Good morning ladies and gentlemen, and welcome to the Caterpillar First Quarter 2013 Earnings Results Conference Call. At this time, all lines have been placed on a listen-only mode and we’ll open the floor for your questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Mr. Mike DeWalt. Sir, the floor is yours.

Thank you and good morning and welcome everyone to our First Quarter earnings call. I’m Mike DeWalt, Caterpillar’s Corporate Controller. On the call today, I’m pleased to have our Chairman and CEO, Doug Oberhelman; and Group President and CFO, Brad Halverson. This call is copyrighted by Caterpillar Inc. and any use, recording or transmission of any portion without the expressed written consent of Caterpillar is strictly prohibited. If you would like a copy of today’s call transcript, we will be posting it in the Investors section of our caterpillar.com website, and it will be in the section labeled Results Webcast. This morning we’ll be discussing forward-looking information that involves risks, uncertainties and assumptions that could cause our actual results to differ materially from the forward-looking information. A discussion of some of the factors that either individually or in the aggregate could make actual results differ materially from our projections can be found in our cautionary statements under Item 1-A, that’s Risk Factors, of our Form 10-K filed with the SEC on February 19 of this year, and also in the forward-looking statements language contained in today’s release. In addition, there’s a reconciliation of non-GAAP measures and it can be found in our financial release which has also been posted on our caterpillar.com website. Okay. Before we start this morning the Q&A, I’ll begin by covering three topics. The first will be a summary of our first quarter results. Then I’ll take a few minutes to discuss the outlook for 2013. And then the third topic will be our announcement this morning there will be repurchasing stock in the second quarter. So let’s start with results. Without a doubt it was a challenging first quarter. When we started 2013 we expected it would a tough quarter and that’s why we had…

(Operator Instructions). Our first question today is from Jamie Cook. Please announce your affiliation and then pose your question.

First question on mining and then second on share repurchase. You know on the mining side you are assuming, just your core mining down 50 and BUC only down 15%. And then I guess assuming a sort of down 50% mining this year, how do you put that into context versus short of normalized levels going forward, because obviously everyone is trying to figure what 2014 could potentially be. And then I guess, Doug, my question to you on sort of the change in thought process behind share repurchase, before that didn’t seem like a focus for you and how do we think about normalized CapEx and then do you assume share repo in your guidance. Thanks.

Jamie, I will start with the first part of that and I will let Doug do the second part. First part on mining, I just want to clarify, we are not looking for our total mining sales to be down 50%. Aftermarket is going to be certainly our outlook a lot closer to flat. Bucyrus piece of it is down about 15%. So in the aggregate it's not down 50%, it's just new machines. Big trucks, loaders, bulldozers and the like. In terms of what's normal, man, if I look back over the last few years in mining, it's a little tough to decide actually what's normal. I think this year is a year where our sales are certainly being impacted by dealer inventory reductions. Last year in addition to the end user demand dealers built some inventory in mining. So that’s a factor certainly in 2013, as well as kind of the demand levels from customers.

No, I know Mike, but just to clear I did phrase the question right. I understand that it was more new machines down 50% and I assumed aftermarket would be better, but why BUC only down 15%. You know what I mean, I would assume though...

Well, I think if you look at the tradition of Cat machines, you do have a dealer inventory impact that you don’t really see with the Bucyrus machines. And I think the Bucyrus machines are more specific, I mean they are not --- they order them in smaller quantities and more specific to products individually that are maybe being retired in a mine. Historically, this has been the case. We saw this, when we looked to acquire Bucyrus we saw that even in the 2009 downturn the decline in that type of product was less then we saw in trucks and bulldozers and such. And I do want to get back to one of the points that you made to, and that’s on 2014. And I am sure we will, in the course of the next couple of months get a lot of questions about what does this mean for 2014. And that’s a really hard question to answer at this juncture. I mean certainly we don’t have an outlook for 2014 so we are not going to -- we are not going to go out with new assumptions about that or assumptions about that today. And what I would caution everybody that I think about just a little bit is, if we go back a year ago and we put ourselves in April of 2012, whatever predictions we made a year ago about 2013, the market has certainly changes since then. It may change between now and the end of the year, it may not. It's just too soon, I think, to make a call on 2014, other than just a couple of points that in fact we made this in our release today. Dealer inventory changes our impact of this year’s sales. So the real end user demand level is not quite as bad as all our production and sales level. Once you get through that, it stops being a drag. Secondly, commodity demand overall has held up reasonably well and our machines are being used in the field. Most of what we sell is for replacements and at some point here that’s going to have to perk back up. So sorry I can’t be more specific on 2014. With regard to the second question on share buyback, I’ll turn it over actually to Brad.

That’s a good question and the fact is our priorities as Mike just talked about have not changed. We think stock repurchase is an important way to reward shareholders and we’ve done it in the past and that’s been part of the things that we look at. So the question is why now. Our balance sheet is very strong. We think with the drop in stock price recently and where our P is, the fact that we believe we have a slow growing economy but one that’s stable, if you look at our debt to cap in the mid-30s, we’ve got enterprise cash of around $6 billion and a pretty strong net debt to cap. We had a good cash flow quarter. We have plans for a good cash flow year and we think again this is an opportunistic time here in the short term to reward our shareholders with $1 billion stock buyback.

But Brad is there anything assumed in the guide?

Say that again?

What do you assume in the guide level? Do you assume the $1 billion in share repurchase? Is that in the guidance or not?

Yes it is.

It is? Okay.

$0.06 to $0.07 a share, something like that.

Okay, thanks.

I would just add a couple of quick notes on this, Jamie. Doug here. We have been intensely focused on investing in the company the last now four and a half, five years since the recession, but the thing that’s probably been the overriding objective is to make our balance sheet rock solid impenetrable and the first quarter we saw is the fourth of last year, the inventory reduction really came through the levels that we were expecting that we wanted. The organization has responded to cost control. First quarter cash flow was outstanding. That all coupled with again a debt to equity rate -- debt to cap ratio of upper 30s and if you factor in the cash it’s below 30. We contrast that back to the middle of ’08 or this time in ’08 we were much more fragile on the balance sheet. Coupled with as Brad said the multiple it’s an attractive use of our cash right now and it’s really that simple and I think it makes a lot of sense. Frankly should see the same about how we look at 2013 and the longer term because I know we have a lot of questions around mining and where is all that going.

No, that’s great. Thank you.

Our next question today is coming from Stephen Volkmann. Please announce your affiliation then pose your question Stephen Volkmann - Jefferies & Company: It’s Jefferies. A couple of quick ones Mike just to follow up on your inventory comment. You said that inventory reduction would probably continue into the second quarter, just order of magnitude ether if you might have it. And I am curious if you could break that out between mining and the construction businesses. And then I have a quick follow up for Doug.

Okay. Actually I am going to go slightly beyond what you just asked. Frequently, when we talk about inventory sometimes there is, if you are not careful you can get some confusion between company inventory and dealer inventories. So I really want to address both. From a dealer inventory standpoint, our projections have it coming down again in the second quarter. And historically, that didn’t happen last year but historically that’s the usual pattern. You know dealers normally build inventory in the first quarter and it comes down in the selling season when sales to end users are a lot higher in the second quarter. I think our view is that, that at least the selling down part of it in the second quarter in the selling season is likely to happen. I won't put an order of magnitude on it but I think to a large degree it depends upon what happens to end user demand. But it's probably more than a couple of $100 million otherwise we wouldn’t have mentioned it. So a reasonable decline. And I think probably in the second quarter, it will be split between mining and construction. It's a big selling season for construction plus we have this sort of march down of dealer inventory in mining that to some degree will probably occur throughout much of 2013. For Cat inventory, we do expect a little bit more decline for the year. You know we would not expect to do three more quarters of $0.5 billion a quarter. So over the course of the rest of the year we would see reduction but a little bit lower than the pace we had in the first quarter. Stephen Volkmann - Jefferies & Company: Okay. Great. And then if I could, Doug, when we were out visiting in December, correct me if I put the wrong words in your mouth, but I think you had mentioned that you were willing to run with a little higher expense than you might otherwise, because you did believe that things were going to recover fairly soon and you didn’t want to kind of cut in the muscle and not be able to take advantage of any upturn that might come. And I think you sort of said that you would re-evaluate that as we got through the spring. And I am curious now whether you think there is more you need to do on the cost side, whether you might change that view or whether you still think that that’s the right stance here.

Yeah, sure, Steve. And I would say the answer is split. In the case of construction we are seeing an uptick. We have been watching relatively flat but slightly increasing sales to users, for a number of months we saw that March. Saw it in the first quarter. You saw the backlog number. So we have been reluctant to go to the bone in construction and have not. Now we have got a number of restructurings occurring around the world in that but it's unrelated to volumes, it's related to structural costs. I am talking about Europe. In mining, yes, we are doing absolutely everything required to get that cost structure in line with where we are in the cycle and the Resource Industries mining guys, people have done a great job on that so far. Where are we on all of that, hard to say but certainly the number of temporary layoffs we have, both in production and office staff around the world of the temporary nature. We have had a few announcements of something more permanent fairly on the miner’s side. But basically we will go as far as we need to go to generate the OPAC targets we want and to deliver kind of the goals we have stated. So, so far it's a pretty mix bag of those, Steve. And I can give you a nice ambiguous answer because that’s exactly the way we are operating -- Mining deep, construction industry is growing.

Yeah, and I might add just some more comments, this is Brad. You know when we look at 2013 for the full year, we had strong confidence in our ability to execute. And if you look at the pull through kind of on a decremental rate for the year, it's around 25%. And it's around 25% despite the fact that we had two decent headwinds and that the mining mix in terms of where the sales are coming out, as well as the period cost absorbs the impact that Mike has talked about. So our plans, our trough plan is a flexible workforce. The things we’re doing to control costs here have put less pressure on things like R&D and capital that would have been in the past. So we’re comfortable with the year.

Our next question today is coming from Joel Tiss. Please announce your affiliation then pose your question

Bank of Montreal. Just two things. One, can you give us an idea by the end of 2013 how big mining is going to be as a percent of total company revenues and operating profits? Just so we can start to -- as mining shrinks faster than the company, it becomes less and less of a factor driving the whole company. So I just wanted to get a sense of where we are.

I think as a percent it will be down a little bit from last year. I don’t have a percent to give you Joel, but if you look at our results from last year, essentially almost all of the decline in year over year sales are out of mining or are at Resource Industries. Not quite 100%, but almost. So if you can calculate at least the sales numbers presuming that most all of the year over year decline is in resource. I think in terms of profit Resource Industries is still very good margin segment and as Brad said we’re and Doug both, we’re doing a lot of work on getting cost out of Resource Industries. So that would mitigate some of the impact of the decline from sales. Hope that helps some.

And then free cash flow expectation for all of 2013 roughly?

We don’t actually go out with a forecast of cash flow that we talk about externally. Suffice to say that inventory was a drag from last year. This year it should be a help. So that’s quite a turnaround I think in cash flow from inventory being a contributor rather than a user. And then in terms of free cash flow our CapEx requirements likely to be down as well year over year $400 million, $500 million.

Yeah. While we don’t put out a number with where we are on inventory with our outlook on PPS, we’ll have a substantially better picture of 2013 than 2012. I think we can say that and say we’re pretty confident about it.

Our next question today is coming from Andrew Casey. Please announce your affiliation then pose your question

customers:

Yeah. Andrew, I think to some degree it’s probably both. There have been quite a bit of management change with some of our big customers and I think it’s clear they are the new management is much more focused on operating costs, short term cash flow. They’re splitting their assets a bit and that’s stacked up against the last few years where they were very focused on growth, a lot of new mine work. I think it’s just probably both management and the fact that they’ve actually bought quite a bit of equipment over the last couple of years. So I think it’s both and I think if you look at our sales you also have to throw in dealer inventory. We actually produced more last year than customers bought. Customers will buy more this year than we’ll produce. It’s the opposite. So the swing between those two is an extra negative on us that our customers aren’t seeing. You know if you look at our thinking around aftermarket for the full year, kind of part sales, that a decent proxy at least in our world for production levels with customers and how they are behaving. And our view that with the exception again of U.S. coal mining, that part sales in that mining kind of business will be pretty flat. So that says that customers are using the equipment that’s out there and they are repairing the equipment that’s out there. It's not a great economic climate but it's good enough to keep commodity production going.

Okay, thanks Mike. And just one follow up on that. It's based on what you are seeing on the customer CapEx trends. Has this happened for a while or is this more similar to something we have got to go back 20-30 years to see?

Well, I have not seen quite like this in my time, I don’t know, and I am one of the oldest sitting around this table. And actually Doug is couple of years older than me. In my time I have not seen this. I mean the reduction in the purchase of new equipment is substantially more than certainly the decline in commodity consumption would suggest. So that’s again making it pretty tough on those. We will be a point this year, you know if you look at our boost to the mining truck production as an example. We have taken the forecast down to a point where we are likely to be for large mining trucks only a couple of hundred about 2009, which was a terrible year for the world's economy. Big down year, financial crisis, kind of freeze up in a lot of markets. So it's pretty dramatic what we are seeing right now.

I would answer that a little bit more broadly, and that is just addressing cycles. And I have been here longest in this room anyway and I have seen cycles from Argentina to Alberta to the great crash of '09. And the one thing I guess if there is any silver lining in it since 2001 really is, this is the from ['97] probably the fourth or fifth major cycle for this company. And I would like to think as kind of negative and perverse as it is, we are getting pretty good at it. And while I don’t like a three-year cycle, that is from '09 from '12 or '08 to '12, I guess, three-four years. If that’s what we are living with, we are going to learn how to manage it. And the Resource Industries Group led by Steve Wunning and his crew right now are doing everything they know what to do, to size that for the cycle. And we will take that right on through any other of the businesses we have as well. And that’s very hard on our people. It's very hard on our shareholders, it's hard on everybody. But if you look our performance through '09, so far I am very happy with where we are. Brad mentioned that pull through decrement in this case is kind of what we would expect on, that we have been enjoying on the upside. And fortunately we are getting pretty good at these cycles and when it comes back we will even be, I think better at pulling that through on the other side of this. So that may be the perverse reality of what we are seeing here Andy.

Our next question today comes from Andrew Kaplowitz. Please announce your affiliation and then pose your question.

Mike, you talked about backlog already. It did improve sequentially. You mentioned that this was really a result of construction and power systems offsetting Resource Industries. Do you think this was an inflection point in these businesses? And what's hard for us is we see, at least in the first quarter, construction and power systems were pretty weak. Some of that was inventory. And so, how do we look at those businesses versus the backlog increase offset by the weakness in the first quarter.

Yeah, Andy, I don’t know if it's an inflection point. I think that given what we have in our outlook for mining, I suspect that the backlog for mining will probably inch down. But what we saw in the first quarter was actually pretty strong order rates out of construction. Order rates for construction, for example, were better than the first quarter a year ago. Our production was down. Dealers were cutting inventory. We have a pretty decent build in construction backlog. I don’t know if that’s an inflection point. Our predictions around end user demand for construction as Doug said are stable to moderately better this year. So it’s not like we’re expecting a big increase year over year. We’re just not seeing the kind of declines that you’re seeing in mining. But all that said, it was a pretty strong quarter for orders outside of mining better than a year ago and that’s a good thing. Hopefully it is signaling a trend. We’ll see.

Yeah. I would just throw in some maybe further clouding of the tea leaves to your question whether this is an inflection point or not. But many of you are aware and some of you were at Bauma last week in Munich, I was there for an extended period of time, some interesting statistics out of the Bauma show. Record attendance by a long shot, record exhibitors, record waiting list of exhibitors to come in and record machine sales by our dealer anyway inside Germany. You wouldn’t think you’d hear that in Europe in this day and age. And so while all that was great news, off the chart news, there was other stories in Europe that led us to indicate that there is no end in sight in Europe either. But it’s just a tough time to read the tea leaves and I’d like to think this quarter or last quarter, this quarter whatever it might be an inflection point, but it’s just too hard to say. We’re taking it day to day. We like what we saw in the first quarter in terms of our backlog. We like what we see around the world with sales to users, but it’s certainly not a boom.

Well, that is good to hear Doug. Mike, maybe if I could switch back to Resource Industries in the margin sense, decremental in the quarter were expectedly high. You talked about how you were going to mitigate that going forward. Can you talk about precise competition within the segment? Are you finding -- have you had to bundle equipment more against competition? Is there any discounting going on in mining right now? Maybe you can just talk about pricing within Resource Industries.

I think whenever the subject of pricing comes up, whether it’s Resource Industries or construction or impacts of the Yen at 100 or something close to 100, the reality the real world is it’s not instantaneous. It doesn’t usually change by a big amount. Our first quarter with Resource Industries, Power Systems, Construction, all of them were plus minus, pretty close to a 1% increase for the year. That’s what we said four months ago for the outlook for the year. The first quarter was spot on our internal plan for pricing. So it’s less than last year. If you look at Resource Industries last year, pricing was up a bit more than that for this year. It’s definitely a positive territory, but not as big as last year. So I think -- I’m not trying to suggest that low volume has no impact, but certainly in our business and probably for a lot of our competitors a lot of the pricing that we have are under long term agreements that we have with customers. So during times when demand is really high and maybe otherwise you would go out and get more or at least have the ability to -- those long terms agreement are mitigate a little bit on the upside and mitigate a little bit on the downside. So pricing doesn’t seem to be -- doesn’t swing in big increments from plus to minus. In fact even in 2009 when sales dropped like 40% in total, price realization ended up being a positive for the year. And in this first quarter our sales and revenues down 17%, we’re positive 1% on price about as we thought. So I think realistically it’s not that there aren’t competitive pressures. There are big competitive pressures all the time, but I think the net impact is probably less volatility than most people think.

Our next question today comes from David Raso. Please announce your affiliation and then pose your question.

On the Resource Industries, the sales guidance for the year seems to be implied around down 20%. If I look at the first quarter revenues and just run that out flat sequentially, given the backlog is down sequentially, it's not necessarily a layup, but that would give me though revenues down for the year of 31%. So I am just trying to understand, what gets better sequentially in Resource Industries to get you back to full year down 20%. I guess maybe less inventory destock. I am just trying to square those two numbers off. What gets better sequentially in Resource Industries to get the full year to down 20%, not the 31% if it's just flat sequentially.

David, we didn’t give it down 20% for Resource Industries. I think kind of what we have been saying is, last year our total sales and revenues were about 65. It certainly is a midpoint of this year's outlook, we are looking out at -- the new outlook we are looking at 59. And essentially all that is, the down is the resource industry. So I think it will be more than 20%. I think if you look at the first quarter and then second, third, fourth quarter, kind of the movement through the year and what's likely to happen there, I think the negative impacts from dealer inventory build last year, kind of continued throughout the year but are actually positive for last year. Absence of and further declines this year on dealer inventory. We will probably start tailing off the fourth quarter, for example we didn’t have the same kind of dealer inventory builds. From just a production standpoint, from the orders we have received, orders on hand, kind of the production trend for the year, if you were to look inside of our production schedules we are not presuming any big upturn in orders rates. Our forecast doesn’t need that. I mean it's not that we are forecasting no new orders, but it's very modest. So much of the year is in the order book already for big machines. So I guess in answer to your questions, dealer inventories impact plus the full year decline is probably more than the 20% you are thinking.

That’s an important distinction, Mike. Because obviously who want to own the stock want to, I want as much negative mining news baked already into the guidance. So just to be clear....

Well, there is quite a bit baked in.

I hear you, but if construction is up only 3% and power is flat, and others is going to be down with the logistics gone but also just say core down a little, it's not a big business. Resource industry needs to be down only 20% to hit your revenue number. If you are saying it's down larger than that, you are implying better from construction and power. Which given the mix the people are looking for, again, they want as negative Resource Industries in the guidance as possible. But to help us understand the math, because the math is, Mike, basically down 20% in Resource Industries, the full year number. Can you maybe give us a little more clarity on how you are thinking about construction industries and power systems on the revenue then?

Yeah, so I will go back. You know we have about $6 billion decline from actual 12 to midpoint of the guidance. That’s $6 billion that is essentially out of Resource Industries which is mining. So I think that’s more than 20%.

So the bump up it sounds a little construction industries, power being down 12% for the quarter, getting the full year flat. Initially looked challenging but you did cite the backlog is up in power sequentially. Did I hear that correctly?

Yeah, and construction.

And construction. And last quick one, the loss on that power project in the first quarter, can you quantify it for us so we have some better understanding of the underlying power systems margin for the quarter. And is that loss completed, done? It's in the first quarter and there is no lingering going forward?

Yeah. Well, we weren’t specific to a customer. We certainly have confidentiality agreements with customers. But it was a big, a quite large project. It hasn’t been delivered yet. It's our expectation that the first quarter contains whatever -- we don’t expect any continuing losses as a result of that project throughout the year. So it’s a loss in that context it’s contained in the first quarter. I think in the scheme of our total results and probably in the scheme of the size of profit for power systems, it’s not a big material item certainly for the company. But in the scheme of the profit change it was -- as we looked at all the changes, it rose to a level that we felt like we needed to mention it.

Our next question today comes from Steven Fisher. Please announce your affiliation and then pose your question.

It’s UBS. Wondering how you're thinking about EPS ranges at the high end and low end of your sales guidance range. And if you can't give any kind of point estimates, I guess with the narrower sales range, should we assume that your EPS range is going to be narrower than $2.00 a share, or is the margin impact such that it could still be $2.00?

No, I would say it’s not likely to be that wide. If you think about our profit and Brad talked about our expectations for incremental and decremental margins, our order magnitude in and around 25%. Now in the first quarter it was worse than that because we had a sizeable impact from inventory absorption. I think if I were looking at our range, that’s probably from an operating profit standpoint thinking about roughly speaking 25% ish up and down is probably a reasonable change or I mean kind of a reasonable assumption to do and that would give you a profit range less than $2 certainly.

Okay. And then you mentioned that order rates in Construction improved. Can you maybe just give a little more color on that by geography, and I guess by country, is what I'm thinking and then maybe within North America, is there any way to give some color on end market, be it highway versus housing versus commercial or anything else?

I think it was actually fairly widespread, but I think the better way to think of it is order rates in the fourth quarter were quite low as dealers were trying to lower inventory. So they really drop order rates quite a bit in the fourth quarter really to get us to produce and ship less to them so they can take inventory down, which happened in the first quarter. During the first quarter the dealers raise order rates and I’m going to say largely across the board because what they had already done to lower inventories for the most part has been played in. there will be more inventory reduction I think come in the second quarter in construction a bit. But order rates have moved back up to be certainly more in line. Remember too that the second quarter is a pretty high quarter seasonally for dealer delivery sales to end users. So they’re already more pretty much across the board for that. If I could think of exceptions by country I would tell you, but I think for construction it was pretty widespread.

Our next question today comes from Jerry Revich. Please announce your affiliation and then pose your question.

It’s Goldman Sachs. Doug, you've ramped up CapEx earlier in this cycle than what we've seen from CAT in the past. I'm wondering if you can talk about how we should think about CapEx beyond 2013 as we get past Tier 4 final and if you could touch on what type of projects you are trimming in the CapEx guidance this year, as that has implications throughout your CapEx, that would be helpful. Thank you.

I’d say we’ll see how the cycle goes here, but I’d like to -- we have seen, I don’t know, 4 billionish. It's a high end, we are down now under 3 I guess for this year. That’s going to cycle with where we are. The good news, and I would say for '13 and '14 and maybe into '15 is that the modernization we have done with our plants, the investment we have put in, the restructuring around the world, should get us through here for a couple of years regardless of whatever comes to us. And even minimal growth we are well poised for. We are concentrating on market share. If things pick up there, we can serve the market. So we are in really good shape when it comes to CapEx. But I would see it cycling up a bit if we see recovery kind of across the border in the next few years. Kind of in line with where we have been.

Okay. And Mike in power systems, can you flush out for us what you are seeing in the first quarter orders? It doesn’t sound like you saw the order pressures that you saw in locomotives but maybe you can add some color there and touch on what you are seeing from bookings and electric power. Thank you very much.

Yeah. Actually the industrial businesses improved some, so the order rates for industrial are up. Electric power has remained pretty weak. The oil and gas business has been kind of mixed. The drilling and fracing piece has been down, compression has been pretty good. Solar has actually a very good order book for the year. So I think if what you are trying to do is kind of gauge how the year is shaping up for electric power, I think we have -- we are probably most pessimistic on electric power, particularly the small end of that. Fairly neutral to positive on the oil and gas business and solar as well, the big end of that. There is some sign that marine and industrial are starting to do a little bit better. And to your point, rail, actually overall in the first quarter was, certainly from the sales standpoint, fairly similar to a year ago. They have a pretty decent order backlog in rail. You know that’s a business that we have done pretty well in. We have worked pretty hard on the cost structure, customers are buying more from us. I saw here just recently where GE is scaling back some production. So I think all in all, we have done pretty well in rail. So in the context of full year business that’s relatively neutral in our outlook with 2012, you got industrial that’s starting to look a little better. Marine, maybe a little bit better. Electric power, down. Oil and gas, back up.

Our next question today is coming from Seth Weber. Please announce your affiliation and then pose your question.

I was wondering if you could just circle back on the mining business again. The sequential increase in the parts business in the quarter, I mean you kind of touched on that U.S. coal is off, but can you tell us where that increase is coming from, where you are seeing some relative strength?

Yeah, I think coal is actually a good market to look at. If you look at coal versus the first quarter a year ago was down, but production has been edging up. It looks like utility output is up a bit. It looks like coal's percentage of utility production is up a bit. You have got record coal exports from the U.S. So while it's still a little bit below what was a year ago, coal production is kind of trending up a little bit and that has been, I think, a little bit of a positive certainly in the mining piece of it.

Okay. Any of the other commodities, any color there?

On aftermarket, I don’t know. I mean the numbers, once you get outside of the U.S., the overall parts numbers are plus or minus. They are not dramatically different. So it would be hard to get a read from it. I think if you look at commodity production generally, it's by and large up a little bit, not dramatically. So I'm just guessing here when I say this, but I would suspect outside the U.S. coal, there's probably not a lot of change.

Okay. If we could switch over to the planned increase in production in China, I mean, could you give us a little bit more color what you're seeing there? Is Cat just outperforming the market? Do you feel like the industry is going to be more disciplined this time going forward? Or what gives you confidence to start raising production there on the Construction side?

Yeah, I think there's two things. I think the fundamental one is that we've spent almost a year getting inventory down. So we've had production levels that are well below real end-user demand levels to work down inventory. Inventory is down to a point where -- not quite yet, but probably in the next month or so it'll be getting to a level where we're not looking to take it down more and so then the production will come back. So I think most of the increase in China production is because we're getting to the end of the inventory decline or hopefully anyway over the next quarter. But I think also mixed in there, certainly for the mid-size excavators in the marketplace, we're actually doing a little bit better than the market overall. So that's been a positive for us as well. Thanks everyone. We're kind of at the end of our hour right now. So thanks for joining us and we'll sign off.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.