | ) |
| Proceeds                from disposals of equipment                                                       |   |                                                                                                                                                                        | 405 |   |   | 380 |   |
| Additions                to finance receivables                                                           |   |                                                                                                                                                                        | (18,013 | ) |   | (16,034 | ) |
| Collections                of finance receivables                                                         |   |                                                                                                                                                                        | 15,953 |   |   | 13,894 |   |
| Proceeds                from sales of receivables                                                         |   |                                                                                                                                                                        | 1,484 |   |   | 859 |   |
| Net                change in Notes receivable from Caterpillar                                            |   |                                                                                                                                                                        | (354 | ) |   | (9 | ) |
| Other,                net                                                                                 |   |                                                                                                                                                                        | 92 |   |   | 9 |   |
| Net                cash used in investing activities                                                      |   |                                                                                                                                                                        | (1,008 | ) |   | (1,525 | ) |
|                                                                                                      |   |                                                                                                                                                                        |   |   |   |   |   |
| **Cash                flows from financing activities:**                                                  |   |                                                                                                                                                                        |   |   |   |   |   |
| Payable                to Caterpillar - borrowings and other                                              |   |                                                                                                                                                                        | (36 | ) |   | 67 |   |
| Proceeds                from debt issued (original maturities greater than 3                months)       |   |                                                                                                                                                                        | 4,930 |   |   | 6,171 |   |
| Payments                on debt issued (original maturities greater than 3 months)                        |   |                                                                                                                                                                        | (5,092 | ) |   | (4,144 | ) |
| Short-term                borrowings, net (original maturities three months or less)                      |   |                                                                                                                                                                        | 839 |   |   | (980 | ) |
| Other                                                                                                     |   |                                                                                                                                                                        | 4 |   |   | - |   |
| Net                cash provided by financing activities                                                  |   |                                                                                                                                                                        | 645 |   |   | 1,114 |   |
|                                                                                                      |   |                                                                                                                                                                        |   |   |   |   |   |
| Effect                of exchange rate changes on cash                                                    |   |                                                                                                                                                                        | 5 |   |   | 4 |   |
|                                                                                                      |   |                                                                                                                                                                        |   |   |   |   |   |
| **Increase                in cash and cash equivalents**                                                  |   |                                                                                                                                                                        | **31** |   |   | **89** |   |
|                                                                                                      |   |                                                                                                                                                                        |   |   |   |   |   |
| Cash                and cash equivalents at beginning of year                                             |   |                                                                                                                                                                        | 87 |   |   | 98 |   |
|                                                                                                      |   |                                                                                                                                                                        |   |   |   |   |   |
| Cash                and cash equivalents at end of period                                                 |   | $                                                                                                                                                                           | 118 |   | $ | 187 |   |

*See      Notes to Consolidated Financial Statements (unaudited*

----

**UNAUDITED**

**Notes      to Consolidated Financial      Statements**

*(Unaudited)*

| **A.** | **Basis                of presentation** |
|--------|------------------------------------------|

| **B.** | **Segment                information** |
|--------|----------------------------------------|

| ·   | North                America: We have offices in the United States and Canada that serve                local                dealers and customers. This segment also provides project financing                in                various countries.                                                                                                                                                                                                                                                                            |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Europe:                We have offices in Europe to serve European dealers and customers.                This                segment also includes our office in Russia, which serves dealers                and                customers in the Commonwealth of Independent States.                                                                                                                                                                                                                                            |
| ·   | 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 Division, which primarily finances                marine vessels with Caterpillar engines for all countries; and our                offices                in Latin America that serve local dealers and customers.                                                   |
| ·   | Asia-Pacific:                We have offices in Australia, New Zealand, and Asia that serve local                dealers and customers.                                                                                                                                                                                                                                                                                                                                                                                         |
| ·   | Cat                Power Finance: This segment                primarily provides                debt financing for Caterpillar electrical                power generation, gas compression**, **and                co-generation systems (including the related non-Caterpillar equipment                and                components included in these systems), as well as non-Caterpillar                equipment that                is                powered by Caterpillar engines, for all countries.  |

**Supplemental      segment data for the three months ended June 30,**

| **(Millions                of dollars)** **2006** |   |   | **North                America** |   |   | **Europe** |   |   | **Diversified****Services** |   |   | **Asia-Pacific** |   |   | **Cat                Power****Finance** |   |   | **Total** |   |
|--------------------------------------------------------|--------|--------|----------------------------------|--------|--------|------------|--------|--------|-----------------------------|--------|--------|------------------|--------|--------|-----------------------------------------|--------|--------|-----------|--------|
| External                revenue                        |   | $      | 444                              |   | $      | 85         |   | $      | 79                          |   | $      | 49               |   | $      | 19                                      |   | $      | 676       |   |
| Inter-segment                revenue                   |   |   | 13                               |   |   | -          |   |   | -                           |   |   | -                |   |   | -                                       |   |   | 13        |   |
| Profit                                                 |   |   | 76                               |   |   | 18         |   |   | 5                           |   |   | 6                |   |   | 1                                       |   |   | 106       |   |
| Assets                                                 |   |   | 16,169                           |   |   | 4,377      |   |   | 5,300                       |   |   | 2,171            |   |   | 1,358                                   |   |   | 29,375    |   |
|                                                   |   |   |                             |   |   |       |   |   |                        |   |   |             |   |   |                                    |   |   |      |   |
|  **2005**                                         |   |   | **North****America**             |   |   | **Europe** |   |   | **Diversified****Services** |   |   | **Asia-Pacific** |   |   | **Cat                Power****Finance** |   |   | **Total** |   |
| External                revenue                        |   | $      | 356                              |   | $      | 89         |   | $      | 77                          |   | $      | 49               |   | $      | 16                                      |   | $      | 587       |   |
| Inter-segment                revenue                   |   |   | 8                                |   |   | -          |   |   | -                           |   |   | -                |   |   | -                                       |   |   | 8         |   |
| Profit                                                 |   |   | 53                               |   |   | 15         |   |   | 13                          |   |   | 4                |   |   | 5                                       |   |   | 90        |   |
| Assets                                                 |   |   | 13,436                           |   |   | 4,341      |   |   | 4,882                       |   |   | 1,978            |   |   | 1,494                                   |   |   | 26,131    |   |

| **Reconciliation                of assets:****(Millions                of dollars)** |   |   | **June                30, 2006** |   |   | **June                30, 2005** |   |
|--------------------------------------------------------------------------------------|--------|--------|----------------------------------|--------|--------|----------------------------------|--------|
| Assets                from segments                                                  |   | $      | 29,375                           |   | $      | 26,131                           |   |
| Investment                in subsidiaries                                            |   |   | (964                             | )      |   | (934                             | )      |
| Inter-segment                balances                                                |   |   | (1,141                           | )      |   | (968                             | )      |
| Total                assets                                                          |   | $      | 27,270                           |   | $      | 24,229                           |   |

**Supplemental      segment data for the six months ended June 30,**

| **(Millions                of dollars)** **2006** |   |   | **North****America** |   |   | **Europe** |   |   | **Diversified****Services** |   |   | **Asia-Pacific** |   |   | **Cat                Power****Finance** |   |   | **Total** |   |
|--------------------------------------------------------|--------|--------|----------------------|--------|--------|------------|--------|--------|-----------------------------|--------|--------|------------------|--------|--------|-----------------------------------------|--------|--------|-----------|--------|
| External                revenue                        |   | $      | 848                  |   | $      | 167        |   | $      | 169                         |   | $      | 111              |   | $      | 38                                      |   | $      | 1,333     |   |
| Inter-segment                revenue                   |   |   | 24                   |   |   | -          |   |   | -                           |   |   | -                |   |   | -                                       |   |   | 24        |   |
| Profit                                                 |   |   | 140                  |   |   | 36         |   |   | 21                          |   |   | 21               |   |   | 6                                       |   |   | 224       |   |
|                                                   |   |   |                 |   |   |       |   |   |                        |   |   |             |   |   |                                    |   |   |      |   |
|  **2005**                                         |   |   | **North****America** |   |   | **Europe** |   |   | **Diversified****Services** |   |   | **Asia-Pacific** |   |   | **Cat                Power****Finance** |   |   | **Total** |   |
| External                revenue                        |   | $      | 674                  |   | $      | 179        |   | $      | 144                         |   | $      | 92               |   | $      | 41                                      |   | $      | 1,130     |   |
| Inter-segment                revenue                   |   |   | 14                   |   |   | -          |   |   | -                           |   |   | -                |   |   | -                                       |   |   | 14        |   |
| Profit                                                 |   |   | 97                   |   |   | 32         |   |   | 22                          |   |   | 8                |   |   | 14                                      |   |   | 173       |   |

**C.**
**Derivative      Instruments and Hedging Activities**

***Foreign      Currency Exchange Rate Risk***

***Interest      Rate Risk***

| **(Millions                of dollars)**                                                                        |   | **Three                Months Ended****June                30,****  ** | **  ****Six                Months Ended**** ** ** ****June                30,****  ** |
|----------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                 |   |                                                                             | **2006**                                                                                                                 |   |   | **2005** |   |   | **2006** |   |   | **2005** |   |
| Gain/(loss)                on designated interest rate derivatives—included in Other                revenues   |   | $                                                                                | (37                                                                                                                      | ) | $ | 50 |   | $ | (87 | ) | $ | 3 |   |
| Gain/(loss)                on hedged debt—included in Other revenues                                           |   |                                                                             | 37                                                                                                                       |   |   | (50 | ) |   | 87 |   |   | (3 | ) |
| Amortization                of the gain (loss) on liquidated swaps—included in Interest                expense |   |                                                                             | 2                                                                                                                        |   |   | 1 |   |   | 4 |   |   | 2 |   |

| **D.** | **Guarantees** |
|--------|----------------|

| **(Millions                  of dollars)**    |   |   | **June                30,****2006** |   |   | **December                31,****2005** |   |
|----------------------------------------------------|--------|--------|-------------------------------------|--------|--------|-----------------------------------------|--------|
| Guarantees                with Caterpillar dealers |   | $      | 432                                 |   | $      | 434                                     |   |
| Guarantees                with Customers           |   |   | 34                                  |   |   | 37                                      |   |
| Limited                Indemnity                   |   |   | 37                                  |   |   | 40                                      |   |
| Guarantees                - other                  |   |   | 3                                   |   |   | 3                                       |   |
| Total                guarantees                    |   | $      | 506                                 |   | $      | 514                                     |   |

| **E.  ** | **Contingencies** |
|--------------------|-------------------|

| **F.** | **Sales                and Servicing of Finance                Receivables** |
|--------|------------------------------------------------------------------------------|

***Securitized      Retail Installment Sales Contracts and Finance Leases***

***Sale      of Interests in Wholesale Receivables.***

***Other      Managed Assets***

**G.      New Accounting Pronouncements**

**      - **

----

**UNAUDITED**

**ITEM      2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL      CONDITION AND RESULTS OF OPERATIONS**

**OVERVIEW: SECOND      QUARTER 2006 VS. SECOND QUARTER      2005**

| ·   | Revenues                for the second quarter of 2006 were a record $676 million, an increase                of                $89 million or 15% compared with the same quarter in 2005. Of the                increase                in revenues, $67 million resulted from the impact of continued growth                of                earning assets and $50 million from the impact of higher interest                rates on                new and existing finance receivables. These increases were offset                by a $16                million write-down of a repossessed marine vessel, lower net gains                on the                sales of receivables of $8 million, and a $4 million decrease in                other                miscellaneous revenue. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Profit                after tax was $106 million, an increase of $16 million or 18% over                the                second quarter of 2005. On a pre-tax basis, profit increased $17                million                or 12% compared with the second quarter of 2005, principally due                to an                increase of $42 million in margin (wholesale, retail finance, operating                lease, and associated fee revenues less interest expense and depreciation                on assets leased to others) from a $2.9 billion increase in average                earning assets and continuing improvement in the net yield on earning                assets. The increase in margin was partially offset by the repossessed                marine vessel write-down and the lower net gains on the sales of                receivables. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | New                retail financing grew to a second quarter record of $3.2 billion.                The                increase of $111 million or 4% over the second quarter of 2005 occurred                primarily due to increased new retail financing in North                America. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Total                past dues over 30 days as of June 30, 2006 were 1.70% compared to                2.03% at                June 30, 2005. Write-offs, net of recoveries, were $12 million during                the                quarter compared with $3 million for the second quarter of 2005.                The                increase in write-offs was experienced primarily in the Power Finance                segment. The improvement in past dues was primarily from the North                America                and Diversified segments. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**REVIEW      OF CONSOLIDATED STATEMENTS OF PROFIT**

**THREE      MONTHS ENDED JUNE 30, 2006 VS. THREE MONTHS ENDED JUNE 30,      2005**

**REVENUES**

| **(Millions                of dollars)**                                                        |   |   **Three                Months Ended**   **June                30,** |
|------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------|
|                                                                                                 |   |                                                                                           | **2006** |   |   | **2005** |   |
| Finance                receivable and operating lease fees (including late                charges)   |   | $                                                                                              | 15 |   | $ | 13 |   |
| Gains                on sales of receivables                                                         |   |                                                                                           | 7 |   |   | 15 |   |
| Income                related to retained interests in securitized retail                receivables |   |                                                                                           | 4 |   |   | 4 |   |
| Service                fee income on sold receivables                                                |   |                                                                                           | 3 |   |   | 4 |   |
| Forward                points on foreign exchange contracts                                          |   |                                                                                           | 2 |   |   | 3 |   |
| Partnership/dividend                income                                                           |   |                                                                                           | 1 |   |   | 3 |   |
| Currency                exchange gain/(loss)                                                         |   |                                                                                           | - |   |   | (1 | ) |
| Miscellaneous                other revenue, net                                                      |   |                                                                                           | 2 |   |   | 4 |   |
| Net                gain/(loss) on returned or repossessed equipment                                  |   |                                                                                           | (10 | ) |   | 6 |   |
| Total                other revenue                                                                   |   | $                                                                                              | 24 |   | $ | 51 |   |

**EXPENSES**

**PROFIT**

----

**UNAUDITED**

**SIX      MONTHS ENDED JUNE 30, 2006 VS. SIX MONTHS ENDED JUNE 30,      2005**

**REVENUES**

| **(Millions                of dollars)**                                                        |   | **Six                Months Ended****June                30,** |
|------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------|
|                                                                                                 |   |                                                           | **2006** |   |   | **2****005** |   |
| Finance                receivable and operating lease fees (including late                charges)   |   | $                                                              | 30 |   | $ | 25 |   |
| Gain                on sale of receivables and securities                                            |   |                                                           | 14 |   |   | 16 |   |
| Miscellaneous                other revenue, net                                                      |   |                                                           | 4 |   |   | 8 |   |
| Income                related to retained interests in securitized retail                receivables |   |                                                           | 8 |   |   | 7 |   |
| Service                fee income on sold receivables                                                |   |                                                           | 6 |   |   | 6 |   |
| Forward                points on foreign exchange contracts                                          |   |                                                           | 4 |   |   | 5 |   |
| Partnership/dividend                income                                                           |   |                                                           | 2 |   |   | 5 |   |
| Currency                exchange gain/(loss)                                                         |   |                                                           | 2 |   |   | (1 | ) |
| Net                gain on returned or repossessed equipment                                         |   |                                                           | 1 |   |   | 10 |   |
| Total                other revenue                                                                   |   | $                                                              | 71 |   | $ | 81 |   |

**EXPENSES**

**PROFIT**

**REVIEW      OF CONSOLIDATED STATEMENT OF FINANCIAL POSITION**

**ASSETS**

**TOTAL      OFF-BALANCE SHEET MANAGED ASSETS**

| (**Millions                of dollars)**                      |   |   | **June                30,****2006** |   |   | **June                30,**2**005** |   |
|--------------------------------------------------------------------|--------|--------|-------------------------------------|--------|--------|-------------------------------------|--------|
| Installment                sale contracts securitized              |   | $      | 1,542                               |   | $      | 1,245                               |   |
| Finance                leases securitized                          |   |   | 68                                  |   |   | 61                                  |   |
| Less:                retained interests (included in Other assets) |   |   | (64                                 | )      |   | (71                                 | )      |
| Off-balance                sheet securitized retail receivables    |   |   | 1,546                               |   |   | 1,235                               |   |
| Wholesale                receivables sold                          |   |   | 240                                 |   |   | 240                                 |   |
| Other                managed receivables/leases*                   |   |   | 294                                 |   |   | 163                                 |   |
| Total                off-balance sheet managed assets              |   | $      | 2,080                               |   | $      | 1,638                               |   |

| **(Millions                of dollars)**         |   |   | **June                30,****2006** |   |   | **June                30,****2005** |   |
|-------------------------------------------------------|--------|--------|-------------------------------------|--------|--------|-------------------------------------|--------|
| Finance                leases                         |   | $      | 95                                  |   | $      | 89                                  |   |
| Installment                sale contracts             |   |   | 59                                  |   |   | 27                                  |   |
| Operating                leases                       |   |   | 115                                 |   |   | 31                                  |   |
| Retail                notes receivable                |   |   | 25                                  |   |   | 16                                  |   |
| Total                other managed receivables/leases |   | $      | 294                                 |   | $      | 163                                 |   |

**ALLOWANCE      FOR CREDIT LOSSES**

| **(Millions                  of dollars)**                 |   | **Three                Months Ended****June                30,** | **Six                Months Ended****June                30,** |
|-----------------------------------------------------------------|--------|------------------------------------------------------------------|----------------------------------------------------------------|
|                                                            |   |                                                             | **2006**                                                       |   |   | **2005** |   |   | **2006** |   |   | **2005** |   |
| Balance                at beginning of the period               |   | $                                                                | 309                                                            |   | $ | 283 |   | $ | 302 |   | $ | 278 |   |
| Provision                for credit losses                      |   |                                                             | 21                                                             |   |   | 20 |   |   | 33 |   |   | 36 |   |
| Receivables                written off                          |   |                                                             | (16                                                            | ) |   | (9 | ) |   | (28 | ) |   | (18 | ) |
| Recoveries                on receivables previously written off |   |                                                             | 4                                                              |   |   | 6 |   |   | 8 |   |   | 10 |   |
| Adjustment                related to sale of receivables        |   |                                                             | (12                                                            | ) |   | (11 | ) |   | (12 | ) |   | (12 | ) |
| Foreign                currency translation adjustment          |   |                                                             | 4                                                              |   |   | (5 | ) |   | 7 |   |   | (10 | ) |
| Balance                at end of the period                     |   | $                                                                | 310                                                            |   | $ | 284 |   | $ | 310 |   | $ | 284 |   |

**TOTAL      PAST DUE FINANCE AND RENTS RECEIVABLES **

----

**UNAUDITED**

**CAPITAL      RESOURCES AND LIQUIDITY**

| **(Millions                of dollars)**                   |   |   | **June                30,****2006** |   |   | **December                31,****2005** |   |
|-----------------------------------------------------------------|--------|--------|-------------------------------------|--------|--------|-----------------------------------------|--------|
| Medium-term                notes, net of unamortized discount   |   | $      | 16,824                              |   | $      | 16,180                                  |   |
| Commercial                paper                                 |   |   | 4,489                               |   |   | 4,235                                   |   |
| Long-term                bank borrowings                        |   |   | 617                                 |   |   | 576                                     |   |
| Variable                denomination floating rate demand notes |   |   | 491                                 |   |   | 505                                     |   |
| Short-term                bank borrowings                       |   |   | 255                                 |   |   | 257                                     |   |
| Notes                payable to Caterpillar                     |   |   | 171                                 |   |   | 199                                     |   |
| Loans                from a company-owned partnership           |   |   | 8                                   |   |   | 8                                       |   |
| Total                outstanding borrowings                     |   | $      | 22,855                              |   | $      | 21,960                                  |   |

***Medium-term      notes.***

***Commercial      paper.***

***Revolving      credit facilities.***

***Variable      denomination floating rate demand notes.***

***Variable      amount lending agreements with Caterpillar.***
* *

***Bank      Borrowings.***

***Off-balance      sheet arrangements.***

***Cash      flows.***
** **

**CRITICAL      ACCOUNTING POLICIES**

**Residual      Value**

**Allowance      for Credit Losses **

**FORWARD      LOOKING STATEMENTS**

----

**UNAUDITED**

**ITEM      4. CONTROLS AND PROCEDURES**

**Evaluation      of disclosure controls and procedures**

**Changes      in Internal Control over Financial Reporting**

**Plan      for Remediation of Material Weakness**

**PART      II. OTHER INFORMATION**

**ITEM      1. LEGAL PROCEEDINGS**

**ITEM      1A. RISK FACTORS**

**ITEM      5.  OTHER INFORMATION**

**ITEM      6. EXHIBITS**

| Exhibit                No. | Description                                                                                                                                                                                                                                                                                                                                                                                                                               |
|----------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 12                         | Statement                Setting Forth Computation of Ratio of Profit to Fixed Charges of                Caterpillar Financial Services Corporation and subsidiaries. The                ratios                were 1.66 and 1.71 for the six months ended June 30, 2006 and 2005,                respectively.                                                                                                                           |
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 31                         | Certifications                of Kent M. Adams, President, Director, and Chief Executive Officer                of                Caterpillar Financial Services Corporation, and Edward J. Scott,                Executive                Vice President and Chief Financial Officer of Caterpillar Financial                Services Corporation, as required pursuant to Section 302 of the                Sarbanes-Oxley Act of 2002. |
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 32                         | Certification                of Kent M. Adams, President, Director, and Chief Executive Officer                of                Caterpillar Financial Services Corporation, and Edward J. Scott,                Executive                Vice President and Chief Financial Officer of Caterpillar Financial                Services Corporation, as required pursuant to Section 906 of the                Sarbanes-Oxley Act of 2002.  |

----

**SIGNATURES**

| **Date:**August                2, 2006** ** | **By:**** **/s/                Steven R. Elsesser** ** |
|--------------------------------------------------|------------------------------------------------------------------|
|                                             | Steven                R. Elsesser, Controller                    |

| **Date:**August                2, 2006 | **By:**** **/s/                Kent M. Adams** **                                   |
|----------------------------------------|-----------------------------------------------------------------------------------------------|
|                                   | Kent                M. Adams, President, Director, and Chief Executive                Officer |